Mark Latham Commodity Equity Intelligence Service

Monday 8th August 2016
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    Global debt to GNP outpaces economic activity.

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    China's regions show big economic divergence as rustbelt suffers, cities prosper

    China's regional economies showed a marked divergence in performance in the first half of 2016, with provinces reliant on steel making and mining reporting weak or no growth but some larger cities thriving.

    The recently released provincial growth figures highlight growing imbalances in China as the government tries to restructure the economy from a dependence on heavy industry and exports to one that is powered more by domestic consumption.

    The northeastern steel-making province of Liaoning reported its economy shrank by 1 percent in the first half of 2016 from the same period the previous year, the only province in China to report a contraction.

    That was in sharp contrast to nationwide growth of 6.7 percent.

    Liaoning is one of the last of the country's 31 provinces to announce gross domestic product (GDP) data, which typically are published weeks after the national readings. Figures have yet to be released by highly industrialized Heilongjiang.

    Weighed down by the bloated steel industry, Liaoning province saw first-half fixed asset investment and real estate development investment shrink 58.1 percent and 31.5 percent, respectively, from a year earlier, an official from the province's bureau of statistics told Reuters.

    Provincial revenues slumped 18.6 percent.

    Industrial powerhouse Shanxi fared only slightly better, posting the lowest growth rate in the country. Its economy grew 3.4 percent in the first half, well below the province's annual target of 6 percent.

    The Shanxi bureau of statistics said that the coal-intensive province's efforts to reduce overcapacity have had "initial effects", saying first-half coal output dropped 14.4 percent.

    And conditions could get worse before they get better, with officials vowing to step up efforts to cut capacity in the second half of the year.

    "As overcapacity reductions will intensify in the second half of the year, we still see significant downside risk in the traditional manufacturing sector," economists at ANZ said in a research note this week.

    "While overall (economic) growth is projected to slow in the second half, we expect further divergence between the old and new economy," they added, noting the government may ramp up spending and tax and structural reforms in provinces which are most reliant on traditional heavy industries.

    Growth in more diversified urban areas generally was far stronger.

    The southwestern metropolis of Chongqing reported growth of 10.6 percent, the best in the country apart from the western region of Tibet.

    Chongqing posted double-digit growth in fixed asset investment and retail sales at 12.5 and 12.9 percent, respectively.

    Private investment grew 9.5 percent, making up more than half of total investment and diverging with national trends which have shown private investment growth shrinking to record lows.

    With a population of more than 30 million people, the municipality is one of central China's key transport hubs and has booming electronics, automobile and manufacturing sectors.

    Beijing and Shanghai grew 6.7 percent in the first half.

    China’s economy grew by a slightly more-than-expected 6.7 percent in the April-June quarter, aided by infrastructure spending, a housing boom and record bank lending, but cooling private investment is clouding the outlook and leaving growth more reliant on government spending and ever-rising debt.
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    China's July exports, imports fall more than expected

    China's exports and imports fell more than expected in July in a rocky start to the third quarter, suggesting global demand remains weak in the aftermath of Britain's decision to leave the EU.

    Exports fell 4.4 percent from a year earlier, the General Administration of Customs said on Monday, while adding that it expects pressure on exports is likely to ease at the beginning of the fourth quarter.

    Imports fell 12.5 percent from a year earlier, the biggest decline since February, suggesting domestic demand remains sluggish despite a flurry of measures to stimulate growth.

    That resulted in a trade surplus of $52.31 billion in July, versus a $47.6 billion forecast and June's $48.11 billion.

    Economists polled by Reuters had expected trade to remain weak but show some signs of moderating.

    July exports had been expected to fall 3.0 percent, compared with a 4.8 percent decline in June, while imports were seen falling 7.0 percent, following June's drop of 8.4 percent.

    China's exports underwhelmed despite still-strong shipments of steel and oil products. China has come under fire from major trading partners accusing the country of dumping its excess industrial capacity in global markets.
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    China Southern Power Grid Jan-Jul power sales up 2.8pct on yr

    China Southern Power Grid, a state-owned company transmits and distributes electricity to China's five southern provinces, reported total power sales of 505.3 TWh over January-July, a year-on-year rise of 2.8%, compared with an increase of 1.9% a year ago, showed the latest data from the National Development & Reform Commission (NDRC).

    Of this, power consumption of Hainan and Guangdong rose 7% and 4.8% on year, compared with increases of 5.7% and 4% over January-June; Guangxi followed with power use climbing 1.2% on year.

    Yunnan and Guizhou posted declines of 2% and 0.9% in its power consumption in the first seven months, compared with drops of 1.6% and 1.6% in the first half of the year.

    In July, electricity sales of the company stood at 88.4 TWh, up 6.7% from the year-ago level.

    Hainan, Guangxi, Guangdong and Guizhou all saw climbing power use, with rises being 12.6%, 9.1%, 8.3% and 2.4%, respectively.

    Power consumption of Yunnan dropped 3.9% on year in July.
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    Vedanta Resources aims to close merger with Cairn India in early 2017

    Mining and energy group  Vedanta Resources expects to complete its merger with Cairn India early next year, a move that would boost the firm's financial strength, Vedanta's CEO said on Friday.

    Vedanta is among the resource firms hit by a collapse in commodity prices and it is also facing legal action and activist protests over its operations in Zambia.

    In a speech to a London shareholders' meeting, CEO Tom Albanese said the rationale for the merger was compelling, which was why Vedanta announced improved terms in July.

    "The merger ... will contribute significantly to our overallfinancial strength, not least through a potential re-rating, which will lower our overall cost of capital," Albanese said, according to a copy of his speech.

    "We expect to close the transaction in the first quarter of 2017."

    The deal, which will give Vedanta access to oil and gasexplorer Cairn India's $3.5-billion cash pile, has faced opposition from some big minority shareholders, including British-based Cairn Energy, but Albanese said he did not foresee obstacles.

    Vedanta's debt to EBITDA ratio is 5.7 for 2016 compared with the level of around three analysts view as comfortable.

    Albanese told Reuters after the meeting that Vedanta had repaid close to $1.2-billion of bonds in the first quarter and had no further Vedanta Resources debt maturing until 2018.

