Mark Latham Commodity Equity Intelligence Service

Tuesday 20th September 2016
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    BIS warns China banks risk crisis within three years

    Hong Kong's central financial district's (from L to R) Bank of China Tower, Cheung Kong Centre, HSBC headquarters and Standard Chartered Bank are pictured lighted up before Earth Hour March 28, 2015.REUTERS/Tyrone Siu

    Excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years, a report from the Bank for International Settlements (BIS) says.

    An early warning of financial overheating - the credit-to-GDP gap - hit 30.1 in China in the first quarter of this year, the financial watchdog said in a review of international banking and financial markets published on Sunday.

    Any level above 10 signals a crisis "occurs in any of the three years ahead," the BIS said. China's indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.

    Debt has played a key role in shoring up China's economic growth following the global financial crisis. Outstanding debt reached 255 percent of GDP in 2015, fueled in large part by a surge in corporate borrowing, up from 220 percent just two years earlier.

    China's bank lending in August more than doubled from the previous month, with much of the gain down to strong mortgage demand.

    Indeed, China's top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis.

    The credit-to-GDP gap takes into account the current credit-to-GDP and expected long-run trends. But a China strategist at an international hedge fund said international historical experience is not necessarily applicable to China. The strategist could not be identified as he is not authorized to speak to the media.

    The BIS also said the estimated debt service ratio - which measures principal and interest payments relative to income - is at 5.4, which is a "potential concern."

    This underlines the default risk as borrowers struggle to repay loans. Some analysts argue a weakening in banks' capital strength raises the prospect that the government may have to inject more than $100 billion to shore them up.

    Despite the concerns surrounding China's debt, UBS analysts said in a report earlier this year that they do not expect an imminent banking crisis.

    A high domestic savings rate, underdeveloped capital markets, a relatively closed capital account and government ownership of banks and many large borrowers mean no one can easily "pull the plug" on its credit cycle, they said.

    Debt-to-GDP could reach 300 percent before 2020, UBS said.

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    China speeds up approvals for infrastructure investment in Aug

    China expedited the pace of approving new fixed-asset investment for major infrastructure projects to sustain economic growth in August, said the country's top economic planner.

    The National Development and Reform Commission (NDRC) gave the green light to investment totaling 196.6 billion yuan ($29.4 billion) for 25 projects last month.

    The projects were concentrated in water conservancy, transport, energy and other social undertakings.

    The headline figures are a considerable increase from less than 60 billion yuan in July as the government ramps up spending to offset flagging private investment.

    To rein in the ongoing economic slowdown, the NDRC started to promote a package of investment projects in September 2014. As of July, it had given the go ahead to investment totaling 6.38 trillion yuan.
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    Chinese Home Prices Jump Most On Record:

    Even before the latest Chinese home price data was released overnight, it was a pure bubble-buying frenzy.

    As Chris Watling, the CEO of Longview Economics, told CNBC Thursday, "I think what's going on in China is troubling ... some of the valuations there are really quite extraordinary... We've double checked these numbers about seven times, because I found them quite hard to believe."

    What Watling found is that housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch "Tulip Fever" bubble of 1637, according to new research by economic consultancy firm Longview Economics: the firm found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76% since the start of 2015, with the acceleration beginning in April 2015 as the country's stock market was nearing its peak. The situation in Beijing and Shanghai is similar, albeit less extreme, the company states.

    According to Watling, the typical home in Shenzhen costs approximately $800,000. Watling said that the house-income ratio in Shenzhen is now running at 70 times, compared to around 16 times in somewhere like London.

    "Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a bubble, Watling added. "The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system ... so a lot of it has gone into housing."

    China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has highlighted the vast difficulties Chinese lawmakers are now facing. Watling said Chinese housing was a story built on credit, lots of liquidity and lots of debt. He added that all bubbles, though, once established, will eventually burst and deflate.

    It will, but not yet.

    According to the latest Chinese housing data released overnight, Chinese home prices rose the most in more than six years last month, suggesting local government efforts to avert a housing bubble are having only a limited effect according to Bloomberg. Average new-home prices in the 70 cities rose 1.2% in August from July, the biggest increase since Bloomberg started tracking records in January 2010. The value of home sales jumped 33 percent last month from a year earlier, the fastest pace in four months.

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    Egypt expects 2-3 IPOs in first year of privatisation plan - NI Capital CEO

    Egypt expects to privatise two or three state-owned companies via listings on the stock exchangein the first year of a privatisation programme, the chief executive of government-owned NI Capital said on Monday.

    The programme will last for three to five years and will start with state-owned oil companies but will also include state-owned banks, said Ashraf El-Ghazaly.

    NI Capital is a government-owned, privately managed financial institution that is part the National Investment Bank. It acts as a consulting authority for the government and manages governmental investment funds.

    The state owns vast swathes of the economy, including three of its largest banks along with much of its oil industry and huge parts of its real estate.

    The economy has been struggling to recover since a popular uprising in 2011 drove foreign investors and tourists away. Years of political instability has hit growth in the Arab world's most populous state and halved its currency reserves.

    The last time state-owned companies were listed on the exchange was in 2005 when shares were floated in Telecom Egypt, the state's landline monopoly, and oil companies Sidi Kerir Petrochemicals and AMOC.
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    Oil and Gas

    Bullish bets on Brent return to mid-August levels

    Hedge funds and other large money managers have raised their weekly bets on rising crude oil prices, with net long positions in Brent stabilizing around levels seen in mid-August when the market got the first indications of a possible OPEC output deal.

    Investors increased their net long positions in Brent by 8,192 contracts to 359,173 lots in the week to Sept. 13, ICE reported.

    That is pretty much in line with the levels of 354,915 lots seen in the week to Aug. 16 but still far off record highs of over 419,000 lots seen at the end of April.

    Bullish bets on Brent have risen and then fallen again since mid-August, mainly driven by concerns over whether OPEC and non-OPEC Russia can clinch a meaningful deal to stabilize the oil market, amid returning supplies from Libya and Nigeria and a worsening global oil glut.

