Mark Latham Commodity Equity Intelligence Service

Monday 16th May 2016
Background Stories on www.commodityintelligence.com

News and Views:

Attached Files







    Oil and Gas

    Genscape: Iran’s daily oil exports surge by 1.2M barrels since January


    Iran has managed to pump more of its oil back into Asia and Europe than it originally promised, surprising skeptics and laying the groundwork for a Mideast market-share clash — or a truce.

    Iran’s crude exports climbed to 2.35 million barrels a day in April, according to consulting firm Genscape, more oil than U.S. drillers pump in South Texas’ Eagle Ford Shale and North Dakota’s Bakken Shale put together.

    The sharp increase of 660,000 barrels a day compared to March — and 1.2 million barrels a day since January — puts Iran above its planned export target just three months after western powers lifted strict economic sanctions against Iran.

    “Iran has been waiting for this moment for years and they made the best of it,” said Amir Bornaee, an analyst at Genscape who tracks oil vessels.

    Many analysts had said Iran would fall short of its goal because its oil fields fell into disrepair in the three years that the West had sanctioned Iran’s oil exports.

    Some attribute the recent rise in Iran’s exports to a collection of vessels kept near the country’s coastline, but Bornaee says many of those tankers are still there, storing oil.

    Still, it is not clear how much of Iran’s oil came from the more than 30 million barrels it had stored onshore, and how much came from its oil fields.

    Iranian officials have been courting western oil companies and amending drilling contracts in a push to attract investments in its fields, so it’s possible Iran is selling its stored oil in an effort to reach its export goal quickly.

    That way, Iranian officials could be ready to call a truce in the ongoing market-share war by the time the Organization of Petroleum Exporting Countries meets in early June.

    “There’s a lot of posturing going on ahead of the OPEC meeting,” said Andy Lipow, president of Lipow Oil Associates in Houston.

    OPEC, Russia and others failed to reach an agreement last month to cap their production levels when Saudi Arabia balked at Iran’s refusal to join the freeze.

    One reason Iran’s surge in crude exports hasn’t sent oil prices down is because other countries like Canada, Nigeria and Libya have recently suffered production outages.

    The International Energy Agency on Thursday said Nigeria’s output has fallen to a two-decade low amid attacks on its energy infrastructure, and Canada has shut in 1.2 million barrels a day of production amid devastating wildfires, though the outage is expected to be temporary.

    Global oil demand is growing faster than anticipated at 1.4 million barrels a day, and production outside of OPEC is expected to fall 800,000 barrels a day, the IEA said, in a sign there are many market forces offsetting Iran’s return to the oil market.

    According to Genscape, Saudi Arabia lowered its oil exports by 700,000 barrels a day last month to 6.9 million, its first decline in exports this year. But Saudi officials have recently signaled the world’s largest oil-producing nation is gearing up to ramp up its output.

    “Until everyone freezes (oil production), these two countries (Iran and Saudi Arabia) aren’t likely going to slow down,” Bornaee said.

    http://fuelfix.com/blog/2016/05/12/iran-oil-export-surge-adds-another-bakken-to-the-global-glut/

    Attached Files
    Back to Top

    OPEC’s Stable Market Outlook Gives Few Drivers for Policy Change


    The 13 nations of the Organization of Petroleum Exporting Countries pumped 32.44 million barrels a day in April, slightly less than will be required in the the third quarter. Production rose as gains in Iran and Iraq compensated for losses in Nigeria and Kuwait. Investment by the global oil industry through 2018 will slump to less than half the amount spent from 2012 to 2014 following the collapse in prices, OPEC said.

    Oil prices have rebounded more than 75 percent from the lows reached in February as U.S. shale production falters, signaling that Saudi Arabia’s strategy to re-balance oversupplied world markets is taking effect. OPEC, which failed to complete an accord with non-members last month on capping output, has no current plans to revive supply limits when ministers meet on June 2, six delegates said on May 4.

    “It is widely recognized that an adequate return on investment is needed to maintain production levels, as well as to allow for the growth,” the group’s Vienna-based research department said in the monthly report. “A return to balance is a shared interest among consumers and producers alike.”

    While the group’s supply has typically exceeded the required amount in recent months, April output is about 380,000 barrels a day below the 32.8 million that OPEC estimates will be needed in the third quarter. That potential shortfall is a further indication the organization’s policy is working.

    Global oil demand will increase by 1.2 million barrels a day, or 1.3 percent, this year to 94.18 million a day, according to the report. Supplies from outside the group will shrink by 740,000 barrels a day to 56.4 million.

    http://www.bloomberg.com/news/articles/2016-05-13/opec-keeps-oil-market-outlook-unchanged-before-june-meeting

    Attached Files
    Back to Top

    Russian ESPO crude falls out of favour with China teapot refiners


    China's independent refiners have switched to buying more oil from Africa and Latin America instead of large volumes of Russia's ESPO crude as they have struggled to cope with the excess light fuels that come with processing the grade.

    The change in preference shows the transient nature of crude purchases from the new Chinese buyers, also known as teapots, who are still trying out different crude grades to identify suitable types for their refineries.

    The teapots' tapering demand for the Russian grade pushed spot premiums for June-loading cargoes to as low as $2 a barrel from as high as $5.60 a barrel for April loaders, catching some traders who sell to teapots off guard.

    Lured by the short shipping distance and six-year low crude prices, teapots paid strong premiums to secure Russian ESPO oil in the first quarter.

    Spurred by the strong teapot demand, Russia overtook Saudi Arabia as the biggest crude exporter to China for four months in late 2015 and again in March.

    Nearly half of the Russian ESPO exports landed at the port of Shandong, where most of the teapots are located, each month between February and April, data from Reuters Trade Flows showed.

