Mark Latham Commodity Equity Intelligence Service

Friday 15th April 2016
Background Stories on

News and Views:

Attached Files


    Alice in Wonderland

    “Every day is like being Alice in Wonderland,” said Tomohisa Fujiki, head of interest-rate strategy at BNP Paribas Securities Japan. “Interest-rates levels are having no effect on credit demand, the market function is declining. You can’t expect everything to go according to plan.”
    Back to Top

    China's Economy Stabilized in First Quarter

    China’s economy stabilized last quarter and gathered pace in March as a surge in new credit spurred a property sector reboundwhile raising fresh questions over the sustainability of the debt-fueled expansion.

    Gross domestic product rose 6.7 percent in the first quarter from a year earlier, meeting the median projection of economists surveyed by Bloomberg and in line with the government’s growth target of 6.5 percent to 7 percent for the full year. New credit, industrial output, fixed-asset investment and retail sales picked up in March and beat analysts’ forecasts.

    Signs of stabilization in the world’s second-biggest economy and bets on a subdued pace of U.S. monetary tightening have helped lead to recent rallies in oil, metals and global equities. Surging credit in March now shifts concern back to the durability of the recovery, how much financing is propping up zombie companies, and whether the market-driven reforms needed to boost new growth drivers will quicken.

    “The economy has stabilized thanks to a flood of liquidity and improved sentiment in the property market,” said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG in Hong Kong. “It is not clear whether the momentum is sustainable. So far, the government seems to be the solo singer. It is critical to re-engage private investment.”

    Aggregate financing was 2.34 trillion yuan ($360.7 billion) in March, the People’s Bank of China said, as monetary easing filtered through the financial system. Quarter-on-quarter growth in the first three months of this year was more than double the pace during the prior period, said Tim Condon, head of Asian research at ING Groep NV in Singapore.

    Debt Pileup

    The flip side of strong credit growth is that debt keeps piling up,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “This can’t continue. The key is efficiency of credit use because we know that some of the credit is used to keep these zombie companies alive.”

    The easy credit helped home sales jump 71 percent in March from a year earlier while investment in real estate development surged 6.2 percent in the first quarter from a year earlier.

    Fixed-asset investment jumped 10.7 percent in the first three months from a year earlier, as property construction rebounded. About 30 percent of new non-financial credit flowed to local governments and their investment vehicles in the first quarter, said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore.

    “With the hard data confirming China’s cyclical recovery, it’s time to think about sustainability,” Hu wrote in a note. “The fragile property upturn, credit misallocation and policy fine-tuning will cap the strength and duration of the upswing.”

    Industrial output expanded 6.8 percent in March from a year earlier and retail sales rose 10.5 percent. The survey-based unemployment rate rose slightly in March to a range around 5.2 percent, a statistics bureau official said.

    Attached Files
    Back to Top

    China's Central bank pumps more money into market

    China's central bank on Thursday pumped more money into the market to ease a liquidity strain.

    The People's Bank of China (PBOC) conducted 40 billion yuan (6.2 billion U.S. dollars) of seven-day reverse repurchase agreements (repo), a process in which central banks purchase securities from banks with an agreement to resell them in the future.

    The reverse repo was priced to yield 2.25 percent, unchanged from Wednesday's injection of 40 billion yuan, according to a PBOC statement.

    The move followed a net injection of 60 billion yuan and 15 billion yuan into the financial system on Tuesday and Monday, respectively.

    In Thursday's interbank market, the benchmark overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one another, climbed by 3 basis points to 1.999 percent.
    Back to Top

    U.S. Trade Representative says deal with China covers all aspects of subsidy program

    China has agreed to scrap controversial export subsidies on a range of products from steel and aluminum to agriculture and textiles, the U.S. Trade Representative said on Thursday.

    In a deal coinciding with global economic meetings in Washington, the trade representative office said in a statement that China has agreed to end a program known as its "demonstration bases-common service platform" in which it provides export subsidies to Chinese companies in seven economic sectors.

    The agreement is a step by Beijing to reduce trade frictions with the United States that range from steel and agricultural products to technology and banking.

    It comes about a year after the United States filed a complaint with the World Trade Organization about the program, alleging "unfair, prohibited export subsidies to a large range of Chinese manufacturers and producers."

    "This agreement addresses all elements of the massive and complex export subsidy program," U.S. Trade Representative Michael Froman said in the statement.

    The Chinese industries that have received the subsidies under the program include textiles, light industry, specialty chemicals, medical products, hardware, agriculture and metals such as steel and aluminum, the trade representative's office said.

    Last year, the U.S. trade office estimated that suppliers of subsidized services to Chinese exporters received more than $1 billion from the Beijing government over three years and some companies received at least $635,000 in support annually. The WTO created a panel to hear the U.S. complaints in April 2015.

