Mark Latham Commodity Equity Intelligence Service

Thursday 11th February 2016
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    Saudi Arabia's King Salman plans to visit Moscow

    in mid-March, RIA news agency reported on Wednesday, citing Kremlin aide Yuri Ushakov.
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    France's Fabius says U.S. ambiguous on Syria, unlikely to change for now

    France's Fabius says U.S. ambiguous on Syria, unlikely to change for now

    French Foreign Minister Laurent Fabius on Wednesday questioned the commitment of the United States to resolving the crisis in Syria, saying its "ambiguous" policy was contributing to the problem.

    "There are the ambiguities including among the actors of the coalition ... I'm not going to repeat what I've said before about the main pilot of the coalition," Fabius told reporters. "But we don't have the feeling that there is a very strong commitment that is there."

    Fabius, who separately announced on Wednesday that he was leaving the French government, as expected, said he did not expect U.S. President Barack Obama to change his stance in the coming months.

    "I don't think that the end of Mr Obama's mandate will push him to act as much as his minister declares (publicly)," he added, referring to Secretary of State John Kerry.
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    OPEC Sees Steeper Drop in Rivals' Supply as Price Curbs Spending

    OPEC revised estimates of production from rival suppliers, indicating a steeper drop in non-OPEC supply than previously anticipated.

    Production outside the Organization of Petroleum Exporting Countries will fall by 700,000 barrels a day in 2016, or 40,000 a day more than the group estimated last month. OPEC’s output increased by 130,700 barrels a day in January to 32.34 million a day. That’s about 600,000 a day more than the average required for this year.

    “Announced capex cuts by international oil companies, the fall in active drilling rigs in the U.S. and Canada, and a heavy annual decline in older fields” explains the deeper slump in non-OPEC supply, the organization’s Vienna-based secretariat said Wednesday in its monthly market report.

    Oil prices remain capped near $30 a barrel after sliding to a 12-year low in late January as resilient U.S. shale production and increased OPEC output prolong a global surplus. The retreat in non-OPEC supply indicates that the organization’s Saudi-led strategy to defend market share is having some success.

    U.S. drillers are operating about a third of the rigs they were using before Saudi Arabia’s resolve to keep pumping was made clear in late 2014, data from Baker Hughes Inc. show. Still, many OPEC members have expressed concern that the current policy is causing too much economic pain. Venezuelan Oil Minister Eulogio Del Pino toured oil capitals from Moscow to Riyadh last week in the hope of brokering an accord that would constrain supply, without securing an agreement.

    Output from OPEC’s 13 members increased last month as Iran, Iraq, Nigeria and Saudi Arabia increased production, according to “secondary sources” cited by the report. Nigeria’s gain was biggest, adding 74,000 barrels to reach 1.87 million barrels a day.

    OPEC sees oil demand rising by 1.25 million barrels a day this year to 94.21 million a day. That’s a 10,000-barrel-a-day reduction to its previous forecast.

    The group raised its estimate for non-OPEC supply growth in 2015 by 90,000 barrels a day to 1.32 million barrels a day.

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    Rio Tinto slides to annual loss, abandons payout policy

    Rio Tinto slumped to a loss for 2015 as prices for iron ore and copper plummeted and scrapped its promise to maintain or lift its dividend annually for this year onward due to a tough outlook.

    The world no.2 miner held its 2015 full-year dividend steady at $2.15 a share - although below market forecasts for a higher dividend - at a time when all its peers are tipped to cut or suspend their payouts to shore up their balance sheets.

    Rio reported a net loss of $866 million, hammered by $1.8 billion in writedowns, relating mainly to its Simandou iron ore project in Guinea.

    Rio's underlying earnings slumped 51 percent to $4.54 billion in 2015 from $9.31 billion a year earlier hit by weaker iron ore, copper and aluminium prices. That was in line with analysts' average forecast of $4.534 billion.

    "In light of the significant deterioration in the macro-economic environment and the resultant market uncertainty, the board believes that it is no longer appropriate to maintain the progressive dividend policy," the company said in a statement.

    Miners are under pressure from credit rating agencies to curb spending, including cutting dividends, to help them weather the worst market conditions in nearly two decades.

    Rio Tinto Chief Executive Sam Walsh said continued economic deterioration had generated widespread market uncertainty, calling for a shift in how the company spends its money.

    "We are embarking on a new round of proactive measures to cut our operating costs by a further $1 billion in 2016 followed by an additional goal of $1 billion in 2017," he said.

    Standard & Poor's and Moody's have warned they may cut miners' ratings, with S&P saying it may downgrade Rio Tinto and BHP Billiton if the companies stick to their "progressive dividend" policies, under which they promise to never cut their payouts.

    Rio said for 2016 the company intended to a pay a full-year dividend of not less than $1.10 a share.

    Rio Tinto is in a stronger position than its rivals as it has reduced net debt sharply over the past three years.

    Rio's net debt stood at $13.8 billion as of the end of December 2015, which is $700 million better than the $14.5 billion pro-forma position at the end of 2014. Analysts were expecting net debt of $14.8 billion.

    We don't run our business on hope, we run it with foresight and focus," Walsh told reporters.
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    Glencore agrees gold and silver streaming deal with $500m upfront

    Glencore has agreed a $500m gold and silver streaming deal from its Antapaccay mine in Peru to help ease its balance sheet woe.

    The debt-burdened FTSE 100 group, which also posted its 2105 production report, expects to receive the $500m advance payment via its wholly owned Narila subsidiary before the end of the month in return for delivering 630,000 oz of gold, 10m oz of silver.

    After those amounts are delivered, Narila will supply 30% of gold production and 30% of silver production thereafter in exchange for ongoing payments of 20% of the spot gold and silver price per ounce delivered, increase to 30% of the respective spot prices after 750,000 ounces of gold, and 12,800,000 ounces of silver have been delivered.