    OPEC and non-OPEC Russia are due to meet next week in Algiers.
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    Saudi Arabia crude exports rise to 7.622 mln bpd in July

    Saudi Arabia's oil exports rose in July as the kingdom pumped record high levels of crude, keeping the global market well supplied.

    The world's largest oil exporter has been maintaining high output levels since mid-2014 despite a global supply glut, in line with a strategy of defending market share against rival producers.

    Saudi Arabia's crude oil exports in July rose to 7.622 million barrels per day from 7.456 million bpd in June, official data showed on Monday.

    The kingdom produced a record high 10.673 million bpd in July, up from 10.550 million bpd in June with the increase due to summer demand and requests from customers. However, its output slipped in August to 10.63 million bpd, industry sources have said. Export data for August is not yet available.

    Several members of the Organization of the Petroleum Exporting Countries have called for an output freeze to rein in an oil glut that triggered a price collapse in the last two years, hitting the revenues of major producers.

    In the past, analysts have persistently discounted the possibility that OPEC members such as Saudi Arabia, Iran, Nigeria and Libya will agree to production curbs as they protected market share, but some analysts have become more hopeful an agreement can be reached.

    Venezuelan President Nicolas Maduro said on Sunday that OPEC and other major oil producers were close to reaching a deal on price stability that could be announced later this month.

    Saudi Arabia's domestic crude inventories totalled 281.463 million barrels in July, down from 289.445 million in June, data provided by the Joint Organisations Data Initiative (JODI) showed.

    JODI compiles data supplied from oil-producing members of global organisations including the International Energy Agency and the Organization of the Petroleum Exporting Countries.

    Saudi Arabia's oil inventories peaked last October at a record high 329.430 million barrels but have declined since as the country has drawn down its stockpile to meet domestic demand without impacting its exports.

    As it expands oil product exports, the kingdom has been feeding more crude to domestic refineries.

    Domestic refineries processed 2.611 million bpd of crude in July, up from 2.381 million in June. Exports of refined oil products in July totalled 1.367 million bpd versus 1.371 million in June.

    State oil firm Saudi Aramco has stakes in more than 5 million bpd of refining capacity at home and abroad, placing it among the global leaders in making oil products.

    In July, crude oil used to generate power fell to 697,000 bpd from 704,000 bpd in June, the JODI data showed.
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    Eni: Laarich East-1 Well Onshore Tunisia Has 2,000Bpd Capacity

    Eni revealed Monday that the Laarich East-1 well onshore Tunisia has a delivery capacity of approximately 2,000 barrels of oil per day.

    The Laarich East-1 well, which was spudded in June, has already been connected to production. In the meantime, exploration activities in Tunisia are continuing with the drilling of additional prospects, which have been already identified on 3D Seismic, according to an Eni statement.

    Laarich East-1 reached a final depth of 13,487 feet, discovering hydrocarbons in sandstone layers of Silurian and Ordovician age. The drilling of Laarich East-1 is part of Eni’s near field strategy, adopted to cope with the low oil price environment, which aims to conduct exploration activities in the proximity of existing infrastructures with available spare capacity.

    Eni owns a 50 percent stake in the Makhrouga-Laarich-Debbech license, where Laarich East 1 is located, with the Tunisian state company ETAP holding the remaining 50 percent stake.
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    Militants claim attack on NPDC oil pipeline in Niger Delta

    Militants have blown up a crude oil pipeline operated by Nigeria's state oil firm NNPC in the Niger Delta, a group claiming responsibility for the attack and a youth leader said on Monday.

    The Niger Delta Greenland Justice Mandate group said it carried out the attack on the Afiesere-Ekiugbo delivery line, in the town of Ughelli in Delta state, on Sunday night at around 11:30 p.m. (6.30 p.m. ET). The line is operated by NPDC, a unit of NNPC, and Nigerian energy company Shoreline.

    It is the latest in a series of attacks on energy facilities in the restive region that have cut Nigeria's oil production by 700,000 bpd.

    "The Niger Delta Greenland Justice Mandate is just starting, you are yet to see what we are about," said the group which, unlike other militants in the region, is not taking part in a ceasefire to hold talks with the government.

    Lucky Solue, a youth leader, confirmed the attack took place. An NNPC spokesman could not immediately be reached for comment.

    There was no immediate information on any impact on production.

    The Niger Delta Avengers group, whose attacks on oil pipelines in the southern region crippled crude output earlier this year and pushed Africa's biggest economy into recession, said in August it agreed to a ceasefire.

    The government has held out the prospect of holding talks on the grievances of people in the Delta with militant groups that maintain a truce.
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    Venezuala comments on oversupply worries markets

    Venezuala comments on oversupply worries markets

    Oil prices fell on Tuesday after Venezuela said that global supplies needed to fall by 10% in order to bring production down to consumption levels, and technical indicators also pointed to cheaper crude futures.

    Global oil supply of 94 million barrels per day needs to fall by about a tenth if it is to match consumption, Venezuela's Oil Minister Eulogio Del Pino said on Monday.

    International benchmark Brent crude oil futures were trading at $45.81 per barrel early on Tuesday, down 17 cents from their last close.

    US West Texas Intermediate crude futures were down 22 cents at $43.08 a barrel.

    "Global production is at 94 million barrels per day, of which we need to go down 9 million barrels per day to sustain the level of consumption," Del Pino said in an interview with state oil company PDVSA's internal TV station.

    Del Pino is also president of PDVSA.

    The statements came the same day as credit ratings agency Standard & Poor's said that a proposed bond swap by PDVSA was a "distressed exchange" that would be "tantamount to default" if completed, a blow to the cash-strapped firm's effort to seek a financial lifeline.

    Technical market indicators were also weak, with WTI likely to test support at $42.78 per barrel soon, after which a fall toward $42 would be likely, according to Reuters analyst Wang Tao.
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    At $500 Million A Pop, It's An Oil Gamble That Has No Precedent

    At $500 Million A Pop, It's An Oil Gamble That Has No Precedent

    In a far corner of the Caribbean Sea, one of those idyllic spots touched most days by little more than a fisherman chasing blue marlin, billions of dollars worth of the world’s finest oil equipment bobs quietly in the water.