    Since it joined the WTO in 2001, China has frequently attracted complaints that its exports are being "dumped," or sold at unfairly cheap prices on foreign markets. Under world trade rules, importing countries can impose punitive tariffs on goods that are suspected of being dumped.
    Back to Top

    China's outbound investment rises in Q1

    Chinese companies continued to invest big in the overseas market in the first quarter (Q1) of the year, new official data shows.

    China's non-financial outbound direct investment (ODI) jumped 55.4 percent from a year ago to 261.74 billion yuan (40.34 billion U.S. dollars) in Q1, the Ministry of Commerce said Thursday.

    Hong Kong attracted the most investment from the Chinese mainland, accounting for 51.6 percent of the total, while investment to the United States more than doubled to 5.24 billion U.S. dollars. ASEAN received a total of 2.29 billion U.S. dollars of investment, up 44 percent year on year.

    Some 5.4 billion U.S. dollars was invested in manufacturing in Q1, up 125.9 percent, nearly half of that channeled to equipment manufacturing.

    Chinese firms spent 16.56 billion U.S. dollars on overseas acquisitions, covering 15 industries and 36 countries and regions.

    The ministry said the Belt and Road initiative was a major push to business cooperation between Chinese and foreign firms. ODI to countries involved in the initiative was 3.59 billion U.S dollars, an increase of 40.2 percent year on year.

    ODI in March rose 21.5 percent year on year to 66.4 billion yuan.
    Back to Top

    China's railway investment may reach new high this year

    China's railway investment may reach new high this year

    China is likely to see total investment in the railway sector hit a new high this year, the Economic Information Daily reported on April 14.

    China Railway Corporation plans to kick off construction on 45 projects in 2016 and put more than 3,200 kilometers of new railway lines into operation, including 1,300 kilometers of high-speed rail, according to the newspaper.

    At a recent meeting on railway construction, Chinese Vice Premier Ma Kai urged the railway sector to make an effort to ensure that railway investment exceeded 800 billion yuan this year.

    Last year, the railway sector registered 823.8 billion yuan ($127.16 billion) in fixed-asset investment, including 9,531 km of new railway lines, of which 3,306 km were high-speed rail. By the end of 2015, a total of 121,000 km of railway lines were in operation, including more than 19,000 km of high-speed rail, which accounted for more than 60% of the world's total.

    Wang Mengshu, a member of the Chinese Academy of Engineering, sees no difficulty in meeting the goal, and said actual investment may even surpass 800 billion yuan if all projects run smoothly, according to the report.
    Back to Top

    ShareSoc advises investors to reject Anglo American CEO pay packet

    Investor interest group ShareSoc says Anglo American's proposed remuneration for CEO Mark Cutifani is too high and urged shareholders to reject it at next week's annual general meeting.

    The mining giant, which posted steep losses last year due to the slump in commodity prices, has sought to offset poor trading conditions with a restructuring plan that led to a 50 percent reduction in head office costs and the closure of 20 mines since 2013, ShareSoc said.

    However, CEO remuneration has not been reduced to reflect the smaller, simpler company that Anglo now is, the group added.

    ShareSoc said Cutifani was still set to receive 6.3 million pounds ($8.9 mln) for target performance and 8.8 million pounds for "above" target performance.

    "We consider the pay of the CEO to be too high, and particularly so in a year when the company suffered a loss of $5.6 billion in 2015 and dividends were suspended," the group said in a statement on Thursday.

    ShareSoc represents individual investors who invest in the UK stock markets.

    News of its opposition to Anglo American's pay proposals came as 59.1 percent of investors in BP voted down the oil company's plan to pay its CEO Bob Dudley a $19.6 million remuneration package.

    Shares in Anglo have fallen 34 percent in the past 12 months, shrinking its market capitalisation to 10 billion pounds from around 50 billion pounds in 2008.

    "We believe we have a remuneration policy that was approved at the 2014 AGM that strikes the right balance between stretch and achievability, designed to support the company's strategic objectives and aligned with shareholders' interests," a spokesman for Anglo said in an emailed statement.

    "As an illustration, our chief executive's total remuneration decreased by 17 percent in 2015, his salary has been frozen and his bonus decreased by around 40 percent," the spokesman added.

    The investor meeting is due to be held on April 21.
    Back to Top

    Oil and Gas

    Global diesel demand crumbling, warns IEA

    European demand for diesel is expected to have fallen in the first three months of 2016 for the first quarterly decline in nearly two years, the International Energy Agency reported on Thursday, the latest sign of distress in the fuel market.

    Europe, where roughly half of cars are fuelled by diesel, joins the United States, China and Japan which saw demand contract for a second consecutive quarter in January-March, according to the IEA.

    "Global gasoil demand crumbles," the Western energy watchdog said in its benchmark monthly report. Gasoil includes several different grades of fuel but diesel is the most important.