    This transaction forms part of Glencore's debt reduction plans announced on 7 September.

    Production for 2015 was reported pretty much as expected by the market, with copper down 3% to 1.5m tonnes after a 6% fall in the fourth quarter, zinc up only 4% to 1.4m tonnes after fourth quarter production was cut 20%, nickel was down 5% to 96,200 tonnes, ferrochrome up 12%, coal down 10%, oil up by 44%.

    For 2016 guidance was also mostly as expected with copper of 1.39m tonnes, zinc, 1.10m tonnes, lead 285,000 tonnes, nickel 116,000 tonnes, ferrochrome 1.58m tonnnes, coal 130m tonnes, though oil guidance was lowered to 8,500kbbl.

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    Oil and Gas

    BP CEO `Very Bearish' on Oil as Storage Tanks Are Filling Up

    BP CEO `Very Bearish' on Oil as Storage Tanks Are Filling Up

    BP is planning for oil prices to stay low for the first six months of the year and expects surplus production to only start diminishing when storage tanks fill up in the second half.

    “We are very bearish for the first half of the year,” Chief Executive Officer Robert Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in. The market will start balancing in the second half of this year.”

    More than a year into a downturn sparked by OPEC’s decision to keep pumping to defend market share, prices are still 70 percent below their 2014 peak and companies are beset by plunging profits, dividend cuts and mass layoffs. As the oil industry gathers in London for the IP Week conference, bankers, traders and executives are warning that worst of the slump isn’t over. Crude could fall “into the teens,” according to Goldman Sachs Group Inc.

    Global oil supply exceeds demand by as much as 1.7 million barrels a day, Igor Sechin, CEO of Russia’s largest producer Rosneft OJSC, said at the conference. The imbalance will probably ease by the end of this year and potentially become a supply shortfall of 700,000 barrels a day by the end of 2017, he said.

    BP expects to see “a faster tightening” than Rosneft, Dudley said.

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    Oil's Drop Brings `Staggering Losses' on Global Reserves: Chart

    Image title

    Plunging oil prices have cost energy-producing companies and countries tens of trillions of dollars worldwide through declines in asset values. The chart tracks the estimated value of proved reserves, based on annual data compiled by the U.S. Energy Information Administration and averages for a Bloomberg oil-price index. Figures for 2015 and 2016 are based on 2014 reserves, the most recent available, and don’t reflect any required cutsbecause of lower prices. Owners of these reserves have suffered “staggering losses” and are reacting “as surely as falling U.S. home prices affected consumer behavior in the last recession,” Millennium Wave Advisors LLC President John Mauldin wrote Saturday in a report.

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    Asia to Pay Less for Iran Oil in Break From Link to Saudi Prices

    Asia to Pay Less for Iran Oil in Break From Link to Saudi Prices

    Iran is selling its Heavy crude grade for March to buyers in Asia at a deeper discount to Saudi Arabia’s prices for the first time in a decade as it seeks to wrangle market share after international sanctions ended.

    National Iranian Oil Co. will offer supplies to Asia at $2.60 a barrel below the average of Oman and Dubai grades for March, according to a company official who asked not to be identified because of internal policy. Iran, whose pricing has tracked Saudi Arabia’s since at least 2006, is giving buyers an additional 10-cent discount next month, according to data compiled by Bloomberg.

    The fifth-largest producer in the Organization of Petroleum Exporting Countries is seeking to win back market share after economic sanctions were lifted last month. The Persian Gulf nation has said it will boost exports by 500,000 barrels a day immediately and is preparing to introduce a new heavy grade as early as March. Iran, which was OPEC’s second-biggest producer before more penalties were imposed in 2012, is diverging from its quarterly pricing structure amid weaker demand, according to the NIOC official.

    “This is seen as a part of Iran’s method to win back its lost market share,” Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul, said by phone. “The country will need to have a good portion of its share restored before it can start negotiating with the Saudis and OPEC.”

    State-owned Saudi Arabian Oil Co. last week offered a $2.40 a barrel discount on Arab Medium crude for March sales to Asia. Based on the quarterly pricing structure which the Tehran-based company has used previously, Iranian Heavy was expected to sell at $2.50 below the benchmark Oman-Dubai average, 10 cents less than Saudi Arabia’s price for its comparable grade.

    National Iranian Oil also gave an additional 10-cent discount on its Forozan Blend to Asia, setting prices at $2.43 below the Oman-Dubai average for March, said the official. The company kept to the quarterly formula for sales of Iranian Light, offering it at 80 cents less than the benchmark.

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    Qatargas Clinches 15-Year Contract to Supply LNG to Pakistan

    Qatar Liquefied Gas Co., the world’s biggest producer of liquefied natural gas, signed a 15-year contract to supply Pakistan State Oil Co. with 3.75 million metric tons of fuel annually, the Qatari company said.

    The supplier, known as Qatargas, plans to deliver the first cargo in March, the company said Wednesday in an e-mailed statement. Qatargas didn’t disclose the contract’s value. A proposed deal with Qatar for 1.5 million tons of LNG per year was worth $16 billion, Pakistan’s Petroleum Minister Shahid Khaqan Abbasi said during a visit to Doha in November.

    Pakistan plans to import as much as 20 million tons of the super-chilled gas annually, enough to feed about 66 percent of Pakistan’s power plants. A fuel shortage has idled half the nation’s generators. A 75 percent drop in LNG prices since 2014 has reduced the cost of the South Asian country’s energy needs.

    Qatargas, with annual capacity of 42 million tons, will supply Pakistan State Oil from joint venture plants it operates with ExxonMobil Corp. and Total SA. Pakistan State Oil shares rose 1.7 percent, the most since Feb. 4, to close as the leading gainer by points in Karachi’s benchmark 100 share index.