    They are high-tech, deepwater drillships -- big, hulking things with giant rigs that tower high above the deck. They’re packed tight in a cluster, nine of them in all. The engines are off. The 20-ton anchors are down. The crews are gone. For months now, they’ve been parked here, 12 miles off the coast of Trinidad & Tobago, waiting for the global oil market to recover.

    The ships are owned by a company called Transocean Ltd., the biggest offshore-rig operator in the world. And while the decision to idle a chunk of its fleet would seem logical enough given the collapse in oil drilling activity, Transocean is in truth taking an enormous, and unprecedented, risk. No one, it turns out, had ever shut off these ships before. In the two decades since the newest models hit the market, there never had really been a need to. And no one can tell you, with any certainty or precision, what will happen when they flip the switch back on.

    It’s a gamble that Transocean, and a couple smaller rig operators, felt compelled to take after having shelled out millions of dollars to keep the motors running on ships not in use. That technique is called warm-stacking. Parked in a safe harbor and manned by a skeleton crew, it typically costs about $40,000 a day. Cold-stacking -- when the engines are cut -- costs as little as $15,000 a day. Huge savings, yes, but the angst runs high.

    “These drillships were not designed to sit idle,” said Willard Duffey Jr., an electrician who spent two decades with Transocean. The Deepwater Pathfinder, a ship he had served on for four years, was among the first to be parked off the Trinidad coast. The ship made the voyage there from the Gulf of Mexico about a year ago. Duffey was one of the last men aboard before the engines were turned off. He fretted constantly -- “did I do everything I could?” -- as he flew back home to Ore City, Texas. “To get the Pathfinder back up would be very difficult to guess actually,” he said.

    All of these fancy elements, though, are what make turning the ships back on so daunting. Chip Keener, whose rig-storage consulting firm advises Transocean, compares it to what would happen if you left a high-tech new car parked in the garage for months. The battery would be dead, sure, but then there’d also be a slew of pre-sets to reprogram. On a drillship, there are thousands and thousands of pre-sets. And unlike your car, those on a ship are essential to its proper functioning. “It’s a big deal,” says Keener.
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    Genscape shows Cushing inventory build

    Genscape shows Cushing inventory build of 180,000 bbls in latest week

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    Hedge funds turn strongly bullish on U.S. natural gas

    Hedge funds have built their largest bullish position in U.S. natural gas for more than two years amid signs the gas glut is being eroded quickly and the market could tighten in 2017.

    Hedge funds and other money managers have amassed a net long position in the two main futures and options contracts on NYMEX and ICE equivalent to 2,293 billion cubic feet of gas.

    The net long position has almost quadrupled over the last four weeks, and is now at the highest level since June 2014, according to an analysis of data released on Friday by the U.S. Commodity Futures Trading Commission.

    Positioning has been shifting steadily from bearish to bullish since November 2015 but the pace of adjustment has accelerated sharply.

    The most recent weekly increase in the net long position was the third-largest since the start of 2010.

    The majority of the adjustment has come from the short side of the market, where hedge funds with bearish short positions betting a fall in gas prices have scaled them back.

    Hedge fund short positions have declined by the equivalent of 1,127 billion cubic feet, or 40 percent, in the last four weeks. By contrast, long positions have risen just 544 billion cubic feet, or 16 percent.

    Hedge funds are reacting to signs the gas market is rapidly rebalancing from oversupply in 2015 towards a potential deficit in 2017 (“U.S. natural gas market rebalancing well underway”, Reuters, Sep 16).

    Low gas prices have gradually eroded the excess supply by causing production growth to stall and go into reverse while encouraging record consumption by power producers.

    Rebalancing has been accelerated by unusually hot weather across the most populous parts of the United States this summer.

    Temperatures and airconditioning demand have been far above normal almost continuously since the end of May (“U.S. natural gas market rebalances on hot weather, low prices”, Reuters, Aug 19).

    Working gas stocks have risen by just 1,022 billion cubic feet so far this injection season, compared with an average increase of 1,594 billion cubic feet at this point during the previous five years.

    Stocks have risen by just 160 billion cubic feet in the last four weeks compared with 309 billion cubic feet over the same period in 2015 and a five-year average of 266 billion cubic feet.


    Winter 2016/17 is likely to be colder than the record warm winter of 2015/16 which should increase gas consumption.

    Looking to 2017, more gas-fired power plants are scheduled to come into service, according to the U.S. Energy Information Administration (U.S. power producers maximize gas burn at expense of coal”, Reuters, Aug 31).

    Most of the new gas-fired generating capacity will be combined cycle power plants designed for baseloading rather than steam turbines or combustion turbines operating at peak times.

    The implied increase in gas consumption will tighten the market even further unless gas prices rise to stimulate more drilling and stimulate some shift from gas combustion back to coal in 2017.

    Hedge funds have already anticipated and likely accelerated the price rise by accumulating a large long position in futures and options.

    The calendar average futures price for gas delivered in 2017 has risen to $3.14 per million British thermal units from a low of $2.14 back in December 2015.

    The fundamental outlook for prices looks fairly strong at present, but the emergence of a large hedge-fund long position has increased the risk of a price reversal if position holders try to take some profits.

    The net long position amassed by hedge funds over recent weeks is large by the standard of the last five years, though below the peaks reported in 2013/14.

    So, while fundamentals should continue to support higher gas prices into 2017, liquidation risk has increased substantially and is a negative factor for prices in the short to medium term.

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    Oil, gas stacks make Permian deals costly in spite of downturn

    A recent spate of land deals in the sprawling Permian Basin illustrates a counter-intuitive trend: Real estate in the country’s most active oil field is even more expensive today than it was before commodity prices crashed.

    QEP Resources Inc. agreed to pay a price that works out to close to $60,000 per net acre in June for a slice of the Permian, in the basin’s priciest land deal on record.

    That’s more than double the average $30,000 per net acre explorers paid for Permian land during the first nine months of 2014, when oil topped $100 a barrel, according to data from Citigroup Inc. Oil has been hovering at $45 to $50 per barrel since mid-August.

    Over the past few months, at least four other explorers agreed to pay more than $30,000 per net acre to expand in the Permian: Concho Resources Inc., Parsley Energy Inc., SM Energy Co., and Silver Run Acquisition Corp., according to data compiled by Bloomberg.

