Mark Latham Commodity Equity Intelligence Service

Friday 8th April 2016
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    ‘Sluggish’ 2016 outlook for world trade, WTO warns

    The World Trade Organisation (WTO) warned on Thursday that growth in the volume of world trade was likely to remain sluggish in 2016 at 2.8%, unchanged from levels recorded in 2015, which was the fourth consecutive year where growth in world merchandise trade remained below 3%. 

    WTO economists expected global trade growth to rise to 3.6% in 2017, well below the yearly average of 5% since 1990. In addition, risks to the forecast “tilted to the downside, including further slowing in emerging economies and financial volatility”. 

    The 2016 forecast was premised on world gross domestic growth of 2.4%. Director-general Roberto Azevêdo described the 2015 performance and the 2016 outlook as disappointing, noting, too, that while the volume of global trade had grown, its value had fallen as a result of shifting exchange rates and falls in commodity prices. 

    The dollar value of merchandise trade fell 13% to $16.5-trillion in 2015, from $19-trillion in 2014, while trade in commercial services declined 6.4% to $4.7-trillion. “This could undermine fragile economic growth in vulnerable developing countries. There remains as well the threat of creeping protectionism as many governments continue to apply trade restrictions and the stock of these barriers continues to grow," Azevêdo said. 

    Developed economy imports rose 4.5% last year, but developing countries stagnated at 0.2%, with South America recording the weakest import growth of any region, owing to the recession in Brazil depressing demand. The volume of developed economy exports grew by 2.6% in 2015, while exports from developing countries expanded by 3.3%.
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    Brazil's top prosecutor opposes Lula cabinet appointment

    Brazil's top prosecutor recommended on Thursday that the Supreme Court block the appointment of former president Luiz Inacio Lula da Silva as cabinet minister because it was intended to disrupt a corruption investigation.

    Lula's protégée and successor, President Dilma Rousseff, last month named him to be her cabinet chief, ostensibly to help her raise dwindling support among her coalition allies to fight off the threat of impeachment in Congress.

    The appointment would have given Lula some immunity from prosecution by crusading anti-corruption lower court Judge Sergio Moro because ministers and elected officials can only be tried by the Supreme Court in Brazil.

    A recording made public by Moro of a telephone conversation between Lula and Rousseff discussing the appointment appeared to confirm that they were seeking to shield the Workers' Party leader from prosecution and possible arrest in a graft probe.

    In his recommendation to the Supreme Court, Prosecutor General Rodrigo Janot said the cabinet appointment was intended to remove the investigation from the lower court judge and "disrupt" the corruption probe known as "Operation Car Wash."

    Lula is under investigation for allegedly benefiting, in the form of payments and a luxury seaside penthouse, from a massive graft scheme uncovered at state-run oil company Petrobras.

    The widening investigation has caused a political storm that threatens to topple Rousseff, who is facing impeachment over an unrelated accusation of doctoring government budget accounts.

    A Supreme Court judge suspended Lula's appointment on March 18, arguing that it was an illegal move to shield him. The full court must rule on April 20 whether to uphold the injunction issued by Justice Gilmar Mendes.

    It must also decide whether to return the Lula investigation to the lower court.

    Lula, Brazil's first working class president from 2003 to 2010, is still the country's most influential politician, but the delay in his appointment limited his ability to help Rousseff weather the political crisis.

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    EU watchdog expands oversight of energy market trading

    The European Union started on Thursday to amass information about all so-called over-the-counter trades in the region's energy markets in a bid to crack down on suspected price manipulation.

    EU watchdog the Agency for the Cooperation of Energy Regulators (ACER) began collecting data about trades on official energy exchanges within Europe in October but says it can only get a full picture once informal transactions are tracked too.

    Over-the-counter (OTC) trades account for at least two thirds of Europe's multi-billion dollar wholesale power and gas trading markets. The EU has been concerned energy prices could be rigged with inside information, or with tactics used in stock markets such as "layering" where traders bombard systems with orders they do not intend to execute to try to shift prices.

    As a result, the EU launched the Regulation on Wholesale Energy Integrity and Transparency (REMIT) in December 2011, and the watchdog hopes the collection of OTC data will improve the integrity and transparency of the markets.

    There are several hundred companies involved in wholesale electricity and gas trading in Europe with up to 10,000 transactions a day, all of which makes it difficult to nail down whether there has been market manipulation.

    ACER said the REMIT market monitoring framework was unprecedented, not only for the energy sector and its geographic scope, but also for its complexity.

    Since it started tracking exchange transactions on Oct. 7, the EU watchdog had received data on more than 79 million orders and 23 million of trades on the EU's power and gas exchanges by Feb. 15, according to a presentation by the agency.

    The agency declined to say how many alerts had been triggered by its surveillance software so far, or potential market breaches detected, citing confidentiality.

    According to ACER's annual report published last September, out of 58 potential breaches in 2013 and 2014, 26 were related to suspected market manipulation.

    ACER said it proved market manipulation in two out of the 14 cases it closed in 2014, though neither was sanctioned. Estonia and Spain sanctioned two REMIT breach cases in 2015. Both companies in question have appealed.

    The EU watchdog uses market surveillance software SMARTS to monitor trading for suspicious behavior. SMARTS, developed in Australia, was acquired by the U.S. Nasdaq Inc. (NDAQ.O) and is also used to monitor trading in Nordic power derivatives.

    ACER said the surveillance software has been adapted and customized to fit the monitoring of EU wholesale energy markets, though some industry sources were skeptical about whether it would actually spot price manipulation.

    "The agency is confident that the software enables an efficient monitoring of EU energy markets," ACER told Reuters in an emailed statement.

    Still, some industry sources say the software used by the watchdog will have trouble pinpointing transgressions, partly because many of the traded power contracts overlap.

    For example, the price of a quarterly power contract could be moved by trading in monthly contracts, and those can be broken up into weekly contracts, making it more difficult to trace manipulation through trades.

    "ACER will drown in false alarms," one source familiar with the system said. "It will be up to market whistleblowers to bring cases to the prosecution."
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    China's foreign reserves post surprise rise in March

    China's foreign exchange reserves rose slightly in March to $3.21 trillion, the central bank said on Thursday, the first monthly increase since November as cooling expectations of U.S. interest rate hikes eased pressure on the yuan.

    The level of reserves beat a Reuters poll forecast of a drop to $3.18 trillion, and compared with $3.20 trillion in February.

    The mild increase leaves reserves still down sharply from their peak of $3.99 trillion in June 2014.

    Capital outflows from China have moderated, according to recent official data, in part helped by expectations the Fed will slow the pace of interest rate rises this year. Federal Reserve Chair Janet Yellen's comments last week that the U.S. central bank should proceed cautiously in adjusting policy have caused a broad-based retreat in the dollar.

    Central bank governor Zhou Xiaochuan said last month recent data showed a significant easing in capital outflows and short-term speculative money leaving China was not worrisome.

    The central bank reported its net foreign exchange sales fell sharply to 228 billion yuan ($35.2 billion) in February, down from 644.5 billion yuan in January, a sign of decreased government intervention in support of the yuan.

    To be sure, analysts believe that China still faces a tough job keeping the yuan stable, particularly at a time of persistent supply glut and tepid domestic demand. A future U.S. rate hike remains a risk for more disruption to the world's second-largest economy.

    The People's Bank of China has moved to curb currency speculation since late December 2015, including limiting yuan-based funds' overseas investments and implementing a reserve requirement ratio on offshore banks' domestic yuan deposits.

    The foreign exchange regulator is also studying the introduction of a currency trading Tobin tax, part of efforts to penalise speculators.

    China's gold reserves stood at 57.79 million fine troy ounces at the end of March, up from 57.5 million at the end of February, the central bank said on Thursday.

    China began updating its reserve figures on a monthly basis in June 2015. Prior to that, the reserve figures were not updated regularly.
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    Animal Spirits Awaken

    ytd     name                                    mcap  ev/ebitda(ltm)
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    Dirty Truth about the Tesla.

    But this is only true of the car itself; the electricity powering it is often produced with coal, which means that the clean car is responsible for heavy air pollution. As green venture capitalist Vinod Khosla likes to point out, “electric cars are coal-powered cars”.

    If the USA had 10 per cent more petrol cars by 2020, air pollution would claim 870 more lives. A similar increase in electric ones would cause 1,617 more deaths a year, mostly because of the coal burned.

    If we were to scale this to the UK, electric cars would cause the same or more air pollution-related deaths than petrol-powered cars. In China, because their coal power plants are so dirty, electric cars make local air much worse: in Shanghai, pollution from more electric-powered cars would be nearly three-times as deadly as more petrol-powered ones

    Moreover, while electric cars typically emit less CO₂, the savings are smaller than most imagine. Over a 150,000 km lifetime, the top-line Tesla S will emit about 13 tonnes of CO₂. But the production of its batteries alone will emit 14 tonnes, along with seven more from the rest of its production and eventual decommissioning.

    Compare this with the diesel-powered, but similarly performing, Audi A7 Sportback, which uses about seven litres per 100km, so about 10,500 litres over its lifetime. This makes 26 tonnes of CO₂. The Audi will also emit slightly more than 7 tons in production and end-of-life. In total, the Tesla will emit 34 tonnes and the Audi 35. So over a decade, the Tesla will save the world 1.2 tonnes of CO₂.

    Reducing 1.2 tonnes of CO₂ on the EU emissions trading system costs £5; but instead, the UK Government subsidises each car with £4,500. All of the world’s electric cars sold so far have soaked up £9 billion in subsidies, yet will only save 3.3 million tonnes of CO₂. This will reduce world temperatures by 0.00001°C in 2100 – the equivalent of postponing global warming by about 30 minutes at the end of the century.  Electric cars will be a good idea, once they can compete – which will probably be by 2032. But it is daft to waste billions of pounds of public money on rich people’s playthings that kill more people through air pollution while barely affecting carbon emissions. The Tesla 3 is indeed a “zero emissions” marvel – but that is only because it does not yet exist.


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    Brazilian Impeachment Vote Gets Go-Ahead in Congress Report

    Dilma Rousseff’s political future hung in the balance on Wednesday as a congressional report recommended impeachment proceedings move ahead, while the Brazilian president’s biggest ally stopped short of defecting from the government.

    The report, drafted by the rapporteur of the lower house committee on impeachment, Jovair Arantes, says there are grounds for the impeachment process to advance. He sided with the main argument behind the request to oust her, saying there is sufficient evidence that Rousseff used illegal financing to mask the size of the budget deficit.

    "The accusation fulfills all the legal and political conditions required for its admission,” Congressman Arantes wrote in the report that is published on the committee website. Rousseff says that the charges against her are baseless.

    Arantes also said lawmakers could take into account allegations of graft at state-run oil company Petrobras when considering whether to remove the president. Investigators haven’t accused Rousseff of accepting kickbacks in the Petrobras scandal, though they are probing whether her campaign received illegal donations from the scheme. Her Workers’ Party denies the allegations.

    Arantes read the 128-page report out loud in the committee session on Wednesday, saying he has tried to remain impartial and is well aware he will be labeled both a hero and villain for his work. The session got off to a tumultuous start, as committee members shouted at each other over procedural issues. Lawmakers on both sides of the aisle brandished signs, with government supporters denouncing what they say is an attempted "coup" and opponents calling for "impeachment now."

    While there are still several key steps in the impeachment process, the report could sway some legislators in what appears to be shaping up as a tight vote on the floor. As of Wednesday afternoon, anti-government group VemPraRua said there were 267 votes for and 119 against impeachment in the house. A group of Rousseff allies, including members of her Workers’ Party, said there were 129 votes against the president’s ouster.

    The committee may extend deliberations into the weekend so it can vote as early as Monday on Arantes’s report. Its recommendation will then go to the full house, which will decide whether there are grounds to oust the president. If 342 of 513 lower house lawmakers back impeachment, the case moves to the Senate.

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    Venezuela decrees Fridays a holiday to ease energy crisis

    Venezuela's President Nicolas Maduro has decreed that all Fridays for the next two months will be holidays, in a bid to save energy in the blackout-hit OPEC country.

    "We'll have long weekends," Maduro said in an hours-long appearance on state television on Wednesday night, announcing the measure as part of a 60-day plan to fight a power crunch.

    A severe drought, coupled with what critics say is a lack of investment and maintenance in energy infrastructure, has hit the South American nation, which depends on hydropower for 60 percent of its electricity.

    Venezuela's opposition slammed the new four-day work week as reckless in the face of a bitter recession, shortages of foods and medicines, and triple-digit inflation.

    The measure comes on the heels of Maduro decreeing a week-long break over Easter, ordering some shopping malls to generate their own power, and shortening daily working hours.

    "For Maduro the best way to resolve this crisis is to reduce the country's productivity," said Caracas city councillor Jesus Armas. "Fridays are free bread and circus."

    Some Venezuelans took to social media to express their surprise. "You must be kidding???," one Twitter user said. Many others wondered how the measure would impact schools, bureaucratic procedures and supermarkets.

    It was not immediately clear how the non-working Fridays would affect the public and private sector.

    The 60-day plan's fine print will be announced on Thursday, said Maduro during the television program, which included music, dancing and giant pictures of late leader Hugo Chavez.

    "I think we can overcome this situation without increasing fares or rationing," added Maduro.

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    Williams sues Energy Transfer over preferred share offering

    Williams Companies Inc has sued Energy Transfer Equity LP to block a private preferred share offering disclosed last month, saying it was a breach of their merger agreement.

    The lawsuit comes after the two U.S. pipeline companies clashed publicly last month over Energy Transfer's efforts to finance its $14 billion takeover of Williams.

    The offering provides certain Energy Transfer investors preferential treatment on its distributions, Williams said in a statement on Wednesday.

    Williams also said it was suing Kelcy Warren, chairman of the general partner of Energy Transfer.

    Energy Transfer said last month it had originally intended to offer the units to all of its shareholders, but Williams did not consent to a public offering.

    Energy Transfer said it has not asked Williams for its consent on the private offering.

    Shareholders, including Warren, who hold around 31.5 percent of Energy Transfer's units participated in the offering and agreed to take smaller distributions for up to nine quarters.

    Williams said the lawsuit is intended to ensure that Williams' stockholders receive the consideration to which they are entitled under the merger agreement.
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    South African FirstRand's retail bank closes accounts held by Zuma friends

    A South African company owned by friends of Jacob Zuma, said on Wednesday First National Bank has closed its accounts, the latest local company to shun the Gupta family due to a scandal over its relationship with the president.

    "Oakbay has received no reason whatsoever justifying FNB's actions. We are already in the process of moving our accounts to a more enlightened institution," Oakbay Investments said in a statement. FNB is a unit of FirstRand

    Three other South African companies, including KPMG and Barclays Africa, have severed ties with a firm owned by the Guptas, a family of Indian-born businessmen.
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    Another Brazil State-Run Giant Readies Its Own Graft Write-downs

    A year after Brazilian oil giant Petroleo Brasileiro SA took a writedown of $2.1 billion because of the sweeping corruption scandal known as Carwash, another state-run company is getting closer to reporting its own price tag from graft losses.

    The team of lawyers and specialists hired by Centrais Eletricas Brasileiras SA has finished the bulk of its investigation to assess the size of losses from corruption committed by some builders the company contracted, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. Before it can finish its work, the group needs one more piece to the puzzle: testimony given to federal prosecutors last month by executives from Andrade Gutierrez SA, a construction firm that worked on key projects, from the Belo Monte dam deep in the Amazon jungle to the Angra nuclear plant tucked in a Rio de Janeiro bay, said the person.

    That testimony is likely to be made public in coming weeks after prosecutors send it to a Supreme Court judge to sign off on this week, said a second person with direct knowledge of the process. The executives, who admitted to paying bribes to win lucrative contracts at Petrobras, reached plea bargains to testify about other graft losses, including at Eletrobras, as the utility is known, said the two people. Andrade’s press office declined to comment.

    While the kickback scheme at Petrobras has exploded publicly and received almost daily coverage in every major newspaper in Brazil, the saga playing out at its counterpart in the electric sector has unfolded largely out of the international spotlight. The larger investigation has helped tip Brazil into its worst recession in a century and paralyzed its political institutions.

    Eletrobras’s press office in Rio de Janeiro, where the company is based, didn’t respond to requests for comment.

    Almost a dozen Andrade executives testified last month for five days, and at least two of them described an illegal pay-to-play scheme in energy projects like Belo Monte, which is controlled by an Eletrobras unit, said one of the people. According to the testimony, builders agreed to pay kickbacks equal to 1 percent of the 15 billion-real ($4.2 billion) project, which were then allegedly routed to the PT and PMDB political parties as official donations, said the person. The PT and PMDB have repeatedly denied any accusations of wrongdoing.
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    Noble Group launches $1-billion loan facility

    Noble Group will have to fork out more than double in interest margin on a $1-billion unsecured loan it is raising with banks, as a fall out of the commodity trader's credit rating downgrades, sources familiar with the matter said.

    The Singapore-listed firm has launched a 364-day revolving credit facility, which will pay an interest margin of 225 basis points over LIBOR, compared with 85 basis points interest margin for last year's one-year $1.1 billion loan, said the sources, who declined to be identified as the information is not public.

    Noble, which previously said the latest loan would come at a higher price, declined to comment on the story on Tuesday.

    A successful raising of Noble's loan, which is not backed by assets, will help it repay part of its debt maturing in May and could reassure investors about its finances following a $1.2-billion writedown on assets and a full-year loss.

    Noble, one of the biggest traders of commodities from coal to iron ore to oil, is battling to boost investor confidence after Standard & Poor's and Moody's cut their investment grade ratings on the company to junk, following a bruising accounting dispute and weak markets.

    Hong Kong-headquartered Noble has said its overall funding costs were decreasing as it was stepping up low-cost secured lending from banks and cutting capital spending.

    Its latest loan comes on top of a $2.5 billion secured financing that it is seeking in the United States from its lenders.

    Noble has launched the $1-billion loan into general syndication and the deadline for responses is May 3, the sources said. Previously, the company was said to be looking to raise $1.5 billion in unsecured loans.

    Loss-making Noble has mandated eight banks including Societe Generale, MUFG, HSBC and DBS as lead arangers, the sources said.

    HSBC and Societe Generale declined to comment. Bank of Tokyo-Mitsubishi UFJ (MUFG) and DBS had no immediate response.

    Shares in Noble, which has been grappling with a rout in commodity prices and an attack on its accounting practices, plumbed 12-year lows in January, but have recovered around 40 percent over the past two months.

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    China sets energy use target for 2016

    China aims to keep total energy consumption at around 4.34 billion tonnes of standard-coal equivalent in 2016, with non-fossil fuel consumption rising to 13 percent, the National Energy Administration said Friday.

    Gas consumption will account for 6.3 percent of total energy consumption this year, and the proportion of coal consumption will fall below 63 percent, according to a guideline issued by the administration.

    On the supply side, the country is expected to produce 3.6 billion tonnes of standard coal equivalent in 2016, with crude output reaching 200 million tonnes and gas output standing at 144 billion cubic meters.

