Mark Latham Commodity Equity Intelligence Service

Tuesday 2nd February 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Manufacturing in U.S. Shrank in January for a Fourth Month


    Manufacturing in the U.S. shrank in January for a fourth consecutive month as businesses cut staffing plans. Growth resumed in new orders and production, indicating some stabilization in the industry.

    The 48.2 reading for the Institute for Supply Management’s index followed December’s 48 level that was the weakest since June 2009, data from the Tempe, Arizona-based group showed Monday. The results were lower than the 48.4 median forecast in a Bloomberg survey of 79 economists. Levels less than 50 for the gauge indicate contraction.

    Factories are buffeted by persistent weakness in the oil industry, the stronger dollar and cooling overseas markets that also limited growth last quarter. The report showed the gauge of new orders, a leading signal for production, grew for the first time in three months, which would help manufacturing to eventually strengthen.

    “This may be signaling the start of some stabilization in manufacturing activity and U.S. economic activity,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. “It’s good enough to know things haven’t gotten worse. The rise in new orders is encouraging.”

    Economists’ estimates in the Bloomberg survey ranged from 47 to 50.5.

    The new orders gauge rose to 51.5, the strongest since August, from 48.8. A measure of production climbed to 50.2, the first expansion in three months, from 49.9.

    The factory employment index dropped to 45.9, the weakest since June 2009, from the prior month’s 48.

    The measure of export orders dropped to a four-month low of 47 last month from 51.

    The gauge of factory inventories held at 43.5, while customer stockpiles stayed at 51.5. The index for supplier deliveries was little changed at 50 after 49.8.

    The report also showed the index of prices paid were the same as the previous month’s reading of 33.5, which was the lowest since April 2009. The prices measure has been contracting since November 2014.

    Eight of 18 industries surveyed by the purchasing managers’ group posted growth, including machinery, computer and electronic products, electrical equipment and furniture.

    “I really like the fact that new orders is up,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. That gauge “really drives the system.”

    While it’s “too early” to declare the worst is over, the orders numbers bear watching and a sustained pickup “could signal a bottom” for the industry’s slump, Holcomb said. In addition, the index of backlogs “is moving in the right direction” by contracting at a slower pace, also indicating an improving outlook.

    http://www.bloomberg.com/news/articles/2016-02-01/manufacturing-in-u-s-contracted-in-january-for-a-fourth-month
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    Indian manufacturing sector returns to growth at start of 2016


    January saw the Indian manufacturing sector climb back into expansion territory, as the industry recovered following the contraction seen at the end of last year.

    Alongside a resumption of output at some firms impacted by December's flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients.

    At 51.1 in January, up from 49.1 in December, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers IndexTM (PMI)TM, a composite single-figure indicator of manufacturing performance, moved back above the 50.0 mark.

    Although the rate of expansion was only moderate, it was the sharpest signalled for four months.

    http://steelguru.com/steel/indian-manufacturing-sector-returns-to-growth-at-start-of-2016/445175#tag
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    S&P cuts BHP ratings, places Rio on watch negative


    Ratings agency Standard & Poor's on Tuesday lowered the credit ratings of BHP Billiton Ltd and put it on negative watch, while it placed Rio Tinto on watch negative, both actions due to challenging market conditions for commodities.

    The ratings agency cut BHP's debt to A from A-plus and said a further downgrade by one notch will depend on BHP's dividend policy and capital expenditure guidance due out this month.

    The move reinforced market speculation the miner will have to lower its payout to shareholders.

    S&P also placed rival company Rio Tinto's A-minus ratings on negative watch.

    "We could lower the rating by one notch over the coming weeks if the company does not take supportive measures amid the currently weak commodity prices pressuring its cash flows."

    Analysts expect Rio to maintain its dividend for now.

    Both ratings actions follows S&P's price assumptions for commodities, the agency said.

    The price of iron ore, Australia's top export earner, has recently dropped to its lowest in over a decade.

    Last month, Moody's placed 175 oil, gas and mining companies on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed for some time.

    For some investors sliding commodities can result in debt bargains.

    Sanjiv Shah, chief investment officer at London-based Sun Global Investments, singled out BHP's U.S.-denominated subordinated debt due in 2075 paying attractive yields of 7 percent and 7.48 percent.

    "The long rout in commodity prices has hit debt and equity securities issued by metal and mining companies, with many securities looking oversold and therefore attractive if commodity prices do not fall significantly from current levels or stabilise at current levels."

    BHP Billiton remains one of the highest rated mining companies.

    http://www.reuters.com/article/bhp-billiton-ltd-ratings-idUSL3N15G5KD
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    A red flag for BHP on dividends


    The decision by Standard and Poor’s to downgrade the debt rating of BHP is a wake-up call first to the Big Australian. It’s time for BHP to come to grips with the fact that the 2016 dividend game is totally different to past years.

    BHP will now almost certainly reduce its dividend in the current half year.

    Directors of BHP have been petrified that if they lower their dividend their shares will be slashed in the market.

    They can take comfort from the experience of Brazilian iron ore miner Vale, which last week announced that, given its problems and the Samarco disaster, it was suspending dividends. The shares responded by rising almost 8 per cent and last night they held most of that gain until a late fall evaporated about half Friday’s rise.

    Of course, it’s true that Vale shares have fallen from an annual peak of above $US9 to around the current level of $US2.37.

