Mark Latham Commodity Equity Intelligence Service

Thursday 2nd February 2017
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    U.S. factory, private payrolls data point to firming economy

    U.S. factory activity accelerated to more than a two-year high in January amid sustained gains in new orders and raw material costs, pointing to a recovery in manufacturing as domestic demand strengthens and the drag from low oil prices ebbs.

    Other data on Wednesday showed private employers boosted hiring last month. While construction spending slipped in December, the underlying trend remained strong. The signs of strength in the economy at the start of the year were acknowledged by the Federal Reserve's policy-setting committee.

    At the end of its two-day meeting on Wednesday, the Fed said it expected that economic activity would expand at a "moderate pace," and the labour market strengthen "somewhat further."

    The U.S. central bank, which has forecast three rate hikes this year, kept its benchmark overnight interest rate unchanged in a range of 0.50 percent to 0.75 percent. The Fed increased borrowing costs in December.

    "The economy is off to the races with the wind at its back. The Fed will lift rates three times in 2017 for sure, and maybe they might need to add a rate hike or start the year earlier with a policy firming in March," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

    The Institute for Supply Management (ISM) said its index of national factory activity increased 1.5 percentage points to a reading of 56.0 last month, the highest since November 2014 when oil prices started collapsing.

    A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. Some of the increase likely reflects a surge in business confidence following last November's election of Donald Trump as president.

    Trump has pledged to cut taxes and reduce regulations. The business mogul-turned politician, who was sworn in as president on Jan. 20, has yet to offer more details about the anticipated fiscal stimulus package.

    Manufacturers' comments on business conditions last month ranged from "good" to "stronger." Some described demand as "very" steady and others reported that sales bookings were "exceeding expectations."

    The ISM's production sub-index increased 2.0 percentage points and a gauge of new orders edged up 0.1 percentage point, reaching its highest level in just over two years.

    A measure of factory employment jumped 3.3 percentage points to its highest level since August 2014, suggesting factory payrolls likely rose in January for a second straight month.

    Manufacturers reported paying more for raw materials. That was the 11th consecutive monthly increase, indicating inflation pressures at the factory gate could be building up. The ISM's prices index jumped 3.5 percentage points in January to its highest level since May 2011.

    The dollar rose against a basket of currencies on the data, but gave up some the gains following the Fed's rate decision. Prices for U.S. government bonds fell. U.S. stocks were trading slightly higher, reversing earlier losses.

    "If higher prices in the goods-producing sector were sustained, this would likely help reassure Fed officials that inflation will reach and maintain its two percent target," said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

    "However, the strong dollar will likely help keep a lid on inflation."


    A collapse in oil prices in 2015 and a surge in the dollar weighed on manufacturing for much of last year, with most of the pain coming through sharp cutbacks in business spending on equipment. Oil prices have since risen above $50 per barrel, lifting some of the fog off manufacturing.

    The manufacturing rebound was also underscored by a separate survey on Wednesday from data firm Markit.

    The government reported last Friday that business spending on equipment increased at a 3.1 percent annualized rate in the fourth quarter, the first rise in over a year.

    January's data so far suggests that the economy is poised for an acceleration after gross domestic product increased at a 1.9 percent annualized rate in the fourth quarter. The deceleration from the third quarter's brisk 3.5 percent pace reflected a wider trade deficit.

    Separately on Wednesday, the ADP National Employment Report showed private employers added 246,000 jobs in January, up from 151,000 in December. The report, jointly developed with Moody's Analytics, came ahead of the Labor Department's more comprehensive employment report on Friday, which includes both public and private sector payrolls.

    The ADP report has a spotty record predicting the private payrolls component of the employment report because of methodology differences. Still, economists said the ADP report and the jump in the factory jobs measure of the ISM survey raised the possibility that January nonfarm payrolls could beat expectations.

    "While we wouldn't dismiss the strength of the ADP number entirely, we would treat it with some caution, particularly in January," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

    According to a Reuters survey of economists, nonfarm employment probably rose by 175,000 jobs last month, picking up from the 156,000 jobs added in December.

    A third report from the Commerce Department showed construction spending slipped 0.2 percent in December after shooting up 0.9 percent in November. Construction spending increased 4.2 percent from December 2015.
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    Global energy implications of Tillerson as top US diplomat

    Former ExxonMobil CEO Rex Tillerson was confirmed as US secretary of state Wednesday by a 56-43 Senate vote.

    Tillerson's statements during the nomination process signal how he might handle diplomatic relations and how those decisions could impact upstream oil and gas activity, international pipelines, nuclear energy and other commodity issues around the world. He likely takes office with more knowledge of global energy than any of his predecessors.

    Related: Find more content about Trump's administration in our news and analysis feature.

    Highlights of Tillerson's energy-related comments at his January 11 confirmation hearing:


    Tillerson said recent Russian actions have "disregarded American interests," but the US must keep an "open and frank dialog" with Moscow regarding its ambitions. He said sanctions remain a powerful, important tool of US foreign policy to prevent countries or individuals from taking bad actions or to punish them after the fact.

    "We need a strong deterrent in our hand," he said.

    Related: Jason Bordoff, founding director of Columbia University's Center on Global Energy, talks to the Capitol Crude podcast about what foreign relations will look like with former ExxonMobil CEO Rex Tillerson heading the State Department and more.


    Tillerson said US/EU sanctions against Tehran were "extraordinarily effective because others joined in."

    As for the 2015 deal that lifted sanctions on Iran's oil sector in exchange for nuclear concessions, Tillerson said he shared Trump's view that the agreement needs a "full review" to determine if Iran is meeting its obligations. "No one disagrees with the ultimate objective that Iran cannot have a nuclear weapon," he said. "The current agreement does freeze their ability to progress but it does not ultimately deny them the ability to have a nuclear weapon. My understanding is the current agreement for instance does not deny them the ability to purchase a nuclear weapon."


    Tillerson said China's island building in the South China Sea and declaration of control of airspace in waters over the disputed Senkaku/Diaoyu islands amounted to "illegal actions."

    "Building islands and then putting military assets on those islands is akin to Russia's taking of Crimea," he said. "It's taking of territory that others lay claim to."

    Tillerson said $5 trillion in trade flows through those waters, making the situation a threat to the entire global economy "if China is allowed to somehow dictate the terms of passage through these waters."

    When asked if he would support a more aggressive posture in the South China Sea, Tillerson said: "We're going to have to send China a clear signal that first, the island-building stops, and second, your access to those islands also not going to be allowed."


    Senator John Barrasso, Republican-Wyoming, asked whether the Nord Stream-2 pipeline between Russia and Germany would undermine Western sanctions by making Europe more dependent on Russia.

    Tillerson did not answer the question directly but said rising US oil and LNG exports will help allies.

    "The more US supply, which comes from a stable country that live by our values, we can provide optionality to countries so that they cannot be held captive to a single source or to a dominant source," he said.

    "From a policy standpoint, it's engaging with countries to make sure they understand they have choices and what those choices are. And what can we do in foreign policy to help them gain access to multiple choices so they're not captive to just one or a dominant source."


    Senator Ed Markey, Democrat-Massachusetts, asked if the US should work to reduce oil imports from Saudi Arabia and elsewhere in the Mideast, and whether that would enhance the secretary of state's foreign policy position in the region.

    Tillerson disagreed. "Once a barrel of oil is loaded on a tanker, a barrel of oil is a barrel of oil," he said. "The end consumer doesn't really care where that barrel of oil came from because it's going to be priced in a global market. As long as they have free access to the barrels, and they have the ability to shop around for barrels. That is what's most supportive of their economic activity."

