Mark Latham Commodity Equity Intelligence Service

Thursday 8th September 2016
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    Top Saudi cleric says Iran leaders not Muslims as haj row mounts

    Saudi Arabia's top religious authority said Iran's leaders were not Muslims, drawing a rebuke from Tehran in an unusually harsh exchange between the regional rivals over the running of the annual haj pilgrimage.

    The war of words on the eve of the mass pilgrimage will deepen a long-running rift between the Sunni kingdom and the Shi'ite revolutionary power. They back opposing sides in Syria's civil war and a list of other conflicts across the Middle East.

    Iranian Supreme Leader Ayatollah Ali Khamenei, in a message published on Monday, criticized Saudi Arabia over how it runs the haj after a crush last year killed hundreds of pilgrims. He said Saudi authorities had "murdered" some of them, describing Saudi rulers as godless and irreligious.

    Responding to a question by Saudi newspaper Makkah, Saudi Arabia's Grand Mufti Sheikh Abdulaziz Al al-Sheikh said he was not surprised at Khamenei's comments.

    "We have to understand that they are not Muslims ... Their main enemies are the followers of Sunnah (Sunnis)," Al al-Sheikh was quoted as saying, remarks republished by the Arab News.

    He described Iranian leaders as sons of "magus", a reference to Zoroastrianism, the dominant belief in Persia until the Muslim Arab invasion of the region that is now Iran 13 centuries ago.


    Al al-Sheikh's remarks drew an acerbic retort from Iran's Foreign Minister, Mohammad Javad Zarif, who said they were evidence of bigotry among Saudi leaders.

    "Indeed; no resemblance between Islam of Iranians & most Muslims & bigoted extremism that Wahhabi top cleric & Saudi terror masters preach," Zarif wrote on his Twitter account.

    Saudi authorities normally seek to avoid public discussion of whether Shi'ites are Muslims, but implicitly recognize them as such by welcoming them to the haj, and by accepting Iranian visits to the Saudi-based Organisation of Islamic Cooperation.

    Tensions between the two countries have been rising since Riyadh cut ties with Tehran in January following the storming of its embassy in Tehran, itself a response to the Saudi execution of dissident Shi'ite cleric Nimr al-Nimr.

    Custodian of Islam's most revered places in Mecca and Medina, Saudi Arabia stakes its reputation on organizing haj, one of the five pillars of Islam which every able-bodied Muslim who can afford to is obliged to undertake at least once.

    Riyadh said 769 pilgrims were killed in the 2015 disaster, the highest haj death toll since a crush in 1990. Counts of fatalities by countries who repatriated bodies showed that more than 2,000 people may have died, more than 400 of them Iranians.

    Iran blamed the 2015 disaster on organizers' incompetence. Pilgrims from Iran will be unable to attend haj, which officially starts on Sept. 11, this year after talks between the two countries on arrangements broke down in May.

    The split between Islam's main sects dates to a dispute among Muslims over who would rule their community after the death of the Prophet Mohammad, and Shi'ites still regard his descendents as a line of imams blessed with divine guidance.

    Today such disagreements over history remain emotive points of tension between the sects, but they are also divided over day -to-day issues including differing interpretations of Islamic law and the role and organization of the clergy.

    In the Wahhabi teaching of Sunni Islam followed by the Saudi clergy and government, Shi'ite doctrine about imams is seen as incompatible with the concept of a monotheistic God.

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    China's capital outflows continue as PBOC props up yuan

    China’s foreign exchange reserves declined by $15.9bn in August to a five-year low, which was marginally more than economists expected and is likely to put further pressure on the country's currency.

    After its efforts to intervene in the market to support the renminbi, the People’s Bank of China (PBOC) said on Wednesday FX reserves had shrunk to $3,185bn by the end of last month, the lowest level since 2011.

    China's hoard of overseas funds peaked at $4trn in June 2014 and have been shrinking at pace in recent months as forex markets react to growing speculation of an interest rate hike by the US Federal Reserve.

    Economist Julian Evans-Pritchard at Capital Economics said the PBOC was intervening heavily to prop up the currency and that ouflows were likely to continue to weigh on the yuan.

    "Today’s data suggest that capital outflows from China remain sizeable which is likely to put further downward pressure on the renminbi in the coming months," he said.

    Adjusting for the impact of valuation and exchange rate effects, Capital Economics calculated that FX sales by the PBOC were around $30bn last month, not much changed from July, while a likely $20bn increase in the current account surplus pointed to the largest capital outflow since the panic about the renminbi and China at the start of the year.

    "Looking ahead, outflows may ease somewhat this month given that disappointing US data has pushed back expectations for a Fed rate hike," Evans-Pritchard said.

    "Nonetheless, the key takeaway is that although concerns about China are no longer front page news, capital outflow pressures haven’t gone away. We expect the PBOC to respond to these pressures by continuing to allow gradual renminbi depreciation."

    He said he expected the currency to end the year at 6.80 against the dollar, from 6.67 now, before dropping to 7.00 by the end of 2017.

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    China Aug imports rise for first time in nearly two years, export drop eases

    China's imports unexpected rose in August for the first time in nearly two years while exports fell at a more modest pace,

    suggesting demand at home and abroad may finally be perking up and putting the world's second-largest economy on a more balanced footing.

    Exports fell 2.8 percent from a year earlier, the General Administration of Customs said on Thursday, adding that pressure on shipments was expected to ease further in the fourth quarter.

    Imports rose 1.5 percent from a year earlier, ending a 21-month stretch of declines, suggesting domestic demand is picking up along with firmer commodities prices.

    That resulted in a narrower trade surplus of $52.05 billion in August, versus a $58 billion forecast and July's $52.31 billion.

    If it proves sustainable, a trade recovery would help ease fears that China's economy is becoming increasingly lopsided, and give feeble global growth a much-needed shot in the arm.

    China's policymakers have become more reliant on higher government spending on infrastructure and a housing boom to drive economic growth as private investment fizzles and exports remained sluggish.

    Economists polled by Reuters had expected trade to contract but show some signs of improvement.

    August exports had been expected to fall 4.0 percent, similar to July's 4.4 percent decline, while imports had been expected to ease 4.9 percent, moderating significantly from a sharp decline of 12.5 percent in July.

    A surge in commodity prices, due in part to Beijing's efforts to reduce excess capacity in heavy industries and mining, has also supported trade figures and given a badly needed boost to business confidence.

    Some Chinese steel plants are turning in the best margins in at least three years as prices rise and demand for building materials increases.

    G20 leaders pledged on Monday to work together to address excess steel capacity that has punished the global industry with low prices for years while raising tensions between China and other major producers.
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    China Southern Power Grid Jan-Aug power sales up 3.1pct on year

    China Southern Power Grid, a state-owned company that transmits and distributes electricity to China's five southern provinces, reported that total power sales reached 592.3 TWh over January-August, up 3.1% on year, compared with an increase of 2.8% in the first seven months, showed the latest data from the National Development & Reform Commission (NDRC).

    Of this, power consumption of Hainan and Guangdong rose 6.9% and 4.7% on year, compared with increases of 7% and 4.8% over January-July.