    But Shandong's imports may fall in the coming months as some refiners found the crude too light, several trade sources said. High crude inventories and large supplies waiting to offload at congested ports also reduced teapots' appetite for ESPO, they said.

    "ESPO produces too much naphtha. The oil wasn't economical to us as the ship size was too small and premium was high," a trader from one of the teapot refiners said.

    The independent refiners, which had relied on residual fuel as a feedstock before Beijing opened up crude imports last year, were mostly designed to maximise production of middle distillates such as diesel and jet fuel instead of light products like naphtha and gasoline.

    ESPO has an API gravity of 35.57 degrees, much lighter than Oman oil, a favourite among teapots. Refiners would typically draw about 20 percent of naphtha from a barrel of ESPO after processing versus about 15 percent from an Oman barrel.

    The naphtha cannot be processed further at teapots' facilities, four sources said. A consumption tax of 40 yuan ($6.16) per tonne for selling the naphtha as a petrochemical feedstock has deterred the teapots from selling the fuel, sources said.

    Still, the teapots' ESPO demand may improve as several of them are building new units to further process the naphtha, including the largest, Shandong Dongming Petrochemical, the sources said.

    Dongming will complete a 24,000 barrels-per-day reformer at its Lianyungang refinery in eastern Jiangsu province by the end of 2016 that will process the naphtha to produce aromatics for gasoline blending or domestic sales, sources close to the matter said. Qirun Chemical Industries Co will also bring online a new reformer next year, a company official said.

    In the meantime, teapots are seeking alternatives, with West African crude arrivals to Shandong rising 35 percent in April from December and deliveries from South America increasing 50 percent over the same time frame, Reuters Trade Flows data showed.

    http://www.reuters.com/article/russia-china-oil-idUSL3N17W3NJ
    Back to Top

    Refiners struggle to stay afloat as Asia drowns in gasoline


    Asia's refined product markets are being swamped by a wave of gasoline as a long-lasting crude oil glut spills into the one fuel market refiners had hoped would save them, ruining margins and dragging down share prices across the region.

    Singapore's benchmark gasoline margins - long the bright spot for Asia's oil processors amid rock-bottom profits earned on diesel, jet and shipping fuel - have more than halved since the beginning of 2016, when they were near at least a seven-year high for first-quarter values. 

    With gasoline's slump, overall refining margins in Singapore have dropped nearly 60 percent since the beginning of the year, buckling under the weight of the fuel products pumped out of oil plants as refiners feasted on crude prices that were as low as three-quarters of their mid-2014 levels.

    Besides dragging down crude refiners' share prices, this drop in margins could also undercut global oil prices that have struggled up from 12-year lows hit early this year, and refiners say the situation will not improve anytime soon.

    "We don't expect 2016 refining margins to improve. In fact, the situation could worsen from second-half of 2016 as the peak maintenance season in Asia will be over," said KY Lin, spokesman for Formosa Petrochemical Corp, meaning that more fuel would hit the market once shutdown refineries restart.

    In a sign of just how bloated the market has become, Singapore's light distillate stocks, which includes gasoline, hit nearly 16 million barrels late last month, the highest on record, according to government figures. The stocks have dropped back since, but there's still enough gasoline in the tanks to fill up almost 50 million average-sized vehicles.

    Lin said some of the main contributors to the gasoline glut have been private Chinese refiners, known as "teapots", that have started exporting their surplus petrol, overwhelming demand.

    The collapsing margins are a sharp reversal from expectations of a few months ago. Just in February South Korea's SK Innovation, a major Asian refiner, said its margins would remain strong as demand for gasoline and naphtha offset weaker markets for other fuels.

    Formosa Petrochemical operates a 540,000 barrels per day (bpd) refinery in Mailiao, Taiwan, the island's largest and one of the 10 biggest in Asia. Formosa produces about 3 million barrels of gasoline a month, over half of which it usually exports.

    http://www.reuters.com/article/oil-refinery-glut-idUSL3N18A3HL

    Attached Files
    Back to Top

    China Processes Record Crude on Boost From Independent Refiners


    China processed record crude on a daily basis in April as the nation’s independent plants boosted operations amid a surge in oil imports.

    Crude refining in the world’s second-largest oil consumer increased 2.4 percent from a year earlier to 44.75 million metric tons last month, or about 10.93 million barrels a day, according to data released by the National Bureau of Statistics on Saturday. That’s up 1.2 percent from the previous record of 10.8 million barrels a day in December.

    Independent refineries, known as teapots, have been increasing runs after they were allowed to import crude oil. The utilization rate at the plants in eastern Shandong province increased to 53 percent of capacity as of April 29, according to industry website Oilchem.net. That’s the highest since at least August 2011, when Bloomberg started compiling the data.

    “Teapot refineries have raised operation rates significantly this year,” Amy Sun, an analyst with ICIS China, a Shanghai-based commodity researcher, said by phone. “This has resulted in much higher oil processing than we expected in recent months.”

    China’s inbound oil shipments in April rose 3.2 percent from the previous month to 7.96 million barrels a day and near the February high. Crude imports through Shandong’s Qingdao port surged to a record in March and accounted for about 30 percent of the country’s total.

    China’s crude output fell 5.6 percent from a year earlier to 16.59 million tons (4.05 million barrels a day), Saturday’s data showed. Natural gas production climbed 5.6 percent to 10.6 billion cubic meters and coal output declined 11 percent to 268 million tons.

    http://www.bloomberg.com/news/articles/2016-05-14/china-processes-record-crude-on-boost-from-independent-refiners
    Back to Top

    Big Oil Gobbles Up Record Debt as Borrowing Costs Decline


    The world’s biggest oil companies are borrowing record amounts of money to cope with a slump in crude prices. Luckily, there’s rarely been a better time to go on a debt binge.

    Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA, BP Plc and Eni SpA have together sold the equivalent of $37 billion of bonds this year, about double the amount issued in the period before oil prices plunged, according to data compiled by Bloomberg. While this is stretching their balance sheets and even resulting in credit-rating downgrades, the lowest debt costs in a year are softening the blow.

    They’re making hay while the sun shines,” benefiting from improved investor sentiment as oil prices have recovered, said Alex Griffiths, a London-based managing director at Fitch Ratings Inc. “Treasurers are making use of good market conditions to maintain liquidity buffers.”

    Even though oil has increased from the lows of January as a global surplus diminished, prices are still less than half their level two years ago. The world’s biggest companies have sought to keep investors happy through the downturn by maintaining dividend payouts and investing for the future at the same time. With profit and revenue sharply down, the only way to do that is borrow more money.

    Debt markets are opening up for companies worldwide as central banks in the U.S. and Europe keep benchmark borrowing rates low. Investors currently demand a return of 3.09 percent to hold dollar-denominated debt of companies with an investment-grade rating, the lowest level in a year, according to data from Bank of America Merrill Lynch. For euro securities, they seek 1.01 percent, close to the record low of 0.93 percent in March 2015, the data show.

    At the same time, the premiums for credit default swaps for the biggest U.S. and European oil companies, which investors use to protect against defaults, have dropped from the highest level in at least five years.

    “The majors still have strong balance sheets to raise debt at competitive rates so they can manage their capital agenda, for example, to maintain dividends and strategic capital investments,” said Jon Clark, leader for oil and gas transaction-advisory services in Europe, the Middle East and Africa at Ernst & Young LLP. “It’s also a good opportunity to refinance more expensive debt.”

    Oil’s slide has forced companies to cut billions of dollars of spending, delay or cancel projects and renegotiate contracts, yet they continue to make dividends their top priority. Shell hasn’t cut its payments to investors since at least the Second World War. Exxon even increased its payout a day after losing its coveted AAA credit rating last month.

    http://www.bloomberg.com/news/articles/2016-05-13/big-oil-gobbles-up-record-levels-of-debt-as-borrowing-costs-fall

    Attached Files
    Back to Top

    InterOil shareholders nominate 5 independent directors to board


    Oil and gas producer InterOil Corp's former chief executive, Phil Mulacek, and other shareholders nominated five independent directors to the company's board.

    The shareholders, who collectively own about 7.6 percent of InterOil, said in a statement "the incumbent board has presided over a massive destruction of shareholder value."

    Up to Thursday's close, the company's shares had fallen more than 38 percent in the last 12 months.

    InterOil on Friday reported a smaller net loss for the first quarter ended March 31, helped by lower exploration and finance costs.

    http://www.reuters.com/article/us-interoil-board-idUSKCN0Y41HV
    Back to Top

    Astomos' VLGC to be first commercial tanker to transit expanded Panama canal


    An executive at Japan's top LPG supplier Astomos Energy said Friday the company's VLGC will be the first commercial tanker to transit the expanded Panama Canal June 27, for a delivery to Japan, marking the start of regular commercial operations through the new locks.

    Speaking to reporters, Kaname Ichima, managing director and COO of Astomos' international business division said the company had not yet picked a VLGC from its fleet for the maiden expanded Panama Canal transit but had two possible candidates.

    To date, Astomos Energy, 51%-owned by Japanese refiner Idemitsu Kosan and 49% by Mitsubishi, currently has 21 VLGCs in its fleet -- six that it owns and 15 on time charter.

    Of these nine VLGCs -- three new tankers and six converted vessels -- are equipped to transit the expanded Panama Canal, according to a company official.

    For Astomos, using the expanded Panama Canal would be its "strategic" option not only to diversify its supply sources but also to reduce its dependency on supplies from the Middle East, using US cargoes from its supply portfolio, Ichima said.

    Over 2014-21, Astomos has term contracts to procure a total of 5.8 million mt of US LPG, all of which are propane. The company is now looking at a possibility of buying US butane in the future, he said.

    But Ichima said the company would need to clear "such issues as specifications" before sealing any deals to buy US butane, of which the company is looking at supplying to Southeast Asia.

    With steady demand for US propane in Japan, Astomos intends to supply its US propane cargoes to the country via transiting the expanded Panama Canal, Ichima said.

    Astosmos reiterated Friday that it still aims to expand its total purchase and trade LPG volumes to 12 million by 2017. This will be up from its planned volumes of around 10.5 million mt in 2016, steady from 2015.

    To expand its total LPG handling volumes, Astomos intends to expand its sales to Vietnam, Thailand and Indonesia, as well as looking at how it can cultivate its demand in China and India indirectly through its partners, Ichima said.

    Of its planned 10.5 million mt purchase and supply plan in 2016, Astomos intends to supply about 3.2 million mt of LPG to Asia, the company said.

    In Japan, Astomos sold a total of 3.653 million mt of LPG in its fiscal year ended December 31, up 3.7% from a year ago, led by increased sales to households, industries, city gas and cars, the company said Friday.

    Astomos' domestic LPG sales for petrochemicals use and for power generation, however, dropped 18% and 34% respectively to 134,000 mt and 147,000 mt in 2015, the company said.

    http://www.platts.com/latest-news/shipping/tokyo/astomos-vlgc-to-be-first-commercial-tanker-to-26443524

    Attached Files
    Back to Top

    Kill the Shale!

    Fifteen New York towns that are upset at Democratic Gov. Andrew Cuomo’s decision to ban fracking have threatened to secede from the state and join neighboring Pennsylvania, where fracking is allowed.