    The country aims to reduce energy consumption per unit of gross domestic product by at least 3.4 percent year on year in 2016, according to the guideline.

    The administration called for efforts to promote clean energy and emission reductions, further optimize the country's energy structure and strengthen international energy cooperation.

    China plans to invest 30 billion yuan ($4.62 billion dollars) in recharging-infrastructure construction in 2016 to promote the use of electric vehicles, the guideline said.

    The country will build 2,000 charging stations, 100,000 public charging posts and 860,000 private charging posts in 2016.

    China will also kick off a new round of rural electric power grid upgrades to improve rural residents' lives and bolster the country's economy, according to the guideline.

    China's energy consumption rose 0.9 percent year on year to 4.3 billion tonnes of standard coal equivalent in 2015.

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    KPMG South Africa cuts links with firm owned by Zuma friends

    Global accountancy firm KPMG's South African arm has severed its ties with a company owned by the Guptas, a family of Indian-born businessmen, due to a scandal over their relationship with President Jacob Zuma, according to an internal circular.

    In the email sent to KPMG staff and seen by Reuters, local Chief Executive Trevor Hoole said he had decided to stop auditing Oakbay Resources and Energy, a Gupta mining holding company, after consulting regulators, clients and KPMG's internal risk departments.

    "I can assure you that this decision was not taken lightly but in our view the association risk is too great for us to continue," Hoole said in the email.

    "There will clearly be financial and potentially other consequences to this, but we view them as justifiable."

    Oakbay did not respond to an email request for comment. A KPMG spokesman declined to comment.

    The three Gupta brothers moved to South Africa from India at the end of apartheid in the early 1990s and went on to build a business empire that stretches from technology to the media to mining.

    They have also forged a close personal relationship with Zuma, whose motorcade has been spotted several times pulling into their lavish mansion in suburban Johannesburg.

    Zuma's son, Duduzane, sits on the board of at least six Gupta-owned companies, according to company registration papers.

    Allegations of Gupta meddling in politics burst into the open last month when Deputy Finance Minister Mcebisi Jonas said they offered him the top job at the Treasury before Zuma inexplicably fired Jonas' boss, Nhlanhla Nene, in December.

    Zuma insists his relationship with the family is above board, while the Guptas have said they are pawns in a politically motivated campaign to remove Zuma from office.
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    The Panama Papers

    The Panama Papers reveal:

    • Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.
    • A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend – a cellist called Sergei Roldugin - is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.
    • Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.
    • Six members of the House of Lords, three former Conservative MPs and dozens of donors to UK political parties have had offshore assets.
    • The families of at least eight current and former members of China’s supreme ruling body, the politburo, have been found to have hidden wealth offshore.
    • Twenty-three individuals who have had sanctions imposed on them for supporting the regimes in North Korea, Zimbabwe, Russia, Iran and Syria have been clients of Mossack Fonseca. Their companies were harboured by the Seychelles, the British Virgin Islands, Panama and other jurisdictions.
    • A key member of Fifa’s powerful ethics committee, which is supposed to be spearheading reform at world football’s scandal-hit governing body, acted as a lawyer for individuals and companies recently charged with bribery and corruption.
    • One leaked memorandum from a partner of Mossack Fonseca said: “Ninety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes.”
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    Biggest Ever Saudi Overhaul Targets $100 Billion of Revenue

    The biggest economic shake-up since the founding of Saudi Arabia would accelerate subsidy cuts and impose more levies, a plan to spread the burden of lower crude prices among a population more accustomed to government largess.

    Outlining his vision in a five-hour interview with Bloomberg News last week, Deputy Crown Prince Mohammed bin Salman said the measures would raise at least an extra $100 billion a year by 2020, more than tripling non-oil income and balancing the budget.

    “It’s a large package of programs that aims to restructure some revenue-generating sectors,” the prince said at the royal compound in Riyadh. Non-oil income rose 35 percent last year to 163.5 billion riyals ($44 billion), according to preliminary budget data.

    It’s a radical shift for a country built on petrodollars since the first Saudi oil was discovered almost eight decades ago. Prince Mohammed, 30, and his top aides said the administration navigated plunging oil prices last year through a series of “quick fixes.” While there are no plans to tax incomes, his policies would bring the kingdom closer to the rest of the world, where governments rely on charges to fund spending.

    Saudi Green Cards

    The prince said authorities are weighing measures that include more steps to restructure subsidies, imposing a value-added tax and a levy on energy and sugary drinks as well as luxury items. Another revenue-raising plan under discussion is a program similar to the U.S. Green Card system that targets expatriates in the kingdom.

    The strategy would complement a plan to sell a stake in Saudi Aramco on the stock exchange and create the world’s largest sovereign wealth fund, steps meant to make the kingdom more reliant on investment income than oil within 20 years. The $2 trillion fund would be big enough to buy the four largest publicly traded companies on the planet.

    The Saudi government is also planning to increase its debt in the meantime to help finance spending and test the market with a dollar bond later this year.

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    Who Needs Helicopters? Draghi Plans

    ”A common mistake when trying to design something completely fool-proof is to underestimate the ingenuity of complete fools..”

    First day of a new quarter, and it feels like we have an answer to the all-important question of the modern age: how many Euro 100 notes can you squeeze into a Chinook (a very big and noisy helicopter). The second part of the question is – what’s the right height to optimally helicopter drop an economy? I discern a disturbance in the force as a mounting number of learned articles discuss these critical issues.

    Yet, the answer may be extraordinarily simple.

    For the last couple of months rumours have been circulating of “extraordinary” monetary policy discussions within the bowels of the ECB. We’ve been told “radical” new measures will build upon, and complete, the work already achieved over the last 5-yrs by the ECB in supporting European stability and growth. (Growth? Really?)

    We’ve heard it all before: the ECB promises much and delivers less..

    However, yesterday’s widely circulated leaks from within the Frankfurt behemoth suggest the ECB’s new secured consumer lending programme could be transformational.Yesterday’s ECB leak highlights the gnomes of Frankfurt may have stumbled on the ultimate truth of helicopter economics – you don’t actually need a helicopter.

    Apparently, Draghi has even secured grudging support from Wolfgang Schauble for the proposed extension to their Asset Purchase programmes. The leaked preamble guffs about how it “build on the measures announced at the last meeting”. The rest suggests the new consumer asset backed asset purchase programme, CABAPP, will be announced by Draghi following the April 21 meeting – but probably won’t be enacted until early Q4.

    While efforts to stimulate lending to Europe’s SME sector through securitisation programmes have proved difficult because of the blocks imposed by regulators on ABS, its certain borrowers will be more receptive to the much simpler new consumer lending finance package.

    Following yesterday’s leaks, ECB spokesperson Vabara Hasiin declined to provide further details of the ECB’s plan to directly buy secured consumer lending assets originated through European banks and platform lenders - but by then the cat was out the proverbial bag.

    Yesterday’s leaks confirm the ECB’s plans will effectively give Europe’s consumer lenders access to unlimited zero-cost finance – going far further than the free money showered on them by the multiple previous TLTRO financial packages.

    Under the proposed scheme, European banks have the option to issue their clients a new branded European Banking Union debit card – which will have a raised ECB logo to make it meet EU regulations for visually-impaired users. Although these will still bear the names and logos of the “originating banks”, these will be directly financed from the ECB on a pass-thru basis. Banks will be paid a minimal fee for “labelling” and originating the new ECB debit cards.

    At first glance, it looks like European retail repayment risk goes straight onto the ECB’s books – which would be “extraordinary” indeed. But, one of the cornerstones of the new CABAPP policy will be credit loss control.

    While banks will be free to choose the rate they charge new card holders, the actual interest rate will be close to zero. The ECB will make it clear to banks they are expected to stimulate consumer spending through the lowest possible personal lending rates. One earlier proposal was for the ECB to issue its own debit cards off a new Fin-Tech lending platform, but this was opposed by French and Italian regulators on the basis of protecting existing European retail institutions.

    German objections to the ECB effectively taking long-dated consumer lending risk were overcome via two points. Firstly, losses will be transferred off the ECB’s balance sheet by the ECB itself buying NPLs off the programme and holding these to maturity on the bank’s banking book. The ECB could then write these off at a stroke of a pen on their imaginary cheque book as an inflation management tool. The second concession to Berlin is the establishment of a new EU-wide Financial Recovery and Advisory Group to be based in Berlin: FRAG.

    Of course the ECB’s true genius lies in the creation of digital helicopter money. By making the fixed interest rate on the cards effectively zero, the duration of the debit card loans effectively perpetual, and giving borrowers an interest only repayment option… well… there will effectively be no substantial losses.

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    German engineering firms see sharp slowdown in exports to US this year

    German engineering exports to the United States, their top destination, are likely to slow sharply this year due to drastically lower fracking investments, a weaker global economy and a more stable exchange rate, an industry association said.

    The VDMA, which represents large engineering companies such as Siemens as well as thousands of medium-sized industrial goods makers, said on Friday it expected roughly flat exports this year after an 11 percent jump in 2015.

    "Slower means roughly stable in euro terms," Executive Director Thilo Brodtmann told Reuters on the sidelines of a news conference on the importance of the U.S. market.

    The United States became the biggest market for German engineering exports last year, with sales rising to 16.8 billion euros ($19 bln), while exports to China fell 6 percent to 10.3 billion euros.

    The main factor driving new exports this year is likely to be demand from U.S. carmakers and their suppliers, the VDMA said.

    Sixty percent of German engineering firms plan on making investments in the United States in the next three years, according to 200 responses the VDMA collected in a survey in January and February.

    About half of these investments will be in building and expanding production and assembly facilities.

    The leading German firms in the United States by revenue are Siemens, Robert Bosch, Thyssenkrupp, ZF Friedrichshafen and Linde, the VDMA said.

    However, the VDMA said it was sceptical about a widely held belief that the American economy was being reindustrialised, pointing out that manufacturing's share of U.S. gross domestic product had levelled out at around 12 percent.

    "We don't consider it a trend but a spotty development, which at best prevails in some regions but is not universal," VDMA President Reinhold Festge told the news conference.

    German engineering companies invested 6.8 billion euros in the United States in 2013, the last year for which statistics are available, the VDMA said.

    Since then, European companies including Austrian steelmaker Voestalpine and German chemicals group BASF have invested billions of dollars in the United States, attracted by cheap energy prices following the shale gas boom.

    Most of the companies surveyed by the VDMA expected competition for U.S. business with Chinese rivals and with other foreign manufacturers with local U.S. production to remain tough.

    China is the top exporter of engineering goods to the United States, followed by Japan, Mexico and then Germany.

    "We were never strong in the mass market. We've always been strong in niches," Festge said. "There's very substantial and bitter competition. Anyone familiar with the U.S. market knows you don't get anything for nothing."

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    Unicorns, Social Networks and Righteous Indignation

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    The Sum of all Fears.

    Shannon McConaghy, a portfolio manager with Horseman Capital Management, a London-based$2.75 billion hedge fund, says that it will be Japan's banking-industry collapse that "blindsides the market."

    "I do think there will be a banking crisis in Japan," McConaghy told Business Insider.

    And according to him, it will likely be a global event too.

    He said:

    We have seen Japan have banking crises in the past without destroying global economic trends, but at this moment I think the emerging market fragility and low growth could see a crisis in Japanese banks trigger sustained risk-off in global markets, particularly given the importance of Japan as the world's largest net foreign creditor.

    Risk-off suggests that we would enter an environment where risk assets fall and safe assets rally. Historically, Japan tends to fall more when markets move in to risk-off mode.

    "In the last four major risk-off environments — Asia financial crisis, tech bubble, global financial crisis, euro crisis — Japan fell more. Japan always falls more," McConaghy said.

    A bear among bulls

    Regional banks remain the fund's largest short grouping. Investors I meet tend to think they have missed the opportunity to short Japanese regional banks. I feel there is substantial downside remaining as real earnings and book values are likely negative for many. They are poorly understood with limited analyst coverage and are a very non-consensus shorts with limited reported short interest.

    Before he joined Horseman in 2014, McConaghy spent his career working in the treasury, credit, and risk-management departments of investment banks, giving him a glimpse into how they work. At Horseman, he's spent the last year and a half digging into the Japanese banking system.

    "I worry for Japan's economic outlook as I compiled the complete picture of the bank system," he told Business Insider, adding, "I get queasy at the idea of how this is going to play out."

    A ticking 'time bomb' 

    According to McConaghy, there's a confluence of factors at play, including regional banks overstating recurring earnings, a shrinking mortgage market because of demographic changes, rising competition from semi-government players, the impact of monetary policy causing cash hoarding among households to accelerate, and a massive amount of hidden nonperforming loans that will be a "time bomb" as baby boomers start to turn 70.

    McConaghy said that he has come to the conclusion that, in the last year, Japan's regional banks have vastly overstated their core recurring earnings with one-off equity gains. As interest rates have fallen in the last four years under the Bank of Japan's quantitative easing, he noticed that the regional banks have somehow reported an increase in "Interest and Dividends on Securities."

    It's especially surprising, according to McConaghy, because 75% of the regional-banks securities holdings are in fixed income: 53% government bonds and 22% corporate bonds. Interest rates have fallen to essentially zero.

    McConaghy said that banks have been using private-investment trusts' profits from equities to hide the decline in core-interest income. This will backfire now that equity markets have fallen. Japan's Topix index has fallen nearly 11%, while the Nikkei has more than 9.4%.

    Kim Kyung Hoon/Reuters

    "To me, it seems clear that the recurring earnings that the banks have been reporting are unsustainable and, in fact, may now become negative if they correctly reflect the equity lossesthey have," he said.

    Another factor at play is that the regional banks are likely to see their largest market — mortgages — decline significantly because of demographic changes. Japan has a low birthrate and an aging population.

    He wrote in another note:

    Japan's regional banks face an accelerating population decline. Some will see their key mortgage market (30-49 year olds) decline by over 20% over the next 10 years. As the playing field shrinks, regional banks will also now face a reinvigorated Japan Housing Finance Authority and a new mega-contender in Japan Post Bank. Many will not be able to stay in the ring.

    Then there's also the impact of the Bank of Japan's monetary policy. Regional banks, which make money from lending money at higher rates than they charge to depositors, have been squeezed by low interest rates. There's also been an acceleration of cash hoarding among households, he noted.

    The biggest worry

    What worries McConaghy the most, though, is the huge number of hidden nonperforming loans (NPLs).

    "The ignition point for this time bomb will likely come with the mass retirement of bankrupt 'baby boomer' small to medium size enterprise (SME) owners that have just started turning 70," he wrote in another note to investors.

    Those borrowers are already not making payments on loans, according to McConaghy. As they age, they can no longer run the company, and it has to close because there's no one else who can run the business.

    The regional banks have beenasked to extend credit even though they haven't been getting repaid. As the bankrupt baby-boomer borrowers retire, the banks will have to do a write down of whatever they're not getting paid back, according toMcConaghy.

    He said:

    Japan has been an economy that's living on borrowed time via hidden nonperforming loans and irregular accounting of equity gains as interest income. The inefficient allocation of labor resources to zombie companies amidst a rapidly declining working age population will continue to dampen economic activity until we see a washout of economically unjustified borrowers.

    These are just a few of the "tremendous problems" in the Japanese regional-banking system. A number of these issues are coming to a head, meaning that it's no longer sustainable, according to McConaghy.

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    Abe meets the big Keynesians Noble Prize winners.

    “Shinzo, my friend,” the prime minister said as he arrived for the lunch meeting, with both leaders in Washington for a two-day nuclear safety conference.

    “Japan and Canada are aligned in focusing on investment as opposed to austerity,” he continued, as they sat down. “I know there will be interesting and useful conversations around the table.”

    The Japanese leader has signalled his intention to stimulate lagging domestic demand. He’s recently met with famous anti-austerity economists Paul Krugman and Joseph Stiglitz amid reports he might delay planned consumption-tax hikes.

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    Oil and Gas

    Iran Steps Up Offense in Oil Market Battle With Pricing Discount

    Iran ratcheted up its offense in the oil market after breaking a pricing tradition, signaling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output.

    State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Persian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy.

    While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to freeze output in a step toward clearing a global glut, Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear program. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 percent, the Persian Gulf state is expected to focus on pricing and boosting supply.

    “Unquestionably, since the lifting of sanctions, the Iranians have become a force to be reckoned with in global oil markets,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “Their mission is to recapture market share, pure and simple.”

    NIOC will sell the Forozan Blend in May for Asian customers at $2.43 a barrel below the average of the Oman and Dubai benchmark grades, according to the company official. That’s 3 cents lower than state-run Saudi Aramco’s price for the similar Arab Medium variety for a third month, data compiled by Bloomberg show. Forozan was at a premium of 7 cents to the Saudi oil for February sales.

    The Iranian Heavy grade will sell in May to Asia at a discount of $2.60 a barrel to the Oman-Dubai average while the Soroosh variety’s price was set at $5.65 a barrel below Iranian Heavy, according to the official.

    While the key battle for market share will take place in Asia, the world’s biggest oil-consuming region, JTD Energy’s Driscoll sees “vigorous competition” between Iran and other Middle East producers for outlets in other regions such as the Mediterranean and Northwest Europe.

    Saudi Arabia has said it will only freeze output if it’s joined by other suppliers including Iran, while Kuwait has signaled a deal doesn’t hinge on the Persian Gulf state. Iran, meanwhile, plans to boost production to 4 million barrels a day by the end March 2017, according to the nation’s Shana news service, which cited Oil Minister Bijan Namdar Zanganeh.

    “The re-emergence of Iran as a viable exporter post-sanctions will challenge the prevailing status quo within OPEC, as evidenced in the latest debate over the implementation of the output freeze,” Driscoll said.

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    Shell under pressure to reduce spending

    Royal Dutch Shell is under pressure from shareholders to cut annual spending below $30 billion after buying BG Group to ensure it can maintain its dividend given the slow oil price recovery.

    Shell and other large oil companies slashed budgets, scrapped huge projects and cut tens of thousands of jobs last year in the face of a slump in oil prices from a June 2014 peak of nearly $116 a barrel to below $40.

    Shell reduced spending by $8.4 billion to $28.9 billion last year and for the first time in more than three decades global capital spending in the oil and gas industry, known as capex, is set to fall for a second year in a row.

    After the completion of the $50 billion BG acquisition, the Anglo-Dutch company set 2016 spending for the combined group at $33 billion and Chief Executive Officer Ben van Beurden said in February it had "options on the table to further reduce our spending should conditions warrant that step".

    At $33 billion, Shell's capex is the highest among its rivals, exceeding that of U.S. giant Exxon Mobil by about $10 billion. After increasing its debt to nearly 25 percent of its market capitalisation after the BG acquisition, investors and analysts say Shell must tighten its belt further.

    "Shell needs to cut capex to give the market confidence that the dividend can be sustained, and grown in future," said Charles Whall, portfolio manager at Investec Asset Management, which owns Shell shares.

    Whall expects Shell's 2016 capex to be cut below $30 billion, and to trend lower.