    "We are committed to deleveraging the balance sheet," he said, citing a share price rally - the stock has almost doubled since the end of last year - as proof of market confidence.

    Albanese also predicted the commodity price slump has ended.

    "My own personal view is that for the first time in more than five years, most commodities will end this calendar year higher than they began the year," he said in his speech.

    To Reuters, he declined to comment on a case involving Vedanta's copper mining in Zambia because it is being litigated.

    Protesters, under the banner of the activist organisation Foil Vedanta, demonstrated at the shareholder meeting, chanting "shame, shame" and "looters, polluters" as executives walked in.

    In May, a high court judge decided that a claim could proceed in the English courts on behalf of 1 826 Zambian villagers seeking compensation following what they say is damage to their health and land caused by Konkola Copper Mines. Vedanta, which has a majority stake in Konkola, has appealed that decision and said Zambia is the appropriate jurisdiction. It expects to know the outcome of the appeal next year.
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    Oil and Gas

    Russia Sees No Need for Oil Freeze Talks Currently, Novak Says

    Russia sees no need for renewing discussion of an oil-output freeze at current crude prices, while leaving open the possibility for the future, Energy Minister Alexander Novak told journalists in Moscow Monday.

    “A basis for this has yet to develop, considering prices are still at more or less normal levels,” Novak said. “If prices will fall then that necessity will most likely arise.”

    Russia, Saudi Arabia and other major oil exporters met in Doha in April in a bid to stabilize global markets by putting caps on output. The effort collapsed as Saudi Arabia demanded that rival Iran join the pact. At the time, Iran had ruled out any limits as it ramped up production after the lifting of international sanctions.

    The Russian energy minister did not exclude the possibility that he could meet with his Saudi counterpart, Khalid Al-Falih, in Algiers next month.

    Members of the Organization of Petroleum Exporting Countries intend to talk about oil markets and potential cooperation with other producing nations at the International Energy Forum in Algiers in September, but there are no specific plans to renew the freeze, according to two delegates from the group who asked not to be identified.
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    Trafigura extends credit to China teapots to boost crude sales -sources

    Trafigura has extended the credit period for two independent Chinese refiners to buy crude, marking a more aggressive push by the global commodity trader to
    feed the growing appetite of so-called "teapot" refiners to import oil, sources said.

    Trafigura has sold at least 3 million barrels of Latin American crude, worth around $125 million at current benchmark prices, to teapots Shouguang Luqing Petrochemical Co Ltd and Huifeng Petrochemical Group, according to three trading sourcesm with knowledge of the transactions.  

    Delivered in May and June, Trafigura allowed the buyers to pay for the cargoes 90 days after loading, said these sources.  

    Normally suppliers offer a tighter 30 to 60 days to make payment.

    Teapots, which have boosted their imports after Beijing granted them import permits, are hungry to secure financing but the rush to purchase by the relatively inexperienced buyers has increased trading risks with cases when deals have soured.
    One trader with knowledge of the recent Trafigura deals said that these type of deals should suit the Swiss trading house given its extensive operations but other suppliers might not be prepared to conduct similar trades.

    "We will look very closely at how these deals unfold," another source, a senior oil banker, said. A Trafigura spokeswoman declined to comment when asked to
    confirm these deals.
    Under a "third-party processing" agreement, the Chinese counterparts committed to supply Trafigura with refined fuel,mostly gasoline, allowing the transactions to enjoy taxexemptions for the crude inflows and refined fuel exports, according to Chinese customs rules.

    Under one of the deals, Trafigura sold 1 million barrels of Venezuelan Merey crude to Shouguang Luqing, a 60,000-barrel-per-day refinery in eastern Shandong province, and received a commitment for 50,000 tonnes of gasoline, according
    to a Luqing procurement manager.

    Trafigura also sold to Huifeng Petrochemical, a 116,000-bpd teapot refiner, 1 million barrels of Colombian Vasconia crude and 1 million barrels of Argentinian Escalante, under the same terms, according a Huifeng official.

    Trafigura has emerged as one of the world's leading oil trading companies. It was the first to sell Iranian oil to teapots, selling part of a 2-million-barrel cargo on the Olympic Target tanker to at least two refiners.

    The first teapot crude import licences were only granted last year and they have become a key driver behind the 14 percent rise in China's oil imports and its bulging fuel surplus.

    Chinaoil, trading arm of China's state-run PetroChina, in July clinched a similar deal with Huifeng to supply 200,000 barrels of crude on credit and offtaking 10,000 tonnes of gasoline, said a trader with direct knowledge of the matter.
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    Iran oil storage

    The amount of Iranian oil on floating storage has decreased by

    2.0 M Barrels

    As the Navarz leaves the fleet

    The Current Amount Of Oil Stored

    46.6 M Barrels

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    China fuel exports hit record in July, crude imports up 1.2 pct

    China fuel exports hit record in July, crude imports up 1.2 pct

    China's fuel exports rose to a record in July as easing demand growth and a surplus in refined oil products pushed refiners to increase shipments to overseas buyers.

    The refined fuel exports surged 52.3 percent from a year ago to a monthly record 4.57 million tonnes, data from the General Administration of Customs showed on Monday.

    China imported 2.08 million tonnes of oil products in July, down 13 percent from last year, leaving net exports at 2.49 million tonnes, or 562,258 barrels per day (bpd).

    China's exports of fuel products have risen sharply this year, up around 46 percent for the January-July period, reflecting this year's swelling refinery throughput at private oil processors and adding to worries that refining margins might come under persistent pressure.

    "Growth in China's fuel exports will be strong throughout the third quarter," a Beijing-based trader said. "Refiners are starting to tighten crude runs as well as increase exports to balance the surplus in the domestic market."

    The domestic oil product surplus and rising crude stockpiles are dragging on growth in crude oil imports, which rose just 1.2 percent from a year ago to 31.07 million tonnes in July, or about 7.32 million bpd, the customs data showed.

    On a daily basis the volume was the lowest since January, and down from June's 7.45 million bpd. It was the second month that annual growth in crude imports had eased.