    Talks between Qatargas and Pakistani officials date back to 2012. Pakistan intended to buy 3 million tons of LNG per year, split between long-term and shorter contracts. The country’s state oil company decided to cancel a tender for 60 cargoes of the fuel in January.
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    Total's Quarterly Profit Beats Estimates on Oil Output, Refining

    Total SA posted fourth-quarter earnings that beat analyst estimates as rising oil and gas production, higher gasoline and lubricant sales, and profit from refining helped the French company weather a slump in crude prices. The company deepened cost and investment cuts.

    Adjusted net income fell 26 percent from a year earlier to $2.08 billion, the company based outside Paris said in a statement Thursday. That exceeded the average $1.77 billion estimate of nine analysts surveyed by Bloomberg. Total reported a net loss of $1.63 billion after writing down the value of assets in Canada and Nigeria, among other projects.

    “Upstream production increased by a record 9.4 percent, driven by the startup of nine projects” in 2015, Chief Executive Officer Patrick Pouyanne said in the statement. “Refining & Chemicals was able to fully benefit from good margins thanks to the high availability of its installations.”

    The oil producer joins BP Plc and Royal Dutch Shell Plc in cutting operating costs and investments to protect its dividend as a plunge in prices dents earnings. The company said in September the measures will allow it to fund shareholder payouts in 2017 from the cash it generates pumping, refining and selling oil without the need to take on debt, even with crude at $60 a barrel.

    Total kept its quarterly dividend unchanged from the third quarter at 61 euro cents a share and offered investors the option of taking the payout in stock discounted by 10 percent in a bid to conserve cash.

    Total reiterated a plan to sell $10 billion of assets in the three years through 2017 including $4 billion this year, having already sold $4 billion last year. The company said it will exceed a target to save $3 billion by 2017 compared with its 2014 cost base.

    Total will reduce investment to $19 billion in 2016 from $23 billion last year. In September it planned to invest $20 billion to $21 billion in 2016. For 2017, Total repeated a previous forecast to spend $17 billion to $19 billion.

    Oil and gas production, which climbed 9.4 percent to 2.35 million barrels of oil equivalent a day last year, will rise by 4 percent this year with increased output from projects such as the Laggan and Tormore gas and condensate fields in the West of Shetland area, the company said.

    Total repeated its target to boost production by 5 percent a year in the 2014 to 2019 period.

    Commenting on the firm’s year-end results, chairman and CEO Patrick Pouyanne said: “Hydrocarbon prices fell sharply in 2015 with Brent decreasing by around 50%. In this context, Total generated adjusted net results of $10.5billion, a decrease of 18% compared to 2014, the best performance among the majors.

    “This resilience in a degraded environment demonstrates the effectiveness of the group’s integrated model and the full mobilisation of its teams.”

    He said discipline on spending was reinforced in 2015 and the cost reduction allowed the group to save $1.5billion, exceeding the objective of $1.2billion.

    Patrick de La Chevardiere, Total’s chief financial officer, said: “For 2015, our initial target for savings was $800million dollars. Then we moved it to $1.2billion, we achieved $1.5billion. There is a lot of fat in our industry.

    “We can reduce costs. Contractors can reduce their costs. They can do.”

    Total is one of the few companies which has yet to make any redundancies.

    De La Chevardiere added: “We wanted to maintain our capacity, our technical skills at a reasonable level.

    “We are not hiring any new people at the moment but we would like to maintain our ability to develop new projects in the upstream and in the downstream.

    “This is our overall strategy to maintain our capacity.”

    When asked if Total had any plans to consolidate like Shell and BG, he said up to 50 potential targets had been presented to him by bankers, but he had rejected them all.

    He said: “The worst part of my job is that I meet bankers every day. Every day there is a banker giving me an idea for an acquisition.

    The price of these companies is much higher than what we can justify at let’s say in a $60 per barrel scenario.

    He indicated that position would be reviewed if the price was right.

    Organic Capex was $23billion a decrease of close to 15% compared to 2014 and upstream production increased by a record 9.4%, driven by the start up of nine projects.

    Refining and chemicals was able to fully benefit from good margins due to the high availability of its installations and the marketing and services segment grew strongly with retail networks growing by 6% and lubricants by 3%, according to the firm.

    Asset sales of $4billion were signed in line with the $10billion programme planned for 2015-2017.

    At the same time, Total was able to prepare its future with a reserve replacement of 107%.

    Gearing at year-end decreased to 28% as a result of the group’s financial strategy, designed to maintain a strong balance sheet through the cycle.

    Mr Pouyanne said the results confirmed the success of the group’s strategy to further decrease its breakeven and capitalise on its market position.”

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    Eni Said to Explore Sale of Gas and Power Retail Assets

    Eni SpA, Italy’s largest oil producer, is in the early stages of exploring a sale of gas and power retail assets as part of plans to reduce debt, according to people familiar with the matter.

    The business, which provides gas and power to households in Italy, could fetch as much as 2 billion euros ($2.3 billion), depending on which exact assets are included in the carve out, said the people, asking not to be identified because the deliberations are private. The Italian company is discussing the potential divestment with advisers and could still decide against a sale, they said.

    If Eni goes ahead with the auction, the business could attract private equity firms and utility companies, the people said.

    Eni never comments on market speculation on corporate activities, and in this instance, in particular, any speculation would be premature, according to a e-mailed statement from a spokeswoman for the company.

    The company has approved raising 2 billion euros in debt and scrapped its dividend and 6-billion-euro stock buyback plan as it looks for ways to conserve cash. Standard & Poor’s said this month that it may cut the debt rating of a number of major oil and gas companies, including Eni, as the industry adjusts to the collapse in oil prices.
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    Ecopetrol Shutting Wells as Costs Surpass Oil Price, Group Says

    Colombia’s Ecopetrol SA has started turning off the taps at several oil wells across the Andean nation as the cost of production exceeds crude prices, an industry group said.

