Mark Latham Commodity Equity Intelligence Service

Tuesday 21st June 2016
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    Heat wave tests Southern California's power grid amid gas shortage

    California's power grid operators warned homes and businesses on Monday to conserve electricity as rising demand for air conditioning stoked by a record-setting heat wave across the U.S. Southwest tested the region's generating capacity.

    The so-called Flex Alert was posted until 9 p.m. Pacific time during a second day of triple-digit temperatures that strained Southern California's energy production, creating a potential for rolling blackouts on the first official day of summer.

    But the peak hour for energy demand came and went Monday evening without disruption of the region's power delivery network, the California Independent System Operator (ISO) reported.

    "Since we're past that and have not experienced any trouble, I think we're headed into the safe zone," agency spokeswoman Anne Gonzales told Reuters.

    Temperatures were expected to begin abating on Tuesday, according to weather forecasts. As of Monday night, there were no plans to extend the Flex Alert, ISO officials said.

    Monday's alert was the first big test of power generators' ability to meet heightened energy demands in the greater Los Angeles area without natural gas supplies normally furnished by the now-crippled Aliso Canyon gas storage field, effectively idled since a major well rupture there last fall.

    The oven-like heat prompted the city of Los Angeles to keep its network of public "cooling centers" - libraries, recreation centers and senior centers - open for extended hours as a haven for people whose homes lack air conditioning.

    Area home improvement and hardware merchants were doing a brisk business in fans and AC window units.

    Brett Lopes, 31, a freelance lighting technician, stopped in a Home Depot outlet near downtown to buy supplies for a homemade air conditioner he called a "swamp cooler" to use while he waited for his landlord to repair his broken AC unit.

    "It's brutal," he said of the heat, explaining that he looked up directions on YouTube for assembling the makeshift cooling device. "It doesn't work as well as AC, but it's better than sitting in 100 degrees."

    Others flocked to public swimming pools.

    "It was really refreshing today, but more crowded than usual," said Paul Stephens, 31, a pastor who was swimming laps at the Rose Bowl Aquatic Center in Pasadena, where the mercury climbed to 108 Fahrenheit (42 Celsius) .

    The ISO, which runs the state's power grid, urged consumers on Monday to cut back on electricity usage, especially during late-afternoon hours.

    Utility customers were advised to turn off unnecessary lights, set air conditioners to 78 degrees Fahrenheit or higher, and wait until after 9 p.m. to run major appliances, such as clothes washers and dryers.

    Gonzales credited public cooperation with the flex alert for likely helping avert widespread outages on Monday.

    Large stretches of three states sweltered in a second straight day of record, triple-digit temperatures, as the National Weather Service posted excessive-heat warnings through Wednesday for southern portions of California, Arizona and Nevada, though the hot spell appeared to have peaked on Monday.

    Power customers ranging from homes and hospitals to oil refineries and airports are at risk of losing energy at some point this summer because a majority of electric-generating stations in California use gas as their primary fuel.

    Since the energy crisis of 2000-2001, the ISO has imposed brief, rotating outages in 2004, 2005, 2010 and 2015, mostly related to unexpected transmission line or power plant failures during periods of unusually high demand.

    With California's largest natural gas storage field shut down indefinitely at Aliso Canyon, state regulators have warned that Los Angeles faces up to 14 days of gas shortages severe enough to trigger blackouts this summer.

    Aliso Canyon, owned by Southern California Gas Co, a division of San Diego-based utility giant Sempra Energy, normally supplies the region's 17 gas-fired power plants, hospitals, refineries and other key parts of California's economy, including 21 million residents.

    The gas leak there, ranking as the worst-ever accidental methane release in the United States, forced thousands of nearby residents from their homes for several months after it was detected last October. The leak was finally plugged in February.
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    China’s energy guzzlers Jan-May power use down 3.6pct on year

    Power consumption of China’s four energy-intensive industries dropped 3.6% on year to 677.4 TWh over January-May, accounting for 29.7% of the nation’s total power consumption, the China Electricity Council (CEC) said on June 16.

    Of this, the ferrous metallurgy industry consumed 185.8 TWh of electricity over January-May, falling 10.2% year on year, compared to the drop of 6.5% from the previous year; while the non-ferrous metallurgy industry used 199 TWh of electricity, down 5% year on year, compared a 5% growth from the year prior.

    The chemical industries consumed 177.3 TWh of electricity during the same period, up 4.4% year on year, lower than a 1.6% growth a year ago; while power consumption of building materials industry dropped 1.5% year on year to 115.3 TWh, compared to a 6.6% decline a year ago.