    Steady dividend payouts have been the main attraction for investors in large oil companies over the years and some have tapped the debt market to maintain payouts in the face of last year's oil price rout.

    Shell, for example, has not cut its dividend since the Second World War and has vowed to keep it unchanged following the BG deal.

    Ben Ritchie, senior investment manager at Aberdeen Asset Management, which is a top 10 investor in Shell, said while the company was expected to do more to reduce costs, it should not endanger growth.

    "We wouldn't be surprised to see capex guidance lowered again. However, we want the company to continue to focus on driving long-term growth," Ritchie said.

    "Simply cancelling or deferring economically viable projects to hit a lower capex number doesn't make sense, especially when the company's balance sheet remains reasonably robust," he said.

    Following the BG acquisition, Shell's production and cash flow is set to grow rapidly thanks to new assets in Brazil's offshore deepwater oil fields and Australian gas, and hence its need to invest in new projects is lower, according to analysts at Bernstein, who rate the company's shares as "outperform".

    "Shell has yet to give investors enough comfort that all the numbers stack up in 2016 if oil prices don't move up from current levels," Bernstein said, anticipating that Shell will revise its 2016 capex to $28 billion at its June 7 investor day.

    Spending cuts could include a $1 billion reduction in exploration, about $2 billion from cost savings and some $1.8 billion from project delays or cancellations, they said.

    Shell has "the capacity to reduce capex significantly, and should have had sufficient time by June to review the portfolio following the BG acquisition," Investec's Whall said.

    According to a top 20 investor in Shell who declined to be identified, Shell should aim to reduce spending to $25 billion by 2017: "Anything above $28-$30 billion in 2016 would be a disappointment."

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    No April Forties VLCC crude oil loadings scheduled following second failed fixture

    A second VLCC booked to take North Sea crude Forties from Hound Point, UK to Asia, failed its subjects due to delays Thursday, traders said.

    "There were some delays on the vessel [Nautic], so [it's not happening due to] logistical issues," a trader said.

    Glencore was heard to only have one Forties cargo around the relevant dates currently and is not seeking a replacement VLCC, traders said.

    "I don't think Glencore have many cargoes... maybe only one," a second trader said.

    The failure augurs a weak Forties April market, with the medium-sweet grade -- the largest of the four BFOE grades that constitute the Dated Brent benchmark -- buffeted by local refinery maintenance and thin to non-existent exports out of the region.

    The Forties spot differential shed 8 cents/b Wednesday, sinking to Dated Brent minus 76.5 cents/b after Gunvor lifted an April 25-27 loading cargo for Dated Brent minus 85 cents/b.

    There are currently no VLCCs scheduled to load Forties in April, a rare occurrence, with the over 20-cargo-long monthly Forties programs typically requiring two to three VLCCs exports to clear.

    In March the Maran Canopus, Samail, Olympic Loyalty II and Shanghai VLCCs all loaded Forties, ostensibly bound for Korean refiners. However, Asian demand for the grade was heard to be tepid, with the Samail still idle near the Forth of Firth, despite loading its cargo of Forties on March 22.

    The Nautic VLCC, which had been reported as on subjects to Glencore to load Forties from Hound Point around April 10, bound for Korea, is currently laden, stationary near Le Havre, off the northern coast of France Thursday.

    The Nautic was heard to be redirected to load a cargo in West Africa, though the grade and loading date were not known.

    "I think she is now loading West African [crude]," a third trader said.

    This follows the failure of the Atlantas VLCC, which was on subjects to Shell to co-load early April Forties cargoes for export to Korea, also due to delays.

    "[Failures due to delays] have been happening [recently]," the Forties terminal is not that flexible," the first trader said.

    Shell was reported to have put on subjects or fixed the Al Qadisa, Amalthea and Alfa Italia Aframaxes to load the relevant parcels instead. Both Glencore and Shell declined to provide comment on shipping fixtures.

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    May Angolan crude oil program slow to clear on Chinese turnarounds, port delays

    The pace of clearing May Angolan cargoes has slowed considerably from the previous two trading cycle, with around 15 cargoes still available and the June program expected in a week's time.

    This comes as fewer Chinese end users have bought May cargoes, according to trading sources, as they enter refinery maintenance season and as Chinese ports remain congested.

    China typically accounts for 40%-60% of total buyers in Angola and bought 52% and 62% in the March and April loading programs respectively, according to Platts tracking data. Thus far in May, Chinese end users have bought 25% of the program.

    A number of factors can explain China's absence: competitively priced Middle Eastern crudes and good availability of sweet crude cargoes in the Asia Pacific sweet complex have offered attractive alternatives for Asian refineries. Far East Russian grades such as ESPO Blend have also proved popular with Chinese refiners recently, traders said.

    "Values have come off in other regions and as a result, we've shifted away as much as we can from West Africa," said a Chinese end user. The buyer also also pointed to continued higher freight rates on the WAF-East route, which have varied between worldscale 70 and 80 over the past couple of weeks, from a ws55 rate in early March.

    Another factor favoring local crudes is the current front month Brent-Dubai EFS contract. While the front-month EFS contract has been broadly rangebound at $2.80-$3.00/b over the past two months, anything above three dollars encourages Asian buyers to look at closer-haul barrels that tend to price off Dubai. On Wednesday, the front-month June EFS was assessed at $3.31/b.

    Additionally, delays at ports in Qingdao, in China's Shandong province, have also slowed the buying of a number of refineries located in the region. A number of the smaller "teapot" refineries are located in the region and have increased their intake of foreign crude in the past couple of months since they were allowed to import for the first time in late 2015.

    Vessels currently need to wait at least two weeks to discharge at Qingdao, according to a number of sources in both Asia and Europe, due to heavy inflows of imported crude.

    The latest Chinese customs data showed that crude imported in February through Shangdong ports that accept VLCCs rose 33% from January.

    Qingdao and Rizhao ports are the only two ports that can berth VLCCs in Shandong, but the discharge schedule at Rizhao is much better, according to a port official said.

    At Qingdao, around five VLCCs that had arrived in March were asked to wait to discharge in April. In addition, some VLCCs that were due to arrive at Qingdao were redirected to Rizhao port in March, the official said.

    Lastly, a number of state-run Chinese refiners will be down for maintenance during the May-June period so crude demand is expected to be broadly tepid during that time.

    In Angola, a few crude grades have sold out in May, though mainly in the smaller grades, said traders, including Sangos, Mondo, Saxi, Saturno and Cabinda. European refineries appear to be mainly absent, choosing instead to blend heavy Middle Eastern crudes with sweet Mediterranean, rather than buy the medium heavy sweet Angolan crude.

    US buyers have also remained on the sidelines for May, traders said. "Some could be pushed to South America," a West African crude trader said. "Europe might buy it, but it needs to be cheaper and when [differentials] drop enough -- I think China will come back in."

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    Osaka Gas looking to sell surplus LNG

    Osaka Gas of Japan is looking to sell surplus amounts of liquefied natural gas it will have in the short to medium term, according to the utility’s president Takehiro Honjo.

    Speaking at a media conference, Honjo added that Osaka Gas overcommitted LNG in the short to mid-term, however, he did not reveal the amount of surplus LNG as the demand remains uncertain, Platts reports.

    Volumes could be sold at both domestic and international markets, Honjo added.

    Additionally, Osaka Gas is looking to strengthen its LNG value chain and bring LNG from the upstream projects it has invested in to the utility’s domestic power generation projects or LNG terminals and power generation project abroad. Projects in Southeast Asia are a likely target, Honjo said, according to Platts.

    Investment in upstream projects could be increased as the company is looking to up its overall LNG procurement from equity from less than 10 percent to 30 percent.

    The utility expects its LNG consumption to remain at around 6.9 million tons from the fiscal year 2016 to 2021.

    Osaka Gas noted in its five-year business plan that it expects the demand for natural gas to reach 8.47 million cubic meters in FY 2021, with an annual growth of 1 percent over the five-year period.

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    India's Thirst for Oil Is Overtaking China's

    In the energy world, India is becoming the new China.

    The world’s second-most populous nation is increasingly becoming the center for oil demand growth as its economy expands by luring the type of manufacturing that China is trying to shun. And just like China a decade ago, India is trying to hedge its future energy needs by investing in new production at home and abroad.

    India may have one advantage its neighbor to the northeast didn’t. While China’s binge came during a commodity super-cycle that saw WTI crude reach a high of $147.27 a barrel in 2008 -- due in no small part to its demand -- India’s spurt comes during the biggest energy price crash in a generation. While oil has tumbled more than 50 percent from mid-2014 levels, the South Asian nation spent $60 billion less on crude imports in 2015 than the previous year even while buying 4 percent more.

    “In addition to the boost from low oil prices, structural and policy-driven changes are under way which could result in India’s oil demand taking off in a similar way to China’s during the late 1990s, when Chinese oil demand was at levels roughly equivalent to current Indian oil demand,” said Amrita Sen, chief oil analyst for Energy Aspects Ltd. in London.

    In 1999, China’s economy was less than a 10th of its current size of more than $10 trillion, and bicycles vied for space with taxis and buses on crowded streets in major cities like Shanghai. In the ensuing 17 years the economy, spurred on by foreign investment in manufacturing, grew from the seventh largest in the world to No. 2. Vehicle sales surged and oil demand has nearly tripled since then, positioning the country to overtake the U.S. as the world’s largest crude importer this year.

    China’s thirst for energy sent its companies on an unprecedented buying binge on every continent (except Antarctica), scooping up $169 billion worth of energy assets overseas in the past 10 years, according to data compiled by Bloomberg.

    India’s rise dovetails with a reopening by Iran, once the second-biggest producer in OPEC until sanctions choked output and investments. Indian Oil Minister Dharmendra Pradhan will lead a delegation this month to the country, he said in an interview. India is working with the Persian Gulf state to develop a port in Chabahar, near Iran’s border with Pakistan and about 800 kilometers from India’s west coast. The two countries are also discussing economic zones and joint projects on fertilizer plants and petrochemical projects, Pradhan said.

    “Our engagement with Iran will be multi-dimensional,” Pradhan said.

    India appears to be in the same position China was at the start of its growth binge. Asia’s third-biggest economy consumed 4 million barrels of oil last year, according to the International Energy Agency, and is expected to surpass Japan as the world’s third-largest oil user this year. It will be the fastest-growing crude consumer in the world through 2040, according to the IEA, adding 6 million barrels a day of demand, compared to 4.8 million for China.

    Just like China’s ascent, the growth is being driven by manufacturing. Indian Prime Minister Narendra Modi’s “Make in India” campaign aims by 2022 to create 100 million new factory jobs and increase manufacturing’s share of the economy to 25 percent from about 18 percent when he took office in 2014.

    Manufacturing drives oil use both by increasing the amount of goods that need to be moved around on ships and trucks, and by raising living standards of workers. Rising wages allowed Indians to purchase a record 24 million new vehicles in 2015.

    “In a growing economy, where there is so much of emphasis on manufacturing, naturally the demand for energy will grow,” B. Ashok, chairman of Indian Oil Corp., the nation’s largest refiner, said in an interview. “The emphasis on manufacturing and infrastructure building contributes a lot to increasing the employment potential, besides bringing in a lot of investments. There is bound to be a lot of more movements on the roads, in terms of goods and services and passengers.”
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    Halcon Update on “Charting a New Course”

    In March MDN reported Halcon Resources had hired a prominent law firm with a specialty in bankruptcies to assist the company to “chart a course” through the current downturn in gas and oil prices.

     Yesterday Halcon issued an update on their progress. According to the update, the company is “in discussions” with “certain stakeholders” to negotiate terms of a “potential transaction” to “materially reduce the Company’s indebtedness.”

    What does all of that coded language mean? You would think the company whose CEO is famous for his blunt language would just spit it out. We’re left to wonder…
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    China teapot refiner oil buying spree creates tanker jam at Qingdao

    A surge in oil buying by China's newest crude importers has created delays of up to a month for vessels to offload cargoes at Qingdao port, imposing costly fees and complicating efforts to sell to the world's hottest new buyers.

    China's independent refiners, freed of government constraints after securing permission to import just last year, have gorged on plentiful low-cost crude in 2016. This has created delays for tankers that have quadrupled to between 20 to 30 days at Qingdao port in Shandong province, the key import hub for the plants, known as teapots, according to port agents and ship-tracking data.

    "Imports were blocked for some time by their increasing demand this month," one trader said of the teapots. Buyers, the trader added, "are suffering from the block - there is lots of demurrage," referring to costs a charterer pays to the shipowners if a cargo fails to unload at the specified time.

    February imports to Qingdao hit a record 2.3 million barrels per day (bpd), according to Energy Aspects, with March figures expected to record another increase. The February imports into the port were about 29 percent of China's intake that month, based on China customs data.

    The strong demand is stretching the port's facilities, with shipping data on the Thomson Reuters Eikon terminal showing that at least 15 tankers - Very Large Crude Carrier (VLCC) and Suezmax vessels - are currently waiting to offload at Qingdao, many of which were scheduled to deliver last month.

    Adding to the congestion is a lack of pipeline access to the teapots from the port, meaning that about 80 percent of the oil they buy has to be delivered by truck. This makes it hard to clear the imports quickly enough to make room for the next deliveries.

    Additionally, a lack of storage space at the terminal means tankers cannot easily offload and sail on to make other deliveries.

    The tanker traffic jam outside Qingdao is one of several bottlenecks in the global oil sector that have pushed up tanker rates as vessels are held up in the queues.

    A similar tanker backlog has built up outside the Iraqi port of Basra, and smaller jams have also been reported at China's Ningbo and Tianjin ports, to the south and north of Qingdao, respectively.

    The congestion in Qingdao has caused tankers to divert to other ports, while at least one VLCC has split its 2 million barrel cargo between two ports in China, a European ship broker and ship tracking data showed.

    Qingdao's congestion may get worse as more vessels are on the way.

    Exports loading for China from West Africa in April are expected to rise to a 19-month high of 1.14 million bpd, driven in large part by teapot buying.

    Norwegian oil firm Statoil has already sold some 4 million barrels via two tankers ex-ship at Qingdao to teapots that will arrive in April, and it has booked a third VLCC to sail to the port.

    Charterers like Statoil will normally bill the buyers for the demurrage costs, ship brokers said.

    "Otherwise, the price of crude is so low now that $65,000 per day demurrage for 10 days will wipe out a chunk of the trader's profit," a Singapore-based supertanker broker said.

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    Iran says determined to regain oil market share: Tasnim news agency

    Iran's foreign minister said on Thursday that Tehran was determined to regain its share of the oil market after sanctions imposed on the country were lifted under a deal reached with six major powers, the semi-official Tasnim news agency reported.

    "Iran wants to regain its place on the oil market ... in cooperation with other oil producing countries," Mohammad Javad Zarif said after a meeting in Baku with Russian Foreign Minister Sergei Lavrov and Azerbaijan Foreign Minister Elmar Mammadyarov.

    Russian Energy Minister Alexander Novak said this week that Iran had confirmed its participation in a meeting in Doha on April 17 to discuss a deal to freeze oil output. Iran has repeatedly said it would freeze its output after it reaches 4 million barrels per day.

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    Wintershall to save costs to battle oil price fall

    BASF's Wintershall oil and gas subsidiary plans to cut costs and trim investments in response to sharp oil price falls that forced it to lower its sales and earnings forecasts for 2016.

    The international exploration business will seek to cut costs by at least 200 million euros ($228 million) after its net profit fell 28 percent to 1.05 billion euros last year.

    Wintershall could seek further savings in operational costs should oil prices stay low, finance chief Ties Tiessen told journalists.

    "There is still room on the upside there," he said.

    Last year, oil prices slumped 47 percent to $52 a barrel on average for North Sea grade Brent when Wintershall had operated on the assumption of a range between $60 and $70.

    Wintershall's planning is based on an average $40 this year.

    Lower results last year were also due to the disposal of trading assets to Russian partner firm Gazprom.

    Wintershall also continues to encounter problems linked to unrest in Libya where its oil output is only a third of the possible maximum.

    The company announced a 600 million euros writedown on its assets in January.

    Chief Executive Mario Mehren said production would be expanded in lower-cost regions such as Russia and Argentina.

    "Wintershall will do both in coming years, save and invest. Those goals are not contradictory," he told the news conference.

    Investments in 2016 will fall by 28 percent to 1 billion euros, especially at projects in the Norwegian and Dutch North Sea that are not far developed as yet, he said.

    The company is set to spend 4.8 billion euros over the next five years, especially in Russia and Argentina, where its cost structure is far below industry averages.

    The company is also active in Norway and Abu Dhabi and eyes upcoming opportunities in Iran.

    Wintershall accounted for more than a fifth of EBIT at parent group BASF in 2015, which had reported results on Feb 26.

    Mehren brushed off concerns over overreliance on Gazprom in the Nord Stream-2 project, where Wintershall is partner in an international consortium planning to double existing pipeline transport by opening new subsea capacity to the EU by 2019.

    "The safest transit country is the Baltic Sea," he said, alluding to problems with transit via Ukraine following Russia's annexation of the Crimea region.

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    NOVATEK announces preliminary operating data for first quarter 2016

    NOVATEK's marketable production totaled 17.24 billion cubic meters (bcm) of natural gas and 3,208 thousand tons of liquids (gas condensate and crude oil), resulting in an increase in natural gas production by 1.09 bcm, or by 6.7%, and an increase in combined liquids production by 1,217 thousand tons, or by 61.1% as compared with the first quarter 2015.

    The Company processed 3,232 thousand tons of unstable gas condensate at the Purovsky Processing Plant, which represented a 29.8% increase as compared with the corresponding volumes processed in the first quarter 2015.

    In the first quarter 2016, NOVATEK processed 1,779 thousand tons of stable gas condensate at the Ust-Luga Complex, which was 4.7% higher than the volumes processed at the facility in the first quarter 2015. Preliminary first quarter 2016 petroleum product sales volumes aggregated 1,881 thousand tons, including 1,151 thousand tons of naphtha, 297 thousand tons of jet fuel, and 433 thousand tons of fuel oil and gasoil. Export sales of stable gas condensate amounted to 479 thousand tons.

    As at 31 March 2016, NOVATEK had 0.4 bcm of natural gas and 395 thousand tons of stable gas condensate and petroleum products in storage or transit and recognized as inventory.
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    Halliburton faces $3.5B break-up fee after failed merger

    Halliburton, blocked by federal regulators from buying rival oil-services company Baker Hughes, is staring at another huge disappointment — a $3.5 billion break-up fee.

    That figure amounts to the largest cash break-up fee in history — beating the previous champ, the $3 billion in cash plus $1 billion in spectrum paid by AT&T when it was blocked from buying T-Mobile in 2011, according to Dealogic.

    On Wednesday the Department of Justice filed a suit to stop the $35 billion merger.

    “The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers,” said federal Attorney General Loretta Lynch.

    Halliburton and Baker Hughes, in a joint statement, said they intend to “vigorously contest” the lawsuit.

    But the companies, in the same statement, said they “may terminate the merger agreement” if the review extends beyond the April 30 date when Baker Hughes can contractually exit the deal and pocket the cash — something insiders believe will happen.

