Mark Latham Commodity Equity Intelligence Service

Tuesday 14th June 2016
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    China investment slows to 15-year low, more stimulus seen despite debt fears

    Growth in China's fixed-asset investment slipped below 10 percent for the first time since 2000 in January-May as a boost from record credit growth seemed to be quickly fading, putting expectations of further stimulus back on the table.

    Analysts say a sharp deceleration in private investment could jeopardize China's growth target of 6.5-7 percent this year unless the government pumps even more money into the economy, despite growing global fears that the country is already amassing too much debt.

    The International Monetary Fund was the latest to voice such concerns at the weekend, saying Beijing must act quickly to tackle mounting corporate debt which it estimates has swelled to about 145 percent of gross domestic product.

    A further increase in debt levels could handicap China's long-term economic growth, David Lipton, first deputy managing director of the IMF, said on Saturday.Data on Monday showed fixed-asset investment growth - a key driver of China's economy - cooled to 9.6 percent in January-May from a year earlier, missing expectations of 10.5 percent.

    Even more worrying, investment by private firms slowed to a record low, with growth cooling to 3.9 percent from 5.2 percent in Jan-April and double-digits last year. Private investment accounts for about 60 percent of overall investment in China.

    Flagging private investment suggests that more and more of China's growth is dependant on government spending channeled through bloated and inefficient state enterprises, which Beijing has publicly pledged to streamline and reform. Investment by state firms rose 23.3 percent in Jan-May.

    It also means authorities may have to take stronger measures to support the economy if they continue to stick to their 2016 growth target, which officials reaffirmed on Monday despite generally weak April and May data.

    Indeed, other data on Monday showed that Beijing may already be doubling down on its stimulus bet, as government spending soared 17.6 percent in May on-year, versus 4.5 percent in April. Announcements of big new infrastructure projects seem to come almost daily.

    "The government is trying to decelerate a bit on credit growth, but there is no point at this moment because it will have an impact on the growth outlook. Growth is still more important than anything else in China," said Zhou Hao, senior Asia emerging market economist at Commerzbank.

    The soft May data also prompted some analysts to underline the possibility of more imminent policy easing by China's central bank, after some had scaled back such expectations following upbeat indicators in March.

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    Bank of China Intl commodity unit plans to boost Chinese, European business

    Bank of China International (BOCI) plans to boost its commodity business by tapping a latent investor base in China and broadening its drive into Europe.

    The investment banking arm of state-backed Bank of China , the country's No.4 lender by assets, became the first Chinese member of the London Metal Exchange in 2012, pushing into commodities near the height of a demand boom.

    "Hopefully for the next five years, we'll get into the next stage (in our commodity business) which is to expand our products and our service capability so we can become a key player in the landscape," said Arthur Fan, managing director of BOCI's global commodities arm.

    "Supporting Chinese clients, that is where we have an edge. We regard ourselves as an international player, not from China or Hong Kong. Commodities is a global business, and with a global platform we will tap into those local players."

    BOCI set up the unit in 2010 to serve its Chinese customers with an energy hedging business in Hong Kong, before opening in London, New York, Singapore and Shanghai's free trade zone, focusing on energy, as well as base and precious metals. At the time, however, market participants said it was slow to build on momentum.

    Having launched an oil index product last year, BOCI plans to expand its index and structured products business for institutional and private wealth clients in China, from its own private banking base in Hong Kong, and through its parent's customers on the mainland.

    Further afield, BOCI is looking to expand its financing business for commodity clients, in repurchase agreements and for offtake and prepayments. In Europe, it will also rely on Bank of China's branches for introductions to new clients.

    "These next two years, we will start aggressively expanding our European clients," Fan said on Monday, adding that a mix of Chinese and Europeans on his London team should increase business with firms in the continent, such as in hedging for automakers.

    Fan moved back to Hong Kong this year after five years in London.

    Within Asia, BOCI is readying its business for the internationalisation of the yuan, which Fan sees in the next 2-3 years.

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    China May thermal power output down 6.4pct on year

    Electricity output from China’s thermal power plants – mainly coal-fired – rose slightly to 330 TWh in May from 328.9 TWh a month ago, presenting a year-on-year drop of 6.4%, showed data from the National Bureau of Statistics (NBS) on June 13.

    By contrast, China’s hydropower output climbed 20.7% on year to 93.2 TWh in the month, growing 19.6% month on month, thanks to rich rainfalls in southern China.

    Total electricity output in China reached 463.6 TWh last month, basically flat with a year ago but up 4.32% from a month ago, the NBS data showed.