    "The end of gasoil demand growth is not yet upon us, as modest gains are forecast towards the end of the year as the underlying industrial situation improves worldwide," particularly in the United States and India, it said.

    Chinese demand for diesel slowed in recent years as the world's second-biggest economy shifted away from heavy manufacturing to be more consumer-focused. In the United States and Japan the weakening demand was linked to slower manufacturing and industrial activity and a mild winter in North America.

    Prior to 2016, "the European gasoil consumer demonstrated stolid resistance, a resolve that cracked in Q1 2016," when demand declined by 75,000 barrels per day compared to a year earlier, it said.

    The declines were led by France and Germany, which saw diesel consumption drop by 50,000 and 20,000 bpd respectively from a year earlier.

    The IEA trimmed slightly its forecast for growth in global oil demand this year to 1.2 million bpd, for total annual demand of 95.9 million bpd.

    Attached Files
    Back to Top

    Qatar's Oil-Freeze Letter to Norway Reveals Doha Deal Logic

    The preliminary agreement by Russia, Saudi Arabia, Venezuela and Qatar to freeze output has already put a floor under crude prices and a deal this weekend to include other producers would extend the recovery, according to Qatar’s Energy Ministry.

    Analysts and traders have puzzled over exactly why oil producers have devoted so much diplomatic energy to the meeting in Doha on April 17, when the consensus is that the freeze would have little immediate impact on crude production. The letter -- an invitation to the Doha meeting that Norway declined -- gives some answers.

    Qatar, which is hosting talks between at least 15 countries to finalize the accord, told Norway’s Ministry of Petroleum and Energy that the plan to cap output at January levels has already “changed the sentiment of the oil market,” according to a letter from Energy Minister Mohammed Al Sada obtained by Bloomberg through a freedom-of-information request. If more producers like Norway join in, it will temper the global oil surplus and “build up on this” price recovery, Qatar reasoned.

    Oil prices, which sank to 12-year lows in January amid a global surplus, have climbed more than 30 percent in the past two months amid speculation producers would make the first significant attempt at coordinating oil output between the Organization of Petroleum Exporting Countries and producers outside the group in 15 years. Oil market watchers see a 50-50 chance that producers will strike a deal, but either way they don’t anticipate any impact on crude supply because most of the countries are already pumping flat out.

    Price Floor

    Talks on capping supply have “triggered a broad and intensive dialog between all oil producers out of the conviction that current oil prices are untenable,” Qatar wrote. “It has put a floor under the oil price and it is proposed to build up on this, by expanding the production freeze to more producers, thereby reducing the extent of the global oversupply and help accelerate the market balance.”

    Delegates from OPEC and other oil-producing countries have started arriving in Doha, Qatar’s Energy Ministry said in a separate statement on Thursday, noting a “positive feeling” ahead of the meeting.

    While the initiative is supporting prices, any agreement that only limits supply rather than implements output cuts will do little to tackle the global glut, the International Energy Agency said on Thursday.

    Image title

    Norway won’t attend the Doha talks, its Petroleum and Energy Ministry said by e-mail on April 12. Other non-OPEC producers such as Oman, Azerbaijan and Colombia have said they will attend. Several countries planning to boost production this year, notably Iran and Brazil, have said they won’t join the freeze.

    Attached Files
    Back to Top

    Iran's Crude Exports Surge With Days to Go Before Freeze Talks

    Iran’s crude shipments have risen by more than 600,000 barrels a day this month, adding to the pressure facing producer nations as they prepare to meet in Doha to discuss freezing output to prop up oil prices.

    Tankers carrying about 28.8 million barrels of crude, or more than 2 million a day, left the Persian Gulf country’s ports in the first 14 days of April, according to tanker-tracking data compiled by Bloomberg. That compares with a rate of about 1.45 million barrels a day in March.

    Iran was freed from wide-ranging sanctions in January, allowing it to add barrels to an already oversupplied market. Saudi Arabia, Russia and more than a dozen other producers are gathering in Doha on April 17 to discuss a plan to cap output at January levels. Saudi Deputy Crown Prince Mohammed bin Salman has said his country will only limit its supply if Iran does likewise.

    China will be the biggest recipient of Iranian crude loaded so far this month, while flows to Japan are resuming after halting in March, the tracking data show.

    The resurgence in Iranian shipments comes after deliveries from other members of the Organization of Petroleum Exporting Countries dropped last month amid supply disruptions. Nigeria and Iraq saw a combined decline of 90,000 barrels a day, according to the International Energy Agency.

    The Iranian volumes highlight that a rebalancing of the market will have to come primarily from countries outside OPEC, provided that crude prices don’t rise too far, said Ole Hansen, head of commodity strategy at Saxo Bank A/S. If Iran “can keep up sales of that magnitude during the coming months when supply disruptions from northern Iraq and Nigeria begin to fade, we may have to look a bit further out for that rebalancing,” he said.