    Guangxi and Guizhou followed with power use climbing 1.8% and 1.7% on year, compared with a rise of 1.2% and a decline of 0.9% over January-July, the NDRC data showed

    Yunnan posted a decline of 1.7% in its power consumption in the first eight months, compared with a drop of 2% over January-July.

    In August, electricity sales of the company stood at 86.5 TWh, up 4.1% from the year-ago level.

    Guizhou, Guangxi, Hainan, Guangdong and Yunnan all saw climbing power use in August, with year-on-year growth at 10.9%, 5.9%, 4.3%, 3.2% and 0.1%, respectively.

    Guangdong power grid of the company registered the sixth new high of power load in August since this year, which was 100.07 GW, up 7% from the highest level last year.

    The volume, equaling to 4.5 times of the full generating capacity of the Three Gorges Dam, also exceeds the electricity loads of Germany, Australia and South Korea among other developed countries.

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    Oil and Gas

    Iraq oil freeze threshold

    Iraq has given other OPEC members a number at which it can freeze its output, Falah Al-Amri, head of Iraq’s Oil Marketing Co., says

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    Iran Oil Output Near Target Means Freeze Is ‘Political Decision’

    Iran hinted that it may soon drop its opposition to an oil-production freeze, with a senior official saying the OPEC member’s crude output is closing in on its pre-sanctions level and that limiting supply is “a political decision.”

    The Persian Gulf exporter is pumping 3.8 million barrels a day, approaching its daily target of 4 million barrels, Mohsen Ghamsari, director for international affairs at the National Iranian Oil Co., said Wednesday at a conference in Singapore. He said earlier in the week that Iran could reach its target in two to three months.

    “Iran is close to the 4 million target, but the freeze is a political decision,” Ghamsari said, referring to Oil Minister Bijan Namdar Zanganeh. “We are now close to previous production levels, so now it depends on the minister’s decision.”

    Members of the Organization of Petroleum Exporting Countries will hold talks with producers from outside the group, including Russia, during a conference in Algiers at the end of the month. Some ministers have called for an agreement to cap output in a joint effort to prop up crude prices amid a global glut. Saudi Arabia and Russia, the world’s top two crude-oil producers, pledged on Monday to cooperate to stabilize global markets, while failing to announce any specific measures to bolster prices.

    A previous attempt to freeze output in April fell through when Saudi Arabia insisted that Iran join before its output had recovered to levels seen before world powers tightened sanctions on Iran’s economy.
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    Oil supply-demand almost balanced, inventory overhang remains

    Oil supply and demand are rebalancing and the market may even have started drawing on the large overhang of crude and product stocks, top industry executives said during opening addresses at S&P Global Platts Asia Pacific Petroleum Conference 2016 in Singapore Tuesday.

    US shale oil production remained the biggest wild card, they also said.

    "Supply and demand are near balance, but the balance is precarious," Andy Milnes, CEO, Integrated Supply & Trading (Eastern Hemisphere), BP, told delegates.

    The market has been carrying an enormous inventory overhang, but BP believes that starting June/July "we might have started to draw [on stocks]," he said, adding that meant consumption was above supply and has to stay above for a long time for the market to start seeing the affect.

    "There is a light at the end of the tunnel. The world is demanding more hydrocarbons than it is producing," Milnes said.

    Statoil echoed a similar sentiment.

    Speaking to reporters on the sidelines of the event, Statoil senior vice president and chief economist Eirik Waerness said rebalancing was already taking place but it was impossible to predict how that will affect prices because of the oil in storage.

    "Fundamentals indicate that prices should gradually come up now," Waerness said, adding there were a lot of drivers that support higher prices but the inventory overhang was keeping prices capped.

    "We have probably the lowest spare production capacity in OPEC," he said, adding there were also supply disruptions and these are factors that would normally cause prices to go up.

    "On the other hand, we have maybe 500 million extra barrels of oil in storage compared to what we have had on average in the past," Waerness said.


    According to Milnes, the fact the supply shock occurred in the US -- a disaggregated market with lots of small producers that have a small cost base and tremendous ability to innovate quickly -- has had a dramatic impact on the way things have shaped up.

    According to data from the International Energy Agency and independent consultancy Rystad, at $60/b, US shale production will stay stable.

    But a price above that will lead to a rise in US production and a price below it will result in a drop, Milnes said.

    "Any price recovery will be banded by the ability of [US] shale producers to bounce back," he said.

    Milnes said companies like BP and other big explorers have stopped exploring in many areas and, while this was not affecting the supply situation today, it could in future.

    "In 5-15 years, if the demand carries on rising, and the energy sector is not continuing to invest through the cycle, then OPEC will become more important again," Milnes said.

    According to projections by Waerness, oil demand could grow up to 14.9 million b/d and gas demand by up to 625 billion cu m by 2040 from 2013 levels. "There is a real risk that if the current sentiment [of under-investment] prevails we could have a spike in prices because there could be a shortage in oil and gas supply," he said.
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    China's August crude imports surge to second-highest ever

    China's crude imports in August surged to 32.85 million tonnes, the second-highest amount ever, as a drop in prices spurred buying, while fuel product exports retreated from a record high in July, customs data showed on Thursday.

    On a tonnes basis, the August imports were just under the record of 33.19 million tonnes recorded in December, the data showed.

    On a daily basis, the country took in 7.74 million barrels per day (bpd), the most since Apirl, according to calculations by Reuters. Imports in August jumped 23.5 percent from a year ago, or the equivalent of almost 1.5 million bpd more.

    The jump was partly driven by independent refiners as they rushed to cash in on low oil prices before their import quotas expire in December.

    A total of 19 Chinese private refiners have received 2016 crude import quotas of 75 million tonnes, or 1.5 million barrels per day as of Aug. 18, a Chinese refinery executive said on Thursday. That volume contributed 20 percent of China's incremental crude imports in the first eight months.

    China took in 250.45 million tonnes (7.49 million bpd) of crude in the January to August period, up 13.5 percent from the year ago period.

    "August import was a bit surprise for us," Li Yan, oil analyst with Zibo Longzhong Information Technology Co said. "The high volume suggested some of the crude is flowing into state reserves, because demand from teapots and other refiners would not be enough to support such a high volume."

    Anticipation of pent-up gasoline demand as China heads to a week-long national holiday in October may have also spurred imports, according to Li.

    The government data was 4 million tonnes higher than the 28.79 million tonnes in imports that Reuters Supply Chain & Commodities Research assessed for the month based on tanker tracking and pipeline data.

    Refined products exports rose 19.3 percent from a year ago to 3.71 million tonnes, or 837,742 bpd, though it fell sharply from a record of 4.57 million tonnes in July.

    China flipped into a net exporter of refined products in July for the first time since at least 2013, Reuters calculations based on customs data showed.
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    China's oil majors to divulge pipeline details in government reform plan

    China's three oil majors will have to divulge intricate details about their vast networks of oil and gas pipelines, the government said on Wednesday, a key step towards increasing transparency for potential new entrants and customers.

    The energy ministry said on Wednesday Sinopec, CNOOC and China National Petroleum Corp (CNCP) were required to release data, such as opening dates, pipeline type, capacity, route and pricing formulas before Oct. 31.

    The announcement underscores Beijing's new push to reform the pipeline market, according to Lin Boqiang, director of Xiamen University's energy institute.