    That equated to a daily output of 14.95 TWh on average in the month, same as the year prior and up 0.9% from April.

    During the first five months this year, China’s total power output increased 0.9% on year to 2,267.6 TWh. Of this, thermal power stood at 1,712.2 TWh, dropping 3.6% year on year; while hydropower reached 374.3 TWh, up 16.7% from the year prior.

    Over the period, thermal power generation accounted for 75.51% of the total power generation, while hydropower output accounted for 16.51%, mainly attributed to increased rainfalls and the government’s clean energy drive to improve air quality.

    Given the El Niño phenomenon, China may see more rainfalls this summer, which will not only cut industrial power use, but also impact demand for coal-fired power, resulting in lower coal consumption compared with the same period last year.

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    China tells Germany: 'We don't want to fight a trade war'

    China's leader told Chancellor Angela Merkel on Monday he did not want trade tensions with the European Union, a vital market for a huge economy facing falling exports, to descend into a trade war.

    Merkel has already said she favours, in principle, granting China market economy status at the World Trade Organization, and Beijing hopes she can encourage more sceptical EU voices to accept the move.

    "China has already fulfilled its obligations on joining the WTO. What's needed now is for the other parties to fulfil the matching obligations they had promised," Premier Li Keqiang told reporters in Beijing on Monday alongside the German leader.

    "We don't want to fight a trade war because this will benefit nobody," he said, echoing a similar comment Merkel made on Sunday.

    The European Commission is set to accept the WTO switch that will mean China is no longer treated as a state-controlled market, making it easier for Chinese exporters.

    But the EU executive also wants to strengthen Europe's ability to defend itself against heavily subsidised Chinese goods.

    That reluctance to give up a method to defend against cheap imports has set up a looming dispute at the WTO and the prospect of broader trade friction.

    Merkel, on her ninth trip to China as chancellor, said: "It does not help us to emotionalise the whole subject. I am convinced that we can find a solution on the lines of what was promised 15 years ago."

    She also pressed China on liberalising its banking industry in return for giving more access to the sector in Europe.
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    Oil and Gas

    OPEC Sees Global Oil Market Balancing Toward the End of 2016

    OPEC predicted that the global oil market will be more balanced in the second half of this year as demand rises and rival supplies falter, echoing views expressed by ministers at the group’s meeting this month.

    The Organization of Petroleum Exporting Countries kept estimates for world supply and demand in 2016 unchanged in its monthly market report. Disruptions in Nigeria reduced the group’s output to 32.36 million barrels a day last month, a little below the 32.6 million average required to satisfy estimated demand in the second half.

    “The expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year,” the organization’s Vienna-based research department said in a report. “The excess supply in the market is likely to ease over the coming quarters.”

    Oil has surged about 80 percent from a 12-year low in February as the global glut is trimmed by unexpected disruptions and a slide in U.S. output. OPEC didn’t set any output targets when its 13 members met on June 2 as the organization sticks with Saudi Arabia’s strategy of pumping without limits to squeeze rival producers.

    Output from the 13 nations slipped by 99,800 barrels a day last month as militant attacks curbed supplies from Nigeria. Membership will swell to 14 countries in July with the re-admission of Gabon, which pumps about 200,000 barrels a day.
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    OPEC Has Its Way as China Oil Output Cut by Most in 15 Years

    China’s crude production dropped by the most in 15 years in another sign that OPEC’s strategy of flooding markets to drive out higher-cost suppliers is working in the world’s biggest energy consumer.

    The Asian nation reduced oil output in May by 7.3 percent from a year ago to 16.87 million metric tons, according to data from National Bureau of Statistics released on Monday. That’s the biggest decline since Feb. 2001.

    Shrinking Chinese output may help balance oil markets and sustain a more than 75 percent rebound in crude from a 12-year low earlier in 2016. The rally has also made the Organization of Petroleum Exporting Countries more confident its two-year Saudi Arabia-led strategy of trying to win market share from higher-cost producers is succeeding. The glut shows signs of ending as companies shut unprofitable fields and cut investments, according to forecasters from the IEA to Goldman Sachs Group Inc.

    “It’s certainly an important indicator that global oil markets are rebalancing,” Michal Meidan, an analyst at industry consultant Energy Aspects Ltd., said by e-mail. “The Saudi strategy is starting to yield results.”