    The price of benchmark Brent crude has rebounded by more than 35 percent since mid-February when Saudi Arabia and Russia, the world’s two biggest oil producers, first signaled their willingness to cooperate on freezing output.

    The IEA said Thursday it expects the global oil surplus to almost disappear in the second half of this year, with the glut dwindling to 200,000 barrels a day from 1.5 million in the first six months.
    Back to Top

    China March crude runs down 0.2 pct on year - stats bureau

    China's March refinery throughput fell 0.2 percent compared with the same period a year earlier to 44.91 million tonnes, or 10.58 million barrels per day (bpd), data from the National Bureau of Statistics showed on Friday.

    The daily run rate in March was largely unchanged from the 10.59 million bpd recorded in the first two months this year.

    China's crude oil output fell 3.9 percent on year to 17.37 million tonnes, the bureau said.

    Attached Files
    Back to Top

    BP hit with ‘symbolic slap’ after shareholders vote against pay rise

    BP’s directors today suffered a symbolic slap in the face after shareholders voted against their pay rises.

    Nearly 60% rejected the directors’ remuneration report that granted Chief Executive Bob Dudley a 20% increase, taking his package to £14million.

    The boost was awarded despite the group posting its largest annual loss for 20 years and axing thousands of jobs worldwide.

    While the directors have already been paid and the vote is not binding, it sends a clear message of dissatisfaction.

    Just under 41% of shareholders voted in favour of the report at the annual general meeting in London, compared to 59.11% against.

    The company has pledged to review its remuneration policy ahead of next year’s gathering.
    Back to Top

    Gulf Keystone Delays Bond Payments as Oil Drop Squeezes Finances

    Gulf Keystone Petroleum Ltd. will delay about $26 million of bond payments due next week as low oil prices and disruptions in Iraq press its finances.

    The company intends to use grace periods for payments on convertible bonds and guaranteed notes due on April 18, it said in a statement on Thursday. Shares of the London-based oil explorer tumbled as much as 36 percent to record-low 4.5 pence.

    Gulf Keystone, which operates in the Kurdish region of northern Iraq, also intends to hold talks about fundraising and debt obligations after oil prices plunged about 60 percent in two years. Financial difficulties have been compounded by previously erratic export payments from the Kurdistan Regional Government.

    “We are working to achieve the best possible way to restructure our balance sheet,” Gulf Keystone’s Chief Executive Officer Jon Ferrier said in the statement. “Addressing our funding needs will ensure the company’s longer-term future.”

    The Shaikan wells in Kurdistan, operated by Gulf Keystone and MOL Hungarian Oil & Gas Plc, need $71 million of investment to maintain current production levels, according to the statement. Spending of $88 million is required to raise production to 55,000 barrels of oil a day.

    Payments on $325 million of October 2017 convertible notes can be delayed until May 2, without risk of default. Those on $250 million of guaranteed notes due April 2017 can be postponed until May 3. The convertible notes are quoted at 13 cents on the dollar, while the guaranteed notes are at 49 cents, according to data compiled by Bloomberg.

    Bondholders including GLG Partners, Sothic Capital Management and Taconic Capital Advisors have hired Houlihan Lokey Inc. to advise them on the potential debt restructuring, people familiar with the matter said in February.

    Attached Files
    Back to Top

    Pacific Exploration & Production provides restructuring update

    Pacific Exploration & Production Corp. today provided an update in respect of its efforts to formulate a comprehensive financial restructuring that will reduce debt, improve liquidity, and best position the Company to navigate the current oil price environment.

    The Company has engaged in an extensive bid solicitation process over the last few months, which process involved the active participation of (i) an ad hoc committee of noteholders (the 'Ad Hoc Committee') representing over 50% of the aggregate principal amount of the Company's senior unsecured notes; and (ii) the Company's lenders under its credit facilities (the 'Bank Lenders'). As previously announced, a number of proposals were received from third parties. As part of this process, bidders were permitted to disclose their offers to, and negotiate directly with, the Ad Hoc Committee and the Bank Lenders.

    Following this process, the Board of Directors of the Company, acting upon a recommendation of the Independent Committee of the Board, has resolved to negotiate a consensual restructuring transaction involving The Catalyst Capital Group Inc. ('Catalyst') and the Company's creditors. The Company, the Ad Hoc Committee, the Bank Lenders and Catalyst continue to be engaged in direct negotiations in an effort to finalize the terms of such restructuring as soon as possible. There can be no assurance that the parties will reach an agreement with respect to such a restructuring or as to the terms of any restructuring.

    The Company's operations continue as normal and without disruption. The Company has remained, and intends to remain, current with its suppliers, trade partners and contractors.

