Mark Latham Commodity Equity Intelligence Service

Friday 29th April 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Oil loses commodity trade crown to unlikely challenger: rebar


    Crude oil futures, long the king of commodity trading, have lost their dominant position as the world's most traded and valuable derivative in the resources sector to an unlikely challenger: Chinese rebar.

    Soaring volumes as well as a price jump since the beginning of the year have seen Shanghai rebar steel futures move past both major crude benchmarks, international Brent futures and U.S. Texas Intermediate (WTI), in April to make it the world's most traded commodity futures.

    In an unprecedented jump, the most traded contracts of Shanghai-based steel derivative traded over 129 million lots of 10 tonnes each to date in April, up from roughly 65 million this month last year.

    That put their monthly value at $487 billion, based on average April prices, according to Reuters calculations.

    Trading in West Texas Intermediate's most active contract, the most liquid crude futures contract, was worth around $479 billion in April.

    Although analysts said that the spike in rebar trading might be overblown, some felt the steel sector, including raw material iron ore, had the potential to challenge crude's dominance in the long-term.

    "I wouldn't rule out the (steel futures) market being bigger (than crude) in terms of liquidity," said UBS commodities analyst Daniel Morgan in Sydney, adding rebar and iron ore trades were "a deep liquid way to express views on the steel sector and the Chinese economy."

    And volumes aren't just rising in China's steel market, but also its core raw material, iron ore.

    "Strong iron ore volume growth has... been accompanied by rising open interest and deepening liquidity across the forward curve, as more industry participants continue to adopt greater use of derivatives for price risk management," said Adrian Lunt, head of commodities research at Singapore Exchange (SGX).

    In China, the steel trading surge comes as huge amounts of speculative money has poured into its commodities markets since the beginning of the year, and especially this month, triggering fears of a bubble and prompting exchanges and regulators to introduce more restrictive trading rules.

    Many analysts, therefore, think that steel's dominance in the commodities world will be short-lived and that globally traded crude will retake the throne soon.

    Besides, crude's importance as the fuel for global transport ensures its ongoing lead in physical trading.

    "Oil is the most important commodity globally for the physical trade. There's no doubt about that. The physical (steel) trade will never be as large as the physical trade for oil," UBS's Morgan said.

    http://www.reuters.com/article/oil-steel-trading-idUSL5N17V043
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    Xinjiang Q1 outbound electricity transmission up 30.1pct on year


    Xinjiang supplied 9.2 TWh electricity to end users outside the northwestern autonomous region in the first quarter this year, climbing 30.1% from a year ago, said the Xinjiang Development and Reform Commission.

    The electricity transmitted via the Hami-Zhengzhou ±800 KV DC transmission line, which extends from Hami of eastern Xinjiang to Zhengzhou in Henan province, stood at 8.08 TWh or 87.83% of the total outbound transmission.

    During the same period, Xinjiang’s power generators connected to grids generated 53.74 TWh of electricity, rising 13.1% year on year, withoutput in March reaching 18.61 TWh, up 13.5% on year.

    Over January-March, thermal power output reached 46.62 TWh or 86.8% of the total, rising 13.3%; hydropower output was 2.6 TWh or 4.8% of the total, up 52.1% from the year prior.

    Wind power output declined 2.3% on year to 3.18 TWh during the same period, accounting for 5.9% of the total output. And solar power was 7100 GWh or 1.3% of the total, dropping 15.4% compared with the year-ago level.

    Meanwhile, electricity consumption in Xinjiang increased 11.79% on year to 40.79 TWh in the first three months.

    During the same period, the residential segment stood at 1.81 TWh, up 10.10% on year.

    For the non-residential segment, the primary (primarily agricultural sector), secondary (primarily industrial sector) and tertiary (primarily services sector) industries consumed 1.56 TWh, 34.73 TWh and 2.68 TWh of electricity, up 0.39%, 12.77% and 7.83%, separately.

    Four major energy-guzzling industries — steel, non-ferrous, building materials and chemical industries — consumed 23.0 TWh, accounting for 56.39% of the region’s total power consumption and 66.23% of the electricity use in the secondary industries.

    http://en.sxcoal.com/0/145153/DataShow.html
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    Brazil prosecutors charge Rousseff campaign strategist


    Brazilian prosecutors charged political strategist Joao Santana, the architect of President Dilma Rousseff's 2010 and 2014 election victories, and 16 others with corruption on Thursday as part of a massive graft investigation.

    Santana, who was arrested in February, is accused of receiving bribes from engineering conglomerate Odebrecht in a scheme to divert funds from state-run oil company Petroleo Brasileiro SA, or Petrobras, prosecutor Deltan Dallagnol told a news conference.

    Santana also received bribes off contracts involving Petrobras, shipbuilder Sete Brasil and Keppel Fels, the local unit of Singapore oil rig builder Keppel Corporation Ltd , Dallagnol said.

    The investigation of Santana, known as "the maker of presidents" in Latin America, has increased calls for Rousseff's ouster even though a current attempt to impeachment her is not related to the graft probe.

    The senate is expected to vote to put Rousseff, Brazil's first woman president, on trial for manipulating public accounts next month, which would suspend her from office for up to six months.

    Santana, 63, also advised former President Luiz Inacio Lula da Silva and late Venezuelan President Hugo Chavez. A former journalist, Santana is known for producing dramatic, big-budget campaign videos appealing to poor voters.

    Santana is one of few prominent political players facing prosecution in Curitiba, where a team of police and prosecutors have aggressively cracked Brazil's largest-ever corruption case.

    Some 50 sitting politicians, including the leader of the lower house of Congress, are under investigation in Brasilia as they have immunity from all but Brazil's highest court.

    Prosecutors also charged Keppel's former lobbyist in Brazil Zwi Skornicki with corruption, but Dallagnol said they did not have enough evidence to prosecute any Keppel employees.

    Representatives for Santana and Keppel Fels did not immediately respond to request for comment. Keppel said in October it might face investigation and no longer does business with Skornicki.

    Prosecutors levied yet another charge on Marcelo Odebrecht, the former chief executive of Latin America's largest builder who was already sentenced to 19 years in jail. They emphasized the family-controlled company's institutionalized payment of bribes and sophisticated money laundering.

    Odebrecht, which has construction projects all over the world, is seeking a leniency agreement to minimize penalties.

    http://www.reuters.com/article/brazil-corruption-santana-idUSL2N17V1WH

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    Amazon..and packaging

    Amazon.com Inc. on Thursday delivered its most profitable quarter ever, topping last year’s record holiday period, thanks to surging sales from its lucrative cloud-computing business.

    Despite a persistent reputation as a profit miser, Amazon turned in its fourth straight moneymaking quarter and expanded margins in its core retail business, as well as the Amazon Web Services division that rents computing power to other companies.

    Shares in the Seattle online retailer surged more than 12% after hours as the company’s results far outpaced analyst estimates.