    "Pipelines have many add-on costs, such as maintenance fees going back two to three decades. The details will help third parties to better adjust cost and profit of a project and make the market more transparent," Lin said.

    Upstream and downstream users can also request other data such as unused capacity, quality and safety standards of a pipeline, the National Energy Administration said on its website.

    Experts and analysts say Beijing is pressing ahead with its plan to separate pipeline transportation from the hands of crude producers and lowering the cost to consumers, in a move to open the network.

    In August, Sinopec announced it would sell half of its premium natural gas pipeline business to investors.

    The state planner has also drafted a rule to lower transportation costs of natural gas pipelines.
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    Shell lifts FM on supply to Nigeria LNG

    Shell has lifted the force majeure, announced a month ago on August 8, on its feed gas supply into the Nigeria LNG export complex.

    A spokesman of Shell Petroleum Development Company of Nigeria (SPDC) said: “SPDC lifted the force majeure on gas supply to NLNG effective today, September 7 2016, following repair of the leak at the Eastern Gas Gathering System (EGGS-1) and re-opening of the line. A joint investigation team comprising community people, regulatory agencies and SPDC representatives found that the leak was from a hole drilled by unknown persons.”

    Traders had said that the disruption to Shell's feed gas supplies into NLNG meant that the latter was exporting at roughly half its normal capacity.

    The Nigeria LNG terminal at Bonny Island, with the tanker LNG Akwa Ibom berthed at its jetty (Photo credit: Shell)

    On September 6, Shell lifted the force majeure on its Bonny Light crude oil export terminal, but has yet to do so for its Forcados oil terminal. The Forcados FM has been in place since February.

    In other news, Reuters reported that Nigeria's military had arrested a suspected leader of the Niger Delta Avengers and other men accused of attacking oil and gas infrastructure.
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    Will ExxonMobil Have to Pay for Misleading the Public on Climate Change?

    Last fall, ExxonMobil executives hurried along the hushed, art-filled halls of the company’s Irving, Texas, headquarters, a 178-acre suburban complex some employees facetiously call “the Death Star,” to a series of emergency strategy meetings. The world’s largest oil explorer by market value had been hit by a pair of multipart investigations by InsideClimate News and the Los Angeles Times. Both reported that as early as the 1970s, the company understood more about climate change than it had let on and had deliberately misled the public about it. One of Exxon’s senior scientists noted in 1977—11 years before a NASA scientist sounded the alarm about global warming during congressional testimony—that “the most likely manner in which mankind is influencing the global climate is through carbon dioxide release from the burning of fossil fuels.”

    The two exposés predictably sparked waves of internet outrage, some mainstream media moralizing, and the Twitter hashtag #ExxonKnew. The Washington Post editorial page, for one, chided Exxon for “a discouraging example of corporate irresponsibility.” Bill McKibben, the founder of the environmental group, which spearheaded protests against the Keystone XL pipeline, wrote an impassioned article in the Guardian accusing Exxon of having “helped organize the most consequential lie in human history.”

    Kenneth Cohen, then the company’s vice president for public and government affairs, convened near-daily meetings to form a response. “We all sat around the table and said, ‘This feels very orchestrated,’ ” says Suzanne McCarron, who succeeded Cohen when he retired at the end of last year. McCarron still seems shocked that her company could come under sustained attack. “We wanted to know who’s behind this thing,” she says. While Exxon tried to identify its new nemesis—made difficult, perhaps, by the release of the two reports being coincidental—the executives also decided to nitpick the journalism and sent lobbyists to Capitol Hill to argue their side. That didn’t go so well. “I couldn’t get any journalist to actually evaluate the coverage,” Exxon spokesman Alan Jeffers says, with evident frustration.

    The crisis might have died down, a week or two of bad PR and nothing more, but several politicians saw an opening. On Oct. 14, four weeks after the first InsideClimate report, Democratic Representatives Ted Lieu and Mark DeSaulnier, both from California, asked U.S. Attorney General Loretta Lynch to launch a federal racketeering investigation of Exxon. “It occurred to me that this looks like what happened with the tobacco companies a decade ago,” Lieu says. Democratic presidential candidate Hillary Clinton added her support for a Department of Justice inquiry. “There’s a lot of evidence that they [Exxon] misled people,” she said two weeks later.

    Stoked by 40 of the nation’s best-known environmental and liberal social-justice groups—including the Environmental Defense Fund, Sierra Club, and Natural Resources Defense Council—the anti-Exxon animus only intensified. And if there wasn’t a coordinated campaign before, now there was: The groups all signed an Oct. 30 letter to Lynch also demanding a racketeering probe. (Lynch has since asked the FBI to examine whether the federal government should undertake such an investigation.) The same day, Lieu and DeSaulnier tried to interest the Securities and Exchange Commission in a fraud probe against Exxon, a request that’s pending. Five days later, on Nov. 4, New York Attorney General Eric Schneiderman opened a formal investigation into whether Exxon had misled investors and regulators about climate change.

    “We cannot continue to allow the fossil fuel industry to treat our atmosphere like an open sewer or mislead the public about the impact they have on the health of our people and the health of our planet,” former Vice President Al Gore said at a subsequent news conference organized by Schneiderman. Compelled by the New York AG’s subpoena, Exxon has so far turned over some 1 million pages of internal documents.

    Hours after Schneiderman issued his subpoena, Exxon Chief Executive Officer Rex Tillerson went on Fox Business Network. “The charges are pretty unfounded, without any substance at all,” he said. “And they’re dealing with a period of time that happened decades ago, so there’s a lot I could say about it. I’m not sure how helpful it would be for me to talk about it.” These remarks themselves weren’t terribly helpful—certainly not to Tillerson’s company.

    McCarron and her colleagues can sound a tad overwrought when discussing all this. “The goal of the coordinated campaign is to delegitimize the company by misrepresenting our history of climate research,” she says. “Tackling the risk of climate change is going to take a lot of smart people, and we’ve got some of the best minds in the business working on this challenge.”

    A company that has 73,500 employees and reported $269 billion in 2015 revenue would seem not to have much to fear from a bunch of tree-huggers and a grandstanding state AG. And yet the #ExxonKnew backlash comes at a financially perilous time for Big Oil. A glut-driven collapse in crude prices has rocked the entire industry. On July 29, Exxon announced second-quarter profit of $1.7 billion, its worst result in 17 years. That followed a rocky spring when ferocious wildfires reduced production in the oil-sands region of western Canada. (The frequency and intensity of such fires may be related to climate change, Exxon’s Jeffers acknowledges, adding, “But we just don’t know.”)
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    ONGC’s Profit Falls 21% as Oil Prices Slump, Output Drops

    Oil & Natural Gas Corp.’s quarterly profit declined 21 percent as oil prices slumped and output fell.

    Net income at India’s biggest energy explorer dropped to 42.3 billion rupees ($638 million) in the three months ended June 30 from 53.7 billion rupees a year earlier, the New Delhi-based company said in a statement to exchanges. Sales dropped 21 percent percent to 176.70 billion rupees.

    The state-run explorer is key to Prime Minister Narendra Modi’s goal of increasing the nation’s energy security and reducing import dependence by 10 percent in the next six years. Declining earnings will weigh on ONGC’s plans to invest billions of dollars to develop oilfields and boost flagging output from aging fields. It could also hinder efforts to add assets in India and overseas.