    Lower domestic output reflects spending cuts by the country’s oil drillers amid low prices, Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong said in an e-mail. PetroChina Co., the nation’s biggest producer, said in March it expects oil and gas output to fall the first time in 17 years as it shuts fields that have “no hope” of turning a profit, while Cnooc Ltd. sees output slipping as much as 5.2 percent this year.

    “Lower domestic oil production means that China will rely more and more on imports from Middle East and Russia,” Kwan said in the e-mail. The slump in output “is worse than our forecast,” he said.

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    Japan shuts 596,000 b/d or 16% of refining capacity as of Saturday, hits peak turnaround

    Japanese refiners shut a combined 596,000 b/d, or 16%, of refining capacity as of Saturday, hitting the highest point of the peak turnaround season this spring, S&P Global Platts' analysis of industry information showed Monday.

    Idemitsu Kosan, which shut the sole 160,000 b/d crude distillation unit at its Hokkaido refinery Saturday, was the latest to join the peak refinery turnaround season. Maintenance at the CDU will be carried out for around a month.

    Japan's refining capacity closures this peak turnaround season represents around 16% of the country's total installed capacity of 3.82 million b/d. But the refinery outage will ease to 12% of total capacity, when Japan's largest refiner JX Nippon Oil & Energy restarts the sole 136,000 b/d CDU at its Oita refinery in the southwest on June 18, after completing scheduled maintenance.

    Cosmo Oil also plans to restart the 120,000 b/d No. 2 CDU at its Chiba refinery on June 24 after completing maintenance, while TonenGeneral aims to restart the 180,000 b/d CDU at its 258,000 b/d Kawasaki refinery in Tokyo Bay late June after completing the turnaround.

    Taiyo Oil will shut the 88,000 b/d CDU at its sole 118,000 b/d Kikuma refinery in western Japan on June 30 for scheduled maintenance. The restart is scheduled for July 30.
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    LNG prices in Singapore reached the highest level in almost four months.

    Liquefied natural gas for spot delivery near Singapore rose 4 percent in the week to June 13 to $4.808 per mmBtu, the highest level since Feb. 15, according to an assessment by Singapore Exchange Ltd.
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    Statoil May Consider Pemex Partnerships in Deep Waters, VP Says

    Statoil ASA may seek to partner with Petroleos Mexicanos in Mexico’s deepwater fields as the producer looks to gain a foothold in the country’s recently opened energy market.

    “We see opportunities to bid on deepwater farm-out agreements with Pemex if the terms and conditions are right," said Tore Loseth, vice president of Statoil Exploration in the U.S. and Mexico, on the sidelines of an oil conference in Monterrey on June 10. "But we need to know more about how the process will run before we can properly evaluate these.”

    Pemex and Mexico’s energy ministry announced plans last week to farm out the Trion field in the Gulf of Mexico -– an area believed to contain about 485 million barrels of reserves and estimated to cost $11 billion to develop. While the agreement will be in the form of a license, the details of the contract have yet to be spelled out.

    Loseth declined to say whether Statoil plans to bid on the Trion field. The companies involved in the farm out should be announced in December, Pemex said.

    Trion is the first in a series of long-delayed farm-out agreements for areas that Pemex was assigned in Mexico’s so-called “Round Zero” auction, the results of which were announced in 2014. That non-competitive bidding round was the result of landmark energy reforms that opened the doors to private investment.

    In December, Mexico also plans to hold its first auctions for deepwater blocks -- another way for Statoil to potentially enter Mexico’s oil market.

    Olso-based Statoil, which failed to win areas in Mexico’s shallow-water auctions last year, is among 23 companies that have registered to pre-qualify to participate in the deepwater oil auction on Dec. 5. The list includes deepwater operators such as Chevron Corp., Exxon Mobil Corp. and Total SA, all of whom are now in talks to secure partnership deals with Pemex. The Mexican company said in May that it might also start discussions with Statoil.

    Blocks up for grabs in Mexico’s deepwater auction are “potentially attractive” in spite of low oil prices, said Statoil’s Loseth. “The Mexican side of the Gulf of Mexico is very attractive because it is relatively under-explored."
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    China's potential oil, natural gas reserves rise: official data

    China's estimated oil and natural gas reserves have risen markedly in the past few years as prospecting has increased, the latest official assessment showed.

    Potential oil resources now reach 126 billion tonnes, with an extractable amount of 30 billion tonnes, the Ministry of Land and Resources announced Monday, citing results of a national assessment completed in 2015.

    The numbers are up 64 percent and 42 percent, respectively, from the the last such assessment in 2007, the ministry said.