    “The valuations are pretty lofty,” said Bryan Lastrapes, managing director at Moelis & Co. “When you look at the prices being paid for a flowing barrel, they are higher than when oil was at $100.”

    Unusual geography

    The obvious question: With oil so much cheaper today, why has Permian land become so pricey? There are a few explanations. The first comes down to the same reason a dingy is more valuable on a sinking ship.

    “It’s about scarcity,” said Bruce Cox, global head of energy acquisitions and divestitures with Credit Suisse Group AG.

    The Permian is one of the few places in the U.S. where drilling remains profitable amid low prices, thanks to its unusual geography, in which different layers of oil- and gas-soaked rock are stacked like layers in a cake, he said. An explorer can drill multiple horizontal wells after digging straight down.

    “What you can’t find in most plays is the Permian hydrocarbon column,” Cox said. “Companies can drill two to four times as many wells over a 10-year development period” in the Permian than in other basins.

    QEP rationale

    This is a key part of the rationale QEP used to justify the price it agreed to pay for the 9,400 net acres in the Permian in June.

    The company told investors it sees a chance to drill more than 400 horizontal wells along four different benches of shale, more than a half-mile down, where it has already determined there is oil. It sees additional upside potential drilling riskier, wildcat wells on three other benches. So it isn’t buying just one field, but as many as seven.

    That deal also addresses a perpetual critique from investors that QEP isn’t big enough in the Permian, by increasing its position there by 50 percent, Richard Doleshek, QEP’s chief financial officer, said in August.

    “From a dollar-per-acre standpoint, we heard a lot of conversation about how that was a big number,” Doleshek said during a presentation at an oil and gas conference sponsored by Enercom Inc., according to a transcript compiled by Bloomberg.

    “When you look at it on a target basis, it’s relatively reasonable,” he said. “It’s pristine acreage.”

    Lower costs

    Another factor driving up Permian land prices is the fact that it has some of the lowest break-even costs in the world. The area has more than a half-dozen fields where drilling can stay profitable even when oil falls below $30 a barrel, according to data compiled by Bloomberg.

    The oil rout has set off a land grab for that reason, said Ron Gajdica, co-head of energy acquisitions and divestitures with Citigroup.

    “When oil prices were high, there was a high supply of acreage with economic drilling opportunities,” he said. “Now, in a $40 to $50 oil price environment, acreage with economic locations is scarcer. There are only a limited amount of opportunities and many of them are in the Permian.”

    A couple of other things are driving up the price of Permian land. First, development costs have come down sharply during the downturn, thanks to lower service costs, technological advances and more efficient techniques, Gajdica said. That means explorers can justify paying higher prices for land.

    Second, Wall Street is helping the trend. Publicly traded Permian explorers such as Concho and Parsley trade at a premium to other shale players. They paid for their recent acquisitions with stock. Since their currency is worth more, they can afford to pay up.

    In addition, other explorers with operations elsewhere, such as QEP and SM, saw their share prices spike after striking deals in the Permian, which could spur even more dealmaking in the area.

    “The market tends to respond favourably when these Permian deals are announced,” Gajdica said.

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    North Dakota shale on slow recovery

    Oil and natural gas activity in shale-rich North Dakota is on a steady increase, though operators are still cautious about recovery, state data show.

    State data show 32 rigs are actively exploring for or producing oil and natural gas in North Dakota, down one from last week but relatively in line with levels since July. Rig counts serve as a loose metric for investor confidence in the energy sector and a reflection of the appetite for spending from oil and gas companies.

    Crude oil prices rallied earlier this year above the $50 mark on suggestions the gap between supply and demand had narrowed to the point of balance. Monthly market reports from the Organization of Petroleum Exporting Countries and the International Energy Agency said an expected balance had yet to materialize.

    Lynn Helms, a director at the North Dakota Department of Mineral Resources, said in a statement that rig counts have seen a steady increase since June, though caution was the prevailing mood in state shale deposits.

    "Operators remain committed to running the minimum number of rigs while oil prices remain below $60/barrel. ... Oil price weakness is the primary reason for the slow-down and is now anticipated to last into at least the fourth quarter of this year and perhaps into the second quarter of 2017."

    North Dakota oil production in July was around 1.03 million barrels per day, a slight increase from June, but still 16 percent below the all-time high set in December 2014. Natural gas production increased 2 percent in July, but was about 0.6 percent below the record high established in March.

    Helms said drilling permit activity was moving higher in response to an expected recovery in crude oil prices by later next year.

    "Operators have a significant permit inventory should a return to the drilling price point occur in the next 12 months," he said.
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    Sabine Pass LNG exports reach 63.47 Bcf in Feb-July

    Liquefied natural gas exports from Cheniere’s Sabine Pass facility reached 63.47 billion cubic feet for the February-July period.

    Data from the United States Department of Energy shows that, including the first cargo shipped from the facility in Louisiana on February 24, Cheniere dispatched 21 cargoes during the period under review.

    The cargoes were delivered to a number of locations including, Brazil, India, U.A.E., Argentina, Portugal, Kuwait and Chile with first cargoes delivered to Spain, China and Jordan in July.

    Export point prices were ranging from US$3.12 per MMBtu to $5.60 per MMBtu.

    DoE’s July report also shows that American LNG Marketing exported 19,330 Mcf of domestically produced LNG in ISO containers in the February-July period. LNG was shipped from Miami, Fla. to Barbados with export point prices ranging from $10.00 per mmBtu to $15.78 per mmBtu.

    LNG imports into the U.S. reached 53.06 Bcf in the period from February to July, all sourced from Trinidad and Tobago, the report showed.

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    Sabine Pass Train 2 achieves substantial completion

    Cheniere Energy Partners L.P. has announced that Train 2 at the Sabine Pass liquefaction project in Cameron Parish, Louisiana, US, has achieved substantial completion. Commissioning has been completed and Cheniere’s engineering, procurement and construction (EPC) partner, Bechtel Oil, Gas and Chemicals Inc., has turned over care, custody and control of Train 2 to Cheniere Partners. This turnover will be done in coordination with the previously-announced planned outage to improve the flare systems’ performance at the project, as well as to carry out scheduled maintenance work on both Train 1 and other facilities.