    Superlatives abound: Its 28% sales growth was the highest since the second quarter of 2012, while its operating margin of 3.7% was its best in more than five years.

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    Vedanta Reports Loss as Cairn Writedown Eclipses Metal Rebound


    Vedanta Ltd., India’s biggest producer of aluminum and copper, posted a quarterly loss as a writedown by it’s oil-producing unit to account for the slump in crude offset gains from a rebound in metal prices.

    Net loss totaled 111.8 billion rupees ($1.68 billion) in the three months ended March 31, compared with 192.3 billion rupees a year earlier, the unit of London-listed Vedanta Resources Plc said in a statement on Thursday. Net income before exceptional charges was 9.55 billion rupees, more than the average 5.63 billion rupees estimated by six analysts. While sales declined 10.7 percent to 158.3 billion rupees in the quarter, it topped analysts’ estimates of 154.8 billion rupees.

    The worst oil crash in a generation saw Cairn India Ltd., Vedanta’s crude oil unit, post its biggest quarterly loss in the three months ended March 31. That offset gains from a rebound in metal prices, spurred by speculation that raw-materials consumption in China will turn around after years of concern over worsening economic growth.

    Cairn India, which produces about a quarter of the country’s domestic crude output, reported an impairment charge of 116.7 billion rupees in the fourth quarter to write down the value of oil and gas assets and higher government tax on oil. The explorer posted a record loss of 109.5 billion rupees in the quarter, it said on April 22. The average price of Brent crude, the global benchmark, slumped to the lowest in almost 12 years in the period.

    Vedanta also wrote down 14.9 billion rupees at its exploratory assets in West Africa because of falling iron ore prices and geopolitical uncertainty, while making a one-time provisioning of 4.6 billion rupees at its Copper Mines of Tasmania and Bellary iron ore assets, the company said.

    Vedanta’s total costs fell 3 percent to 140.7 billion rupees in the quarter, while finance costs rose about 17 percent to 15.4 billion rupees, the company said. Net debt stood at 252.9 billion rupees at the end of March, while cash and liquid investments totaled 526.7 billion rupees, it said. The shares slid 4.8 percent to 99.80 rupees by 3:30 p.m. close in Mumbai, the biggest drop in three weeks.

    Three-month zinc prices on the London Metal Exchange have jumped 17 percent this year, while copper climbed 4 percent. Aluminum has gained 9.4 percent this year, recovering from a slump of 19 percent in 2015 while an index of six metals on LME gained 6.7 percent. The rebound in metal prices helped Hindustan Zinc Ltd., in which Vedanta owns 64.9 percent stake, report a 7.7 percent increase in net income to 21.5 billion rupees in the fourth quarter, it said on April 21.

    http://www.bloomberg.com/news/articles/2016-04-28/vedanta-reports-loss-as-cairn-writedown-eclipses-metal-rebound
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    Oil and Gas

    Libya outlines ambitious plans to restore oil output


    Libya's National Oil Corporation has ambitious plans to restore output to pre-2011 levels after years of violence and disruption, officials said.

    Oil output is now less than a quarter of the 1.6 million barrels per day Libya pumped before Muammar Gaddafi fell in 2011, and the National Oil Corporation (NOC) in Tripoli hopes to ramp it up swiftly with the backing of a new unity government.

    Full recovery could take years because of shutdowns by disgruntled workers, political rivalry and attacks by Islamic State militants.

    Militants hit the al-Ghani, Mabrouk, and Dahra fields in the Sirte basin over a year ago, forcing the NOC to declare force-majeure on 11 fields, and there have been further attacks since then.

    An NOC official in Tripoli told Reuters that at least 200,000 bpd of capacity had been damaged in attacks on oil fields in the western Sirte basin, Libya's most prolific.

    It may take the NOC until late 2017 or 2018 to bring those fields back to full capacity, the official said, if it can afford the repairs.

    The first phase of a three-stage recovery plan can be implemented within three months, a second NOC official in Tripoli said, allowing fields like El Sharara and Elephant, with a combined capacity of around 430,000 bpd, to come back on stream.

    But other fields, including those that have been directly attacked and others that feed via pipeline to Libya's largest export terminals at Ras Lanuf and Es Sider, may take longer to bring back online, he added.

    Phase two covers six to eight months down the line while the final phase covers fields that will take between eight months and several years to reopen.

    Infrastructure damage at the ports could take years to repair and will delay the restart of the fields feeding to them. Another big factor is the cost of the repairs.

    "All those plans depend on security. If proper and robust security at the oil facilities is not in place, then our plans will be in jeopardy," the second official said.

    Earlier this year militants attacked Ras Lanuf and Es Sider, which can handle 600,000 bpd of crude exports. The two terminals had been closed since December 2014, after an attack on Es Sider.

    The latest assault left just 12 out of 32 storage tanks at the terminals operational, NOC chairman Mustafa Sanalla told Reuters in February. It may take NOC "many years" to rebuild damaged "long lead items" at the ports, he added.

    A U.N.-backed unity government's move to Tripoli last month raised hopes that Libya could restart idled fields and reopen export terminals, and the NOC in Tripoli says it could quickly double production to over 700,000 bpd, if political and security conditions stabilise.

    The government is still struggling to gain clear support, especially in the east. A parallel NOC in the east exported a shipment of oil independently for the first time this week, further complicating the prospects for recovery.

    "We are focused now on how to resume oil production. In some places, we'll just have to open the valves," Sanalla told Reuters last week. "But first of all, we need to have stability."

    Industry sources do not expect production to increase beyond 600,000 bpd within the next few months.

    "If the new unity government is successful in asserting some control, then output should recover, but only slowly and with setbacks," Energy Aspects analyst Richard Mallinson told the Reuters Global Oil Forum earlier this month.

    SECURITY CHALLENGE

    The NOC hopes the unity government can create a unified security force to protect oil infrastructure.

    For now, security will depend on an array of armed factions including the Petroleum Facilities Guard (PFG), a semi-official corps that has blockaded ports and whose attempt in 2014 to export crude independently was thwarted by U.S. special forces.

    PFG leader Ibrahim Jathran says he supports the unity government and is ready to reopen the ports of Zueitina, Es Sider, and Ras Lanuf, and Sanalla has said the NOC would accept the PFG as part of a future, national security force.

    But the blockade and the PFG's refusal to allow storage tanks to be emptied at threatened terminals have infuriated the NOC. Meanwhile a rival PFG faction, Battalion 152, has said it is loyal to eastern military commander Khalifa Haftar, whose political allies have blocked the eastern parliament from approving the unity government.

    The unity government said on Sunday it feared further attacks on coastal infrastructure and oil fields, and that it had received reports that these were threatened not only by Islamic State but also by Gaddafi loyalists and Sudanese rebels.

    Financing could be a challenge in the short term as Libya has been hard hit by falling oil prices and has had to bear the double burden of a price crash and constrained output simultaneously.