    A federal trial would likely not begin until August, sources said.

    What’s more, if the European Commission, which is reviewing the merger, moves to block the deal it could force a two-year delay.

    “Fighting a war on multiple fronts is a bridge too far,” said a source following the case. “I don’t know how they can fight this.”

    If Halliburton is forced to pay the record break-up fee it would mark a major misstep by its lawyers.

    After failing to buy Baker Hughes in 2014 via a hostile bid, Halliburton reached a merger deal sweetened with a 10 percent break-up fee.

    The normal fee is close to 3 percent.
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    API: natural gas well completions down 70 pct in Q1

    Estimated natural gas well completions decreased 70 percent in the first quarter of 2016 compared to year-ago levels, the American Petroleum Institute (API) said on Tuesday.

    According to API, which represents the interests of the oil and natural gas industry in the U.S., exploratory oil completions fell 90 percent compared to 2015 first quarter estimates.

    Total feet drilled decreased 73 percent, with the largest decrease seen in the footage of exploratory wells, API said.

    “America’s shale energy revolution has helped the U.S. lower our greenhouse gas emissions while making energy cheaper for American consumers,” said Hazem Arafa, director of API’s statistics department.

    “To continue this progress, we must revisit current energy policy, speed up the LNG export approval process and avoid unnecessary regulations to help U.S. producers to compete effectively in the global market under the low-price environment,” Arafa said.

    According to API, the oil and gas industry supports 9.8 million U.S. jobs and 8 percent of the U.S. economy.
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    Moody’s Oil & Gas Liquidity Stress Index Hits New Worst Level

    In March Moody’s Oil & Gas Liquidity Stress Index, a measure of the liquidity health of oil and gas companies, hit a worst-ever high of 27.2%. A month later and the same index has topped the previous bad record–now at 31.6%. Translation: there are a record number of energy companies stretched to the limit, ready to run dry in the cash department. If prices don’t turn around soon, some (many?) of these companies will go under…
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    Glass Lewis tells shareholders to vote against BP CEO's $19.6mln pay

    Proxy advisory firm Glass Lewis has recommended shareholders in BP vote against Chief Executive Bob Dudley's proposed $19.6 million remuneration for 2015 after the British oil and gas company recorded its biggest annual loss.

    Shareholders will be asked to vote on the pay of the company's executives at it annual general meeting in London on April 14.

    "Given our concerns regarding bonus payouts and the overall incentive structure, we do not believe shareholders should support the remuneration report at this time," Glass Lewis said in a report,
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    TransCanada delays restart of Keystone crude pipeline to Tuesday -traders

    TransCanada Corp is delaying the restart of its 590,000 barrel per day Keystone crude pipeline to Tuesday from Friday, four traders familiar with the matter said on Wednesday.

    The line, which delivers crude from Hardisty, Alberta to Cushing, Oklahoma, and to Illinois, was shut over the weekend after a potential leak. TransCanada in a meeting on Tuesday afternoon with committed shippers said the pipeline would restart by next Tuesday at the earliest, sources said.

    A TransCanada spokesman confirmed in an email that the company had informed its customers that the earliest restart date is early next week.

    Time spreads in the benchmark U.S. crude futures contract rallied late on Tuesday following the news, with prompt West Texas Intermediate (WTI) trading as tightly as a 98 cents a barrel discount to the forward month, up from a $1.46 a barrel discount earlier in the day CLc1-CLc2. It settled at $1.22 a barrel.

    On Wednesday, the discount for May barrels relative to June, a structure known as contango, was trading around $1.10 a barrel.

    TransCanada on Tuesday issued a letter notifying shippers of a force majeure on the line as of 1:30 PM EST, April 2. The company will hold another meeting with committed shippers on Wednesday, sources said.

    Canadian heavy crude differentials widened on Wednesday morning on news of the prolonged shut down. Western Canadian Select heavy blend crude for May delivery in Hardisty, Alberta, last traded at $14.90 per barrel below the WTI benchmark, according to Shorcan Energy brokers. That compares with a settlement of $14.20 on Tuesday.

    The outage has also disrupted crude supplies to Midwest refiners, forcing refiner Phillips 66 to cut run rates at its 306,000 bpd Wood River refinery in Roxana, Illinois. On Tuesday, Phillips shut a 64,000 bpd sour crude unit and a 16,000 bpd coker at that facility.

    TransCanada has said it will only restart the line after receiving approval from the Pipeline Hazardous Materials Safety Administration (PHMSA). A spokesman for PHMSA said that it had no updates as of midday.

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    US Oil production fall continues

                                                 Last Week  Week Before  Last Year

    Domestic Production '000...... 9,008             9,022           9,404
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    Crude Jumps After DOE Confirms Biggest Oil Inventory Draw Since January

    Following yesterday's API data, which showed the biggest draw of 2016 with a 4.6 million reduction in oil inventories, everyone was keenly looking forward to today's DOE data. Moments ago the DOE indeed confirmed the API data, reporting that in the past week oil inventories declined by 4.949MM, more than the API print, down from last week's 2.3MM and well below the expected 2.850MM increase.

    This was the largest draw since the first week of January.

    However, while in the recent past the crude builds were offset be declines in gasoline and distillate reductions, this time it was a mirror image, as first Gasoline rose by 1.438MM, above the -1.1MM draw, while Distillate increased by 1.799MM, above the -850K draw expected.

    This happened even as Refinery utilization rose 1.0% W/W, above the 0.35% expected, operating at a 91.4% of capacity in the past week.

    As a result Cushing holdings rose by 0.3MM, rising to 66.3MM barrels and once again approaching its operational capacity.

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    India crude import policy overhaul gives state refiners leeway

    India's cabinet on Wednesday agreed to let state-owned oil refiners devise their own crude import policies so they can secure cheaper oil cargoes in an oversupplied market and improve profitability.

    The new policy puts state-owned refiners on a par with private firms such as Reliance Industries and Essar Oil that are not bound by government rules and can earn hefty refining margins.

    The previous policy limited purchases by state refiners to a handful of companies and refiners were also missing out on the chance to grab cheap, distressed cargoes as they were required to launch spot tenders two months before receiving the oil.

    State refiners Indian Oil Corp (IOC), Hindustan Petroleum Corp, Bharat Petroleum Corp, and Mangalore Refinery and Petrochemicals Ltd control 60 percent of India's 4.6 million barrels per day (bpd) capacity.

    "Now, with this flexibility, state refiners can encash the opportunity to buy distress cargoes and negotiate prices with sellers," Hindustan Petroleum's (HPCL) refineries head B. K. Namdeo said.

    State refiners, on an average, buy 70-80 percent of their oil through annual supply deals, also called term contracts, with the remainder coming through spot purchases.

    India has decided to replace its decades old import policy at a time when major oil producers are focused more on protecting their market share than boosting prices, which has led to a global supply glut and a collapse in prices.

    The decision will give state refiners a high degree of autonomy in operational, financial and investment matters and reduce government interference, Telecoms Minister Ravi Shankar Prasad told a news conference after a cabinet meeting.

    "With the whole market becoming flexible world over, at times we have to make on the spot decisions," Prasad said.

    Under the new policy, state refiners will need board approval for oil purchases and must comply with anti-corruption guidelines.

    "As the government has delegated more power to the companies, we now have to be more responsible to ensure that we get optimum value from the purchases and ensure that we are buying legal barrels," HPCL's Namdeo said.
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    China's Shale Gas Reserves Jump Fivefold as Output Lags Target

    China boosted its recoverable shale gas reserves more than fivefold last year as the country missed its production target for the fuel.

    Recoverable shale gas reserves, or those that can be commercially produced, rose 109 billion cubic meters last year, said Yu Haifeng, director at the department of mineral resources in the Ministry of Land and Resources, according to a transcript of a briefingWednesday. That increases the country’s total shale gas reserves to 130 billion cubic meters.

    “Oil and gas reserves maintained a high level of growth, with shale gas reserves rose significantly,” Yu said. “The ministry spared no efforts in searching for new resources in 2015” as it followed guidance laid out by the State Council, the country’s highest policy making body, he said.

    Premier Li Keqiang reiterated last month China’s goal of boosting production and use of natural gas as a substitute for coal. While conventional gas production is rising, China missed its annual shale gas target of 6.5 billion cubic meters last year and earlier cut its 2020 production goal to about a third of its original estimate, citing difficult geology, lack of infrastructure and limited exploration rights. China produced 4.47 billion cubic meters of natural gas from shale in 2015, a more than threefold increase from the year before, the ministry said Wednesday.

    Exploiting the country’s shale gas resources have proved challenging for international oil companies including Royal Dutch Shell Plc, which last week said it was no longer pursuing it’s China shale venture. BP Plc the same week signed its first shale-gas production deal in the country, joining the nation’s biggest oil company, China National Petroleum Corp., to target the same areas on the Sichuan basin that ConocoPhillips earlier walked away from.
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    Asia buys more Mideast heavy crude as Latam supplies fall

    Asian oil buyers are seeking more heavy crude from the Middle East this year as Latin American supplies have become more expensive relative to other grades, while port and production outages have disrupted exports from Venezuela, Peru and Brazil.

    Strong demand for replacements for South American crudes has driven up spot premiums for grades such as Iraq's Basra Heavy for loading in April and May, and buyers are also looking more to Saudi Arabia, Kuwait and Iran for oil of similar quality.

    The switch comes as U.S. oil prices strengthened against other regional benchmarks late last year after Washington lifted a ban on U.S. crude exports, a move that could help producers in the United States work down a domestic supply surplus.

    Unplanned outages at ports and pipelines and necessary maintenance work at oilfields all across South America have also tightened exports from a region that pumps about a tenth of the world's oil.

    "This is mainly in Venezuela, where the outage of a major port has led to the loss of 300,000 barrels per day (bpd) of crude exports," FGE analyst Tushar Bansal said.

    Venezuela's output could fall by 400,000 bpd this year due to a lack of investment in the upstream sector and not enough funds available to buy light oil for blending, Bansal said.

    Latin American crude sold to Asia fell 1 percent in the first three months of 2016 from a year ago, while Middle East exports to Asia rose 7 percent in the first quarter, data from Thomson Reuters Trade Flows shows.

    India saw the sharpest drop in Latin American supplies, down 13 percent during the quarter, although top Asian buyer China bucked the trend with an 11 percent rise in imports from South America, some taken in repayment for government loans.

    "It's not so easy for Latin American crude to make their way into Asia," a Singapore-based trader said, pointing to a narrower price spread between West Texas Intermediate (WTI) and Brent after the United States ended its crude export ban.

    Indian refiners, for instance, are instead snapping up the next cheapest alternative, Iraqi Basra Heavy, the trader said.

    Strong demand for this grade has pushed up its spot premium to $1-$2 a barrel for cargoes loading in April and May, traders said, even as a huge tanker traffic jam at Basra ports is delaying shipments.

    This is all happening at just the right time for Iran, with sanctions targeting its nuclear programme lifted only in January.

    Iran is expected to raise output by another 300,000 bpd in the second half of this year, which will be mostly heavy crude, FGE's Bansal said.

    More heavy crude supply could come from the Khafji field jointly operated by OPEC kingpin Saudi Arabia and Kuwait.

    Kuwait said in late March that it has reached an agreement with Saudi Arabia to restart the field which was shut in October 2014.

    Analysts expect the Khafji restart to take two to six months before supply is added in the market.

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    UK's Coryton oil storage terminal opens as glut grows

    The Thames Oilport terminal near London opened on Wednesday after nearly four years of development, at a time a global oil glut and a collapse in fuel prices is making storage an attractive investment.

    A first tanker, the Seaconger, carrying 21,000 tonnes of diesel was discharging at the terminal, built on the site of the Coryton refinery whose owner Petroplus went bankrupt in 2012, operator Greenergy said.

    The terminal is due to be filled to its current capacity of 176,000 cubic metres with fuel, predominantly to serve the London region and southeast England, Thames Oilport said in a statement.

    Thames Oilport is operated and partly owned by Britain's largest oil storage company, Greenergy, while Royal Dutch Shell owns a third.

    The companies plan to add 64,000 cubic metres of capacity by the end of September this year and while the terminal will initially be used to hold diesel, other fuels will be added.

    "Significant progress has been made over recent months, both on site and in the planning process, and we now have a route map to turn Thames Oilport into a fully-fledged import terminal," Greenergy Chief Executive Andrew Owens said.

    The terminal will be capable of taking vessels of up to 60,000 tonnes, Greenergy said.

    Thames Oilport is also connected to pipelines that feed other parts of the United Kingdom, including the CLH Pipeline System and the UKOP system, but neither Shell nor Greenergy have said if they intend to use them.


    The Coryton project has had a bumpy path since its start almost four years ago, with partners scrapping an initial plan for a larger terminal and Dutch storage company Vopak selling its stake.

    But the launch comes at a time when oil producers and traders are scrambling to store fuel as global supplies swell, a fact that has made investments in tanks highly attractive in recent years.

    It also provides a much-needed import point for the United Kingdom, which relies heavily on diesel imports.

    Greenergy last year formed a partnership with Macquarie Capital, the investment arm of Macquarie Group to buy Vopak's UK assets, including its 33 percent stake in Thames Oilport, as well as the North Tees storage assets in Teeside.

    Owens told Reuters he plans to expand Greenergy's operations in the United Kingdom and abroad and was looking for "material transactions".

    Greenergy also operates in Canada, the United States and Brazil.

    Greenergy's sales volumes rose in 2015 to 15.6 billion litres from 15 billion a year earlier while operating profit climbed to 16.4 million pounds ($23.1 million) from 13.6 million in 2014, according to the company's annual report.
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    Huge oil tanker traffic jam builds at Iraq's Basra port

    A traffic jam of nearly 30 large oil tankers has built up outside the Iraqi port of Basra due to loading delays, with some waiting up to three weeks and costing ship operators around $75,000 a day per vessel.

    Shippers and port sources said more delays are expected throughout April as the city's facilities struggle to cope with Iraq's soaring crude output.

    The problems at Basra, coupled with continuing storage tank shortages in China, have pushed supertanker rates from the Middle East to Asia to unseasonal highs as the delays disrupt future sailing schedules and charterers cover future tonnage requirements.

    "The VLCC (very large crude carrier) market is being sustained by a whole pattern of delays and congestion, affecting ports in Basra," said Ralph Leszczynski, head of research at ship broker Banchero Costa in Singapore, adding that there were further delays in China and South Korea.

    There are 27 VLCCs and suexmax tankers with a combined capacity of 43 million barrels, waiting off Basra, shipping data on the Reuters Eikon terminal showed, about twice the norm.

    The delays are likely to continue throughout April and could only ease in May, said Omar Al Jarah, a surveyor at maritime consultancy Alwan Marine in Sharjah, as the port struggles with the country's rising crude output.

    Iraq exported an average of 3.26 barrels of oil per day (bpd) through its southern terminals in March, up from 3.22 million bpd the previous month and just 2.5 million bpd in 2010.

    Port officials were not immediately available for comment.


    Some of the tankers, which would stretch more than 8 kms (5 miles) if placed end-to-end, have been waiting three weeks to load crude from Basra Oil Terminal, according to ship tracking data and port agents.

    Sources said the current waiting time to load Basra heavy crude is 18-19 days, compared with an average time of 5-10 days.

    Basra Oil Terminal has seven loading berths but only a single point mooring facility, SPM No. 3, is being used to load Iraqi heavy crude, port agents and brokers said.

    Three of the terminal's berths are closed for maintenance, a Singapore-based tanker broker said.

    Rough weather is making it difficult for pilot boats to operate which is adding to the delays, Al Jarah said.

    As the delays bind tankers outside Basra, rates for very large crude carriers (VLCCs) jumped from around 50 on the Worldscale measure on March 1 to around 90 on April 1, doubling in cost from $37,250 to $74,700 per day, shipping data showed.

    The captain of one ship that has been waiting for two weeks told Reuters by phone he had been given no information when the ship would be allowed to moor and load cargo.

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    U.S. Justice Dept will sue to stop Halliburton, Baker Hughes merger: source

    The U.S. Justice Department will file a lawsuit as soon as this week to stop oilfield services provider Halliburton Co from acquiring smaller rival Baker Hughes Inc, a source familiar with the matter said on Tuesday.

    The antitrust lawsuit could potentially scupper the deal that was first announced in November 2014 to combine the No. 2 and No. 3 oil services companies. Since then, oil prices have fallen by more than 55 percent.

    Faced with opposition from the Justice Department, the companies may either cancel the planned tie-up or fight the government in court. The deal is one of several that antitrust enforcers have rejected as illegal during the recent wave of mergers of large, complex companies.

    Halliburton and Baker Hughes both declined comment.

    The two sides had been discussing asset sales aimed at saving the deal, which was originally valued at $35 billion but is now valued at about $25 billion based on the decline in Halliburton shares.

    If the deal collapses due to antitrust concerns, Halliburton must pay Baker Hughes a $3.5 billion breakup fee, according to regulatory filings.

    The proposed deal also has hit headwinds in Europe, where the European Union's competition authority was concerned that the proposed merger would reduce competition and innovation in more than 30 product markets. Regulators in Australia also flagged concerns about the massive tie-up.

    As far back as July 2015, Reuters reported that there were concerns in the U.S. government that the merger would lead to higher prices and less innovation.

    The Justice Department's worry then focused on two areas. One was that the drilling technology businesses that were divested would go to small companies that could not effectively compete with the two leaders. The other was that the leaders would have less incentive to innovate.

    Baker Hughes in particular has been aggressive in developing new oilfield technologies, part of its appeal to Halliburton from the beginning. Baker Hughes developed smartphone apps to help customers in the field decide in real time how best to hydraulically fracture new wells.

    Furthermore, uniting Halliburton and Baker Hughes would create a dominant leader in North Dakota with more than half the cementing market and a leading position in fracking.

    Lower oil prices had given investors hope that the companies' best path forward was together, especially as demand for their products and services evaporate as customers slashed budgets.

    The Justice Department and Federal Trade Commission, which enforce antitrust law, have filed lawsuits to stop a surprising number of deals in the past 18 months.

    The FTC stopped food distribution giant Sysco Corp from buying US Foods Inc in 2015, and is currently in court fighting Staples' merger with Office Depot.

    The Justice Department, working with the Federal Communications Commission, stopped Comcast Corp from buying Time Warner Cable in 2015. It also stopped Electrolux from buying GE's appliance business and halted a merger of tuna sellers Bumble Bee and Thai Union, which owns Chicken of the Sea.

    The Justice Department also is reviewing two controversial insurance deals -- Aetna Inc's purchase of Humana and Anthem Inc's decision to buy Cigna Corp -- amid concern they would reduce the number of national insurers from five to three.
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    Latin American oil producers to meet Friday in Quito - Ecuador president

    Latin American oil producers Colombia, Ecuador, Mexico and Venezuela are to meet on Friday to discuss an output freeze or other methods to bolster crude prices, Ecuador'sPresident Rafael Correa told journalists on Tuesday.