    The state-controlled producer is shutting heavy-oil wells in Colombia’s central Meta province, as well as other locations, said Ruben Lizarralde, executive president of the country’s chamber of oil goods and services, or Campetrol.

    The worst crude-market collapse in a generation has left producers worldwide, big and small, short of cash needed to fund drilling, pay dividends and service debts. Oil’s plunge of more than 70 percent since mid-2014 so far hasn’t abated as U.S. supplies and output from the Organization of Petroleum Exporting Countries have risen in past months as producers fight for market share. The Brent benchmark is trading close to $30 a barrel.

    “Ecopetrol is closing wells,” Lizarralde said in an interview in Bogota Tuesday. “Why? Because it’s more expensive to produce than $30 a barrel.”

    Ecopetrol didn’t reply to several e-mail and phone messages seeking confirmation since Tuesday evening.

    Production Target

    Colombia will struggle to meet the government’s 2016 oil production target of 944,000 barrels a day if oil prices remain at current lows, Lizarralde said. In addition, oil service companies including Weatherford International PLC are taking machinery to other countries in the region, threatening Colombia’s ability to ramp up production if oil prices rebound.

    The average cost of producing a barrel of oil in Colombia is $35.30, the world’s seventh most expensive, Campetrol said in a Jan. 25 statement, based on data from consultants Rystad Energy. Many oil transportation companies in Colombia are charging excessive prices, Lizarralde said.

    Production costs at the Rubiales field, operated by Ecopetrol’s partner Pacific Exploration & Production Corp., also exceed oil prices, according to Lizarralde’s estimates. Pacific denied that the costs exceed prices in an e-mailed response to questions.

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    Crowded insurance industry becomes latest casualty of oil slump

    The insurance industry is becoming the latest casualty of the oil price slump, with postponements and cancellations of energy projects forcing down premium rates and income in a market that was already crowded.

    Insurers forecast income could dive by 20 percent or more, possibly forcing some players to quit the energy part of a business that has attracted new entrants hoping for better returns during the era of ultra-low interest rates.

    While most energy companies renew their policies in the first half of the year, the effects of the worst oil downturn in decades are already being felt by insurers and reinsurers, who take on a share of the risk in return for part of the premium.

    Hannover Re's chief executive Ulrich Wallin used some understatement in describing how the low oil price and resulting cuts in exploration and production projects have diminished demand for insurance protection.

    "It's a little bit of a crisis," Wallin told a conference last week. "We will see fierce competition ... on pricing."

    Nick Dussuyer, global head of natural resources at Willis Towers Watson, said some of the broker's major clients had significantly reduced their insurance programme limits, "with a corresponding dramatic reduction in premium spend".

    "If premium income levels continue to deteriorate, and capacity does not withdraw ... at some stage this portfolio is bound to become unprofitable," he told Reuters.

    "It will be interesting to see at this stage which insurers will choose to withdraw and which will try and ride out the storm, anticipating a turning market."

    In recent years, high returns in insurance and reinsurance in comparison with government bond yields have attracted new investors, ranging from hedge funds and private equity to pension funds and insurers from newer markets such as China.

    This had already driven up competition and put pressure on premiums in the broader insurance industry, even before oil prices began diving in mid-2014.

    Insurers are also likely to have further exposure to the oil market via their investments in corporate bonds issued by energy firms, according to ratings agency Fitch.

    William Lynch, head of energy at broker Aon, said a potential 20 percent fall in premiums could prove to be a conservative estimate, given the drop in projects being carried out and overall lower rates.

    Insurers are already suffering. Beazley said its energy business saw a 17 percent fall in rates in 2015, the strongest downward rating pressure of all its segments.

    "Our expectation is it's going to continue with further rate reductions this year," Beazley chief executive Andrew Horton said.
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    U.S. shale oil output to double by 2035 - BP

    U.S. shale oil production will double over the next 20 years as drillers that became more efficient amid a slump in oil prices unlock new resources, British energy giant BP said on Wednesday.

    In its industry benchmark 2035 Energy Outlook, BP forecast global demand for energy to increase by 34 percent, driven by growth in the world population and economy, with the share of oil declining in favour of gas and renewables.

    U.S. shale or tight oil production using fracking technology was a key driver behind global supply growth in recent years. The sector, with relatively expensive production costs, has nevertheless been hard hit by a 70 percent decline in oil prices over the past 18 months to around $30 a barrel.

    But in the longer term, shale production is set to grow from around 4 million barrels per day (bpd) today to 8 million bpd in the 2030s, accounting for almost 40 percent of U.S. production, according to the report.

    "We see U.S. tight oil falling over the coming years but thereafter tight oil picks up," BP Chief Economist Spencer Dale said.

    U.S. onshore production in the lower 48 states has declined by around 500,000 bpd since last spring and is expected to fall further in the near term as the global market readjusts before rebounding, Dale said.

    According to the report, "technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for U.S. production successively higher".

    Globally, tight oil production will rise by 5.7 million bpd to 10 million bpd but remain primarily concentrated in the United States.

    The head of Russian state-run oil company Rosneft, in which BP holds a near 20 percent stake, said on Wednesday he expected U.S. shale oil production to peak by 2020 and decline in the long term.

    Dale also said global oil demand, which grew by 1.8 million bpd last year, would continue to grow "strongly" this year albeit at a slower pace.

    "The market is responding very clearly to lower oil prices," Dale said.


    Fossil fuels, which include oil, gas and coal, will remain the dominant source of energy, accounting for around 80 percent of energy supplies in 2035. Gas remains the fastest-growing fossil fuel, rising by 1.8 percent per year compared to oil's 0.9 percent growth.