    The country is estimated to have 90 trillion cubic meters of natural gas resources, 50 trillion of which can be exploited, up 158 percent and 127 percent from the last assessment.

    The ministry attributed the growth to increased exploration and better technology.

    China is thought to be rich in unconventional oil and gas resources, with 122 trillion cubic meters of shale gas no more than 4,500 meters underground, 22 trillion of which is exploitable, according to the ministry.
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    Petrobras’ Japan Unit Sale Said to Draw Interest From JX, Tonen

    Petroleo Brasileiro S.A.’s sale of its Japanese unit on the tropical island of Okinawa is drawing interest from several companies, including JX Holdings Inc. and TonenGeneral Sekiyu K.K., according to people with knowledge of the matter.

    At least seven companies, including Japanese refiner Cosmo Energy Holdings, have indicated an interest in participating in the first round of the auction for Nansei Sekiyu K.K., said the people, who asked not to be identified because the information is private. Petroleo Brasileiro is the Brazilian state-run oil company better known as Petrobras.

    Petrobras, which is at the center of a corruption scandal, is joining Exxon Mobil Corp. and Royal Dutch Shell Plc in exiting Japan, where demand for oil products is forecast to fall 8.4 percent in the next five years.

    The Brazilian oil giant bought an 87.5 percent stake in the Japanese company from TonenGeneral for 5.5 billion yen ($52 million) in April 2008, followed by a purchase of the remaining 12.5 percent stake from Sumitomo Corp. in 2010. Petrobras has been considering the sale of a stake in its Japanese business since at least 2011.

    The Brazilian company shut a 100,000 barrel-a-day refinery on Okinawa operated by Nansei Sekiyu last year as part of its plan to withdraw from Japan.
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    U.S. shale oil output to dip for seventh consecutive month: EIA

    U.S. shale oil output is expected to fall in July for the seventh consecutive month, according to a U.S. government forecast on Monday, despite a recent rally in crude prices to an 11-month high over $51 a barrel.

    Total output is expected to fall 118,000 barrels per day (bpd) to 4.723 million bpd in July, according to the U.S. Energy Information Administration's (EIA) drilling productivity report.

    Bakken production from North Dakota is forecast to fall 32,000 bpd, while production from the Eagle Ford formation is expected to drop 63,000 bpd.

    Production from the Permian Basin in West Texas is expected to drop 7,000 bpd, according to the data, representing its third consecutive monthly decline.

    The U.S. shale oil and gas industry, led by upstart drillers who upended the global energy order after starting the shale revolution in 2005, has been under siege, pushed to the brink - or beyond it - by enormous debt loads and the largest, longest price rout in a generation.

    U.S. crude futures fell from over $107 a barrel mid-2014 to a near 13-year low around $26 in February. Since then, prices have almost doubled, breaking through $51 last week as U.S. inventories declined and on supply worries in Nigeria.
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    TransCanada JV wins $2.1 bln gas pipeline contract in Mexico

    TransCanada Corp said on Monday that it won a contract with a joint venture partner to build and operate a $2.1 billion natural gas pipeline in Mexico.

    The company's joint venture with IEnova, a unit of Sempra Energy, won the bid for the Sur de Texas-Tuxpan project, in which TransCanada will own 60 per cent, with IEnova owning the rest.

    TransCanada expects to invest about $1.3 billion in the partnership to build the 800 km (497 mile) pipeline, which is expected to come into service by late 2018.
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    KDB bankrolls U.S. FLNG project

    Korea Development Bank said it has agreed to provide US$1.5 billion for the proposed Delfin FLNG project, 50 miles off the coastline of Cameron Parish, Louisiana.

    Delfin LNG, a wholly-owned subsidiary of Fairwood Peninsula Energy, is looking to develop a deepwater port and floating liquefaction facility, as well as the associated pipeline, including about 1.1 mile of onshore pipeline and aboveground facilities.

    According to Delfin LNG, this would be the first floating liquefaction vessel to operate off the coast of North America.

    LNG engineer Bechtel has been selected to perform the front-end engineering and design for the floating LNG vessel which will be able to disconnect from the port facility and move to protected waters during a hurricane.
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    Halcon Resources Strikes Deal to File Chapter 11 Bankruptcy

    As MDN told you in May, Halcon Resources, a Utica Shale driller that “guessed wrong” by leasing 140,000 Utica Shale acres in the northern part of the play (in Ohio) and currently doesn’t drill on any of that acreage, is preparing to file for bankruptcy.