    The towns, all members of the Upstate New York Towns Association, have expressed interest in secession, Conklin Town Supervisor Jim Finch told The Huffington Post. The association is compiling a report to assess the feasibility of joining Pennsylvania.


    “We’re in the Southern Tier of New York,” Finch said, referring to localities in Broome, Tioga, Sullivan and Delaware counties. “There are no jobs. The economy is terrible. There’s nothing going on.”


    He decried Cuomo’s recent decision not to bring a casino to the region, and noted that Conklin and the 14 other towns in the Southern Tier sit on the Marcellus Shale, which is rich in natural gas. Permitting drilling in the region would provide an avenue for new jobs and a way to raise money for local schools and governments, as it has across the border in Pennsylvania, Finch said.


    Leaving New York and joining the Keystone State, he added, would also mean lower taxes for businesses and lower insurance payments.


    Finch conceded that secession is “far-fetched” — it would require the approval of the New York legislature, the Pennsylvania legislature and the federal government — but said raising the idea helps highlight the region’s discontent with New York’s government, and Cuomo in particular.


    Back to Top

    N Dakota Bakken producers need $40 for 90 days to raise activity


    Oil prices have rallied lately, but not enough to convince U.S. oil producers that hard times may be over soon.

    That’s evident in shale regions like North Dakota that have driven a resurgence in U.S. oil and natural gas production over the last few years.

    Lynn Helms, the director of the North Dakota Department of Mineral Resources, told reporters the other day that producers won’t begin to ramp up activity until they see oil prices holding steady at more than $40 a barrel for 90 days or so.

    http://www.usatoday.com/story/money/columnist/2016/05/15/oil-industry-problems-prospects-keenly-felt-n-dakota/84336332/
    Back to Top

    Oil Drillers Betting Three-Month Crude Rally Is Nearing the End


    Oil producers are taking advantage of the rebound in crude markets to lock in protection against another slump.

    They increased their bets on falling prices to the highest level in 4 1/2 years as U.S. inventories of stored oil remained near an 87-year high, while a natural disaster in Canada and militant attacks in Africa curtailed output. Negative sentiment among the group expanded for a third consecutive week, the longest streak since February.

    Energy companies from EOG Resources Corp. to Chesapeake Energy Corp. used financial instruments such as futures, swaps and collars to guard against another fall in prices. West Texas Intermediate oil, the benchmark U.S. crude, has gained more than 75 percent since hitting a 12-year low in mid-February.

    “They’ve been getting more and more active in hedging ever since the first initial jump,” said John Kilduff, a partner at Again Capital LLC in New York. Oil producers “appear to be drawn to this market as everyone tries to stay alive through the downturn,” he said.

    Producers and merchants increased their short position in WTI by 3.8 percent for the week ended May 10 to the highest since September 2011, according to data from the Commodity Futures Trading Commission.

    In western Canada, raging forest fires closed in on Alberta’s vast oil sands, prompting tens of thousands of residents to flee and interrupted shipments of the thinning agent used to help move the extra-heavy crude produced there through pipelines.

    http://www.bloomberg.com/news/articles/2016-05-15/oil-drillers-betting-three-month-crude-rally-is-nearing-the-end
    Back to Top

    Delaware active, but where's the Midland? Permian players numbers.

    Image titleImage title
    Back to Top

    Exco Resources forms committee to evaluate strategic alternatives


    Oil and gas producer Exco Resources Inc said on Friday it formed a special committee to evaluate strategic alternatives, including in-court or out-of-court restructuring.

    Exco joins dozens of U.S. shale companies forced to restructure debt after a near-60 percent slump in oil prices since mid-2014 eroded cash flows.

    The Dallas-based company had long-term debt of $1.32 billion as of March 31, according to a regulatory filing.

    The Special Committee will also evaluate options such as divestitures and restructuring of its gathering, transportation and certain other contracts, the company said.

    Exco has retained Akin Gump Strauss Hauer & Feld LLP as its legal adviser.

    http://www.reuters.com/article/exco-resources-strategicalternatives-idUSL3N18A48C
    Back to Top

    Alternative Energy

    Dutch offshore wind tender attracts bids from Shell, RWE and Vattenfall


    Some of Europe's biggest energy companies, including Shell, RWE and Vattenfall, are competing in a Dutch offshore wind tender seen as one of the biggest green energy projects on offer in Europe this year.

    The Dutch government has an ambitious target to more than quadruple its offshore wind energy capacity by 2023 to lower climate-harming carbon emissions from energy production.

    Many other European governments lack a clear framework to deliver renewable energy projects after 2020, making the Dutch tender an attractive one for investors.

    In a first round, the government has offered two offshore wind sites at Borssele that can each house wind farms with a capacity of 350 megawatts (MW).

    A second tender for two further sites at Borssele will close in September, making the entire project of 1,370 MW one of the biggest European offshore wind tenders in recent years. A fifth site of 20 MW is set reserved for innovation projects.

    Anglo-Dutch oil major Shell in partnership with Dutch energy supplier Enerco and contractor Van Oord NV. German utility has found a co-investor in Macquarie Capital, while Swedish utility Vattenfall has announced a bid on its own.

    Dutch media have named Denmark's Dong Energy as another potential bidder.

    Dong Energy declined to comment but said the Dutch market was interesting because it is a consistent programme with five tenders.

    The Netherlands has a yearly offshore wind tender programme in place out to 2019 that aims to push installed capacity to 4,500 MW by 2023.

    Offshore wind energy is one of the most potent forms of renewable energy as technological advances have allowed developers to build offshore wind farms bigger in capacity than a small gas-fired power plant.

