Mark Latham Commodity Equity Intelligence Service

Friday 27th May 2016
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    US Government Quietly Cuts Historical Capex Data By Billions Of Dollars

    As it turns out, the Department of Commerce decided to quietly revise all the core data going back all the way back to 2014. In doing so it stripped away about 4% from the nominal dollar amount in Durable Goods ex-transports, where the March print was slashed from $154.7 Billion to $148.3 Billion...

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    ... and, worse, the government just confirmed what many had said for years, namely that capex spending had been far lower than reported all along when it revised the capital goods orders nondefense ex-aircraft series lower by a whopping 6%, taking down the March print from $66.9 billion to only $62.4 billion, the lowest absolute number since early 2011.

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    Trump vows to undo Obama's climate agenda in appeal to oil sector

    Donald Trump, the presumptive Republican presidential nominee, promised on Thursday to roll back some of America's most ambitious environmental policies, actions that he said would revive the ailing U.S. oil and coal industries and bolster national security.

    Among the proposals, Trump said he would pull the United States out of the U.N. global climate accord, approve the Keystone XL oil pipeline from Canada and rescind measures by President Barack Obama to cut U.S. emissions and protect waterways from industrial pollution.

    "Any regulation that's outdated, unnecessary, bad for workers or contrary to the national interest will be scrapped and scrapped completely," Trump told about 7,700 people at the Williston Basin Petroleum Conference in Bismarck, the capital of oil-rich North Dakota. "We're going to do all this while taking proper regard for rational environmental concerns."

    It was Trump's first speech detailing the energy policies he would advance if elected president. He received loud applause from the crowd of oil executives.

    The comments painted a stark contrast between the New York billionaire and his Democratic rivals for the White House, Hillary Clinton and Bernie Sanders, who advocate a sharp turn away from fossil fuels and toward renewable energy technologies to combat climate change.

    Trump slammed both rivals in his speech, saying their policies would kill jobs and force the United States "to be begging for oil again" from Middle East producers.

    "It's not going to happen. Not with me," he said.

    Trump's comments drew quick criticism from environmental advocates, who called his proposals "frightening."

    "Trump’s energy policies would accelerate climate change, protect corporate polluters who profit from poisoning our air and water, and block the transition to clean energy that is necessary to strengthen our economy and protect our climate and health," said Tom Steyer, a billionaire environmental activist.

    "It’s simple. If Trump wins, oil field workers will be happy. If Clinton wins, oil workers will be unhappy," said Derrick Alexander, an operations manager at oilfield services firm Integrated Productions Services.

    Trump hit Clinton hard in his speech, saying the former secretary of state would be more aggressive than Obama on regulations. He repeated several times Clinton’s March comments that her policies would put coal miners out of work.

    "Hillary Clinton's agenda is job destruction," Trump said.

    Trump said slashing regulation would help the United States achieve energy independence and reduce America's reliance on Middle Eastern producers. "Imagine a world in which oil cartels will no longer use energy as a weapon," he said.

    The United States currently produces about 55 percent of the oil it uses, with another quarter of the total coming from Canada and Mexico, and less than 20 percent coming from OPEC, according to U.S. Energy Department statistics.

    Trump's advisers, including U.S. Representative Kevin Cramer of North Dakota, have said they suggested Trump examine the role of OPEC in the global oil price slump since 2014, which has contributed to the demise of a handful of smaller U.S. oil companies. Saudi Arabia and other OPEC members have declined to cut production to support prices.

    Until Thursday, Trump had been short on details of his energy policy. He has said he believes global warming is a hoax, that his administration would revive the U.S. coal industry, and that he supports hydraulic fracturing - an environmentally controversial drilling technique that has triggered a boom in U.S. production.

    Earlier this month, he told Reuters in an interview that he would renegotiate "at a minimum" the U.N. global climate accord agreed by 195 countries in Paris last December, saying he viewed the deal as bad for U.S. business.

    He took that a step further in North Dakota. "We're going to cancel the Paris climate agreement," he said.
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    Panama Canal suspends third draft restriction indefinitely

    The Panama Canal Authority has suspended a third draft restriction for vessels transiting the canal indefinitely, due to the "arrival of the rainy season," it said in a shipping advisory.

    As a result, the maximum authorized draft for transiting vessels will remain at 11.74 meters (38.5 feet) "until further notice", the authority, also known as the ACP, said in the Wednesday advisory.

    The third draft restriction was originally scheduled to start on May 9, but was postponed twice -- first to May 25 and then to June 6 -- due to recent rainfall in the area.

    This is the third in a series of recent curbs at the canal that began April 18 due to El Nino-related droughts in the region -- the first such restrictions in nearly 20 years.

    Usually, the maximum allowable draft for vessels transiting the canal is 12.03 meters (39.5 feet).
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    Mozambique said to be hours away from default as talks stall

    Mozambique is hours away from defaulting on its debt as talks about rescheduling a loan from Russia’s VTB Bank PJSC to a state-owned company falter, according to a person familiar with the situation.

    A grace period for a state-guaranteed loan given to Mozambique Asset Management after it missed a May 23 deadline to make a $178 million interest payment will end Thursday, said the person, who asked not to be identified because they’re not authorized to discuss the matter publicly. The company has about five hours left before the grace period expires, the person said at 11.37 a.m. Maputo time.

    A person who answered the phone at Mozambique’s Finance Ministry referred questions to a phone number that didn’t connect, while a second call was cut off when Bloomberg called four times seeking comment. Finance Ministry spokesman Rogerio Nkomo didn’t immediately respond to an e-mailed request for comment.

    A government official said on May 24 the government is unwilling to convert the loan extended to MAM into sovereign debt to avoid a default. A failure by MAM to reschedule the loan by the end of the day may trigger a sovereign default by Mozambique on its other obligations, including its $727 million Eurobond due in January 2023 and a $622 million loan made to state-owned Proindicus, the person said.