    ONGC sold crude oil to refiners including Indian Oil Corp. at $46.10 a barrel in the quarter, compared with $59.08 a barrel a year earlier after adjusting discounts to state refiners, according to the statement. The rebate, for selling fuels below cost when oil is expensive, amounted to 10.96 billion rupees in the year-earlier period. The company didn’t give any discounts on crude oil in the quarter ended June 30. ONGC sold gas at $3.06 per million British thermal units from $4.66 per million Btu a year ago.

    Benchmark Crude

    Brent crude, the benchmark for half of world’s crude including India’s, averaged $47.03 a barrel in the three-month period ended June 30, 26 percent lower than a year earlier. The contract traded at $47.16 a barrel at 1:44 p.m. in London.

    ONGC’s total oil output fell to 6.34 million tons in the first quarter from 6.48 million a year ago, while gas production slipped 5.6 percent to 5.49 billion cubic meters.

    The company’s shares rose 2.7 percent to 244.95 rupees at the close in Mumbai on Wednesday. The stock has risen 1.3 percent this year, compared with a 11 percent gain in the benchmark S&P BSE Sensex.
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    Oil extends gains after data shows huge stock draw

    Oil prices extended gains by more than 1.5 percent on Thursday after industry data showed what might be the largest weekly drawdown in crude stocks in over three decades.

    U.S. crude stocks surprisingly plunged by 12.1 million barrels last week, data from the American Petroleum Institute showed after market settlement on Wednesday, compared with expectations for an increase of around 200,000 barrels. [API/S]

    If official data released from the U.S. government later on Thursday confirms the draw, it would be the largest one-week decline since April 1985.

    U.S. crude stocks have been at record highs in the last two years, thanks in part to the shale oil boom that boosted output. Some analysts said Tropical Storm Hermine, which threatened the Gulf Coast refining region late last week before moving to the U.S. East Coast, may have skewed the figures.

    "I'm surprised at the big draw," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. "Despite a possible temporary effect (from the tropical storm), it raised concerns of supply/demand tightening significantly."

    Analysts said a large decline in U.S. gasoline stocks also supported oil.

    Gasoline stocks fell 2.3 million barrels, compared with expectations for a 171,000-barrel decline, the API data showed. Distillate stockpiles, which include diesel and heating oil, rose 944,000 barrels, compared with expectations for a 684,000-barrel gain.

    Crude was also supported by robust Chinese trade data. China raised its crude oil imports by 5.7 percent in August from a month earlier, while its August imports marked the first rise in nearly two years.

    Oil hit a one-week high on Monday after Russia and Saudi Arabia agreed to cooperate on stabilizing the oil market. Prices have since fallen due to uncertainty over a possible deal by producer nations to freeze output, particularly after a meeting in Doha in April ended without such an agreement.

    The Organization of the Petroleum Exporting Countries and non-OPEC producers such as Russia are expected to discuss the issue at informal talks in Algeria from Sept. 26-28.
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    U.S. judge halts fracking plan for federal lands in California

    A U.S. judge on Wednesday halted a plan to allow fracking on public lands in central California, saying a federal agency's environmental plan should have taken a "hard look" at the potential impact of the process.

    The ruling, by U.S. District Judge Michael Fitzgerald, was at least the second setback in three years for fracking in California and came as the Obama administration's rules for hydraulic fracturing on federal lands have been tied up in another court.

    The U.S. Department of the Interior's Bureau of Land Management (BLM), which periodically leases out land to private producers, offered a plan that would have allowed fracking on about a quarter of new wells drilled on some 1 million acres across central California.

    The final outcome is not clear as Judge Fitzgerald asked both sides for a further briefing on Sept. 21 as the case enters its remedy phase.

    But it could be similar to that a 2013 case in which a federal judge ruled that the BLM violated the National Environmental Policy Act when it issued oil leases in California's Monterey County without considering the environmental dangers of fracking.

    Since that ruling, the BLM has refrained from holding any lease sales in that area until it completes an environmental review of the risks of fracking, said one of the plaintiffs in the cases, the Center for Biological Diversity.

    California has long had an oil and gas industry, but it has trailed Texas, Oklahoma and North Dakota in fracking. Industry experts say that stems from regulatory uncertainty and more complex geology in California.

    Fracking, currently regulated by states, involves injection of large amounts of water, sand and chemicals underground at high pressure to extract oil or natural gas.

    A federal judge in Wyoming in June struck down the Obama administration's rules for fracking on public lands, holding that Congress had not delegated to the BLM the authority to regulate it. That ruling is under appeal.

    The BLM's rules, issued in their final form in March 2015, required companies to provide data on chemicals used in hydraulic fracturing and to take steps to prevent leakage from oil and gas wells on federally owned land.

    Environmental groups, while acknowledging that most fracking happens on private lands, said the BLM rules should be stronger.

    The case is No. CV-15-4378 in United States District Court, Central District of California.
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    U.S. advances oil reserve revamp plan, potential crude sale

    The Obama administration has sent Congress a plan to modernize the country's emergency oil reserve, a step that could set in motion a sale of about 8 million barrels from the stash later this year to help pay for the revamp, the Energy Department said on Wednesday.

    Under the $1.5-$2 billion revamp plan, three dedicated marine terminals would be added to the Strategic Petroleum (SPR), a string of 60 heavily-guarded underground caverns on the Texas and Louisiana coasts.

    Also, aging equipment for oil processing, firefighting and security would be fixed or replaced at the SPR, which was last updated in the late 1990s.

    "This equipment today is near, at, or beyond the end of its design life," the plan said.

    Congress created the SPR in 1975, after the Arab oil embargo spiked oil prices and spurred shortage panics. It now holds 695 million barrels of crude, the amount the country burns in about five weeks. It is the world's largest government-owned emergency oil reserve.

    Besides equipment corrosion from salt air breezes and heavy downpours, this decade's U.S. oil boom has also been hard on the ability of the reserve to speed oil to markets in the event of a disruption. Production hikes in Texas and the central United States have congested pipeline systems, making it difficult for the SPR to release crude without shutting in domestic output.

    If left unaddressed, the problems could hurt the country's ability to quickly meet international obligations to ship oil in the event of a major global supply crisis, according to the Energy Department review.

    Congress would need to approve a series of oil sales worth $2 billion from fiscal 2017 to 2020 to pay for the modernization. Those would be in addition to the 124 million barrels in SPR sales from 2018 to 2025 Congress recently authorized to pay for highway projects and balance the budget.

    The Obama administration is eager to start fixing the reserve after a roof collapsed at a tank in 2015 and a water pipe burst this year. In April, President Barack Obama requested from Congress $375 million in sales, more than 8 million barrels at current prices, in fiscal 2017 to pay for the modernization.

    Congress could approve that initial sale in a spending or energy bill later this year. Senator Lisa Murkowski, a Republican and the head of the energy committee, has said she wants to see the plan before supporting any sales.
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    Apache makes “significant” find in Delaware Basin

    Apache said it has made a “significant” find in the US after more than two years of extensive geologic and geophysical work.

    The company said the find, Alpine High, is in the southern portion of the Delaware Basin.