    The company is still preparing. On Friday Halcon outlined how they will go about filing–converting some $1.8 billion of debt into shares of stock/ownership in the company.

    Halcón Resources Corporation announced the Company has executed a restructuring support agreement (the “RSA”) with select holders of its 13.0% 3rd Lien Notes due 2022 (“3L Notes”), its three tranches of senior unsecured notes comprised of its 9.75% Senior Notes due 2020, its 8.875% Senior Notes due 2021, and its 9.25% Senior Notes due 2022 (together, the “Unsecured Notes”), its 8.0% Convertible Note due 2020 (the “Convertible Note”) and its 5.75% Perpetual Convertible Preferred Stock (the “Preferred Equity”, and together with the 3L Notes, Unsecured Notes and Convertible Note, the “Affected Stakeholders”).

    As previously announced, the restructuring plan, if implemented, will result in the elimination of approximately $1.8 billion of net debt and approximately $222 million of Preferred Equity, and will reduce the Company’s ongoing annual interest burden by more than $200 million. Under the terms of the RSA, all current stakeholders, including common equity holders, will receive cash and/or common equity in the restructured Company. As of June 9, 2016, holders representing 80% of the aggregate principal amount of 3L Notes outstanding, 57% of the aggregate principal amount of Unsecured Notes outstanding, 100% of the aggregate principal amount of Convertible Note outstanding and holders of 63% of the outstanding shares of Preferred Equity have executed the RSA.,+Preferred+Stockholders/11729261.html
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    Penn West Seen Out of Woods for 2016 After Teine Deal Cuts Debt

    Penn West Petroleum Ltd. is getting a new lease on life, and investors welcomed the news with the biggest stock rally since 1992.

    Shares of the Calgary-based energy producer jumped as much as 64 percent on Monday after Teine Energy Ltd.’s agreement to buy oil-producing properties in Saskatchewan for C$975 million ($762 million) in cash eased debt concerns. The stock, up 41 percent at C$1.63 as of 2:22 p.m. in Toronto, is still worth a fraction of its peak price of more than C$47 in 2006 as its elevated debt was made worse by an industry downturn.

    “They’ve made it off the Titanic onto a boat,” Rafi Tahmazian, a fund manager at Canoe Financial LP in Calgary, said in a phone interview. Long-term survival depends on oil prices staying high enough for the company to be profitable and how next year’s spring bank line review goes, he said. “What you have driving against them is that they have had to -- going from darling to very troubled -- dispose of extremely good assets.”

    Penn West, a consolidator of oil properties in Western Canada a decade ago, has spent the last two-and-a-half years selling assets to bring down debt and make it through a market rout. The company had long avoided parting with the Saskatchewan properties seen as crown jewel assets important to its strategy. However, analysts in recent weeks had forecast that Penn West would have to resort to disposing of them and earlier this month the company was said to have hired Royal Bank of Canada to advise it on a sales process.

    Saskatchewan Properties

    In the deal announced Friday, Teine, the energy company backed by Canada Pension Plan Investment Board, will buy all of Penn West’s properties in Saskatchewan, including its Dodsland Viking light-oil assets in the east and the medium and heavy crude assets in the west. Penn West now expects to stay within credit covenants through 2016 with the deal, which reduces its debt by more than half, executives said on Monday. The company had previouslyforecast potentially breaching the covenants in the second quarter.

    “The sale is a definitive step which will help to change the narrative from constant discussions around its debt toward constructive conversations around Penn West’s recent performance in its remaining Cardium area,” Jeremy McCrea, an analyst at Raymond James Ltd. in Calgary, wrote in a note. He upgraded his stock recommendation to the equivalent of a buy from a sell. “The Penn West that ends 2016 will be very different than the Penn West that entered 2016.”

    Attractive Price

    Penn West got an attractive price for the properties, reflecting closely held Teine’s ability to pay up, Kristopher Zack, an analyst at Desjardins Capital Markets in Calgary, wrote in a note. Teine is paying about 15 times the debt-adjusted cash flow of the assets, compared with recent transactions of about 7 times, Zack said.

    “In our view, this reflects the deep pockets and long-duration strategy of the CPPIB, Teine’s largest shareholder -- a luxury that, quite frankly, would not be available to most publicly listed producers,” Zack said.

    Penn West will now target growing its Cardium and Viking positions in Alberta and plans to sell another C$100 million to C$200 million of mostly gas-producing assets outside its primary areas of focus by the end of the year to reduce expenses further, executives said. The company expects to start growing production again in 2017 by about 10 percent a year well into next decade, said Dave Roberts, chief executive officer of Penn West.