    The Proindicus loan and the $535 million MAM facility are among $1.4 billion of debt that the Mozambican government had previously kept hidden before disclosing their existence to the International Monetary Fund last month. While Proindicus made a $24 million interest payment on its debt on March 21, Finance Minister Adriano Afonso Maleiane said last week MAM won’t be able to honor its interest payment.
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    Oil and Gas

    Cartel or talking shop? OPEC awaits Saudi ruling

    For those seeking guidance on Saudi Arabia's thinking regarding the future of OPEC, the last few weeks' agenda of the new Saudi energy minister, Khalid al-Falih, might offer a few clues.

    Since his appointment on May 7 as head of a new mega-ministry - overseeing energy, industry, mining, atomic power and renewables - Falih has toured six state firms, met the South Korean premier, the Canadian foreign minister and Gulf industry ministers, and opened a gas turbine plant.

    To fellow members of the Organization of the Petroleum Exporting Countries, that speaks volumes. Unlike his predecessor Ali al-Naimi, Falih may not have much time for OPEC. The group meets on June 2, its first talks with the new minister in attendance.

    For oil-price hawks such as Iran, Algeria and Venezuela, fears are growing that the 56-year-old OPEC is losing its role as an output-setting cartel and turning into a talking shop.

    "Saudi Arabia killed OPEC and buried it," a senior OPEC source from a non-Gulf producer said.

    "In OPEC, they go for (including) Indonesia and Gabon to convert OPEC to a forum," the source said, referring to OPEC's decision, supported by Riyadh, to include minor producers.

    As a historic reminder, OPEC last decided to change output in December 2008, when it cut supply amid slowing demand due to a global financial crisis. Between 1998 and 2008, OPEC made 27 changes to output.

    For decades, Saudi Arabia, Vienna-based OPEC's largest producer and de facto leader, had a preferred range for oil prices and, if unhappy, would try to orchestrate a group-wide production cut or increase.

    But a technology-driven spike in non-OPEC output such as that of U.S. shale and growing fuel efficiency led Riyadh to conclude that the era of fast oil growth might be ending.

    Hence, in the past two years Riyadh has stuck to a strategy of fighting for market share, thinking that pumping more oil now at low prices is better than producing less in the future.

    Many OPEC members - apart from Riyadh's allies in the Gulf, such as Qatar, Kuwait and the United Arab Emirates - were unprepared for that shift, with their finances crippled by heavy debts and stagnant production.

    Earlier this year, Iran refused to join an initiative to freeze output but signaled it would be part of a future effort once its production had recovered sufficiently.

    An OPEC watcher said: "Other producers are going to want to come and revive the freeze agreement. Iran is now at pre-sanctions levels. And though the worst has been avoided, the reality is that many of these producers remain under real stress."

    Saudi and Iranian OPEC delegates clashed earlier this month over long-term strategy, with Riyadh saying OPEC should not manage the market and Tehran arguing that the group had been created to perform precisely that task.

    Falih's tasks - his ministry is to oversee half of the economy, not to mention plans for a share listing in state oil giant Saudi Aramco - are likely to divert more of his time away from OPEC.

    "That is going to keep Falih busy and I imagine his priorities will be economic reforms and integrating new portfolios," said Richard Mallinson, geopolitical risk analyst at the think-tank Energy Aspects.

    OPEC has no supply target. At its last meeting in December the group scrapped its output ceiling of 30 million barrels per day, which it had been exceeding for months.

    OPEC sources and analysts say they expect the group's meeting next Thursday simply to roll over output policy, which OPEC lacks anyway as its members pump at will.

    "I don't think there will be a change in position. There will be no agreement on an output freeze," said another OPEC delegate from a key Middle East oil producer.

    For a busy man such as Falih, long discussions among fellow ministers with no guaranteed serious outcome might seem pointless.

    So could he simply stand up and say Saudi Arabia sees no need to remain part of OPEC?

    "Leaving international groups isn't something most countries do lightly. I don't believe the Saudis think OPEC will never be relevant again. Plus, it is hard to see what they would stand to gain from it," Mallinson said.

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    Saudi offers more oil to Asian clients ahead of OPEC meet

    Saudi Arabia is offering extra crude to customers in Asia, a sign the world's largest oil exporter does not intend to cut output as it battles for market share with other top producers.

    Saudi's offers of more oil come after it recently completed maintenance programmes that had reduced supplies from some fields during the second quarter, traders said. The kingdom will also soon increase its Arab Extra Light crude output in an expansion of the Shaybah oilfield.

    But some Asian refiners said they are not rushing to buy more Arab Extra Light after Aramco raised the oil's official selling price (OSP) by 80 cents a barrel in June, making it more expensive relative to similar Abu Dhabi grades.

    In a market that still has the most growth potential and in which many producers, including Iran, Iraq and Russia, are trying to increase sales, that does not portend well for Saudi Arabia as it begins to bring new output online in June.

    "It will be challenging (for Saudi Arabia). One of the things that will come into play is whether they will start cutting OSPs to attract customers and keep volumes intact," said Sushant Gupta, downstream oil analyst at energy consultancy Wood Mackenzie in Singapore.

    State oil company Saudi Aramco plans to ramp up output from the Shaybah field over the next two weeks to 1 million barrels per day (bpd), fully utilising its expanded capacity, Saudi media reported on Thursday, quoting the company's chief executive.

    This month, Saudi Aramco has asked at least two Asian refiners if they will lift more oil in June on top of contract volumes, two trading sources familiar with the matter said.

    However, "their latest OSP is not attractive to refineries," a trader with an Asian refiner said, adding that grades from the United Arab Emirates, of quality similar to Arab Extra Light, were more competitively priced.

    A second trader with an Asian refiner said: "Refining margins are so-so, so I don't think there is a big drive to take more prompt oil."

    Complex refining margins in Singapore have risen slightly from five-year lows touched earlier in May, with ample fuel supplies continuing to cap refiners' profits.

    Iran and Iraq have also said they will increase output, slimming hopes that the Organization of the Petroleum Exporting Countries (OPEC) will agree to any long-term plan to curtail supplies when it meets in Vienna next week.

    Russia's oil shipments to China hit a record in April, as it took the top spot as largest crude exporter - ahead of Saudi Arabia - to the world's No.1 energy consumer for the second time this year.