    As set out in a sales and purchase agreement (SPA) with Gas Natural Fenosa LNG GOM Ltd, Train 2’s first delivery is expected to occur in August 2017. At this point, the 20-year term of the SPA will commence. Before this occurs, Gas Natural Fenosa holds certain rights to early cargoes that Train 2 produces.

    Cheniere Partners, through Sabine Pass Liquefaction, is planning to construct up to six liquefaction trains at the facility. Trains 1 and 2 have achieved substantial completion; Train 3 is undergoing commissioning; Trains 4 and 5 are under construction; and Train 6 has been fully permitted. Each Train is expected to have a nominal production capacity of approximately 4.5 million tpy of LNG.
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    Steelhead, 7G join forces on LNG projects supporting infrastructure

    Steelhead LNG and Seven Generations Energy of Canada on Monday signed an agreement to explore midstream supply chain infrastructure that would link natural gas resources to Steelhead proposed LNG export projects on Vancouver Island.

    The two companies also agreed to engage Aboriginal groups during the development of the infrastructure, according to a joint statement.

    Steelhead LNG proposed to build the Malahat LNG project on the Bamberton Industrial Lands, south of Mill Bay and the Sarita LNG project at Sarita Bay at the southern end of the Alberni Inlet.

    The arrangement, through which Seven Generations has also acquired a minority interest in Steelhead LNG, is expected to provide potential new markets for Seven Generations’ production as well as increased certainty of natural gas supply for Steelhead LNG, the joint statement reads.

    “This agreement with Seven Generations is a positive step toward realizing our sustainable and economic delivery model for LNG. At the same time the economic circumstances are challenging and there is more work to do and milestones to achieve for our projects to succeed,” said Steelhead LNG CEO, Nigel Kuzemko.

    The company is additionally looking to refine its at-shore LNG concept design that uses floating LNG production and storage units moored to marine jetties. The concept can be replicated enabling scalable production capacity at Steelhead LNG’s proposed facilities.

    The National Energy Board has granted Steelhead LNG five licenses to export in the aggregate of up to 30 million tonnes of liquefied natural gas per year for 25 years.

    Steelhead LNG is also exploring ways of accessing newly emerging LNG markets such as the conversion of international shipping vessels to LNG from bunker fuel and diesel, Steelhead LNG said.
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    Alternative Energy

    Solar price hits record low of 2.42c/kWh, and may fall further

    The price of solar PV continues to fall. On Monday, a new record low of US2.42c/kWh ($A0.032c/kWh) was set in a tender for a large solar park in Abu Dhabi, not by an industry outlier but but by the biggest manufacturer of solar modules in the world, JinkoSolar.

    The tender handsomely beats the previous record of US2.91c/kW set just last month in Chile, andprevious sub-3c/kWh markers set in Dubai in an earlier tender.

    And it continues the stunning cost reductions across renewable energy technologies, with new records set in recent months for on-shore and off-shore wind and solar thermal and storage in particular.

    And, it seems, even this bid could be beaten, with the local National newspaper reporting that a local consortium, possibly Masdar Energy, submitting an offer of just US2.3c/kWh if the local authority agrees to write a contract for a solar farm of more than 1.1GW.

    It was only 18 months ago that Saudia Arabia-based ACWA Power stunned the solar world, and the broader energy industry, with a bid of less than 6c/kWh in a Abu Dhabi tender.

    That price was deemed “impossible” by many doubters, but that plant is being built – at even lower cost after it achieved cheaper than expected finance – and it has been bettered numerous times in the US, the Middle East, and South America.

    Paddy Padmanathan, the CEO of ACWA Power, says prices can still fall:  “We haven’t reached the bottom yet, but we’re close,” he told The National.

    The fall in the cost of renewable energy technologies – 80 per cent in five years for solar and 60 per cent for wind – was cited as a major reason why agreement was reached in Paris last year for a landmark and an ambitious climate target, or well under 2°C and possibly 1.5°C. Now prices have fallen dramatically again.

    PV Magazine described the latest solar bid as “astonishing”. It said it was entered into a tender conducted by the Abu Dhabi Electricity and Water Authority’s (ADWEA) for a solar park of at least 350MW. The price was offered by a consortium of JinkoSolar and Japanese industrial giant Marubeni.

    PV Magazine reported that the plant is to be built in the town of Swaihan northwest of Abu Dhabi. A new settlement is being built in the region and it is need of quick, affordable electricity.

    “Understanding that solar could be the cheapest option, ADWEA invited bids for a 350MW, but allowed bidders to increase the size of the development,” the website says. There were six bids in all, the National said, including the proposed offer of US2.3c/kWh.

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    Tesla Wins Massive Contract to Help Power the California Grid

    Tesla just won a bid to supply grid-scale power in Southern California to help prevent electricity shortages following the biggest natural gas leak in U.S. history. The Powerpacks, worth tens of millions of dollars, will be operational in record time—by the end of this year.

    Tesla Motors Inc. will supply 20 megawatts (80 megawatt-hours) of energy storage to Southern California Edison as part of a wider effort to prevent blackouts by replacing fossil-fuel electricity generation with lithium-ion batteries. Tesla's contribution is enough to power about 2,500 homes for a full day, the company said in a blog post on Thursday. But the real significance of the deal is the speed with which lithium-ion battery packs are being deployed.

    "The storage is being procured in a record time frame," months instead of years, said Yayoi Sekine, a battery analyst at Bloomberg New Energy Finance. "It highlights the maturity of advanced technologies like energy storage to be contracted as a reliable resource in an emergency situation."

    The deal fits into Tesla Chief Executive Officer Elon Musk's long-term vision of transforming Tesla from an an electric car company to a clean-energy company. That's the same motivation behind his pending deal to acquire SolarCity Corp., the rooftop solar company founded by his cousins, of which he is also chairman and the largest shareholder.

