Mark Latham Commodity Equity Intelligence Service

Wednesday 18th January 2017
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    Exxon Buys More Permian

    Exxon Mobil Corp. is the latest company to expand in the red-hot Permian Basin in Texas and New Mexico, announcing a deal Tuesday to buy companies owned by the Bass family for $5.6 billion in stock and up to $1 billion in additional payments.

    Once a dominant player in the region, Exxon is joining other oil firms in a race to build up drilling portfolios in West Texas and New Mexico. Even as crude prices hover slightly above $50 a barrel, about half the level of three years ago, the value of land in the Permian basin has skyrocketed to records amid a flurry of land buying as companies gear up for a rebound.

    With the purchase, newly installed Exxon Chairman and Chief Executive Darren Woods will nearly double the oil and gas the company holds in the area to the equivalent of 6 billion barrels, the company said. While Exxon had among the largest positions in the Permian basin before the deal, it was far smaller than that of peers including Chevron Corp. and Occidental Petroleum Corp.

    The Exxon deal brings acquisitions in the area to more than $10 billion in just the past week. On Monday Noble Energy Inc. said it would pay $2.7 billion to buy West Texas producer Clayton Williams Energy Inc.

    Exxon paid about $23,500 an acre including potential future payments, according to Jefferies & Co., about 25% less than the average price paid in the past six months. Exxon’s ability to use shares in treasury to buy assets may be attractive to sellers based on potential tax advantages, according to Jefferies analysts.

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    Atlas Copco to split group, company veteran Rahmstrom named new CEO

    Sweden's Atlas Copco said it would split into two listed companies in 2018, forming an industrial business and a separate mining and civil engineering firm whose equity would be distributed to the same shareholders.

    Atlas Copco also appointed Mats Rahmstrom, currently head of its Industrial Technique business, as chief executive from April. Rahmstrom replaces Ronnie Leten, who turned 60 last year, and is stepping down after eight years.

    Atlas Copco will concentrate on industrial customers, while the new company, with the working name NewCo, will focus on mining and civil engineering. Rahmstrom, who has been with the company for almost 30 years, will stay with the larger and more profitable industrial business when the split takes place.

    The industrial company, which will continue to be known as Atlas Copco, has annual sales of 74 billion Swedish crowns ($8.3 billion) and an operating margin of about 20 percent.

    The divisions which will form the new mining and civil engineering company have annual sales of around 28 billion crowns with an operating margin of about 16 percent. They have been hit by the fall in commodity prices over the last two years.

    "While a surprise, the decision to separate Atlas Copco into two companies should allow for more focused management and better capital allocation and value creation," Morgan Stanley said in a note. It has an "Overweight" rating on the stock.

    Investor AB (INVEb.ST), Atlas Copco's largest shareholder with 22.3 percent of votes, said it supported the proposal and that both the two companies would remain core investments.

    Rahmstrom, 51, had been touted as a leading candidate to take over as head of Atlas Copco.

    During his time at Industrial Technique, which sells industrial power tools and car assembly gear, its sales have doubled and margins have become the highest in the group, topping 23 percent in the third quarter.


    The news fits into a pattern across Europe where a wave of spin-offs through initial public offerings (IPOs) is under way.

    In Sweden, hygiene products group SCA (SCAb.ST) is planning a split, and Sandvik (SAND.ST) is looking at a listing of its specialty steel unit Material Technology, according to business daily Dagens Industri.

    While several European spin-off plans have come about after investor pressure, Atlas Copco's proposal comes after its shares have surged and organic growth returned for the mining business after several tough years.

    "We see that there are very few synergies between the businesses with a very limited overlap of customers," Atlas Copco Chairman Hans Straberg told a news conference.

    "We have now grown the company in such a way that it makes sense to have these two businesses stand on their own."

    Atlas Copco shares rose 0.6 percent at 1307 GMT, outperforming a 0.4 percent drop in the STOXX Europe 600 Industrial Goods & Services Index.

    Its shares are up 265 percent with Leten as CEO, compared with a 136 percent gain for the European sector index, and a 74 percent gain for closest peer Sandvik.
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    Oil and Gas

    Nasser sees Saudi Aramco capacity extending beyond 12,5mln bbls

    Saudi Aramco CEO Amin Nasser also spoke about investment plans, telling an audience that Saudi Arabia is building out its capacity, as part of an investment push that is necessary to avoiding future price spikes. "If there is no investment, prices will spike," Mr. Nasser said.
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    Aramco Chief Says Oil Tax Will Be Cut to Lure Investors to IPO

    Saudi Arabia has promised it will reduce the overall tax rate paid by its national oil company to make its 2018 initial public offering -- potentially one of the largest in history -- more appealing to investors.

    “Definitely the fiscal regime will be changed," Saudi Arabian Oil Co. Chief Executive Officer Amin Nasser said in a Bloomberg Television interview on Tuesday in Davos, Switzerland. “When you look at the fiscal regime and the taxes, it has to be aligned with other listed companies.”

    Aramco, as the company is commonly known, currently pays a 20 percent royalty on its revenue plus an 85 percent tax on income, Nasser said. He declined to say what tax rate the kingdom is considering.

    Saudi officials said Aramco’s tax rate wouldn’t need to be slashed because the company -- considered the crown jewel of the country’s economy -- is able to make a profit even when oil prices plunge. In 2016, under the existing tax regime and with crude dipping to 12-year lows, Aramco was able to pay a dividend and fund its biggest-ever capital investment program, Nasser said.

    "Based on the advice of the different banks that we use during the process of the IPO, we are setting a certain fiscal regime that will meet investors’ requirements,” Nasser said.

    Saudi Arabia is looking at markets including Hong Kong, London, New York and possibly even Canada as international venues for the sale. The kingdom will offer 5 percent of the world’s biggest oil producer as part of a plan by Deputy Crown Prince Mohammed bin Salman to set up a giant biggest sovereign wealth fund and help reduce the economy’s reliance on hydrocarbons.

    Nasser said the kingdom was considering whether to do a double listing, with shares sold in the domestic market in Riyadh and a foreign exchange, or a triple-listing, with two foreign locations on top of the local bourse.

    In his most extensive comments yet about the IPO plans, Nasser said the Aramco IPO will include the so-called concession, which comprises the oil and gas reserves of the kingdom. Saudi Arabia sits on about a fifth of the world’s reserves.

    "The listing is based on Saudi Aramco maintaining the concession," Nasser said. "If you have the concession, you have the physical oil.”

    The concession dates from 1933, when King Abdulaziz, the founder of modern Saudi Arabia, granted it to an American company. Riyadh nationalized Saudi Aramco, which at one point was owned by the companies that are today Exxon Mobil Corp and Chevron Corp., in a series of deals from 1973 to 1980.

    Nasser said the IPO will take most likely in the second half of 2018, narrowing the window from earlier comments by Saudi officials who said a flotation was planned for some point through 2018.

    In the past, Saudi officials have said the flotation would value the company at as much as $2 trillion -- which, if true, will make it the world’s most valuable. Selling just five percent could raise $100 billion, ranking it as the IPO the biggest ever. However, some investors have cautioned that Aramco is unlikely to be worth as much, noting that other national oil companies that have sold shares have achieved relatively low valuations.

    Nasser said that Aramco wasn’t planning as yet to increase its production capacity, currently at about 12 million barrels a day, saying the matter would be decided after the IPO. The company has "ample" spare capacity to meet any incremental demand, he added.

    Instead, Nasser said the focus is in expanding the company’s refining capacity to 8 million to 10 million barrels a day, up from 5.4 million barrels a day currently. Saudi Arabia invested in the 1980s in refineries in the U.S. and more recently has been spending money in South Korea and Indonesia.

    "This is an area of interest for us: expand our refining capacity globally and also our petrochemicals,” he said.
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    China's crude oil output will fall 7 percent by 2020 - government

    China's crude oil output is expected to drop by 7 percent by 2020 compared with the previous five-year plan as output from some of the nation's largest, but oldest, wells falls, while natural gas supplies will rocket by almost two-thirds.

    Under a plan covering the period 2016-2020 published by the National Development and Reform Commission (NDRC) on Tuesday, crude output will be around 200 million tonnes by 2020, equivalent to 4 million barrels per day (bpd). That would be down from 215 million tonnes in the 2011-2015 plan.

    The drop reflects falling output at aging, high-cost fields as producers scale back production in a lower oil price environment. For the first 11 months of 2016, production was down 6.9 percent at 182.91 million tonnes, just under 4 million bpd.

    Consultancy Wood Mackenzie, however, forecasts a decline of nearly 500,000 bpd in Chinese crude oil production over the next four years at 3.5 million to 3.6 million bpd.

    "We don't see any large greenfield oil developments coming stream by 2020. As such, given the maturity and age of the main oil fields ... we forecast an ongoing decline in output," said Angus Rodger, Woodmac's upstream research director.

    Meanwhile, the NDRC said natural gas supply would be 220 billion cubic meters (bcm) by 2020, compared with 134 bcm under the 2012-2015 five-year plan as Beijing prioritizes the sector's growth.

    The government is maintaining an earlier target for shale gas output at 30 bcm, or 13.6 percent of the total.

    The government has said it will prioritize the expansion of liquefied natural gas terminals and will "appropriately" add new capacity. Annual pipeline capacity to carry gas will exceed 400 bcm, the NDRC said on Tuesday.

    In the oil sector, pipeline capacity will be around 650 million tonnes for crude - equivalent to 13.1 million barrels per day - and 300 million tonnes for refined products by 2020.

    China will also further improve fuel quality to cut emissions, aiming to roll out the "national six" grade for gasoline and diesel from 2019, after implementing "national five" specifications from this year.

    "National six" has the same cap on sulfur content as "National five" but tighter limits on other pollutants such as olefins and aromatics.

    Overall refining capacity will be capped but state-of-art new capacities will be "appropriately" expanded, as the world's second-largest oil consumer is already facing a supply glut, the report said.
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    Russian gas flows to Europe, Turkey surge 25% on year in H1 Jan

    Russian gas flows to Europe and Turkey were already 25.5% higher year on year in the first 15 days of January, according to the latest Gazprom data, having hit an all-time high daily level on January 8.

    The continued high flows in 2017 -- following record-breaking volumes last year -- come as cold weather across Europe, especially in the east, triggers increased demand for Gazprom gas.

    Russian gas prices also remain competitive compared with European hubs -- the oil price rally of end-2016 will only filter through to oil-indexed gas contracts in the coming months -- so European buyers are thought to be maxing out their Russian gas purchases.

    In a statement Monday, Gazprom said gas flows to what it calls the Far Abroad -- Europe and Turkey but not the ex-Soviet states -- were 25.5% higher than in the same period of 2016.

    "In absolute terms, the increase amounted to about 1.9 Bcm of gas," Gazprom said.

    Flows to Germany were 20.7% higher in January 1-15, it said, without giving absolute volumes.

    "We are reaching record levels through the Nord Stream pipeline," CEO Alexei Miller said.

    Russian gas flows via the Nord Stream pipeline to Europe continue to run at maximum capacity, with flows to Germany at 158 million cu m on Monday, according to data from Platts Analytics' Eclipse Energy.

    Of that, 76 million cu m was delivered into the OPAL pipeline to the Czech Republic, up on the average 44 million cu m/d in 2016 before Gazprom was granted additional capacity in OPAL in October by the European Commission.

    Flows into OPAL continue at these higher levels despite uncertainty over the legality of the European Commission decision to allow Gazprom to use more capacity in OPAL after an appeal by Poland's PGNiG.

    The increased flows through Nord Stream come at the expense of exports of Russian gas via Ukraine, which have fallen by the same amount since mid-December.

    That implies volumes are simply being diverted to the Nord Stream route away from the Ukraine route, the former being a cheaper route to market for European buyers.

    Gazprom's supplies to Europe and Turkey hit a total of 179.3 Bcm in 2016, a significant jump on its previous highest level of 161.5 Bcm from 2013 and well above the 2015 total of 158.6 Bcm.
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    Pertamina eyes US LPG to replace some Mid East supply

    Indonesia's state-owned oil and gas company Pertamina is eyeing more LPG imports from the US to replace part of its Middle Eastern supply as US cargoes are currently cheaper, a senior company official said Tuesday.

    "Currently more than 90% of LPG supply comes from the Middle East and the rest from the spot market. We would like to import more from the US into Indonesia. We expect to get a more competitive price from US," said the senior vice president of Pertamina's integrated supply chain, Daniel Purba, on the sidelines of the LPG Indonesia 2017 conference in Jakarta.

    The expansion of the Panama Canal enables US LPG cargoes to reach the Asia Pacific, including Indonesia, faster than the Cape of Good Hope passage.

    With that, Pertamina expects its LPG imports from the Persian Gulf to decline, although it estimates overall US LPG imports will remain lower than Middle Eastern supplies, according to Purba.

    US cargoes currently make up 3% of Pertamina's overall imports.

    The biggest domestic LPG supply currently comes from Bontang in East Kalimantan.

    Pertamina also expects Indonesia to get LPG supply from undeveloped LNG projects, according to Bambang.

    Inpex Masela is the biggest LNG project that is expected to come on stream around 2021. BP's third train at Tangguh is due to come on stream in 2019.

    "Pertamina and the government are studying other energy resources so it can cut back on LPG imports in the future. We are studying brown coal," Bambang said.
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    Pakistan LNG soon to name 240-cargo tender winners

    The state-owned Pakistan LNG is set to open financial bids for its two tenders seeking the supply of 240 cargoes of liquefied natural gas on January 19.

    The contracts for the successful bidders will be awarded on January 31, Pakistan’s Business Recorder reported, citing sources in the Ministry of Petroleum and Natural Resources.

    In the first tender issued in November 2016, Pakistan LNG sought the delivery of 60 cargoes for a period of five years and in its second tender the company sought 180 cargoes over a period of 15 years. According to the report, a total of 14 bids were received.

    In addition, it was reported that the company is looking to issue new tenders for more LNG supplies as soon as the current process is finalized.

    The start of the deliveries is set for July 2017, with a nominal cargo capacity set at 140,000-cbm, according to the initial documents.

    Cargoes will be delivered to Pakistan’s second LNG terminal at Port Qasim, Karachi being developed by Pakistan GasPort Limited that has chartered BW’s 170,000-cbm FSRU for the project under a 15-year deal signed in August.

    The vessel, named BW Integrity, is currently under construction at the Samsung Heavy Industries shipyard in Geoje, South Korea.
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    Algeria force majeure hurting LNG deliveries to southern France -GRTgaz

    French gas grid operator GRTgaz said a force majeure situation in Algeria and tensions in the global gas market were impacting deliveries of liquefied natural gas (LNG) to southern France.

    Deliveries to the Fos-sur-Mer terminal were at about 40 gigawatt-hour (GWh) per day, compared with almost double that at 70 GWh per day needed for this period of the year when there is increased demand for power and heating, GRTgaz chief executive Thierry Trouve told journalists on Tuesday.

    Trouve said there was enormous demand for gas for power generation in southern France, due to the cold weather, at about 85 GWh per day.

    He added that tensions in the world gas market, with expected U.S. gas production going to Asia instead of Europe, were also exacerbating the problem.

    "We are doing everything to have more LNG deliveries by end
    February," Trouve said.

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    Global ship insurers to resume near full coverage for Iran oil - officials

    Global shipping insurers have devised a way to ensure nearly full coverage for Iranian oil exports from next month after striking a deal to provide cover without involving U.S.-domiciled reinsurers, officials in Tokyo and London said.

    Restrictions on U.S. firms handling Iranian goods had greatly limited the number of reinsurers of cargoes, but the new arrangements - which essentially allow re-insurance of ships without the involvement of U.S. firms - should boost the number of eligible shipments.

    That will provide a boon to Iran, which is trying to raise oil exports after most sanctions were lifted last year, though banking restrictions that remain in place that could cap any major rise in exports.

    "There will be no U.S.-domiciled reinsurer participation on the 2017 IG reinsurance program," Andrew Bardot, secretary and executive officer at the International Group (IG) of P&I Clubs in London told Reuters on Tuesday.

    The new arrangements take effect on Feb. 20, he and other officials said.

    "This will substantially address the potential shortfall in reinsurance recoveries in the event of Iranian-related claims," Bardot said in an email.

    The sanctions were lifted after a landmark deal in 2015 with world powers that put constraints on Iran's nuclear activities.

    But some prior U.S. sanctions remain in place, which had meant U.S. reinsurers could not participate in covering Iranian cargoes.

    To plug the shortfall by U.S. insurers, the group of the world's top 13 ship insurers created so-called "fall-back" insurance last year, under which tankers carrying Iranian oil were insured up to around $830 million per ship.

    That was below normal coverage for a tanker and risk-averse shippers refrained from lifting cargoes. However, it still allowed Iran to more than double crude exports from as low as about 1 million barrels per day (bpd) at the height of the sanctions. Iran's exports were as high as 3 million bpd before the sanctions.

    From next month, normal coverage will apply up to $3.08 billion and compensation beyond that up to $7.8 billion for accidents and oil spills would be collected from shipping companies insured by P&I group members.


    Other obstacles to lifting Iranian oil remain though, including the incoming administration of President-elect Donald Trump, who has described the nuclear deal as a "disaster" and threatened to scrap it, which could mean new oil export sanctions.

    Additionally, owners may still not call on Iran because they could be banned from Saudi Arabian ports on subsequent voyages, a European supertanker broker said.

    Saudi Arabia has banned tankers if they have previously carried Iran crude due to tensions between the countries over the conflict in Yemen, the shipbroker said.

    There is a premium of between $4,000 to $12,000 per day for foreign-owned ships hired to transport Iranian crude compared with rates to transport crude from other Middle East countries, a Singapore-based supertanker broker said. That could also limit Iranian liftings.

    Banking restrictions under the remaining U.S. sanctions are also likely to stay in place for some time and constrain Iran's trading activities, said Jonathan Hare, general counsel with Norwegian P&I club Skuld.

    "I think the main obstacle for everyone remains the banking system," he said.

    The government of Japan, one of the biggest buyers of Iranian crude, is working to extend a sovereign insurance scheme it started in 2012 to continue Iranian oil imports in the year starting in April, to cover any shortfalls from the P&I insurance, a senior government official told Reuters.

    Iran has complied with a deadline under the 2015 accords to remove nuclear equipment called centrifuges from one of its atomic sites, the International Atomic Energy Agency said on Monday.
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    BP CEO Won’t Boost Spending, Signaling Caution on Oil Rebound

    BP Plc boss Bob Dudley is not yet ready to boost spending despite the rebound in oil prices.

    The company will keep capital expenditure below $17 billion this year and next, Chief Executive Officer Dudley said in a Bloomberg television interview in Davos, Switzerland. That’s $6 billion lower than 2014, when crude prices first started to slump, showing that the impact of the two-year industry downturn still lingers.

    “I think we are climbing very, very slowly out of a very tough period for the industry,” Dudley said Tuesday. “Our focus now is to get our own engine moving again” while staying disciplined and being ready for more volatility, he said.

    While the London-based company is keeping a tight grip on spending and new projects, it is also seeking to grow again. It has finally settled billions of dollars of payments related to the 2010 Gulf of Mexico spill, which shrank the company by a third, Dudley said. BP has agreed to spend more than $4 billion on assets since the end of last year.

    The oil industry has become more optimistic since the agreement last month between the Organization of Petroleum Exporting Countries and 11 other producers to cut output with the aim of ending three years of oversupply. BP will be able to cover spending and dividends from its income at an average crude price of $55 a barrel this year, Dudley said, potentially bringing an end to two years of negative cash flow and rising debts.

    Brent crude, the global benchmark, traded at $56.52 a barrel in London as of 10:43 a.m. Prices will average $55.88 this year, according to the median of 46 analyst estimates compiled by Bloomberg.

    BP approved a $9 billion project to develop a deep-water field in the U.S. Gulf of Mexico and another to expand a liquefied natural gas export project in Indonesia last year. A $2.2 billion expansion of output in Abu Dhabi and a $916 million investment in fields in Mauritania and Senegal last month were followed by a A$1.785 billion acquisition of Woolworths Ltd.’s network of Australian gas stations.

    The company will continue to be “very selective on projects this year,” Dudley said. BP plans six major developments in 2017, he said.
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    Genscape Cushing inventory week ending 1/13

    Genscape Cushing inventory week ending 1/13: -756,302 bbl w/w.

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    Oil production accelerating in the Permian Basin, EIA says

    Oil production in the Permian Basin could rise by 53,000 barrels a day by next month, the Energy Department said Tuesday, and analysts expect the flurry of West Texas land deals to keep drillers pumping oil.

    That’s the largest monthly increase in the region since January 2016, according to data compiled by the Energy Information Administration. The EIA’s first shale oil forecast of the year comes after U.S. shale drillers dispatched scores of rigs to the region and companies like Exxon Mobil Corp. and Noble Energy announced multibillion-dollar land grabs there.

    “All these guys putting money to work are going to have to drill to get a return on their investment,” said Stephen Trauber, head of global energy investment banking at Citigroup in Houston. “They’re going to see pretty significant growth. There are still several more deals that could get done.”

    The EIA said oil production across the nation’s seven major shale plays is set to rise by 41,000 barrels a day, with the Permian’s increase offset by declines in the Bakken Shale in North Dakota and the Eagle Ford Shale in South Texas.
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    U.S. crude discount to Brent widens on Trump tax talk, OPEC

    U.S. oil prices hit their biggest discount to global benchmark Brent crude in five months on Tuesday as President-elect Donald Trump said an oil import tax plan would be too complex and as a global deal to reduce supply hits Middle East output.

    The deeper the discount, the easier it is for U.S. crude producers to export oil to refiners worldwide. A glut in global supply had limited the appetite for crude from the United States until late last year, even after the United States had lifted a long-standing ban on exports.

    The spread between U.S. West Texas Intermediate (WTI) and Brent is widening enough to open the window for exports for some U.S. crude grades, said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

    It was already wide enough in December for traders and major producers to line up a flotilla of carriers to ship more oil to Asia than in nearly two decades.

    A proposal spearheaded by U.S. House of Representatives Speaker Paul Ryan to boost jobs and the economy by taxing crude imports and exempting exports has fueled expectations for tighter supply into the United States and bolstered WTI.

    However, Trump called the tax plan "too complicated," casting doubts on the passing of such a law and widening the spread between the two crude benchmarks.

    The comments pushed U.S. crude's discount over Brent to the deepest in nearly five months on Tuesday and just two cents away from the biggest discount since late February 2016.

    An agreement by the world's top exporters in late November to cut output has had a bigger impact on Brent than on U.S. crude. Most of the oil-producing countries that are cutting output price their crude against Brent, while in the United States the higher oil price is likely to lead to higher supply as shale producers increase activity.

    Since the OPEC deal was announced on Nov. 30, the WTI-Brent spread has widened by more than $1 per barrel.

    If the crude tax is not passed, the spread may widen further. Money managers piled into options in mid-December on the premise that the law would pass, one trader said. They bet that WTI could rise to parity with Brent in 2018, partly if the tax was signed into law.
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    Goodrich Petroleum Announces Haynesville Shale Well Results

    Goodrich Petroleum Corporation today announced preliminary results on two Haynesville Shale wells in North Louisiana.

    The Company has participated in two Haynesville Shale wells in Caddo Parish, Louisiana that have reached a combined 24-hour peak rate to date of approximately 72,000 Mcf per day. The Company owns a 17.4% working interest in each of the wells which came online the middle of December.

    As previously announced, the Company has established a preliminary capital expenditure budget for 2017 of $40 million, which will be concentrated in the core of the Haynesville Shale play in North Louisiana. The budget, which will be monitored quarterly, contemplates 12-16 gross (3-4 net) wells for the year, with plans to commence drilling operations on its Wurtsbaugh 26-14-16 1 Alt well by early February.

    The Company currently owns approximately 24,000 net acres prospective for the Haynesville Shale, with approximately 16,000 net acres in the core of North Louisiana, where it estimates 235 gross locations with an approximate 41% working interest. The Company also owns approximately 8,000 net acres in the Angelina River Trend of East Texas, where it estimates approximately 123 gross Haynesville Shale locations and 123 gross Bossier Shale locations, with an average working interest of approximately 33%.

    In addition, the Company has entered into a natural gas hedge through a costless collar of $3.00 – $3.60 for 12,000 Mcf per day for calendar year 2017.
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    Cameco expects to report net loss for 2016, cut jobs at uranium mines

    Canadian uranium producer Cameco Corp on Tuesday said it expected its 2016 adjusted profit to be significantly lower than analysts' estimates and also said it would cut 120 jobs at three of its uranium mines in 2017.

    The Saskatoon, Canada-based company said it expects to report a net loss for 2016 citing asset impairments resulting from fair market assessments at the end of the year. The average estimate among Reuters' analysts was a profit of 86 cents per share for 2016.

    Cameco said it plans to reduce workforce at the McArthur River, Key Lake and Cigar Lake operations by 10 percent.

    "The current earnings expectations do...reflect the consequences of a continued weak uranium market and our resolve to make the necessary decisions to defend and preserve our core uranium business for the long-term benefit of our stakeholders," Chief Executive Officer Tim Gitzel said in a statement.

    Cameco reported a 35 percent rise in uranium sales in the quarter ended Sept. 30, even at a time when uranium prices are near multiyear lows.

    Excess supplies has kept uranium prices at record lows, forcing mining companies to mothball mines, slice costs and cut debt as they struggle to survive.
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    Bayer to boost U.S. jobs, investments amid Monsanto deal: Trump spokesman

    Bayer AG has pledged to boost its investments in the United States amid its deal to buy U.S. seeds giant Monsanto, investing $8 billion in research and development and adding American jobs, U.S. President-elect Donald Trump's spokesman said on Tuesday.

    The German drugs and pesticides maker pledged to maintain its more than 9,000 U.S. jobs and add 3,000 new U.S. high-tech positions, Sean Spicer told reporters in a conference call following Trump's meeting with the chief executives of both companies last week.
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    Mosaic to reopen Colonsay potash mine in a matter of days

    About 330 workers who were temporarily laid off at Mosaic’s Colonsay potash mine in Saskatchewan last July, are counting the days until the company resumes operations.

    The decision to reopen the idled mine was based on the US fertilizer producer’s expectations that 2017 will be a stronger year for the potash industry.

    Decision to reopen the idled mine was based on Mosaic's expectations that 2017 will be a stronger year for the potash industry.

    “We expect supply reconciliation and demand growth will result in a productive operating environment and are optimistic that 2017 will be a stronger year for the potash industry,” a Mosaic spokesperson told Global News.

    Analysts had speculated it was highly unlikely the company would reopen the mine in 2017, due to excessive global capacity and a faltering farm economy. Rival K+S AG is set start production this year in Saskatchewan, and Potash Corp will complete expansion of its biggest mine there.

    But the Plymouth, Minnesota-based company is going ahead with the plans to resume operations at the mine, which has an annual capacity of 2.6 million tonnes.

    The firm, the world’s largest producer of finished phosphate products, was not the only potash producer to take extreme measures last year on the back of low prices and weak demand. In January, PotashCorp mothballed its new Picadilly potash operation in New Brunswick, dismissing more than 420 employees. A month later, it curbed production at all of its Saskatchewan operations.

    Later, Intrepid Potash (NYSE: IPI) said it would close the high-cost West Facility in Carlsbad, New Mexico, in July, affecting about 300 employees.

    Colonsay mine, located about 65 kilometres southeast of Saskatoon, is one of Mosaic’s three Canadian potash operations. The other two are Rsterhazy and Belle Plaine.
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    Brazil to boost new crop financing by about 20 percent: Temer

    Brazil will increase a subsidized credit line available to farmers to prepare for the 2017-2018 crop by about one-fifth to 12 billion reais ($3.72 billion), President Michel Temer told Reuters on Monday.

    The new crop financing will allow Brazilian producers to purchase agricultural inputs such as seeds, fertilizers and pesticides at reduced interest rates to better plan future production.

    Last year, the government made 10 billion reais available to prepare for the 2016-2017 crop, which is on track to break records.

    The agricultural sector has provided a rare glimmer of hope amid the worst recession on record in Brazil, the top exporter of soy, coffee, sugar, orange juice and tobacco.

    Government crop agency Conab forecasts a record soy crop of 103.8 million tonnes for the 2016-2017 season in the country. Favorable weather is expected to improve corn and wheat crops as well, it said.

    "We will inject 12 billion reais into agriculture," Temer said in an interview in his office in the Planalto presidential palace. "It will be announced this week or next week (as part of) the pre-crop plan."

    Last year, state-controlled Banco do Brasil, the country's No. 1 lender by assets, offered a preferential interest rate of 8.75 percent for new crop financing. The government usually pays the difference between that rate and the normal cost for the bank to raise the capital in the market.

    Interest rates in Brazil are falling from decade-high levels as inflation subsides during the economic slowdown. The central bank cut its benchmark lending rate last week by 75 basis points to 13.00 percent - markets had expected a smaller cut.

    Temer, who took over from former president Dilma Rousseff after her impeachment last year, also said in the interview that government agency Sebrae would announce a further 1.2 billion reais in cheap financing for small- and medium-sized businesses.

    The increase in credit comes as Temer's center-right government seeks ways to drag Latin America's largest economy out of a two-year recession without placing further strain on overstretched government finances.

    His government announced a series of measures in December aimed at reducing the debts of struggling companies and making it easier to do business in Brazil.

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    Precious Metals

    Gold miner Goldcorp details growth plan, shares rise

    Canadian gold miner Goldcorp Inc detailed an ambitious growth plan on Tuesday that includes increasing production as well as yet-to-be-mined reserves by 20 percent over the next five years from existing operations and deposits, lifting its shares.

    At an investor day event, the Vancouver-based miner focused on the exploration potential at its mine sites and projects in the Americas, a turnaround from recent years when most miners' attention was on reducing costs, not growth.

    "Growth is not as dirty a word as it was a couple of years ago," Goldcorp Chief Executive David Garofalo said, warning that the gold industry risked becoming irrelevant if it did not reverse a trend of falling output and reserves.

    Goldcorp late on Monday said it expected to increase gold output by a fifth over the next five years to about 3 million ounces, driven by capacity ramp-ups at its Cerro Negro mine in Argentina and the Eleonore mine in Canada.

    Its gold reserves are forecast to rise 20 percent to 50 million ounces in the same period from the conversion of existing resources at its Century project in Ontario, Peñasquito mine in Mexico and Pueblo Viejo mine in the Dominican Republic.

    Goldcorp forecast its all-in sustaining costs - the industry benchmark - falling by 20 percent to $700 an ounce by 2020.

    "It is this long-term strategy of rising production and falling costs, with a focus on key current assets, that has us very excited about the future of Goldcorp," Desjardins analyst Michael Parkin said in a note to clients.

    In late afternoon trading, Goldcorp's shares were 3.4 percent firmer at C$19.82 on the Toronto Stock Exchange, outperforming the S&P/TSX Gold Index, which was up 1.7 percent.

    In order to stem falling industry production and reserves, the world's biggest gold miners should partner to share the financial and other risks of developing large gold deposits, Garofalo said.

    "What we are looking to do on the M&A side is find more of those large resources that are undeveloped right now and do so in partnership with some of our senior peer companies," he said.

    "It is better to have two heads, to have two technical teams, two balance sheets," he said.

    Corporate mergers and acquisitions, where one gold miner buys another, were likely not on the cards for any of the big producers as they are "very difficult to do," Garofalo said.
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    Base Metals

    Copper price is getting crushed

    The surge in the copper price to near 18-month highs following Donald Trump's win in the US presidential election came as a surprise to an industry under pressure since 2011 over growing supply.

    The bullishness about the impact of Trump's $500 billion infrastructure plans and solid growth in top consumer China on demand for the bellwether metal has cooled down considerably.

    2016 was the fifth year in a row that the average copper price declined year on year

    After a brief surge to within sight of the post November 8 highs last week, bears were firmly back in control on Tuesday .

    In afternoon trade on Tuesday copper for delivery in March traded more than 3% lower at $2.6045 per pound ($5,742 a tonne) in New York.

    The decline came despite a plunge in the value of the US dollar which usually moves in the opposite direction of commodity prices following comments by president elect Trump questioning  Washington's decades old strong dollar policy.

    According to a survey of 22 investment banks and other commodity research institutions released by FocusEconomics on Tuesday analysts and investors are far from sanguine about the prospects for the metal over the rest of the year.

    Despite 13 of the analysts polled raising their previous forecasts for the copper price by the end of  this year, of those polled only a handful sees copper averaging the final quarter of 2017 above the current spot price. Despite predictions of an improving price environment over the course of 2017, the median estimate for the average price in Q4 2017 is more than 9% below today's ruling price.

    The consensus forecast for the average over the whole of 2017 is $2.37 a pound ($5,234 a tonne) rising only marginally in 2018. At $2.21 ($4,871) 2016 was the fifth year in a row that the copper price averaged below the previous year.

    The most bullish institution is Unicredit which sees copper averaging 2017 around $2.77 ($6,100) while JP Morgan forecast is decidedly negative – the bank see copper falling to $2.13 ($4,700) by the end of the year with an average below $5,000 in 2017.
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    Indonesia may issue new tax rules for mineral exports next week – official

    Indonesia may issue new tax rules for mineral exports next week, a Finance Ministry official said on Tuesday, after discussions with the Energy and Mineral Resources Ministry, which recently changed rules on domestic mineral processing.

    "We want the export duties to push domestic processing. That's the principle," Suahasil Nazara, head of the Fiscal Policy Office at the Finance Ministry, told reporters, adding that the taxes were "not just for increasing state revenues".

    "There's a high possibility we will continue with a scheme that has layers, depending on completion of smelters," he added.
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    Govt officials endorse development of DRC tin project

    Government officials from the North Kivuprovince in the Democratic Republic of Congo (DRC) have endorsed the development of Alphamin Resources’ 10 000 t/y Bisie tin project.

    Construction on the project is expected to begin in the first quarter of this year, with the mine to reach full production in 2019.
    The provincial government has established a committee, comprising persons with high-level technical and specialised skills, to assist and guide Alphamin during the mine’s construction period and initial operations.
    “The provincial government is committed to providing a favourable environment for private investment in a win-win partnership,” North Kivu Governor Julien PalukuKahongya noted in a statement issued by Alphamin on Tuesday.

    Some 700 people will be employed during the mine’s construction. Once operational, the mine will employ 450 permanent employees.

    It is estimated that the mine will produce 10 000 t/y of tin in concentrate over the 12-year mine life.  
    “North Kivu has many assets and industrious people, from which past events have diverted investors’ attention. This is a very encouraging sign and helps us in our role as ambassadors for North Kivu to global investors to convey the support of government - nationally, provincially and locally - which will assist Alphamin with the development of our project,” Alphamin CEO Boris Kamstra commented.

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    Kenmare lifts FY17 production guidance as market looks positive

    LSE-listed Kenmare Resources on Monday adjusted its production guidance for this year to between 950 000 t and 1.05-million tonnes of ilmenite, 5% to 16% higher than production for 2016, owing to increased utilisation and recovery rates at its Moma titanium minerals mine, in Mozambique.

    The miner further expects its zircon production to rise by 6% to 22% year-on-year to between 72 000 t and 83 000 t, while its rutile production is also expected to climb by 15% to 28% to between 9 000 t and 10 000 t.

    The higher production outlook comes on the back of record yearly and quarterly production of ilmenite, rutile and zircon.

    For the three months to December 31, the mine’s heavy mineral concentrate (HMC) production increased 55% to 474 300 t, while ilmenite output rose 35% year-on-year to 256 900 t, zircon production by 38% year-on-year to 20 000 t and rutile output by 35% year-on-year to 2 300 t.

    HMC production for the year ended December 31, totalled 1.41-million tonnes, up 28% on that produced the year before.

    Ilmenite production for the full year increased 18% to 903 300 t, while zircon output was up 32% to 68 200 t. Full-year rutile production was up 30% to 7 800 t.

    Total shipments of finished products for the year were up 28%, setting a record of 1.02-million tonnes shipped.

    Demand for ilmenite had grown strongly throughout 2016, resulting in significant price increases since the market bottomed in the second quarter, Kenmare noted.

    The company said the outlook for ilmenite prices remained positive for the year ahead, supported by low productinventories throughout the value chain and higher titanium feedstock consumption, as pigment demand continued to grow in line with global gross domestic product.
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    Steel, Iron Ore and Coal

    Shenhua Huanghua port 2016 coal shipment surges 48pct

    Shenhua Huanghua port in northern China shipped 173.61 million tonnes of coal in 2016, surging 47.9% year on year, making it China's top coal handling port, showed data released by Shenhua Group on its website.  

    The port realizes revenue of 3.96 billion yuan ($575.72 million) last year, rising 42.60% on the year, with profit more than doubling to a record high of 1.63 billion yuan.

    In 2016, Shenhua Huanghua port's throughput reached 183.70 million tonnes, up 53.08% from the year-ago level.

    This was mainly attributed to climbed coal supply from newly-commissioned Zhunchi railway, increased handling capacity, as well as its open to all coal producers since 2015 instead of being exclusive to Shenhua Group.

    Inner Mongolia-based Yitai Group shipped 8.48 million tonnes of coal via Shenhua Huanghua port during 2016, given lower costs and shorter shipping distance.
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    South Korean utilities adopt new coal purchase strategy for Q2 cargoes

    South Korean power utilities are to target mid-calorific value 5,000 to 5,500 kcal/kg NAR thermal coal in purchase tenders for second quarter shipments including from Australia and Russia and possibly US cargoes, a source close to the Korea market said Tuesday.

    Q2-delivery cargo tenders for such mid-range calorific value thermal coal could start to emerge from Korean buyers over the next few weeks, said the source who is familiar with the Korean import market.

    Korean utilities' new purchase strategy is informed by two market factors: firstly, an increase in the Korean government's consumption tax for imported thermal coal which will favor mid-CV product, and secondly, a shift away from lower-calorific value Indonesian cargoes.

    "Mid-CV coal in the range of 5,000 to 5,500 kcal/kg NAR may benefit from changes to the consumption tax," said the market source.

    "Korean power utilities want to secure more mid-to-high CV coal from Australia, Russia and possibly the US, than low CV coal," he said.

    From April onwards, the Seoul government is to apply a Won 6,000 ($5.13/mt) increase to its two-year old consumption tax which is imposed in three bands according to the calorific value of imported cargoes.

    For the lowest band, applying to thermal coal with a calorific value of less than 5,000 kcal/kg NAR, is a tax of Won 21,000/mt, which increases to Won 27,000/mt post-April 1.

    Mid-calorific value thermal coal, that is 5,000 to 5,500 kcal/kg NAR, attracts a consumption tax of Won 24,000/mt currently that rises to Won 30,000/mt in April.

    High calorific value imported cargoes of 5,500 kcal/kg NAR and above are liable for a tax of Won 27,000/mt that becomes Won 33,000/mt from April.

    The tiered structure of the consumption tax, with higher rates payable for higher calorific value cargoes on a per metric ton basis, means buyers are incentivized to purchase a greater volumes of mid to higher-CV thermal coal, sources said.

    Power utilities in South Korea have taken early action to ensure they secured enough cargoes for delivery in Q1 2017, before the planned increase in consumption tax rates on April 1, said the source.

    Another motivating factor favoring the purchase of mid-to-high CV thermal coal relates to Indonesian coal, and some concerns around its perceived quality following tenders for Korean buyers last year, said the source.

    Low-calorific value thermal coal from Indonesia was the focus of many Korean purchase tenders last year.

    "Korean utilities want to secure homogeneous coal in the low CV range," said the market source.

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    BMI bumps up US coal outlook despite poor fundamentals

    US coal production growth is forecast to be 1.5% in 2017 and 2% in 2018, up from previous forecasts of a respective contraction of 4% and 3% over the same periods, MiningWeekly reported on January 16, citing a recent trend analysis from Fitch-affiliated market analyst BMI Research.

    "We have revised upward our US coal production growth outlook in 2017 and 2018, on the back of the country's coal demand outlook and rising metallurgical coal prices over the coming quarters. However, competitive natural gas prices, subdued thermal coal prices and rising local opposition to coal projects will prevent a reversal in the structural decline of the industry," analysts noted.

    As the US coal industry enters a period of respite, supported by strong metallurgical coal prices and an expected increase in US thermal coal demand, BMI has revised up the country's production outlook.

    An increase in coal use in the domestic electricity generation mix will tighten the US market in the near term and support muted coal production growth in 2017 in 2018.

    According to BMI, the spike in metallurgical coal prices in particular will encourage project development.

    However, BMI pointed out that competitive natural gas and other alternative electricity prices, lack of export opportunities and structurally lower coal prices will hinder significant coal production growth or investment over the coming years.

    For instance, while BMI forecasted thermal coal prices to average higher in 2017, at $65/t, compared with $60/t in 2016, this price level remains well below the $121/t peak in 2011. BMI noted that US thermal coal stockpiles remain elevated, at 163,000 tonnes in October 2016, in line with the average levels in 2015.

    As the US coal industry's top miners focus on reorganization following a string of bankruptcies over the past two years, coal mine closures will remain common.

    Projects will continue to face both local opposition over environmental concerns and federal regulations, as the outgoing Obama administration rushes to secure its legacy, said BMI.

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    Colombia 2016 thermal coal exports rise 9% to record 88 mln T

    Colombia exported a record 88.1 million tonnes of thermal coal in 2016, rising 9% year on year, Platts reported on January 17, citing the Colombian shipping agent Deep Blue.

    The largest taker of Colombian thermal coal during the year was the Netherlands at 17.26 million tonnes, although the volume edged down 1% from 2015.

    Turkey was sent 15.91 million tonnes in 2016, jumping 38% from the previous year.

    Other countries that saw noticeable year-on-year gains in 2016 were Chile at 5.12 million tonnes, up 16%, as well as India and South Korea at 2.48 million tonnes and 1.95 million tonnes respectively. Both India and South Korea received no Colombian thermal coal in 2015.

    The destination that saw the most noticeable fall was the UK, where Colombian thermal coal exports dropped 86% on the year to only 598.177 tonnes.

    US-based producer Drummond's Puerto Drummond exported the highest volume in 2016 at 32.10 million tonnes, which was 16% higher from the preceding year. Following closely was Cerrejon's Puerto Bolivar terminal where shipments for the year totaled 32.07 million tonnes, down 2.4% on the year.

    Prodeco's Puerto Nuevo also saw exports increase 17% in 2016 to 19.53 million tonnes, while shipments from third-party port Carbosan-Sociedad Portuaria de Santa Marta were at 3.55 million tonnes for the year, up 3.3%.
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