    The gathering was originally expected at the start of March, but was delayed due to scheduling difficulties.

    Correa said Mexico was the toughest to co-ordinate with.

    "The meeting will take place on April 8," said Correa, who has been pushing for the meeting. "It's been most difficult to co-ordinate with Mexico."

    He added that they hoped to have a declaration of support for a forthcoming OPEC, non-OPEC meeting in Doha on April 17.

    This regional meeting is the first significant sign that non-OPEC producers Colombia and Mexico are involved in an effort to bolster prices, in a deep slump due to worries about global oversupply.

    Ecuador and Venezuela have pushed hard for the OPEC, non-OPEC meeting because they have suffered more during the recent price plunge than most producers because their economies rely heavily on oil.

    Oil prices rose on Tuesday after Kuwait insisted major producers will agree to freeze output later this month even as key player Iran continued to balk at the plan.

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    Airline hedges fuel rally in later dated oil prices

    Big airlines are making waves in the oil market for the first time since prices went into a tailspin nearly two years ago, betting this may be their best chance to lock in cheap jet fuel for years to come, industry and market sources say.

    A number of airlines moved last week to place significant oil price hedges for 2017, 2018 and even 2019, according to three trading sources familiar with money flows. They declined to specify companies, but said it was the largest flurry of such activity in more than a year.

    A fourth trading source indicated that bigger trades occurred in the over the counter market last week. While still small relative to previous years, when some carriers hedged as much as 40 percent of their fuel costs, the recent activity was robust and included larger players, the source added.

    The renewed interest suggests that airlines executives who were stung by billions of dollars in hedging-related losses last year are more confident that they're buying at the bottom, a further sign of shifting sentiment in the oil market after an over 60-percent price slump since mid-2014.

    Big oil consumers are coming around to the idea that "we're not going to see too many more legs down" in prices, said Steve Sinos, vice president at consultancy Mercatus Energy, which advises corporations including airlines on hedging strategies.

    Their clients are "getting comfortable with the idea that this is a good price if not the best price."

    The activity has helped buoy so-called longer-dated oil prices, with December 2017 and 2018 U.S. crude futures enjoying their most sustained rally since prices began tumbling in the second half of 2014. Selling pressure has resumed in recent days amid concerns that a promise among major global oil producers to 'freeze' output was in danger of falling apart.

    The number of clients calling Mercatus for advice has increased lately compared to six months ago, when prices were also in free-fall but companies were less certain that they had seen the end of a historic price rout.

    To be sure, airlines - which typically hedge some volume every quarter - have a mixed record of calling the market's turning points. Consultants say airlines are more cautious now after some past hedges turned out costly because the contracted fuel costs proved higher than market prices.
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    Kuwait Says Oil Producers Can Reach Output Freeze at February levels Without Iran

    The Organization of Petroleum Exporting Countries and other major oil producing countries can reach an agreement for a production freeze, even if Iran doesn’t join the action meant to help shore up prices, according to Kuwait’s OPEC governor.

    Oil-producing countries have no option but to reach an agreement to freeze production when they meet on April 17 in Doha, Qatar, because prices are too low, Nawal al-Fezaia said in a telephone interview. The freeze, which may be at February levels, may also help set a floor for oil prices, she said.

    “Oil producers have no option but to freeze their production as oil prices are low and hurting everyone,” she said. “All early signs before the meeting point to this conclusion.”

    OPEC and other producers are meeting in Doha to finalize the agreement to freeze production in an effort to curb the global glut. Their unity came under immense strain last week as Saudi Arabia’s deputy crown prince said the kingdom’s commitment depends on regional rival Iran. While Iran may attend the talks, it has refused any limits on crude supply as it restores oil exports after international sanctions were lifted in January.

    Rising production from Iran won’t hinder the agreement as the country will find it difficult to sell its crude in an oversupplied market, Kuwait’s al-Fezaia said.

    The oil market is expected to return to balance in the second half of this year, she said. Oil prices may end the year at a level between $45 and $60 a barrel, she said. Brent for June settlement declined 6 cents to $37.63 a barrel on the London-based ICE Futures Europe exchange.
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    Total says costs still unacceptably high in oil and gas

    Oil and gas companies must make further serious cost cuts and should work together to generate further savings to weather the current difficult downturn, Total's executive Arnaud Breuillac said on Tuesday.

    Costs are still unacceptably high and cost reduction was necessary to sustain businesses, Breuillac, President for Exploration & Production at the French oil and gas major, told an industry event in Pau, southwest France.

    Oil prices have plunged since 2014 due to global oversupply concerns, hitting profits in the sector and forcing companies to cut costs and find savings.

    Speaking in century-old Palais Beaumont while some 200 environmental activists protested outside, Breuillac said oil and gas was still needed despite progress in renewable energies.

    "To ensure the right level of profitability, oil companies and services companies must work together to find innovative ways to bring cost down," Breuillac told industry experts meeting for 2016 MCE Deepwater Development conference.

    "We need to increase our collaboration, to find better ways to share risks and to collectively find a new balance," Breuillac said.

    He added that oil and gas companies could only to manage the downturn through cost reductions.

    "We cannot control the oil price, so we have to excel in what we can control ... our capacity to deliver projects, operational excellence, new technology innovation and of course to lower opex and capex," he said.

    Breuillac said Total has cut operating costs by 1.5 billion euros in 2015 with an objective to gain 2.4 billion in 2016 and 3 billion more in 2017.

    "These efforts combined with a more efficient exploration and a new production will enable us to maintain the lowest technical cost among our peers below $24 per barrel," he said.

    "This means that above $10 per barrel we can generate positive cash flow from our operations and above $25 per barrel, we generate positive results," he added.

    He said the company was also cutting investments and holding back final investment decisions on some projects until oil prices recover.

    "Let me tell you that we will be patient before sanctioning new projects if costs remain high," Breuillac said, adding that the company was coming out of an intensive investment phase with nine project startups last year and five more this year, but no major project was sanctioned in 2015 and 2016.

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    Kazakhstan files $1.6 bln claim against BG-Eni venture -Lukoil

    Kazakhstan has filed a $1.6 billion claim against a group led by BG Group Plc and Eni SpA which is developing the Karachaganak gas condensate field, Russia's Lukoil, also a consortium member, said.

    The move is the latest sign of tensions between global energy majors and national companies in resource-rich nations as low oil prices put more strain on state budgets which have ballooned over the past decade.

    The dispute relates to a formula which determines how profit from the development is split between the companies and the government, Lukoil said in its financial report published on Monday, noting the parties were in talks on a possible settlement and it did not believe any settlement would have a material adverse effect on its finances.

    It did not say when Kazakhstan had filed the lawsuit, when it expected a settlement to be reached and what the likely cost implications would be.

    An Eni executive had said in October there were talks on audit and cost recovery with Kazakhstan over the Karachaganak field, describing the discussions as normal in such a development.

    Kazakhstan's Energy Ministry and Karachaganak Petroleum Operating, a joint venture which runs the project, had no immediate comment on Tuesday.

    Eni and BG, recently acquired by Royal Dutch Shell Plc , each own 29.25 percent of the Karachaganak project in northwest Kazakhstan, which they jointly operate. State-owned KazMunayGaz owns 10 percent, Chevron Corp 18 percent and Lukoil 13.5 percent.

    The Kazakh government said this year the consortium would start an expansion project in 2017 that will cost $12 billion. In 2015, the field produced 141.7 million barrels of oil equivalent in the form of gas and liquids.

    Oil is Kazakhstan's main export and a key source of budget revenue. The decline of its price has prompted Kazakhstan to stop pegging its tenge currency to the dollar last August and let it lose almost half of its value against the greenback.

    It has also strained Astana's relations with foreign investors. In another recent case, KazMunayGaz representatives on the board of its listed upstream subsidiary clashed with independent directors over the 2015 dividend. The board voted to pay none, against independent directors' proposals.

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    Freeport-McMoRan says oil & gas unit CEO stepping down

    Energy and mining company Freeport-McMoRan Inc said the chief executive of its oil and gas unit, Jim Flores, is stepping down, as the company restructures its business to cut costs.

    Freeport-McMoRan said on Tuesday it would eliminate all executive management roles at the oil and gas unit and integrate the financial and administrative roles with the company's corporate functions.

    The company, under pressure from largest shareholder Carl Icahn and weak commodity prices, said in October it was looking at a strategic review of its oil and gas business, including spinoff and joint ventures.

    Chief Operating Officer Doss Bourgeois and Chief Financial Officer Winston Talbert of the unit are also leaving as part of the overhaul, the company said on Tuesday.

    The team served as the unit's executive management since Freeport-McMoRan bought Plains Exploration Co in 2013.

    Freeport-McMoRan also said on Tuesday it would look to cut more costs and capital expenditures, and would continue to evaluate options for the sale of certain assets of the oil and gas unit.
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    Vitol Said to Post Highest Profit Since 2011 as Oil Prices Swing

    Vitol Group BV earned $1.6 billion last year, the most since 2011, as the world’s largest independent oil trader profited from price swings in the energy market, according to a person familiar with the matter.

    As oil-producing companies and energy-rich nations suffered amid the rout in crude and petroleum-product prices, closely held Vitol benefited from a market that Chief Executive Officer Ian Taylor earlier this year said “favors” traders.

    Oil traders such as Vitol, Trafigura Group Pte, Glencore Plc, Gunvor Group Ltd., Mercuria Energy Group Ltd. and Castleton Commodities International LLC are profiting from increased price volatility. They are also filling storage to take advantage of contango -- a situation where future prices are higher than current levels, allowing investors to buy oil cheap, store it in tanks and lock in a profit for a later sale using derivatives.

    The combination of contango and oil price swings allowed Vitol, which handles enough crude and refined products to meet the combined needs of Germany, France, Italy and Spain, to increase net income by 15 percent from $1.39 billion in 2014. The 2015 profit is the company’s fourth highest ever, only trailing earnings posted in 2006, 2009 and 2011.

    Taking Writedowns

    While Vitol only publicly releases its traded volumes and revenue, it does provide financial information to its lenders and some other groups. The person familiar with the accounts asked not to be named, citing confidentiality clauses.

    Andrea Schlaepfer, a Vitol spokeswoman in London, declined to comment.

    In an interview in February, Taylor said that Vitol, which celebrates its 50th anniversary this year, would report net income for 2015 above that earned in 2014. However, he said the company wouldn’t match the record of 2009.

    The company, which is owned by its senior staff, planned to take writedowns in its exploration and production business and make provisions against customers defaulting on contracts, Taylor said. Vitol’s operating profit rose 22 percent to $1.82 billion last year, the person said.

    Vitol said last month its traded volumes of crude and oil products rose 13 percent from a year earlier to a record high of 303 million metric tons, equal to about 6.2 million barrels a day. Revenue, which rises and falls in parallel with commodity prices, plunged 38 percent to $168 billion as crude slumped.

    The trading house, which is formally incorporated in Rotterdam but has its main operations in Geneva, London, Singapore and Houston, has experienced strong growth over the last 20 years on the back of expanding oil trade, large price swings and, more recently, investment in storage and refining. In 1995, Vitol earned just $20 million.
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    Saudi Aramco Reduces Pricing for Arab Light Crude to Asia Buyers

    Saudi Arabia, the world’s largest crude exporter, cut pricing for May sales of its Arab Light oil grade to Asia as producers get set to meet in Doha to discuss a proposed output freeze.

    State-run Saudi Arabian Oil Co. widened the discount for Arab Light crude to Asia by 10 cents a barrel to 85 cents below the regional benchmark, the company said in an e-mailed statement on Tuesday. That matched the expectation in a Bloomberg survey of six refiners and traders.

    Brent crude has slid about 50 percent since Saudi Arabia led a 2014 decision by the Organization of Petroleum Exporting Countries to maintain production amid a global supply glut to defend market share and drive out higher-cost producers. Saudi Arabia and other OPEC members will meet with Russia on April 17 in Doha to discuss a proposal to freeze oil output to stabilize prices.

    Saudi Arabia will freeze output only if Iran follows suit, Mohammed bin Salman, the Saudi deputy crown prince, said in an interview with Bloomberg. Saudi Arabia’s output rose to 10.21 million barrels a day in February from 10.19 million barrels a day in January, while Iran’s climbed to 3.22 million barrels a day from 3 million barrels, according to International Energy Agency data. Russia’s production was 11.22 million barrels a day in February, the data show.

    Saudi Aramco widened the discount for Arab Heavy crude to Asia by 35 cents a barrel to $3.65 less than the benchmark, according to the statement.

    Middle Eastern producers are competing increasingly with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market. Producers in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia, the benchmark is the average of Oman and Dubai oil grades.

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    China firm wins Myanmar approval for $3 bln refinery

    Chinese state-controlled commodity trader Guangdong Zhenrong Energy Co has won approval from the Myanmar government to build a long-planned $3 billion refinery in the Southeast Asian nation in partnership with local parties including the energy ministry, company executives said on Tuesday.

    The project, which also includes an oil terminal, storage and distribution facilities, would be one of the largest foreign investments in decades in Myanmar. Myanmar currently imports most of its fuel.

    The Myanmar Investment Committee granted the Chinese firm approval to build a 100,000 barrels-per-day (bpd) refinery in the southeast coastal city of Dawei, Li Hui, a vice president of Guangdong Zhenrong and head of the company's refining business, told Reuters.

    The Chinese firm will hold 70 percent of the project, and the remaining 30 percent shared by three Myanmar firms - military-linked Myanmar Economic Holdings Limited, Myanmar Petrochemical Corp, an entity affiliated with the country's energy ministry and Yangon Engineering Group, controlled by privately-run HTOO Group of Companies, Li said.

    As the approval came before the government led by Aung San Suu Kyi's National League for Democracy was sworn in, Li said his firm was ready to work with the new Myanmar authorities to ensure the project gets off the ground.

    "We are confident (about the project) as it has taken into considerations interests from all parties and the refinery will benefit the local people as well as the economic development of the country," said Li.

    Guangdong Zhenrong, which first announced the project in 2011, won the green light from Beijing in late 2014 to proceed with the plan.

    The firm, which had a turnover of more than 100 billion yuan ($15.45 billion) in 2013, is 44.3 percent owned by Zhuhai Zhenrong Corp, one of China's top four state petroleum traders, which was until the late 1990s an affiliate of the military.

    Xiong Shaohui, the company's chairman, has said the project may attract financing from state policy banks such as China Development Bank and China Export & Import Bank, as the investment fits into Beijing's "marine silk road" policy that aims to connect China to neighbouring economies like Myanmar, India and Sri Lanka.

    It would be the first foray into refining for Guangdong Zhenrong, which is largely a trader of petroleum products and metals, and more recently the operator of oil storage facilities and a shipyard.

    Company executives have also said the firm was open to working on the project with established Chinese energy companies.

    China's largest energy group CNPC is among the largest foreign investors in Myanmar, Asia's second-poorest nation, having built oil and gas pipelines that connect the two countries.
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    U.S. judge approves BP settlement for 2010 Gulf of Mexico oil spill

    U.S. Judge Carl Barbier granted final approval on Monday to BP Plc's civil settlement over its 2010 Gulf of Mexico oil spill after it reached a deal in July 2015 to pay up to $18.7 billion in penalties to the U.S. government and five states.

    "Today's action holds BP accountable with the largest environmental penalty of all time while launching one of the most extensive environmental restoration efforts ever undertaken," U.S. Attorney General Loretta Lynch said in a statement.

    The company at the time said its total pre-tax charges from the spill set aside for criminal and civil penalties and cleanup costs were around $53.8 billion. (

    Under the terms of the original agreement with the U.S. Department of Justice and the Gulf Coast states, BP will pay at least $12.8 billion for Clean Water Act fines and natural resource damages, plus $4.9 billion to states. The payouts will be staggered over as many as 18 years.

    The rig explosion on April 20, 2010, the worst offshore oil disaster in U.S. history, killed 11 workers and spewed millions of barrels of oil onto the shorelines of several states for nearly three months.
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    TransCanada shuts Keystone pipeline after leak in South Dakota

    TransCanada, the company behind the controversial Keystone XL pipeline proposal blocked by the Obama administration, has shut down its pipeline in South Dakota indefinitely following the detection of a possible leak Saturday afternoon.

    The Calgary-based firm said it is investigating the incident near its Freeman pump station, in a remote area of Hutchinson County, Reuters reports.

    It is not clear how much oil was spilled, but clean-up is underway, the article adds.

    TransCanada has advised affected shippers the line will remain closed until at least Friday.

    The Keystone pipeline carries oil south from Canada through eastern North Dakota, South Dakota and Nebraska. The pipeline is not the same as the proposed Keystone XL project.
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    Petrobras Chairman, Management Said Split on Gasoline Price Cuts

    Petrobras Chairman Nelson Carvalho has opposed a management proposal to reduce the price of gasoline in a bid to boost sales, said a person familiar with the discussions.

    Jorge Celestino, the head of refining, proposed a price cut at a time Petrobras is losing market share, said the person, who asked to remain anonymous because the discussions aren’t public. Chief Executive Officer Aldemir Bendine wrote a letter to the board Monday saying no decision has been made and the company will continue to debate which is the most favorable price level for the company, said the person. Globo newspaper previously reported the fuel price discussions.

    A price cut at the world’s most indebted oil producer would come as President Dilma Rousseff is facing an impeachment battle in Congress. In his letter to the board, Bendine rejected any speculation that the price debate was driven by political considerations, said the person. While the company can reduce prices without board approval, historically the board has weighed in on any adjustments. The stock fell 9.3 percent to 7.58 reais at close in Sao Paulo on Monday.

    While the company is always assessing the competitiveness of its commercial policies, there are no plans in place to cut fuel prices, Petrobras said in a regulatory filing.

    Carvalho’s position marks a shift at the oil producer’s board, which consistently opposed price increases when it was led by former finance minister Guido Mantega during the commodities boom. Petroleo Brasileiro SA, as it is formally known, lost tens of billions from 2011 through 2014 when it was selling imported gasoline and diesel at a loss to help Rousseff’s administration contain price growth.

    "Fuel prices are always a sensitive topic given Petrobras’s history on fuel subsidies," Edmar Almeida, an energy specialist at the Rio de Janeiro Federal University, said by phone. "There is no doubt that cheaper gasoline would be good news for the government. But it could also be an honest move to recover market share from ethanol."

    Expensive gasoline has made ethanol more competitive in a country where a majority of vehicles run on both fuels. Petrobras last adjusted fuel prices in September, increasing gasoline by 6 percent and diesel by 4 percent.

    Gasoline and diesel currently sell at premiums of 32 percent and 67 percent, respectively, compared to international reference prices, Bank of America Corp. said in a note to clients Monday.

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    How Cushing copes with full crude tanks

    From the air above this small Oklahoma town, the 300 steel oil storage tanks that dot the landscape appear filled to the brim, their floating lids bobbing atop more than 65 millions of barrels of oil.

    There may be no better place to witness what a world awash in crude looks like, and the 9 square-mile (23.3 square km)complex seems to bear out oil traders' fears that the industry is running out of space to contain a historic supply glut that has hammered prices.