    Thomson Reuters' Research had estimated July's crude imports

    China's private or independent refiners, known as teapots, have been a main driver of crude imports, ramping up refinery runs despite the oil product glut and accounting for over half of incremental crude oil purchases in the first half of 2016.

    International trading houses as well as major oil exporting countries are eyeing this new group of crude buyers, who are rushing to fulfil their import quota before the year end.

    The National Iranian Oil Company (NIOC) sold a 2 million-barrel cargo to teapots in July, following rare shipments to the independents from Saudi Arabia and Kuwait.

    For the first seven months of the year, China imported 217.6 million tonnes of crude oil, or 7.46 million bpd, up 12 percent.
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    China-Bound VLCCs Surge to 3-Month High

    China-Bound VLCCs Surge to 3-Month High: BBG. Last gasp to fill the SPR?

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    Baker Hughes announces July 2016 rig counts

    Baker Hughes Incorporated announced today that the international rig count for July 2016 was 938, up 11 from the 927 counted in June 2016, and down 180 from the 1,118 counted in July 2015. The international offshore rig count for July 2016 was 226, up 3 from the 223 counted in June 2016, and down 38 from the 264 counted in July 2015.

    The average U.S. rig count for July 2016 was 449, up 32 from the 417 counted in June 2016, and down 417 from the 866 counted in July 2015. The average Canadian rig count for June 2016 was 94, up 31 from the 63 counted in June 2016, and down 89 from the 183 counted in July 2015.

    The worldwide rig count for July 2016 was 1,481, up 74 from the 1,407 counted in June 2016, and down 686 from the 2,167 counted in July 2015.
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    Western Europe’s Biggest Oil Producer Has a Surprise for Markets

    For Norway, the collapse in crude prices has a silver lining: output has exceeded expectations every month for the past two years.

    That’s likely to continue as oil companies boost efficiency and pump at full pace as revenue dwindles, according to the head of Petoro AS, the state-owned oil company that owns more than a quarter of the petroleum output in Western Europe’s biggest producer.

    “Improvement efforts and the focus on profitability have led to very high regularity,” Chief Executive Officer Grethe Moen said in a phone interview on Friday from Stavanger, Norway’s oil hub. “There’s no sign this won’t last, at least thus far.”

    Companies, led by state-controlled Statoil ASA, which operates about 70 percent of the fields, have slashed investments and sought to increase efficiency to combat a rout that has left oil prices 60 percent lower than two years ago. But even as spending on future production dwindles, current output has risen thanks to more efficient operations and past investments that have just started delivering barrels.

    Crude production in the Scandinavian nation has exceeded the Norwegian Petroleum Directorate’s forecasts each month since July 2014, while gas output has missed expectations in only three months over that time. The amount of oil pumped in the first six months of 2016 was 2.8 percent higher than expected, the NPD said in July.

    If oil production continued to exceed at the same pace for the remainder of the year, it would rise to 91.5 million cubic meters from 90.8 million cubic meters in 2015, Bloomberg calculations based on NPD figures show. That would defy a forecast drop and mean output unexpectedly rose for a second year. It would also be a third consecutive annual increase, after output halved from a peak in 2000 .

    Gas output has beaten forecasts by 12 percent this year, on pace to surpass last year’s record 117.2 billion cubic meters.

    That’s balm for the government, which is this year being forced to dip into its $880 billion wealth fund for the first time to make up for budget shortfalls. Direct income from its oil and gas fields, the cash it gets from Petoro, fell to a 13-year low in the second quarter.

    For now, it’s hard to know how much of the companies’ cuts are actually lasting improvements, the Petoro CEO said. Savings need to be found in areas where they don’t only hurt the supply companies, which have been put under tremendous pressure to reduce the prices they charge for services and equipment from engineering and drilling to catering and platform construction.

    “You also need to talk about real efficiency improvements,” Moen said. “It’s important to have a sustainable supplier industry in Norway, which can both deliver efficient products and develop the new technology that allows us to take the next step forward.”

    Referring to the merger of Det Norske Oljeselskap ASA and BP Plc’s Norwegian unit, Moen said it wouldn’t be “unnatural” that the market downturn also led to a change in the industry structure through more transactions.

    “What’s important to us is that we have a diversity of companies that have the ability to implement projects,” she said.
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    Libya Starts Work at Biggest Oil Port to Increase Output

    Libya has started maintenance work at Es Sider port, the nation’s largest oil export terminal, as part of plans to increase output from Africa’s biggest holder of crude reserves.

    Exports should resume in a month once official orders are received to reopen the port, Galal Mohamed, head of operations at Waha Oil Co. , said in a phone interview Sunday from Libya’s eastern city of Ras Lanuf. Es Sider, operated by Waha Oil, has been closed since December 2014 when armed groups attacked the port. The state National Oil Corp. has engineers and other workers at the port to evaluate damages and decide when to resume exports, NOC’s Ibrahim Al-Awami said by phone.

    “We haven’t received official orders to reopen the port and resume exports, but there were intensive meetings with the National Oil Corp. officials last week to discuss this,” Mohamed said. Six of the port’s 19 storage tanks are damaged from fighting over the last two years, he said.

    Libya is seeking to boost crude production after rival leaders agreed last month to unify the state NOC under a single management. The bulk of the country’s oil infrastructure is either damaged or straddles disputed territory as armed factions fought for control of producing fields. The nation pumped 300,000 barrels a day of oil in July, compared with as much as 1.78 million a day in 2008, three years before a revolt led to the overthrow of the regime of Moammar al Qaddafi, according to data compiled by Bloomberg.

    Oil Ports

    Waha Oil will be able to produce 75,000 barrels a day in the first six months after resuming operations, Mohamed said. Waha fields stopped producing in 2014 after the Es Sider oil port was halted. Es Sider has export capacity of 340,000 barrels a day.

    Libya’s unity government announced July 28 an agreement to pay salaries to Petroleum Facilities Guard members in exchange for reopening the ports of Es Sider, Ras Lanuf and Zueitina. The NOC said the resumption of exports from the ports and the release of budget money to the company would help boost production by more than 900,000 barrels a day by the end of the year.