    Its hydrocarbons in place on the acreage are said to be 75 trillion cubic feet of rich gas and three billion barrels of oil in the Barnett and Woodford formations alone.

    Apache said it also sees “significant” oil potential in the shallower Pennsylvanian, Bone Springs and Wolfcamp formations.

    Chief executive John Christmann said: “With the contribution of Alpine High to our global portfolio of world-class international and North American assets, Apache clearly has more profitable-growth opportunities than at any other time in the company’s 60-year history.

    “Today’s announcement is the culmination of more than two years of hard work by the Apache team. While other companies have focused on acquisitions during the downturn, we took a contrarian approach and focused on organic growth opportunities.

    “These efforts have resulted in the identification of an immense resource that we believe will deliver significant value for our shareholders for many years.”

    Apache has secured 307,000 contiguous acre at an attractive average cost of $,300 per acre.

    Alpine High has 4,000 to 5,000 feet of stacked pay in up to five distinct formations including the Bone Springs, Wolfcamp, Pennsylvanian, Barnett and Woodford.

    The US oil and gas firm said between 2,000 and 3,000 future drilling location have been identified in the Woodford and Barnett formations alone.

    These formations are in the wet gas window and are expected to deliver a combination of rich gas and oil.

    Initial estimates for the Woodford and Barnett zones indicate a pretax net present value range of between $4million and $20million per well.
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    Devon Energy announces third successful STACK spacing test and high-rate extended-reach oil wells

    Devon Energy Corp. announced today it has successfully tested its third Meramec spacing pilot and commenced production on two high-rate, extended-reach lateral oil wells in the core of the over-pressured oil window of the STACK.

    The Pump House spacing pilot tested a seven-well pattern across a single-section interval in the upper Meramec. Initial 15-day production rates averaged 2,200 oil-equivalent barrels (Boe) per day per well (55 percent oil) and cost $6 million per well. The Pump House wells were drilled with 4,700-foot laterals and utilized a completion design that deployed 2,200 pounds of proppant per lateral foot across 35 frac stages with perf clusters spaced 25 feet apart. To manage pressure and maximize value, these wells were brought online using an engineered choke management approach starting at a 14/64-inch choke and gradually increasing to a 26/64-inch choke over the initial 15-day period.

    The Pump House wells are located in Kingfisher County adjacent to the Born Free pilot and three miles north of the Alma pilot. Production from the two-well Born Free pilot (announced first-quarter 2016) continues to perform exceptionally well, averaging a 120-day rate of 1,400 Boe per day per well. The five-well Alma pilot has achieved a 60-day average rate of 1,300 Boe per day on a per well basis.

    'Results from our initial three Meramec spacing tests are outstanding, with flow rates exceeding type-curve expectations and minimal interference between wells,' said Tony Vaughn, chief operating officer. 'These positive results indicate the potential for tighter spacing and increased inventory in the core of the over-pressured oil window. We continue to advance several additional Meramec spacing tests that will help us accelerate learnings and further prepare for full-field development in 2017 across our industry-leading position in the STACK.'

    To determine the optimal spacing approach for the stacked-pay intervals in the Meramec, the Company is participating in more than 10 additional spacing pilots during the remainder of 2016. The spacing pilots are focused in the over-pressured oil window and are testing up to eight wells in a single Meramec interval and evaluating the joint development of multiple stacked-pay intervals through staggered well pilots. Initial production rates from several of these spacing pilots will occur during the second half of 2016.

    Extended-Reach STACK Wells Deliver High Production Rates

    The Company also recently brought online two extended-reach Meramec wells in eastern Blaine County, within the core of the over-pressured oil window. The Marmot 19-1HX and Blue Ox 3130-4AH were drilled with 10,000-foot laterals and achieved average peak 24-hour rates of 3,700 Boe per day per well (70 percent oil).

    The Marmot and Blue Ox wells utilized a larger completion design that deployed 2,600 pounds of proppant per lateral foot across 50 frac stages with perf clusters spaced 30 feet apart. The peak 24-hour rates for these wells were attained with a 28/64 choke.

    'These successful extended-reach oil wells help us further understand the optimal development scheme for Devon's industry-leading STACK position,' said Vaughn. 'As we progress to full-field development in 2017, it is our expectation that we will develop the majority of our stacked-pay Meramec position with extended-reach laterals, which will significantly increase rates of return from this world-class reservoir.'

    Accelerating Investment in the STACK

    As previously announced, Devon is accelerating activity in the STACK play by adding as many as four operated rigs in the second half of 2016. This plan could bring the Company's operated rig count to as many as six in the STACK by year-end 2016. Due to the increased activity, Devon expects to invest approximately $450 million in the STACK during 2016, an increase of 40 percent from previous guidance. This additional capital investment positions the STACK asset to deliver strong growth in 2017.
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    Ex Shell exec's granted DOE export permit for LNG.

    NextDecade on Wednesday said it has been granted authorization by the U.S. Department of Energy to export liquefied natural gas to free-trade agreement countries from its proposed Rio Grande LNG facility.

    DOE awarded a 30-year export permit, allowing NextDecade to export up to 27 mtpa from the facility at the Port of Brownsville, the company’s statement shows.

    Alfonso Puga, NextDecade chief commercial officer noted the DOE authorization is a step towards making the final investment decision in 2017.

    The company has already signed non-binding agreements in November 2015, to sell 14 mtpa of LNG to customers across Asia and Europe. Since then the number has grown to 30 mtpa.

    NextDecade expects to receive FERC approval for Rio Grande LNG in 2017 with initial LNG exports shipping by the end of 2020, the statement reads.

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    Alternative Energy

    France plans to tender 1.35 GW rooftop solar plants to reach PV goals

    France plans to launch tenders for 1,350 MW of new solar rooftop panels to reach its ambitious solar PV targets, French energy minister Segolene Royal said Tuesday on her twitter account.

    According to a press report, this will comprise three tenders for 450 MW each to be held in 2017, 2018 and 2019. Royal's ministry officially launched last month the tender process for the construction and operation of 3,000 MW of new ground-based solar PV power plants.

    Those tenders are divided into six 500 MW rounds, with one to be held every six months and the first round of bidding to end on February 1, 2017.

    Realization of the ground-based projects that will benefit from the new support mechanism will be between 2017 and 2020 with the timing ensuring stability and visibility for the entire chain contributing to the creation of green jobs, it said.

    Royal hopes to boost solar capacity from a current 6,700 MW to 10,200 MW by the end of 2018, with an even more ambitious target for over 20,000 MW by 2023.

    Last year, France added some 900 MW of new solar capacity, including Europe's biggest solar farm -- Neoen's 300 MW PV project near Bordeaux which was completed in less than a year.

    In the first half of 2016, some 570 MW of new solar projects were connected to the grid bringing French solar capacity to around 6,700 MW by the end of June, data from grid operator RTE shows.

    According to Platts Renewable Power Tracker, solar output in the first eight months of 2016 was up 8% at 6 TWh with July and August the first months with above 1 TWh solar output and midday solar peaks now at 4.7 GW.
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    A flue gas first for South Korea

    A new chapter in flue gas cleaning technology has opened in South Korea with the successful performance test of a flue gas desulphurization plant based on circulating dry scrubber technology,

    Two years ago, South Korean electricity company Gunjang Energy decided to install a new unit, called Seagull, at its existing power plant at Gunsan city.