    BHP’s 2015 dividend rate involved a payout of around $US6bn and Citi group estimate that if BHP’s capital expenditure is around the forecast level of $US8bn, then the company will need to borrow $US4bn in 2016 to pay dividends at the 2015 level.

    If BHP continues to borrow big in order to pay dividends, in the absence of a jump in commodity prices and if it is not very careful, it will put itself into a downward debt ratings spiral.

    http://www.businessspectator.com.au/article/2016/2/2/industries/red-flag-bhp-and-banks-dividends?utm_content=SocialFlow&utm_campaign=EditorialSF&utm_source=BusinessSpectator&utm_medium=Twitter
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    Anglo American may fully exit Brazil — report


    Beleaguered Anglo American is said to be planning a complete exit from Brazil, where the company has already put its $1 billion niobium and phosphate business up for sale.

    First-round bids for those assets are due on Feb. 15, date that — reportslocal newspaper O’Globo (in Portuguese) — may bring some major surprises. According to veteran columnist Angelmo Gois, Anglo is also seeking to sell its Barro Alto nickel mine, as well as the vast Minas-Rio iron ore complex, which came into production last year, just as prices for the steelmaking ingredient spiralled toward historic lows.

    Last week, Anglo said it was revising its production strategy for Minas-Rioto ensure lower operating costs, without given further details or mentioning any potential plans to sell the asset.

    Other than its $1 billion niobium and phosphate business, already up for grabs, Anglo is said to be mulling the sale of its Barro Alto nickel mine, and the vast Minas-Rio iron ore complex.

    The mine had been plagued by delays and cost overruns since Anglo bought it for $5.5 billion in two stages in 2007-2008.

    BHP spin-off South32 is said to be among the bidders for Anglo’s niobium and phosphate assets. According to local reports, the mining giant is seeking to complete such sale in one transaction, rather than splitting them.

    The assets up for sale are set to make Anglo the world’s second-largest producer of niobium, a material used in high-temperature alloys for jet engines and lightweight steel for cars, when it completes its $325 million Boa Vista Fresh Rock plant, located in Brazil’s Goias state, later this year.

    It produced 2,934 metric tons of niobium in the first half of 2015, and the business contributed $35 million to earnings before interest, taxes, depreciation and amortization. The phosphates unit had output of 513,000 tons with Ebitda of $52 million.

    The assets sales come as Anglo American undergoes a major restructuring aimed to improve its balance sheet. This strategy has included putting offloading several mines in the last few months, from copper mines in Chile to Australian coal assets and its platinum business in South Africa.

    Last month, the company finally completed its exit from the Middle East by selling its Tarmac business to Colas Moyen Orient, a subsidiary of French engineering and construction company Bouygues Group.

    Anglo American, which plans to consolidate its business into three units from the current six, will be “a very different company” after it follows through on the restructuring plan, chief executive Mark Cutifani promised in December, as he unveiled the firm’s "radical portfolio restructuring."

    Such reorganization includes reducing its total workforce from 135,000 to just 50,000 by 2017.

    http://www.mining.com/anglo-american-may-fully-exit-brazil-report/?utm_source=twitterfeed&utm_medium=twitter
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    Israel hopes for EU leverage with East Mediterranean push


    Israel, Cyprus and Greece have agreed to deepen their energy, security and tourism ties in the Eastern Mediterranean, a deal that may have implications for Israel's testy relationship with the European Union, too.

    The agreement, signed in Nicosia last week by a beaming Prime Minister Benjamin Netanyahu, Greek premier Alexis Tsipras and Cypriot President Nicos Anastasiades, focused on energy and the exploitation of natural gas deposits off Israel and Cyprus.

    The Leviathan and Aphrodite fields are unlikely to start exporting before 2019 or 2020. Nevertheless, the ambition is to transport gas by pipeline, possibly via Turkey, or in liquefied form by ship to Europe, plugging the East Mediterranean into Europe's grid and providing an alternative to Russia - which has far worse relations with the EU due to the Ukraine crisis.

    With global energy prices expected to remain low for some time, analysts question whether East Mediterranean gas will be the bonanza investors hope, but that didn't prevent the leaders singing the praises of their joint declaration.

    "We live in a turbulent, fluid environment," said Netanyahu, emphasizing working together on policies from tourism to water-management would make all three states stronger. "We have an unprecedented opportunity to advance our common goals," he said, adding: "We have been blessed with natural gas."

    Israel and the two EU members all have sound commercial, defense and political reasons for closer cooperation.

    As well as attracting more visitors and investment, Cyprus and Greece hope some of Israel's high-tech success will rub off on them and lift their economies, both bailed out by the EU and IMF. There's also Israeli know-how in defense, migration, cyber-security and counter-terrorism to draw on.

    Israel hopes to sell its expertise in these areas, as well as gaining extra allies in a region where it feels isolated, with Syria at war on its northern border, Lebanon's Hezbollah a threat and ties with the Palestinians as troubled as ever.

    Israel has already used the presence of a Russian-made air defense system located in Greece, which was originally supplied to Cyprus and traded to Athens, to train fighter pilots on how to thwart technology now being deployed in Syria.

    EU RELATIONS

    There is also a more nuanced potential benefit for Netanyahu: more partners inside the EU who may be inclined to defend Israel's interests or at least not lean immediately towards the Palestinians on Middle East issues.