    NOC is working to overcome “difficulties and technical problems in the entire oil fields,” it said in a statement on its website Sunday.
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    Total commences production at Bolivian gas field

    Total has released a statement claiming that it has started production at the Incahuasi gas and condensate field in Bolivia. The development is the company’s first in Bolivia, and has a production capacity of 50 000 boe/d. The field is located over 5600 m beneath the Andean foothills, and 250 km from Santa Cruz de la Sierra, Bolivia. The development is operated by Total (50%), alongside partners Gazprom (20%), Tecpetrol (20%) and YPFB Chaco (10%).

    The President of Total Exploration & Production, Arnaud Breuillac, said: “Incahuasi is one of the largest gas and condensate fields brought on stream in Bolivia. Incahuasi’s production will contribute to Bolivia’s gas exports to Argentina and Brazil as well as domestic consumption.

    “Delivered within budget, Incahuasi is the fourth start-up this year and as a low-cost project with a long production plateau, it will contribute to the Group’s production growth in 2016 and beyond.”

    The first phase of the field development will involve three wells, a gas treatment plant and 100 km of associated export pipelines. The second phase is currently being considered, and would involve an additional three wells.
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    Iran eyes European gas exports through German trader

    The National Iranian Gas Co. (NIGC) is in talks with a “well-credited” unnamed German company concerning gas trading, a deal that could pave the way for exports and gas shipments to Western Europe, Kallanish Energy understands.

    According to Iranian state news agency Shana, NIGC’s director of international affairs, Azizollah Ramezani, said “talks are underway for Turkmen gas swap with Azerbaijan through a private company.”

    The official added Iran aims to increase its global gas trade and is currently negotiating with Oman, Kuwait and the UAE. The Iranian ambition to expand its global share will cover liquefied natural gas (LNG) markets in Turkey, Armenia, Azerbaijan, Afghanistan, eastern and western Europe, India, China and Southeast Asia, he said.

    Major international firms such as Gazprom, Siemens, SK Telecom and Kogas have already signed contracts with NIGC, covering cooperation in natural gas, LNG, financing, natural gas storage among others, Ramezani revealed.
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    Sound Energy boosted by Morocco gas discovery

    An Aim-listed oil and gas explorer will today claim that its prospects could be “transformed” after making a “material” discovery with a well in Morocco.

    Sound Energy, which is a member of London’s junior market, will confirm that the gas encountered by its TE-6 onshore well in the Tendrara licence in the north east of the country is a “significant” discovery and is flowing at “a highly commercial rate” of 17.5m standard cubic feet per day.  

    The company will now press on with its second well in the licence area and is planning a third for later in the year.

    “I am absolutely delighted to confirm a material commercial gas discovery at Tendrara,” said James Parsons, Sound’s chief executive who has previously spent 12 years working for oil major Royal Dutch Shell.

    He claimed that Tendrara together with the adjacent Meridja permit area, in which Sound also has a stake, “have the potential to be a material hydrocarbon province on a regional scale and therefore to transform both Sound Energy and the Moroccan gas industry”.

    Confirmation of Sound’s find at the Tendrara licence, in which it owns a 27.5pc stake, has been highly-anticipated by investors, with the explorer’s shares almost trebling in the last month to 59¾p, valuing the company at about £315m. The company will say today that the flow rate of TE-6 is “significantly above initial expectations”.  

    Sound’s partners on Tendrara include the American oilfield services giant Schlumberger and Morocco’s Oil & Gas Investment Fund. The explorer also has assets in Italy.
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    The oil rig count keeps growing in Texas

    Companies added more drilling rigs to the Texas oilfields as the total U.S. rig count continues to grow.

    The number of rigs actively seeking oil grew by seven this past week, and all of them in Texas’ Permian Basin or Eagle Ford shale. The overall rig count only grew by one, because the amount of rigs drilling for natural gas fell.

    The total rig count is now at 464 rigs, up from an all-time low of 404 rigs in May, according to data from the Baker Hughes oil field services firm. Of the total tally, 381 of them are primarily drilling for oil.

    The resilient Permian Basin in West Texas added five rigs in the past week, while the Eagle Ford tacked on four additional rigs. However, northern Texas’ Barnett shale lost a rig, as did Colorado’s DJ-Niobrara region.

    Despite this week’s jump, the oil rig count is down 76 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

    Apart from the Permian, other additions included three more rigs in Texas’ Barnett shale, two in the Eagle Ford, and one in the Granite Wash in the Texas Panhandle

    After dipping below $40 a barrel early this week, the price of crude oil has since rebounded to nearly $41.50 a barrel. The price of U.S. oil hit a low $26.21 on Feb. 11.
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    Oil Refiners Cry Foul as ‘RINsanity’ Returns Amid Margin Squeeze

    While oil is mired in a bear market, prices in an obscure corner of the fuel world are only going higher.

    Renewable fuel credits surged 32 percent in the past two months, even as oil slumped. This year, U.S. refiners from CVR Refining LP to Valero Energy Corp. will pay $1.8 billion for the credits, known as RINs, adding to the pain of the lowest summer profit margins in five years. The market has gotten so frothy that fuel makers are looking to increase exports to avoid the cost and ethanol lobbyists are calling for an investigation into potential price manipulation.

    "RINs continue to be an egregious tax on our business and have become our single largest operating expense, exceeding labor, maintenance and energy costs," Jack Lipinski, chief executive officer of CVR Refining, said last week in the company’s second-quarter earnings call. "As a matter of fact, RINs are double our labor cost."

    A Renewable Identification Number, or RIN, is created along with each gallon of ethanol or biodiesel that’s produced. Refiners and importers need to meet a biofuel quota set by the government, either through blending fuel with ethanol or buying RINs. Companies that don’t operate retail gasoline stations are feeling a growing financial burden from the rising costs, as they are unable to generate the credits by blending biofuels with the petroleum-based fuels they produce.

    Prices for 2016 ethanol credits rose to 97.75 cents July 13, according to data from Progressive Fuels Ltd. compiled by Bloomberg, and were pegged at 91.25 cents Wednesday. The credits last rose this high in 2013, when government quotas for using biofuels such as ethanol were increasing faster than gasoline demand, leaving fuel makers with an obligation they couldn’t meet by blending ethanol into gasoline. This year, similar fears of a credit shortage are driving prices higher.