    The Company and its creditors remain committed to finding the best alternative for the long-term interests of the Company, its approximately 2,400 employees and more than 3,000 contract workers, suppliers, customers and other stakeholders. The Company intends to advise the market by further news release immediately following the execution of any definitive documentation, which release shall include the terms of such restructuring.
    Back to Top

    Russia seeking strategic investor to buy Rosneft stake -Putin

    President Vladimir Putin said on Thursday the Russian government was searching for a strategic investor to buy a 19 percent stake in global top oil producer Rosneft as part of a privatisation plan.

    "We will be searching for a strategic partner who understands and knows that one should not be greedy while buying, let's say, 19 percent of shares in Rosneft," Putin told reporters after his annual televised phone-in.

    "That (partner) should not pay attention to the current share price but should look into the future," he added. "If we find such a partner ... then we will take this step."

    State-controlled Rosneft, in which BP owns 19.75 percent, is on a Russian government list of companies slated for privatisation in 2016 in order to prevent the state budget deficit from ballooning.

    Russian Economy Minister Alexei Ulyukayev said on Wednesday legal advisers had been chosen for Rosneft's privatisation.
    Back to Top

    Halliburton and Baker Hughes in talks to sell $7 billion in assets, report says

    Halliburton and Baker Hughes are in talks to sell $7 billion in assets to private equity shop Carlyle Group LP, according to a report in the Wall Street Journal.

    The two Houston companies  have sought to overcome antitrust concerns over their potential $35 billion merger by shopping overlapping assets to competitors such as General Electric Co. and, briefly, Weatherford International. The report indicates a widening of the market for the businesses owned by Halliburton and Baker Hughes, which have faced strong opposition from antitrust regulators over their plan to combine.

    The Journal, citing sources familiar with the matter, said Halliburton and General Electric couldn’t agree on a price, though it remains in the running to buy the businesses. Regulators were in part concerned that the businesses Halliburton shed wouldn’t survive on their own or as part of a smaller competitor. In addition, low oil prices have strained the oil services industry, limiting the pool of buyers willing to shell out for new ventures.

    A sale to a private equity group such as Carlyle Group could address some of these concerns, the Journal reported, though it’s not clear the talks could result in a sale or regulators would bless the divestment.

    As part of the merger agreement signed in November 2014, Halliburton agreed to sell assets that generated as much as $7.5 billion in 2013 revenue, but that failed satisfy the Justice Department. Bill Baer, assistant attorney general for the antitrust division,  called the deal “unfixable” in announcing the recent lawsuit. “I’ve seen a lot of problematic mergers in my time, but I’ve never seen one that poses so many antitrust problems in so many markets,” he said.

    Both Halliburton and Baker Hughes have said they intend to fight to complete the merger. Halliburton has said in the past it was in talks with multiple buyers for its assets.
    Back to Top

    Global LNG markets moving closer to LNG-based indexation: LNG 18

    Global LNG markets moving closer to LNG-based indexation: LNG 18

    Growing production capacity and rising spot liquidity are accelerating the commoditization of the LNG markets, bringing them a step closer to LNG-based price indexation, a panel of experts said Thursday at the LNG 18 Conference, held in Perth, Australia.

    The delivered ex-ship (DES) markets in northeast Asia and the emerging free-on-board (FOB) market in the US Gulf Coast are the key spot trading points that could dominate contractual price indexation in the LNG industry beyond 2020, panelists said.

    Chaired by Cheniere's Andrew Walker and independent consultant David Ledesma, the panel was formed by Andree Stracke, Chief Commercial Officer with RWE Supply and Trading; Elizabeth Spomer, President and CEO with Jordan Cove LNG; Hiroki Sato, Vice President with Jera's Fuel Procurement Department; and Jonty Shepard, Chief Operating Officer for BP's Global LNG.

    "We will have a clear Asian market index and actually we have it today; we have the [Platts] JKM," said Stracke. "Nobody believes in it but everybody is opening the papers in the morning to see where the JKM is. That is a good sign, that there is something behind, and I am sure we will develop this one."

    "In the coal market, we have created markets where traders trade a product with great liquidity without any government support, and that is a very good proxy for the JKM or other Asian indexes, but it is really up to us, traders, producers and buyers, to be active in these markets," he added.

    "With the spot volumes coming into Asia and being available in the market, I really believe we will see a much stronger spot market in the entire world, with very similar price levels across the oceans, and this is something that we are already seeing today."

    Another LNG-based price indexation is likely to emerge in the US Gulf Coast, with plenty of potential FOB liquidity to come online, a wide range of active market participants, and no significant price difference among the exporting projects, panelists said.

    "It is a very diverse market that could form the basis of a reliable index," said Shepard. "You can have a US LNG price index in the same way we have Brent crude, and a lot of the world's oil is priced against Brent crude."

    For Jera's Sato, the establishment of a regional gas hub in Asia is the ultimate goal, as it would provide the flexibility, transparency and liquidity that the Asian and global markets need.