    However, constructing these huge projects in treacherous conditions and the relative infancy of the industry means it is one of the most expensive forms of energy to build.

    http://www.reuters.com/article/rwe-macquarie-group-netherlands-windfarm-idUSL5N18A3W1

    Attached Files
    Back to Top

    Danish government says wind power became too expensive

    Danish government says wind power became too expensive

    The Danish government said on Friday it wanted to scrap plans to build five offshore wind farms as their output would become too expensive for consumers.

    The government estimates it would cost consumers 70 billion Danish crowns ($10.63 billion) to buy electricity from the plants with a total combined capacity of 350-megawatts.

    "Since 2012 when we reached the political agreement, the cost of our renewable policy has increased dramatically," said Lars Christian Lilleholt, energy minister in Denmark's Liberal party government.

    "We can't accept this, as the private sector and households are paying far too much. Denmark's renewable policy has turned out to be too expensive," he said.

    Denmark produced more than 40 percent of its electricity from wind power last year, a world record, and it has a goal of increasing this share to 50 percent by 2020.

    Subsidies for wind power producers had to increase as power prices fell sharply since 2012, and producers had to get more money to make production profitable.

    Nordic average power prices fell to 21 euros per megawatt-hour (MWh) in 2015, down from 31 euros/MWh on 2012.

    http://www.reuters.com/article/windfarm-denmark-idUSL5N18A2V8

    Attached Files
    Back to Top

    Uranium

    Mongolia set to pay $70m to end Khan mine dispute-source


    Mongolia is ready to deliver a $70-million payment to Toronto-listed uranium miner Khan Resources, a government source said, wrapping up a seven-year dispute that tarnished the country's reputation as a hot mining destination. 

    The resource-rich country that relies on China to buy nearly all of its resources is settling disputes with miners one by one to help revive foreign investment after four years of economic decline. 

    Mongolian Prime Minister Chimed Saikhanbileg has repeated the slogan "Mongolia is open for business" on visits around the world in the hopes rebooting the economy, which the Asian Development Bank projects will grow just 0.1% this year. "We want to show that we're trying to improve our relationships and reputation," said a Mongolian government source. He said $70 million had been deposited into an escrow account for payment to Khan Resources on Monday. 

    The source asked not to be named as the transaction had not yet been completed. Mongolia's Ministry of Finance was not immediately available for comment. 

    Last year, a Paris tribunal ordered Mongolia to pay about $100-million to Khan Resources as compensation for canceling its uranium-mining licences for the the Dornod uranium project in 2009 and handing it over to Russia's ARMZ. 

    At a meeting during a major mining conference in Toronto in March, Mongolia and Khan came together and settled on a payment of $70-million. 

    The dispute with Khan Resources wraps up just as Rio Tinto and its partners are set to resume work on a $5.3-billion expansion of the Oyu Tolgoi copper mine following a three-year delay due to disputes with the Mongolian overnment. Investors are also keeping close watch on the Gatsuurt gold mine in Mongolia, where Centerra Gold Inc has waited seven years for mining rights.

    http://www.miningweekly.com/article/mongolia-set-to-pay-70m-to-end-khan-mine-dispute-source-2016-05-13
    Back to Top

    Agriculture

    French Senate suspends palm oil tax, pesticide ban deadline


    The French Senate on Thursday adopted a revised version of its biodiversity bill in which Senators scrapped a proposal to impose an additional tax on palm oil and a deadline to ban on pesticides blamed for harming bees.

    The decisions are not final as the two houses of the French parliament now have to reach an agreement, or the bill will end up at the National Assembly, which has the final word.

    The Senate had introduced the additional tax on palm oil used in food to encourage the sector to reduce the environmental damage palm oil plantations can cause. The action was vehemently opposed by leading producers Indonesia and Malaysia.

    The National Assembly in March sharply reduced the extra tax and excluded oils produced in a sustainable way.

    The softening, supported by the government, was welcomed but not enough to please the producers who still view the tax as discriminatory.

    The latest version of the biodiversity bill adopted by the Senate on Thursday scrapped the additional tax on palm oil altogether, with senators saying it could be against international trade rules and that it would be more appropriate in a finance legislation.

    But the tax on palm oil can be reintroduced in the law at a later stage, notably by the National Assembly.

    The fate of another key proposal of the biodiversity law, a ban on neonicotinoid pesticides, is also uncertain.

    The government had expressed mixed feelings about the proposal with Environment Minister Segolene Royal saying it would protect bees while Agriculture Minister Stephane Le Foll warned a unilateral French move on neonicotinoids could hurt farmers in the EU's biggest crop producing country.

    It since clarified its position and introduced on Thursday an amendment requesting a study on substitution products to neonicotinoids and delaying the ban to July 2020, against September 2018 in the text adopted at the National Assembly.

    But the Senate rejected the 2020 deadline saying a ban would be "in total contradition with European law".

    The EU limited the use of neonicotinoid chemicals, produced by companies including Bayer CropScience and Syngenta , two years ago after research pointed to risks for bees, which play a crucial role pollinating crops. (Reporting by Sybille de La Hamaide, Editing by Gus Trompiz, Toni Reinhold)

    http://www.reuters.com/article/france-palmoil-idUSL5N18A3PF
    Back to Top

    Precious Metals

    Lonmin reports core profit after cost savings


    South Africa-focused platinum producer Lonmin reported a core profit on Monday after cost savings, and said it expected firm chemical and car industry demand for the rest of the year despite the Volkswagen diesel emissions scandal.

    In its first-half results statement, Lonmin said it had cut losses per share to 1.8 cents from a loss of 164.6 cents the same time a year ago, and reported a core profit of $36 million versus a loss of $6 million in the first half of 2015.