    Sanalla has estimated the cost of lost production at more than $68 billion for the past three years, and says Libya loses $30 million every day because of shutdowns. Security worries in some areas mean the NOC has yet to assess the full cost to repair damaged facilities.

    http://www.reuters.com/article/libya-oil-production-idUSL5N17V4YB

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    Sinopec Profit Triples as Refining Outweighs Oil's Plunge


    China Petroleum & Chemical Corp., Asia’s biggest refiner, posted a threefold increase in profit as the drop in oil prices was outweighed by the benefit of improved refining margins.

    Net income at the Beijing-based company known as Sinopec rose to 6.66 billion yuan ($1.03 billion), compared with 2.17 billion yuan a year ago, according to a statement to the Hong Kong stock exchange Thursday.

    China announced in January that fuel prices wouldn’t be adjusted when oil falls below $40 a barrel in an attempt to support the domestic energy industry and curb pollution. The policy boosted domestic refining margins during the first quarter to $16 a barrel, a 45 percent increase from the same period a year earlier, according to researcher ICIS China. The country’s product exports slipped in the first two months as it became more profitable to sell fuels at home.

    “Sinopec benefited a lot in the first quarter from very low crude prices and the fuel price floor set by the government,” Li Li, an analyst with ICIS China, said by phone from Guangzhou. “The company will probably be unable to enjoy such good refining margins in the second quarter with higher crude cost.”

    Sales dropped 13 percent to 413.8 billion yuan in the period, while oil and gas output fell 2.7 percent to 114.7 million barrels of oil equivalent. Total refining output fell 2.4 to 57.2 million tons. Operating profit from refining swung to a 13.4 billion yuan gain from a loss the year earlier.

    Sinopec last year outperformed its state-owned rivals PetroChina Co. and Cnooc Ltd. as profit from oil refining helped offset the impact from oil’s plunge.

    http://www.bloomberg.com/news/articles/2016-04-28/sinopec-profit-rises-threefold-as-refining-outweighs-oil-plunge

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    PetroChina posts first quarterly loss as oil prices weigh


    PetroChina Co Ltd, the country's largest oil and gas producer, on Thursday reported its first ever quarterly loss as oil prices touched near 13-year lows, and forecast continued volatility in the market.

    Faced with the worst downturn in the oil sector in at least three decades, state-run PetroChina posted a net loss in the first three months of 13.79 billion yuan ($2.13 billion), compared with a profit of 6.15 billion yuan a year earlier.

    In the first quarter of 2016, the average realized price for crude oil of the group was $27.27 per barrel, of which the domestic realized price was $26.55 per barrel, representing a drop of 44.2 percent from the same period a year earlier.

    The company expects that for the rest of the year the supply and demand fundamentals will remain loose. "International oil prices will widely fluctuate at a low level," the company said in a statement to the Hong Kong stock exchange.

    A prolonged fall in oil prices has weighed on the industry, with U.S. giant Exxon Mobil this week losing its top credit rating from Standard & Poor's for the first time in almost 70 years and British oil company BP reporting an 80 percent drop in first-quarter profits.

    PetroChina expects total crude output this year of 924.7 million barrels.

    Last month, PetroChina reported a net profit of 35.52 billion yuan for 2015, down 70 percent from the previous year, and said it would trim capital expenditure by 5 percent to 192 billion yuan this year ($30 billion).

    http://www.reuters.com/article/petrochina-results-idUSL3N17V1OI

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    China's net LPG imports hit record high, may take a breather


    China's net LPG imports in March more than doubled from a year ago to hit a record high, as low prices ignited buying interest from import terminals and propane dehydrogenation plants.

    Traders expect LPG imports to remain high in April, but purchases could slow in the following months due to higher inventories.

    Net LPG imports in March surged 119% year on year to around 1.5 million mt, the highest on record, Platts calculations using data released Friday by the General Administration of Customs showed. The March volume was up 57% month on month, which was also the highest month-on-month increase in the past eight months.

    Traders attributed the rush for March imports to higher profit margins at both LPG import terminals and PDH plants.

    "Lower LPG prices in the international market have encouraged both import terminals and PDH plants to buy more last month [for March and April delivery]," a trader in eastern China said.

    The pre-tax import cost of LPG averaged $351/mt in March, down 9% from $387/mt in February and 35% lower from $543/mt a year ago, according to Platts calculations. This equates to around Yuan 2,609/mt ($400.64/mt), after adding customs duty and value added tax.

    "We increased our LPG imports in the past two months as we saw good trading margins and we were bullish about the LPG price in the future," a trader with Oriental Energy said.

    As China's largest LPG importer in 2015, Oriental Energy in eastern China runs three major import terminals and a PDH plant capable of consuming around 720,000 mt/year of propane.

    The company imported a total of 335,700 mt LPG in March, up 169% from 124,800 mt in the previous month, according to a report from Beijing-based energy information provider JYD Commodities Hub.

    In addition, Wanhua Chemical Group, formerly Yantai Wanhua Chemical, which runs a PDH plant capable of consuming around 900,000 mt/year of propane and 600,000 mt/year of butane, also boosted its LPG imports to 133,059 mt in March, compared with no imports in February, the customs data showed. It is based in eastern China's Shandong province.

    As China's biggest PDH plant, the company has a FOB contract with Qatar International Petroleum Marketing Company Limited, or Tasweeq, this year, but the term volume is unknown. Wanhua also has a CFR term contract with Turkish trader Bayegan for a 44,000-mt evenly split cargo per month or bi-monthly from Ruwais in the UAE, since last year, sources said.

    "We mainly bought the LPG cargoes from the spot market last month as spot LPG prices were attractive," a source with Wanhua said, adding that the plant is running at around 70%-80% of capacity.

    Chinese PDH plants' processing margin was estimated to be above Yuan 1,000/mt last month, and it remains healthy this month, according to market sources.

    "But with the rebound in LPG prices and the restart of some PDH plants, the margin could be narrowed next month," a source in eastern China said.

    PDH plant operators have been enjoying strong margins for propylene, their key output, which has prompted them to process more propane.

    According to Platts calculations, the premium of CFR China propylene prices to the breakeven cost of converting propane into propylene has risen steadily so far this year, to average $107.45/mt in March, from an average of $11.04/mt in January.

    Over January-March, net LPG imports were also up 72% year on year to 3.25 million mt, according to Platts calculations.

    The UAE remained the top supplier in March at 688,001 mt, up 86% month on month and 64% higher year on year.

    The US was the second-largest supplier in both March and in Q1, with 361,954 mt and 998,779 mt respectively. LPG imports from the US in March were only up 2% month on month, but jumped 101% year on year, Platts calculations showed.

    http://www.platts.com/latest-news/oil/singapore/analysis-chinas-net-lpg-imports-hit-record-high-26430302

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    Eni Posts Larger-Than-Expected Loss Amid Oil Price Slump


    Eni SpA posted a first-quarter loss that was worse than analysts’ estimates amid a collapse in crude prices.