    Tillerson said he supports bolstering US energy security but has never supported energy independence, pointing to Canada as a major supplier of oil imports.


    Senator Tom Udall, Democrat-New Mexico, asked how Tillerson would navigate potential conflicts of interest given ExxonMobil's work with governments all over the world. For example, he said ExxonMobil was asking for tax dollars back from Australia, Equatorial Guinea, Malaysia, Nigeria, Qatar, Russia and the UK.

    Tillerson said he does not expect to take calls from any business leaders. "In my prior role, I never called on the secretary of state directly. I called on the deputy often or the missions, primarily the ambassadors."

    He said he would adhere to a statutory recusal period for any State Department matters that deal directly with ExxonMobil.

    "Beyond that, though, in terms of broader issues dealing with the fact that it might involve the oil and natural gas industry itself, the scope of that is such that I would not expect to have to recuse myself," he said.


    Tillerson said the "risk of climate change does exists, and the consequences of it could be serious enough that action should be taken." But he sparred with several Democratic senators about its link to human activity and whether addressing it should be a State Department priority.

    "The increase in greenhouse gas concentrations in the atmosphere is having an effect," he said. "Our ability to predict that effect is very limited."

    Tillerson said the US should keep a seat at the table of global climate talks to understand the impacts on Americans and US competitiveness.


    Tillerson said a carbon tax represents the best option for reducing carbon emissions. He said he came to the conclusion at ExxonMobil while Congress was considering a cap-and-trade approach, "which in my view had not produced the result that everyone wanted in Europe."

    A carbon tax represents, Tillerson said, a better solution if it has two features: That it is applied uniformly, replacing a hodgepodge of regulatory schemes across the country; and that it is revenue-neutral.

    "All the revenues go back out into the economy through either reduced employee payroll taxes, because there will be impacts on jobs," he said. "So let's mitigate that by reducing the impact, by putting it back into the economy. So none of the money is held in the federal treasury for other purposes."
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    Oil and Gas

    China's 2016 oil demand in the red as GDP growth hits 26-year low

    China's apparent oil demand slipped into the negative territory in 2016, a sharp reversal from the near 7% growth witnessed a year earlier, as the country's slowest GDP growth in 26 years slashed appetite for industrial and transportation fuels in Asia's biggest oil consuming nation.

    A near 25% growth in LPG demand and close to double-digit growth in naphtha and jet fuel demand failed to offset the impact of sharp falls in gasoil and fuel oil consumption, pulling down overall oil demand in 2016 by 0.8% to 11.11 million b/d, compared with a growth of 6.6% in 2015.

    The world's second biggest oil consumer saw a sharp slowdown in demand after GDP growth slowed to 6.7% in 2016 from 6.9% in 2015 and 7.3% in 2014. GDP growth was 3.9% in 1990.

    Although GDP growth was only 0.2 percentage points lower than in 2015, fixed asset investment growth slowed to 8.1% year on year in 2016 from 10% in 2015.

    Industrial production grew 6% in 2016, also lower than the 6.1% growth seen in 2015, data from the National Bureau of Statistics showed.

    These factors together pulled down gasoil consumption in the transportation and construction sectors, resulting in a 5.4% year-on-year fall in apparent demand for the fuel, which accounts for around 30% of China's overall oil products consumption.

    Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly throughput at Chinese refineries and net product imports. But the official data fails to reflect some of the crude throughput increases from the new crude oil consumers -- the independent refineries.

    If output from the independent sector is taken into account, apparent demand last year is estimated to be around 11.34 million b/d, representing 1.3% year-on-year growth, according S&P Global Platts' China Oil Analytics.

    For 2017, analysts expect GDP growth to further soften to 6.5%. The country's think tank, the State Information Center, forecasts international trade will soften amid global protectionism and this will lead to slower growth in the consumption of transportation fuels.

    But oil demand will find some support in infrastructure investment, which according to HSBC will remain a key pillar of growth in 2017.

    COA forecasts China's apparent demand will reach 11.57 million b/d in 2017, a 2% increase against the adjusted numbers for 2016.


    Although gasoil demand recovered to a 24-month high of 3.76 million b/d in November, driven by busy transportation activity for raw materials, it failed to lift apparent demand growth for gasoil into positive territory in 2016.

    The transportation sector accounts for around 65% of gasoil demand, while agriculture and construction account for the rest.

    "Gasoil demand has been retreating since late November, with stocks building up," said a Shandong independent refinery source.

    In 2016, apparent demand for gasoil was 3.35 million b/d, a 5.4% decrease year on year, compared with only a 0.4% decline in 2015, Platts' calculations showed. With an adjustment in output data, COA estimates demand at around 3.52 million b/d in 2016, a 0.6% fall year on year.

    The decrease would narrow further if the incremental supply from the blending pool was taken into account. Blended barrels, with imported light cycle oil and domestic kerosene as the main components, are not included in gasoil apparent demand calculations.

    China's imports of light cycle oil surged 135% year on year to 4.46 million mt in 2016, data from the General Administration of Customs showed. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil, which is used mainly in the construction and fishing sectors.

    "Gasoil demand, including adjusted refinery output, could fall to 3.45 million b/d in 2017 as the economy restructures further and developed provinces along the eastern coast continue to move away from gasoil intensive activity," said Song Yen Ling, a senior analyst with COA.


    Apparent demand for gasoline was at 2.78 million b/d in 2016, representing slower year-on-year growth of 3.2%, compared with the 9.6% growth registered in 2015. But COA estimates that adjusted demand would be at 2.91 million b/d, a 7.8% increase from 2015 levels.

    Similar to gasoil, blending pools also played a role in overall gasoline supplies. Sales of imported mixed aromatics, which are used mainly as a blending material for gasoline, provide an indication of demand.

    Data from the GAC showed that imports of mixed aromatics surged 81.4% year on year to 11.7 million mt in 2016, suggesting a significant rise in blending activity. About 3 mt of mixed aromatics are needed to blend 10 mt of gasoline. This means that up to 39 million mt, or 906,000 b/d, could have been added to the supply pool in 2016.

    Gasoline demand also found support in a 14% year-on-year rise in gasoline-fueled vehicle sales in 2016, data from the China Association of Automobile Manufacturers showed, with sales of gasoline-guzzling sport utility vehicles surging 43% year on year.

    This year, COA expects growth in adjusted gasoline demand growth to slow to around 6% to 3.08 million b/d. "It is likely that the growth of car sales in 2017 would be softer than 2016," Song added.


    LPG demand surged to 1.57 million b/d in 2016, up 24.8% year on year, compared with 20% growth in 2015. Market sources attributed last year's strong growth to increasing demand from petrochemical plants, industrial and residential users.

    China launched two new PDH units, with a total capacity of 1.16 million mt/year, in the fourth quarter of 2016, adding to the six existing PDH plants with a total capacity of 4.74 million mt/year. As a result, China's LPG imports jumped 33.4% on year to 505,000 b/d in 2016.

    This year, LPG demand is expected to continue growing but the year-on-year increase could slow to around 8.3% or 1.7 million b/d because downstream demand is likely to be limited. In addition, no new PDH plant is expected to come online, according to COA.

    Apparent demand for naphtha rose 9.8% year on year to 969,000 b/d in 2016. It was slightly higher than the 9% growth registered in 2015.

    China's ethylene production rose 3.9% year on year in 2016, stronger than the growth of 1.6% in the previous year. Around 65% naphtha is estimated to be used as feedstock to produce ethylene, while 30% go to reformers.