    In May, the four industries consumed a total 150.7 TWh of electricity, decreasing 1% year on year, accounting for 31.9% of China’s total power consumption.

    Of this, the ferrous metallurgy industry consumed 41.5 TWh of electricity in May, dropping 4.9% on year; while the non-ferrous metallurgy industry used 42.9 TWh of electricity, decreasing 3.5% from a year ago.

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    China outbound M&A beats 2015 record with 6 months to spare

    In less than six months of 2016, China's appetite for overseas acquisitions has already outgrown last year's record, as deal-hungry mainland buyers chase global assets such as real estate, chemicals and high-end technology.

    China National Chemical Corp's $43 billion bid for Swiss agrichemicals maker Syngenta (SYNN.S) makes up almost 40 percent of this year's $111.6 billion total, but even without that deal the pace has quickened.

    Bankers and lawyers say there could, however, be some slowdown in the second half, as mainland buyers face heightened scrutiny at home and abroad.

    China International Capital Corp (3908.HK), the country's biggest investment bank, expects outbound deals to hit $150 billion this year.

    Chinese acquirers announced $111.5 billion worth of deals in 2015 from 632 transactions, according to Thomson Reuters data. Completed deals, on which banks are paid fees, last year stood at $73 billion, compared with $45.6 billion so far this year.

    Some recent Chinese technology deals have met with opposition, however, which could turn some buyers cautious. Midea Group Co's (000333.SZ) efforts to buy out German industrial robot maker Kuka (KU2G.DE), for example, provoked a political furor in Germany, and the company has had to offer numerous guarantees on preserving local sites and jobs.

    "We expect outbound M&A activities will continue to rise, but not at the nose-bleeding rate of the first quarter of 2016," said David Wu, head of corporate finance, China, for ING Bank.

    China's desire to temper the outflow of its foreign reserves, which dropped more than half a trillion dollars last year, could also curb deals.

    Lawyers say the State Administration of Foreign Exchange (SAFE), the custodian of the country's $3.19 trillion reserves, is anxious that the deal outflows could weigh on the yuan currency.

    "SAFE canceled the formal approval process for outbound transactions some time ago, but they are monitoring flows going out quite carefully, given the recent surge in money leaving the country," said Andrew McGinty, a partner at Shanghai-based partner at law firm Hogan Lovells International.

    Uncertainty surrounding the outcome of this week's referendum in Britain over its membership of the European Union and the upcoming U.S. presidential elections in November are also factors likely to slow Chinese overseas purchases, bankers say.

    After many years of focusing on the booming domestic economy, Chinese companies are increasingly looking to diversify their revenues as growth at home slipped to a 25-year low.

    Chinese state-owned and private companies are also looking to upgrade their manufacturing prowess with overseas technology.

    Other big purchases announced by China Inc this year include HNA Group's $6.3 billion acquisition of Ingram Micro Inc (IM.N) and Haier Group's $5.4 billion bid for General Electric Co's (GE.N) appliances unit.

    "Whether it be from the private sector, government or even middle market firms, this expansion is strategic and long-term focused," said John Kim, head of M&A, Asia ex-Japan at Goldman Sachs.

    "The appetite is particularly voracious for technology, media, healthcare and financial services, and for the foreseeable future it won't be going away," he added.
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    Brexit Watch

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    Voter Turnout

    “The side that is most effective in motivating their voters to turn out on the 23rd will be the side that emerges victorious,” Crosby wrote. “It is clear that polls are now an actor in elections and referendums, not just a metric of public opinion.”

    A survey of 1,632 voters by The National Center for Social Research between May 16 and June 12 found a lead for Remain by 53 percent to 47 percent, the organization said in a statement. T

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    Oil and Gas

    China May diesel exports up over 300 pct on year -customs

    China's diesel exports rose 305.7 percent in May from a year earlier to 1.48 million tonnes, customs data showed on Tuesday.

    Gasoline exports climbed 105.6 percent in May from a year earlier to 780,000 tonnes, while kerosene exports fell 0.3 percent on-year to 950,000 tonnes, the data showed.

    Imports of diesel soared 1,544.7 percent to 40,000 tonnes, while kerosene imports were up 16.9 percent at 340,000 tonnes. Liquefied natural gas imports rose 27.3 percent to 1.43 million tonnes.
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    Saudi Crude Exports Fall to 6-Month Low as Refineries Cut Back

    Saudi Arabia, the world’s biggest crude exporter, cut shipments in April to the lowest level in six months as overseas refineries bought less due to seasonal maintenance and the kingdom burned more oil at home to power air conditioners.