    The 2016-vintage credits are forecast to average 95 cents each this quarter, the highest quarterly cost on record, according to Tudor Pickering Holt & Co. The prior high was set in the third quarter of 2013 at 85 cents, during the summer of RINsanity.

    "It’s called RINsanity the sequel," said Andy Lipow, president of Houston-based Lipow Oil Associates LLC. "The reason that it’s the same as 2013 is because we see an ever-increasing amount of renewable fuels being mandated into a pool that, for a variety of reasons, cannot be accommodated."

    Program Complaints

    On Thursday, the American Fuel and Petrochemical Manufacturers trade group petitioned the Environmental Protection Agency to shift the responsibility of program compliance with distributors who blend gasoline with ethanol for delivery to filling stations, not with refiners who make the petroleum-based fuels. The appeal comes six months after Valero, the country’s largest independent refiner, sued the agency that enforces Renewable Fuel Standard program. Valero and the others believe the blending program needs restructuring to even the playing field.

    "The simple fact is that RINs were intended to be a certificate of compliance under the RFS, not a method of extracting value or creating winners and losers based on asset configuration in the value chain," George Damiris, HollyFrontier Corp.’s chief executive officer, said on the company’s second-quarter earnings call.

    This week the biofuel industry’s top lobbyist, the Renewable Fuels Association, urged Timothy Massad, the U.S. Commodity Futures Trading Commission Chairman, to investigate potential manipulation in the RIN market.

    "While various theories have been advanced, the real reasons for this dramatic increase in RIN prices remain unclear. Basic market fundamentals suggest RIN prices should have remained stable — or fallen — following the proposal’s release," Bob Dinneen, president of the Renewable Fuels Association wrote.

    Goldman Sachs analyst Neil Mehta downgraded PBF Energy Inc. to neutral in late June, citing higher RIN costs. "We view higher RINs prices as a headwind for merchant refiners without large retail/wholesale businesses," Mehta wrote in a June 29 note.

    More Exports

    Merchant refiners like PBF and Valero may find some relief from rising RIN costs by exporting the fuels that would otherwise come with an obligation to buy the credits. And just as exports provide relief from RINs, some importers of gasoline and diesel will bear a bigger burden.

    "Since fuel importers incur a liability to hold RINs for the gasoline they send to the U.S., the rising price of the credits is a potential stumbling block for importers," Robert Campbell, head of refined products research at Energy Aspects, wrote last month. Campbell also noted that prices fell sharply after 2013’s surge.

    "Pricing in the RINs market is notoriously opaque and volatile, and we would not be surprised if prices were to fall back suddenly," he said.

    PBF has been taking steps to increase its export capabilities in refineries acquired from Exxon Mobil Corp. Gasoline export cargoes began to depart from Chalmette, Louisiana, in the first quarter after PBF made repairs to the marine facilities that Exxon left in "disrepair." The newly-acquired Torrance, California, refinery near Los Angeles may also provide fresh outlets for PBF’s gasoline.

    "Very, very importantly, we want to get into the export market," Thomas Nimbley, PBF’s chief executive officer, said on the company’s second-quarter earnings call. We see the benefits "both from a RINs perspective and an overall netback standpoint," he said.
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    Crew Energy announces second quarter 2016 results

    Crew Energy Inc. is pleased to announce our operating and financial results for the three and six month periods ended June 30, 2016, and an update on the Company's continued progress developing our world-class Montney assets in northeast British Columbia.


    Achieved production of 21,950 boe per day, 24% higher than the same period in 2015, and 8% lower than the previous quarter, reflecting reduced capital spending, lower activity levels and the continued shut-in of uneconomic production during the second quarter;

    Generated funds from operations of $16.0 million ($0.11 per diluted share), 37% higher than the first quarter of 2016, primarily attributable to materially lower cash costs and improved oil and liquids pricing;

    Lowered total cash costs per boe by 28% over the same period in 2015, highlighted by a 31% reduction in operating costs per boe, a 42% reduction in general & administrative expenses per boe, and a 62% reduction in royalties per boe year over year;

    Successfully lowered operating costs to $6.04 per boe, 6% lower than the previous quarter, with operating costs at Septimus and West Septimus ('Greater Septimus') falling 9% from first quarter 2016 to average $4.02 per boe;

    Completed our second quarter capital program investing $15.1 million in the quarter with approximately 84% allocated to drilling, completions, equipping and tie-in, including approximately $7.6 million that was directed to completing wells at Greater Septimus;

    Continued to enhance drilling and completion techniques at Greater Septimus, achieving record low well costs between $3 and $3.5 million to drill, complete, equip and tie-in;

    Improved completion design in three wells at West Septimus which materially improved flow test rates that averaged 11 mmcf per day over a five to eighteen day flow test period at an average flowing casing pressure of 1,120 psi;

    Successfully completed a well at Septimus in a new Lower 'B' Upper Montney Stratigraphic interval that achieved a production rate of 8.7 mmcf per day at an average flowing casing pressure of 1,730 psi at the end of a five day test period; and

    Maintained ongoing financial flexibility and a strong balance sheet with quarter-end net debt that was $3.1 million lower than the previous quarter at $242.7 million, including $150 million of senior notes (including deferred financing costs) and $97.2 million of bank debt or 41% drawn on the Company's $235 million credit facility
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    Alternative Energy

    Tesla says Gigafactory costs may exceed expectations

    Tesla Motors Inc said the cost of building and operating the Gigafactory could exceed the company's current expectations.

    The Gigafactory may also take longer than anticipated to come online, the electric carmaker said in a filing on Friday.

    Tesla, which is buying solar panel installer SolarCity Corp for $2.6 billion in shares, unveiled the massive battery factory, the Gigafactory, in Nevada last week.
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    Nevada high court ruling delays solar net metering vote: analyst

    Nevada voters will not have a chance to voice their opinion on the state's phaseout of solar retail net metering until 2018, as a result of Thursday's state Supreme Court decision, an industry observer said Friday.