    Penn West is among producers that have been challenged by credit concerns that aren’t going away for the industry with U.S. crude below $50 a barrel, Tahmazian said, pointing to bank line reductions announced in recent days by Paramount Resources Ltd. and Journey Energy Inc. Penn West’s challenge will be to increase production without the highly prized assets it’s chosen to sell in the market rout, he said.

    RBC advised Penn West on the deal, while JPMorgan Chase & Co. advised Teine and Canadian Imperial Bank of Commerce advised Canada Pension Plan Investment Board.
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    Alternative Energy

    China Three Gorges to buy German wind park Meerwind from Blackstone

    China Three Gorges, which operates the world's largest hydropower plant on China's Yangtze river, will buy German offshore wind park Meerwind from U.S. buyout firm Blackstone, the companies said on Monday.

    The terms of the sale were not disclosed but people familiar with the process have told Reuters that they expected it to be valued at around 1.6 billion euros ($1.8 bln).

    The deal, signed during a visit by German Chancellor Angela Merkel to China, has German government approval despite growing controversy over Chinese takeovers of German businesses.

    China Three Gorges, which seeks to expand beyond hydropower as it faces a saturated domestic hydro market, will buy Blackstone's majority interest in WindMW GmbH, an offshore wind power joint venture. WindMW owns Meerwind, a 288 megawatt project in the North Sea and one of Germany's largest offshore windfarms.

    Reuters reported on Friday that China Three Gorges was closing in on a deal.

    The agreement was signed on Monday in the presence of Merkel and Chinese Premier Li Keqiang, the statement said.

    It was one of a number of deals expected to be signed during Merkel's visit. Airbus agreed to sell 100 helicopters to a Chinese consortium on Monday, while Daimler AG (DAIGn.DE) and its Chinese partner, BAIC Motor (1958.HK), pledged to jointly invest 4 billion yuan ($607.53 million)to expand engine production.

    The German government has expressed concerns over foreign takeovers of strategic assets deemed key to the German economy. Germany has been trying to co-ordinate a counter-offer for Chinese home appliance maker Midea's  controversial 4.5 billion euro buyout offer for robotics group Kuka.

    Bremerhaven-based WindMW is 80 percent owned by Blackstone and 20 percent by Windland Energieerzeugungs GmbH, and provides electricity for up to 360,000 households. The present management team will continue to operate the business.

    Jefferies, PJT Partners and Bank of America Merrill Lynch acted as financial advisors to Blackstone.
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    All cars in Germany to be emission free by 2030

    All new cars registered in Germany need to be emissions free by 2030 at the latest to help meet pollution reduction goals, a senior government official said.

    Germany’s pledge to cut carbon dioxide output by 80 percent to 95 percent by 2050 will be in jeopardy unless the country radically reduces transportation pollution, said Deputy Economy Minister Rainer Baake. Since cars typically have a 20-year lifespan, registrations of new diesel and gasoline cars needs to be cut over the next 15 years, he said.

    “Fact is there’s been no reduction at all in CO2 emissions by transport since 1990,” said Baake at a Tagesspiegel newspaper climate forum in Berlin. “We don’t have any answers to cut truck emissions right now but we do have answers for cars.”

    Germany is lagging behind cuts to greenhouse gas that transportation emits, which according to the Environment Ministry account for a fifth of the country’s carbon dioxide pollution. The sector needs to cut some 10 million metric tons of carbon dioxide over the next 5 years from a tally of about 165 million tons last year. While the country has committed to reducing emissions 40 percent by 2020 compared with 1990 levels, its adoption of electric cars has been sluggish.

    Chancellor Angela Merkel’s government pledged subsidies this year to speed e-car sales, a move that was accelerated by Volkswagen AG’s emission-manipulation scandal. Buyers of all-electric and hybrid vehicles can claim cash incentives, moves already in operation in countries including China, Norway and France. The program may spark sales of about 500,000 electric cars by 2020, according to the Environment Ministry.

    Purely electric vehicles as a portion of all cars on German roads may reach about 8 percent in 2025 from 0.6 percent this year, according to a forecast of the Center of Automotive Management institute. The government has so far stuck with a plan to put a million hybrid and battery plug-ins on the road by 2020 and 6 million by 2030

    Electric car sales still remain a fraction of all German vehicle sales. About 130,000 hybrids and 25,000 all-electric cars were registered on German roads as of January compared with 30 million gasoline cars and 14.5 million diesels, according to the KBA vehicle registration authority.