    The Italian oil company’s adjusted net loss was 479 million euros ($546 million), compared with a profit of 454 million euros a year earlier. Analysts had expected a 12.3 million-euro loss, according to the median of nine estimates compiled by Bloomberg. Production growth fell short of expectations and Eni’s net cash from operating activities fell 56 percent to 1.3 billion euros.

    “Our biggest concern as ever is the cash flow,” which was “very weak,” Exane BNP Paribas said in a note on Friday.

    The plunge in crude prices since the middle of 2014 has weighed on oil company profits, forcing them to cut capital spending, slash dividends and postpone or cancel expensive exploration projects. Eni’s results contrast with the better-than-forecast profit reported this week by BP Plc, Statoil ASA and Total SA.

    Eni shares fell 1.1 percent to 14.24 euros as of 9:17 a.m. in Milan trading, paring this year’s gain to 3.1 percent. That compares with the 8.5 percent advance in the 20-member Stoxx Europe 600 Oil and Gas Index.

    Exiting Businesses

    Eni was in the process of exiting two major lines of business in the first quarter -- chemicals and engineering and construction -- meaning the units’ performance was not reflected in adjusted net income from continuing operations, the company said. On a standalone basis -- reinstating gains and losses from transactions with these divisions -- Eni reported an adjusted net loss of 77 million euros, compared with a profit of 701 million euros a year earlier.

    “The fundamentals of the oil market remain weak,” Eni said in a statement. “Management is planning to increase efforts to optimize capex and reduce operating costs by exploiting the deflationary pressure induced by the fall in crude oil prices.”

    Eni’s oil and gas production rose 3.4 percent from a year earlier to the equivalent of 1.75 million barrels of oil a day, compared with an average forecast of 1.78 million barrels a day by five analysts surveyed by Bloomberg. The start of output in fields in countries including Norway contributed to the gain. Eni reiterated that it would cut investment this year by 20 percent.

    http://www.bloomberg.com/news/articles/2016-04-29/eni-posts-larger-than-expected-quarterly-loss-on-oil-price-slump

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    ConocoPhillips posts quarterly loss, cuts 2016 budget again


    ConocoPhillips, the largest U.S. independent oil company, posted a first-quarter loss, compared with a year-earlier profit, and cut its spending budget for the second time this year as the slump in crude prices sapped profitability.

    The company cut its 2016 capital expenditure forecast to $5.7 billion from $6.4 billion, driven by reduced deepwater exploration activity. It had cut its capital budget forecast in February.

    Crude prices continued to fall in the quarter, eating into the income of E&P companies. Oil prices touched a low of $27.10 per barrel, before recovering to close at $39.60 at end of March.

    ConocoPhillips, which cut its quarterly dividend by 25 percent in February to save cash, reduced its first-quarter operating costs by 21 percent to $1.69 billion.

    Production fell to 1,578 thousand barrels of oil equivalent per day (mboe/d) from 1,610 mboe/d.

    First-quarter net loss was $1.5 billion, or $1.18 per share, compared with a profit of $272 million, or 22 cents per share, a year earlier.

    Excluding special items, the company's loss was 95 cents per share, compared with analysts' estimates of a loss of $1.05.

    Total revenue and other income fell 37 percent to $5.02 billion.

    http://www.reuters.com/article/us-conocophillips-results-idUSKCN0XP1JY

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    Gazprom 2015 Profit Jumps as Kremlin Demands Higher Dividend


    Gazprom PJSC, the world’s biggest natural gas producer, said full-year profit jumped almost five-fold, signaling the possibility of a higher dividend payout just as the Russian government needs more funds to plug its budget gap.

    Net income rose to 787 billion rubles ($12.2 billion) in 2015 from 159 billion rubles a year earlier, the state-controlled company said Thursday in a statement. That was more than an average estimate of 758 billion rubles by 10 analysts in a Bloomberg News survey. Gazprom’s 2014 profit was hurt by foreign currency losses after exceeding 1 trillion rubles in the previous three years.

    The Russian government last week issued an order that state companies must pay out at least half their income under Russian or international accounting standards, whichever produces the higher figure. The move stoked appetite for the gas producer’s shares, which is trading at its highest level in more than a year in Moscow.

    “Gazprom dividends is the main intrigue now,” said Elchin Mammadov, a London-based analyst at Bloomberg Intelligence. “Still, there’s no clarity how much the payments may increase.”

    Gazprom’s management had recommended to increase the dividend payment by 2.8 percent to 7.4 rubles per share, or 175 billion rubles in total, before the state order was published. That would equal 50 percent of the company’s profit under Russian accounting standards after adjustments.

    The Moscow-based producer, which meets about 30 percent of Europe’s gas demand, will probably pay less than expected given falling export earnings after the plunge in oil meant a lower price for gas, according to eight of 11 analysts in a Bloomberg survey. The average forecast is 30 to 35 percent of the international profit.

    Gazprom’s domestic rival, state-run Rosneft OJSC, plans to pay out 35 percent of its profit after its board approved the recommendation on Friday, a decision seen as a compromise by analysts including Raiffeisen Bank and Aton LLC. The Economy Ministry sought half the profit, while the Energy Ministry demanded to keep 25 percent, citing risks to the company’s investment plans and production, Interfax reported last week.

    Sergei Kupriyanov, a Gazprom spokesman in Moscow, declined to comment on the dividend outlook before executives hold a regular call with investors and analysts later on Thursday. Gazprom’s board typically discusses a payout recommendation in the second half of May before the annual shareholder meeting, scheduled for June 30.

    http://www.bloomberg.com/news/articles/2016-04-28/gazprom-2015-profit-jumps-as-kremlin-demands-higher-dividend
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    Origin hikes LNG earnings forecast on strong output at new plant


    Origin Energy Ltd on Friday more than doubled its outlook for earnings from liquefied natural gas this year, saying the first unit at its Australia Pacific LNG plant was producing at above its rated capacity of 4.5 million tonnes a year.

    APLNG, operated by ConocoPhillips, shipped 11 cargoes in the March quarter, mostly going to China's Sinopec, and is set to start exporting from its second production unit between July and December, Origin said.

    The extra volume adds to an already oversupplied global LNG market, with spot prices in Asia LNG-AS down 36 percent so far this year.

    "Given the strong operational performance of Train 1 since shipment of the first LNG cargo on Jan. 9, Origin expects to recognise Train 1 revenue from March 1 2016," it said in its quarterly report.

    It now expects underlying LNG earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to June 2016 of between A$100 million and A$150 million, well above an earlier forecast between A$30 million and A$80 million.

    Origin reported a 45-percent rise in March quarter revenue to A$316.4 million ($241.8 million) from a year earlier on the back of first sales from the APLNG project.