    In a unanimous decision, the seven-member court supported a lower court's decision to issue an injunction against the referendum being on the November ballot, but for a different reason than the lower court's rationale, which was that the No Solar Tax PAC's petition improperly sought to ask voters to vote on an initiative, rather than a referendum.

    Under Nevada law, an initiative is an attempt to enact new law by a direct vote of the people, but such an initiative must first be offered for the state Legislature to act. If the Legislature takes no action on the proposal, voters may petition for the placement of an initiative on the ballot for a vote.

    In contrast, a referendum is used to allow voters a voice in existing law -- either affirming or rejecting -- and the advocates of the solar net metering ballot proposal said they sought to have voters reject certain portions of existing law, but the state district court disagreed with No Solar Tax PAC's argument, thus favoring the referendum's opponents, a utility-backed group known as Citizens for Solar Energy and Fairness.

    But the referendum/initiative issue was not the basis of the Supreme Court's affirmation of the lower court's injunction against the proposal being on the ballot. Rather, the Supreme Court affirmed the lower court ruling because the petition's description was "not only inaccurate and misleading, but also argumentative."

    Timothy Fox, an alternative energy research analyst at ClearView Energy Partners, said his firm expected the court's ruling to invalidate the proposed referendum.

    "This decision postpones (but does not prohibit) a subsequent election-year initiative in 2018 that could reinstate retail rate net metering in Nevada," Fox said in an email Friday. "The Nevada constitution provides solar advocates the opportunity to start over and file a proposed initiative that would be considered by the legislature before it could go to the voters during the 2018 election."

    Thursday's Supreme Court order noted that under state law, "petitions for referendum must 'set forth, in not more than 200 words, a description of the effect of the initiative or referendum if the initiative or referendum is approved by the voters.'"

    "This court reviews descriptions of effect to determine whether the description identifies the petition's purpose and how that purpose is to be achieved, in a manner that is 'straightforward, succinct, and nonargumentative,'" it said.

    The retail net metering referendum petition's description of effect inaccurately described the referendum as merely affecting the state rules on rates and charges, but the referendum would have removed the Public Utilities Commission of Nevada's "power to set net metering rates altogether, a consequence that is not mentioned," the order said.

    The description also states that the referendum is designed "to preserve the net metering program 'as the program has historically been implemented,'" which the order states is untrue. Before the end of retail rate net metering, Nevada has had a cap on net metering, but the referendum was not designed to restore the cap.

    "Finally, the description is argumentative, using terms that are not in the statutory language, such as 'green energy,' and asserting that the PUCN-set rates and charges are 'unaffordable and cost-prohibitive,' while the rejection of the referred language would allow the program to continue at a rate that is 'reasonable,'" the order said.

    Fox said that ClearView Energy Partners is "seeing a trend in which solar advocates are 'pivoting to the people' to have important electric rate design decisions influenced -- if not decided -- in the court of public opinion."

    "Solar supporters may be disappointed by yesterday's court decision, but we think these efforts may continue in Nevada and elsewhere," Fox said.

    But other events may mitigate the action already taken by Nevada's PUC, Fox noted.

    Some Nevada lawmakers have said they did not expect the change in net metering to affect those who already have rooftop solar panels, and ClearView expects Governor Brian Sandoval's energy task force to allow existing solar customers to maintain their retail rate net metering arrangements, Fox said.

    "Similarly, Nevada's main utility NV Energy on July 28 filed applications to allow solar customers as of the end of 2015 to be grandfathered in under the net metering program," Fox said.
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    Precious Metals

    Osisko reports 133% cash flow increase in Q2, sees record revenues, gold ounces earned

    Osisko reports 133% cash flow increase in Q2, sees record revenues, gold ounces earned

    Precious metals royalty company Osisko Gold Royalties has seen a 133% year-on-year increase in cash flows from operating activities, reporting $15-million in cash flow achieved in the three months to June 30, on the back of record revenues and gold ounces earned.

    The TSX- and NYSE-listed company reported revenues of $15.8-million in the period under review, a 54% increase compared with the second quarter in 2015; it also earned 9 488 gold ounces, a 38% increase year-on-year.

    Osisko attributed this revenue increase, which extends to the first half of the year, to higher in-kind royalties earned and sold. Gold royalties earned from the Canadian Malartic mine, acquired in 2014 by Yamana Gold and Agnico Eagle, increased by 492 oz, or 4%, as sales increased by 514 oz.

    The company also earned and sold 3 655 oz of gold from Goldcorp’s Québec-based Éléonore mine, compared with nil earned and sold in the first six months of 2015. In addition, Osisko received and sold 651 oz of gold from its Island Gold mine’s net smelter return (NSR) royalty and 221 oz of goldfrom its Vezza NSR royalty.

    The average selling price of gold per ounce in Canadian dollars was also higher in the first half of 2016 at $1 633, compared with $1 483 in the first half of 2015.

    Meanwhile, Osisko’s net earnings for the second quarter amounted to $15.7-million, or $0.15 per basic share, while cash and cash equivalents as at June 30 were $424.5-million.

    Further, the company saw a significant increase in the closing share price in the first half of 2016, from $13.67 to $16.89, compared with a decrease in the first half of 2015, from $16.36 to $15.72. This generated a higher share-based compensation expense on the deferred share units and the restricted share units.

    The company’s half-year operating income amounted to $11.9-million, compared with $7.1-million achieved in the corresponding period of 2015. This could be attributed to higher revenues generated from the sale of gold and silver, lower business development expenses and higher cost recoveries from associates, partially offset by the depletion of royalty interests and higher general and administrative expenses.

    The increase in general and administrative expenses is mainly due to a higher share-based compensation expense. The lower business development expenses are due to the $2.2-million in fees incurred in 2015 for the acquisition ofVirginia, partially offset by a higher share-based compensation expense. Total share-based compensation for the first half of 2016 amounted to $4.8-million compared to $2.4-million in the corresponding period of 2015.

    "During the past two years, we have successfully establishedOsisko Gold Royalties as the fourth-largest precious metals royalty company with flagship royalties on two of Canada's largest and most modern gold operations,” said Osisko chairperson and CEO Sean Roosen, commenting on the results.