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    World Bank's Zambia solar auction sets African low price benchmark

    A World Bank-led solar power auction in Zambia has set a new low-cost benchmark for Africa, with two development groups winning backing to build generating plants in the next year, the international lender said on Monday.

    Neoen SAS, First Solar Inc and Enel Green Power were the winners of the initial auction for the "Scaling Solar" program, the World Bank Group's International Finance Corp said in a statement.

    France's Neoen and U.S.-based First Solar jointly bid 6.02 cents per kilowatt hour and will build a 45-megawatt solar plant in the African nation. Enel Green Power, a subsidiary of Italy's largest power utility, Enel, bid 7.84 cents per kilowatt hour and will build a 28-megawatt plant.

    Those bids compare with recent solar contract prices of over 7 cents per kilowatt hour in South Africa and up to nearly 12 cents in India.

    The two new solar plants are expected to expand Zambia's generating capacity by 5 percent, easing the strain of drought that has reduced the country's hydroelectric output, the IFC said.

    "These are the lowest solar power tariffs seen to date in Africa, and among the lowest prices for solar power anywhere in the world - a game changer for Zambia and other countries in the region facing electricity shortages," IFC Chief Executive Officer Philippe Le Houérou said in a statement.

    The World Bank program aims to help governments deliver cheap and clean energy by helping them run competitive auctions and reducing investment risks. It includes a full suite of World Bank products and services, including IFC financing and advice as well as guarantees from the group's Multilateral Investment Guarantee Agency arm.

    The IFC said Senegal and Madagascar also have signed up to run Scaling Solar tenders, which are expected to move to the prequalification phase in the coming months.

    The program, which hopes to develop one gigawatt of solar power in the next three years, also is supported by the U.S. Agency for International Development and the Dutch and Danish governments.

    The Zambian auction initially attracted interest from 48 development groups, seven of which submitted final proposals.

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    Precious Metals

    Britcoin breaches $700 on the upside

    Bitcoin soared above $700, hitting $710 earlier today for the first time since early 2014, when it was sliding from its all time high above $1000.

    As we wrote over the weekend, the catalyst has been another unprecedented bout of Chinese buying, which started on Saturday evening ET (Sunday morning Chinese time). This is again confirmed by looking at the action in the primary Chinese bitcoin exchange, OKCoin, where the buying, and volume, has been relentless, both on Saturday and Sunday, when the BIS appears to be away from the "emergency intervention" desk.

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    Base Metals

    Turquoise Hill soars on Rio Tinto increasing stake rumours

    Shares in Rio Tinto-controlled Turquoise Hill Resources soared Monday on reports that the mining giant had hired Goldman Sachs as an adviser to look at a two-step wrap-up of the Vancouver-based firm.

    Rio wants to increase its stake in Turquoise Hill to 51% and have the rest of the Canadian firm acquired by single strategic buyer or consortium.

    The stock was up 12.5% to Cdn$4.14 in Toronto and 14% to $3.29 in New York at 11:26 am ET following a London’s Sunday Times article that said Rio Tinto had discussions with potential co-investors for a $6 billion-plus deal aimed at privatizing its giant copper-gold silver Oyu Tolgoi mine in southern Mongolia.

    Currently, Turquoise Hill owns 66% of Oyu Tolgoi — equivalent to a 33.66% stake in the project for Rio — with the Mongolian government owning the remaining 34%.

    According to the article, Rio wants to increase its stake in Turquoise Hill to 51% and have the rest of the Canadian firm acquired by single strategic buyer or consortium.

    The Anglo-Australian giant has repeatedly said that wants copper to be one of its main pillars of growth, and so it named the boss of its copper and coal division Jean-Sébastien Jacques as the group’s new chief executive last March, replacing mining veteran Sam Walsh on the job.

    Turquoise Hill is slated to begin work on an underground mine at Oyu Tolgoi later this year. The expansion project would increase the mine’s annual capacity to more than 500,000 metric tonnes of copper by 2027.
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    Steel, Iron Ore and Coal

    Coal demand to grow by 7pct by 2030, Glencore

    Coal demand to grow by 7pct by 2030, Glencore

    Demand for coal was expected to grow by roughly 7% through 2030 to just over 6 billion tonnes of coal equivalent (btce) from 5.6 btce in 2013, Swiss mining and commodities trading giant Glencore said in its first Sustainability Development report dealing with climate change released on June 13

    The company argues that coal will continue to be a mainstay of the global energy mix, despite the rapid growth in renewable sources.