    Iran said on Sunday it aims to raise its exports to 2.2 million bpd by mid-summer after it cut June prices to Asia to the biggest discounts to Saudi and Iraqi oil since 2007-2008.

    Iraq said its exports have hit an all-time high of 3.9 million bpd on increased output from southern fields, and that it is still on track to triple production by 2020.
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    Saudi Aramco says discovers new fields, to continue energy investments

    Saudi Arabia's state oil giant Aramco discovered new oil and gas fields last year and the kingdom is committed to continue investing in its energy sector to meet future demand, its new energy minister said.

    Khalid al-Falih, who was appointed energy, industry and mineral resources minister on May 7 and is also Aramco's chairman, said that despite low oil prices, the company has reached record levels of oil production and gas processing.

    "Declining investments by energy producers raise concerns about another cycle of supply constraints and therefore more market volatility," Falih said in Aramco's 2015 annual report.

    "Saudi Arabia ... is committed to sustaining its investments in hydrocarbon-based energy to meet future demand and power sustainable economic growth at home and around the world."

    His comments are a further sign that Saudi Arabia, the world's largest oil exporter, does not intend to restrict supply as it battles for market share with other top producers.

    Aramco, the world's largest oil company, which is preparing a stock market listing to sell a small portion of its shares, has discovered three new oil fields, it said in the report. They are Faskar, offshore in the Arabian Gulf near the Berri field; Janab, east of the Ghawar field; and Maqam, in the eastern Rub’al-Khali.

    It has also found two new non-associated gas fields - Edmee, located west of Haradh, and Murooj in the Empty Quarter.

    The company pumped an average of 10.2 million barrels per day in 2015, a new all-time record. Its exports averaged 7.1 million bpd, up from around 6.8 million bpd in 2014.

    Saudi Aramco remained the No. 1 one crude supplier to six major Asian countries - China, Japan, South Korea, Taiwan, the Philippines, and India - it said in the annual report. Asia accounted for 65 percent of its total oil exports; an increase from 62.3 percent a year earlier.

    "Despite competition from shale oil, the company’s exports to U.S. markets maintained their level of 1 million barrels per day," Aramco said.

    Aramco's CEO told Reuters in an interview on Thursday that the company is gaining market share and pushing for greater efficiency.

    As part of efforts to maximize revenues and expand market share Aramco is building new refineries to secure long-term agreements to sell its crude.

    It said its crude oil and condensate throughput to its domestic wholly owned and joint venture refineries rose 9 percent in 2015, mainly due to the commissioning of its new Jubail refinery, known as Satorp, and the full operation of its Yanbu Sinopec refinery, Yasref.

    Its exports of refined products rose 38 percent last year.

    Aramco said it was moving ahead with its program to explore for gas in the shallow waters of the Red Sea as well as unconventional gas.

    Its proven crude oil reserves were stable at 261.1 billion barrels in 2015, while gas reserves rose to 297.6 trillion standard cubic feet from 294 billion standard cubic feet in 2014.

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    Niger Delta Militants Take Entire Chevron Terminal Offline

    According to Nigerian media, militants used explosives to blow up the Escravos terminals main electricity feed pipeline, rendering the terminal inoperable.

    Reuters has also reported that it has received confirmation from company sources that the terminal has been shut down following the attack.

    “It is a crude line which means all activities in Chevron are grounded,” the source told Reuters, without elaborating.

    The attack is being attributed to the Niger Delta Avengers (NDA), the group responsible for a string of recent attacks on oil installations. Reuters cited a tweet ostensibly put out by the group, claiming responsibility for the Escravos attack.

    The Niger Delta Avengers have fiercely stepped up assaults on the likes of Chevron, Shell and Eni in recent weeks. Oil prices have increased over the same time period as the disruptions – combined with the major outages in Canada – have erased the global glut for crude oil.

    Nigeria’s oil production has plunged by 40 percent, falling to just 1.4 million barrels per day, the lowest level in decades
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    Oil tankers backed up at southern French port due to strike

    Nearly two dozen vessels were queued outside the French oil import terminal in Fos, southern France on Thursday, held up by a strike organised by the hardline CGT and FO unions over planned labour reforms.

    A spokeswoman for the port of Marseille told Reuters that yesterday 29 oil, LNG and chemicals vessels were waiting between the wharf and harbour on Wednesday.

    This morning, 21 vessels including 12 carrying oil, LNG or chemicals, were waiting. During normal busy operations, about 5 vessels would be waiting, the port authority said.

    CGT port workers and dockers joined the nationwide rolling strike on Thursday and Friday. The stoppages hitting the power, fuel and transport sectors is aimed at forcing the government to withdraw the planned labour reform bill.

    CGT oil refinery and oil depot workers at Fos-Lavera have been on strike since Monday and have blocked oil terminals, preventing some fuel deliveries and leading to shortages.

    The terminals supply PetroIneos Lavera, Total's La Mede and Exxon's Fos refineries on the southern coast.
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    Oman ups tax on LNG companies

    The state of Oman has increased its tax on liquefied natural gas (LNG) companies, according to local media reports.

    The Times of Oman reported on Thursday that the tax has been raised from 15% to 55% in a joint meeting of the State Council and Majlis Al Shura, the country’s Consultative Council.

    Additionally, the Omani newspaper said that Oman approved a 35 percent tax on petrochemical firms. The joint session resulted in a 63 percent vote for the increase of the petrochemical tax, the report said.

    The decision comes on the back of OMR4.5 billion budget deficit. Despite spending cuts and tax increases, Oman’s revenue was severely hit by the drop in oil and gas prices.

    Oman exports chilled gas through Oman LNG, a joint venture company established by a Royal Decree in 1994. The company owned 51 percent by the government, exports LNG from its terminal in Qalhat near Sur with a 10.4 mtpa capacity.

    LNG World News contacted both Oman LNG and Shell that owns a 30 percent stake in the company, seeking comment on the matter, however, no responses have been received by the time this article was published.

    Other shareholders in Oman LNG include Total (5.54%) Mitsubishi Corp. (2.77%), Partex (Oman) Corp (2%), Korea LNG (5%), Mitsui & Co. (2.77%) and Itochu Corporation with a 0.92% stake

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    CNPC Plans Backdoor Listing of Engineering Arm Amid Shakeup

    China National Petroleum Corp., the country’s biggest oil and gas producer, plans a backdoor listing of its engineering assets through a Shanghai-listed petrochemical material supplier and processor it controls.