    He added that, through the implementation of the company’s incubator model, Osisko had been able to establish future growth opportunities with emerging precious metals miningcompanies.

    The company in April entered into a 1% NSR royalty agreement with Arizona Mining on the Hermosa silverproject, in Tucson, Arizona, for a cash consideration of $10-million.

    It also entered into a $10-million financing agreement withFalco Resources in May for a future stream financing or a 1% NSR royalty on the Horne 5 project, located in Rouyn-Noranda, Québec and, most recently, Osisko began trading on the New York Stock Exchange on July 6.

    “We are also very encouraged by the results of the explorationprogrammes on properties in which Osisko Gold Royaltieshas royalty interests. We will continue to pursue value-enhancing opportunities to support our growing dividend distribution policy," said Roosen.

    The company expects to continue its explorationprogrammes in the James Bay area for about $10.3-million in 2016 ($8.3-million net of estimated exploration tax credits), of which about $3.8-million will be financed by Québecinstitutions and other partners.

    As at June 30, the company had spent $3.2-million onexploration and evaluation activities.

    Osisko noted that its 2016 outlook on royalties was based on publicly available forecasts, in particular forecasts for theCanadian Malartic mine, published by Yamana and Agnico Eagle, forecasts for the Éléonore mine, published by Goldcorp, and forecasts for the Island Gold mine, from Richmont Mines.

    The company advised that attributable royalty production for 2016 was still estimated at 28 000 oz to 29 000 oz of gold for the Canadian Malartic mine, between 5 500 oz and 6 200 oz of gold for the Éléonore mine, and between 1 000 oz and 2 000 oz from other royalties.


    On the back of its second-quarter results, Osisko declared a third-quarter dividend of C$0.04 a share.

    "We are pleased to announce our eighth consecutive quarterly dividend, which demonstrates the strength of our high-quality income-producing royalties,” said Roosen, adding that, with this dividend, Osisko will have returned approximately C$26.6-million to its shareholders.

    “We will seek to responsibly increase this dividend as we continue to expand our cash flows from our portfolio of royalties and investments," he said.
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    Base Metals

    Goldman warns ‘supply storm’ to engulf global copper market

    A storm’s about to hit the global copper market, according to Goldman Sachs Group Inc., which forecasts that the price may slump to $4 000 a metric ton over 12 months as mine supply picks up, producers enjoy lower costs and demand growth softens.

    “Company guidance and our estimates suggest that copper is entering the eye of the supply storm,” analysts including Max Layton and Yubin Fu wrote in an e-mailed report received on Friday. A drop to $4 000 would be a 17% slump from Thursday’s close on the London Metal Exchange.

    Copper has lagged gains seen in other raw materials so far this year, especially zinc and nickel, which have benefited from forecasts for global shortages. For copper, there’s been solid growth in global mine supply in the first half and that trend is expected to pick up in the coming quarters, according to Goldman.

    “This ‘wall of supply’ is expected to translate into highercopper smelter and refinery charges and ultimately, higher refined-copper production, set against softening demand growth,” Layton and Fu wrote. The metal is seen at $4 500 a ton in three months and $4 200 in six, they said, reiterating targets.

    Pipes and Wires

    Copper for delivery in three months – which last traded below $4 000 a ton in 2009 – was at $4 833 on the LME at 11:04 a.m. in Singapore, heading for a weekly loss. The metalused in pipes and wires has risen 2.7% this year, while zinc has surged 40% and nickel has advanced 20%.

    In July, Barclays Plc said supply may exceed demand every year through to 2020. The month before, Stephen Higgins, who heads Freeport-McMoRan Sales Company Inc., a division of the largest publicly traded copper miner, said more production has come on stream at a time demand growth in China has slowed.

    For Goldman, the main expansion in mine supply through to the first quarter of 2017 is expected to come from theGrasberg mine in Indonesia, Escondida in Chile and Sentinel in Zambia, according to the report. Growth from Cerro Verde and Las Bambas in Peru may also contribute, it said.

    To gauge the outlook for supply, Goldman tracks 20 companies that account for about 60% of worldwide production, according to the report. These 20 raised output 5% on-year in the first half of 2016, and are expected to increase that to as much as 15% in the coming quarters, it said.
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    China’s July copper imports down 16% m-o-m

    China’s imports of unwrought copper and copper-fabricated products fell 16% month-on-month in July, although they were up 3% year-on-year, according to preliminary Chinese customs data released on Monday August 8.

    In July, China imported 360,000 tonnes of copper and copper-fabricated products, compared with 430,000 tonnes in June and 348,270 tonnes in July last year. The country imported 3.09 million tonnes of copper and copper-fabricated products during the first seven months of this year, up 19.5%
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    Steel, Iron Ore and Coal

    China Shanxi province-owned large coal miners can extend debt maturities - Xinhu

    China Shanxi province-owned large coal miners can extend debt maturities - Xinhu

    Seven large Shanxi province-owned coal miners will be permitted to extend the maturities of some existing debt, the official Xinhua news agency reported Sunday, citing a document released by the Shanxi branch of China's banking regulator.

    The document directs Shanxi banking sector institutions to help the firms convert short term liquidity loans into medium and long-term loans, Xinhua reported.

    The Shanxi office of the China Banking Regulatory Commission could not be reached for comment.

    China's coal industry, the largest in the world, has been punished by a brutal collapse in coal prices since late 2014. Despite a moderate recovery in recent months, Chinese benchmark thermal coal prices remain around 30 percent lower than in 2014.

    China's legacy coal and steel regions have also been struggling to refinance themselves through conventional lenders, resulting in widening bond defaults in provinces like Shanxi and Liaoning. A recent Reuters analysis of central bank data found sharply rebounding dependence on expensive "shadow bank" finance in China's rust belt as traditional lenders retrenched.
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    Shanxi coking coal output drops 17pct in H1

    Shanxi province produced 206.09 million tonnes of coking coal in the first half of the year, dropping 19.2% from a year ago, showed data from China Coal Resource.

    The January-June output accounted for 38.8% of China's total coking coal production over the same period, which was reported at 531.11 million tonnes, down 12.1% year on year.