    Such worries make weekly estimates of Cushing stockpiles from the Energy Information Administration one of the hottest market indicators. These inventories peaked in mid-March and have edged lower since then. Some traders reckon they are unlikely to exceed those records for years as refiners rumble back from seasonal maintenance and demand rises. Others warn the stockpile could rise again.

    Up close, from a 24-hour bunker that controls a quarter of tank space here, the 'pipeline crossroads of the world', reveals its secret - there is some spare room left.

    On March 24, the day after U.S. government data showed Cushing's tanks held a near-record 66.23 million barrels of crude, Mike Moeller, manager at Enbridge, explained how the largest Cushing operator uses every last inch of usable space.

    Operators and technicians make it possible by moving a half-million barrels per day in internal pipelines that link the major pipelines and tanks of its 20 million barrel terminal.

    Enbridge's capacity has risen about a third over the past five years, but the volume of oil coursing through the jungle of pipes, valves and tanks that connects suppliers from as far away as Alberta's oil sands to the Gulf of Mexico refiners has quadrupled.

    "We are fuller than we have ever been," Moeller told Reuters. Customers tell Enbridge every month how much crude is coming, but Moeller and his team leave some space at the top of each tank that might be needed in an emergency.

    Every day, up to 6 million barrels of oil flows through Cushing's 13 major pipelines in or out of steel tanks - some the size of a football field - towering above the prairie otherwise studded with ranches and nondescript residential neighborhoods.

    The U.S. government estimates their operational limits at around 83 percent of their 'shell,' or design, capacity.

    In reality, the limit may be somewhat higher. Moeller says Enbridge can fill its storage space up to 85 percent capacity thanks to maneuvers orchestrated from its control room.

    One is shifting crude into and out of "condos" - tanks where capacity is leased out to multiple companies and crude mixed together, leaving the operator to track the exact volumes each has on hand.

    While all storage space is rented out, its actual use can vary in a 12-hour period, Moeller explains.

    Enbridge has also increased the number of connections to the other 13 Cushing terminals, circumventing valves that can curtail how much crude can be moved to large pipelines.

    With oil-flow acrobatics getting exceedingly complex, workers can ill-afford any lapse in concentration.

    The lights in the control room building get dimmer or brighter as the day or night progresses to keep workers alert through their shifts. An exercise bike is on hand if their energy starts to wane.

    To get timely estimates of Cushing's storage levels, energy information provider Genscape flies twice a week a helicopter over the tanks with an infrared camera onboard.

    It has registered some decreases in recent weeks, but Brian Busch, Genscape's director of oil markets and former oil trader, calls it an operational variance.

    "There's no reason to unwind a hedge yet," said Busch, adding the observations do not support yet some traders' view that crude prices should start recovering soon.

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    U.S. oil January demand drops by 1 percent year-on-year - EIA

    U.S. oil demand dropped in January from a year earlier, as demand for gasoline and distillates products weakened, according to data released on Monday by the U.S. Energy Information Administration.

    Total U.S. oil demand fell 194,000 barrels per day, or 1 percent from the same month last year, to 19.05 million bpd, EIA data showed.

    U.S. distillate demand, which was pummeled by a historically mild winter, fell 9.9 percent from January last year, as warmer weather cut demand for heating oil.

    U.S. gasoline demand, which has seen sustained strength amid lower pump prices, fell in January by 0.6 percent, or 48,000 bpd, year-on-year.

    The January drop in overall oil demand comes on the heels of a strong December. At 19.5 million bpd, December demand rose 0.4 percent, the first year-on-year rise in four months.

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    Lukoil Full-Year Profit Declines 26% After Crude-Oil Prices Drop

    Lukoil PJSC, Russia’s second-largest oil producer, said profit fell 26 percent last year following a slump in crude prices and a change in accounting.

    Net income dropped to 291 billion rubles ($4.3 billion) from 396 billion rubles a year earlier, the Moscow-based company said Monday in a statement. Sales rose 4.4 percent to 5.75 trillion rubles.

    Oil prices have tumbled following a 2014 decision by the Organization of Petroleum Exporting Countries to defend market share amid a worldwide glut. Other Russian oil producers have also been hurt by crude’s collapse, with Rosneft OJSC, the largest, reporting lower quarterly profit last week. Gazprom Neft PJSC posted a quarterly loss in March.

    Lukoil’s earnings statement is its first to conform to International Financial Reporting Standards as the oil producer brings its reporting into line with a 2012 law for publicly traded companies. Lukoil previously published results according to Generally Accepted Accounting Principles. Following the switch, Lukoil will continue to report in rubles.

    The company’s oil and natural-gas output rose 2.8 percent to 2.38 million barrels a day last year. Crude production increased to 2.05 million barrels a day. Gas volumes expanded to 327 billion cubic meters.

    Lukoil reported free cash flow of 248 billion rubles for the year following 607 billion rubles of capital spending, according to the statement. Adjusted earnings before interest, taxes, depreciation and amortization advanced to 946 billion rubles from 890 billion rubles.

    “Free cash flow was very impressive,” Nazarov said by e-mail. “Lukoil seems to be in a position to increase final dividends.”

    The cash pile is a boon to a company that’s seen profit dragged lower by sliding oil prices. Moscow-based Lukoil, which said in November it expected to pay a bigger dividend on 2015 profit than a year earlier, is among Russian oil producers prioritizing shareholder payouts after benefiting from declines in the ruble that reduced costs.

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    Saudi bans Iranian shipping.

    At first, when it announced the terms of its "oil freeze" agreement with Russia one month ago, Saudi Arabia seemed willing to grant Iran a temporary exemption from the supply freeze, at least until it recovers its pre-embargo production levels. That however changed on Friday when the country's Deputy Crown Prince Mohammed bin Salman, shocked Saudi Arabia's Arab allies in the Persian Gulf, telling Bloomberg his country would only join the freeze curbe Iran - and all other OPEC member nations - also joined.

    Following the Friday announcement, yesterday Iran's oil minister Zangadeh made it clear that the country rejects Saudi demands, and would continue ramping up production at will, in the process making the April 17 Doha meeting meaningless.

    And then, in a new and unexpected retaliation by Saudi Arabia for Iran's intransigence, moments ago the FT reported that Saudi Arabia has taken steps to slow Iran’s efforts at increasing oil exports, banning vessels that transport Iranian crude from entering their waters, according to traders and shipbrokers.

    More details from FT:

    Iranian vessels carrying the country’s crude are restricted from entering ports in Saudi Arabia and Bahrain, according to a circular sent by a shipping insurance company to its members in February.

    The notice said ships that have called to Iran as one of its last three ports of entry will also require approval from the Saudi and Bahraini authorities before entering their waters. Shipbrokers and traders have relayed the same messages since.

    Iranian oil executives have expressed their concern about the message circulating in the market, saying it is only adding to problems they face in selling their crude.

    Saudi Aramco, the state oil company, and The National Shipping Company of Saudi Arabia (Bahri) did not respond to requests for comment.

    It is not clear just how much of an impact this escalation will have because as shown in the map below, Saudi territorial waters are hardly a major factor in Gulf shipping lanes.

    Image title

    However, considering that Iran already faces insurance, financing and legal obstacles despite the lifting of sanctions linked to its oil industry in January, and considering the amount of clout the Saudis have with financial partners, its attempt to make Iran's oil production more difficult will surely reap at least partial success.

    Indeed, as the FT adds, oil tanker association Intertanko and other industry participants say no formal notice has been given by Saudi Arabia but uncertainty is making some charterers less willing to lift Iranian crude.

    ”It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis.”

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    Algeria's energy output slips 1.3 pct in 2015, exports flat

    Algeria's energy exports stagnated in 2015, held back by lower output and a rise in domestic consumption, official data seen by Reuters on Monday showed.

    Total energy sales reached 100 million tonnes of oil equivalent, unchanged from the previous year, while production declined 1.3 percent to 153 million tonnes of oil equivalent.

    The North African OPEC member, a major gas supplier to Europe, is trying to increase oil and gas production, which has stagnated for a decade. But foreign oil companies remain reluctant to invest because of Algeria's contract terms and the drop in world oil prices.

    Energy sales make up 60 percent of the state budget and account for 95 percent of Algeria's total exports despite efforts to diversify the economy away from oil and gas.

    The country relies on earnings from the energy sector to pay for its imports and a wide range of subsidies, from food and fuel to free housing.

    However, public finances have been hit since crude oil prices started falling in June 2014, forcing the government to freeze several economic projects.

    Its foreign exchange reserves, which are usually used to cover deficits, fell $35 billion in 2015 to $143 billion, while its trade deficit reached $13.71 billion in 2015, reversing a $4.306 billion surplus in the previous year.

    It has failed to reverse a decline in oil and gas output due to a lack of foreign investment in recent years.

    Crude oil and condensate production fell 2.8 percent to 58.9 million tonnes of oil equivalent in 2015, while natural gas output dropped 1 percent to 82.5 billion cubic metres, according to the data.

    Liquefied natural gas (LNG) production declined 7.6 percent to 27 million cubic metres. Oil refined products output dropped 4.6 percent to 29.3 million tonnes.

    Petroleum liquefied gas output rose 2 percent to 9.6 million tonnes in 2015, the data showed.

    Algeria has launched a campaign to reduce domestic energy consumption but demand is still on the rise.

    Demand for oil refined products, mainly gasoline and diesel oil, rose 5.5 percent to 18.3 million tonnes, while natural gas consumption increased by 5 percent to 39.5 billion cubic metres.

    Demand for electricity rose 8 percent last year.

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    Eni to See `Negligible' Impact From Halt of Italian Oil Field

    The shutdown of Europe’s largest onshore oil field over alleged illicit waste disposal at a nearby treatment plant will probably only have a “negligible” effect on Eni SpA’s earnings because Italy often allows operations to resume during probes, said Giuseppe Rebuzzini, an analyst at Fidentiis Equities SV SA.

    “I would assume in a matter of days or a few weeks, Eni might restart using the oil treatment plant and consequently might restart production in the Val d’Agri field,” said Rebuzzini, highlighting the economic importance of the operation in Italy’s southern region of Basilicata.

    Production at Val d’Agri was halted on March 31 after Italian authorities seized part of a nearby oil-treatment facility amid a waste-disposal investigation. Eni, which has said it’s cooperating with the authorities, has asked prosecutors to restart production after suspending staff as part of the probe. The company declined to comment on the impact of the halt at the field in which Royal Dutch Shell Plc also holds a stake.

    Last year, a shipyard owned by Fincantieri SpA at Monfalcone near Trieste was allowed to resume production within a week after authorities started an investigation into waste disposal. That pattern was also repeated at a plant owned by steelmaker Ilva SpA in Taranto.

    “My take is this is probably going to happen” at Val d’Agri, Rebuzzini said.

    The Val d’Agri field produces about 75,000 barrels of oil a day and accounted for about 40 percent of Eni’s total Italian oil and gas production in 2014, according to the latest public data released by the company. Eni, operator of the Val d’Agri field, had a daily global output of 1.6 million barrels in 2014.

    Investors are currently more focused on Eni’s strategy in relation to gas discoveries in Egypt and Mozambique, according to Natixis SA.

    “In terms of news flow, it would be certainly more meaningful compared to Val d’Agri oil production,” Baptiste Lebacq, analyst at Natixis, said by phone.

    La Repubblica reported last week that Eni is in talks with Russia’s Lukoil PJSC to sell a 20 percent stake in its Zohr gas discovery off Egypt while the Wall Street Journal reported on March 24 that Exxon Mobil Corp. was in discussions to acquire a stake in Eni’s Mozambique project. Eni declined to comment.

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    Maersk puts pressure on Danish govt with threat to shut gas field

    A.P. Moller-Maersk's oil subsidiary said on Monday it will shut Denmark's largest gas field in 2018 if it cannot find an economically viable solution for the ageing site by the end of this year.

    Its threat adds pressure on the Danish government from energy companies to adjust taxes on oil and gas production. They say the slump in oil prices means investing to extract the remainder of the country's declining reserves is no longer economically viable.

    The Tyra complex produces around two thirds of Denmark's gas, according to Maersk. But the company said the field was approaching the end of its operational life after more than 30 years of production and due to subsidence of the underground chalk reservoir, and it would close the field in October 2018 if it became uneconomic to continue.

    "We're closing down for safety reasons and not due to the oil and gas prices. But of course we look at the prices when looking at this large, long-term investment," the head of Maersk Oil Denmark, Martin Rune Pedersen, told Reuters.

    Energy minister Lars Christian Lilleholt told Reuters in October that the government would look at introducing tax credits for investments in North Sea oil and gas production, but said he was awaiting recommendations from a group of experts looking at the issue.

    "It seems pretty obvious that if the taxes are not adjusted, then we will see a scale down," Sydbank analyst Jacob Pedersen said.

    Denmark's tax proceeds from the North Sea have fallen gradually from 36 billion Danish crowns ($5.5 billion) in 2008.

    In December the government said it expected tax revenues from oil and gas of just 4 billion crowns this year, but that was based on an oil price of almost $50 per barrel -- far above the current $38 level for Brent.

    The former centre-left government increased taxes on oil and gas in 2013 so that the state now gets around 65 percent of the profit from the production.

    The Tyra complex is a hub for a number of smaller facilities and more than 90 percent of Denmark's gas -- 60,000 barrels of oil equivalents last year -- is processed through the field.

    Last week Danish majority state-owned utility DONG Energy (IPO-DONG.CO) said it had terminated a contract to build an oil and gas platform for its Hejre field, postponing indefinitely the major development offshore Denmark.

    Maersk Oil has been mentioned in Danish media as a possible buyer of DONG's 60 percent stake in the Hejre project.

    "It makes good sense to see how one can take advantage of existing activities and installations in the area. But we must see what the Herje consortium decides on," Maersk Oil's Pedersen said.

    Maersk Oil operates Tyra on behalf of the Danish Underground Consortium (DUC) partnership, owned 31.2 percent by Maersk, 36.8 percent by Shell, 20 percent by Danish state-owned Nordsofonden and 12 percent by Chevron.

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    Russia's ESPO crude prices sink as China's buying spree pauses

    A dip in China's appetite of Russia's popular ESPO blend crude is driving the grade's price sharply lower, nearly wiping out the premium it often commands over rival Middle Eastern grades owing to its proximity to North Asian refiners.

    The dramatic plunge in ESPO premiums comes just months after an equally striking rally in the grade's price, and underscores the Asian market's growing sensitivity to the ebb and flow in China's oil demand.

    While China has been influential as Asia's biggest crude importer for years now, the recent emergence of the country's independent refiners as oil importers is adding to its sway in Asia's demand-supply balance and rattling the spot crude oil market.

    Equipped with their recently acquired ability to import crude oil, China's independent refiners, also known as teapots, have been buying up select grades of crude oil, pushing up their prices.

    ESPO has been among the most popular grade among teapots due to its low sulfur content, short haul and a relatively smaller cargo size compared to similar Middle Eastern grades.

    Chinese demand for ESPO blend over the last six months has sent the grade's premiums soaring, pushing the Platts M2 ESPO premium to a near two-year high of $5.30/b to front-month Dubai in February.

    Over the years, distillate-rich ESPO had become a staple crude for traditional refiners in China, Japan and South Korea, but the surge in prices has made it nearly unaffordable for other regular buyers in recent months.

    But as quickly as it emerged, the teapots' intense affair with ESPO seems to be losing its ardour, partly because of weaker margins and partly because the relatively smaller refiners may have bought too much oil in too little a time, leading to logistical issues.

    "Chinese ports are congested, the domestic margin is no longer favorable and product stocks are high," said a Singapore-based trader. "Basically teapots don't need ESPO."

    "I don't think teapots are buying like in the past few months. They had been buying a lot with imports at record numbers lately," said a second Singapore-based crude trader.

    Teapots' diminished appetite for ESPO is hammering the grade's premiums at a time when demand in Asia is already on a decline because of upcoming refinery maintenance season and many regular ESPO buyers have been looking to secure alternative grades early in the trading cycle fearing a teapot-driven surge in prices later in the month.

    Several cargoes of May-loading ESPO crude have traded at premiums of $2.50/b over front-month Dubai in recent weeks -- a level similar to Abu Dhabi's rival Murban and Das blend grades.

    Platts on Thursday assessed second-month ESPO at a premium of 5 cents/b to Murban, the lowest in six months. The spread was as wide as a premium of $2.87/b on October 22, rising from a discount of 6 cents/b on September 25.

    "A lot of ESPO was left to trade. There's not much demand at all, no arbitrage to the USWC and we are at June turnaround time," said the first trader.

    Premiums of light sour grades such as Murban and Das blend have plunged in recent weeks alongside ESPO on weak demand ahead of the region's refinery maintenance season.

    The distillate-rich grades have come under further pressure from a steady decline in gasoil cracks last month, reducing their demand from Asian refiners.

    The May-loading program for ESPO is little change with 28 cargoes scheduled to lift a total of 2.82 million mt, compared with 27 cargoes due to load in April carrying 2.75 million mt.

    Despite the recent slump in ESPO prices, expectations for the short-term are mixed, as traders remain cautious of a potential bounce back in premiums if and when the teapots resume the buying binge.

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    Goodrich Petroleum headed for Chapter 11 filing

    Houston’s Goodrich Petroleum Corp. has reached an agreement with creditors to use its “best efforts” to file for Chapter 11 by April 15 with a prepackaged plan to reorganize and emerge from court as an operating business.

    The new plan of reorganization would give second-lien lenders an equity stake in the newly reorganized company, according to a statement.

    The agreement comes after Goodrich’s debt-for-equity exchange offer failed to gain enough traction among debtholders. The company extended the offer a final time to April 8. As of March 31, it fell short of the participation levels it required, with only 61 percent of its unsecured notes tendered of the 95 percent needed.

    On March 16, Goodrich delayed releasing its annual report, citing a large loss that auditors have determined may affect the company’s ability to operate as a going concern. The loss comes “mainly as a result of substantial impaired asset writedowns,” Goodrich said in the filing.

    In prepackaged reorganizations, companies win support for their plans from almost all bondholders before filing Chapter 11 and asking a judge to impose the deals on dissidents.

    Its most actively traded debt, $117 million of 8.87 percent unsecured bonds due 2019, last traded at .375 cents on the dollar on Feb. 17, down from as high as 54.5 cents on April 27, 2015, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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    U.S. Oil Rig Count Down by 10

    The U.S. oil-rig count fell by 10 to 362 in the latest week, according toBaker Hughes Inc., maintaining a trend of declines.

    The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the sector, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude.

    There are now about 72% fewer rigs of all kinds since a peak of 1,609 in October 2014.

    According to Baker Hughes, the number of U.S. gas rigs declined in the latest week by four to 88.

    The U.S. offshore-rig count was 26 in the latest week, down two from the previous week and down five from a year earlier.