    With France issuing an ultimatum to Israel at the weekend - saying it would recognize Palestine as a state if a new peace initiative doesn't succeed - Israel is hoping its new allegiances in the EU will help head off the French threat.

    Greece has traditionally been pro-Palestinian and was expected to remain so when Tsipras, a leftist, was elected last year. The same went for Cyprus to an extent. But the Palestinians now regard both as having shifted allegiance.

    "The emerging tripartite alliance ... weakens the strong and solid relationship that the Palestinian people have always maintained with Cyprus and Greece," said Hanan Ashrawi, a senior member of the Palestine Liberation Organization.

    "As such, this agreement will only embolden Israel to pursue dangerous policies that have serious ramifications on the whole region. We call on Cyprus and Greece ... to maintain the earlier integrity of their support for the Palestinian cause."

    http://www.reuters.com/article/israel-mediterranean-ties-idUSL8N15G1WX
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    Gunvor Pulls Back From Metals Trading as Profitability Slumps


    Gunvor Group Ltd. is getting out of the metals-trading business and its top trader Rene Van Der Kam has left the firm amid a global slump in commodity prices.

    “Profitability was decreasing, while risk was increasing,” Seth Pietras, a Gunvor spokesman in Geneva, said by phone.

    All or most of warehousing will be liquidated and the metals management will depart, according to an internal memo obtained by Bloomberg News. A team will be created to unwind positions and execute existing contracts, the company said.

    Gunvor’s iron-ore and specialty-ores trading won’t be affected and the Shanghai office will remain in operation as the company expands oil and energy trading in China, the memo said.

    Pietras confirmed Van Der Kam’s departure and the contents of the memo. Three other people from the metals desk will also leave the firm. Van Der Kam, who joined Gunvor from Noble Group Ltd. in 2014, declined to comment when reached by telephone.

    The pullback from metals mark the latest in a string of high-profile shakeups at the world’s biggest trading firms. While oil traders have generally thrived amid falling prices and high volatility, metals traders have struggled to make money as demand for raw materials from China weakened.

    http://www.bloomberg.com/news/articles/2016-02-01/gunvor-pulls-back-from-metals-trading-as-profitability-slumps

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    Former Petrobras exec sentenced over Vantage Drilling contract


    A Brazilian judge sentenced the former head of state-run oil company Petrobras' international division to 12 years and two months in jail for corruption and money laundering on Monday, part of the country's largest-ever graft investigation.

    Federal judge Sergio Moro said Jorge Zelada had unduly awarded U.S. company Vantage Drilling a 2009 contract with Petrobras for the drillship Titanium Explorer in exchange for bribes stashed in undeclared accounts in Monaco and Switzerland.

    Moro also convicted former Petrobras executive Eduardo Musa and lobbyist Hamylton Padilha, though their sentences were reduced because they signed plea agreements.

    Prosecutors said together Zelada and Musa took $31 million in bribes from Padilha and Hsin Chi Su, chief executive of Taiwanese shipping firm TMT, after Padilha and Su, a Vantage shareholder, met at the Four Seasons Hotel in New York to discuss the bribe.

    For nearly two years the landmark investigation overseen by Moro has mostly focused on local engineering firms and executives accused of price fixing and overcharging Petrobras for work and then using the extra funds to bribe politicians.

    But it has already ensnared some international companies tied to Petrobras. Prosecutors have counted 285 foreign firms that have done business with agents who are under investigation, like Padilha, though they say that does not mean as many firms are being investigated.

    Zelada's lawyer Renato de Moraes said he would appeal the decision and seek acquittal. Zelada led the international division for Petroleo Brasileiro SA, as Petrobras is formally known, from 2008 to 2012.

    Moro said in his decision that Zelada's defense had called Vantage CEO Paul Bragg as a witness, but said the request was not granted because the cooperation treaty between Brazil and the United States only requires compliance with witness requests when called by the prosecution.

    Padilha testified that Bragg did not know about the bribe payment, Moro said.

    Vantage said in July, when Zelada was arrested, it was fully meeting the terms of the drillship contract and had found no evidence of improper activity. If Padilha committed any illegal acts he was not representing the company, it said.

    A judge in Rio also convicted Zelada earlier this month of fraud on a contract awarded to conglomerate Odebrecht SA and sentenced him to a maximum four years in jail.

    http://www.reuters.com/article/brazil-corruption-petrobras-idUSL2N15G1SH

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    Oil and Gas

    No decision yet on any OPEC, non-OPEC meeting: sources


    OPEC and non-OPEC countries have not yet agreed to hold a meeting to discuss action to support oil prices, two OPEC delegates said on Monday, nearly a week after Russian officials said Moscow should talk to OPEC.

    In addition, a decision on whether to hold a standalone gathering of the Organization of the Petroleum Exporting Countries as proposed by Venezuela has yet to be taken, the delegates said, but a number of countries have responded coolly to the idea.

    OPEC delegates said last week a gathering of OPEC and non-OPEC oil officials could take place in February or March, perhaps at an expert rather than ministerial level.

    "It is all in the hands of the Russians now," an OPEC delegate said.

    Last Wednesday, the head of Russia's pipeline monopoly said Russian officials had decided they should talk to Saudi Arabia and other OPEC countries about output cuts, remarks that helped spur a rally in oil prices.

    http://www.reuters.com/article/opec-oil-idUSL9N10A052

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    China Can't Resist $30 Oil as African, North Sea Cargoes Surge


    Last month’s plunge in crude to $30 a barrel proved too much of a bargain for China to turn down even as its economy lurches toward the weakest growth in a generation.

    Chinese companies booked tankers to collect more West African crude in February than in any single month since at least 2011, data from the physical shipping market collated by Bloomberg show. It also increased its purchases of oil from producers in the North Sea and Russia. The voyages are all thousands of miles farther than the Middle East, which supplies most to the Asian country.

    “This surge in Chinese demand for crude goes against recent macroeconomic news coming out of the country but is very much in line with their past behaviour in low flat price environments,” Olivier Jakob, managing director of Petromatrix GmbH, said by phone. “Whenever there has been a strong retracement in prices China has loaded up their reserves.”

    Oil has plunged this year amid signs that China’s economy is slowing. The nation’s growth will slow to 6.5 percent this year, the weakest since 1990, according to forecasts and government data compiled by Bloomberg. Today’s PMI data showed a drop to a three-year low, with the official factory gauge signaling contraction for a record sixth month.

    There are several reasons why the flow may not be as bullish for the oil market as it might first appear. First, the cargoes were boosted by a trade deal in December between the Angolan government and Sinochem Group, which will load eight cargoes this month, the most since Bloomberg began compiling data. China will add storage capacity of 145 million barrels this year, according to the International Energy Agency, meaning imports don’t necessarily equate to demand.

    China shipped four vessels of North Sea crude in January, compared with nine in the whole of 2015, ship-tracking data compiled by Bloomberg show. In addition to three supertankers of Forties crude, the country also bought 1 million barrels of Norwegian Ekofisk crude, the first time it has done so in seven months.

    http://www.bloomberg.com/news/articles/2016-02-01/china-can-t-resist-30-oil-as-african-north-sea-cargoes-surge

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    Chevron lowers Gorgon LNG prices-industry sources


    Chevron Corp is sweetening its sales pitch to attract new buyers to the under-booked $54 billion Gorgon liquefied natural gas export plant off northwest Australia, hit by high costs as fuel prices and demand plunge.

    The move is a departure for Chevron which has for years stuck to its ambitious asking prices, industry sources say, only yielding as global liquefied natural gas (LNG) demand slumped and new supply gave buyers cheaper alternatives.

    Production at the giant 15.6 million-tonnes-a-year plant is due to begin within weeks.

    "Lousy" is how Chevron Chief Executive Officer John Watson last week described the global LNG market which Gorgon - the world's most expensive such venture - will sell into.

    Chevron faces a unique double-blow from record growth in gas supplies from Australia and the United States and from battered crude oil markets pushing current LNG prices below Gorgon's high cost of production, according to analysts.

    And a scarcity of customers leaves Chevron on the hook for a quarter of its share of Gorgon's unsold volume this decade, leaving it few options but to dump supplies onto already depressed spot markets, industry sources said.

    Instead, Chevron needs more long-term buyers paying oil-linked prices, such as its five existing Japanese clients, to help guarantee earnings over the project's 40-year lifespan.

    Since December the U.S. firm has lined up two preliminary deals with Chinese buyers ENN and Huadian Green Energy Co for Gorgon LNG over a 10-year period, starting in 2019 and 2020, respectively.

    "New agreements with Chinese customers ... are important steps in the commercialization of Chevron's equity natural gas holdings in Australia, demonstrating the project's competitiveness," a Chevron spokesman said on Monday.

    The price of the deals, on which Chevron declined comment, are estimated at 12.2-12.3 percent of crude oil, plus a small fixed fee and a floor price, two industry sources said.

    That compares with higher prices paid by Chevron's Japanese clients at 14.85 percent of oil for 25 years of supply, sources say.

    While contract differences between Japanese and Chinese deals make direct comparisons tricky, a long-term LNG contract negotiator said lower prices offered to China may open the door to price reviews between Chevron and its Japanese clients down the line.

    But even if the latest batch of deals puts Chevron's Gorgon scheme on surer footing for 2020-2030 traders still see its unsold volumes sailing into distressed spot markets this decade.

    "We're going to go through a challenging period for any volumes that will be sold spot into the marketplace," Watson said in a teleconference call with analysts last week.

    http://www.reuters.com/article/chevron-gorgon-lng-idUSL8N15A4O3

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    BP Fourth Quarter Profit $196 Million, Missing Estimates


    BP Plc reported a 91 percent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade.

    Profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday in a statement. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg, and compares with year-earlier profit of $2.24 billion.

    Crude’s collapse has driven BP’s market value below $100 billion for the first time since the Gulf of Mexico oil spill in 2010. Chief Executive Officer Bob Dudley has cut billions of dollars of spending, removed thousands of jobs and deferred projects in an attempt to protect the balance sheet. Dudley was one of the first of his peers to start preparing for a prolonged slump and that puts BP in a better position, according to Barclays Plc.

    Profit has been lower year-on-year for six consecutive quarters as oil prices tumbled. The average price of benchmark Brent crude slumped 42 percent in the fourth quarter from a year earlier to $44.69 a barrel, the lowest since 2004.

    PetroChina Co. said last week it expects 2015 profit to fall at least 60 percent. Chevron Corp. on Friday reported its first quarterly loss since 2002, while Royal Dutch Shell Plc said last month that fourth-quarter profit is likely to drop at least 42 percent. The European oil major is scheduled to report full earnings on Thursday.

    BP started cutting costs and selling assets following the 2010 oil spill. In October, it lowered its 2015 capital-spending forecast to about $19 billion after investing about $23 billion in 2014. The company said then it expects to spend $17 billion to $19 billion a year through 2017.

    BP’s shares have increased 3.7 percent this year following last year’s 14 percent decline, a second straight year of losses. It’s the best performer on the eight-member FTSE 350 Oil & Gas Producers Index after BG Group Plc.

    Bloomberg interview: BP CEO Dudley: We Can Balance Books at $60 Oil

    http://www.bloomberg.com/news/articles/2016-02-02/bp-profit-falls-91-missing-estimates-as-oil-slump-deepens

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    China 2015 CBM output up 17pct on year


    China ground-based coalbed methane (CBM) output climbed 17% year on year to 4.4 billion cubic meters (bcm) in 2015, according to a conference held by the National Energy Administration (NEA) on January 28.

    In 2015, China extracted 18 bcm of CBM, rising 5.5% from the year-ago level, and the total CBM utilization amounted to 8.6 bcm, a yearly increase of 11.5%.

    Of this, CBM extracted from underground coal mines increased 2.3% on year to 13.6 bcm, among which 4.8 bcm were utilized, a rise of 5.2% on year; and CMB produced from ground surface reached 4.4 bcm, increasing 17.0% on year, with utilization increasing 20.5% on year to 3.8 bcm.

    In 2016, China will improve CBM output and utilization to 19 bcm and 9.2 bcm respectively, and in the meantime try its best to prevent coal mine gas explosion accidents, said the NEA.

    CBM industry in China is still at the star-up stage; problems such as small capacity and low utilization rate in the industry are to be solved, according to the conference.

    http://en.sxcoal.com/0/140405/DataShow.html
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    Kurdistan’s Payments Promise Lifts Oil Companies


    Shares in Kurdistan-focused energy firms such as London-listedGenel Energy PLC and Norway’s DNO ASA rose Monday after the regional government confirmed it would regularize payments for crude exports this year. The government also said it would start paying off what it owed the companies for oil they had pumped in the past, estimated at over $1 billion.

    The move by the Kurdistan Regional Government could resolve one of the global oil industry’s ironies: Kurdistan is one of the cheapest places in the world to produce crude, but western firms pumping there were money losers.

    For example, it costs Genel about $2 a barrel to pump oil from its Kurdish fields, compared with around $25 a barrel in the U.K.’s North Sea. Genel produced an average of 84,900 barrels a day in Kurdistan in 2015.

    But Genel’s net debt has increased, reaching $239 million at the end of last year compared with $2.3 million a year earlier, partly because of oil prices that hit their lowest levels since the financial crisis but also because Kurdistan’s government didn’t pay them for most of the year.

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    The lack of regular payments had held back any plans the companies may have had to participate in mergers and acquisitions as it made them too risky for potential buyers, analysts have said.

    A spokesman for Genel declined to comment. Gulf Keystone didn’t respond to requests for comment and DNO couldn’t be reached for comment.

    Kurdistan was strapped for cash for much of 2015 as it fought a brutal war against Islamic State. At the same time, it was locked in a political battle with Iraq’s central government over oil revenue, with Baghdad refusing to send the semi-autonomous region an agreed upon percentage.

    Kurdistan has made promises to pay companies before, but there is hope these pledges will be made good this time because it had begun making interim payments each month since September.

    The KRG said in a news release that it would scrap those interim arrangements and pay the companies according to the original production-sharing contracts. In addition, the KRG said it would also make a further payment towards outstanding debts.

    “These payments will cover the international oil companies’ operating expenses and provide additional incentives and rewards for new capital investments to maintain and increase field production levels,” the KRG said.

    The statement soothed fears that the recent sharp decline in oil prices would knock out the government’s ability to keep payments going.  The new system also brings a degree of predictability and clarity that had been lacking previously.

    Investors were cheered. Genel gained around 3%, while Gulf Keystone was up around 35% and DNO was up over 8%.

    “The KRG is effectively saying paying international oil companies is priority number one. The signalling effect the KRG makes with this statement shouldn’t be underestimated,” said Henrik Madsen from Arctic Securities in a note.

    The KRG said that it aimed to process the monthly payments for the oil companies in the first 10 days of the month.

    The KRG’s previous four payments to the oil companies for crude exported via a pipeline to Turkey’s Mediterranean port of Ceyhan were based on what the government could afford and not necessarily what the companies were entitled to.

    http://www.wsj.com/articles/kurdistans-payments-promise-lifts-oil-companies-1454344592
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    Anadarko Petroleum Loss Widens


    Anadarko Petroleum Corp. posted a wider loss compared with a year earlier as the rout in the oil sector deepened, though the bottom line came in better than markets had expected.

    Shares of Anadarko, down 52% in the past 12 months, rose 4.4% to $39.95 in after-hours trading.

    The company, one of the largest independent oil and gas producers in the U.S., along with the wider sector, has been stressed by collapsing energy prices. Many of the factors that sent oil on a historic plummet over the past 19 months haven’t changed. Oil prices fell for much of Monday, returning much of last week’s modest gains as traders seemed to lose faith that producers would curb output and that China’s slowing economy would stoke demand. Some analysts expect oil prices to hover between $20 and $40 a barrel until the second half of the year, with crude prices remaining highly volatile.

    To handle the downturn, Anadarko lowered its 2015 budget by $3.37 billion, 36% less than in 2014—the start of the downturn—when it spent nearly $9.3 billion.

    Anadarko has tried to take advantage of the downturn, but several efforts to expand have been stymied. Late last year, the company made a bid to buy Apache Corp., but the smaller company rebuffed Anadarko’s all-stock offer. And Chief Executive Al Walker has repeatedly complained of being outbid for acreage in the Permian Basin, a prolific drilling region in West Texas.

    For the latest quarter, Anadarko posted a loss of $1.25 billion, or $2.45 cents a share, compared with a loss of $395 million, or 78 cents a share, a year earlier. Excluding certain items, the company posted a loss of 57 cents a share, compared with a year earlier when Anadarko had earnings of 37 cents a share.

    Revenue fell 35% to $2.05 billion.

    Analysts polled by Thomson Reuters expected a loss of $1.08 on revenue of $2.1 billion.

    The company, based in The Woodlands, Texas, has sold some of its holdings abroad in recent years, including its China unit, to raise cash to focus on extracting oil from unconventional formations in the U.S.

    http://www.wsj.com/articles/anadarko-petroleum-loss-widens-1454365831

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    Industry study predicts Gulf drilling plummet from safety rule


    Under a proposed federal rule designed to prevent a repeat of the Deepwater Horizon oil spill, exploratory drilling in the Gulf of Mexico would decline 55 percent, according to a study released today by a Louisiana-based industry group.

    Announced last April by Secretary of the Interior Sally Jewel, the rule would tighten standards on blowout preventers – the device that failed in the case of Deepwater – as well as put more controls on how companies drill and monitor wells deep under the surface of the ocean.

    The study released Monday by the Gulf Economic Survival Team –  founded by Louis. Governor Bobby Jindal in 2010 in response to a post-Deepwater drilling moratorium in the Gulf of Mexico – and the consulting firm Wood Mackenzie, predicts the rule would raise drilling costs to such a degree it would push many offshore rigs out of the area.  It forecasts a 35 percent drop in oil production from the Gulf by 2030, resulting in more than 100,000 jobs lost, mostly in Texas and Louisiana.

    “It is important that we conduct further study of the finer points and practical effects of this new rule before forcing it on companies engaged in operations in the Gulf. Our nation as a whole would feel the impact of reduced domestic energy production stemming from this rule, with a particularly harsh blow to Gulf energy-producing states,” said Lori LeBlanc, Executive Director of the Gulf Economic Survival Team.

    With review at the Department of Interior completed, the rule is readying for final analysis by Office of Budget and Management, after which it would be published in the federal register and go into effect within 90 days, according to the Bureau of Safety and Environmental Enforcement.

    The rule has drawn deep criticism from industry, who says it will stifle innovation and actually increase risk for drilling workers offshore.

    During a hearing in the senate Energy and Natural Resources Committee in December, members were divided, pitting those who argue for the need to protect the country’s seas against those who say the cost to the country’s energy industry is too great a toll.

    “Since 2010, there have been 23 separate ‘loss of well control incidents’,” Sen. Maria Cantwell, D-Washington, said in the hearing. “We can’t afford this kind of risk,”

    Determining the cost of the rule itself is a cause of divide. BSEE estimates the reduction in oil spills and offshore accidents would actually create a net benefit of more than $650 million over ten years.

    “There will be some costs [for drillers],” said Gregory Julian, spokesman for the bureau. “But the standards are already being implemented by many of the operators – just not all of them.”

    The Wood Mackenzie study was based on an $80 price for crude oil. The U.S. benchmark West Texas Intermediate was trading around $32 a barrel Monday.

    http://fuelfix.com/blog/2016/02/01/industry-study-predicts-gulf-drilling-plummet-from-safety-rule/?utm_source=twitterfeed&utm_medium=twitter
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    Texas Shale Drillers Lure $2 Billion in New Equity to Permian


    Oil producers in West Texas, defying expectations they would fall victim to OPEC’s price war, are instead selling investors on the idea that they can still profit with prices below $35 a barrel.

    Drillers in the Permian Basin, the biggest U.S. shale field, have raised at least $2 billion from share sales over the past eight weeks. And more issuances are on the way as producers try to avoid piling on additional debt.

    Pioneer Natural Resources Co.’s 12 million-share issuance on Jan. 5 was followed a week later by Diamondback Energy Inc.’s announcement of a 4 million-share sale. Private equity is getting in on the act, too -- Kayne Anderson Capital Advisors LP is bankrolling a startup called Invictus Energy LLC with $150 million to drill the Permian and another Texas field known as the Eagle Ford Shale.

    Crude’s crash below $30 a barrel for the first time in 12 years means explorers are facing cash shortfalls, and selling shares is less painful than adding debt or auctioning off assets that would attract weak prices in the current environment, said David Deckelbaum, an analyst at Keybanc Capital Markets Inc.

    “In a world where the oil price can break you, taking on debt is an absolute no-no,” said Deckelbaum, who pegged Diamondback as a likely stock seller six days before the company’s announcement. He foresees a “heavy wave” of new share sales.

    The Permian Basin, an ancient seabed that sprawls across an area seven times the size of Massachusetts, has bucked the trend of shrinking production. Drillers were getting 30 percent to 40 percent returns in the Permian’s richest zones when crude was $40 a barrel, according to Laird Dyer, a Royal Dutch Shell Plc energy analyst.

    Crude output from the Permian is expected to continue rising through at least next month after more than doubling in the past half decade, the U.S. Energy Information Administration said on Jan. 11. The region accounts for about one in every four barrels of domestically produced oil.

    “The Permian really is a diamond in the rough,” said Gianna Bern, founder of Brookshire Advisory and Research Inc. in Chicago and a former BP Plc crude trader. “With the supply glut in the global market, these are challenging times for the entire industry, but the Permian is one place with the resources, ingenuity and engineering expertise to continue improving the cost structures.”

    The Permian is unique in that geologists and engineers have been probing and mapping its layers of oil-rich stone for most of the past century, compiling a treasure-trove of core samples, pressure data and porosity profiles that prove useful as drilling innovations develop.

    Other Permian explorers who may be tempted to sell new shares to help fund their 2016 drilling budgets include Callon Petroleum Co., Cimarex Energy Co., Energen Corp., Laredo Petroleum Inc., Parsley Energy Inc. and RSP Permian Inc., Deckelbaum said.

    Selling assets is a bad way to raise cash right now because of an oversupply of property on the auction block and pessimism about the future direction of crude prices, Deckelbaum said.

    While the oil producers he follows for Keybanc are trading at an average of about $62,000 per barrel of output, recent asset sales in the sector have only fetched about $44,000, a 29 percent discount, Deckelbaum said.

    “The best play book for many names is simply to issue equity,” he said.

    http://www.bloomberg.com/news/articles/2016-02-02/texas-shale-drillers-lure-2-billion-in-new-equity-to-permian

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    Alternative Energy

    Mammoth 50 MW wind turbine blades could revolutionise offshore wind


    Image titleA new design for mammoth wind turbine blades longer than two football fields could deliver 50MW offshore wind turbines.

    The research for the new wind turbine blades designs has been conducted by the Sandia National Laboratories, a multi-program laboratory operated by Sandia Corporation, a wholly owned subsidiary of Lockheed Martin Corp., for the US Department of Energy’s National Nuclear Security Administration.

    According to Sandia, it was challenged to design a low-cost offshore 50 MW turbine with wind turbine blades of more than 650 feet, or 200 meters in length.

    That’s two and a half times longer than any existing wind turbine blade.

    “Exascale turbines take advantage of economies of scale,” said Todd Griffith, lead blade designer on the project and technical lead for Sandia’s Offshore Wind Energy Program. Sandia has been working on wind turbine designs for a while now — including 13 MW systems using 100 meter blades, which are the basis for Sandia’s Segmented Ultralight Morphing Rotor (SUMR) designs.

    Sandia’s 100-meter blade is the basis for the Segmented Ultralight Morphing Rotor (SUMR), a new low-cost offshore 50-MW wind turbine. At dangerous wind speeds, the blades are stowed and aligned with the wind direction, reducing the risk of damage. At lower wind speeds, the blades spread out more to maximize energy production. (Illustration courtesy of TrevorJohnston.com/Popular Science)



    50 MW wind turbines are a long way off, but according to Sandia, “studies show that load alignment can dramatically reduce peak stresses and fatigue on the rotor blades.” This would not only reduce blade costs, but eventually lead to the mythical 50 MW wind turbines.

    And these developments are vital to the offshore wind industry in the US.

    “The US has great offshore wind energy potential, but offshore installations are expensive, so larger turbines are needed to capture that energy at an affordable cost,” Griffith said.

    “Conventional upwind blades are expensive to manufacture, deploy and maintain beyond 10-15 MW. They must be stiff, to avoid fatigue and eliminate the risk of tower strikes in strong gusts. Those stiff blades are heavy, and their mass, which is directly related to cost, becomes even more problematic at the extreme scale due to gravity loads and other changes.”

    http://reneweconomy.com.au/2016/mammoth-50-mw-wind-turbine-blades-could-revolutionize-offshore-wind-in-us-16089

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    Agriculture

    Food imports rise as Modi struggles to revive rural India


    Prime Minister Narendra Modi held a late night meeting with food and farm officials last week to address falling agricultural output and rising prices, and traders warn the country will soon be a net buyer of some key commodities for the first time in years.

    Back-to-back droughts, the lack of long-term investment in agriculture and increasing demands from a growing population are undermining the country's bid to be self-sufficient in food.

    That is creating opportunities for foreign suppliers in generally weak commodity markets, but is a headache for Modi, who needs the farm sector to pick up in order to spur economic growth and keep his political ambitions on track.

    "The top brass is dead serious about the farm sector that is so crucial to our overall economic growth and well-being," said a source who was present at the recent gathering of Modi, his agriculture and food ministers and other officials.

    Modi sat through presentations and asked the ministers to ensure steady supplies and stable prices, urging them to find solutions, the source said. Modi did not suggest any immediate interventions of his own.

    Last month, India made its first purchases of corn in 16 years. It has also been increasing purchases of other products, such as lentils and oilmeals, as production falls short.

    Wheat and sugar stocks, while sufficient in warehouses now, are depleting fast, leading some traders to predict the need for imports next year.

    "There's a complete collapse of Indian agriculture, and that's because of the callous neglect by the government," said Devinder Sharma, an independent food and trade policy analyst.

    "Given the state of agriculture, I'm not surprised to see India emerging as an importer of a number of food items. Maize is just the beginning."

    Agriculture contributes nearly 13 percent to India's $2 trillion economy and employs about two-thirds of its 1.25 billion people.

    Government sources said that boosting irrigation, raising crop yields and encouraging farmers to avail of a new crop insurance scheme unveiled in January will help address growing distress in the countryside caused by poor harvests.

    Modi has already loosened controls on some imports.

    But one of his biggest dilemmas is that although imports can help cool prices - a key concern for the ruling Bharatiya Janata Party's core middle-class voter base - farmers see them as benefiting foreign producers at the cost of locals.

    In a recent interview with television channel ET Now, Finance Minister Arun Jaitley said the government was aware of the impact two bad monsoons have had.

    "That now tells me, please spend more on irrigation," he said.

    The farm sector needs to grow at about 3 percent to help Jaitley achieve his target of 7 to 7.5 percent economic growth in the 2015/16 fiscal year.

    In the first half of this fiscal year, agricultural growth fell to 2 percent from 2.4 percent a year earlier.

    http://www.reuters.com/article/india-farming-idUSKCN0VA3NL

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    Base Metals

    Freeport asks Indonesia to cut or postpone $530 mln smelter bond – mining minister


    Freeport McMoRan Inc has asked Indonesia to reduce a $530-million smelter bond the local unit of the US copper mining giant must set aside before receiving an extension of its export permit, Indonesia's mining minister said on Tuesday. 

    Freeport's six-month copper concentrate export permit expired last week amid a deadlock over the bond, which Indonesia has requested as a guarantee that the miner will complete construction of another local smelter. "They have appealed to ask whether we can postpone it or give them a discount, but we asked them to show their commitment in another equivalent way," Energy and Mines Minister Sudirman Said told reporters, referring to an exchange of letters with the Phoenix, Arizona-based company. 

    A prolonged stoppage in shipments would hit the company's profits and deny Jakarta desperately needed revenue from one of its biggest taxpayers. Indonesia wants the deposit as a guarantee that the mining giant will complete construction of another local smelter. 

    The amount would add to an estimated $80-million Freeport set aside in July 2015 to obtain its just-expired export permit. The US miner wants to invest $18-billion to expand its operations at Grasberg, but is seeking government assurances that its right to mine at Grasberg will be extended. Its current contract – which gives it the right to work and develop the Grasberg complex – expires in 2021. 

    By Indonesian law, this contract cannot be extended until 2019 at the soonest. A memorandum of understanding agreed in July 2014 between the government and Freeport, which ended a seven-month export stoppage and outlined a timetable for a contract extension and smelter construction, had now expired, noted Said. An agreement that would maintain operations and investment preparations ahead of contract renewal talks in 2019, was a way to resolve the current problems, he said.

    http://www.miningweekly.com/article/freeport-asks-indonesia-to-cut-or-postpone-530-mln-smelter-bond-mining-minister-2016-02-02
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    Steel, Iron Ore and Coal

    China rail cargo transport drop on plunged coal transport


    China’s rail cargo transport reached 3.4 billion tonnes in 2015, falling 410 million tonnes from the previous year, the sharpest yearly decline of 10.53% ever recorded, official data showed lately.

    The decline was mainly due to a slump in rail coal transport, which fell 12.6% or 290 million tonnes on year to 2 million tonnes last year.

    That means the decline of rail coal transport contributed to 70.7% in the slump of total cargo transport.

    98.9% of China’s large state-owned key coal mines transport coals through railways. Since 2012, rail coal transport experienced a three-year decline, data showed.

    In January-August 2015, China’s rail coal transport dropped 11.2% on year, compared with a 2.7% drop a year ago, contributing to 9.8 percentage points in the decrease of total cargo transport.

    As the leading province of rail coal transport, Shanxi saw this volume fall 7.3% on year to 459.1 million tonnes in January-November last year. Over 80% of the decline came from the rail coal transport.

    Northeastern China’s Heilongjiang province posted the sharpest yearly decline of 23.1% in rail cargo transport across the country, reaching 84.92 million tonnes in 2015, data from the National Bureau of Statistic showed.

    China’s rail coal transport volumes may further decline amid prolonged market weakness, and railway authorities need to seize every chance to realize a 2% year-on-year growth in rail cargo transport in 2016.

    http://en.sxcoal.com/0/140447/DataShow.html

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    BHP Billiton finalizes sale of New Mexico coal mine


    BHP Billiton finalized the sale of New Mexico’s San Juan Coal Co. to a subsidiary of Colorado-based Westmoreland Coal Co., officials with BHP Billiton New Mexico Coal said on February 1.

    The sale has been a year in the making and was among the factors state regulators considered when deciding whether to move forward with a plan to shut down part of the coal-fired San Juan Generating Station.

    The terms of the sale were not disclosed, but officials with the utility that operates the power plant said the completed transaction secures the plant's coal supply as well as savings on coal costs for its customers.

    http://en.sxcoal.com/0/140455/DataShow.html
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    China Steel PMI data for January improves


    China Federation of Logistics & Purchasing have released figures showing China's steel PMI rose to a nine-month high in January.

    The index stood at 46.7 points last month, up from 40.6 points in December last year.

    The sub-indices for product inventory fell further to a 29-month low of 34.4 points, while that for new orders rose to a 18-month high of 49.9 points.

    http://steelguru.com/steel/china-steel-pmi-data-for-january-improves/445176#tag

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