    Xinjiang Dushanzi Tianli High & New Tech Co., based in western China’s autonomous Xinjiang region, reached a preliminary agreement with CNPC to buy the producer’s engineering assets, according to a statement filed with the Shanghai stock exchange on Thursday. A final decision hasn’t been made, it said.

    CNPC Chairman Wang Yilin said in February the company plans to spin off its oilfield services business amid efforts to become more efficient. The state-run energy giant will be among the firstof the nation’s sprawling government-run enterprises to undergo reforms that will transform CNPC into a strategic holding company and no longer manage day-to-day operations of subsidiaries, people with knowledge of the situation said in March.

    “The capital markets are very much still closed for sizable energy IPOs due to poor market sentiment,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong said in an e-mail. “Oil prices have almost doubled from the February bottom, but they remain too low for generating profits for oil companies.”

    Xinjiang Dushanzi is looking at buying engineering assets from CNPC units including China Petroleum Engineering & Construction Corp. and China HuanQiu Contracting & Engineering Corp., it said in the statement. Shares of Xinjiang Dushanzi were suspended in February.

    CNPC rival China Petrochemical Corp. used a similar backdoor-listing strategy to inject oilfield service assets into smaller listed unit Sinopec Yizheng Chemical Fibre Co. in 2014 amid a push by authorities to restructure state-owned companies and allow markets greater sway in resource allocation.

    The China Securities Regulatory Commission has approved just 46 initial public offering applications from more than 700 submitted so far this year, according to data from the commission and information compiled by Bloomberg.
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    Seadrill Drops as CEO Says Drillship Firesale Was Overpriced

    The offshore drilling market is in such bad shape that when a rival recently bought a rig for less than a 10th of its new-build cost, it probably overpaid, according to Seadrill Ltd. Chief Executive Officer Per Wullf. Shares in his oil-services company reversed gains to become the biggest losers in Oslo trading.

    Shipping tycoon George Economou paid just $65 million for the 2011 vessel Cerrado last month, but it was still “probably too much” for a rig that hasn’t worked for a year, Wullf said in a phone interview. In the current market, the asset represents a “pure liability.”

    Those comments, which illustrate how the collapse in crude prices has driven down the value of offshore drilling equipment, “would suggest that Wullf thinks that his own stock is grotesquely overvalued,” said Alex Brooks, an analyst at Canaccord Genuity Group Inc. The shares dropped 7.4 percent to close at 27.2 kroner in Oslo after trading up most of the afternoon following the publication of earnings that beat analyst estimates.

    “He’s basically saying that the drilling units are worth about $50 million, or possibly nothing at all, if they haven’t been working recently,” Brooks said in an e-mail. Seadrill’s current share price would imply that similar rigs controlled by the company should be valued at about $175 million each, he said.

    The Cerrado sale, which had been seen by analysts including Brooks as bad news for rig owners and their creditors, won’t have any effect on Seadrill’s current efforts to restructure almost $10 billion in debt, Wullf said earlier. Seadrill wouldn’t be interested in acquiring rigs of this type given its current funding situation and the market outlook, the CEO said.

    “A rig like this, that hasn’t worked for a year, that’s had different owners, it would probably be very hard to justify to pay more than was paid for it -- and it was probably too much, to be honest,” Wullf said. “When you look at stacking cost, classing, reactivation, financing and all that stuff, then I’d rather take a distressed asset from a shipyard.”

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    ONGC’s Profit Rises as Rebounding Oil Reverses Impairments, core earnings remain weak

    Oil & Natural Gas Corp.’s profit rose after two quarters of declines as the company reversed earlier writedowns and as a weakened Indian currency cushioned the slump in crude prices for nation’s biggest energy supplier.

    Net income increased 12 percent to 44.2 billion rupees ($658 million) in the three months ended March 31, the New Delhi-based company said in a statement Thursday. That beat the 23.8 billion-rupee mean estimate from 20 analysts compiled by Bloomberg. Fourth-quarter sales dropped 24 percent to 161 billion rupees.

    ONGC reversed an impairment loss of 8.52 billion rupees as crude rebounded. Brent, the benchmark for half of world’s crude, has climbed more than 70 percent from a 12-year low in January. In addition, the company wrote back 15.48 billion rupees set aside as provisions on some exploratory wells. It also reversed a subsidy paid to state-run oil refiners for selling fuels below cost after the government refunded the money, resulting in a profit before tax of 5.35 billion rupees.

    “The one-off reversals in impairment, subsidy and exploration costs helped the company post profit which was better than estimates, but the core earnings remain weak,” said Sachin Mehta, an analyst at Centrum Broking.

    The state-run company also gained from the rupee’s fall against the dollar. It sells its oil and natural gas in U.S. dollars and gets a sales boost as the Indian currency weakens. The rupee averaged 67.49 a U.S. dollar last quarter, 8.4 percent weaker than the same period a year earlier.

    ONGC’s impairment reversal was based on an increased oil price forecast in the range of $42 to $54 a barrel over the next few years, Chairman D.K. Sarraf said at a post-earnings press conference in New Delhi today. It sold crude oil to refiners including Indian Oil Corp. at $34.88 a barrel last quarter, compared with $55.63 a year earlier and $44.34 in the preceding three months.
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    Rosneft, Pertamina Sign Deal With Option for New Indonesia Plant

    PT Pertamina, Indonesia’s state energy company, and Russia’s Rosneft OAO signed a cooperation agreement that includes a plan to build a new oil refinery in the Southeast Asian nation, the companies said Thursday.

    Pertamina, which hasn’t built a new refinery since 1997, will be the majority shareholder in the facility at Tuban, East Java, it said earlier this month. The two companies may invest $12 billion to $13 billion in the refinery project which includes a petrochemical unit, Dwi Soetjipto, president director of Pertamina, told a press conference after signing the accord.