    "The JKM spot price, or the cocktail of several kinds of indexes, for me are a transition towards the final goal of introducing a hub index," Sato said, adding that the location of that hub -- whether in Japan, China or Singapore -- is less relevant.

    "Nowadays, Japanese buyers have a keen interest in the Henry Hub," which is an improvement from oil indexation, Sato explained. "The price of a product should be determined at a crossing point between the supply line and the demand line [of that product]."

    But, looking forward, an Asia-based hub index is necessary, especially in the uncertain demand climate. "We need the flexibility and, especially in a liberalized market, our customers require a very transparent pricing mechanism."

    Attached Files
    Back to Top

    Alternative Energy

    SunEdison in talks to sell Indian solar stakes to Fortum: sources

    SunEdison Inc is in talks to sell minority stakes in its Indian solar projects to Finland's Fortum, two sources said, as the U.S. firm seeks funds to finish proposed plants in India amid concerns about its finances at home.

    Heavily indebted SunEdison, once the fastest growing renewable energy developer in the United States, could soon file for bankruptcy protection, according to one of its publicly listed units.

    Fortum, a state-controlled utility, said on Tuesday it planned to invest 200-400 million euros ($225-$450 million) in solar projects in India and would look at developing large new projects or consider partnerships.

    Fortum is interested in taking stakes in SunEdison's projects, including a proposed 500-megawatt (MW) plant in Andhra Pradesh state it won last November after an aggressive bid, said the two sources with knowledge of the matter.

    Fortum spokeswoman Sophie Jolly declined to comment on any talks with SunEdison, but said it was "normal that there would be rumours and speculation around our interest in any solar, and particularly now in India".

    SunEdison said in an email it was in discussions for equity partners in its projects but declined to name any investor.

    The company has around 600 MW of projects constructed and financed in India, with plans to build another 1,700 MW in the coming year, according to one of the sources.

    SunEdison has also drawn preliminary interest from Indian billionaire Gautam Adani's fast-expanding Adani Group, though a person close to Adani said the low tariff agreed for the Andhra plant would make any deal hard for Indian firms.

    Goldman Sachs-backed Indian renewable energy company, ReNew Power, is also in talks with SunEdison for the assets, the Hindu newspaper reported on Thursday. One of the sources also reported the talks, but ReNew declined immediate comment.
    Back to Top

    Precious Metals

    Deutsche Bank Confirms Silver/Gold Market Manipulation In Legal Settlement, Agrees To Expose Other Banks

    Back in July of 2014, we reported that in an attempt to obtain if not compensation, then at least confirmation of bank manipulation in the precious metals industry, a group of silver bullion banks including Deutsche Bank, Bank of Nova Scotia and HSBC (later UBS was also added to the defendants) were accused of manipulating prices in the multi-billion dollar market in a lawsuit filed on Friday.

    The lawsuit, which was originally filed in a New York district court by veteran litigator J. Scott Nicholson, a resident of Washington DC, alleged that the banks, which oversee the century-old silver fix manipulated the physical and COMEX futures market since January 2007. The lawsuit subsequently received class-action status. It was the first case to target the silver fix.

    Many expected that this case would never go anywhere and that the defendant banks would stonewall indefinitely: after all their legal budgets were far greater than the plaintiffs.

    Which is why we were surprised to read overnight that not only has this lawsuit against precious metals manipulation not been swept away, but that the lead defendant, troulbed German bank Deutsche Bank agreed to settle the litigation over allegations it illegally conspired with Bank of Nova Scotia and HSBC Holdings Plc to fix silver prices at the expense of investors, Reuters reported citing a court filing on Wednesday showed.

    Terms were not disclosed, but the accord will include a monetary payment by the German bank, a letter filed in Manhattan federal court by lawyers for the investors said.

    It goes without saying, that there would have been neither a settlement nor a payment if the banks had done nothing wrong.

    According to Reuters, Deutsche Bank has signed a binding settlement term sheet, and is negotiating a formal settlement agreement to be submitted for approval by U.S. District Judge Valerie Caproni, who oversees the litigation. A Deutsche Bank spokeswoman declined to comment. Lawyers for the investors did not immediately respond to requests for comment.

    But wait there's more.

    In a curious twist, the settlement letter reveals a stunning development, namely that the former members of the manipulation cartel have turned on each other. To wit:

    “In addition to valuable monetary consideration,Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.”

    Well, that didn't take long.

    Earlier today when we reported the stunning news that DB has decided to "turn" against the precious metals manipulation cartel by first settling a long-running silver price fixing lawsuit which in addition to "valuable monetary consideration" said it would expose the other banks' rigging having also "agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement" we said "since this is just one of many lawsuits filed over the past two years in Manhattan federal court in which investors accused banks of conspiring to rig rates or prices in financial and commodities markets, we expect that now that DB has "turned" that much more curious information about precious metals rigging will emerge, and will confirm what the "bugs" had said all along: that the precious metals market has been rigged all along."