    Coal is set to be the main casualty of the world's shift towards cleaner forms of energy, as its share in the energy mix is set to drop to an all-time low by 2035.

    Renewable sources of energy such as solar and wind are projected to grow at around 6.6 percent per year, increasing their share in the energy mix from 3 percent today to 9 percent.

    Yet at the current projection, the world is far from meeting goals set by the United Nations to limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels by the end of the decade.

    While gross domestic product should more than double over the period, energy demand will grow by only one third due to higher energy efficiency and changes in economies such as China, which will become less energy-intensive, Dale said.

    Much of the demand growth will be driven by an expansion of the global vehicle fleet, which will double by 2035 from around 1.2 billion today to 2.4 billion.

    "Unless the global economy grows far more slowly than anybody thinks, you will get material growth in energy demand over the next 20 years," Dale said.

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    Summary of Weekly Petroleum Data for the Week Ending February 5, 2016

    U.S. crude oil refinery inputs averaged over 15.5 million barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the previous week’s average. Refineries operated at 86.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging about 4.4 million barrels per day.

    U.S. crude oil imports averaged over 7.1 million barrels per day last week, down by 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 5.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 683,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.8 million barrels from the previous week. At 502.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 1.3 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories increased by 1.3 million barrels last week and are near the upper limit of the average range for this time of year.

    Propane/propylene inventories fell 3.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.3 million barrels last week. Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 2.6% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, down by 15.8% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

    Crude stocks at the Cushing, Oklahoma, delivery hub rose by 523,000 barrels. The increase brought stockpiles at the hub to a new record.

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    US oil production drops below year ago levels

                                                   Last Week   Week Before   Year Before

    Domestic Production '000......... 9,186             9,214            9,226
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    Phillips 66 Dumps Oil In Cushing, Crashes Crude Spreads To 5 Year Lows: STORAGE CLIFF!!!

    With "unusual timing" and at "distressed prices," Reuters reports that Phillips 66 - the major US refiner owned by Warren Buffett - dumped crude oil for immediate delivery into Cushing storage tonight. This sparked heavy selling of the front-month WTI contract (to a $26 handle) and crashed the 1st-2nd month spread to 5 year lows.

    It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

    “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.



    graph of difference in inventory levels as of January 22, 2016 to previous 5-year average, as explained in the article text

    And now with Reuters reporting on major US refiners dumping crude, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories...

    Front-month WTI collapsed to a $26 handle...The unusual sales of excess oil crashed the March/April WTI futures spread... One trader described the market as a "bloodbath."

    It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.

     These deals drew notice among traders, who said the prices were distressed and the timing unusual... sending the cash-roll to 5 year lows...The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago.

     Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.

     "Midwest margins turned negative after operating expenses last week and forward cracks suggest margins will remain in the doldrums for some time," said Dominic Haywood, an analyst for Energy Aspects in London.

    If Phillips 66 does cut refinery runs, it would be the third refiner to capitulate amid record gasoline inventories and negative margins.

    Earlier on Wednesday, sources said Delta Air Lines' Monroe Energy refinery near Philadelphia had decided to cut output by 10 percent at its 185,000 barrels per day (bpd) refinery due to economic reasons.

     On Tuesday, sources said that Valero Energy Corp was planning to cut gasoline production at its 180,000 bpd Memphis, Tennessee, refinery by about 25 percent.

    U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.

    And so, with the news that Phillips 66 is dumping in apparent size, it appears, as we detailed previously, that BP's warning that storage tanks will be completely full by the end of H1

    "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.”

    May be coming true a lot sooner.

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    Continental Resources Announces Proved Reserves And Production For 2015

    Continental Resources, Inc. today announced proved reserves of 1.23 billion barrels of oil equivalent (Boe) at December 31, 2015, compared with year-end 2014 proved reserves of 1.35 billion Boe. Year-end 2015 proved reserves were 57% crude oil, 87% operated by the Company, and 43% proved developed producing (PDP).

    Harold Hamm, Chairman and Chief Executive Officer, commented, "The 9% year-over-year reduction in our proved reserves during 2015, compared with an approximately 50% reduction in crude oil prices, clearly validates the premier quality of Continental's inventory of assets."

    Total production for full-year 2015 was 80.9 million barrels of oil equivalent (MMBoe), or 221,700 Boe per day, an increase of 27% compared to full-year 2014. Crude oil accounted for 66% of total 2015 production, or 53.5 million barrels of oil. Natural gas production for the year was 164.5 billion cubic feet.

    Continental's year-end 2015 proved reserves had a net present value discounted at 10% (PV-10) of $8.0 billion. The Bakken play in North Dakota and Montana accounted for 663 MMBoe of Continental's year-end 2015 proved reserves, with a PV-10 value of $4.4 billion, or 56% of total proved reserves PV-10. The SCOOP Woodford and SCOOP Springer plays in Oklahoma accounted for 413 MMBoe of Continental's year-end 2015 proved reserves, with a PV-10 value of $2.5 billion, or 31% of total proved reserves PV-10. The Company completed its initial wells in the over-pressured window of the Oklahoma STACK play in the past year.

    Proved reserves finding cost was an average $9.87 per Boe for 2015. Production reduced 2015 proved reserves by 81 MMBoe, while drilling activity added 253 MMBoe. The conversion through drilling activity of proved undeveloped assets (PUDs) moved 81 MMBoe from the PUD category to the PDP category.

    PDP reserves increased 6% to 521 MMBoe at December 31, 2015, compared with year-end 2014. The Company had 1,860 gross (995 net) PUD locations at year-end 2015, with the Bakken accounting for 1,292 gross (705 net) PUD locations. Included in these PUD reserves are 179 gross operated (125 net) drilled but uncompleted wells (DUCs), representing 91 MMBoe in proved reserves. These DUCs have completion and equipping capital remaining to be invested to produce the additional PUD reserves.