    Completion of the Tuban refinery is targeted by the end of 2021, the companies said in a statement. Capital expenditure will be based on the feasibility study and on engineering designs, they said. As part of the deal, Rosneft has offered to share proprietary data and exclusive rights to assess partnership opportunities in upstream oil and gas assets in Russia, they said.

    Aging refineries and declining domestic production have turned Indonesia, a member of the Organization of Petroleum Exporting Countries, into a net oil importer. Expansion of refining capacity, including the construction of new plants, is part of a broader strategy by President Joko Widodo to overhaul the energy industry and reduce costly imports.

    “Focusing strictly on the project, Indonesia won’t mind whether their partner is Russia or Saudi Arabia, as long as they can fund the investment needed to move the project forward,” said Peter Lee, a Singapore-based analyst at BMI Research. Cooperating with Rosneft may help Indonesia diversify its sources of crude as the refinery may secure most of the oil from Russia, he said.

    Pertamina has an agreement with state-owned Saudi Arabian Oil Co. to expand processing capacity at its Cilacap refinery to 370,000 barrels a day from the current 340,000 barrels. The plant will source 70 percent of its crude from the Middle East producer.
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    Cheniere sees first cargo from Sabine Pass Train 2 in August

    Houston-based LNG player Cheniere expects first cargo from the second train at its Sabine Pass liquefaction and export plant in mid-August.

    According to the company’s monthly report filed with the Federal Energy Regulatory Commission, the project progress “supports the substantial completion for Trains 1 and 2 by late May 2016 and September 2016, respectively”.

    Trains 3 and 4 targeted substantial completion dates are April 2017 and August 2017, respectively, with schedule recovery expected in the summer of 2016 as labor resource is transitioned from Stage 1 (Trains 1 and 2) onto Stage 2 (Trains 3 and 4).

    Cheniere revealed that the Train 1 completed performance tests in April while tests continued on the second train. During April pipe pressure testing, air blows, and restoration continued while mechanical runs for the LNG compressors were completed.

    Cheniere shipped the first cargo from Sabine Pass Train 1 in February while the first commercial cargo left the facility earlier this month under the 20-year offtake agreement with Shell.

    Sabine Pass is the first facility of its kind to export U.S. shale gas overseas.

    Cheniere is developing up to six trains, each with a production capacity of approximately 4.5 mtpa of LNG, at the Sabine Pass terminal in Louisiana, adjacent to the existing regasification facilities
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    Chile, SQM head to court after failing to reach agreement

    Chile said on Wednesday that it would bring a recent dispute with fertilizer supplier SQM to court after a meeting with the company's executives failed to produce an agreement.

    The government's statement follows an announcement on Monday in which it said it was beginning a new arbitration procedure against SQM due to alleged "serious contract breaches."

    SQM, which was privatized in the 1980s under dictator Augusto Pinochet and is still controlled by businessmen with family links to the ex-strongman, is one of the world's largest suppliers of nitrates and lithium, with access to vast brine deposits in northern Chile.

    But it has had a rocky relationship in recent years with Chile's center-left government. In addition to the procedure announced Monday, the company is already in arbitration with state economic development agency Corfo over leasing payments.

    In the most recent dispute, Corfo has alleged "serious, varied breaches of obligations in the project contract, in particular regarding the protection of Corfo's mining property" by SQM.

    In an email Corfo said that it was contractually obligated to meet with SQM before taking the most recent arbitration to court. However, the meeting ended without an agreement.

    "After a brief meeting, the parties did not overcome their differences, leaving this stage of the proceedings exhausted," Corfo said.

    SQM has previously defended its record and said it would collaborate with Corfo and the arbitrator.

    However, it has also flagged interest in developing ventures outside Chile in recent months, and in March signed a lithium exploration deal in neighboring Argentina.
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    EU agency wants 65 pct cut in farm use of last-ditch antibiotic

    Agricultural use of a last-resort antibiotic should be cut by two-thirds to limit the spread of dangerous drug resistance, European medicine regulators said on Thursday.

    The demand for strict curbs on giving colistin to animals is the latest in a string of warnings about antimicrobial resistance. It follows the discovery last year of a gene that makes bacteria resistant to the drug.

    The European Medicines Agency (EMA) said farm use of colistin should be limited to a maximum of 5 mg per adjusted kilogram of livestock. The drug is currently widely used in farming.

    "If successfully applied at an EU level, the above threshold would result in an overall reduction of approximately 65 percent of the current sales of colistin for veterinary use," the EMA said.

    Ideally, consumption should be even lower and the EMA said 1 mg or less was a "desirable" level, adding that Denmark and the Netherlands already achieved this goal. Other countries, including Spain and Italy, have far higher consumption.

    Colistin, which has been used for more than 50 years in both animals and people, is given in human medicine as a last-line treatment for infections caused by multidrug-resistant bacteria, or so-called "superbugs".

    Medics around the world were alarmed last year by the discovery in China of a new gene that makes bacteria highly resistant to it.

    Drug-resistant superbugs are growing threat worldwide and a major review published last week called for new steps to address the problem, including limits on antibiotic use in agriculture and investment in finding new drugs.

    Former Goldman Sachs chief economist Jim O'Neill, who led the review, said antimicrobial resistance could kill an extra 10 million people a year and cost up to $100 trillion by 2050 if it is not brought under control.

    The exact quantity of antibiotics used in food production globally is hard to estimate, but experts believe it is at least as great as the amount used by humans.

    Such routine use in farming drives drug resistance as bacteria are exposed more often to antibiotics and drug-resistant strains can then be passed to humans through the food chain.

    The Health for Animals trade body, whose members include veterinary companies such as Zoetis, Bayer, Merck and Eli Lilly's Elanco, says it backs responsible farm use but antibiotics are sometimes needed.

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    Precious Metals

    Triple digit Silver?

    By Natalie Obiko Pearson
    (Bloomberg) -- A major Japanese electronics maker
    approached First Majestic Silver Corp. for the first time last
    month seeking to lock in future stock, a sign of supply concerns
    that could boost the metal’s price ninefold, according to the
    best-performing producer of the metal.
    “For an electronics manufacturer to come directly to us --
    that tells me something is changing in the market,” said Keith
    Neumeyer, chief executive officer of First Majestic, the top
    stock in Canada and among its global peers this year. “I think
    we’ll see three-digit silver,” he said, predicting the metal
    could surge to $140 an ounce by as early as 2019.