    This was confirmed moments ago when Reuters reported that Deutsche Bank has also reached a settlement in US litigation alleging the bank conspired to fix gold prices. In other words, hours after admitting it was rigging the silver market, it did the same for gold.

    Attached Files
    Back to Top

    Base Metals

    Why the LME is zeroing in on warehouse load-out charges (again)

    A huge amount of aluminum is heading for the exit door on the London Metal Exchange (LME).

    The amount of metal earmarked for physical load-out from LME warehouses has mushroomed over the last month from 561,450 tonnes on March 14 to a current 1,257,650 tonnes. So-called canceled tonnage now represents almost half of all the aluminum in the system.

    Most of these cancellations have occurred at the Dutch port of Vlissingen, where the amount of metal awaiting load-out has soared to 898,975 tonnes, or 80 percent of the total.

    This sudden surge in pending departures, as always with aluminum, is all about storage costs.

    Because from May metal trapped in a load-out queue over 30 days will be subject to drastically reduced rent or, if the queue is over 50 days, no rental charges at all.

    Pacorini Metals, the logistics arm of Swiss trade house Glencore, had a load-out queue of 84 days at the end of March in Vlissingen. It has just got a lot longer over the last few days as traders and financiers lick their lips at the possibility of zero rent.

    There will be few tears shed for Pacorini, which has been one of the main beneficiaries of load-out bottlenecks.

    But it won't be completely out of pocket because each ton that is loaded out will earn it another 31.40 euros ($35.40).

    And that's the amount that each ton will gain in value as it moves from a Pacorini shed onto a truck, another part of the disconnect between the LME price of aluminum and the price paid by an actual user.

    Which is why the LME's latest discussion paper on tackling excessive storage charges zeroes in on that load-out charge, or as it's known on the exchange, the "free on truck" (FOT) charge.

    The LME had flagged well in advance it was about to engage in a consultation on the high headline rental and FOT charges in its warehousing system in light of some sharp increases in both in the current rent-cycle year.

    And last week's "Discussion Paper relating to LME Warehousing Costs" included four options aimed at restricting future increases in both.

    It was the inclusion of a fifth option, switching all the LME's contracts from the current "in-warehouse" to "free-on-truck" basis that was the surprise.

    Particularly since the LME has been here twice before.
    Back to Top

    Antaike lowers 2016 zinc conc demand forecast for China on ailing galvanized steel sector

    China's state-owned metals consultancy Beijing Antaike has lowered its zinc concentrate demand forecast for China this year to 5.69 million mt, from 6.33 million mt previously, as the country's galvanized steel sector falters.

    The revised forecast implies demand this year will fall 1% from 5.755 million in 2015.

    In its zinc sector report issued Thursday, the agency said weak market conditions have kept domestic galvanized steel operation rates low over January-February, noting that the era of high-speed steel output growth has ended.

    According to Antaike, spot treatment charges for imported zinc concentrate in February were $120-$130/mt, down from $130-$140/mt in January. It said while TC offers were as low as $115/mt, trades of imported zinc concentrate were thin as imported concentrate prices were higher than domestic levels based on the February TCs.

    TCs, the fees paid to smelters by mines for converting the concentrate into refined zinc, are a key source of revenue for smelters.

    Antaike expects China to import just 1.2 million mt of zinc concentrate in 2016, down 20% year on year, as global supply tightens following the shutdown of two mines, namely Century in Australia and Lisheen in Ireland.

    China's zinc concentrate output this year is expected to rise 3.5% to 4.4 million mt, on the back of an increase in domestic zinc smelting capacity, mainly in central China's Anhui province and Qinghai province in northwestern China, Antaike said.

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    China March coal output dips 4.5 pct on year - stats bureau

    China produced 294 million tonnes of coal in March, down 4.5 percent from a year ago amid state-led efforts to restrict production and tackle a supply glut.

    Chinese coal output over the first quarter reached 811.27 million tonnes, down 5.3 percent on the year, according to data from the National Bureau of Statistics published on Friday, with miners under pressure to limit output to shore up prices. Coking coal output for use in steel production also fell 5.3 percent in the first quarter on the year to 36.05 million tonnes.

    Prices at the port of Qinhuangdao in Hebei province SH-QHA-TRMCOAL have gained 5.4 percent so far in 2016, suggesting that China's efforts to curb supplies are having an impact, although the values are still down 20 percent from a year ago.

    Analysts forecast that prices will recover further in the coming months, with power plants starting to restock after letting inventories run low in the first two months of the year.

    "Domestically, output is being cut, inventories are falling, so the price is going up," said Zhang Xiaojin of Everbright Futures. "Traders are quite positive right now."

    Mao Zhongsheng, the general manager of the sales division of the Shenhua Group, China's biggest state mining firm, told a conference on Thursday that sentiment in the market was showing signs of improvement in March following a difficult year.