    Shipments dropped to 7.44 million barrels a day from 7.54 million barrels a day in March, and to the lowest since 7.36 million in October, according to data released Monday by the Joint Organisations Data Initiative in Riyadh. Exports also declined for Qatar, whose shipments slid to the lowest since at least 2002, as well as for fellow OPEC members Iraq and Kuwait, the data show.

    Oil companies typically shut refineries for maintenance in April and May in preparation for higher summer demand. Saudi Arabia is planning to boost crude production to 10.5 million barrels a day in the next few months as higher summer temperatures boost demand for electricity needed to cool homes and offices, a person with knowledge of Saudi output policy said in April. The country’s output was 10.26 million barrels a day in April after reaching a record 10.56 million in June 2015, according to Jodi.

    “We have a refinery turnaround season going on,” Mohamed Ramady, a London-based independent analyst, said by phone. Also, “we had an uptick in local consumption of crude for power,” he said.

    Qatar’s oil exports, which fell to 427,000 barrels a day in April from 506,000 barrels in March, were the lowest since JODI started compiling data in January 2002. Iraq’s shipments dropped to 3.36 million barrels a day from 3.81 million in March, while Kuwait’s exports declined to 2.03 million in April from 2.2 million, the data show. Export data on the JODI website wasn’t updated for five of the 13 members of the Organization of Petroleum Exporting Countries: Iran, the United Arab Emirates, Indonesia, Libya and Venezuela.
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    MEI: LNG oversupply to stretch to 2024

    The latest research by McKinsey Energy Insights (MEI) predicts the LNG oversupply could last until 2024, meaning few projects could reach financial investment decision in the next 12 to 18 months.

    The research shows the LNG supply glut is“exacerbated by the 100 million tons per annum of new export terminal capacity currently under construction in the United States and Australia.”

    By 2019, MEI expects the oversupply to peak at 60 mtpa.

    According to James Walker said, “Our research shows that the current market oversupply is creating challenging conditions for operators hoping to take FID on projects in the near term.”

    He adds that, in order to be viable, such projects would require an assumption of either a sustained high LNG price post-2024 or a cost optimization strategy to reduce projected capital expenditures.

    In an oversupplied market, many projects will struggle to secure buyers, Walker said, adding that, even if the projects move to the construction phase, LNG supply would hit the market at a bad time.

    The research predicts that the market will remain oversupplied unless the current low prices can stimulate a demand recovery, however, that response has been limited over the past two years.
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    Traffic at France's Fos oil port back to normal -terminal operator

    Ship traffic at France's biggest oil port terminal, Fos-Lavera, was back to normal on Monday after a four-week strike over a labour reform bill ended late last week, an official at terminal operator Fluxel said.

    "During the weekend, our staff did everything possible to clear the harbour," the official told Reuters. "About 30 vessels are now waiting, which is a normal level."

    Strikes at Fos-Lavera on the south coast, Le Havre port in the north and at refineries across France had disrupted fuel supply. CGT union workers at Fos-Lavera are planning two one-day strikes on June 23 and 28 as part of further nationwide protests against the government's labour reform.
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    Russia's Gazprom eyes asset swap deals with Shell by year-end

    Russia's state-controlled gas giant Gazprom (GAZP.MM) could gain control over some of the assets that Shell (RDSa.L) acquired earlier this year from BG group, a senior Gazprom executive said in an interview.

    Gazprom's Deputy Chief Executive Alexander Medvedev said the BG holdings could be included in an asset swap deal between Gazprom and Shell that was announced last year. He did not say what the BG holdings were or where they were located.

    "The work is under way, progress has been made and the final result is just around the corner - it's certain that the (deals will be completed) by the year-end, maybe earlier," Medvedev said in an interview cleared for publication on Monday.

    "Obviously, the BG assets are also in that basket," Medvedev told Reuters in the interview.

    Gazprom is subject to U.S. financial sanctions imposed on Russia over the conflict in Ukraine.

    Shell signed a deal with Gazprom last week to study jointly building a $10 billion gas plant on the Baltic Sea, as part of their strategic partnership which also foresees asset swaps.

    Shell, which wants to sell as much as $30 billion worth of assets and exit 10 countries after merging with BG, has never commented on the assets it plans to offer to Gazprom.

    The asset swap deal is not covered by the scope of the sanctions. Nevertheless, it could still arouse political sensitivities, especially if as part of the deal the Russian company, run by a close ally of Russian President Vladimir Putin, ends up controlling assets in western Europe.

    Under the previously-announced terms of their asset swap deal, Gazprom and Shell will jointly invest $13 billion in three projects in Russia, including construction of a liquefied natural gas plant on the Baltic Sea and the Sakhalin-2 LNG plant expansion, in the Pacific Ocean.