    In 2017, as more reformers are expected to come on stream, naphtha imports are expected to grow sharply, while output from refineries is expected to remain stable. As a result, COA estimates growth to slow to 5.6% this year to 1.02 million b/d.


    Apparent demand for jet fuel in 2016 rose 8.7% year on year to 754,000 b/d, slowing from 15.9% growth in 2015 when new production units came on stream.

    Latest data from the Civil Aviation Administration of China showed that aviation traffic turnover rose 12.7% year on year in the first 11 months of 2016, down from the 13.8% growth in the whole year of 2015.

    In 2017, COA expects apparent demand for jet fuel to grow at 12.3% to 847,000 b/d because of higher production yields of 8.6%, compared to 7.9% last year.

    Apparent demand for fuel oil in 2016 fell 23.9% year on year to 716,000 b/d, compared with an increase of 14.9% in 2015. The sharp fall in 2016 was mainly because independent refineries reduced fuel oil use, including bitumen blend, after they were granted crude oil import quotas.

    Independent refineries in Shandong province cracked only 1.9 million mt of fuel oil in 2016, down 76.8% from the previous year, data from Beijing-based information supplier JYD showed. COA expects consumption to decline only 1.4% year on year in 2017 to 704,000 b/d.

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    OPEC, Russia spare Asia oil supply cuts in fight to hold market share

    OPEC and non-OPEC producer Russia are shielding Asia from supply cuts agreed in a landmark deal last year as they fight to protect their share of the world's biggest and fastest growing oil market.

    Instead, they have reduced deliveries to Europe and the Americas as they implement a coordinated agreement to cut supply by about 1.8 million barrels per day (bpd), seeking to reduce a global supply glut and lift oil prices.

    The Organization of the Petroleum Exporting Countries' (OPEC) oil supplies to Asia rose by 7 percent between November and January, to 17 million bpd, meeting two-thirds of the region's oil consumption, data from Thomson Reuters Eikon showed.

    Under a deal agreed last November, OPEC pledged to cut production by around 1.2 million bpd in the first half of 2017. Other producers, including Russia, pledged to cut another 600,000 bpd.

    "For OPEC, and here we mean the Mideast countries, Asia is their core and growing market," said Tushar Bansal, director at Singapore-based consultancy Ivy Global Energy. "The last thing OPEC ... would want is that as they develop newer markets outside the region, some other players like Rosneft or Venezuela increase their market share in what is their backyard."

    While the OPEC and Russian cuts should eventually rebalance the market after a three-year glut, it will be slower in Asia unless regional demand picks up.

    In a sign of ongoing Asian oversupply, Eikon data shows that around 30 chartered supertankers, known as Very Large Crude Carriers (VLCC), are sitting in the waters outside Asia's oil trading hub of Singapore and southern Malaysia, carrying about 55 million barrels of oil, enough to meet almost five days of Chinese demand.

    Asia has been the main source of global oil demand growth for the past two decades as consumption in economically developed nations has stagnated.

    Therefore, OPEC has raised its supply to Asia, and Russia has also re-routed a great chunk of its rising production toward China and the Asia-Pacific over the past decade. Russia surpassed Saudi Arabia as China's biggest supplier last year, exporting 1.05 million bpd of crude versus Saudi Arabia's 1.02 million.

    The increase in Asian deliveries contrasts with OPEC's global cut of over 1 million bpd in January, surprising market watchers with a compliance rate of over 80 percent.

    Russia, the world's biggest oil producer, also said it cut supplies by 100,000 bpd in January.

    "Oil stocks are drawing, especially in Europe. In Asia, strong demand is tightening the market, but it will take time," said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.

    For the moment, data from the U.S. Energy Information Administration (EIA) suggests that global markets remain oversupplied, with around 95.8 million bpd of demand being met by 96.4 million bpd of supply.

    But given the cuts and an expected demand increase of up to 1.6 million bpd this year, the global market will likely balance this year.
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    OPEC cut extension could hurt Saudi plan to balance market- Gunvor

    An extension of OPEC oil production cuts could push oil prices too high to meet Saudi Arabia and others' objective of balancing the market without encouraging U.S. shale output, Gunvor's head of oil market research said on Wednesday.

    The Organization of the Petroleum Exporting Countries (OPEC) had already begun to achieve some of its aims, creating a virtual price floor of $50 per barrel, David Fyfe told the Platts Middle Distillates conference in Antwerp.

    OPEC, Russia and other producers have agreed to trim 1.8 million barrels per day (bpd) from their production for six months from Jan. 1.

    Fyfe said extending the cuts beyond the six month agreement could push prices so high that they would draw larger output increases from other regions.

    "If they hold 1 million bpd cuts into 2017, and the Russians contribute something, there could be a 250 million-barrel draw," Fyfe said. That size of a draw "would push prices sharply higher, and they don't want that."

    OPEC has said its production deal is extendable for another six months but a number of the group's oil ministers have said this is not likely.

    Some analysts have said an extension of the supply cuts would be necessary to maintain stability in global supply/demand balances.

    But Fyfe said that under OPEC's current plan, the market could draw roughly 120 million barrels from storage, beginning in the second quarter, keeping prices in the $55-$60 per barrel range this year, eventually "drifting" to $70-$75 per barrel in 2018.

    Fyfe said this should ensure prices would not go too high or too low.

    He said a 120 million barrel stock draw would still leave global stocks above their five-year average. The International Energy Agency said in its latest report that stocks in the developed world were still some 300 million barrels above that level.

    Fyfe also said the lack of spare oil production capacity meant that higher stocks could help the market cope with further supply outages, such as those in Libya and Nigeria.
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    India slashes LNG import tax

    India, the world’s fourth-largest buyer of liquefied natural gas (LNG), has announced plans to halve its basic customs duty on imports of the chilled fuel.

    In presenting to Parliament the budget for fiscal year that starts April 1, Finance Minister Arun Jaitley on Wednesday said he proposes to reduce the basics customs duty on LNG from current 5 percent to 2.5 percent as part of the plans to shift to a natural gas-based economy.

    India’s LNG imports have been rising steadily in the least 12 months, boosted by low prices of the chilled fuel.

    In the April-December period, India’s LNG imports rose 19.9 percent year-on-year to 18.7 Bcm or about 13.87 million mt of LNG.

    Costs of importing LNG into India have dropped sharply last year after the country’s largest importer, Petronet LNG signed a revised long-term contract with Qatari LNG producer RasGas.

    Petronet LNG’s shares are currently trading at 387.65 Indian rupees ($5.74), almost 4 percent up from its previous closing of Rs 373.95 on the Bombay Stock Exchange.

    India imports LNG via Petronet’s Dahej and Kochi LNG terminals, Shell’s Hazira plant, and the Dabhol terminal operated by Ratnagiri Gas and Power.
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    Nord Stream 2 pipeline gets Swedish support after all

    Following the initial rejection of the logistics support by Sweden to Wassco for the Nord Stream 2 pipeline project, things have seemingly changed.

    To remind, reports in 2016 said that the authorities of the Swedish Region Gotland and the municipality Karlshamn had decided not to sign an agreement for the utilization of their respective harbours – Slite and Karlshamn for the storage of the piping for the project, citing “security situation.”

    However, in a statement on Tuesday afternoon, Nord Stream 2, a company operating the project said there has been a change of heart.

    According to Nord Stream 2 company, the municipality Karlshamn has signed an agreement for the use of its port for pipe storage during the project’s execution phase.