    Oil prices tumbled Friday after comments from a Saudi royal family member cast more doubt on a deal for major global exporters to cap output. Saudi Arabia’s deputy crown prince, Mohammed bin Salman, said in an interview with Bloomberg News that the kingdom will freeze its oil output only if Iran and other major producers agree to curb theirs.
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    Iran oil minister says will keep raising production

    Iran will continue increasing its oil production and exports until it reaches the market position it enjoyed before the imposition of sanctions, Oil Minister Bijan Zanganeh was quoted by the semi-official Mehr news agency as saying.

    Zanganeh was speaking at the weekend ahead of an April 17 meeting of OPEC and non-OPEC oil producers in Doha to discuss a possible output freeze to prop up prices, and his comment appeared to further threaten the prospect of an effective agreement at the meeting.

    On Friday, Bloomberg quoted Saudi Arabia's deputy crown prince Mohammed bin Salman as saying Riyadh would agree to freeze crude oil production levels only if Iran and other major producers did so. A global glut has pulled down oil prices by as much as 70 percent since 2014.

    However, Zanganeh was also quoted by Mehr as saying that "the agreement between the world's top OPEC and non-OPEC exporters such as Saudi Arabia and Russia to freeze output at January levels is a positive step".

    On the possibility of his attending the Doha meeting, he said he would certainly attend the meeting "if he had time", Mehr reported.

    OPEC secondary sources put Iran's current output at 2.93 million barrels per day (bpd). It is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. The sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.
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    Libyan oil firm NOC says it will work with new unity govt

    Libya's National Oil Corporation said on Saturday it was working with the U.N.-backed unity government, which arrived in Tripoli this week, to coordinate future oil sales and "put a period of divisions and rivalry behind us".

    NOC Chairman Mustafa Sanalla also welcomed the U.N. Security Council's renewal on Thursday of measures to prevent illicit oil exports from Libya, a reference to efforts by Libya's eastern government to sell oil independently.

    "Combined with the recent announcement by the Petroleum Facilities Guard (PFG) that it intends to reopen export ports it has been blockading, I hope NOC and the country's oil resources can provide a solid platform on which the country's recovery can be built," Sanalla said in a statement.

    The new government received the endorsement of the PFG, a semi-official armed faction that controls key oil installations in the east, some of which it has shut down amid political disputes.

    Libya descended into political turmoil and armed conflict following an uprising that toppled long-time strongman Muammar Gaddafi in 2011, with two pairs of rival parliament and governments operating in Tripoli and the country's east.

    Its oil production has been slashed by rivalry between armed factions, attacks by Islamic State militants and labor disputes, falling to less than a quarter of the 1.6 million barrels per day produced before the uprising.

    Hours after Sanalla's statement, two guards were killed in an attack on Bayda field, about 250 km (155 miles) south of the major oil terminals of Es Sider and Ras Lanuf, a guards spokesman said.

    Militants loyal to Islamic State have carried out repeated attacks in the area, but have not taken control of any oil facilities, and spokesman Ali al-Hassi said Saturday's attack had been repelled.

    The unity government emerged from a U.N.-mediated deal signed in December that has faced continuing opposition from hardliners inside Libya.

    Its leaders traveled to Tripoli on Wednesday and have been operating out of a heavily secured naval base in the capital as they seek to gain control of government ministries and financial institutions.

    PFG spokesman Ali al-Hassi said on Thursday that the guard was prepared to reopen eastern oil terminals at Zuetina, Es Sider, and Ras Lanuf, though he could not say when this might happen.

    The latter two ports have been repeatedly attacked and damaged by Islamic State.

    Libya's eastern government issued a statement on Saturday saying that if any ports were reopened, oil should only be exported with the approval of a parallel NOC that it has tried to set up in Benghazi.

    The parallel NOC's efforts to export oil have so far been unsuccessful, with major oil trading firms and the international community continuing to support the NOC in Tripoli.

    However, boosting Libya's oil sales with the support of the east will be a challenge for the new government. It has so far failed to win approval from the parliament in the east, as required by the U.N.-mediated deal, and the eastern government has indicated that it opposes any transfer of power unless such a vote is obtained.

    The U.N. Security Council issued a resolution on Thursday stating that the unity government had the "primary responsibility" for preventing illicit oil sales, urging it to communicate any such attempts to the U.N. committee overseeing Libya-related sanctions.

    The resolution also restated a call for member states to cease contact with any "parallel institutions".
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    Russian oil output highest in 30 years ahead of Doha meeting

    Russia's oil production rose 0.3 percent to 10.91 million barrels per day in March, its highest level in nearly 30 years, raising questions over Moscow's commitment to freeze output ahead of a producers' meeting in Doha later in April.

    Energy Ministry data on Saturday showed that in tonnes, oil output reached 46.149 million in March versus 43.064 million, or 10.88 million bpd, in February.

    Leading oil producers, including Russia, are due to meet in Doha on April 17 for talks on how to freeze oil output at the average levels reached in January to support the global market.

    But the increase in Russian output to levels not seen since 1987, when it reached a record high of 11.47 million bpd, suggests it may prove difficult for Moscow to stick to oil output freeze commitments.

    Russian Energy Minister Alexander Novak said the March production would not be an obstacle to the expected agreement on a production freeze, local news agencies reported.

    Some oil industry observers said that it would be hard for Russia to stick to an output freeze since the domestic industry is dominated by several big oil companies, such as Rosneft, Gazprom and Lukoil, each with their own agenda.

    The latest production statistics showed that companies, categorised by the ministry as "small producers" were behind the higher production total, with an increase of 1.5 percent to 4.92 million tonnes (1.16 million bpd) in March.

    An 11.9 percent rise in output from joint ventures with foreign oil companies also contributed to the increase in the total production figure. Oil output under these production sharing agreements, designed in the 1990s to encourage investment by foreign oil companies, rose to 1.51 million tonnes (357,000 barrels per day) last month.

    Output from major Russian oil companies fell last month, lead by a 0.7 percent output decline at world's biggest listed oil producer Rosneft. Output at Lukoil and Surgutneftegaz (SNGS.MM) edged down by 0.1.

    Rosneft has said it plans to keep production unchanged this year after it fell by 1 percent in 2015.

    The data also showed that Russian pipeline oil exports rose to 4.45 million bpd last month from 4.31 million bpd in February.

    Natural gas production was at 53.98 billion cubic metres (bcm) last month, or 1.74 bcm a day, versus 52.92 bcm in February.

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    Cheniere’s Sabine Pass readies for fifth LNG export shipment

    Cheniere’s Sabine Pass LNG export terminal is expected to ship its fifth cargo since start-up as the 162,400 cbm BW GDF Suez Brussels LNG carrier heads towards the Louisiana facility.

    Shipping data reveals that the vessel is scheduled to dock at the Sabine Pass LNG export facility on April 5.

    According to Genscape Inc., that has infrared cameras pointed at the export plant, the fourth cargo departed from the facility aboard Energy Atlantic on March 28.

    The carrier was scheduled to pick up the first Sabine Pass cargo, but has been idling offshore the terminal for months.

    However, the exact destination of the cargo is not known at the moment. The cargo could be heading towards Brazil but also it could be on its way to Kuwait and the Mina Al Ahmadi FSRU terminal, Genscape said.

    It was recently reported that Brazil could be the most likely destination of seven of the eight to ten commissioning cargoes from Cheniere’s terminal.

    The report revealed that Sabine Pass LNG commissioning cargoes have a higher ethane content, and Petrobras’ terminal at the Guanabara bay has the infrastructure to handle the high ethane cargoes.

    The Guanabara terminal near Rio de Janeiro received the first cargo shipped from Cheniere’s facility after it was diverted from its initial destination, the Bahia regasification terminal in All Saints’ Bay, Salvador.

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    Big repair bill tipped as Gorgon hits trouble

    Chevron and its Gorgon partners are facing a repair bill tipped to run into the hundreds of millions of dollars after a major mechanical problem flared as soon as the maiden LNG cargo was sent.

    The latest setback for Australia’s biggest resources development, last priced at $US54 billion but set to escalate, means LNG production may not resume until the end of this month.

    Chevron last night would not discuss how long it would take to fix the propane refrigerant circuit, part of the first of Gorgon’s three LNG production lines, nor what it would cost.

    Sources toldWestBusiness the repair bill was likely to far exceed $100 million and Gorgon’s second cargo would not sail until the end of this month. “It’s significant time and significant money,” one source said.

    Chevron Australia managing director Roy Krzywosinski addressed his staff at a regular town hall event yesterday afternoon and is understood to have touched on Gorgon’s teething problems without elaborating.

    A Chevron spokeswoman later said a Gorgon site team was assessing the extent of the problem in the propane refrigerant circuit. “We should know more in the coming week,” she said.

    Although part of Train 1, the propane refrigerant circuit is separated from the natural gas flow, which should remove the risk of any contamination of the liquefaction process. Gorgon’s maiden cargo sailed from Barrow Island last week, almost a fortnight after Chevron declared first LNG production.

    While mega projects like Gorgon are expected to experience teething problems during the start-up phase, the issues that have already emerged are understood to have caused major angst within Chevron and key partners Royal Dutch Shell and ExxonMobil. Under Gorgon’s ownership structure, cargoes are to be sent to customers of Chevron, then Shell, Chevron, ExxonMobil and back to Chevron.

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    Alberta's Great Oil-Sands Boom Is Poised to End in 2018: Chart

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    Brazil's Petrobras says to save $9 bln with voluntary layoffs

    Executives of Brazil's state-run oil producer Petroleo Brasileiro SA approved a voluntary layoff program to cut about 12,000 jobs and save 33 billion reais ($9.20 billion) by 2020, the company said in a statement on Friday.

    The program will cost 4.4 billion reais ($1.23 billion) to be implemented, Petrobras said.

    The layoffs will help Petrobras adjust its workforce to a smaller investment plan, generate value for the company and boost productivity, the company said.

    Petrobras plans to slash its five-year investment plan by about one-fifth to about $80 billion in the 2016-20 period, an average of about $16 billion a year, according to sources a month ago.

    Petrobras had its biggest-ever quarterly loss in the fourth quarter of 36.9 billion reais ($10.2 billion) after booking a large writedown for oil fields and other assets as oil prices slumped and refinery projects faltered.

    A year earlier, writedowns were also the cause of Petrobras losses, although they were largely related to the giant price-fixing, bribery and political kickback scandal that has roiled the company and help fuel calls for the impeachment of Brazilian President Dilma Rousseff.

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    Alternative Energy

    China Three Gorges Plant Q1 output hits new high

    China’s largest hydropower project Three Gorges Power Plant generated 15.59TWh of electricity in the first quarter, Xinhua News Agency reported, citing China Three Gorges Corporation.

    The output is 2.16TWh higher than Q1 last year, hitting the highest record.

    The last generator of the plant started operation in July 2012, enabling the plant to reach combined generating capacity of 22.5 GW.

    Besides, another leading Gezhouba hydropower plant generated 3.41 TWh in the first quarter, up 385 GWh from the year before.

    The increasing hydropower output will continue to squeeze coal-fired power output.
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    IKEA Global Solar Push

    "Ikea's ambition is to help and inspire their customers to live a more sustainable life at home and the residential solar program is one step on the way to reach that ambition," the magazine quoted Håkan Nordkvist, head of sustainability innovation at Ikea, as saying. "Last year there were 770 million visits to Ikea stores worldwide and the company sees that as a great platform to fulfill our ambition and for people to be able to live a more sustainable life at home."

    Nordkvist also revealed the company would work closely with suppliers to push down solar technology costs.

    "To be able to deploy residential solar in a big scale we need to have a very simple and transparent purchase process for the customer and the offer needs to be very affordable, this is what our customers normally get when they visit Ikea and this is what we will continue to have, including the residential solar offer," he said.

    A spokeswoman for IKEA confirmed to BusinessGreen the company was working on plans to expand its solar offering.

    "Offering solutions for residential solar is part of IKEA Group's sustainability strategy and we have successfully rolled out a pilot offer to stores in three markets; the Netherlands, Switzerland and the United Kingdom," she said via email. "During 2015 we evaluated the pilot and decided on a new business model, offering an expanded range of technologies and a more integrated sales model. In the process we also researched the market to identify suppliers that can provide the most competitive offer for our customers."

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    Graphene layer could allow solar cells to generate power when it rains

    Solar energy is on the rise. Many technical advances have made solar cells quite efficient and affordable in recent years. A big disadvantage remains in the fact that solar cells produce no power when it's raining. This may change, however: In the journal Angewandte Chemie, Chinese researchers have now introduced a new approach for making an all-weather solar cell that is triggered by both sunlight and raindrops.

    For the conversion of solar energy to electricity, the team from the Ocean University of China (Qingdao) and Yunnan Normal University (Kunming, China) developed a highly efficient dye-sensitized solar cell. In order to allow rain to produce electricity as well, they coated this cell with a whisper-thin film of graphene.

    Graphene is a two-dimensional form of carbon in which the atoms are bonded into a honeycomb arrangement. It can readily be prepared by the oxidation, exfoliation, and subsequent reduction of graphite. Graphene is characterized by its unusual electronic properties: It conducts electricity and is rich in electrons that can move freely across the entire layer (delocalized). In aqueous solution, graphene can bind positively charged ions with its electrons (Lewis acid-base interaction). This property is used in graphene-based processes to remove lead ions and organic dyes from solutions.

    This phenomenon inspired researchers working with Qunwei Tang to use graphene electrodes to obtain power from the impact of raindrops. Raindrops are not pure water. They contain salts that dissociate into positive and negative ions. The positively charged ions, including sodium, calcium, and ammonium ions, can bind to the graphene surface. At the point of contact between the raindrop and the graphene, the water becomes enriched in positive ions and the graphene becomes enriched in delocalized electrons. This results in a double-layer made of electrons and positively charged ions, a feature known as a pseudocapacitor. The difference in potential associated with this phenomenon is sufficient to produce a voltage and current.
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    Chevron's $3 billion Asian geothermal assets to draw global suitors

    French utility Engie and Japan's Marubeni are among several suitors preparing to bid for Chevron Corp's Asian geothermal energy blocks valued at about $3 billion, sources familiar with the matter said.

    Potential buyers including Southeast Asian firms are attracted by the opportunity to gain control of large blocks of geothermal assets located in Indonesia and Philippines.

    "There's a lot of jostling going on to see who's teaming up with whom. I expect to see companies forming consortiums for this big sale," said one banker involved in the process. "The Japanese are key as whoever ties up with them would have access to low cost funding and that boosts their chances," he added.

    Indicative bids for the assets are due this month, said some of the sources, who declined to be identified as the information is not public.

    Like many rivals, Chevron is selling assets, cutting jobs globally and slashing capital spending to save cash in a bid to preserve its dividend amid weak oil prices.

    Chevron, which hired Citigroup (C.N) as its adviser for the sale, kicked off the auction last month, sources said. Chevron, Marubeni, Engie and Citigroup declined comment.

    "For global players, it provides an entry into the geothermal markets in Indonesia and possibility of further expansion," said consultancy Wood Mackenzie's principal power analyst Bikal Pokharel.

    Two Chevron subsidiaries operate geothermal projects in Salak and Darajat fields in west Java with a capacity to generate nearly 650 megawatts of electricity. The combined output produces enough renewable energy to supply about 3 million homes, according to Chevron's website.

    Pokharel said Indonesia had estimated a geothermal potential of 27,700 megawatts, the highest in the world, but its current installed capacity was less than 5 percent of the potential.

    He said contradictory and untested regulations, land acquisition, building transmission infrastructure and lack of clarity in pricing methodology remained major challenges.

    Medco Power, which operates two geothermal projects in Indonesia, is keen to buy the assets and would consider looking for a partner due to the large value of the assets.

    "We have expressed our interest in seeing the data on its asset," Fazil Alfitri, president director of Medco Power, a subsidiary of Medco Energi Internasional (MEDC.JK), told Reuters.

    Indonesia has unveiled land and regulatory reforms aimed at boosting production of geothermal energy, but investment in renewables has been slow in Southeast Asia's largest economy.

    Geothermal energy is created by the heat of the earth. It generates reliable power and emits almost no greenhouse gases.

    Chevron also has a 40 percent interest in Philippine Geothermal Production Company, Inc., which produces steam energy for third party-owned geothermal power plants. They have a combined generating capacity of 692 megawatts.

    Southeast Asian power firms Aboitiz (AP.PS) and Banpu Power (BAP.BK) may bid for Chevron's assets, said the sources. Banpu said it would consider the terms and size of the assets before making a decision.

    Sources said Chinese power firms are also expected to participate in the auction.

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    Fossil fuel electricity with no pollution? This company is building a power plant to prove it.

    I have always been skeptical about carbon capture and sequestration at fossil-fueled power plants. It's not so much the technological barriers — they are serious, though not insurmountable — but the cost.

    Fossil fuel power plants have steadily gotten more efficient, but the problem is, no matter how efficient your plant is, capturing the carbon dioxide emissions involves bolting on a second facility to process and separate the waste gases. That second facility requires power (it's a "parasitic load," cutting into efficiency), and it adds to capital costs.

    Coal and natural gas are already losing out to wind in many areas, withoutsequestration. Once you add sequestration, even as wind and solar are getting cheaper and cheaper, how can fossil fuels with CCS possibly compete?

    (Wikipedia)The Kemper Project, a coal-gasification-with-CCS plant being built in Mississippi by Southern Company. It is behind schedule and over budget, currently clocking in at around $6.5 billion.

    But now a new company claims it can capture the carbon without a separate facility, as part of the combustion process itself, at no extra cost.

    In fact, it says it can generate power more efficiently than conventional power plants, in a smaller physical footprint, with zero air pollution, and capture the carbon — all at a capital cost below traditional power plants.

    That is a heady set of claims. If they prove out in practice, it could be a very big deal. Let's take a closer look.

    Natural gas electricity without the emissions

    Last month, in La Porte, Texas, a North Carolina–based company called Net Power broke ground on a $140 million natural gas power plant. It's small, just 50 MW, meant to demonstrate the viability of a new technology for burning fossil fuels.

    Net Power is working in collaboration with some big names. Exelon Generation will operate the plant. CB&I, an infrastructure firm, will provide "engineering, procurement, and construction services." Net Power's parent company, 8 Rivers Capital, will provide ongoing technology development. And Toshiba will develop the key components (mainly the turbine).

    Together they are in the process of developing a full-size 295 MW plant, scheduled to break ground in 2017; the 50 MW demonstration plant is meant to reassure investors that the technology works.

    Technical details:

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    Major European wind power players merge

    Two global wind power players are set to merge after approval by Europe’s competition authority.  

    German wind OEM Nordex and Spanish project developer Acciona Windpower announced this week that they have completed the contract that will see them join forces.

    The companies said they aim to establish a wind energy firm with “a global market presence and a comprehensive product range”.

    Plans for the merger were first announced in October.

    Under the terms of the contract, Nordex will buy Acciona Windpower in return for new Nordex shares and a cash payment, the sum of which has not been disclosed. In addition, Acciona agreed to buy additional Nordex shares, making it the largest shareholder in Nordex, with a total stake of 29.9 per cent.