    Cost-cutting is ahead of schedule, with close to 70 percent of the full-year target of savings of 700 million rand ($45 million) already achieved.

    Net cash improved to $114 million at the end of March, compared with $185 million net debt at the end of September.

    CEO Ben Magara said in a conference call he did not anticipate further job cuts at current market conditions, but added conditions may change.

    Volkswagen's admission last year that it cheated U.S. diesel emissions tests could, analysts have warned, hit sales of diesel cars, which need platinum for catalytic converters.

    But Lonmin predicted emerging markets would spur demand as they seek to catch up with the "ever tightening emission standards of developed markets".

    It also said it saw firm chemical industry demand, while the jewellery market could remain static during the year.

    http://www.reuters.com/article/lonmin-results-idUSL5N18D0S8
    Back to Top

    Base Metals

    In wake of defending against dissident shareholder, Taseko reports wider Q1 loss


     After enduring a rollercoaster first quarter as a dissenting shareholder launched a scathing proxy contest against which base metals miner Taseko Mines had successfully defended itself, the company this week reported a wider adjusted loss than expected. 

    Excluding special items, Taseko reported a C$15.7-million wider net loss of C$18-million, or C$0.08 a share, missing analyst expectations by a penny. The net loss for the period ended March 31 improved by C$23.7-million, to a loss of C$1.5-million, or C$0.01 a share, compared with a net loss of C$25.2-million, or C$0.11 a share. “First quarter results were impacted by lower copper grades, which were forecasted in Gibraltar’s 2016 operating budget. 

    In the current low copper price environment, our focus will remain on operating costs, which in the first quarter were maintained at a very low cost per ton milled of $9.59. “The average realised copper price for the quarter was $2.10/lb, which is the lowest pricing quarter since the first quarter of 2009. 

    Considering the copper price and grade Gibraltar processed in the first quarter, it is impressive we were able to generate break-even earnings from mining operations,” president and CEO Russell Hallbauer stated. Output from the company’s flagship 75%-owned Gibraltar mine, in British Columbia, rose by 400 000 lbs to 28.8-million pounds during the quarter. 

    Sales improved by 5.1-million pounds of copper to 30.5-million pounds, which contributed to lift revenues by C$3.1-million to C$58.2-million during the period. Site operating costs, net of by-product credits were $1.78/lb produced and total C1 operating costs were $2.11/lb produced. Gibraltar’s copper output for 2016 expected to be in the range of 130-million to 140-million pounds.

    http://www.miningweekly.com/article/in-wake-of-defending-against-dissident-shareholder-taseko-reports-wider-q1-loss-2016-05-14
    Back to Top

    Finnish government plans $113m funding for nickel mine


    The Finnish government is planning to inject around €100-million ($113-million) into Terrafame Mining, the state-owned company that runs Talvivaara's former nickel mine, but may eventually still have to close the operation, sources said. 

    The government is planning to propose this month that parliament approve the funding, which would keep the mine running until the end of the year, two sources who declined to be named told Reuters. "A closure of the mine is an option that will be considered," a government source said. 

    The government took control of the mine last year, aiming to avert a closure at the site in northern Finland where around 950 people including contractors worked as of the end of March. 

    Talvivaara was originally aiming to become Europe's biggest nickel mine by pioneering an extraction process called bioheap leaching -- using bacteria to extract nickel. Repeated production problems were compounded when the mine leaked waste water in 2012, raising uranium and metals levels in nearby lakes and rivers. 

    In 2014, Talvivaara Mining Company filed for debt restructuring while its key subsidiary that owned the mining assets filed for bankruptcy protection. The government has so far injected close to €250-million into Terrafame, and said last year it might still close the mine if it cannot find investors by 2017. 

    The search for investors has become even more difficult after a Finnish administrative court last month decided to make the mine's environmental permit temporary. "It is practically impossible to find private funding after that decision," another source said. Terrafame Chairman Lauri Ratia told Reuters he believed that from the taxpayers' point of view, it would be better to try to expand the mine.

    http://www.miningweekly.com/article/finnish-government-plans-113m-funding-for-nickel-mine-sources-2016-05-13
    Back to Top

    Steel, Iron Ore and Coal

    Mechel says earnings up on investment returns


    Indebted Russian coal and steel producer Mechel's core earnings jumped 54 percent year-on-year in 2015 due to increased returns on investments that previously threatened to sink the company.

    The mining company, controlled by businessman Igor Zyuzin, borrowed heavily before Russia's economic crisis and has struggled to keep up repayments as demand for its products weakened alongside tumbling coal and steel prices.

    Mechel reached agreements in principle to restructure $5.1 billion of debt with creditors including Russian lenders Sberbank, Gazprombank and VTB in February, but has since struggled to get approval from shareholders.

    "Mechel's operational and financial results improved to a large extent due to the fact that our key projects whose implementation had caused our company's debt growth, are reaching target capacity utilization levels and increased returns on invested capital," said Chief Executive Oleg Korzhov.

    Mechel's earnings before interest, taxation, depreciation and amortisation (EBITDA) totalled 45.73 billion roubles ($3.87 billion) in 2015, the company said in a statement.

    Its net loss for the year totalled 115.16 billion roubles, compared with a loss of 132.7 billion roubles in 2014, largely due to foreign exchanges losses, Mechel said. Revenue increased 4 percent year-on-year to 253.14 billion roubles.

    Along with other Russian steelmakers, Mechel has also been hit by a collapse in global steel prices, which plumbed 10-year lows in late 2015 and early 2016, as well as weaker demand for at home, undermined by Russia's deepening economic downturn.

    Competitors Severstal and MMK reported core earnings down 53 percent and 39 percent year-on-year respectively for the first three months of the year.

    But Korzhov said the market was improving.