    That’s a bold forecast. While silver has rallied 19 percent
    this year to leapfrog gold as the best-performing precious
    metal, it settled lower Wednesday at $16.26 an ounce on the
    Comex in New York and reached a record of just under $50 in
    2011. The highest projection among analysts surveyed by
    Bloomberg is $57 an ounce in 2019.
    “That seems aggressive,” Dan Denbow, a portfolio manager at
    the USAA Precious Metals & Minerals Fund in San Antonio, said by
    e-mail. “There has been a lack of investment in silver
    exploration, but with significantly higher prices you will get
    new supplies. The current cost curve wouldn’t support that
    For recent projections on global silver production, click
    Still, there are other optimistic signs for silver rising.
    Hedge funds expanded their bullish bets on the metal to an all-
    time high earlier this month. Because the commodity holds appeal
    both as a store of value as well as for its multiple industrial
    uses, it surged earlier this year on speculation that the pace
    of U.S. interest-rate hikes will slow and that Chinese
    manufacturing may be improving.
    First Majestic is the second-biggest silver producer in
    Mexico, which supplies more of the precious metal than any other
    country. As such, the company has been a primary beneficiary of
    the silver rally after choosing not to diversify into other
    metals like many of its peers. The company earns more than 63
    percent of its sales from silver and its share price has more
    than tripled this year, more than any other company on the S&P/TSX
    Composite Index. The stock rose 2.2 percent to C$14.65 at 9:51
    a.m. in Toronto, giving it a market value of C$2.36 billion
    ($1.82 billion).

    ‘Strategic Metal’

    While long coveted for use in jewelry, coins and utensils,
    silver is increasingly in demand for its industrial
    applications. Last year, about half of global silver consumption
    came from such use, including mobile phones, flat-panel TVs,
    solar panels and alloys and solders, according to data compiled
    by GFMS for the Washington-based Silver Institute.
    “Silver is not a precious metal, it’s a strategic metal,”
    Neumeyer said in an interview in Vancouver, where the company is
    based. “Silver is the most electrically conductive material on
    the planet other than gold, and gold is too expensive to use in
    circuit boards, solar panels, electric cars. As we electrify the
    planet, we require more and more silver. There’s no substitute
    for it.”
    For a Bloomberg Intelligence overview of the silver market,
    click here.
    Industrial demand is set to increase, driven by rising
    incomes and growing penetration of technology in populous,
    developing nations, as well as thanks to new uses being found
    for silver’s anti-bacterial and reflective properties in
    everything from hospital paints to Band-Aids to windows.
    “Over the next 10 or 20 years, more and more people are
    going to be using these devices, and silver is a very limited
    commodity,” Neumeyer said. “There’s just not a lot of it
    Use of silver, including investment demand, coin sales and
    what goes into inventories to settle trades, has outstripped
    annual supply of the metal in every year since 2000, according
    to data from GFMS, a research unit of Thomson Reuters Corp.
    Still, not everyone agrees that the world is headed for a
    shortage of the metal.
    “I would tend to disagree that silver is rarer than
    thought,” David Lennox, a resource analyst at Fat Prophets in
    Sydney. “Silver cannot be easily substituted but there’s been no
    need as it’s in abundance. I’d expect the search for silver
    would intensify and the search for substitutions would happen
    long before silver got to” $140 an ounce.

    ‘Market Penetration’

    About 50 percent of global demand last year came from
    price-sensitive sources such as retail coins, jewelry and
    silverware, which would help curb price increases, said Erica
    Rannestad, a senior analyst at GFMS in Chicago. “Increased
    market penetration in emerging economies certainly will result
    in higher per-capita consumption of silver in industrial uses,
    but this is over the long run and would not happen overnight.”
    Neumeyer said his company has no immediate plans for
    acquisitions, dividends or to take on any debt. The company
    raised C$57.5 million from a share sale earlier this month. It
    plans to use funds internally for development and exploration of
    its mines, which had suffered from underinvestment during the
    recent downturn. “The capital will be used to look internally,”
    he said.
    Neumeyer acknowledges his forecasts aren’t always correct.
    First Majestic had estimated silver at $14 an ounce for this
    year’s budget. “I think I’ve been wrong every year for the past
    four or five years.”
    Still, he’s unfazed by his past record.
    “The silver rally is just beginning,” Neumeyer says. “What
    we’ve seen in the last two months is just the beginning of the
    next bull market.”
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    Base Metals

    A Key Indicator In The Copper Market Suggests The Bottom Is Near

    Big news in the copper market this week, with the government of Peru saying it has now passed Chile as the world’s top supplier of copper to China.

    That follows an 81 percent increase in Peru’s China-bound exports during January to April of 2016.
    But despite that change in the rankings, Chile still remains the world’s most critical spot when it comes to copper production. And this week we got one very important number on the state of the mining industry here.

    That’s cash costs for copper production. With Chilean government agency Cochilco releasing its “Cash Cost Observations” report for the full-year 2015.

    Cochilco gathered data from the 19 largest copper mining operations across Chile — representing about 90 percent of the country’s total output, and looked at the average direct, or C1, costs for producing a pound of copper.

    The final average for 2015 came in at $1.532 per pound - up slightly from the $1.524 per pound cash cost that Chilean producers saw in 2014.

    That’s a very important figure for a few reasons. First, it shows that producers have not yet begun to benefit from cost deflation in the mining sector — with overall production costs still continuing to rise during the past year.

    However, the pace of cost inflation was much slower than previous years. Suggesting that 2016 could finally see a fall in production costs for the industry.

    This cash cost figure is also a critical benchmark for copper market observers to keep in mind. Especially given that copper prices have fallen notably over the last few weeks — down nearly 10 percent since late April, to a current level around $2.10 per pound.

    That’s had some analysts concerned about just how far copper could fall. And in that regard the $1.50 mark looks like a potential floor for prices — given that these numbers show most of the producers in the world’s top mining nation would be broke at that level.