    In total megawatt hours, the Tesla batteries will make up the biggest lithium-ion battery project in the world, though it will soon be surpassed by others under contract, according to data compiled by Bloomberg New Energy Finance.1 A Tesla spokeswoman declined to comment on the value of the 20 megawatt deal. According to Tesla's website, a 2-megawatt Tesla battery system costs about $2.9 million, and any contracts greater than 2.5 megawatts must be negotiated directly with the company.

    Last fall's natural gas leak at Aliso Canyon, near the Los Angeles neighborhood of Porter Ranch, released thousands of tons of methane before it was sealed in February. In its wake, SCE and other utilities are pursuing energy storage deals. To alleviate the risk of blackouts, regulators ordered the installation of systems to store electricity when demand is low and deploy it when usage spikes, especially during the winter heating season.

    Although Sempra Energy plugged its massive gas leak in February, use of its Aliso Canyon complex, California’s biggest gas storage field, remains restricted. Grid-storage projects are now being fast-tracked and built in less than four months, compared to an average of three and a half years in previous procurements, according to data compiled by Bloomberg New Energy Finance.

    In August, California regulators approved two contracts for AES Corp. to build 37 megawatts of grid-scale energy storage systems to address anticipated power shortfalls stemming from the Aliso Canyon leak. Canadian energy company AltaGas Ltd. also won a 20 megawatt (80 megawatt-hour) contract with Southern California Edison to be completed this year.

    "This isn’t a Tesla-only story," Sekine said. "This is a broader energy win."
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    Precious Metals

    Integra Gold Intersects 70.59 g/t Gold Over 12.7 m

    Press Release Highlights:

    Other results include 54.43 g/t gold ("Au") over 3.6 metres ("m") in C5 step-out drill hole and 68.97 g/t Au over 2.2 m in C4 structure infill drill hole (all results uncapped)
    Highest gold intercepts ever reported in C2 structure

    12.7 m (8.8 m estimated true thickness) intersection in drill hole TM-16-152 occurs 150 m below surface and is in close proximity to the planned route of the exploration decline now underway

    246 m of development completed in exploration decline as of Sept. 16, 2016
    5 drill rigs are currently active on the Lamaque Gold Project

    Integra Gold Corp. is pleased to announce additional assay results from its 2016 drill program on the Triangle deposit ("Triangle") situated on the Lamaque South Gold Project ("Lamaque") in Val-d'Or, Québec. Results continue to support internal gold zone continuity and lateral expansion potential with infill and step out drill holes intersecting significant high grade gold mineralization. Results announced today are from 16,950 m of drilling conducted in 2016 and assays are currently pending from an additional 40,400 m (133 drill holes) of diamond drilling at Triangle.

    "We are excited to have one of the best intersections ever drilled at Triangle located near surface and in an area of the deposit we will soon have access to via the exploration ramp now being constructed," commented Company President and CEO, Stephen de Jong. "In addition to the near surface success we are encouraged by the impressive growth potential the C5 structure is now exhibiting with mineralization over meaningful widths discovered in multiple drill holes beyond the limit of the previous resource estimate."

    Lots more:
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    Base Metals

    Court in China declares state-run metals firm bankrupt

    A court in southern China has formally declared bankrupt Guangxi Nonferrous Metals Group Co Ltd, an unlisted state-run metals producer that defaulted on a bond in February and missed a payment in April.

    The firm, which is owned by the Guangxi regional government, had failed to propose a court-ordered reorganization plan within a six month window, the intermediate court in Guangxi's capital Nanning ruled on Sept. 12 according to a statement posted online on Monday.

    As such, the restructuring period was brought to a close and the company was declared bankrupt, it said.

    Steel producers and metals smelters have been among the hardest hit of China's industrial firms amid a slowing economy and extended real estate downturn, which bottomed out in the second half of 2015 bolstered by government support measures.

    Calls to Guangxi Nonferrous were not answered.

    In April it missed a payment on a 500 million yuan ($77 million) three-year private placement note with a 5.56 percent coupon rated BB.

    The metals producer cited in the notice "consecutive losses and the fact that it has already entered bankruptcy reorganization procedures" as reasons for the missed payment.
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    China freezes Trafigura's investment in copper smelter as part of oil probe

    The Chinese authorities have frozen part of commodity trader Trafigura's investment in a Chinese copper smelter as part of a years-long probe into the Swiss firm's oil trading, according to documents from the police and banks reviewed by Reuters.

    In October last year, police in the northern Chinese city of Cangzhou, froze $32.9 million Trafigura Pte Ltd had injected into the metals project, a joint venture with Chinese metals producer Jinchuan Group Co Ltd in the southwestern city of Fangchenggang, documents dated Oct. 28, 2015 show.

    The documents were from the Cangzhou Police Bureau and a Bank of China branch in Fangchenggang, which authorized the move. The frozen funds represented just over a third of the $94.4 million investment Trafigura Pte Ltd had pledged.

    Investigators arrested Tian Meng, Trafigura's Beijing-based oil marketer in August 2014, following a complaint to police by private Chinese trader Qingdao United Energy, alleging it had lost $32 million from trade financing deals arranged by Tian without its knowledge.

    Tian was released on bail last month - without being charged - after more than two years in detention. Reuters couldn't reach Tian for comment.

    Trafigura declined to comment on the fund freeze. The Cangzhou Police Bureau and Cangzhou prosecutors' office declined comment. Jinchuan did not respond to requests for comment. Li Yixing, founder of Qingdao United Energy, said he was briefed by the police of the fund freeze, but declined to comment further.

    The events highlight the complexity of doing business in China, a key market for the Swiss merchant which deals in everything from oil to copper. Trafigura's investment in the smelter was seen as an important step for Trafigura in expanding its footprint in the copper concentrates and metal market in the world's top commodities consumer.

    Senior sources at Trafigura have repeatedly said the company believes the dispute is a commercial one and is not a matter for police or state prosecutors.

    The Fangchenggang smelter, in Guangxi province, is not connected to the trading being investigated.

    Senior industry sources said the freezing of Trafigura's investment should not have a material impact on the Swiss firm given it reported $97.2 billion in revenue and $2.6 billion of gross profit in 2015 as shown in Trafigura's annual report.

    The one-year freeze expires next month, the documents showed.

    Authorities also detained Li Bo, head of Trafigura's Beijing-based oil operation, in June 2015, as part of the investigation into the same case. Li was released later on bail last February and has not been charged.

    Police targeted Trafigura Pte Ltd because it was the counterparty of the Qingdao firm in the alleged trade financing deals, according to Qingdao United Energy's Li and another source with direct knowledge of the probe.
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    Zinc demand set to outpace production

    Global zinc demand growth is set to marginally outpace production growth between now and 2020, averaging 1.7% and 1.3%, respectively, advisory firm BMI Research said on Monday.

    Refined zinc production is slowing as weak prices and an ore shortage force major producers to curb output.

    “We expect global mined zinc output to drop by 6.8% year-on-year; as such, we forecast global output to decline slightly this year by 0.9% and remain muted at an average yearly growth rate of 1.8% between 2017 and 2020,” BMI noted.

    Further, it highlighted that China’s refined zinc output will fall by 2% to 6.1-million tons as the Chinese government continues to consolidate the sector and refiners start to feel the supply constraints.

    “Zinc refiners, particularly those in China, will scramble to secure zinc concentrates over the coming quarters, on the back of major producers implementing production cuts and two key mines coming offline permanently.”

    Zinc prices on the London Metal Exchange are expected to average $2 000/t for the next three months, implying prices will finish the year at around $2 130/t, the advisory firm said.

    “High-frequency data bolsters our view that the zinc price rally will fade over the coming months, despite maintaining a bullish long-term view.”

    Zinc prices had reached a floor of $1 500/t in January. “Zinc's year-to-date price gains of about 50% and clear outperformance among base metals will continue to be supported by strong fundamentals, namely a global ore shortage and production cuts,” BMI stated.

    It added that zinc would continue to test resistance at a key trendline around $2 300/t, although BMI does not expect it to break through quite yet, as a strong US dollar and tepid global demand growth cap prices.

    The company further forecast zinc prices to increase by a yearly average of 3.9% to 2020, following an average yearly contraction of 2.2% over the previous five-year period.

    Outside of China, other major zinc markets will see a 3% to 4% decline in output. South Korea and Japan will experience refined zinc output declines, owing to the global shortage and subdued prices.

    In contrast, India’s consumption was expected to increase from 690 000 t this year to 966 000 t by 2020, averaging growth of 9.6% a year.

    “The key downside risks to our price outlook include stronger-than-expected government support to maintain refined zinc production in China or producers restarting stalled capacity earlier than expected.

    “If local government lend further support to Chinese zinc smelters to avoid labour unrest and meet growth targets, China will prolong the global market oversupply.

    “Further, if improving zinc prices encourage producers to ramp up output rather than maintain planned cuts, the global market will remain oversupplied, keeping a lid on prices,” BMI said.
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    Steel, Iron Ore and Coal

    China Aug coke output rises 5pct on year

    China produced 39.13 million tonnes of coke in August, rising 4.9% from July and 5.0% compared to the same month last year, showed data from the National Bureau of Statistics.

    Total coke output over January-August dropped 2.7% on year to 292.38 million tonnes, data showed.

    In August, China's coke producers boosted coke output, in response to rising prices and good sales in the domestic market, supported by robust demand from steel makers and tight supply amid pressure from environmental authorities.
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    Coal India Q1 net profit falls in FY 2016-17

    Coal India posted a 14.7% dip in net profit during the first quarter of fiscal year 2016-17 (April-March) on the back of a near 6% fall in income from operations.

    The company reported Rs 3,065.26 crore ($457 million) net profit for the period against Rs 3,596.92 crore in the previous corresponding period.

    During April-June this year, the company produced 125.67 million tonnes of coal, a 3.5% growth year on year. Sales during the period also soared to 133.24 million tonnes from 129.39 million tonnes in the corresponding period last year, up nearly 3% year on year.

    Despite a growth in coal production and offtake, the Maharatna company's net sales during the quarter fell 6.12% on year to Rs17,796.05 crore from Rs 18,955.75 crore in the same period a year ago, according to a stock exchange filing. Its total income from operation also decreased to Rs 18,421.87 crore in the first quarter of this fiscal from Rs 19,518.08 crore in the year-ago period.

    Although there was about 3% higher offtake, sales in value terms decreased during the quarter as average realization from e-auction has dropped to Rs 1,570/t during the first quarter of the current fiscal from Rs 2,184/t a year-ago due to low market interest.

    Quantity under FSA has also declined by about one million tonnes during the quarter. The company's interest income from bank deposit has also decreased during this period, according to a senior CIL official.

    CIL managed to reduce its total expenses by 3% during the period to Rs 14,834.20 crore against Rs 15,320.81 crore in the previous corresponding period. However, outgo on account of contractual expenses increased to Rs 2,800.55 crore during the period against Rs 2488.70 crore in the previous corresponding period.
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    Ten large groups to contribute over 60% of China's steel capacity, CISA

    Ten large steel groups will be responsible for 60-70% of China's total steelmaking capacity by 2025, including three or four firms each with capacity of 80 million tonnes per annum (Mtpa) and six to eight companies each with capacity of 40 Mtpa, said Chi Jingdong, vice president of China Iron and Steel Association (CISA), on September 19.

    To fulfill the target, China will focus on elimination of surplus capacity in steel industry while introducing preliminary regrouping policies over 2016-2018, and further improve these policies over 2018-2020, and then massively promote regroupings over 2020-2025, Chi said.  

    Wuhan Iron and Steel Group said in an interim statement that it planned to reorganize the assets of its iron and steel business with one of its rivals Baoshan Iron and Steel Group. The companies are large, state-owned steelmakers that could form the backbone of the steel industry in southern China.

    The plan, contributing to higher competitiveness of both companies and less unhealthy competition between them, also marks a key part of the country's SOE reform, as the government has identified it as an essential step in the structural transformation of China's economy.

    Chi also pointed out the regional imbalance and structural issues of China's steel industry. Data from the National Bureau of Statistics showed that steel production in southern China stayed at a high level in the past seven months this year, while that in northwestern and northeastern China was on the decline.