    "The strengthening of steelmaking commodity and steel markets which we currently observe enable us to confidently conduct our operations and sales with a view to the company's further development," he said.

    Mechel's crude steel output increased 1 percent year-on-year to 4.3 million tonnes in 2015, while coal production rose 2 percent to 23.2 million tonnes.

    http://www.reuters.com/article/russia-mechel-results-idUSL5N18A3KO
    Back to Top

    China April coal output down 11 percent on year: stats bureau


    China produced 268 million tonnes of coal in April, down 11 percent on the year, the National Bureau of Statistics said on Saturday, with producers cutting back in a concerted effort to shore up prices.

    China's coal sector has been struggling with a massive capacity glut and miners have been encouraged to cut production to shore up domestic prices, which plummeted around 30 percent last year. The country has promised to shed 500 million tonnes of surplus capacity in the next five years.

    Coal output over the first four months reached 1.081 billion tonnes, down 6.8 percent from the same period last year, with full-year production on course to see its third consecutive annual decline.

    Though coal consumption normally rises in the second quarter, with supplies traditionally under intense pressure as power plants boost their reserves ahead of the summer peak, analysts do not foresee any jump in prices, particularly as high hydropower volumes reduce the need for coal-fired generation.

    "Entering May, the weather has been fine, residential power use has stayed weak and power plants are undergoing routine maintenance, and also we have the heavy rainfall in the south that has boosted hydropower," said Chen Jie, an analyst with the China Coal Trade and Distribution Centre, in a research note.

    Thermal power generation hit 328 billion kilowatt-hours (kWh) in April, down 5.9 percent on the year, though a 10 percent jump in hydropower generation during the month meant overall volumes fell by just 1.7 percent to 444.4 billion kWh.

    Crude steel production hit 69.42 million tonnes, down from a record-high in March but 0.5 percent higher than the same period of last year, with mills still keeping output high in order to profit from higher prices.

    The production of coking coal used in steelmaking fell 3.4 percent in April to 36.25 million tonnes, with year-to-date output reaching 138.87 million tonnes, down 7.6 percent.

    Cement production reached 216.26 million tonnes in April, up 2.8 percent on the year, extending a period of restocking that began in March as new construction activities get underway.

    According to data from China's customs authority, imports of coal reached 18.8 million tonnes in April, down 4.5 percent compared to March, but up 10.4 percent on the year. Imports over the first four months fell 2.5 percent.

    http://www.reuters.com/article/us-china-economy-output-coal-idUSKCN0Y505I

    Attached Files
    Back to Top

    China Jan-Apr coal industry FAI down 26.8pct on year



    China’s fixed-asset investment (FAI) in coal mining and washing industry amounted to 50.9 billion yuan ($7.8 billion) over January-April, dropping 26.8% from the year prior, compared with the decline of 24.5% in the first quarter, showed data from the National Bureau of Statistics (NBS) on May 14.

    Private investment in the sector stood at 30.8 billion yuan, falling 23.9% year on year.

    In the same period, fixed-asset investment in all mining industry in the country posted a yearly decline of 15.3% to 202.5 billion yuan; of this, private investment in mining industry stood at 122.2 billion yuan, dropping 7.1% from the previous year.

    Meanwhile, the total fixed-asset investment in ferrous mining industry over January-April witnessed a yearly drop of 20.2% to 21.3 billion yuan; while that in oil and natural gas industry dropped 27.5% on year to 46.9 billion yuan, according to the NBS data.

    The fixed-asset investment in non-ferrous mining industry stood at 45.2 billion yuan during the same period, up 4.9% from the year-ago level, data showed.

     http://en.sxcoal.com/0/146131/DataShow.html
    Back to Top

    China April crude steel output up 0.5 percent on year: stats bureau


    China produced 69.42 million tonnes of crude steel in April, up 0.5 percent on the year, the statistics bureau said on Saturday, with mills defying a sector slowdown in order to take advantage of higher profit margins.

    China has faced growing international pressure to tackle a colossal capacity glut in the steel sector, and aims to shut 100-150 million tonnes of surplus production in the coming five years.

    But rising prices have encouraged struggling steelmakers to maximize output, with many able to squeeze out profits for the first time in months. Traders expect output to continue rising in May after a number of previously shuttered mills went back into operation.

    The April volume is slightly lower than the record 70.65 million tonnes of crude steel produced in March.

    Output over the first four months of the year has now hit 261.42 million tonnes, down 2.3 percent on the same period of last year, according to the National Bureau of Statistics.

    Though production has risen for two months in a row, analysts have warned that the improvement over March and April is likely to be temporary, with underlying demand in the world's biggest steelmaking nation still relatively weak.

    The China Iron and Steel Association's composite index, which tracks the price movements of six major Chinese steel products, rose from 69.81 to 84.66 over April, and has risen more than 50 percent since the beginning of the year.

    CISA's index is measured against a 1994 reference price, meaning that prices are still more than 15 percent lower than they were 22 years ago.

    The association warned that mills were still caught in a "vicious circle" in which they ramp up production at the first sign of improving prices, thereby driving prices back down again, and the association's index has retreated to 82.57 during the first week of May.

    http://www.reuters.com/article/us-china-economy-output-steel-idUSKCN0Y505Z
    Back to Top

    India Apr coal imports down 15pct on year


    India imported 15.9 million tonnes of coal in April, down 15% year on year, according to a coal ministry official.

    The value of imports in April stood at 60.23 billion Rupee ($902 million), down 32% year on year.

    "Reduced import in 2015-16 resulted in saving of estimated 240 billion Rupee in foreign exchange," coal secretary Anil Swarup said on May 13.

    The government wants to meet demand by increasing domestic coal production at state-run Coal India's mines.