    Shell is also eyeing the Yuzhno-Kirinskoye gas field off Sakhalin island as part of the asset swap deal. That asset is specifically subject to the U.S. sanctions, complicating any involvement by Shell.
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    BP sanctions 'fast-track' development of Atoll discovery in Egypt

    BP announced today that together with the Egyptian Natural Gas Holding Company (EGAS), it has sanctioned development of the Atoll Phase One project which is an early production scheme that will bring up to 300 million cubic feet a day (mmscfd) gross of gas to the Egyptian domestic gas market starting in the first half of 2018. BP has a 100% interest in the concession.

    Hesham Mekawi, Regional President, BP North Africa commented: 'BP is proud to progress the acceleration of the Atoll project which will bring critical gas to the Egyptian market and establish a new material hub offshore East Nile Delta. Our confidence in the prospectivity of the area along with our ongoing commitment to Egypt and our successful history of partnership with the Ministry of Petroleum, EGPC and EGAS is allowing us to fast track Atoll from discovery to production in less than three years which is a significant achievement.'

    BP recently completed multiple transportation and processing agreements accelerating the development of the Atoll field which contains an estimated 1.5 trillion cubic feet (tcf) of gas and 31 million barrels (mmbbl) of condensates. Onshore processing will be handled by the existing West Harbour gas processing facilities.

    BP announced the Atoll discovery in March 2015. The Atoll-1 deepwater exploration discovery well in the North Damietta Offshore concession in East Nile Delta was drilled using the 6th generation semi-submersible rig Maersk Discoverer. The exploration well reached a depth of 6400 metres and penetrated approximately 50 metres of gas pay in high quality sandstones. The Atoll Heads of Agreement was signed by His Excellency Tarek El Molla, Egyptian Minister of Petroleum and Mineral Resources and Bob Dudley, BP Group Chief Executive in November 2015, just eight months after the discovery.

    Atoll Phase One is an early production scheme (EPS) involving the recompletion of the existing exploration well as a producing well, the drilling of two additional wells and the installation of the necessary tie-ins and facilities required to produce from the field.

    The Atoll wells will be drilled by the DS-6 rig which arrived in Egypt last month and is expected to start drilling in August for roughly the next 24 months. Success of the Atoll Phase One EPS could lead to further investment in the Atoll Phase Two full field development.
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    Microsoft opens Oil & Gas centre of excellence

    Microsoft's Oil & Gas centre of excellence will include technology and expertise from Microsoft and strategic partners.
    By  Mark SuttonPublished  June 16, 2016

    Microsoft has opened a new centre of excellence for the oil & gas industry in Dubai. The Middle East and Africa centre has been launched to assist organisations in the sector to drive digital transformation, cut costs and optimise processes in their organisations.

    The centre, which is the largest such facility for Microsoft globally, will focus on emerging technologies including Internet of Things (IoT), advanced analytics, modern productivity and cloud computing and Microsoft solutions. The centre also brings together leading industry players like Accenture, Aveva, Baker Hughes, Honeywell, OSIsoft, Schneider Electric and Schlumberger.

    According to the 2016 Upstream Oil and Gas Digital Trends Survey by Accenture and Microsoft, 80% of upstream oil and gas companies plan to increase spending on digital technologies in order to help them drive leaner, smarter organisations. The International Data Corporation (IDC), predicts that IT spending in oil and gas will increase to nearly $50 billion in 2016, while spending on connectivity related technologies should increase by 30%.

    "Digital transformation is top of mind for executives in the oil and gas industry, which is why we built the centre of excellence in the Middle East," said Omar Saleh, director for Oil and Gas at Microsoft, Middle East and Africa. "For the industry to transform, companies need to develop sound digital strategies, built on secure and agile platforms, either on a company's premises or in the cloud. Continuous dialogue with our customers and partners is essential for enabling innovation and moving the industry forward. This is what the centre of excellence is built for."

    The survey also showed that 44% of respondents said that investment in IoT is their next main priority, to extract efficiency from their organisations and speed up decision making. Mobility solutions for field works and connection of assets through IoT and smart devices is also a priority for 60% of organisations.
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    Marathon Oil to buy PayRock Energy Holdings for $888 mln

    Oil and natgas producer Marathon Oil Corp said it agreed to buy PayRock Energy Holdings LLC for $888 million from venture capital firm EnCap Investments, boosting its presence in the Oklahoma basin.

    Marathon Oil, which held about 265,000 net acres in Oklahoma, said in February it has allocated about 14 percent or $204 million of its 2016 capital spending to the basin.