    In June, the province produced 36.45 million tonnes of coking coal, down 26.4% on year but up 11% on month, data showed.

    The output of the province's washed coking coal declined 16.8% on year to 80.32 million tonnes over January-June. That accounted for 37.9% of the national total washed coking coal output, which stood at 212.07 million tonnes, down 11.3% from the year prior.

    In June, Shanxi produced 13.66 million tonnes of washed coking coal, sliding 28% on year but up 2.6% on month.

    China's consumption of coking coal was on the decline, mainly attributed to the dropping coke productions.

    A total 258.87 million tonnes of coking coal was consumed in the first half of the year, down 2.6% on year, with consumption in June rising 2.3% on year and up 0.3% on month to 46.29 million tonnes.

    China's coke output dropped 4.4% on year to 215.77 million tonnes over January-June, with June output edging up 0.5% on year to 38.54 million tonnes.

    China's coking coal prices were climbing as coal production cuts continued amid 276-workday reform and steel and coke prices were hovering higher. Meanwhile, persistent low coke stocks amid disrupted deliveries previously and frequent environmental checks recently also helped the market to gain upward strengths.

    By August 5, Fenwei CCI Met Index assessed low-sulfur primary coking coal in Liulin of Shanxi at 658 yuan/t, a rise of 138 yuan/t since this year.

    Attached Files
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    Exxaro advises of higher H1 operating profit, attributable earnings

    Diversified miner Exxaro Resources expects its consolidated net operating profit for the six months ended June 30, to be between R175-million and R359-million, or between 10% and 20%, higher than that reported in the first half of 2015.

    The increase is owing to higher coal sales volumes, albeit at lower average realised selling prices.

    Attributable earnings are expected to be between R14-million and R123-million, or between 1% and 11%, higher than the comparative period, primarily as a result of the higher net operating profit contribution from the coal business, but partially offset by lower equity-accounted earnings from investments.

    Attributable earnings a share are, therefore, expected to be between 333c and 363c apiece.

    Headline earnings a share are, however, expected to be between 284c and 310c, or between 2% and 6% lower than that reported in the prior comparable period.

    Exxaro will release its interim results on August 18.
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    China July iron ore imports hit 2016 high, steel exports ease-customs

    Chinese iron ore imports rose 8.3 percent in July from the previous month to hit its second-highest on record, customs data showed on Monday, as underlying demand for the raw material in the world's top buyer remained strong.

    Shipment climbed to 88.4 million tonnes in July, the highest since December and up 2.7 percent from a year ago, data from the General Administration of Customs showed.

    For January to July, imports rose 8.1 percent from the same period the year before to 582.05 million tonnes.

    "I'm not really surprised because a lot of overseas suppliers wanted to increase their shipments to take advantage of the price recovery," said Helen Lau, an analyst with Argonaut Securities in Hong Kong.

    "Imports should stay around these levels in the next few months unless the price increases to $65 to $70 which should encourage domestic output."

    A 30 percent surge in steel prices since late May has driven Chinese steel mills to maintain high production and restock on the raw material, despite surging inventories at home. Spot iron ore prices .IO62-CNI=SI have risen 27 percent since June.

    The rapid growth in imports has driven stockpiles at main Chinese ports CUS-STKTOT-IORE to 108.06 million tonnes as of Aug. 5, the highest since September 2014, data from industry website showed. Inventories have been above 100 million tonnes since July.

    China's steel exports in July dropped 5.9 percent from June to 10.3 million tonnes, the data showed. But exports remain high as steel mills keep shipping out products, despite complaints of dumping from other regions including the United States and Europe.

    Total exports for the first seven months of 2016 rose 8.5 percent to 67.41 million tonnes from a year ago.
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    U.S. locks in hot-rolled steel dumping duties on seven countries

    The U.S. Commerce Department on Friday set final anti-dumping duties on hot-rolled flat steel from Japan, South Korea, Turkey, Britain, Brazil, the Netherlands and Australia on Friday, locking in import taxes of 3.7 percent to about 34.3 percent for five years.

    The ruling, which could still be overturned by the U.S. International Trade Commission, is the latest in a series of U.S. actions aimed at fighting a glut of steel imports as China's economy slows and demand remains weak elsewhere.

    The department also imposed final anti-subsidy duties of 3.9 to 11.3 percent against most steelmakers in Brazil, Turkey and South Korea, but slapped 57 percent anti-subsidy duties on top Korean steelmaker POSCO and Daewoo International Corp.

    The final duty rates follow preliminary determinations in January and March.

    The highest anti-dumping taxes of 34.3 percent were imposed against Brazil's Usiminas, with all other Brazilian producers facing 33.1 percent margins and just over 11 percent anti-subsidy duties.

    The Brazlian government has threatened to challenge the U.S. duties before the World Trade Organization.

    Britain's Tata Steel UK saw its U.S. anti-dumping margin reduced from nearly 50 percent in the preliminary finding to about 33 percent, while Tata Steel's Netherlands operations faces final dumping duties of 3.73 percent.

    Used in automotive applications, construction, tubing and heavy machinery, hot-rolled steel imports from the seven countries more than doubled to nearly $2 billion last year, with the largest share, about $650 million, coming from South Korea.

    The International Trade Commission is due to decide by late September whether the imports from these countries were unfairly traded and had caused injury to domestic producers.

    At a hearing on the issue on Thursday before the commission, American steel executives argued that Chinese mills were overproducing steel of all types, causing a global supply glut that has prompted steelmakers elsewhere sell hot-rolled product below cost into the United States, the only market with significant demand. This caused prices to plunge and several U.S. steel mills to be idled last year.

    "Globally, demand for steel is very anemic. There is every incentive in the world for foreign producers to ship product --dump product -- into the United States," said Richard Blume, general manager of U.S. steelmaker Nucor Corp "Basically, they are exporting their unemployment to the U.S."

    South Korean steel producers argued in briefs in the case that imports were not to blame for the hot-rolled price drop in the United States.

    Instead, they said the lower prices were due to falling demand for oil drilling pipe, lower raw material costs, and shipping bottlenecks that caused West Coast industries to turn to Asian suppliers.
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