    It further calls for restructurings while mergers of steel firms are pushed ahead, and various factors that may bring influences should be taken into account, he added.
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    Hebei private steel makers report robust profit rise

    Private steel makers of North China's Hebei Province, home to a quarter of China's steel manufacturing, posted a total profit of 17.11 billion yuan ($2.56 billion) over January to July, soaring 282.95%, according to the Hebei Metallurgical Industry Association.

    Over the period, the top 10 private steel producers by profit realized profits above 540 million yuan, with average profits above 183 yuan/t.

    Among these enterprises, Jinxi Group ranked first with a profit of 1.38 billion yuan; while the largest average profit was reported by Delong Steel at 347 yuan/t.

    In the first six months, the profit of Hebei's steel industry totaled 15.01 billion yuan, surging 181.35% on year, with the profit margin stood at 3.02%, the association said on September 17.

    63 of the 78 steel producers surveyed in Hebei were in profit during the period, increasing 15.39% year on year.

    According to Song Jijun, deputy head of the association, a restorative rebound after the price plunge contributed to the remarkable growth this year.

    Though Hebei's steel output rose on the year entering 2016, the total revenue declined, indicating a lower price compared to last year, due to serious overcapacity and sluggish demand amid a slowing economy, Song said.

    The province, home to seven of China's top 10 most polluted cities, plans to cut 49.89 Mtpa (million tonnes per annual) of iron capacity, 49.13 Mtpa of steel capacity and 51.03 Mtpa of coal capacity over 2016-2020.
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    Tokyo Steel cuts October prices by up to 13 pct amid soft demand

    Tokyo Steel Manufacturing Co Ltd , Japan's top electric arc furnace steelmaker, said it would slash prices of its products for October delivery by up to 13 percent to reflect soft local demand and weakening overseas prices.

    The company will cut prices by between 3,000 yen to 7,000 yen ($29 to $69) per tonne, it said in a press briefing on Tuesday. That is between 4 percent and 13 percent, Reuters calculations show.

    This is Toyko Steel's first across-the-board cut in seven months and comes five months after the company's attempt to bolster product prices.

    Tokyo Steel's pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which export to Japan.

    Prices for the company's main product, H-shaped beams, which are used in construction, will fall by 7,000 yen, or 10 percent, to 65,000 yen ($638) per tonne in October. Prices for steel bars, including rebar, will drop by 7,000 yen, or 13 percent, to 47,000 yen a tonne.

    "The price cut is to reflect the current market condition and to send a signal to the market that the prices will be bottoming out next month," Tokyo Steel's Managing Director Kiyoshi Imamura told reporters.

    "We had expected to see a pick-up in local demand this year, but the delay in construction projects for the 2020 Summer Olympic Games and redevelopment works in the Tokyo metropolitan area has slowed a demand recovery," Imamura said.

    Export demand is also under pressure, he said, due to cheaper export prices from Chinese mills.

    "Basically, oversupply from China has not changed."
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    Sinosteel debt-to-equity swap plan approved - report

    China's state-owned metals trader Sinosteel will be permitted to swap 27 billion yuan ($4.05 billion) of debt into equity convertible bonds, the online financial magazine Caixin reported on Tuesday citing anonymous sources.

    It marks the first swap this year under a wider debt-to-equity swap programme mooted by policymakers as one solution to reducing China's corporate debt overhang.

    Policymakers hope the swap plan will help clean up a bad debt problem that is increasingly worrying global investors amid warnings that a banking crisis is looming.

    Debt has emerged as one of China's biggest challenges, with the country's total load rising to 250 percent of GDP last year. At about 145 percent of GDP, corporate debt "is high by any measure", China IMF Mission Chief for China James Daniel said in the fund's annual review of China in August.

    China's vast state-owned sector had accumulated total liabilities of 83.74 trillion yuan by the end of July, up 17.6 percent on the year and representing 66.2 percent of total assets, official data showed.

    Caixin said Sinosteel's 27 billion yuan swap plan would represent nearly half of the 60 billion yuan of debt owed directly to financial institutions. That debt would be changed into convertible bonds, which could be exchanged for equity in the company at a later date.

    Officials at Sinosteel could not be immediately reached for comment.

    Sinosteel would set up a special subsidiary to handle the conversions, which would also receive a 10 billion yuan capital injection from a Chinese central government body responsible for managing state-owned assets, the magazine said.

    The remaining debt would still need to be repaid but at a low interest rate of around 3 percent, Caixin said.

    The publication had previously reported that Sinosteel and its subsidiaries had more than 100 billion yuan of debt at the end of 2014.

    In October 2015, Sinosteel asked bondholders not to exercise an early redemption option on one of its bonds maturing in 2017 as the firm would not be able to make full payment.


    China has floated plans to introduce more market tools for managing the country's rising debt load, including credit default swaps and debt securitisation.

    In March, Reuters reported that Chinese policymakers were planning a debt-to-equity swap programme that would convert some non-performing bank debt into equity. It was later confirmed by regulators.

    Officials have insisted the programme would be used to restructure competitive companies suffering temporary operational challenges, and would not prop up so-called "zombie enterprises", those that would not survive without life support from local banks and governments.

    China experimented with debt-to-equity swaps in the late 1990s as part of sweeping reforms to the state sector that led to around 28 million layoffs over five years. But experts said the programme created perverse incentives and made state-owned firms less willing to find ways to pay back debts.

    Wang Hongzhang, chairman of the China Construction Bank , one of the country's biggest banks, warned earlier this year there was a danger the programme would simply convert "bad debt into bad equity".

    Caixin reported on Monday that some of the liabilities of another debt-stricken steel conglomerate, the Tianjin-based Bohai Steel Group, would be converted into bonds as part of a proposed rescue plan for the firm.

    It owes 192 billion yuan to 105 creditors, and Caixin quoted an unidentified banker as saying that the proposals could lead to bank losses of at least 60 billion yuan.

    Xie Duo, head of the China Interbank Market Trade Association, told a forum at the end of August that China's previous debt-to-equity swap programme "played a positive role" in the restructuring the country's economy, but it also posed risks.

    "If used improperly, the simplistic implementation of asset restructuring by sacrificing the interests of creditors is not in accordance with the rules of development," he said.

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