    The Company's 2015 price deck for calculating proved reserves, before adjustment for location and quality differentials, was $50.28 per barrel of crude oil and $2.58 per MMBtu for natural gas, compared to the 2014 price deck of $94.99 per barrel for oil and $4.35 per MMBtu for gas.

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    Pioneer Natural Cuts Spending, Shuts Drilling Amid Rout

    In response to tumbling energy markets, the Texas shale explorer scrapped plans to increase outlays for drilling announced early last month, and instead will reduce spending about 9 percent from last year, according to an earnings report Wednesday. The company took a charge of $846 million for the lower value of oil fields and other assets.

    The worst crude price collapse in three decades has left producers worldwide short of cash needed to fund drilling, pay dividends and service debts. Oil has fallen more than 70 percent in New York since mid-2014, and the rout has so far shown no signs of abating as U.S. supplies remain near record levels.

    Pioneer, which sold new shares last month to raise cash, gave up on plans to boost spending to as much as $2.6 billion, from about $2.2 billion last year, and instead will budget $2 billion for new projects this year.

    The drilling will be paid for with cash flow, cash on hand and proceeds leftover from a pipeline sale last year, according to the statement. The company’s cash flow estimate assumes crude will average about $36 a barrel this year. Oil closed at $27.45 a barrel in New York on Wednesday, down 26 percent this year.

    Quarterly Loss

    A fourth-quarter net loss of $623 million, or $4.17 a share, compared with profit of $431 million, or $2.91, a year earlier, Irving, Texas-based Pioneer said. Excluding one time items, the per-share loss of 18 cents was better than the 34-cent average loss of 38 analyst estimates compiled by Bloomberg.

    Despite the spending cut, Pioneer said oil and gas production from its wells will expand by at least 10 percent this year. The statement was released after the close of regular U.S. equity trading. Pioneer has fallen about 29 percent in the past year.
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    Alternative Energy

    Obama vows to press ahead on Clean Power Plan after setback

    The administration of President Barack Obama is vowing to press ahead with efforts to curtail greenhouse gas emissions after a divided Supreme Court put his signature plan to address climate change on hold until after legal challenges are resolved.

    Tuesday’s surprising move by the court is a blow to Obama and a victory for the coalition of 27 mostly Republican-led states and industry opponents, who call the regulations “an unprecedented power grab.”

    By issuing the temporary freeze, a 5-4 majority of the justices signaled that opponents made strong arguments against the rules. The high court’s four liberal justices said they would have denied the request for delay.

    The administration’s plan aims to stave off the worst predicted impacts of climate change by reducing carbon dioxide emissions at existing power plants by about one-third by 2030.

    White House spokesman Josh Earnest said the administration’s plan is based on a strong legal and technical foundation, and gives the states time to develop cost-effective plans to reduce emissions. He also said the administration will continue to “take aggressive steps to make forward progress to reduce carbon emissions.”

    A federal appeals court in Washington last month refused to put the plan on hold. That lower court is not likely to issue a ruling on the legality of the plan until months after it hears oral arguments begin on June 2.

    Any decision will likely be appealed to the Supreme Court, meaning resolution of the legal fight is not likely to happen until after Obama leaves office.

    Compliance with the new rules isn’t required until 2022, but states must submit their plans to the Environmental Protection Administration by September or seek an extension.

    Many states opposing the plan depend on economic activity tied to such fossil fuels as coal, oil and gas. They argued that the plan oversteps federal authority to restrict carbon emissions, and that electricity providers would have to spend billions of dollars to begin complying with a rule that might end up being overturned.

    Attorney General Patrick Morrisey of West Virginia, whose coal-dependent state is helping lead the legal fight, hailed the court’s decision.

    “We are thrilled that the Supreme Court realized the rule’s immediate impact and froze its implementation, protecting workers and saving countless dollars as our fight against its legality continues,” Morrisey said.

    Implementation of the rules is considered essential to the United States meeting emissions-reduction targets in a global climate agreement signed in Paris last month. The Obama administration and environmental groups also say the plan will spur new clean-energy jobs.
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    Gamesa, Siemens negotiating final terms of wind merger: sources

    German engineering group Siemens (SIEGn.DE) and Spanish renewable energy group Gamesa (GAM.MC) are in final negotiations on a deal to merge their wind power assets, two sources familiar with the situation told Reuters on Wednesday.

    "They are all sitting together in Madrid at the moment," one of the sources said. "The deal is imminent. The enterprise value of the joint venture is close to 10 billion euros ($11 billion)."

    The deal could create a major industry player which would overtake Denmark's Vestas (VWS.CO) to become the world's biggest wind farm manufacturer by market share, present in both the mature North American and European markets and fast-growing markets like India, Mexico and Brazil.

    Siemens is dominant in the renewable offshore market but relatively weak onshore and has struggled to make wind power profitable.

    Gamesa is strong in emerging markets, notably Latin America, where it expanded when the Spanish government cut subsidies to clean energy producers in 2013.

    The Spanish turbine maker expects double-digit sales growth through 2017, when it hopes to sell 3,500-3,800 MW of capacity, up from an estimated 3,100 MW in 2015, its chairman Ignacio Martin told Reuters in November.

    A Siemens-Gamesa deal would be the latest in a string of mergers in the wind industry. Having weathered years of overcapacity and losses, it is now thriving as demand for carbon-free electricity increases.

    German turbine maker Nordex said in October it was buying the wind power business of Spain's Acciona (ANA.MC) for 785 million ($857 million).

    Market leader Vestas started the consolidation trend late in 2013, when it teamed up with Japan's Mitsubishi Heavy Industries (7011.T) to build offshore wind turbines, a capital-intensive industry with long lead times that favors companies with strong balance sheets.