    PayRock, an Oklahoma and Kansas-focused portfolio company of EnCap Investments, has current production of about 9,000 net barrels of oil equivalent per day in Oklahoma.

    A near 57 percent plunge in oil prices has pushed down the valuation of oil acreages, making acquisitions more attractive.

    Marathon had agreed to sell non-core assets for $950 million in April, bringing its total sales through divestitures to about $1.3 billion since last August.
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    Private equity warms up to oil deals with $1 trillion warchest: EY

    The world's private equity funds, with a cash pile of around $1 trillion, are stepping up their interest in the oil and gas industry, with almost a half expecting to buy assets in the sector over the next year, a survey showed on Tuesday.

    Funds' appetite for investments in the sector fell sharply after the start of the oil price route two years ago. But recent signs of a rebound, coupled with abundant assets around the world, are turning the tide, advisory firm EY said in a survey of 100 private equity (PE) firms.

    Around 43 percent of the firms said they were planning acquisitions by the first half of 2017 and 25 percent before the end of the year.

    "Activity will pick up at the back end of the year but people are still cautious," Andy Brogan, EY Global Oil & Gas Transactions Leader told Reuters.

    "The fact that the oil price seems to be sticking is gradually making people more confident that they can make some bets."

    PE firms, which typically seek high returns on investment, have a warchest of around $971 billion, EY said.

    The expected pickup in activity, however, is likely to vary by region.

    North America remains a focal point after a large number of assets was placed on the block as the shale oil and gas boom stuttered, including a rising number of distressed companies, Brogan said. Relatively accessible financing is also supportive, he added.

    Asia Pacific is also attracting buyers' interest, although the size of the market is smaller, while mature basins such as the North Sea remain less attractive due to high operating costs and liabilities linked to the clean up of old wells.

    PE funds such as Carlyle Group, Blackstone Group and CVC Partners have all set up management teams in recent years to acquire and manage oil and gas assets.

    Buying activity so far has nevertheless been limited and focused mostly in North America.

    After peaking in 2014 at 104 deals worth $39 billion, PE activity fell sharply last year to 64 transactions, according to EY. The first quarter of 2016 saw 12 deals worth $7.6 billion, including a group of U.S.-based funds acquiring a 12.3 stake in Plains All American Pipeline for $1.5 billion.
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    Alternative Energy

    Why reciprocating gas engines make sense for Europe's power industry

    Europe is moving towards basing its energy needs on renewable energy sources.

    Already today, 27 per cent of the European Union's electricity requirements are covered by water, wind, sun and bioenergy. In the next 15 years, the EU wants this percentage to increase beyond 50 per cent.

    Most of the renewable sources of energy are non-continuous and unpredictable - such as solar and wind - and have a rather low capacity factor: roughly between 15 and 25 per cent.

    When you do the simple math, you see that in some areas, namely Germany, the total demand for electrical energy could already be covered by renewables... when the sun shines and the wind blows.

    As we all know, this has brought disruptive change to our energy generation and distribution landscape. To complement shortages from unstable renewable energy sources, three principal solutions exist:

    - Energy storage: storing energy in times of high availability of wind and solar power;

    - Extending the grid to make reliable energy from distant areas available (e.g., hydropower from Norway or excess capacity from distant production locations);

    - Reliable and highly flexible backup power generation with thermal power plants.

    As it stands today, we will see a mix of all three options develop over the coming years. What remains is that large thermal power plants which provide baseload power but cannot complement non-continuous power sources due to their inflexibility will lose production share with the rise of non-continuous sources.

    As energy storage systems in the size required will not be available at competitive cost for some time and large-scale extensions of the grid will be realized only in the longer term due to investment requirements and political and regulatory difficulties, there is need for highly reliable and flexible back-up power generation with thermal power plants.

    This is where we see the benefits and the place of thermal power plants utilizing reciprocating gas engines as prime movers. This list of benefits is long and impressive:

    - Gas engines offer single electrical efficiency in excess of 50 per cent in single cycle and up to about 70 per cent in combined cycle;

    - Multiple engine applications allow operators to run gas engine plants at maximum efficiency at virtually any load requirement;

    - Reciprocating gas engines can respond faster to load changes than any other prime mover;

    - Gas engine plants can operate in tri-generation mode, providing electricity and heat/cold, leading to a total energy efficiency of more than 90 per cent;

    - LNG has a CO2 footprint that is 80 per cent lower than that of coal (117 vs 200 pounds CO2/MBTU) and does not emit any sulphur;