    All of which suggests we could see more weakness, but not that much more. It’s still not cheap to produce copper — and the world still needs metal. Watch for prices to track these supply and demand dynamics.
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    Mining in hard times: small teams and big trucks for BHP's Olympic Dam

    A vast copper and uranium lode in Australia's parched outback, global miner BHP Billiton's Olympic Dam was long emblematic of the industry's boom year projects: complex, ambitious and - until 2012 - slated for a $20 billion expansion.

    Like its rivals, BHP is still betting on copper, and the ore under Olympic Dam's red desert sand is key to that.

    But in an age of unprecedented mining pain, it needs to reverse years of underperformance at one of its richest mines on a much tighter budget.

    On the ground, that means cheaper supplies, bigger trucks and fewer staff; on a visit this week, more than half the desks and offices at the mine's administration centre were empty.

    Last year, the mine cut 600 jobs, around 15 percent of its workforce, a blow to the purpose built town of Roxby Downs that services the mine.

    Thanks to rich ore grades underground, cuts have already helped the mine halve its production costs to $1 per pound of copper by 2017. That puts it on par with the world's biggest copper mine, BHP's Escondida mine in Chile.

    And those savings - plus the use of slower but cheaper heap leaching techniques to process the complex ore - could be Olympic Dam's saving grace.

    "Olympic Dam, over time, has really struggled to maintain its niche in terms of being globally competitive," said Jacqui McGill, who runs the mine for BHP.

    As costs fall, however, McGill says she is in a position to fight for funding to eventually double the tonnes mined to around 450,000 tonnes from 2025.

    "I think at a dollar a pound we've earned a seat at the table."

    Sprawling across 18,000 hectares of arid plains, it is set to use drones to inspect facilities, and move workers underground faster by zooming them down a lift shaft rather by a 15-minute drive down a ramp.

    Olympic Dam has about 470 km of tunnels and plans to drill a further 120 km over the next five years to open a new underground seam that will give it some of the richest ores in the world.

    BHP expects that will improve the grade by around 20 percent to more than 2.2 percent copper within the next five years - compared to average grades of less than 1 percent anticipated elsewhere by then.

    That would position Olympic Dam to be able to hike output from 200,000 tonnes this year to 230,000 tonnes by 2021.

    "The curveball is it's got uranium and all the daughter isotopes," said Justin Bauer, head of resource planning and development at Olympic Dam.

    Because of the uranium, BHP has to process all the ore at the site, from grinding to smelting and refining to produce sheets of copper and containers full of uranium yellow cake, instead of just shipping out copper in concentrate.

    To simplify the operation, McGill is running a pilot study of heap leaching, which BHP has used for years at mines in Chile, expecting to lower the operating costs at Olympic Dam by around 10 percent.

    If it works, the site would not need as much expensive equipment, would need less extrapower and could use saline water - reducing the need for costly desalination.

    "This is a significantly less intensive process, both from a power and a water perspective than the original expansion big bang," McGill said.

    Results of the trials of a whole range of ore are not due until 2019 and BHP has yet to disclose how much the expansion is expected to cost, leaving analysts somewhat in the dark.

    "In theory, the heap leach should work," Deutsche Bank analyst Paul Young said. "But the question becomes can you actually double the size of the underground and what do the economics look like?"
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    Steel, Iron Ore and Coal

    Bid deadline for Anglo's coking coal mines set at June 6

    Final bids for Anglo American's metallurgical coal mines in Australia, valued at up to $1.5-billion, must be submitted by June 6, three sources close to the matter said on Thursday. 

    Anglo American, like its peers, is selling off prized assets after a prolonged commodities rout has left it with high levels of debt. It aims to sell between $3-billion and $4-billion of assets this year. Analysts said the appeal of its two metallurgical or coking coal mines in Australia could have increased after one operation delivered coal months ahead of schedule. 

    Private equity firm Apollo has teamed up with Pennsylvania coal exporter Xcoal Energy & Resources, founded by Ernie Thrasher and Chris Cline, the billionaire coal entrepreneur often dubbed the King of Coal, and have made it through to the second round of bidding, according to the sources. 

    BHP is also through to the second round and a likely frontrunner, although the sources said Japanese steelmakers reliant on coking coal could raise competition concerns as BHP already dominates. 

    Other interested parties could include Indian, Japanese and America suitors, the sources said, declining to be specific. "There are lots of interested parties...everybody in the world looked at these assets," one said.
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    EU 2015 coal consumption down 3pct on year

    The European Union (EU) consumed 690 million tonnes of coal in 2015, dropping 3% year on year, according to the latest market report released by European Coal Association.

    Of the total, hard coal output produced by 28 countries in the union was 100 million tonnes, or 14.49% of the total consumption, falling 5.1% from 2014; the domestic lignite consumption stood at 398 million tonnes, down 0.65% on year; and the rest was 192 million tonnes of imported coal, dropping 6.49% from the year-ago level.
    Back to Top

    Shenhua Jan-Apr coal sales up 15pct on year

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 119.6 million tonnes of coal over January-April, rising 15% on year, mainly attributed to soared sales of outsourced coal, data showed from the company’s announcement on May 25.

    Of this, sales of self-produced coal rose 4.9% on year to 89.4 million tonnes during the period, while those of outsourced coal stood at 30.2 million tonnes, up 60.6% on year.

    Coal sales in April stood at 27.1 million tonens, falling 13.1% on year and down 44% on month. It was mainly due to the sharp rise last month and a 37.4% decline of coal sales via northern ports amid reduced coal consumption at utilities in rainy season.

    Sales of self-produced coal and outsourced coal reached 20.7 million and 6.4 million tonnes, sliding 20.7% and up 25.5% on year, respectively.

    Coal sales via northern Chinese ports stood at 72 million tonnes over January-April, rising 34.6% on year, with those in April fall 14.2% on year and down 37.4% on month to 16.9 million tonnes.

    Coal shipped from Shenhua’s exclusive-use Huanghua port stood at 10.7 million tonnes or 63.3% of its total shipment via northern ports in the month, increasing 23% on year but down 44.6% on month.

    That over January-April soared 89.1% on year to 48.6 million tonnes.