    The circulating fluidized bed (CFB) boiler size was 275 MW and it needed to fulfil strict emission requirements which came into force in January 2015. Therefore, a suitable flue gas desulphurization (FGD) technology to meet this limit became mandatory. Gunjang Energy wanted to install the most economical FGD technology for these demands, and therefore selected circulating dry scrubber (CDS) technology. The contract was awarded to Hamon Korea in June 2014 and commercial operation started on 18 May 2016.

    The basic principle underlying a CDS is the removal of gaseous components and a downstream filter for dust removal. The flue gas from the upstream boiler flows through the CDS and then a filter, and is released into the atmosphere via induced draft fans and stack.

    The main component for the removal of waste gases is the CDS with the high solid concentration situated inside it. These solids contain the dust brought in by the raw gas, a metered quantity of hydrated lime as the absorbent, and over 90 per cent of FGD product, recirculated from the downstream arranged filter. Figure 1 shows the arrangement of the whole CDS system.

    The FGD is located downstream of the air preheater in the power plant arrangement. The CDS system itself consists of a CDS absorber, a low pressure fabric filter with eight chambers for dedusting downstream of the CDS absorber, the connecting ductwork including the recirculation duct, the ID fans downstream of the fabric filter and the connection to the stack. All equipment has been installed in a compact and space-saving way.
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    Precious Metals

    Zuma’s nephew to pay R23m for South African mine ruin

    Khulubuse Zuma, a nephew of President Jacob Zuma, agreed to pay R23-million ($1.6-million) to settle a lawsuit that found him partly responsible for the destruction of gold-mining assets nearJohannesburg.

    Zuma has already paid R5-million and will settle the rest in monthly installments, trade union Solidarity said in an e-mailed statement Wednesday. The organisation represents some of the 5 300 employees at the Pamodzi and Grootvleigold mines who lost their jobs when the assets were ransacked after Aurora Empowerment Systems took control in 2009.

    Zuma was chairman of Aurora and was found jointly liable for all losses after December 1, 2009, by a High Court in June last year. At the time, he claimed he didn’t have an executive or operational role in the business. The liquidators of Pamodzi, who brought the suit against Zuma, are also seeking damages from Zondwa Mandela, a grandson of Nelson Mandela, and members of the Bhana family who were also involved in running Aurora.

    Through Aurora, Zuma and Mandela gained control of the Pamodzi mines in 2009 when its previous owner was placed under provisional liquidation. When Aurora failed to raise the required funds to get the mines up and running, they fell into disrepair and were ravaged by illegal miners. The assets were valued at about R1.7-billion, according to Solidarity.

    “Righteousness has at last happened and Zuma’s and the Bhanas’ moment of penance has arrived,” Gideon du Plessis, general secretary of Solidarity, said in the statement.

    The Bhanas have so far failed to comply with an agreement to pay R5.9-million in damages and so the North Gauteng High Court on Wednesday issued a sequestration order, which allows the funds to be raised from a debtor’s assets, Solidarity said.

    An application to liquidate the assets of Zondwa Mandela and others involved in the case will be brought in due course, Solidarity said.

    Vuyo Mkhize, a spokesperson for Zuma, and the Bhanas didn’t immediately respond to requests for comment.Etienne van der Merwe, who represents Mandela and the Bhanas in the main case but not the sequestration orders, said he’s awaiting a court process for liquidators to prove their damages. Solidarity claims the losses amount to R1.7-billion.
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    Base Metals

    PT Antam welcomes export changes in Indonesia

    Diversified miner PT Antam has welcomed plans by the Indonesian government to relax mineral export constraints.

    In August this year, Indonesia’s Chief Economic Minister said that the government was looking to relax export rules which would prevent certain companies from exporting semi-processed minerals from January next year.

    Under the 2014 rule, metals miners were only allowed to ship partially processed minerals until January 2017, at which point exports of only refined metals would be allowed.

    PT Antam’s president director Tedy Badrujaman said on Thursday that an unprocessed ore, which was produced as a byproduct from its mining activities, had proven uneconomical to process in its own plants or at other domestic smelters.

    However, should this ore be exported, value could be generated.

    “As a state-owned enterprise in which we represent the government’s mineral resources management, we are committed to supporting the government’s mineral resourcesmanagement, we are committed to supporting the government’s mineral downstream policy,” Badrajuman said.

    He noted that if Antam was given credentials to export nickel ore, the company would allocate its high-grade ore to support domestic smelters, while unprocessed nickel ore, which could not be consumed domestically, would be exported.

    “This unprocessed nickel ore have a better nickel grade compared with a nickel ore from the Philippines, so it will be substitute to the Philippines ore if it can be exported.”

    Antam has some 988.3-million tonnes of reserves and resourcs, of which 580-million tonne is considered high-grade nickel ore and a further 408-million tonne is considered low-grade nickel ore.

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    Malaysia extends bauxite mining ban until year-end

    Malaysia extended a moratorium on bauxite mining to the end of the year, from Sept. 14, and said the government could stretch the ban by another six months if the current high stockpiles of the aluminium-making commodity were not cleared by Dec. 31.

    Malaysia's largely unregulated bauxite mining industry has boomed in the past two years to meet demand from top aluminium producer China, filling in a supply gap after Indonesia banned exports. But the frenetic pace of digging has led to a public outcry with many complaining of water contamination and destruction of the environment.

    Late last year, bauxite mining was blamed for turning the waters and seas red near Kuantan, the capital of Malaysia's third-largest state and key bauxite producer Pahang, following which, in January, the government imposed its first three-month ban on mining the commodity.

    Despite extensions to the moratorium, 4.13 million tonnes of stockpiles remain uncleared in three sites around Kuantan, Malaysia's environment minister said on Wednesday.

    "If come Dec. 31 and the stockpiles are not cleared, I'm going to ask for (another) six months moratorium," Wan Junaidi Tuanku Jaafar, Malaysia's natural resources and environment minister, said at a press conference.

    China imported nearly 24 million tonnes of bauxite from Malaysia last year, its top supplier then. But Malaysia's bauxite exports to China have slipped since the moratorium, falling to 5.4 million tonnes over January to July, or only about half of the volumes shipped a year ago.

    The extended mining ban will give industry players and authorities time to comply with improved regulations and take steps to mitigate pollution across the mining and export supply chain, the environment ministry said in a statement.
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    Steel, Iron Ore and Coal

    China Aug coal imports soar 52pct on year

    China imported 26.59 million tonnes of coal in August this year, the highest since December 2014, soaring 52.03% from a year ago and up 25.37% from July, showed data from the General Administration of Customs on September 8.

    Chinese buyers boosted imports last month, as domestic prices surged on the back of extremely tight supply and strong demand from utilities to meet air-conditioning demand in the hot summer.

    On August 31, the Fenwei CCI Thermal index for domestic 5,500 Kcal/kg NAR coal was assessed at 509 yuan/t FOB with 17% VAT, up 57 yuan/t from the end of July, showed data from China Coal Resource (  

    The value of coal imports in August reached $1.37 billion, surging 39.66% on year and up 29.9% on month. That translated to an average price of $51.51/t, falling $4.56/t on year but up $1.8/t from July.