    Gamesa had already partnered with France's Areva to build offshore wind turbines, which would give the new Siemens-Gamesa venture a foot in the nascent French market.
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    SolarCity's fund raising a concern amid slowing growth

    SolarCity Corp's shares plunged on Wednesday as investors worried about the company's ability to raise funds amid slowing growth in rooftop solar panel installations.

    Shares of SolarCity, backed by Tesla Motors CEO Elon Musk, slumped as much as 31 percent to their lowest in nearly three years, a day after the company said it installed fewer-than-expected solar systems for the second straight quarter.

    SolarCity lets homeowners avoid the hefty upfront cost of installing solar systems by allowing them to make low monthly payments for about 20 years.

    While this model has helped the company boost installations by eight-fold in three years, it has also increased costs and strained its ability to generate cash.

    The company has said it wants to slow its pace of growth to turn cash-flow positive by the end of the year.

    But the company's "hunger for new capital" remains a concern, J.P. Morgan analysts wrote in a note. The brokerage and eight others cut their price targets on SolarCity shares on Wednesday.

    SolarCity has been covering the cost of new installations by issuing asset-backed debt and through proceeds from tax equity deals, which allow investors to claim lucrative federal tax credits for solar energy systems.

    The cost of raising capital, however, is increasing.

    The yield on a $185 million private placement of the company's residential loans in January was higher than the company's previous offerings, indicating increased risk.

    SolarCity requires about $3.2 billion in capital this year, of which about $600 million will likely come from asset-backed securities and asset monetization, according to analysts at Roth Capital Partners. The brokerage cut its rating on the stock to "neutral" from "sell."

    The fall in installations is even more worrying, analysts said, because it comes despite an extension of U.S. tax credits for solar projects beyond 2016.

    "(The company's forecast) is even more regrettable as the overall fundamentals for the residential solar sector continue to remain pretty solid," said Portfolio manager Thiemo Lang of Zurich's RobecoSAM.

    "It might take time for them to regain trust. The current difficult stock markets just do not allow small misses."

    Up to Tuesday's close, SolarCity shares had more than halved in value in the past 12 months, partly because a steep decline in oil prices is weighing on investor interest in all renewable energy stocks.

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    Swansea tidal energy scheme faces 'disastrous setback' from government review

    The future of a revolutionary plan to generate electricity from a lagoon in Swansea Bay has been thrown into further doubt after the UK government unveiled plans for a six-month review of the wider tidal power sector.

    The promoters of the £1bn plan, Tidal Lagoon Power, said it welcomed any extra focus on this type of renewable energy but needed a final decision from ministers on its south Wales project within six weeks.

    The government has been in negotiations with Tidal Lagoon Power for more than a year and has repeatedly failed to meet company expectations about when it would agree a final subsidy necessary to make the project commercial.

    A Department of Energy and Climate Change spokeswoman said talks would continue with Tidal Lagoon Power but there would be no final decision on Swansea Bay aid till the review ended in the autumn.

    Energy minister Lord Bourne argued that government still needed to make sure that tidal power was in the interest of the country and household energy consumers.

    “Tidal lagoons on this scale are an exciting, but as yet an untested technology. I want to better understand whether tidal lagoons can be cost-effective, and what their impact on bills will be - both today and in the longer term.
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    Precious Metals

    Gold miner Kinross forecasts brighter 2016 production, costs

    Kinross Gold Corp, squeezed by slumping prices and production declines, expects to shake off a money-losing 2015 with record output and lower costs this year, the world's fifth-largest producer by output said on Wednesday.

    Chief Executive Paul Rollinson said the Toronto-based miner is "running a tight ship" that reflects a disciplined approach to capital, operations and acquisitions.

    Kinross expects record 2016 production of 2.7 million to 2.9 million ounces of equivalent gold at an all-in sustaining cost of $890 to $990 an ounce. Capital expenditure is forecast at approximately $595 million.

    In 2015, the company produced 2.59 million ounces, at the high end of its forecast of 2.5 million to 2.6 million ounces, at an all-in cost of $975 per ounce.

    Rollinson said he's not relying on a recent rally in gold prices to continue. "The gold price has been great in the last couple of weeks, but it's a volatile world out there," he said in an interview.

    Gold XAU= on Wednesday hovered below a 7-1/2 month high of $1,200 an ounce, touched on Monday, as investor appetite for safe-haven assets are fed by sliding stock markets and global economic worries. The spot price on Wednesday was $1,196.91 an ounce.

    Kinross continues to mull a two-step expansion of its Mauritania mine, Tasiast, and expects to report in late March the costs for a second phase of development, Rollinson said.

    The company estimated proven and probable mineral reserves at 34 million ounces of gold at year-end, and said additions largely offset depletion during the year.

    In its fourth quarter, Kinross recorded an adjusted loss of $68.8 million, or 6 cents a share, compared with an adjusted loss of $6 million, or 1 cent a share, in the same period the previous year.

    Analysts had expected an adjusted loss of 4.8 cents a share, according to Thomson Reuters I/B/E/S.

    During the quarter, Kinross produced 623,716 equivalent ounces of gold at its 10 mines in North and South America, Africa and Russia, at an all-in sustaining cost of $991 per ounce.

    That was down from 672,051 ounces in the same period the previous year due to low rainfall at its Paracatu mine in Brazil, when production costs were $1,006.
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    Steel, Iron Ore and Coal

    Iron ore's false bull rally to plummet back to reality: Russell

    The steel-making ingredient is currently on a winning streak, with Asian spot prices .IO62-CNI=SI at 20.3 percent above the most recent low hit in December last year.

    Thus iron ore sneaks into the definition of being in a bull market, having surpassed the 20 percent mark that somewhat arbitrarily designates a rally as being significant.