    Coal shipped from Tianjin port fell 34.6% on year and down 24.4% on month to 3.4 million tonnes; the volume over January-April increased 7.2% on year to 13.4 million tonnes.

    The company produced 23.3 million tonnes of coal in April, falling 5.7% on month but up 1.3% on year, the third straight yearly rise. The output over January-April increased 2.5% from a year ago to 94.6 million tonnes.

    China Shenhua announced in its statement that it has been cutting coal production in recent three years, and its coal output was reported at 318 million, 307 million and 281 million tonnes in 2013, 2014 and 2015, respectively.

    Its coal production target for 2016 is 280 million tonnes, sliding 0.3% on year, with the volume over January-April realizing 33.8% of the total, it added.
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    Iron ore price back below $50

    On Thursday  the Northern China benchmark iron ore price dipped to just below the $50 per dry metric tonne level for the first time since February according to data supplied by The Steel Index.

    Iron ore is down 27.4% from its April high near $70, but is still trading 16% higher than at the start of they year.

    The correction is the result of near and longer-term supply and demand dynamics (in short: rising output in Australia and slowing demand in China) and many factors are  stacked against a seaborne iron ore price above $50.
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    China says "resolutely opposes" US trade secret theft probe over steel

    China resolutely opposes a probe by the U.S. International Trade Commission (ITC) into complaints of trade secret thefts by Chinese steel companies and will encourage its firms to legally defend themselves, China's commerce ministry said on Friday.

    Citing unnamed officials from the ministry, the statement on the Ministry of Commerce's website said trade remedy measures recently being taken by the U.S. were protectionist, and would artificially interfere with trade rather than solve the industry's current problems.

    The ITC on Thursday said that it is investigating complaints by United States Steel Corp that Chinese competitors stole its trade secrets, fixed prices and misrepresented the origin of their exports to the United States.

    U.S. Steel, in its complaint under section 337 of the main U.S. tariff law, is seeking to halt nearly all imports from China's largest steel producers and trading houses.
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    China key steel mills April steel products sales down 8.53 pct

    China’s key steel mills sold 47.39 million tonnes of steel products in April, down 8.53% year on year, according to the latest data released by the China Iron and Steel Association (CISA).

    In the first four months this year, the sales volumes of steel products by these key steel mills stood at 179.16 million tonnes, down 3.10% compared with the year-ago period.

    Meanwhile, China’s key steel mills sold 2.75 million tonnes of steel billets in April, down 8.24% on year. Total sales of steel billets reached 10.26 million tonnes during the January-April period, slipping 16.86% year on year.

    Stocks down
    Stocks of steel products in China’s key steel mills stood at 12.84 million tonnes by the end of April, down 20.63% year on year and down 2.68% on month.

    Steel billet stocks dropped to 2.92 million tonnes by the end of April, down 27.24% from a year ago but up 4.33% from a month ago.
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    Hebei bans reopening of mills ordered closed, slashes more production

    Provincial authorities in Hebei pledged to ban the reopening of steel mills that had been previously ordered to shut down, punish closed mills that reopen and investigate and sack local officials who allow the reopening of mills and approve illegal projects, Xinhua News Agency reported.

    A jump in steel prices this year has encouraged many producers in China to rekindle their furnaces and ramp up production, potentially exacerbating a global steel glut that has sparked trade friction with other producers including the United States, Britain and Australia.

    Some mills in China have been ordered to close as part of the government's efforts to trim overcapacity. Xinhua quoted a notice from the Hebei government as saying officials were not allowed to permit these facilities to restart production "under any circumstances."

    Other mills, facing losses, cooling demand and tighter credit conditions, have trimmed output or suspended production for economic reasons. It was not clear if these mills were included in the ban on resuming production.

    Hebei province, by far the world's top steel producer and consumer with its steel production accounting for just under a quarter of China’s total, has also raised its targets for cutting iron and steel production this year, another effort made to tackle the supply glut haunting the industry.

    Iron production will be reduced by 17.26 million tonnes, up from a previous target of 10 million tonnes set in January. About 14.22 million tonnes of steel manufacturing will be phased out, up from an earlier target of 8 million tonnes, said provincial governor Zhang Qingwei on May 26.

    The new targets came after heavy criticism from a central government environmental inspection group, which exposed more than 2,800 environmental concerns.

    Production-slashing responsibilities have been distributed among cities, including Tangshan, Handan, Qinhuangdao and Langfang, the four major industrial cities in Hebei.

    In April, steel prices picked up sharply, with the domestic steel price index gaining 11.29 points since March to 78.42, and also up 4.43 points from a year earlier. Many steel mills have resumed production.

    Zhang said city and county governments need to prevent heavily polluting equipment from operating again. Production of steel, cement and glass has also been widely blamed for the worsening air pollution in Hebei.

    The province has previously said that it will cut a combined 160 million tonnes in steel, cement and coal production, and another 36 million weight cases of glass by 2017 compared with 2013 levels.
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    China's Hebei province pledges 14.22 million ton steel capacity cuts in 2016: Xinhua

    Hebei, China's top steelmaking province, has pledged to close a total of 14.22 million tonnes of capacity in 2016 as part of the country's efforts to tackle a price-sapping glut in the sector, the official Xinhua news agency said on Thursday.

    This represents just over 1 percent of official capacity of 1.13 billion tonnes.

    Xinhua said the province would close the first batch of 8.2 million tonnes before November and the rest by the end of the year. Most of the mills lined up for closure are situated in the cities of Tangshan, Handan, Qinhuangdao and Langfang.

    The smog-plagued province, which surrounds China's capital Beijing, had previously promised to cut its total crude steel capacity by 60 million tonnes over the 2014-2017 period in order to reduce air pollution.

    It has already shut 41.06 million tonnes in 2014 and 2015, according to the provincial steel industry association.

    The province had a total of 286 million tonnes of annual capacity in 2013, around a quarter of the national total. It aims to bring the total down to 200 million tonnes by the end of the decade.

    China as a whole is planning to cut steelmaking capacity by 100 million to 150 million tonnes in the next five years, with the industry facing widespread losses as a result of slowing demand.
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