    Production rose 65 percent to 60.9 petajoules.

    https://mail.google.com/mail/u/0/?shva=1#inbox?compose=154608a5dab97a3b
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    Samsung Heavy Loses $4.6 Billion Royal Dutch Shell Order on Oil


    Samsung Heavy Industries Co., the world’s third-largest shipbuilder, said an order to build three floating liquefied natural gas production facilities was canceled after the energy development project was scrapped amid a plunge in oil prices.

    The contract, valued at 5.27 trillion won ($4.6 billion), from Royal Dutch Shell Plc was voided because of the current difficult market conditions, the Sungnam, South Korea-based company said in a regulatory filing Thursday. The shipbuilder won the deal in June on the condition that the project will start only after the client is ready to proceed.

    Oil prices that have more than halved in the last two years have forced energy companies and rig owners to cancel offshore projects and delay deliveries. As a result, shipyards in Asia such as Samsung Heavy and Singapore’s Sembcorp Marine Ltd. reported losses or smaller profits last year.

    Woodside Petroleum Ltd. scrapped plans in March to develop the Browse LNG project in Australia with partners, including Shell and BP Plc, saying it won’t go ahead with the floating LNG development after completing detailed engineering and design work. The Browse partners will prepare a new plan and budget for developing the gas resources, it said.

    Samsung Heavy is currently building two other floating LNG facilities for Shell and Petroliam Nasional Bhd. of Malaysia. The first project is expected to complete work at the shipyard in the second half of this year, the company said.

    http://www.bloomberg.com/news/articles/2016-04-28/samsung-heavy-loses-4-6-billion-royal-dutch-shell-order-on-oil

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    Weir sees 70 pct of North American fracking fleet idle


    Oil equipment maker Weir Group reported a 47 percent fall in first-quarter oil and gas orders on Thursday and estimated some 70 percent of North America's fracking fleet is currently idle as low crude prices slow investment in the sector.

    The Scottish company, which specializes in pumps and valves used in drilling rigs, said a 20 percent reduction in U.S. land rig count in the past two months had lowered demand for its products.

    "The U.S. rig count decline over the course of Q1 was over and beyond everyone's expectations," Chief Executive Keith Cochrane told analysts.

    His comments echoed ones from U.S. oilfield services firm Baker Hughes on Wednesday about a slowdown in U.S. drilling activity that hit its first-quarter revenue.

    Cochraine said, however, that cost savings had bolstered first-quarter profits, without giving financial details.

    "As a result, we expect first half profits to be slightly ahead of market expectations," Cochrane said.

    The fall in drilling activity and recent uptick in oil prices will encourage customers to place new orders, Cochrane added.

    "If they want to keep producing they need to start spending money again," he said.

    Jon Stanton, Weir's chief financial officer, said this meant the company expected its oil and gas division to return to profit in the second half of the year from a "moderately loss-making" position currently.

    http://www.reuters.com/article/weir-group-outlook-idUSL5N17V324

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    Marathon Petroleum barely ekes out a profit due to weak crack spreads


    Refiner Marathon Petroleum Corp (MPC.N) barely eked out a profit in the first quarter, hurt by weak crack spreads – the difference between the prices of crude oil and refined products.

    Net income attributable to the company slumped to $1 million, or less than 1 cent per share, in the three months ended March 31, from $891 million, or $1.62 per share, a year earlier.

    The drastic decline in profit was also a result of higher turnaround activity, or scheduled events where an entire unit is taken offstream for an extended period for a revamp or renewal.

    Marathon also took an impairment charge of $129 million in the latest quarter.

    Refiners have seen their margins shrink due to the narrowing price difference between U.S. Crude CLc1 and globally traded Brent futures LCOc1, to which the price of refined products are tied.

    "Despite weakness in refining margins in the first two months of the year, we saw crack spreads strengthen late in the quarter as gasoline inventories declined and refiners responded to market conditions," Chief Executive Gary Heminger said in a statement on Thursday.

    Marathon's revenue and other income fell 25.6 percent to $12.75 billion.

    As part of its turnaround work, Marathon commissioned a light crude upgrade project at its Robinson, Illinois refinery to increase its overall processing capacity by 20,000 barrels per stream day (bpsd)

    The upgrade is also to boost by 30,000 (bpsd) its light crude capacity, the quantity of oil product produced by a single refining unit during continuous operation for 24 hours.

    Up to Wednesday's close of $41.37, the company's shares have slumped more than 19 percent in the last 12 months.

    http://www.reuters.com/article/marathon-pete-results-idUSL3N17V4E4

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    Suncor Prepares for Production Boost on Majority Syncrude Stake


    Suncor Energy Inc. is doubling down on a bet that the oil sands will be a competitive source of crude as it increases its ownership of the Syncrude Canada mine and presses ahead with its Fort Hills bitumen project.

    The company’s production will grow 40 percent from 2015 levels to more than 800,000 barrels a day by 2019, President and Chief Executive Officer Steve Williams said during a conference call Thursday with analysts to discuss first-quarter results.

    “That’s a growth trajectory that very few companies of our scale can hope to equal,” Williams said. “More importantly, it’s growth that gives us even more leverage to rising oil prices.”

    The company paid C$937 million ($747 million) for Murphy Oil Corp.’s 5-percent of Syncrude, boosting its ownership to 53.74 percent, it said Wednesday.

    Suncor, Canada’s largest oil company by market value, is also pressing ahead with its C$15.1 billion Fort Hills project, with plans to spend C$4.5 billion with its partners this year to begin production at the end of 2017.

    Cost Competitive

    Suncor aims to make bitumen extraction an important -- and cost competitive -- source of crude for global markets. The company reduced cash operating costs at the oil sands division in the first quarter by 15 percent to C$24.25 a barrel, and Williams said the company can sustain a dividend and free cash flow at crude prices of $40 a barrel.

    Williams said he expects a period of oil prices being “lower for longer.” The price of West Texas Intermediate crude, the U.S. benchmark, has gained 25 percent this year and traded Thursday above $46 a barrel, a five-month high. Prices averaged $33.63 during the first quarter.

    “Oil sands operating costs not surprisingly continue to trend lower across all segments due to a combination of higher volumes, cost savings and lower natural gas prices,” said Menno Hulshof, an analyst at TD Securities, in a note. “In fact, we would have to go all the way back to 2007 to see costs this low.”

    Expansion Plans

    The 5 percent stake in Syncrude acquired from Murphy Oil will provide Suncor with an additional 17,500 barrels a day of production. The sale will allow Murphy Oil to focus on its drilling operations in North America, the U.S. producer said in a separate statement. The process of improving Syncrude’s operations will be a “multi-year” process and Suncor will continue to work with Syncrude’s operator Imperial Oil Ltd. to improve operations.

    The company last year began its efforts to boost control over Syncrude, which produces light synthetic crude oil. It succeeded in winning over resistant Canadian Oil Sands management and shareholders after sweetening its offer earlier this year. Suncor made two offers before a hostile bid in October and finally secured Canadian Oil Sands management’s green light for the takeover in January.

    Suncor has taken advantage of the oil industry downturn to expand through deals including the C$4.2 billion takeover of Canadian Oil Sands and the purchase of a bigger stake in a venture with France’s Total SA. The company will “take a breath” on large projects and focus on increasing efficiency and lowering costs, Williams said on the call.

    Suncor has also targeted as much as C$1.5 billion in asset sales, Alister Cowan, Suncor Chief Financial Officer, said on the call. The company isn’t currently selling its chain of gas stations. It has already sold C$4.5 billion worth of assets since its merger with Petro-Canada in 2009.

    At the same time, Suncor has cut spending by 10 percent this year after posting a surprise fourth-quarter loss. The 2016 spending reductions come after the company eliminated about 1,700 jobs and slashed its budget last year.

    First-quarter net earnings were C$257 million, or 17 cents a share, compared with a loss of C$341 million, or 24 cents a share, in the year-earlier period, the company said in a separate statement. The oil sands division lost C$524 million in the quarter, compared with a loss of C$146 million a year earlier, the company said.

    http://www.bloomberg.com/news/articles/2016-04-28/suncor-prepares-for-production-boost-on-majority-syncrude-stake
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    National Oilwell Varco Reports First Quarter 2016 Results


    National Oilwell Varco, Inc. today reported a first quarter 2016 net loss of $21 million, or $0.06 per share, excluding other items. Other items included $147 million in pre-tax charges primarily associated with severance and facility closure costs. GAAP net loss for the quarter was $119 million, or $0.32 per share.

    “Oil prices and oilfield activity continued to plummet during the first quarter of 2016, causing our customers to cut spending to bare minimum levels”

    Revenues for the first quarter of 2016 were $2.19 billion, a decrease of 20 percent compared to the fourth quarter of 2015 and a decrease of 55 percent from the first quarter of 2015. Adjusted EBITDA (as defined below) for the first quarter was $127 million, or 5.8 percent of sales. Decremental Adjusted EBITDA margin (the change in Adjusted EBITDA as a percent of the change in revenue) from the fourth quarter of 2015 to the first quarter of 2016 was 37 percent. Operating loss, excluding other items, was $48 million.

    “Oil prices and oilfield activity continued to plummet during the first quarter of 2016, causing our customers to cut spending to bare minimum levels,” stated Clay C. Williams, Chairman, President and CEO of National Oilwell Varco. “The fifth quarter of this extraordinary downcycle saw our revenues decline sharply once again, leading us to intensify our cost reduction efforts. While this market has been very tough on our business, I am grateful for the leadership and perseverance demonstrated by National Oilwell Varco’s tremendous employees. Better days lie ahead. Our strong financial resources enable us to continue to invest in new technologies, products and acquisitions that better position us for the inevitable upturn.”

    Lots more detail: http://www.businesswire.com/news/home/20160428005619/en/National-Oilwell-Varco-Reports-Quarter-2016-Results

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    MEG Energy reports quarterly profit helped by cost cuts



    MEG Energy Corp., which operates in Canada’s oil sands, reported a first-quarter profit, compared with a loss a year earlier, as it managed to keep production costs at record lows to help cushion the impact of a slump in oil prices.

    MEG said cash flow used in operations, or negative cash flow, rose to $131-million from $30-million as realized bitumen prices more than halved.

    The prolonged oil slump has forced oil producers, including MEG, to try and preserve cash and reduce debt by selling assets, laying off workers and cutting their dividend as well as capital spending.

    MEG, whose key operations are in the Athabasca oil sands region of Alberta, said it was implementing a hedging program to increase the predictability of future cash flows.

    The company said it continues to target average production of 80,000-83,000 barrels per day (bpd) this year.

    Bitumen production fell about 7 per cent to 76,640 bpd in the quarter due to a turnaround a quarter ahead of schedule at MEG’s Christina Lake facilities in northern Alberta.

    However, its net operating costs decreased 19 per cent to $8.53 per barrel, in line with the record-low cost in the previous quarter.

    That helped the company reported a net profit of $131-million, or 58 cents per share, for the three months ended March 31. It had lost $508-million, or $2.27 per share, a year earlier.

    Revenue fell 37.9 per cent to $290-million.

    http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/meg-energy-posts-profit-as-production-costs-stay-at-record-low/article29781653/
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    Agriculture

    Potash Corp cuts 2016 profit forecast on weak demand, prices


    Potash Corp of Saskatchewan, the world's biggest fertilizer company by capacity, cut its full-year profit forecast due to weak demand and lower prices.

    The U.S.-listed shares of the company, which also reported a 79.7 percent fall in first-quarter profit on Thursday, were down more than 6 percent at $17.13 in light trading before the bell.

    Potash prices have fallen sharply over the past year due to overcapacity, declining farm income and weak currencies in major consumers such as India and Brazil.

    The company cut its 2016 earnings forecast to 60 cents-80 cents per share from 90 cents-$1.20 per share. Analysts on average were expecting 90 cents per share, according to Thomson Reuters I/B/E/S.

    The company said it expected second quarter profit of 15 cents-25 cents per share, also below the average estimate of 27 cents per share.

    "Lower prices for all nutrients weighed on our performance for the quarter and contributed to a more subdued outlook for the year," Chief Executive Jochen Tilk said in a statement.

    Potash cut the upper end of its 2016 potash sales volume forecast to 8.8 million tonnes from 9.1 million tonnes. It retained the lower end of the forecast at 8.3 million tonnes.

    Weak demand and increasing competition pushed down potash prices in North America while a lack of new contracts in China and low demand from India impacted global potash deliveries in the quarter, the company said.

    Potash Corp had said in January that it did not expect weak market conditions to improve soon, and suspended operations at its newest mine, Picadilly in the Canadian province of New Brunswick.

    The company's net earnings fell to $75 million, or 9 cents per share, in the three months ended March 31, from $370 million, or 44 cents per share, a year earlier.

    Revenue fell 27.4 percent to $1.21 billion.

    Up to Wednesday's close, the company's U.S.-listed shares had fallen nearly 45 percent in the past year.

    http://www.reuters.com/article/potashcorp-results-idUSL3N17V3ZK
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    Precious Metals

    Alexco: Silver

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    Base Metals

    Southern Copper's net profit dropped 34.5 pct in first quarter


    Southern Copper Corp's net profit dropped 34.5 percent to $185.1 million, or $0.24 per share, in the first quarter on slumping metal prices, the company said Thursday.

    The result was better than the mean market estimate of $139.76 million, according to Thomson Reuters I/B/E/S.

    The Phoenix, Arizona-based company said it produced 24.8 percent more copper in the first quarter compared with the same quarter in 2015 thanks to its expansion at its Buenavista mine in Mexico, setting a new record for the global miner with 221,661 tonnes.

    Southern also reported record sales volumes of copper and silver that were offset by sharp price decreases for the metals.

    The company owns mines in Peru and Mexico and is part of Grupo Mexico.

    http://www.reuters.com/article/southern-copper-results-idUSL2N17V13T
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    Freeport's Q1 Cerro Verde copper output nearly triples on expansion


    Freeport McMoRan said its Peruvian unit nearly tripled first-quarter copper production after bringing online a $4.6 billion expansion.

    Copper production jumped to 272 million lb in Q1 from 107.2 million lb a year earlier, while copper sales jumped to 262.6 million lb from 109.9 million lb, the Sociedad Minera Cerro Verde unit said Thursday in a filing to securities regulator SMV.

    Asia accounted for 80% of sales last year, followed by North America (8%), South America (7%) and Europe (5%), it said.

    Capital expenditures totaled $163 million in the quarter due to spending on the expansion, which has been completed and ramped up to full capacity in the quarter, the company said.

    The project boosted concentrator capacity at Cerro Verde to 360,000 mt/d of ore from 120,000 mt/d and will provide additional annual production of about 600 million lb of copper and 15 million lb of molybdenum. The mine is on track to produce 600,000 mt copper in 2016, partner Buenaventura said last year.

    Quarterly profit doubled to $96.9 million from $40.7 million a year earlier as sales also doubled to $532 million from $257 million a year ago. The company sold copper at $2.23/lb compared with $2.49/lb a year earlier.

    Cerro Verde is Peru's third-largest copper miner after Southern Copper and Antamina.

    http://www.platts.com/latest-news/metals/lima-peru/freeports-q1-cerro-verde-copper-output-nearly-21359736
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    First Quantum swings to Q1 profit as production rises


    Canadian base metals producer First Quantum Minerals has swung to a first-quarter profit as strong production at all its continuing operations underpinned rising revenues. 

    Net earnings from continuing operations attributable to TSX- and LSE-listed First Quantum shareholders was $49-million in the first quarter ended March 31, compared with a loss of $78-million a year earlier. 

    Excluding special items, First Quantum reported comparative earnings of $63-million, or $0.09 a share, compared with an adjusted loss od $12-million, or $0.02 in the comparable period of 2015. 

    Revenue had risen 20% year-over-year to $720-million, on the back of strong copper production, boosted by output from its Sentinel mine, in Zambia. Copper output increased by about 30% over the comparable period a year earlier to 119 287 t. 

    http://www.miningweekly.com/article/first-quantum-swings-to-q1-profit-as-production-rises-2016-04-28

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    Rusal Q1 aluminium output climbs amid signs of price recovery

    Rusal Q1 aluminium output climbs amid signs of price recovery

    Russia's Rusal Plc reported a 1.7-percent rise in first quarter aluminium production from a year earlier and said there were signs metal prices were improving thanks to global output cuts.

    Rusal, which slipped last year to world No.2 aluminium producer behind China's Hongqiao, has been hit by a slump in metal prices, but said production cuts outside China and limited restarts of smelters in that country were helping turn around the market.

    "Aluminum world (ex-China) production data for March 2016 from CRU evidenced that capacity closures that took place in 4Q15-1Q16 have started to influence the market," Rusal said in its quarterly report on Friday. CRU Group is a metals consultancy.

    London Metal Exchange aluminium prices have jumped 10 percent since the start of the year.

    Rusal's aluminium production rose to 916,000 tonnes in the three months to March from 900,000 tonnes a year earlier. Output fell slightly from the December quarter.

    It said it had started testing its new Boguchansky smelter, selling 39,000 tonnes from the Russian plant in the first quarter.

    Average sales prices slumped 28 percent from the same period a year ago and were down 3.6 percent from the December quarter.

    Rusal confirmed it would pay off $700 million in debt due in 2016 after lining up a refinancing earlier this week. The debt payment included $109 million of its own funds, it said.

    "The Company continues to actively explore further opportunities for the optimization of its debt structure," Oleg Mukhamedshin, Rusal's strategy director, said in a statement.

    http://www.reuters.com/article/united-co-rusal-output-idUSL3N17V6R4

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    Global lead seen in surplus in 2016, zinc in deficit -ILZSG


    The global lead market is forecast to have a surplus of 76,000 tonnes this year, the International Lead and Zinc Study Group (ILZSG) said on Thursday.

    The global zinc market is forecast to have a deficit of 352,000 tonnes in 2016, it said.

    The ILZSG expects a 2 percent rise in global demand for refined lead to 10.83 million tonnes in 2016 and a 3.5 percent rise in usage for zinc to 14.33 million tonnes.

    http://www.reuters.com/article/metals-ilzsg-balance-idUSL5N17V3RA
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    French PM commits 200 mln euros to support New Caledonia nickel producer


    France will lend up to 200 million euros ($228 million) to support struggling New Caledonia nickel producer Societe Le Nickel (SLN), Prime Minister Manuel Valls said on Friday.

    Valls, who is visiting the French territory, said the financing will be in place until 2018 with final terms still under discussion.

    The aid package comes at a time when nickel prices are hovering near 13-year lows. The mineral is crucial to New Caledonia as it accounts for about a fifth of its economy.

    Earlier this year, the territory lost a key Australian customer which fell into insolvency.

    "The situation is serious," said Valls. "SLN is facing an unprecedented crisis."

    SLN, a unit of French government-owned Eramet, has seen the average cash cost of nickel production drop 10 percent compared with the 2015 average.

    Valls also committed to support the replacement of an ageing electricity plant for SLN's smelter.

    The French territory has two other smelters, owned by Glencore, Vale.

    New Caledonia holds around a quarter of the world's reserves of nickel, used in everything from stainless steel to batteries.

    New Caledonia had until recently resisted selling ore directly to large consuming countries such as China, hoping to protect its local smelting industry.

    But in a change in policy, the government earlier this month said SLN and another company were free to sell a combined amount of up to 700,000 tonnes of low-grade nickel ore, known as laterites, to Chinese buyers over a period of 12 to 18 months.

    Eramet has already unveiled plans to sharply reduce production costs at SLN over the next two years to cope with a severe downturn in the global market as appetite for metals falters in top consumer China, with many producers operating at a loss.

    http://www.reuters.com/article/nickel-newcaledonia-france-idUSL3N17W1YX
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    Steel, Iron Ore and Coal

    Australian coal prices plummet as Colombian cargoes head to Asia


    Australian thermal coal prices for delivery in June have dropped to 10-year lows as Colombian miners start sending large volumes into Asia for the first time, adding cargoes to an already oversupplied market.

    Prices for coal cargoes delivered from Australia's Newcastle port by May 31 last closed at $46.60 per tonne, their lowest since 2006.