    “The port of Karlshamn has since our first contacts signalled its commercial interest in taking part in the project. Nord Stream’s 2 contractor, Wasco Coatings Germany GmbH, will consequently use the harbour for pipe transhipments and storage over a two-year period as of this autumn,” Nord Stream 2 said.

    The pipeline involves two parallel 48 inch lines, roughly 1,200 km, each starting from south-west of St Petersburg and ending at German coast, Greifswald.

    Nord Stream 2’s natural gas pipelines through the Baltic Sea will have the capacity to transport 55 billion cubic meters (bcm) of Russian gas a year to the EU, for at least 50 years.

    During the first phase, pipes exclusively made in Germany will be shipped to Karlshamn and then stored within the premises of the port. During the second phase, these pipes will be loaded onto pipe-carrier vessels transporting them to the lay barge on the sea.

    Wasco is in charge of the entire transhipment process, with no involvement of Nord Stream 2 nor its shareholder Gazprom, Nord Stream 2 said.

    Wasco intends to hire locals and mainly work with local suppliers to supply goods and services for these operations. Wasco will in total use four ports for the pipe logistics of the Nord Stream 2 project: Mukran in Germany, Kotka and Hanko in Finland, and Karlshamn in Sweden.

    “During the first Nord Stream project, the company, Swedish authorities, municipalities, suppliers and local communities cooperated in an open, constructive and fruitful manner over a period of many years. Nord Stream 2 would like to continue the on-going project guided by the same principles,” the company said.

    The Nord Stream 2 shareholders are Gazprom, the German companies E.ON SE and BASF SE/Wintershall Holding GmbH, the Anglo-Dutch Royal Dutch Shell plc, the Austrian OMV AG and the French ENGIE S.A.
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    Shell’s earnings slide by 44 pct in fourth quarter

    Oil major Royal Dutch Shell posted a 44 percent drop in earnings for the fourth quarter of 2016 compared to the year-before period.

    The company on Thursday reported its fourth quarter 2016 CCS earnings attributable to shareholders of $1.03 billion, 44% lower than for the same quarter a year ago and earnings of $1.8 billion.

    Full year 2016 CCS earnings attributable to shareholders were $3.5 billion, an 8% decrease compared with $3.8 billion in 2015.

    On a CCS basis, Shell’s 4Q 2016 earnings, excluding identified items, were $1.8bn, up 14% from $1.6bn for the fourth quarter of 2015.

    Compared with the fourth quarter 2015, CCS earnings attributable to shareholders excluding identified items benefited from higher contributions from Upstream and Chemicals, partly offset by lower contributions from Refining & Trading. Operating expenses were lower, more than offsetting the impact of the consolidation of BG. Depreciation and net interest expense increased, mainly resulting from the BG acquisition. Earnings also reflected higher taxation.

    The company’s revenues increased during the quarter amounting to $64.8 billion, compared to $58.1 billion in the fourth quarter of 2015.

    Shell CEO, Ben van Beurden, commented: “We are reshaping Shell and delivered a good cash flow performance this quarter with over $9 billion in cash flow from operations. Debt has been reduced and, for the second consecutive quarter, free cash flow more than covered our cash dividend.

    He also added: “Looking ahead, we will further focus the portfolio and strengthen the company’s financial framework in 2017. Our strategy is starting to pay off and in 2017 we will be investing around $25 billion in high quality, resilient projects.”

    Capital investment for the fourth quarter 2016 was $6.9 billion. Full year 2016 organic capital investment was $26.9 billion while capital investment in 2017 is expected to be around $25 billion.

    Oil and gas production for the fourth quarter 2016 was 3,905 thousand boe/d, an increase of 28% compared with the fourth quarter 2015.
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    India Plans to Create Oil Giant by Integrating State-Run Firms

    India is planning to create a state-owned oil giant through mergers to match the might of international companies and billionaire Mukesh Ambani’s Reliance Industries Ltd.

    “We see opportunities to strengthen our central public-sector enterprises through consolidation, mergers and acquisitions,” Finance Minister Arun Jaitley said in Parliament while presenting the federal budget for the year beginning April 1. “It will give them the capacity to bear high risk, avail economies of scale, take higher investment decision and create more value for stakeholders.”

    India is overtaking Japan as the world’s third-largest oil consumer and will be the center of global growth through 2040, according to the International Energy Agency. Its upstream production is dominated by Oil and Natural Gas Corp., which operates independently of the biggest refiner, Indian Oil Corp. Bharat Petroleum Corp. and Hindustan Oil Corp. are the two other state-owned refiners, while Oil India Ltd. is a smaller oil and gas producer. GAIL India Ltd. is the country’s largest gas pipeline operator.

    India oil and gas companies are small compared with some of their global peers. The combined market capitalization of India’s top eight state-owned oil and gas companies is about $105 billion. Such an entity would rank seventh among global oil firms, according to data compiled by Bloomberg.

    While size matters in the global oil and gas industry, ensuring governance will be equally important so that an inefficient behemoth isn’t created, said Debasish Mishra, a partner at Deloitte Touche Tohmatsu LLP in Mumbai.

    Shares of Indian Oil closed 2.5 percent higher at 375.45 rupees in Mumbai. ONGC fell 1.2 percent to 200.20 rupees.

    Such an integration would require political and administrative will, said Deepak Mahurkar, leader India oil and gas industry practice at PricewaterhouseCoopers Pvt. Attempts at merging Indian oil companies have been made in the past, he said.

    In an interview in August, Oil Minister Dharmendra Pradhan had said the government is seeking an appropriate model for combining India’s state-run oil companies.

    “Creating an integrated oil major will help achieve the goal of increasing India’s energy security,” said ONGC Chairman Dinesh Kumar Sarraf. “A bigger entity will have bigger resources and a bigger appetite for acquisitions.”
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    Total, CMA CGM ink MoU for fuel supply including LNG

    France’s Total signed a memorandum of understanding with CMA CGM to supply a range of multi-fuel solutions including LNG, in order to reduce the shipping footprint.

    The MoU has been signed for a period of three years, CMA CGM, the shipping group said in its statement on Wednesday.

    The two partners aim to prepare for stricter fuel regulations in the shipping industry and further reduce the sector’s footprint by developing solutions for the container ships.

    Under the agreement, Total will become CMA CGM’s fuel supplier, providing liquefied natural gas, fuel oil with sulfur content of 0.5 percent and fuel oil with a sulfur content of 3.5 percent for ships equipped with exhaust gas cleaning systems, or scrubbers.

    Accordingly, Total’s unit Total Marine Fuels will be renamed Total Marine Fuels Global Solutions on Tuesday, February 1, 2017, aiming to become a major player in the LNG bunker market.
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    US oil production falls

                                                   Last Week    Week Before   Last Year

    Domestic Production '000...... 8,915            8,961           9,214
    Alaska .......................................... 528               529               511
    Lower 48 .................................. 8,387            8,432          8,703
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    Summary of Weekly Petroleum Data for the Week Ending January 27, 2017

     U.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending January 27, 2017, 100,000 barrels per day less than the previous week’s average. Refineries operated at 88.2% of their operable capacity last week. Gasoline production increased last week, averaging 9.1 million barrels per day. Distillate fuel production increased last week, averaging 4.7 million barrels per day.

    U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 480,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.4 million barrels per day, 5.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 488,000 barrels per day. Distillate fuel imports averaged 236,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.5 million barrels from the previous week. At 494.8 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.9 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 1.6 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories fell 5.6 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 5.3 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.3 million barrels per day, down by 1.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.2 million barrels per day, down by 5.7% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, up by 5.0% from the same period last year. Jet fuel product supplied is up 6.3% compared to the same four-week period last year.