    With Coal India ramping up production, dependence on imported coal has been falling, especially at those plants which were using imported coal to blend with domestic coal.

    http://en.sxcoal.com/0/146130/DataShow.html
    Back to Top

    Coal, steel de-capacity plans submitted; strictly implement once approved


    China’s regional de-capacity plans for coal and steel sectors have been submitted to central government, and will be strictly implemented once approved, media reported.

    Those initial plans showed that provinces and cities of China focused on industrial upgrade through merger and regrouping of firms from different regions, industries, and systems of ownership, and sound support of fund, taxation and credit policies will be provided.

    It is expected to embrace a promising and sustainable coal and steel industry amid the several favorable policies, yet some firms were also observed in a slow or stagnant process of regrouping, mainly troubled by legality issues, shifted ownership system and local benefit burdens.

    China’s State Council rolled out the guideline for steel de-capacity missions in early February, which required a capacity cut of 500 million tonnes and the capacity regrouping of 500 million tonnes within next 3-5 years in coal sector, while capacity of crude steel was required to reduce 100-150 million tonnes in next five years.

    Thus, a total of eight supporting policies in initiatives, subsidies, finance, taxation, staff resettlement and other aspects were formulated, in order to realize the target. And seven of them have officially been released by May 10.

    Meanwhile, a united work team composed of several ministries and industrial associations put up with detailed requirements for local capacity cut plans.

    Inner Mongolia is required to cut surplus coal capacity of 179 million tonens in next 3-5 years. It will also propel the regrouping of coal, power, chemical, metallurgy and building material sectors in 2016. Those new projects dealing with only coal mine business will not be approved, and new power and chemical projects should be regrouped with existing coal mines.

    Shanxi province will focus on large coal producers in the province in process of capacity reduction. Datong Coal Group is the major object of the province’s supply-side structural reform, with sound support from provincial government, analyst said.

    Hebei province, whose steel capacity accounts for 33% of the country’s total, pledged to cut steel capacity of 100 million tonnes in next five years; Jiangsu, the second largest steel production base in China, set its steel de-capacity target at 12.55 million tonnes, and mainly fulfilled through steel makers’ capacity cut on their own initiative, market deselection and regrouping.

    http://en.sxcoal.com/0/145992/DataShow.html

    Attached Files
    Back to Top

    China steel industry sees profit turnaround?


    China's bloated steel industry saw a profit turnaround in March, Xinhua-run newspaper Economic Information Daily reported on May 13, but the momentum is unlikely to sustain due to a persistent mismatch between supply and demand.

    China's large and medium-sized steel producers reported 2.7 billion yuan ($415.4 million) in profits in March, ending a 15-month losing streak, the paper quoted unnamed authorities as saying.

    The unexpected improvement was largely due to recovering steel prices on the back of a pick-up in infrastructure and property projects, as well as elevated speculation in the steel futures market, which analysts said would be unsustainable.

    Steel makers have been in deep water over the past few years as a result of shrinking demand and excessive capacity built up during decades of rapid expansion.

    China's over-supplied steel sector experienced years of plunging prices and factory shutdowns due to the sluggish economy. However, with encouragement from an upward trend in prices in March, many steel mills are resuming production, challenging government efforts to cut overcapacity in the industry.

    At a press conference on May 12, Zhao Chenxin, spokesperson with the National Development and Reform Commission (NDRC), pointed out that the price surge will only mildly disturb the de-stocking efforts, and the price increase will be short-lived.

    http://en.sxcoal.com/0/146132/DataShow.html
    Back to Top

    China admits overcapacity not yet falling in bloated steel sector


    Massive overcapacity in China's bloated steel industry is not yet falling, but protectionism is not the solution for problems facing the global steel industry, the country's vice minister for industry said on Monday.

    China is facing anger and calls for trade penalties to block its exports from steel producers around the world, who say it is dumping cheap exports after a slowdown in demand at home.

    The world's biggest steel producer has vowed to cut capacity, but its efforts have been complicated by a recovery in domestic steel prices.

    "Prices have been improving since the end of last year but there hasn't been any fundamental change in the underlying conditions of the market and no improvement in overcapacity," Xin Guobin told a conference in Beijing.

    China's April steel production fell from March, although average daily production rates increased from 2.279 million tonnes to 2.314 million tonnes, according to Reuters calculations based on data released from the National Bureau of Statistics on May 14.

    France and Germany last week urged fellow EU members to tighten trade defenses to protect the bloc's companies against floods of cheap imports, such as the recent surge of steel products from China.

    Chinese government officials have rejected suggestions that the surge in steel production in March and April was mostly due to so-called "zombie" enterprises returning to the market in order to profit from the higher market prices.

    "In my understanding, the capacity that has recovered production is regular capacity, and not that marked for closure," Zhao Chenxin, a spokesman for the National Development and Reform Commission, told a news briefing last week.

    "Enterprises stopping and resuming production is mainly a reaction to market changes - adjusting production is normal behavior," Zhao said.

    Hebei province, China's biggest steel producing region, has also explicitly banned the reopening of capacity that has already been scheduled for elimination.

    But industry experts are concerned that Chinese provinces will reopen mills that have not produced a ton of steel in years, but have clung to life in order to qualify for compensation from the central government.

    In the steel-producing city of Tangshan in Hebei, several mills have been out of operation since the market began to falter in late 2013, but they still do not count as bankrupt. Demolishing these plants in order to meet overcapacity targets will have no impact on market supply or on prices.

    China Iron and Steel Association secretary general Liu Zhenjiang said last month that "cutting steel capacity is important but controlling steel output is more important".

    http://www.reuters.com/article/us-china-steel-overcapacity-idUSKCN0Y703A

    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.