    - The turnkey erection of a 200 MW gas plant with reciprocating engines can be accomplished in less than 12 months;

    - Highly competitive initial investment cost and attractive return on investment;

    l Proven technology with hundreds of (bio-)gas installations in Europe already existing;

    - If fueled by biogas it is a renewable source of energy;

    - Dismantling and relocation of gas engine-based thermal power plants in case of changed requirements is technically and financially feasible;

    - As it is also possible to achieve high plant efficiency with a small installation, it is possible to generate a distributed power supply system which is safer in case of failure of single units or even of a total single plant;

    - Thanks to their low environmental impact, these distributed power plants can be located close to inhabited areas, with the additional benefit of enabling centralized district heating;

    - Transmission losses in a gas grid are lower by a factor of 10 compared to those of electricity power lines.

    Of course, the present tariff system for electricity in Europe is not conducive to investment in power plants for balancing power.

    However, the example of an LNG-fired gas engine plant with a capacity of nearly 200 MW contracted for the utility in Kiel, Germany shows that gas engines have a strong business case, providing electricity to the grid when needed (and therefore attractive in price) and utilizing the heat for centralized heating systems - and even using the electrical energy for heating purposes at times of low electrical demand.

    This is a striking real-life answer to why reciprocating gas engines make sense for Europe's power industry.
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    France to vote against continued EU use of weedkiller glyphosate

    France will vote on Friday against the continued use of weedkiller glyphosate, its environment minister said, adding to uncertainty over the future of widely-used products such as Monsanto's Roundup in the European Union.

    The EU license for glyphosate expires at the end of June and, if it is not extended, manufacturers will have six months to phase-out products containing the common herbicide.

    Contradictory findings on the carcinogenic risks of the chemical have pitted farming and chemical lobbies against citizen and environmental groups, making some EU politicians reluctant to approve its continued use.

    "France will vote against the glyphosate vote," Segolene Royal told journalists, ahead of a meeting of EU environment ministers on Monday.

    The European Commission - after failing to win support for a proposal to renew the license for glyphosate for up to 15 years - had offered a 12 to 18 month extension pending further scientific study.

    As big EU nations France and Germany abstained from a vote earlier this month, even the compromise proposal lacked enough support to be adopted.

    The matter has now been referred to an appeal committee of political representative of the 28 EU nations, expected on June 24. If no decision is reached by qualified majority there, then the European Commission could choose to act on its own.

    The Commission wanted the temporary extension to allow time for a study by the European Chemicals Agency (ECHA), which it hopes will allay health concerns.

    The topic is also on the agenda of a meeting of member state experts on June 28.

    Monsanto has defended the safety of glyphosate and has not ruled out a legal appeal if its license is not extended.

    Bernstein senior analyst Jonas Oxgaard has estimated Monsanto could see earnings reduced by up to $100 million if the EU were to halt glyphosate sales.
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    Canpotex axes Canadian potash export terminal

    As weak demand persists for fertiliser minerals and a number of companies plan to divest agri-assets or reduce capacity, Canpotex has decided to scrap plans for the development of a potash export terminal in Canada, saying it has sufficient terminal capacity through existing logistics networks.

    Canadian potash exporter and logistics company Canpotex International PTE Ltd has scrapped plans for a new fertiliser export terminal at the Port of Prince Rupert in British Columbia, Canada.
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    Base Metals

    Kenmare surges as investors rally support for $368m deleverage

    Shares in UK-listed mineral sands producer, Kenmare Resources, surged a fifth as it edged closer to an overhaul of its balance sheet which will include a share issue of between $275m and $368m.

    Importantly, three of the firm’s strategic shareholders have agreed to support the capital raise for an aggregate amount of $115m, a development described by Investec Securities today as “no small sum”.

    If completed, the capital raise would help cut Kenmare’s debt by nearly three quarters to no more than $100m. Shares would be issued at just over £1.09 per unit. Kenmare is currently trading at 85 pence per share, a 20% increase in the first few hours of trade on the London Stock Exchange.

    As part of the share issue, which Kenmare hopes to complete by August, it signed a $100m cornerstone investment with State General Reserve Fund of the Sultanate of Oman (SGRF). However, discussions with a second cornerstone investor, King Ally, had been terminated by mutual consent after the parties encountered uncertainty of deal terms and completion.

    All in all, Kenmare would raise between $275m to $368m which would enable it to cancel up to $293m in debt and leave it with some $75m for working capital purposes.

    “We are pleased that we have signed an agreement for the investment of $100m by SGRF and are encouraged by the level of interest shown by a broad range of investors in the capital raise,” said Michael Carvill, CEO of Kenmare in a statement.