    Cushing down 1.3 mln bbls

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    U.S. May Export More Oil in 2017 Than Four OPEC Nations Produce

    U.S. crude exports are poised to surpass production in four OPEC nations in 2017 and may grow even more if President Donald Trump honors pledges to ease drilling restrictions and maximize output.

    The world’s largest oil-consuming country could sell as much as 800,000 barrels a day of crude overseas this year, according to four analysts surveyed by Bloomberg. That’s more than OPEC producers Libya, Qatar, Ecuador and Gabon each pumped in December. The U.S. exported 527,000 barrels a day in the first 11 months of 2016, Energy Information Administration data show.

    Chalk it all up to a resurgence in shale oil and gas, which Trump is counting on to create jobs and rebuild roads, schools and bridges. U.S. output will rebound to more than 9 million barrels a day in 2017 after sliding 5.6 percent to 8.87 million in 2016, the EIA estimates. And since restrictions on U.S. crude exports were lifted in late 2015, domestic producers are free to seek buyers in Europe, Asia and Latin America, which are on the lookout for alternate suppliers after OPEC and non-OPEC producers agreed to trim 2017 output.

    “Godzilla is even taller in person,” Vikas Dwivedi, senior analyst at Macquarie Capital (USA) Inc., said in a telephone interview from Houston. “U.S. production will be bigger than most people are expecting.”

    Macquarie sees annual output reaching 9.37 million, while Turner, Mason & Co. and Lipow Oil Associates each put it around 9 million. Wood Mackenzie forecast a more-conservative 8.75 million.

    Price Pressure

    The increased supply is likely to pressure prices of domestic crude, including the benchmark West Texas Intermediate grade, making it more globally competitive, said Afolabi Ogunnaike, Wood Mackenzie’s Houston-based senior research analyst for Americas refining and oil product markets. WTI was $2.89 a barrel cheaper than European benchmark Brent crude on Jan. 31, the widest discount since December 2015.

    But why seek markets abroad when the U.S. is still one of the world’s biggest crude importers, has abundant and inexpensive oil on the horizon and has inaugurated a new president with the stated goal of weaning the country off crude from the Organization of Petroleum Exporting Countries? Because it makes business sense.

    The U.S. imported 7.88 million barrels a day of crude in the first 11 months of 2016, including about 3 million from OPEC. And in the first week of January, the country sent a record amount overseas, according to the EIA.

    That’s because U.S. refiners were designed to process relatively cheap high-sulfur and high-density crudes produced in Canada and parts of the Middle East and Latin America. They’re not set up to handle the low-sulfur, less dense crude being produced in Texas’ Permian Basin and Eagle Ford regions, where most of the U.S. output growth has occurred.

    “If the U.S. system can’t take the crude it produces, it will have to export it,” Macquarie’s Dwivedi said.

    Strict adherence to the output cuts OPEC and non-OPEC nations agreed to in November will also provide U.S. producers with a foothold into international markets. OPEC members could reduce supplies by 900,000 barrels a day in January, the first month of implementation of the accord designed to eliminate a global supply glut, according to estimates from tanker-tracker Petro-Logistics SA. That’s about 75 percent of the agreed-upon reduction.

    “If OPEC does comply with its cuts, we can expect to see exports rise and that will come from the increased production that we are expecting from the U.S.,” Andy Lipow, president of Lipow Oil Associates, a Houston-based consulting company, said in a telephone interview.

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    Marathon Petroleum's profit beats; says to speed up asset transfer

    Marathon Petroleum Corp reported a higher-than-expected quarterly profit and said it would speed up the transfer of assets to its unit, MPLX LP.

    Amid pressure from hedge fund Elliott Management to boost its stock price, Marathon said in January that it would accelerate its previously announced drop down to MPLX and consider a separation of its Speedway retail business.

    Elliott had disclosed a 4 percent stake in Marathon in November and urged the company to separate its retail, refining and pipeline businesses.

    The refiner said on Wednesday a special committee, which was reviewing Speedway's divestiture, was expected to provide an update by mid-2017.

    Marathon, whose operations are primarily in the U.S. Midwest, Southeast and Gulf Coast, said its refining and marketing gross margin fell 10.2 percent to $11.41 per barrel in the fourth quarter.

    Crude oil capacity utilization was 93 percent in the latest quarter, down from 100 percent in the third quarter, the company said.

    Findlay, Ohio-based Marathon also cut its investments in a project, which will integrate its Galveston Bay and Texas City refineries, to $1.5 billion from $2 billion.

    Net income attributable to the company rose to $227 million, or 43 cents per share, in the fourth quarter ended Dec. 31 from $187 million, or 35 cents per share, a year earlier.

    Excluding items, the company reported earnings of 43 cents per share, while analysts' on average had expected earnings of 26 cents, according to Thomson Reuters I/B/E/S.

    Total revenue and other income rose 10.2 percent to $17.28 billion, handily beating analysts' estimate of $14.54 billion.
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    Weatherford cuts 1,000 jobs, loses $549 million in fourth quarter

    Weatherford International cut another 1,000 jobs in the fourth quarter as it idled its U.S. hydraulic fracturing, or fracking, business.

    Financially struggling Weatherford opted to scale back in the quarter in a move seen largely as temporarily bowing out against competitor Halliburton’s dominating U.S. fracking position. The job reductions — through layoffs or attrition — come after Weatherford already had cut 8,000 jobs in the first nine months of 2016 in preparation of a slow oil price rebound.

    The moves come after longtime Weatherford chairman and chief executive Bernard Duroc-Danner abruptly resigned in November. Chief Financial Officer Krishna Shivram stepped into the CEO role.

    Weatherford lost $549 million in the fourth quarter, but that’s still an improvement from a $1.15 billion loss during the final quarter of 2015, as well as a big $1.78 billion loss in the third quarter of last year.

    Shirvam noted Weatherford’s revenues grew 4 percent from the third quarter even with the idling of the pressure pumping business, which includes fracking.

    “After a protracted period of relentless cost structure transformation, implementation of disciplined financial metrics and the overall realignment of our company, Weatherford is now well positioned with a streamlined portfolio to make material progress in operating results and to deleverage our balance sheet,” Shivram said in a prepared statement.
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    Pipeline company Oneok to buy rest of Partners for $9.3 billion

    Natural gas pipeline company Oneok Inc said it would buy the remainder of the company for $9.3 billion, adding to a string of master limited partnerships deals aimed at simplifying structures and increasing returns.

    Oneok, which owns more than 19 percent of Oneok Partners LP, said it would pay 0.985 shares for each Oneok Partners unit it does not already own.

    Based on both the stocks' closing price on Tuesday, that works out to $54.28 per share, representing a premium of 26 percent for shareholders of Oneok Partners.

    Oneok said the combined company will have an integrated 37,000 mile network of natural gas liquids, pipelines and processing plants in the Williston Basin, U.S. Mid-Continent, Permian Basin, Midwest and Gulf Coast.

    Oneok Partners' shares will no longer be publicly traded.

    Oneok said the deal would result in a dividend increase of 21 percent to 74.5 cents per share, or $2.98 on an annual basis.

    J.P. Morgan Securities LLC is acting as lead financial adviser and Skadden Arps, Slate, Meagher & Flom LLP will provide legal advice to Oneok on the transaction.

    Barclays is providing financial advice and Andrews Kurth Kenyon LLP serves as legal adviser to the Oneok Partners Conflicts Committee.

    The company said the deal, which is immediately accretive, is expected to close in the second quarter of 2017.