    But looks can be very deceiving. The Dec. 11 trough of $37 a tonne was actually the lowest recorded since spot assessments began in late 2008.

    The close on Wednesday of $44.50 means iron ore is a mere $7.50 away from the all-time low, with the modest gains in absolute terms providing context to the more impressive percentage rise.

    Still, a savvy trader who bet on a price rise after the low will have made handy profits, something increasingly difficult to do in the new paradigm of low and volatile commodity prices.

    While iron ore has had a few good weeks since mid-January, it's very unlikely that this is the start of any sustained rally, rather it's more likely an opportunity to go short again.

    The recent price gains have been driven mainly be seasonal factors, which are already likely passed.

    On the demand side, Chinese steel mills and traders generally build inventories ahead of the Lunar New Year holidays, which are being taken this week.

    On the supply side, the major export harbour of Port Hedland in Western Australia state was shut in late January as a tropical cyclone passed over it, contributing to a 17.6 percent drop in shipments on a month-on-month basis.

    Shipments from Brazil, the largest exporter after Australia, were also slower in January, dropping 37 percent month-on-month, due to temporary closure on environmental grounds of Tubarao port, which handles about 100 million tonnes of iron ore a year.


    With the temporary factors over, iron ore will once again be confronted with the reality of vast oversupply and tepid demand from China, buyer of about two-thirds of the world's seaborne cargoes of the commodity.

    It's worth thinking back to the last time iron ore was in a so-called bull market, in the third quarter of last year.

    The spot price rallied almost 33 percent from a low of $44.10 a tonne on July 8 to a peak of $58.50 on Sept. 10, after which it fell relentlessly to the low in mid-December.

    It's also safe to ignore announcements of minor cutbacks in production, such as the expected loss of about 4 million tonnes this year at South Africa's Kumba Iron Ore, the country's largest producer and a unit of Anglo American.

    This is spit-in-the-bucket levels of production losses, given the market is now oversupplied by at least 100 million tonnes.

    This means only output cutbacks by the big four miners, Brazil's Vale, Rio Tinto, BHP Billiton and Fortescue Metals Group, will make any difference, and so far there is no sign of this happening.

    The forward curve for iron ore swaps traded on the Singapore Exchange <0#SGXIOS:> show how unlikely it is that the current rally will be sustained.

    What the recent price gains have done is merely steepen the backwardation of the forward curve, with the front-month contract at a 30 percent premium to the 12-month in early trade on Thursday, up from 20 percent three months ago and 6.5 percent a year ago.

    In iron ore, the futures market appears to be telling a more compelling story than the spot market.
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    Voestalpine expects EU action to ease plight of steelmakers

    Austria's Voestalpine expects duties on cheap imports to take the pressure off Europe's steel industry this year following its worst downturn in about a decade.

    European steel companies are struggling to cope with sharp price falls and growing overcapacity as China and Russia are accused of exporting massive quantities at artificially low prices, a practice referred to as dumping.

    The European Union intends to impose duties on imports of cold-rolled flat steel from both countries.

    "Structural problems in Europe have to be overcome soon to protect the steel industry," Voestalpine Chief Executive Wolfgang Eder said on Wednesday, adding that he expected European anti-dumping measures to take effect in the course of the first half of 2016, "particularly towards the summer".

    In response to a difficult market, Voestalpine plans to expand its cost-cutting programme for 2016/2017 by 100 million, to 1 billion euros ($1.13 billion).

    The additional savings will mainly be derived from its metal forming and steel businesses, Eder said.

    The steel unit is Voestalpine's largest division, contributing around one third to group revenue. It saw third-quarter sales fall 10 percent versus the previous quarter, following a decrease on a similar scale in the prior period.

    The Linz-based company is aiming to become less dependent on traditional steel markets by raising its production of finished parts for the aerospace, rail and automotive industries. The autos sector alone generates around 30 percent of group sales.

    The emissions-cheating scandal at Europe's leading carmaker Volkswagen has had no effect so far on orders, Voestalpine's CEO Eder said.

    "Everything is running smoothly as in the years before the scandal," he told a conference call.

    For the full year, Voestalpine stuck to its earlier guidance that it expects core and operating profit to come in below last year's levels, after third-quarter earnings before interest and tax (EBIT) fell short of analysts' forecasts.

    The company's shares were up 1 percent at 23.03 euros at 1327 GMT, in line with a positive market trend.

    Shares in the firm have fallen around 30 percent over the past 12 months but have outperformed those of rivals Arcelor Mittal and United States Steel which have lost nearly 70 percent.
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    Sale of Italian steel giant Ilva draws 29 potential bidders

    Some 29 companies or consortia have registered initial interest in buying all or part of the European Union's largest steel plant, Ilva, the company said on Wednesday.

    The government took over administration of the loss-making Ilva last year to try to save some 16,000 jobs and clean up its polluting factories in the southern Italian city of Taranto.

    With the EU opening an investigation into possible illegal state aid at steel producer, Rome has put the company up for sale, hoping to wrap up a deal by June 30.

    Ilva said in a statement it had received 29 expressions of interest and an examination of the various proposals would start on Tuesday. It did not name any of the groups or companies that had expressed interest.

    It said potential partners deemed to be serious contenders would be allowed to enter a second phase and carry out due diligence on Ilva. After that, they would be expected to make a binding offer.

    The European Commission said last month an investigation into the state's dealings with Ilva would focus on whether measures allowing it to finance plant modernisation had given it an unfair advantage.

    EU rules allow member states to support research activities or relieve energy costs of steel companies, but there are strict rules against state aid used to rescue those in difficulty.

    Ilva was put under court administration in 2013 after magistrates seized 8.1 billion euros ($9.2 billion) from the owners, the Riva family, amid allegations that toxic emissions were causing abnormally high rates of cancer.
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