    Three major shareholders in Kenmare indicated they would support the capital raise for some $115m, including M&G which will protect its 19.97% stake in the firm as a result.

    “Early indications of investment from three of the main shareholders of Kenmare, in combination with lender underwriting position the company well to achieve the minimum target of $275m,” said Carvill.

    Investec Securities said winning the support of M&G was no mean feat. “While Kenmare has lost one of its cornerstones, it appears that existing shareholders are stepping up in a meaningful way,” it said.

    It added: “$115m from three shareholders is no small sum. The banks are also getting involved in order to see their debt being repaid, accepting $3 for every $4 owed and underwriting part of the raise”.

    Carvill said that with the finalisation of key transaction agreements completion of the capital raising ought to be achieved in “the next few weeks”.

    Conditions in the titanium market, especially ilmenite, have been depressed owing to excess iron ore production from which ilmenite is produced as a by-product.

    However, Kenmare estimated that inventories would be exhausted this year and that a supply deficit would materialise by about 2020. Market conditions for zircon were not expected to revive in the foreseeable future.
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    Steel, Iron Ore and Coal

    China orders energy-use checks to speed closure of coal, steel capacities

    China has ordered local authorities nationwide to check on energy use by coal and steel companies to speed up closure of plants and mines that fail to reach certain efficiency standards, the country's economic watchdog said on Monday.

    Local governments need to conduct energy consumption checks on coal and steel producers, and any that do not meet efficiency standards will be given a maximum of nine months in which to improve or be closed, according to two statements on the website of the National Development & Reform Commission (NDRC).
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    China cuts 14.57 Bt standard coal consumption in 2005-15

    China has cut consumption of 14.57 billion tonnes of standard coal in 2005-2015, equaling reducing carbon dioxide emission by 3.6 billion tonnes, Xinhua News Agency reported, citing an industry meeting held in Hebei on June 18.

    Coal share in China’s energy mix dropped from 72% in 2005 to 64% in 2015, according to the report. While non-fossil energy share in the country’s primary energy increased from 7.4% to 15%.

    The energy consumption per GDP reduced 19.1%, 18.2% and 15% during 2005-10, 2011-15 and 2016, data showed.

    China made great progress in energy saving in construction and transportation industries, especially the production of energy-saving buildings and green cars.

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    BHP Billiton steps up coal output, slices costs, eyes acquisitions

    Top global miner BHP Billiton outlined plans to boost coal output by 8 percent over the next three years while slashing costs, and said it would only consider premium, lowest-cost assets for any acquisitions.

    BHP Billiton, the world's top exporter of coking coal used in steelmaking and also a producer of energy coal, is in the enviable position of running profitable coal mines at a time when more than half the world's coal mines are losing money.

    It remains optimistic about the long-term prospects for its coal business based on the quality of its coal, its low costs and growth prospects in China, India and Southeast Asia, but said markets would be challenging in the short to medium-term.

    "We have the portfolio of assets best placed to meet this future demand," BHP Billiton Minerals Australia president Mike Henry told reporters on Tuesday after an investor presentation.

    Making life harder for its rivals, BHP increased its forecast for coking coal output for the current year, ending June 30, by 6 percent to 42.5 million tonnes, and said it plans to hike production to 46 million tonnes in 2018.

    It also aims to slice costs by $600 million over the next year by getting more out of its trucks, wash plants, and workers, and negotiating better deals on parts and equipment.

    That would help cut its coking coal costs to 9 percent over the next year to $52 a tonne. That compares with coking coal prices which averaged more than $90 a tonne in the June quarter.

    While it has sold, spun off or shut most of its energy coal mines amid a global push to curb carbon emissions, BHP did not rule out bidding for rival Anglo American's one-third stake in the Cerrejon energy coal mine in Colombia or its coking coal mines in Australia.

    Henry declined to comment on specific assets, but said any acquisition would have to fit with the company's tighter geographic focus, be high quality, low cost, and come at a good price.

    "It would need to enable higher returns and would need to be resilient to all markets," he said.

    Analysts have said it would make sense for BHP to own Anglo American's Moranbah and Grosvenor coking coal mines, which are near its own mines in Queensland's Bowen Basin. The company has said it is mainly seeking acquisitions in copper and petroleum.

    BHP Billiton owns nine coking coal mines in Australia's Queensland state with Japanese partners Mitsubishi Corp and Mitsui & Co. It also owns the biggest energy coal mine in the Hunter Valley in Australia and a one-third stake in Cerrejon, alongside Anglo American and Glencore Plc.
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    US coal consumption increases to near year-high volume

    Hotter weather and higher natural gas prices have helped increase coal consumption for power generation to near a year-high mark.

    Coal consumption last week topped 16.5 million st, a weekly volume eclipsed only once this year when 17.1 million st was burned the week ending January 21, according to Bentek Energy, a unit of S&P Global Platts.

    The climb in coal consumption began in late May as the Henry Hub prompt-month gas futures contract began to gain strength. Since the rollover into July delivery, the Henry Hub prompt-month contract is up 78.4 cents, a 39.9% gain.

    Monday's settlement at $2.747/MMBtu marked a year-high price for the Henry Hub prompt-month contract and its highest since $2.758/MMBtu on September 14.

    As gas prices went up in the past month, coal consumption also climbed, increasing 29.4% nationwide from 12.8 million st in the week ending May 19, with coal-fired boilers in the Midcontinent Independent System Operator and the Electric Reliability Council of Texas leading the surge.

    MISO has seen coal consumption jump 43% since mid-May, with weekly volumes climbing to 4.1 million st last week from 2.9 million st. MISO weekly coal consumption last topped 4 million st in January.

    Coal consumption in ERCOT has increased since early April and picked up in May. ERCOT coal consumption had not surpassed 2 million st/week this year until volumes topped that mark in five of the last six weeks. Consumption reached a year-high mark of 2.5 million st in the first week of June.
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    Vale said in talks with Asia buyers for stake in iron ore

    Vale is holding discussions with Asian mining companies about a potential sale of a minority stake in its Brazilian iron-ore assets that could fetch as much as $7 billion, according to people familiar with the matter.

    The world’s top iron-ore producer may also consider streaming deals, the people said, asking not to be identified as the information is private. No agreements have been reached, and the talks may not result in a deal, the people said.

    The Rio de Janeiro-based company joins other global miners such as Freeport-McMoRan, Glencore and Anglo American who are trying to pay down debt through asset sales. Chief executive officer Murilo Ferreira raised the prospect of selling some of the company’s most prized assets in February after Vale reported its first year of losses since 1997. The company has said it wants to raise about $10 billion through next year.
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    BHP Flags ‘Another 10 Years’ as Iron Ore Adjusts After Boom

    The iron ore market will take longer to balance out than other commodities as excess supply may take years to be absorbed after a boom, according to BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie, who flagged his company’s low production costs as a lure for hedge-fund investors.

    “There are some commodities, like oil and copper, where there is a natural decline because pressure drops off, grade drops off,” Mackenzie said in New York after making an address. “One of the markets that will take longest to come back into balance is the iron ore market.”

    Iron ore dropped for three years to 2015 as low-cost miners including BHP and rivals Rio Tinto Group and Fortescue Metals Group Ltd. ramped up output just as growth cooled in China, spurring a glut. Prices staged an unexpected rally in the opening months of this year amid a speculative frenzy in China, before dropping again. Mackenzie said in March he was more bearish on iron ore than other raw materials that BHP produces.

    “The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand,” Mackenzie said on Monday, speaking in response to an audience question. “We’ve had such a long boom. To walk that through, in my view, may take another 10 years.”

    Ore with 62 percent content was at $51.06 a dry ton on Monday after losing 28 percent since topping $70 in April, according to Metal Bulletin Ltd. The raw material peaked in 2011 at more than $191, and the slump has prompted closures and mergers among higher-cost miners.

    “Consolidation, particularly of the high-cost producers, it will carry on much longer than you think they humanly should,” Mackenzie said. “In the meantime, you’ve got to be at the bottom of the cost curve, you’ve got to be doing everything I’ve said, running things in the most productive way possible, or your hedge funds won’t want to invest in us.”

    Mackenzie said last month BHP is increasing exploration and investment in copper and oil, signaling a shift from cutting costs with or without a recovery in prices. The company has previously flagged copper and petroleum as its key focus for growth amid expected supply constraints for both commodities.

    Attached Files
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    Rio Tinto drops iron ore chief in corporate reshuffle

    Rio Tinto on Tuesday replaced the head of its iron ore division, its biggest profit maker, as part of a sweeping management reshuffle by new Chief Executive Jean-Sebastien Jacques, who will take over the reins next week.

    Iron ore division head Andrew Harding - once tipped as a contender to lead the company - will leave Rio as of July 1, the company said in a statement.

    He will be replaced by Chris Salisbury, currently acting copper and coal chief executive, will run the iron ore division from Perth.

    A source familiar with the changover procedure said Harding had expressed a willingness to stay on in the role he has held since 2013, but it was agreed that the division would benefit from "fresh eyes".
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