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    Alternative Energy

    Germany sets out details for first offshore wind auctions

    German grid regulator BNetzA has set out the details for the first two rounds for offshore wind tenders with a combined volume of 3,100 MW for projects to enter operations between 2021 and 2025.

    The regulator is now calling for bids in the first ever tender with a volume of 1,550 MW by April 1 with the maximum bid set at Eur120/MWh setting out various conditions concerning location, grid connection, back-up guarantees for the projects starting after 2020.

    A second round with 1,550 MW tendered is scheduled to end on April 1, 2018 for projects starting until 2025, it said with guaranteed subsidies on offer for those projects potentially lasting to 2050 after the licensing period for project was increased from 20 years to 25 years, helping to reduce levelized costs and so auction bids.

    According to the German offshore wind association, planned projects with over 7 GW of capacity are set to compete in the auctions with the latest list by the permitting maritime authority BSH including projects by DONG, E.ON, RWE Innogy, Vattenfall, EnBW, Iberdrola, Trianel, Northland, BEC Energie, Wind MW, PNE, Strabag, KNK Wind, Sea Wind and Windreich.

    Last year, German offshore wind developers connected 0.8 GW new capacity to the grid bringing total offshore wind capacity to 4.1 GW with already approved or financed projects set to bring German offshore wind capacity above the government's reduced 2020 target of 6.5 GW by 2019.

    According to the lobby group, the maximum achievable capacity based on grid connections to be provided by the TSOs under the national offshore grid plan is 7.7 GW by end-2020.

    This would leave only 7.3 GW to be tendered under the new auction rules to achieve the current legal target of 15 GW by 2030 with further details or adjustments to be decided only after the elections in September, the lobby group said.

    According to the offshore wind lobby, cost reductions for new offshore projects will also come to Germany after the latest tendering results in Denmark and the Netherlands have shown a remarkable drop in costs even if conditions in Germany are not exactly as in Denmark or the Netherlands.

    In its statement, the regulator focused on the steady and cost-efficient growth path for offshore wind the government hopes to achieve through the move from politically set feed-in-tariffs to competetive auctions.

    Offshore wind turbines in German waters generated some 13 TWh of electricity in 2016, up 57% on year with TSOs estimating around 20 TWh of offshore wind this year based on average wind conditions.
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    Tepco scraps uranium supply contract with Canada's Cameco

    Canadian uranium producer Cameco Corp said on Wednesday that Tokyo Electric Power (Tepco) , the operator of Japan's wrecked Fukushima nuclear plant, had scrapped its uranium supply contract with the company.

    Shares of Cameco slid 12.2 percent to C$14.55 in early trading on Wednesday.

    The company, one of the world's largest uranium producers, said it considered Tepco's move to terminate the contract unfair and that it would pursue legal action.

    Cameco said Tepco cited a force majeure for ending the contract as it had been unable to operate its nuclear plants for 18 straight months due to Japanese regulations arising from the 2011 Fukushima nuclear accident.

    The company said it was notified of the contract termination by Tepco last week.

    Tepco's termination of the contract would affect about 9.3 million pounds of uranium deliveries through 2028, worth about C$1.3 billion ($995.41 million) in revenue to Cameco, the Saskatoon, Canada-based company said.

    Cameco's earnings before interest, taxes, depreciation and amortization could take a 10-15 percent hit in the near-term as a result of the Tepco dispute, said Edward Sterck, an analyst at BMO Capital Markets.

    Tepco's move comes amid a fall in demand for uranium that is largely a result of the Fukushima nuclear plant meltdown, which led to shutdowns of all of Japan's nuclear reactors.

    Some reactors have since come back online, but global inventories of the radioactive metal remain high.

    Cameco warned late last year that the uranium market would remain depressed until Japan's nuclear reactors were restarted and excess supply was depleted.

    Cameco also said it expected 2017 revenue of C$2.1 billion to C$2.2 billion, inclusive of Tepco's volume, adding that it could withstand any potential loss of revenue this year from the dispute.
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    Era posts A$271m loss

    Uranium miner Energy Resources of Australia (Era) has made a A$271-million loss in 2016, owing to a A$231-million noncash impairment on the company’s property, plant and equipmentduring December.

    The miner produced 17% more uranium oxide in the year, with output rising to 2 351 t, on the back of higher milling rates and improved recoveries delivered increased output.

    However, sales volumes declined from the 2 183 t in 2015 to 2 139 t, while the average realised price for uranium oxide in 2016 was $41.87/lb, compared with the $51.99/lb in 2015. This negatively impacted on the group's revenue, which fell to A$266-million, from A$333-million in 2015.

    Era told shareholders that the uranium market would likely remain challenging in the near term; however, the long-term outlook remained encouraging for established producers.

    Era expected its uranium production in 2017 to be between 2 000 t and 2 400 t, with sales to be broadly in line with production.
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    Precious Metals

    Centamin to focus on growth projects amid good free cash flow, higher FY earnings

    Gold producer Centamin on Wednesday reported a 357% increase in its pre-tax profit to $266.8-million for the year ended December 31.

    This translated into earnings a share increasing from $0.04 in 2015, to $0.23 in the period under review.

    Centamin chairperson Josef El-Raghy said the company’s flagship Sukari gold mine, in Egypt, had continued to deliver substantial free cash flows in 2016, driven by a seventh successive year of production growth and lower operating costs.

    “This performance has allowed us to maintain [a] strategic focus on generating shareholder returns and value-accretive growth. A significant milestone was achieved during the year, as the capital investment in the Sukari operation by Centamin's wholly-owned subsidiary Pharaoh Gold Mines (PGM) was recovered from cash flows to the extent that profit share started with the Egyptian government during the third quarter,” he added.

    Centamin ended the year with $428-million in cash, bullion on hand, gold sales receivables and available-for-sale financial assets, an increase of $197-million from the prior year.

    The company would continue to invest in its long-term growth. “Beyond Sukari, we remain focused on our extensive licence holdings in West Africa,” El-Raghy said.

    This includes focusing on building further prospective licence holdings in Côte d'Ivoire, with the new discovery at the Doropo project in the northeast of the country, where drillingto date has led to a maiden resource estimate of 300 000 oz indicated and one-million ounces inferred.

    Further, work this year will be aimed at upgrading and expanding on this positive start towards projectdevelopment. “In Burkina Faso, we continue to evaluate data from the extensive drilling programmes carried out to date and further work is being planned for the year ahead,” said El-Raghy.

    The company concluded the 2016 year on a strong note, having produced 551 036 oz of gold.

    This was paired with a lower production cost of $513/oz, down from $713/oz in the previous year. This was also below its revised guidance range, driven by higher production and reductions in mine production costs, mainly owing to lower fuel prices.

    Centamin declared a final dividend of $0.13 a share, representing a full year pay-out of $178-million, equivalent to about 70% of its net free cash flow in 2016.

    The company is targeting production of 540 000 oz this year, at an all-in sustaining cost of $790/oz.
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    Zimplats sells 10% in subsidiary to employees for $95m

    Zimbabwe's largest platinum producer Zimplats said on Wednesday it had sold a 10% stake in its subsidiary Zimbabwe Platinum Mines to employees for $95-million.

    The deal was financed by a loan from the mining subsidiary to an employee trust and will be repaid from future dividends, Zimplats said in a statement.
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    Base Metals

    Miner Grupo Mexico swings to profit in Q4

    Mexican mining, rail, and infrastructure company Grupo Mexico swung to profitability in the fourth quarter, boosted by a lower tax payment.