    He said operating rates at coal mines in key producing regions in Inner Mongolia and Shanxi had risen to over 90 percent in March as they prepare for a seasonal spike in demand.

    "Industrial output has brought about a recovery in power consumption, and coal consumption at key coastal power plants rose 960,000 tonnes to 34.92 million tonnes in March, putting an end to a period of monthly declines that began in September last year," he said.

    Other key downstream sectors also showed signs of improvement in March.

    Chinese steel output rose 2.9 percent on the year to 70.65 million tonnes, as a seasonal pickup in demand made production profitable.

    After months of declines, cement production - another sector heavily dependent on coals - rose 24 percent compared to last year, reaching 201.4 million tonnes in March.

    Power generation also rose 4 percent to 477.9 billion kilowatt-hours in March.

    Chinese coal imports in March rose 15.6 percent on the year, data from the country's customs authority showed on Wednesday, suggesting major power plants were restocking ahead of summer.

    Analysts warned, however, that the March figure may have included some volumes imported in February but not counted because of disruptions due to Chinese New Year.
    Back to Top

    Shenhua starts pilot run of new coal-to-olefin project

    Shenhua Group started the pilot run of its new coal-to-olefin project at Urumqi in
    The project, which was built and operated by Xinjiang Coal & Chemical Branch Company under Shenhua group, has a designed capacity of 0.68 million tonnes per annum.

    Shenhua Group has invested a total 22.88 billion yuan ($3.53 billion) on the project, the most-invested-ever coal chemical project since the establishment of the autonomous region, said Peng Xiaochun, Party secretary of the branch company.

    It has reportedly finished its construction, and is expected to be put into operation before or after International Labors’ Day holidays in early May.

    Meanwhile, the branch company, approved by Shenhua Group on April 10, will be altered to the Group’s subsidiary through official procedures. The move means that all the company’s taxes will be a part of local government’s revenue, which undoubtedly provides sound support for local economic development, Peng said.
    Back to Top

    China Q1 thermal power output down 2.2pct on year

    China Q1 thermal power output down 2.2pct on year

    Electricity output from China’s thermal power plants – mainly coal-fired – stood at 1,049.3 TWh in the first quarter this year, dropping 2.2% year on year, showed data from the National Bureau of Statistics (NBS) on April 15.

    The decrease in China’s thermal power generation was mainly attributed to surplus power supply amid slowing domestic economy.

    By contrast, China’s hydropower output increased 17.5% on year to 203.3 TWh during the period, indicating a sound development of hydropower station across the country.

    Total electricity output in China reached 1,355.1 TWh over January-March, up 1.8% from a year ago, the NBS data showed.

    In March, China’s total power output increased 4% on year to 477.9 TWh, with that of thermal and hydropower standing at 364.2 TWh and 74.7 TWh, up 1.2% and 9.2% from a year ago, respectively.

    That equated to daily output of 15.42 TWh on average in the month, rising 4% on year.

    Over January-March, the share of thermal power generation in the total power generation stood at 77.43%, while hydropower output accounted for 15%.

    Much attention has been drawn on the excess installed capacity of thermal power generation lately, which was forecasted to be more than 200 GW during the "13th Five-Year Plan" period (2016-2020).

    Local governments and enterprises are further urged by National Development and Reform Commission (NDRC) and National Energy Administration (NEA) to slow down the construction of coal-fired power utilities, in response to the current situation.

    Attached Files
    Back to Top

    China's crude steel output hits record high in March

    China's crude steel output hit a record high of 70.65 million tonnes in March, data showed on Friday, as a rally in steel prices and a seasonal pick-up in demand encouraged steel mills in the world's top producer to boost production.

    Steel output rose 2.9 percent from a year ago, beating market expectations, although total output in the first quarter was down 3.2 percent at 192.01 million tonnes, according to data from the National Bureau of Statistics.

    Mills increased production last month in response to restocking by steel users that has helped drive up domestic prices by 34 percent this year.

    Some steel mills are making a profit of as much as 500-600 yuan ($77.11-$92.49) a tonne, but a slowing economy, credit shortages and China's target of cutting overcapacity in the sector is expected to hit momentum later this year.

    "This is really surprising. Steel output will likely rise further in the second quarter due to improving demand, but we still expect full-year output to drop slightly from 2015 due to supply-side reforms and tight credit," said Yu Yang, an analyst at Shenyin & Wanguo Futures in Shanghai.

    China's economy grew 6.7 percent in the first quarter from a year earlier, its slowest pace in seven years, although other indicators show the slowdown in the world's second-largest economy may be bottoming out.

    China accounts for about half of global steel production and it aims to cut between 100 million and 150 million tonnes of crude steel capacity in five years.

    Crude steel production fell 2.3 percent to 803.8 million tonnes last year, the first annual drop since 1981.

    Attached Files
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP