China's stock markets fell and commodities prices plunged on Wednesday as government efforts to steady the sliding yuan currency and curb capital outflows added to fears of a liquidity squeeze in the banking system.

Analysts said moves by China's central bank in recent days to shore up the yuan were sucking additional liquidity from the system even as banks and companies start to hoard cash as they typically do heading into the year-end.

State-owned banks were seen selling dollars for a third consecutive day on Wednesday.

That is pushing up borrowing costs, making investments in markets such as commodities and equities more expensive.

Capital outflows spurred by the yuan's recent slide to 8-1/2 year lows in the face of a surging U.S. dollar are likely straining the system further, prompting authorities to intervene to steady the currency and discourage capital flight.

"The stress could continue for a while," said Gu Weiyong, chief investment officer at hedge fund Ucom Investment Co, which specializes in fixed-income investment.

"Whether the situation gets better depends on the willingness of the central bank to inject more liquidity into the system."

Coking coal and steel rebar futures prices were on track for their biggest one-day drop on record as the costs of borrowing money. Investors also sold base metals to shore up cash.

China's commodities prices had already been in sharp retreat after major commodity exchanges introduced further measures earlier this week aimed at taming a spectacular months-long rally which many suspect has been fueled largely by speculation.

Short-term money rates spiked, while bond prices slid.

Short-term borrowing costs in Shanghai continued to rise, with the overnight Shanghai Interbank Offered Rate (SHIBOR) climbing to 2.3160 percent, its highest since Sept.30.

The overnight rate looked set to rise for the 15th session in a row.

The seven-day SHIBOR stood at 2.4960 percent, the highest since last August, while the 3-month rate advanced to its loftiest level since mid-February.

China shares also fell, with the blue-chip CSI300 Index down 0.7 percent and poised to snap a 7-day winning streak as raw material stocks weighed.

An index tracking non-ferrous metals in Shanghai dropped roughly 1 percent, after slumping 4.1 percent on Tuesday, the biggest one-day fall in 16 months. Meanwhile, coking coal futures plunged over 7 percent.

The volume-weighted average rate of the benchmark 14-day repo traded in the interbank market, a gauge of measuring general liquidity in China, shot to 3.6935 percent, the highest since January.

Bond yields, which move inversely with prices, also rose.

Benchmark 10-year treasury yields advanced to a five-month high of 2.943 percent, while 10-year treasury futures on Wednesday touched the lowest level since late April.

http://www.reuters.com/article/china-markets-idUSL4N1DV1KJ

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Australia home building boom fast turning to rubble

Australia is watching a much-needed boom in home building turn to rubble after approvals for new projects collapsed in October, a violent turnaround that could undermine policymakers' hopes for solid economic growth next year.

Shock figures from the Australian Bureau of Statistics on Wednesday showed approvals to build new homes sank 12.6 percent in October from a month earlier, confounding forecasts of a 1.5 percent rise and the biggest drop since mid-2012.

It was the third month of declines and brought the pullback since July to 22.5 percent.

"Overall the update is unambiguously weak and puts a clear marker in the ground showing the construction cycle is now turning down," said Matthew Hassan, an economist at Westpac.

Most of the damage came in the once high-flying apartment sector where approvals dived by a quarter in October alone, and were down more than 42 percent on the same month last year.

That will be alarming news for the Reserve Bank of Australia (RBA), which has been counting on continued strength in home building to offset a lingering drag from a mining slump.

Indeed, figures due next week had already been expected to show the economy all but stalled in the third quarter, and may even have shrunk - only the fourth negative quarter in 25 years.

"Total approvals are still relatively high but the speed at which they are rolling over is a real surprise," said Shane Oliver, chief economist at AMP.

"It already looks like the economy lost momentum in the third quarter and now residential investment could turn into a drag on growth next year," he added.

"That only underscores our call for another rate cut next year."

While the economy had been running at a brisk 3.3 percent in the year to June, that likely slowed closer to 2.0 percent for the year to September.

The RBA has been playing down the need for further easing following cuts in August and May that took the cash rate to an all-time low of 1.5 percent.

Policymakers argued that the massive drag from a slowdown in mining investment had almost passed, while a revival in prices for key commodity exports in recent months was set to boost national income.

As a result, financial markets had all but given up on the chance of a further rate cut <0#YIB:> and were even toying with the idea of a hike late in 2017.

"All talk of a hike is out the window after these building numbers," said Oliver.

http://www.reuters.com/article/australia-economy-housingstarts-idUSL4N1DV0VC

Glencore fended off questions in 2015 about its survival as commodity prices hit new lows, and now there’s talk that the company’s turnaround plan has gone so well that it could be months away from paying dividends again. Surging coal and zinc prices, a rebounding stock price and shrinking debt pile made Glencore one of mining’s biggest success stories this year.

CEO Ivan Glasenberg, who will provide an update on corporate strategy on Thursday, spent the past year ticking off items outlined in a crisis-induced debt reduction plan, including a goal to sell $4-billion to $5-billion in assets. The market rewarded him for it, with the stock tripling in 2016 and clawing back almost all of last year’s losses.

Now, backed by a strong rebound in profits from its coal and zinc divisions, Glasenberg is in a position to pay back shareholders for supporting him through Glencore’s darkest days as a publicly traded company. None more so than Harris Associates’ David Herro, who placed the biggest wager on a Glencore recovery. The firm invested more than $2-billion at a time when others like Lansdowne Partners, one of Europe’s largest hedge funds, were betting big on further declines.

“Job one is to continue to make sure that the balance sheet is strong and could withstand any kind of aggressive falls in commodity prices,” Herro, a portfolio manager at Chicago-based Harris, which is Glencore’s fourth-biggest shareholder with about a 5% stake, said in an interview with Bloomberg Television in London this month.

“Then, selectively look at opportunities on how to use that free cash,” he added. “If there’s something that could be bought at a discount, at a good price, by all means look at it. But if not, there’s dividends, there’s share buybacks, there’s all kinds of other things.”

Glasenberg and CFO Steve Kalmin may outline 2017 forecasts for spending, costs and production at Glencore’s investor day on Thursday, according to Credit Suisse Group. The company may also reveal a new dividend policy after skipping the last two payments to pay down debt, which stood at $30-billion last year.

Booming prices for thermal coal and zinc, both up about 80% this year, are bolstering profits and provide a path for the return of dividends as early as March, according to UBS Group AG, which predicts it may pay 5 cents a share in March.

Glencore may resume payments after the first half and start a new policy of returning 40% of net profits after tax to shareholders, said Alon Olsha, a mining analyst at Macquarie Group in London.

“Glencore is now able to talk about restarting the dividend ahead of expectations,” Clive Burstow, who helps manage about $475-million of natural-resource assets at Baring Asset Management in London, including Glencore shares, said in an interview. “It’s because suddenly their cash-flowgeneration has been a lot stronger. We’ve arguably moved through the trough of the cycle.”

Glencore hit a 16-month high on Nov. 11 of 292 pence in London, more than double the price from last year’s share sale. The company has also been buying back bonds, widening a program to $1.5-billion last month. The stock fell 1.1% to 281.6 pence at 9:42 a.m. local time, valuing the company at $50-billion.

Investors are also looking for guidance on whether Glencorewill restore production at mines, especially in zinc, according to Olsha. Credit Suisse estimates that about 100 000 to 150 000 tons of the 500 000 tons of annual zinc output suspended will be brought back next year.

Another potential use of surplus cash is acquisitions, though it would be premature to expect any big deals, said Burstow of Baring Asset Management.

“I’d like to see another six to nine months of them carrying down the path that they are on,” he said. “Let’s get the dividend restarted, let’s see that the balance sheet is firmly in a much healthier place.”

Glasenberg built Glencore through a series of acquisitions since taking on the CEO role in 2002. He led the strategy of twinning mining assets with the trading business, steering Glencore through a $10-billion initial public offering in 2011 and $29-billion takeover of Xstrata a year later to add mines and smelters.

The last major deal undertaken by Glencore was the $1.4-billion takeover of Caracal Energy in Chad in 2014 that gave the company control of oil fields. The company has since written off most of the value of the business after energyprices slumped.

http://www.miningweekly.com/article/glencore-pivots-from-disposals-to-dividends-as-stock-rallies-2016-11-29

Europe has sufficient electricity generation capacity to meet normal and severe demand this winter "even if the situation in France will be tense," transmission system operator group Entso-e said Tuesday in its Winter Outlook Report 2016-17.

The report assesses generation adequacy across 35 synchronously-connected electricity markets in continental Europe including Turkey.

France is undergoing the lowest nuclear power availability in 10 years, with safety test decisions by French nuclear safety authority ASN leading to additional nuclear outages lasting for several weeks this winter, Entso-e said.

Capacity margins in France "will decrease significantly in the first three weeks of December," with the country dependent on imports during this time. French adequacy risks then re-emerge in the second week of January if temperatures drop.

"Adequacy risk is assessed at 4% in the Weeks 49 to 51 of December compared to 3% in Week 2 of January," it said.

"Risk can occur in the event of cold waves at least 3 degrees C[elsius] below normal temperatures in December and 5 degrees C below normal temperatures in January," Entso-e said, noting up to 2.4 GW load sensitivity in France per 1 C fall in temperatures.

French transmission system operator RTE had contracted emergency load reduction in place in case of shortages, the report said.

"Moreover, RTE can drop the voltage for several hours by 5% to lower the load and to maintain adequacy," it said. "Eventually, in the worst and unlikely case, RTE could curtail load locally in a preventive way to secure the system." Furthermore, TSO coordination through Regional Security Coordinators would monitor generation adequacy "and address additional countermeasures at regional level that might be required to ensure a secure operation of the power system," the report said.

KNOCK-ON EFFECTS FOR BRITAIN

Great Britain's adequacy might be affected by the French situation, with the UK needing high imports "from all neighboring countries," Entso-e said.

Under extreme conditions Great Britain had additional capacity from open cycle gas turbines and pump-storage plants that it could call on, it said.

"National Grid also expects there will be excess volumes of Short Term Operating Reserve (which can also be used," Entso-e said.

Under normal conditions, Week 50 in Great Britain had the lowest forecast remaining capacity (1.49 GW). Under severe conditions, Week 3 had the lowest remaining capacity (-2.60 GW), the report noted.

"This can be managed by imports from Interconnectors, Supplemental Balancing Reserve (SBR) and we would expect the market to respond as well," it said.

Week 52 night times in Great Britain, meanwhile, had the lowest downward regulation capabilities (4.27 GW) due to low load around Christmas.

GERMAN OVERSUPPLY

For Germany the risk was of regulating oversupply, not undersupply of electricity.

"The period around Christmas could be critical due to a massive oversupply of the German control area," the report said.

"This could result in strong negative prices for electricity and could contribute to a high upward frequency deviation. In such an event, the German demand for negative control reserve might not be covered by the usually procured reserves," it said.

Increased reserves would be procured and the ability to reduce wind output extended during this period. Exports would also ease oversupply at times of minimum demand. Nevertheless, on Sunday mornings when demand dips Germany expects "a great amount of excess generation" that will require TSOs to down-regulate renewable power surpluses.

"In situations of high RES feed-in in the north and high load in the south of Germany, the need of remedial actions is expected to maintain (n-1) security on internal lines and on interconnectors," the report said.

While high levels of German nuclear outages were foreseen at the end of the year/beginning of next year, no critical situations were forecast due to general oversupply.

Finally at the European level, a joint analysis with gas transmission group Entsog had shown "the robustness of the European electricity system, even in the event of a high demand situation with a simultaneous interruption of gas transit through Ukraine," Entso-e said.

DISPATCHABLE CAPACITY

Net generation capacity in Europe has increased by around 11 GW year on year, the report said, driven by growth in wind and solar (13 GW added), in hydro or other renewables (7 GW), and in gas plant (5 GW).

While gas-fired capacity additions were up, however, total dispatchable capacity was down 14 GW year on year, potentially reducing the system's ability to respond to shocks such as the French outages.

Recent S&P Global Platts' analysis shows that a trend in falling dispatchable capacity is set to continue for the next three years.

Conventional plant margins in Northwest Europe are set to fall by 17.7 GW between 2016 and 2018, removing 7% of the region's controllable thermal capacity.

http://www.platts.com/latest-news/electric-power/london/europe-can-cope-this-winter-despite-french-nuclear-26607937