    Grupo Mexico, one of the world's largest copper producers, reported a net profit of $95.9-million between October and December, compared with a net loss of $17.1-million in the same quarter in 2015.

    Revenue rose 3.5% to $2.1-billion, on increased production of copper and gold at the company's Buenavista mine, in northern Mexico.

    Even so, the company said volatility in the price of metals and rising inflation could have a negative impact on results in the future.

    After a record year of copper production, the company said it expected 2017 production to be slightly lower.

    Shares in the company were up 1.5% in morning trading at 63.49 pesos per share.
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    Philippines to shut mines, suspend others as clampdown deepens

    The Philippines will close down over 20 mines, mostly nickel producers that account for about half of output in the world's biggest nickel ore supplier, as a government campaign to fight environmental degradation deepens.

    Manila is also suspending operations at six other mines, including the country's top gold miner.

    Environment and Natural Resources Secretary Regina Lopez ordered the closure of 21 mines and the suspension of several others, including a gold mine operated by Australia's Oceanagold Corp, for causing environmental destruction. Shares of Oceanagold fell more than 14 percent.

    "Why is mining more important than people's lives?" Lopez told a media briefing.

    Lopez, a staunch environmentalist, said several of the mining operations that were shut were in functional watersheds.

    "My issue here is not about mining, my issue here is social justice," she said, after showing footage of environmental damage caused by mining in the Southeast Asian nation.

    Lopez said the nickel mines ordered to shut account for about 50 percent of the country's annual output. These mines, along with others, can appeal their case to President Rodrigo Duterte.

    Duterte has backed Lopez's mining audit, warning shortly after taking office last June that the Philippines could survive without a mining industry.

    Some of the mines that have been ordered to close had their production suspended last year by the government, leading to a spike in nickel prices.

    Three-month nickel on the London Metal Exchange fell 0.4 percent to $10,210 a tonne by 0533 GMT, with a holiday in China dampening trading.

    Oceanagold, in a statement, said it has not received any official suspension order from Manila's Department of Environment and Natural Resources.

    "There is no legal basis for any proposed suspension," the miner said.

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    Sherritt forecasts higher 2017 nickel output

    Canada-based Sherritt International Resources is forecasting higher nickel production in 2017, especially from its 40%-owned Ambatovy nickel and cobalt joint venture (JV), in Madagascar.

    The diversified miner on Tuesday provided a nickel production guidance (100% basis) of 81 000 t to 86 000 t for 2017, which compares with 2016’s output of 75 033 t.

    Cobalt production is forecast to increase from 6 967 t in 2016 to between 7 300 t and 7 900 t in 2017.

    Sherritt said the Ambatovy JV had delivered a “strong” performance in the fourth quarter, producing 12 778 t of finished nickel, contributing to the operation’s yearly production of 42 105 t.

    The mine’s production guidance for 2016 was lowered twice last year, owing to some glitches in the April-to-June period, which was followed by a maintenance shutdown in June and July. Originally, the JV partners, which also include Japanese trading house Sumitomo (32.5%) and Korea Resources(27.5%), expected Ambatovy to produce 48 000 t to 50 000 t in 2016. In August, the guidance was lowered to between 42 000 t and 45 000 t.

    The Ambatovy mine produced 3 273 t of cobalt in 2016, which is expected to increase to between 3 800 t and 4 100 t in 2017.

    At the 50%-owned Moa JV, in Cuba, Sherrit reported nickel production of 32 928 t and cobalt production of 3 694 t in 2016. This was in line with the company’s guidance for the year.

    For the first time, Sherritt also provided a 2017 outlook for unit operating costs. The company provided a guidance of $3.14/lb to $3.70/lb for net direct cash costs. The Moa’s JV’s costs are expected to be similar to 2016 levels and the Ambatovy JV’s costs are expected to be lower, owing to higher production rates at the operation.

    The miner will provide its 2016 unit operating costs and capital spending in the fourth quarter and year end 2016 report, which it plans to publish on February 16 after the markets close.
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    Arconic digs in heels against Elliott as proxy fight begins

    Arconic Inc Chief Executive Officer Klaus Kleinfeld, under pressure from hedge fund Elliott Management, on Wednesday defended the metal maker's performance since spinning off from aluminum producer Alcoa Corp.

    Elliott on Tuesday nominated five directors to Arconic's board, taking aim at Kleinfeld's leadership, company strategy and its performance compared to peers.

    "The board, as well as management, have had intense dialogue with Elliott and spent countless hours to go through those assertions," Kleinfeld told network CNBC in an interview on Tuesday. "The board stands behind the strategy and they stand behind me.".

    On Tuesday, Arconic announced the board unanimously backed the CEO, a sign the company was digging in its heels against Elliott, making it more likely the fight over Kleinfeld and the company's path could go to a shareholder vote this spring. Arconic spun off from aluminum producer Alcoa last November in a move orchestrated by Kleinfeld.

    With any proxy fight, the two sides can reach an agreement all the way up to the final hour of the vote. Arconic's annual meeting is usually in May.

    Arconic's stock soared to $25 on Wednesday, as investors bet that Elliott's pressure will drive the stock even higher.

    Prior to Elliott's nominations, Arconic's shares had risen from $17 late last year to around $22.

    After the split, Alcoa retained the company's legacy aluminum, alumina and bauxite smelting business, while Arconic focused on higher-end aluminum and titanium alloys used in planes and cars.

    "Each Arconic business will massively miss the performance targets that management set for 2016," Elliott said in its presentation, sent to shareholders on Wednesday.

    Kleinfeld on Wednesday told CNBC that margins were improving and the business has come a long way since the commodity market plunge in 2009 nearly sank Alcoa.

    Elliott has said Larry Lawson, formerly CEO of Spirit AeroSystems Holdings Inc  should be the CEO of Arconic.

    Elliott first invested in Alcoa in 2015, and struck a deal with the company prior to its Arconic spin-off, which avoided a proxy fight and allowed three Elliott-supported directors to serve on the boards of both companies.

    Six of 12 independent directors on Arconic's board joined within the last year, which includes Elliott's three nominees and three appointed after the separation last November.
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    Steel, Iron Ore and Coal

    Deutsche Bank won’t finance any coal projects any longer

    German banking giant Deutsche Bank  is fully walking away from coal, as it has decided not to finance any greenfield thermal coal mining or coal-fired plants any longer.

    Announcing the changes to its coal financing guidelines Tuesday, the lender also said it will gradually reduce its existing exposure to the thermal coal mining sector. While it didn't specified a timeline, it is said that Deutsche Bank may just reduce its coal financing by up to 20% over the next three years.

    The bank will also begin gradually reducing its existing exposure to the thermal coal mining sector.

    “[Signing the Paris Pledge for Action] emphasizes the bank’s commitment to protect the climate and to contribute to the overall targets set by the Paris Agreement to limit global warming to 2 degrees above pre-industrial levels,” it said in the statement.

    This is not the first step away from coal the bank has taken. In March last year, Deutsche Bank said it would phase out credit and the underwriting of debt and equity for mining companies that use contentious mountaintop removal methods to extract coal.

    "We welcome the decision of Deutsche Bank to stop investing in climate-harming new coal infrastructure,” Oliver Krischer, deputy head of the German Green Parliamentarian Group, said in an e-mailed statement. “We hope that Deutsche Bank will stop all investments in the near future: 20% is only a beginning."

    The institution used to be coal miners’ top financer, delivering nearly $7 billion from 2013 to 2015 alone.
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    CNXC looking to cash in on export met coal market in 2017

    Northern Appalachian producer CNXC Coal had a record 1.8 million st of production and sales in the fourth quarter as markets improved, and executives said the company is hoping this year to cash in on a reinvigorated metallurgical environment.