    The slump comes just as other commodities such as steel and oil enjoy rallies on the back of new investor appetite.

    In thermal coal markets, by contrast, an unusual new trade route has opened as low dry-bulk rates allow Colombian miners, who usually supply North America and Europe, to target Asia.

    South Korea's East-West Power utility (EWP) this month bought 260,000 tonnes of Colombian coal on free-on-board (FOB) terms for loading between June and August, adding to another 410,000 tonnes already on order.

    "We have currently got ordered 670,000 tonnes of coal from Colombia," said a utility source familiar with the matter.

    "Currently Colombian coal is about $7-8 (per tonne) cheaper than the Australian coal and if this price trend continues, we are definitely willing to import more from Colombia," said the source, who declined to be identified.

    Colombian coal appearing in larger volumes in the Pacific has helped push down Australian prices, analysts said.

    "Coal supply in the Pacific has been rising for more than a month. Shipments from Colombia contributed to this," said Georgi Slavov, head of energy, ferrous metals and shipping research at brokerage Marex Spectron.

    Although he added that these shipments were part of a bigger increase in supplies, including from Australia itself.

    Pricing agency Platts reported that the 410,000 tonnes were ordered on a cost and freight (CFR) basis, while the 260,000 tonnes came on a free on board (FOB) basis.

    Platts said EWP paid $41 a tonne for the FOB cargoes and $52 per tonne for the CFR supplies, making them competitive against the Newcastle price of $46.60 a tonne, which are quoted on a FOB basis.

    That's still far less than its monthly imports of around 5 million tonnes from Australia and 2-3 million tonnes from Indonesia.

    But it's a huge jump from Colombia's typical monthly supplies to South Korea of just 1,000 to 3,000 tonnes, and would bring its share of supplies there towards 7 percent.

    Colombian miners are having to look to new markets as consumption in Europe and North America is stalling due to the rise of renewables, improving energy efficiency, and because of the U.S. shale boom which has made natural gas highly competitive there.

    The extension of the Panama Canal, almost completed, will further boost Colombian coal exports to Asia.

    "It will lower the freight costs and make the Colombian coal more attractive to us and other countries in Asia," the Korean utility source said.

    http://www.reuters.com/article/asia-coal-colombia-idUSL3N17W2A9
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    Vale Ends Losses as Oil Rout Helps Get Iron to China Cheaper


    Vale SA had its first profit in three quarters as the best-performing major iron-ore miner this year cut costs and prices rebounded. Shares gained.

    Net income in the first three months of the year was $1.78 billion compared with a $3.12 billion loss a year ago, the Rio de Janeiro-based company said Thursday in a statement. Adjusted earnings before interest, taxes, depreciation and amortization rose to $2 billion from $1.6 billion, beating the $1.5 billion average of 12 dollar-based estimates compiled by Bloomberg.

    Vale, which makes most of its money from iron ore, is beating more diversified rivals BHP Billiton Ltd. and Rio Tinto Group in equity and debt markets this year as the raw material surges 49 percent to $61.09 a metric ton. The Brazilian miner is also getting a boost from lower freight costs thanks to oil’s collapse, which reduces its disadvantage to Australian producers that are closer to China. From a year ago, Vale reported a 32 percent cost reduction in delivering iron to its Chinese customers.

    While cheaper inputs and a recovery in prices is helping Vale’s efforts to preserve margins, net debt rose to $27.7 billion from $24.8 billion a year ago.

    “The quarter has ended in a good mood in March with prices recovering,” Chief Financial Officer Luciano Siani Pires said in a video posted on the company’s website. “But that doesn’t mean we are going to be caught off guard or that we are going to relax in our relentless quest towards building a more competitive company.”

    2Q Prospects

    Vale expects demand for iron ore to remain strong this quarter amid stimulus from the Chinese government, helping offset a higher seasonal rebound in shipments.

    “We acknowledge the recent improvement in iron ore prices but are cognizant of market volatility, thus remaining fully committed to strengthening our balance sheet through the reduction of our net debt as previously informed,” Vale said in today’s statement.

    Vale is also favoring higher-grade production to reduce costs and plans to start mining at S11D, the industry’s biggest development project, in the second half of this year.

    The combination of more lower-cost output and surging prices has prompted analysts to increase their annual earnings estimates by an average of 103 percent in the past three months for Vale, while profit expectations for Rio and BHP have dimmed slightly in that period, according to data compiled by Bloomberg.

    Record Output

    Vale churned out 77.5 million metric tons of iron ore in the first quarter, putting it on course to meet its annual target range, albeit at the lower end, it said last week. The company also set first-quarter records in nickel and copper production.

    Shares in the Brazilian miner rebounded 49 percent this year compared with BHP’s 10 percent gain and Rio Tinto’s 13 percent advance. Vale’s $2.25 billion of notes due in 2022 are trading at a yield gap of 3.3 percentage points compared with similar Rio Tinto bonds, down from a spread of 5.3 percentage points at the end of last year.

    http://www.bloomberg.com/news/articles/2016-04-28/vale-beats-earnings-estimates-as-iron-ore-rallies-output-gains
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    Cliffs rallies as strong Q1 performance sees it back in the black


    The largest US iron-ore producer Cliffs Natural Resources has a first-quarter profit amid sustained market improvement. For the three months ended March 31, Cliffs recorded net income attributable to Cliffs' common shareholders of $108-million, or $0.62 a diluted share, compared with a net loss attributable to Cliffs' common shareholders of $773-million, or $4.26 a diluted share, recorded in the first quarter of 2015. 

    The latest period included a debt-restructuring and extinguishment gain of $179-million. Revenue dropped 32% to $305.5-million. Analysts had expected a loss of $0.10 a share on revenue of $272-million. The company benefitted from an iron-ore price that had improved by about 44% so far this year. "The steel market in the US has started to show consistent signs of a real recovery, with a direct positive impact on our steel clients' order books and, consequently, a totally expected improvement in our clients' appetite for the pellets we supply them,” Cliffs chairperson, president and CEO Lourenco Goncalves stated. 

    The company had raised its 2016 capital spending guidance to $75-million, an increase of $25-million, to produce a specialized super-flux pellet at United Taconite. Goncalves noted that a newly adopted supply discipline going forward by the two Australian majors BHP Billiton and Rio Tinto, followed by a similar statement coming from their Brazilian peer Vale, had generated a more reasonable pricing environment for sinter feed fines in the international market for iron-ore, which continued to be short in lump ore and pellets. 

    Cliffs reduced its cost to produce iron-ore in the US by 26% to $48/t, the company said. Administrative costs were $28-million, down 3%from the first quarter last year. Cliffs maintained its outlook to produce about 17.5-million tons of iron-ore in the US this year and 11.5-million tons in the Asia/Pacific region.

    http://www.miningweekly.com/article/cliffs-rallies-as-strong-q1-performance-sees-it-back-in-the-black-2016-04-28
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