    The growth is primarily driven by emerging markets that continue to build low cost, coal-fired electricity generation plants. Cumulative demand over the period of the study amounts to between 19-21 billion tonnes. In order to meet future demand, 500 million to 1 billion tonnes of export capacity would have to be developed.

    While non-fossil fuel sources are expected to grow by 53% through 2030, total energy produced from renewables (5.47btce) would still be less than from coal.

    The seaborne market for coal is also predicted to grow on the back of demand from the steel, cement and chemical industries reaching 1.48 billion tonnes per year from 1.23 billion tonnes currently. While the Pacific region would underpin this growth due to a lack of domestic supply in some countries, the scrapping of European Union coal subsidies is likely to support imports by the region.

    This means that if there is no new investment in coal mines and companies and governments increasingly adopt a “harvest strategy”, seaborne supply would halve in 15 years' time.

    Glencore, which produces 131 million tonnes of coal per year from mines in Australia, Colombia and South Africa, said its own coal operations would be depleted by 2035 without new investment.

    Glencore's earnings from coal represent 23% of its headline earnings, second to copper at 25%. Glencore’s marketing and trading operations in metals and energy accounts for 23% of income.
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    U.S. top court rejects challenge to Obama mercury air pollution rule

    The U.S. Supreme Court on Monday let stand a lower-court ruling that left in place Obama administration environmental regulations limiting power plant emissions of mercury and other toxic pollutants while the Environmental Protection Agency revised them.

    The justices opted not to hear an appeal by 20 states led by Michigan of a December U.S. appeals court decision that said the rules could remain intact while the government responded to last year's Supreme Court ruling that the EPA should have considered the compliance costs when crafting the regulations. The rules affect mainly coal-fired power plants.

    It marked the second time this year that the Supreme Court has spurned the states on the issue. Chief Justice John Roberts on March 3 declined their request for a stay to put the regulations on hold following the December ruling by the U.S. Court of Appeals for the District of Columbia Circuit.

    The EPA has since updated the regulations, finding in April that they were necessary even when costs that would be incurred by industry are taken into account.

    "That finding reflects EPA's determination that consideration of cost does not justify any alteration of its prior conclusion that regulation of hazardous emissions from power plants is 'appropriate and necessary,'" the Obama administration said in court papers.

    The EPA's April decision is itself challengeable in court. Coal company Murray Energy Corp has already filed a lawsuit.

    The Supreme Court in June 2015 ruled that the Obama administration wrongly failed to consider compliance costs when it devised the regulations, which were intended to reduce deaths caused by air pollution and reduce cases of mercury poisoning that can cause developmental delays and abnormalities in children.

    The justices left it up to the appeals court to decide whether the rule had to be thrown out altogether while the agency revised it.

    According to the EPA, the rule, which went into effect in April 2015, applies to about 1,400 electricity-generating units at 600 power plants. Many are already in compliance, the U.S. Energy Information Administration said.

    The regulation, which covered oil-fired plants as well as coal-burning ones, was challenged by Michigan and other states in addition to various industry groups, including the National Mining Association.
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    Brazil judge dismisses $5.7 billion civil suit against Samarco: Vale

    Brazilian iron ore miner Vale SA said on Monday that a 20 billion reais ($5.7 billion) civil lawsuit seeking environmental and property damages for last year's deadly Samarco mine disaster has been dismissed.

    The mine is operated by Samarco Mineração SA, a joint venture between Vale and the world's largest mining company, BHP Billiton Ltd. Vale said the judge did not rule on the merits of the case.

    A tailings dam burst at the mine in November and unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted a major river valley.

    The National Humanitarian Society (Sohumana) filed the lawsuit before a federal judge in Rio de Janeiro in December.

    Brazil's federal and state governments also threatened to sue Samarco and its owners for 20 billion reais in compensation for the disaster and a settlement was reached in March to cover the damages.

    Under the agreement, Samarco, BHP and Vale will pay the 20 billion reais over 15 years to cover and repair damages. Vale, however, has outlined it expects to pay less than that due to the way the deal is structured, calculating future payments depending on how much work remains to be done.

    The settlement was approved by a Brazilian judge in May, which potentially reduced the threat of a separate $44 billion lawsuit filed by federal prosecutors in the states of Minas Gerais, where the mine is located, and neighboring Espírito Santo, who based their claim on the clean-up costs of the BP oil spill in the Gulf of Mexico in 2010.
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