    Over January-August, coal imports of China reached 155.74 million tonnes, rising 12.4% on year, data showed.

    The value totaled $7.63 billion over the same period, a year-on-year decline of 11.9%.

    Over January-July, China produced 1.9 billion tonnes of coal, down 10.1% on year, showed the NBS data.
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    Shandong Aug coal output down 40.86pct on year

    Shandong produced 8.39 million tonnes of raw coal in August, down 40.86% year on year and 11.83% month on month, showed the latest data from the Shandong Administration of Coal Mine Safety.

    Over January to August, raw coal output of the province totaled 84.20 million tonnes, sliding 16.03% from the corresponding period of 2015.

    Of this, 64.61 million tonnes were produced by provincial-owned mines, down 13.31% on year; and the remainder was from mines owned by municipal and lower-level government, down 23.92% from a year ago.

    Attached Files
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    China to relax 276-day limit on coal mine operations, say market sources

    China's central government is likely to relax its strict 276-day annual operating limit on coal mines after meeting with major domestic producers and customers Thursday, market sources said.

    National Development and Reform Commission officials agreed action was needed to cool escalating spot prices for domestic thermal coal after hearing from power utility and end-user customers, market sources said.

    The main outcome of the meeting convened by the NDRC in Beijing was that the restriction on domestic coal mines operating for a maximum of 276 days a year would remain in place for the foreseeable future, but producers could be granted permission to increase production in response to sharp rises in spot prices and to decrease it if prices fell, sources said.

    Some mines could also receive permission to operate for six days a week, up from the current five, sources said.

    The analogy of turning a tap on and off was used to describe the Chinese central government's new approach to controlling domestic coal prices through adjustments to domestic coal production, sources said.

    China's Coal Association will oversee any variation in coal output volumes at individual mines, the sources said.

    At Qinhuangdao port in north China, spot prices for September cargoes of 5,500 kcal/kg NAR domestic thermal coal have traded as high as Yuan 550/mt FOB this week, up from Yuan 400/mt in June, traders said.

    One coal trader in China said the potential for producers to vary production levels could impact traditional winter re-stocking patterns in China as producers caught offguard by any changes in spot prices could adjust their production levels accordingly.
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    Study links 2˚C rise in global temperature to 40% fall in thermal coal trade

    A 2˚ Celsius rise in global temperatures could result in a 40% reduction in global thermalcoal trade by 2035, new analysis by Wood Mackenzie has found.

    According to Woodmac, the reduction in trade in thermalcoal, from an estimated 900-million tonnes for 2016, to 527-million tonnes by 2035, will also likely lead to unintended consequences for prices if market consolidation occurs, the commercial intelligence firm advised.

    The report follows the US and China formally ratifying the COP21 Paris climate agreement over the weekend at the G20 summit in China.

    "Putting things into context for thermal coal trade, Wood Mackenzie's proprietary modelling suggests seaborne import demand to shrink by 40% by 2035. Asia, Europe and theAmericas will import 433-, 80- and 15-million tonnes, respectively, in 2035 from 673-, 170- and 39-million, respectively, estimated for 2016,” research director of globalcoal markets Prakash Sharma stated.

    According to Sharma the impact on prices is hard to predict in a carbon-constrained world, however, they will undoubtedly be lower.

    Wood Mackenzie's modelling suggests a sub $50/t FOB Newcastle (real terms) benchmark pricing post-2020. However, the market may well consolidate, which could result in producers having more power over prices.

    Other factors such as a global price on carbon and greater demand for premium thermal coal could sharply increase supply costs, which could also lead to higher prices.

    450 SCENARIO
    Woodmac advised that according to its analysis of theInternational Energy Agency (IEA) 450 Scenario, which sets out an energy pathway consistent with the goal of limiting the global increase in temperature to 2°C by limiting concentration of greenhouse gases in the atmosphere to around 450 parts per million of CO2, a 2°C limit on temperature rise would mean a sharp reduction in the share of coal-fired generation from 41% in 2013, to 16% by 2035.

    Further, Australia would be impacted less than most of its competitors owing to the higher quality of its coal, however, it would still see exports decline by 35% by 2035 from current levels.

    Woodmac also revealed that prices would likely fall significantly and stay below real $50/t in the long term, and the industry could undergo a massive consolidation as a result.

    The IEA 450 Scenario for 2035 is based on massive improvements in energy efficiency and an increased share ofnuclear, renewables and gas in supplying power. The IEA 450 Scenario assumes that carbon capture and storage will become commercial from 2020 onwards and will potentially support 980-million tonnes thermal coal consumption in 2035. Without this technology breakthrough, the Scenario would appear more severe on thermal coal demand, according to Woodmac.

    Meanwhile, the IEA 450 Scenario presents a bearish coalimport outlook for Japan, South Korea, Taiwan andSoutheast Asia, where domestic reserves are either non-existent or exhausting. China and India have options to support domestic coal industry and restrict imports.

    "Our analysis suggests demand for high-energy bituminous coals will be more resilient compared with low energy lignite-type coals. As a result, we expect Australian exports to fall more slowly than the rest. Australian exports will decline from 210-million tonnes in 2016, to 135-million tonnes by 2035," Sharma explained.

    In comparison, Indonesian exports will decline from 340-million tonnes in 2016, to 193-million by 2035. Colombia,Russia and South Africa combined will export less thanAustralia in 2035.

    "Thermal coal trade in a 2˚C-world looks very challenging. Many unintended consequences for energy supply security,power generation costs and fuel prices may emerge that have not yet been evaluated nor integrated in corporate strategies and governmental plans, despite the two major nation's formal ratification over the weekend,” Sharma cautioned.
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    China steel, iron ore extend losses as supply builds after G20

    Chinese steel futures extended losses to touch a six-week trough on Thursday, pressured by increased supply as mills around the eastern city of Hangzhou resume production after the G20 summit.

    Those mills were ordered by government authorities to suspend output ahead of the event earlier this week to clear the skies.

    "Steel is pressured by a short-term rise in additional supply post-G20," said a Shanghai-based iron ore trader.

    The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange was down 1.3 percent at 2,341 yuan ($351.13) a tonne by 0324 GMT, adding to Wednesday's 4-percent slide.

    Rebar touched a low of 2,321 yuan, its weakest since July 26.

    The weakness in steel prices helped drag down raw material iron ore, with the most-active January iron ore on the Dalian Commodity Exchange down 2.1 percent at 407 yuan a tonne. It fell as far as 402.50 yuan, the lowest since Aug. 1.

    Talk of possibly more mills being shuttered in China's major steel making city of Tangshan as the government steps up an environmental crackdown to address overcapacity also curbed demand for forward iron ore cargoes, said the Shanghai trader.

    "Several of our customers already have enough stocks until mid-October after recent purchases," he added.

    Chinese markets are shut for the Mid-Autumn festival on Sept. 15-16 and on Oct. 3-7 for the National Day holiday.

    Iron ore for delivery to China's Tianjin port .IO62-CNI=SI eased 0.5 percent to $58.30 a tonne on Wednesday, the lowest since July 27, according to The Steel Index (TSI).

    The declines in ferrous futures sent buyers of physical iron ore cargoes "running for the hills," said TSI, which compiles information on deals done in China.

    Data on Thursday showed China's iron ore imports slipped 0.8 percent in August from a near record level in the previous month, while steel exports also dropped.

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    Domestic steel output headed for further contraction: report

    Domestic steel output fell in August and is likely to contract further during the rest of months this year, an industry report said on Tuesday.

    Experts noted the trend is a result of sagging market demand and the government's pledge to cut overcapacity.

    Daily production for the China Iron and Steel Association (CISA)'s member companies amounted to 1.76 million tons in early and mid-August, according to a statement published on the CISA website on Tuesday.

    Based on that number, it is estimated that the daily output of crude steel was 2.23 million tons nationwide in early and mid-August, the CISA said.

    The figure represented a 3.3 percent increase from July, but it still lagged behind the average of 2.3 million tons of daily output in the second quarter of 2016. In the first seven months of 2016, national pig iron output dropped 2.25 million tons year-on-year to 467 million tons, said the report.

    The China Iron Ore Price Index also declined in August after two months of consecutive gains. It dropped 2.86 percentage points from July to 212.77 points at the end of August, the statement noted.

    One of the reasons behind the phenomenon is the plunge in steel demand amid global economic weakness, as the amount produced is determined by the demand side," Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times on Tuesday.

    For example, steel exports decreased 5.8 percent from June to 10.3 million tons in July, according to statistics published on the website of the General Administration of Customs.

    Meanwhile, China is increasingly confronted with steel protectionism in foreign markets.

    In August, the EU imposed anti-dumping duties ranging from 19.7 percent to 22.1 percent on China's cold-rolled steel, according to a statement published on the Ministry of Commerce's website.

    Such measures will impose difficulties on China's steel exports in the rest months of this year, but what's worse is "the rapid drop in domestic demand brought about by the slowdown in infrastructure construction," said Lin.

    Besides, a number of second-tier cities, like Xiamen in East China's Fujian Province and Wuhan in Central China's Hubei Province, rolled out housing purchase limits or tightened loan policies in August, in a bid to cool the housing market.

    "Typically, the use of steel in the construction sector represents around 40 percent of total consumption," Wang Guoqing, research director with the Beijing-based Lange Steel Information Research Center, told the Global Times on Tuesday. Wang said fewer apartments will be built by developers in response to local government policies.

    This means domestic demand for steel will continue to decrease in the rest months of this year, Wang said.

    Cutting overcapacity, an agenda that was in the spotlight during the G20 summit, has also played an important role, experts said.

    The Chinese government has already stepped up efforts to address the issue. It vowed to cut steel capacity by about 10 percent or 150 million tons of steel in the next few years, with aims to reduce steel production by 45 million tons this year alone.

    As of July, the country had only achieved 47 percent of its annual steel reduction target.

    "For the government, to fulfill its promises will be challenging this year, and more work needs to be done to meet the schedule," Wang said. "As more measures against overcapacity take effect, steel output is likely to see a rapid decline in the rest months of this year."
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    China steel exports fall to six-month low, in brief respite for world

    China's steel exports fell to the lowest in six months in August amid stronger domestic prices, offering relief to rivals overseas angered by a flood of cheap Chinese products.

    But the global reprieve could be temporary as Chinese steel producers could easily boost exports to ship surplus output amid gradual efforts to address its chronic overcapacity.

    Elsewhere, China's August trade data on Thursday showed higher imports of crude oil and coal, while arrivals of copper, iron ore and soybeans eased.

    China's overall imports unexpectedly rose for the first time in nearly two years, suggesting domestic demand may be picking up and putting the world's second-largest economy on a more balanced footing.

    Exports of steel products from China, a sore topic with global trade partners, fell to 9.01 million tonnes in August from 10.3 million tonnes in July, data from the General Administration of Customs showed.

    It marked a second month of lower exports and the volume was the smallest since February's 8.11 million tonnes. However, shipments over the first eight months were still up 6.3 percent from a year ago at 76.35 million tonnes.

    "It's a welcome development but there's still a long way to go in terms of Chinese exports falling sharply because of their massive excess capacity and export tax rebate policy," Roberto Cola, vice president of the ASEAN Iron and Steel Council, said.

    China, with an estimated excess capacity of around 300 million tonnes - thrice the 2015 output of No. 2-ranked Japan - has said it will continue its tax rebates to steel exporters as it tries to finance a costly capacity closure plan.

    The fall in exports indicates the difficulties faced by Chinese steel producers amid anti-dumping tariffs imposed by other countries such as the United States and India, said Cola.

    But Richard Lu, analyst at CRU consultancy in Beijing, said the drop was in response to firm domestic prices, rather than China giving in to the pressure from the rest of the world.

    "We may see exports flat month-on-month or perhaps post a slight uptick in September because domestic prices may still rise because of seasonal buying as well as some restocking," said Lu.

    Chinese steel prices have risen 20 percent from late May due to low inventory levels and slower output from mills, some of which have been ordered shut by Beijing.

    As of July, China had achieved 47 percent of its target to cut steel capacity by 45 million tonnes this year.

    G20 leaders at this week's meeting in China have pledged to address excess steel capacity that has punished the global industry with low prices for years.

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    China's key steel mills daily output down 4.3pct in late Aug

    China's key steel mills daily output down 4.3pct in late Aug

    Daily crude steel output of China's key steel mills slid 4.34% from ten days ago to 1.68 million tonnes over August 21-31, according to data released by the China Iron and Steel Association (CISA).

    The decline was mainly impacted by stricter inspection by central government since late August, as well as environmental protection requirements during the G20 summit held in Hangzhou.  

    The average daily crude steel output across the country was estimated at 2.21 million tonnes during the same period, down 3.48% from ten days ago, the CISA said.

    By August 31, stocks of steel products at key steel mills stood at 12.39 million tonnes, down 7.02% from ten days ago, the CISA data showed.

    By August 26, total stocks of major steel products in China reached 9.41 million tonnes, down 11.65% on year, which, however, was the six consecutive rise on weekly basis since late July.
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    China's top steel city cuts industrial production to clear air

    A worker walks past a pile of steel pipe products at the yard of Youfa steel pipe plant in Tangshan in China's Hebei Province November 3, 2015. REUTERS/Kim Kyung-Hoon/File Photo

    China's top steel making city of Tangshan has told industrial plants to cut production for two weeks from Saturday, its third such suspension since July, as Beijing battles overcapacity and pollution, according to a document seen by Reuters.

    The environmental crackdown will affect steel mills, power plants, coking producers and cement producers that have failed to meet standards.

    The city in the northern province of Hebei, which accounts for more than a fifth of China's steel output, enforced similar cuts in July and August, and will strengthen inspections of emissions.

    The Tangshan city government could not immediately be reached for comment.

    The overcapacity has brought China under fire as its record overseas shipments have stirred tension with other major producers.

    Following complaints and increased anti-dumping duties, leaders of the G20 group of countries have pledged to work together to tackle excess steel capacity.

    China has promised to cut steel capacity by 45 million tonnes this year, as it tries to rejuvenate an industry suffering from slowing demand and a massive supply glut.

    Steel capacity cuts in the first seven months of the year amounted to just 47 percent of the annual target and China will accelerate the pace over the rest of the year.
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