    During an earnings call Monday evening, CEO Jimmy Brock said a recovering domestic market and strong seaborne markets led to a record quarter as the longwall mines in Pennsylvania ran at full capacity. Average realized pricing for Q4 improved to 75 cents from the previous quarter to $45.05/st, while costs fell $1.89 from Q3 to $33.90/st.

    Of the 1.8 million st sold in Q4, about 17% went into export markets, with half, or approximately 150,000 st, of export volumes sold into the high-vole met markets in Asia and South America.

    CNXC said it expects coal sales this year of between 6.25 million and 6.75 million st, up from 2016's total of 6.2 million st, with about 15% of sales expected in the export market. In Q4, the company contracted 325,000 st for 2017 across all markets, increasing its sold position for the year to 6.4 million st.

    Jim McCaffrey, senior vice president of coal sales, said export thermal pricing has improved from year-ago values but remains slightly below domestic prices because of the sulfur discount. He added that he anticipates the company will be able to sell another 1 million st into the met market this year at rates above thermal prices.

    "We are currently active in negotiation with several customers to expand our crossover metallurgical coal portfolio," Brock said. "We continue to believe that this is currently the highest priced market for our coal."

    In the domestic thermal market, McCaffrey said CNXC recently contracted tons in the $50/st range "or better" and sees forward pricing in slight contango.

    The company noted nine of its top 15 utility customers have less than 30 days of coal inventory and customers are still indicating they have opened positions for 2017.

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    China iron ore imports off to strong start; support rally

     There is fundamental justification for the strong start to 2017 for iron ore prices, with imports by top buyer China remaining robust and showing no signs of easing.

    A total of 86.6 million tonnes was reported as discharged at Chinese ports in January, according to data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

    The risk is that this figure may actually rise in coming days as the ship-tracking and port data indicates that a further 13.2 million tonnes was due to have arrived at Chinese ports by Jan. 31.

    If some of these cargoes were discharged before the end of month it could push total imports for January to close to 90 million tonnes, which would be the strongest monthly outcome since the record of 96.26 million in December 2015.

    It's worth noting that ship-tracking data doesn't exactly align with customs figures, given differences in when cargoes are assessed as having been discharged, with the ship data typically under-reporting customs numbers.

    For example, vessel-tracking data showed a total of 987.6 million tonnes of iron ore being discharged in China in 2016, which is 3.6 percent lower than the 1.02 billion tonnes reported by customs.

    Nonetheless, the vessel-tracking data is a more timely indicator of the direction of China's imports, and they are painting a picture of ongoing strength.

    This resilience does go some way toward justifying the strength in iron ore prices recently.

    Front-month iron ore contracts on the Singapore Commodity Exchange ended at $80.40 a tonne on Jan. 31, up 8 percent from the $74.28 they closed at on Jan. 3, the first trading day of the new year.

    They are also more than double what they were a year ago, as China's record iron ore imports in 2016 were sufficient to eat away at the persistent supply surplus of the previous few years.


    The increase in SGX futures, which are based on Steel Index spot prices for cargoes delivered to China, looks reasonable in the light of the ongoing strength in iron ore imports.

    However, the 17.4 percent surge in iron ore futures on the Dalian Commodity Exchange (DCE) from Jan. 3 to Jan. 26, the last trading day before the current Lunar New Year holiday period, looks overdone.

    The DCE contract rose from a close of 550.5 yuan ($80) a tonne on Jan. 3 to end at 646.5 yuan on Jan. 26, once again raising concern that the authorities in Beijing may take further action to cool what they see as unjustifiable speculative price increases in commodities.

    There may be a bit of froth in the DCE contract, given it has risen from a discount to a premium to the SGX price if it is expressed in U.S. dollars.

    DCE futures were $30.91 a tonne on Jan. 4 last year, while SGX contracts were $41.70, putting the Chinese domestic price at a discount of 26.5 percent.

    As of Jan. 26, the DCE contract was $94 a tonne in U.S. dollars, a premium of 16 percent to the SGX price.

    This disparity indicates that the Chinese contract is now overvalued compared to the international marker, but whether the gap narrows again will largely depend on the view of Chinese investors on the strength of the country's steel sector, as well as any cooling measures taken by the authorities.

    On the supply side, iron ore is steadying, with the big three Australian producers, Rio Tinto, BHP Billiton and Fortescue Metals Group keeping production targets largely steady.

    Top miner Brazil's Vale expects to raise its output to 340-380 million tonnes this year from about 340-250 million in 2016 as its starts up the last of its major new mines, the S11D project.

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    February steel scrap jitters keep US sheet spot buying limited

    The anticipated decline in February scrap prices is an ongoing concern for US sheet buyers leading to limited spot transactions, sources said Tuesday.

    February scrap prices look to be anywhere from $30-$40/lt lower following a significant drop in US bulk export sales, with prime scrap prices more resilient. The expected drop has led to many buyers being wary to commit at anything more than the bare minimum needs for spot purchases, one mill source said.

    Hot-rolled coil prices were around $620/st and many buyers have sensed the market has met its high-water mark for the near future and deciding to wait on purchases unless absolutely necessary, the mill source added. The market's overall conditions looked to remain favorable through March, according to the source but anticipated pricing pressures to increase through the second quarter.

    February HRC production was spoken for at one mill, according to a second mill source and March orders have been healthy.

    March production available was limited so the mill source said they were "holding their own." There was some fear prices will drop but he did not think it would be a large decline.

    There were very few inquiries from service centers for imported cold-rolled coil, according to a trader. The sources for new CRC imports are "so limited" the trader said. In addition, inventory levels and months of supply held at service centers in December were a "shock," even though absolute levels of inventories were not "terrible," the trader said.

    S&P Global Platts maintained its daily HRC and CRC assessments at $620-$640/st and $820-$840/st, respectively. Both prices are normalized to a Midwest (Indiana) ex-works basis.
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    Glencore considering bid for Impala’s chrome waste business

    Glencore, the mining and trading firm run by billionaire Ivan Glasenberg, is considering a bid for Impala Platinum Holdings’s 65% stake in a chrome waste-retreatment operation in South Africa, two people familiar with the matter said.

    Glencore already has an agreement to buy metal from Chrome Traders Processing, the closely held company that owns 30% of the business controlled by Impala. Glencore, which has chrome assets nearby, is bullish on prices and keen to grow its presence in the industry that supplies stainless steelmakers with the ingredient that prevents corrosion, said one of the people, who asked not to be identified because the information is private.

    The operation produces more than 200 000 metric tons of chrome concentrate a year from tailings, or waste material from platinum mining, near the northern South African town of Rustenburg. It made a profit of R67-million ($5-million) in the year through June 30. Impala sees the operation as a non-core asset and wants to focus on its platinum mines, the Johannesburg-based miner said earlier this month. Platinumis found together with chrome in many of the ore bodies mined in South Africa.
    Bidders Welcomed

    “It’s early in the process still and we entirely welcome all interested parties,” Impala spokesperson Johan Theronsaid by phone, declining to comment on Glencore specifically. “We’re confident we can realize value for shareholders.”

    Standard Bank Group is running the sales process and is drawing up a shortlist of suitable bidders, one of the people said. Standard Bank declined to comment.

    Glencore owns five chrome smelters and seven chrome mines in South Africa, including the Waterval chrome mine and Wonderkop ferrochrome plant. The partnership that Glencore has with Merafe Resources makes it the world’s largest ferrochrome producer.
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