    Lars Bondo Krogsgaard, Nordex CEO, said, “We are now taking the first steps towards establishing our company as a truly global player in the wind turbine industry”.

    Together, the new company operates 18 GW of installed wind power capacity in 25 global markets, with a focus on onshore turbines from 1.5 MW to 3 MW. Its production network features plants in Germany, Spain, Brazil and the US, with a new factory planned for India.

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    TerraForm Global gets more time to file annual report

    TerraForm Global Inc, a unit of troubled U.S. solar energy company SunEdison Inc, said its lenders had agreed to give the company another month to file its annual report, after it missed the March 30 deadline.

    TerraForm Global, one of two SunEdison "yieldcos", said last week in a regulatory filing that it would join its parent and fellow yieldco TerraForm Power Inc in delaying its annual report for the year ended Dec. 31. (

    In the filing, TerraForm Global had also warned of "substantial risk" of bankruptcy at SunEdison.

    TerraForm Global also said in the filing that it may not complete certain deals if its parentcompany goes into bankruptcy.

    The company disclosed on Monday it had ended a deal for a hydro-electric power plant last week and had paid $10 million as termination fees.

    TerraForm Global had agreed in July to buy two wind power plants and one hydro-electric power plant in Brazil from renewable energy company Renova Energia SA.

    TerraForm Global closed the acquisition of the two wind power plants in September.
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    France to launch third offshore wind tender

    France plans to launch a tender to build turbines for the country's third offshore wind farm, Energy Minister Segolene Royal said in a statement on Monday.

    The wind farm is to be off the northern harbour town of Dunkerque, Royal said without specifying the size of the tender nor when bidding would close.

    France, unlike Britain, Germany and Denmark, does not yet have any offshore wind turbines installed. But it has already awarded two other tenders for offshore wind farms.

    Royal said the new tender would include a new procedure of "competitive dialogue" with the bidders to fine tune bidding requirements and to give bidders the chance to improve their bids during the process.

    She also said that studies of wind, wave and soil conditions would be done by public authorities before bidders have to make final bids. The government will also simplifyprocedures for building permits for the tender.

    France awarded a first offshore wind tender for 2,000 megawatts of capacity in 2012, representing investment of about 7 billion euros ($8 billion).

    A consortium of EDF and Alstom won three of the four sites, at Fecamp, Courseulles-sur-Mer (Normandy) and Saint-Nazaire (Loire). Spain's Iberdrola, in partnership with nuclear group Areva, won the fourth site at Saint-Brieuc (Brittany).

    A second tender awarded 1,000 MW, for investment of 4 billion euros to a consortium led by French gas and power group Engie in 2014.

    The Engie consortium included Portugal's EDP Renovaveis, France's Neoen Marine and Areva and will build 500 MW off the town of Le Treport in northern Normandy and 500 MW off the islands of Noirmoutier and Yeu on the Vendee coast.
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    Tesla secures 180 000 orders for new EV in 24 hrs,

    Twenty-four hours after launching, US electric vehicle (EV) maker Tesla Motors has secured more than 180 000 orders for its new Model 3 vehicle, making it the biggest driver of potential lithium demand from the auto sector to date. 

    By Friday afternoon, that figure had risen to above 198 000 orders, South Africa-born entrepreneur Elon Musk tweeted. "Thought it would slow way down today, but Model 3 order count is now at 198k. Recommend ordering soon, as the wait time is growing rapidly," he posted to Twitter. 

    “The numbers are really incredible. That’s over $7-billion of potential revenue in one day,” UK-based Benchmark Mineral Intelligence market analyst Simon Moores told Mining Weekly Online. 

    Tesla on Thursday unveiled its latest model EV, saying the most basic version of the Model 3 would start at $35 000, though the first ones delivered could fetch far higher prices, perhaps even as much as $55 000 or $60 000 owing to customers adding more features like a bigger battery pack with greater range. 

    The automaker promised the base model would have a range of nearly 350 km fully charged. Musk estimated the average car would sell for about $42 000, including optional features, for total sales of about $7.5-billion, should all customers who made a deposit complete the order. 

    Moores noted that while Tesla did not discuss the battery size – they were keeping the details for later in the year – based on the assumption that it would be a 60 kWh lithium-ion battery, the pre-orders alone would hypothetically increase demand for lithium hydroxide by 20% to 30%, if Tesla could deliver. 

    The overwhelming demand prompted Musk to comment on Twitter that Tesla was “definitely going to need to rethink production planning…” Moores said the most interesting aspect would be the wider impact the Model 3 will have on other vehicle sales and, most importantly, the auto sectors’ major producers. “They will feel the need to react, perhaps with an even lower priced car,” Moores hypothesised. 

    Now the Gigafactory was open, Moores expected to see rapid progress on raw material deals being made. There had been a resurgence of lithium activity through staking and mergers and acquisition – more a result of the present shortage in the market and lithium prices surging, and Tesla’s plans and its Gigafactory progress had also been an added driver. 

    According to Moores, Australian spodumene projects had seen a surge of activity, starting from around last September. There had also been a rush on Nevada brine projects since the start of the year. “There is of course no guarantee that these mines will come to production – most won’t – but the world does need more lithium,” Moores stressed.
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    Molycorp another step closer to emerging from Chapter 11 protection

    The US Bankruptcy Court for the District of Delaware has confirmed the fourth joint amended plan of reorganisation filed by bankrupt US rare earths producer Molycorp, marking one of the final steps before the company will be able to emerge from Chapter 11 protection as a newly reorganised company. 

    "The plan confirmation is a major step forward for the company. Throughout this nine-month process, we have made every effort to continue to run our business and service our customers and we thank them for our support and patience,” Molycorp president and CEO Geoff Bedford stated. 

    The confirmed plan would allow Molycorp's downstream business units, Chemicals & Oxides, Magnequench, and Rare Metals to reorganise under new ownership with a significantly stronger balance sheet. 

    Under the confirmed plan, which entailed a settlement agreement between an affiliate of funds managed by Oaktree Capital Management, a secured creditor, and unsecured creditors, Oaktree would receive 92.5% of the equity and the unsecured creditors would receive 7.5% of the equity in the reorganised company.  

    Molycorp had also reached a settlement also was reached with an ad hoc group of the company's 10% secured noteholders to buy through a credit bid the mineral rights and certain intellectual property of Molycorp. The group of 10% secured noteholders was the last significant secured creditor group with which the company had not reached a settlement in a mediation process that spanned several months. 

    Molycorp advised that its flagship Mountain Pass mine was excluded from the plan, and the equipment and surface property rights at the mine were excluded from the sale. When the plan becomes effective, Molycorp will emerge as a privately held company with a sustainable balance sheet and strong financial partners, the company stated.
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    Appaloosa raises stake in SunEdison unit TerraForm Power

    Hedge fund Appaloosa LP revealed a higher stake in TerraForm Power Inc, one of the two publicly listed units of SunEdison Inc, as it pursues an overhaul of a committee that oversees TerraForm shareholder rights.

    Billionaire David Tepper-led hedge fund said on Friday it owned 10.88 percent in TerraForm as of March 29, higher than the 9.50 percent it held as of Jan. 1.

    Appaloosa on Tuesday filed an amended lawsuit seeking to overhaul TerraForm's Conflicts Committee, claiming the company's controlling shareholder, SunEdison, has breached its fiduciary duties.

    The fund originally sued to prevent TerraForm from buying some of the assets of Vivint Solar Inc, a solar panel installer SunEdison had agreed to buy.

    Vivint has since scrapped the deal, amid concerns about SunEdison's finances.

    TerraForm Power said on Wednesday Brian Wuebbels stepped down as its chief executive.

    Wuebbels is SunEdison's chief financial officer, but the company has announced that he is being replaced this month.
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    Huge Uranium Deposits May Soon Be Fair Game In Argentina

    Intriguing news on the world stage this week came from uranium. Where a long-time no-go mining nation looks to be on the verge of signing a major deal to restart production.

    That’s Argentina. A country with substantial uranium deposits, which have been under a mining moratorium since 1997.

    But that could soon change, according to reports from Bloomberg at a nuclear summit being held in Argentina. With the news service citing familiar persons as saying that one of the biggest owners of uranium projects in the country has signed up a deal for development financing and technology.

    The company is UrAmerica. A privately-held uranium developer that has consolidated 61 licenses covering 255,000 hectares of mineral projects in Argentina’s Chubut Province.

    Reports noted that UrAmerica signed a deal at the nuclear summit with an unidentified U.S. listed company. With the incoming partner to provide up to $150 million in production technology to jumpstart output from the UrAmerica deposits.

    UrAmerica’s CEO Omar Adra was quoted as saying that the company will now “be able to produce uranium in Argentina in 2019.”

    The big move is reportedly coming as Argentina is seeking higher levels of uranium supply — to feed a fourth nuclear reactor now in construction, as well as a fifth unit planned for construction using financing from China.

    The current market turmoil has created a once in a generation opportunity for savvy energy investors.
    Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors are setting up their next winning oil plays.

    If such a deal does come to pass, it would be a major signal that Argentina is committed to re-opening uranium mining. With incoming investors unlikely to pony up the reported sums unless they had reasonable certainty that officials will give mining the go-ahead.

    The money involved also suggests that the incoming financier is a major player in uranium. And likely a current producer — given that reports also stated the firm could send its own uranium supply to Argentina.

    The most likely candidate given the description is Cameco. Watch for a final announcement from UrAmerica or perhaps the Argentinean government on the exact identity of the key player in this developing story.
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    EU struggles with clean-up costs of ageing nuclear plants

    European nations have set aside just over half of the 253 billion euros needed to dismantle old nuclear plants and manage waste, although the shortfall could shrink as the lifetime of some reactors is extended, EU regulators said on Monday.

    Green campaigners disagreed saying the data was optimistic and the funding shortfall would get bigger not smaller unless power market prices skyrocketed.

    The numbers are part of a periodic EU report on the state of the nuclear industry, which has not been updated since before the Fukushima nuclear crisis five years ago.

    Reuters saw a draft of the survey in February whose official publication was delayed because of the migrant crisis, EU officials said.

    They also said the numbers were preliminary and a fuller assessment of decommissioning costs was expected by the end of the year.

    So far, numbers submitted by European states show 52 percent of the 252.9 billion euros ($288 billion) needed for decommissioning and waste management has been set aside.

    The EU officials, speaking on condition of anonymity, said the gap should be smaller than 48 percent as more money can stem from interest earned from funding pots and as nuclear plants carry on earning from generation - in many cases for longer than originally intended.

    The report says 129 nuclear reactors operate across half of the EU's 28 member states, providing more than a quarter of the bloc's electricity.

    Their average age is close to 30 years, but many operators are seeking to extend their lifetime by 10 to 20 years, which Monday's report finds would require investment of an estimated 45 billion to 50 billion euros.

    Following the Fukushima crisis, Germany announced it would shut its nuclear reactors, meaning decommissioning is a particularly urgent issue in Berlin.

    German utilities, such as E.ON and RWE, could have to make additional provisions, a commission responsible for safeguarding the decommissioning funds has said.

    Agora Energiewende, a thinktank that researches the implementation of Germany's shift from nuclear and fossil fuel to renewable power, said atomic generation needed state support and therefore questioned whether it made money.

    "I don't see any chance that that (funding) gap is closing," Agora Energiewende Executive Director Patrick Graichen said.

    The Greens in the European Parliament, meanwhile, said the report bore no relationship to reality.

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    China citizens protest ChemChina-Syngenta deal amid GMO worries

    Around 400 Chinese citizens have signed a letter to protest the purchase of Swiss-based seeds and pesticides company Syngenta by state-owned ChemChina, saying the deal would eventually lead to genetically modified crops being sown across swathes of the country.

    Critics of genetically modified organisms argue the technology poses risks to public health and the environment, while advocates say such fears have not been scientifically proven and that high-yielding genetically altered crops would help ensure food security as the world's population grows.

    Although relatively few people signed the letter, it marks a rare example of open opposition to state-supported corporate strategy in a nation where the government often clamps down hard on any criticism.

    It also underscores fears among some of the public that the government is gearing up to gradually loosen laws that prevent the cultivation of any GM varieties of staple food crops, with Beijing already permitting the import of some GMO crops for use in animal feed.

    The $43 billion all-cash deal unveiled in February is the largest foreign acquisition ever by a Chinese firm as China is looking to secure food supplies for its population. Syngenta has a portfolio of top tier chemicals and patent-protected seeds, many of which are genetically modified.

    "The acquisition of Syngenta and the promotion of its genetically-modified and agro-chemical agriculture in the country would destroy the country's own agriculture and food security," the protesters said in the letter, seen by Reuters. They argue GMO strains would contaminate Chinese staple crops.

    "ChemChina must immediately stop the suicidal acquisition from causing a disaster to the Chinese nation."

    Syngenta did not respond to requests for comment. A ChemChina spokesman said he had heard about the letter and that the company was waiting to learn more about it.

    Yang Xiaolu, one of the protesters on the list, said the letter was handed over late last month to the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), which overseas companies owned by the central government.

    A SASAC spokeswoman said her office had not yet seen the letter, but was looking into the matter.

    Yang, a long-time anti-GMO activist, is also among the three plaintiffs who were taking China's Ministry of Agriculture to court in April last year in a bid to make public a toxicology report supporting the approval of Monsanto's popular weed killer.

    Reuters was unable to verify other names listed on the anti-GMO letter.

    China's commerce ministry spokesman Shen Danyang said in February that the ministry supported the acquisition which would help secure global food supply.

    The protest comes amid worries that Beijing is losing control over the supervision of GMO technology.

    Last month, agriculture minister Han Changfu admitted that GMO corn was illegally grown in some parts of the country, but found "no large areas of illegal planting" after Greenpeace said a majority of samples taken from corn fields in 5 counties in Liaoning province, tested positive for GMO contamination.
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    Brazil's Vale, Yara deny in talks over fertilizer unit stake

    Vale SA denied a report on Wednesday that it was negotiating a sale of fertilizer assets to Norway's Yara International as the Brazilian miner seeks to raise cash following its biggest quarterly loss in decades.

    Valor Economico, a Brazilian business newspaper, reported Vale could sell a minority stake in its fertilizer unit by the end of the year and suggested the Norwegian firm would be a good match for the assets. Citing unnamed sources, Valor said the deal could yield Vale $1.2 billion.

    Yara, in an email to Reuters, also denied any negotiations were under way.

    Vale is seeking to sell $10 billion in assets over the next 18 months after taking a massive loss in the fourth quarter of 2015, but analysts have told Reuters a fire sale could destroy equity value.

    Meanwhile, Yara has said it plans to increase investment in a bid to become more competitive and grow its business.
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    Monsanto profit, revenue miss estimates on seed discounts

    Monsanto Co, the world's largest seed company, reported lower-than-expected quarterly profit and revenue, as it steeply discounted its seeds to cater to farmers who are cutting spending, sending its shares down about 2 percent in premarket trading.

    Farmers in the U.S. have been spending less on everything from fertilizers to seeds as the prices of grains hover near five-year lows and incomes have fallen to their lowest since 2002.

    This has forced companies including Monsanto and DuPont Pioneer to offer the steepest discounts in at least six years.

    Monsanto has also been under pressure to look at acquisitions as the global seed and crop protection market continues to suffer from high inventories and low prices for agricultural commodities.

    Monsanto had approached Bayer AG and expressed interest in its crop science unit, including a potential acquisition worth more than $30 billion, Reuters reported in March, citing sources.

    Switzerland's Syngenta AG, which rejected Monsanto's takeover approaches last year, agreed in February to be acquired by ChemChina for $43 billion.

    Monsanto raised its 2016 earning per share guidance on Wednesday to $3.72-$4.48 from $3.42-$4.29, primarily due to a change in timing for accounting restructuring expense. It reiterated its ongoing earning per share guidance of $4.40-$5.10.

    Net income attributable to the company fell to $1.06 billion, or $2.41 per share, in the second quarter ended Feb. 29, from $1.43 billion, or $2.92 per share, a year earlier. Earnings on an ongoing basis was $2.42 per share.

    Total net sales of the company, which is known for its genetically engineered corn, soybeans and the Roundup herbicide, fell 12.8 percent $4.53 billion.

    Analysts on average had expected a profit of $2.44 on revenue of $4.76 billion, according to Thomson Reuters I/B/E/S.

    Up to Tuesday's close, Monsanto's shares have fallen more than 25 percent in the last one year.
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    Iowa corn feeds Brazil’s fuel tanks as demand spurs import surge

    At the Plymouth Energy LLC plant in the heart of the U.S. corn belt — where home-grown fuel from grain was supposed to ease American dependence on foreign oil — every drop of ethanol goes to motorists in Brazil.

    Like many Midwest distillers, Plymouth’s Merrill, Iowa, plant was built a decade ago for a U.S. market that was importing ethanol to satisfy laws mandating increased use of renewable fuels.

    Since then, surplus capacity and a glut of cheap gasoline has left the industry navigating losses and looking for new markets. That has helped spur exports as far away as China, but the biggest surprise buyer in recent months has been Brazil, the world’s No. 2 producer.

    While Brazil makes ethanol from its sugar-cane crops — the world’s biggest — the cost surged as economic and political turmoil led to accelerating inflation.

    As the price of gasoline rose to a record, owners of flex-fuel cars that can switch to ethanol did so, and inventories plunged by 75 percent from a year earlier.

    Last month, imported fuel was the cheapest relative to local supply since 2011, offering at least a temporary lifeline to struggling U.S. producers.

    “The export market is the only hope the U.S. market has for balancing supply,” said Christoph Berg, managing director of commodity researcher F.O. Licht GMbH in Ratzeburg, Germany. “Without it, you may have to close or at least temporarily idle plants.”

    After importing a record 452 million gallons from Brazil a decade ago, the U.S. exported 5.7 percent of its production in 2015, which is more than triple the average rate in the years before 2011, government data show.

    Brazil has become the No. 2 buyer of U.S. ethanol, after Canada. The Philippines, China, South Korea and India round out the list of top importers.

    Overseas sales have helped ease the pain for some U.S. distillers, including Plymouth, which can produce 50 million gallons a year. The company’s shipments to Brazil have jumped to 100 percent of output, compared with periodic exports that began in 2012 and included sales to Europe, India, Peru and the United Arab Emirates, Chief Executive Eamonn Byrne said.

    “There’s just too much of it here,” said Byrne, adding that he never expected to be shipping fuel outside the U.S. “These markets are very, very heavy.”

    Demand from Brazil may accelerate this year because of a widening gap between the cost of domestic supply and imports, said Mark Marquis, founder and CEO of Marquis Energy LLC, a Hennepin, Illinois-based ethanol producer.

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    Glencore to sell stake in agri business to CPPIB for $2.5 bln

    Miner and commodity trader Glencore said it had agreed to sell a 40 percent stake in its agricultural business to Canada Pension Plan Investment Board (CPPIB) for $2.5 billion and use the proceeds to reduce debt, which is among the highest in the sector.

    Glencore's net debt has increased to about $30 billion as of February as commodities prices hit multi-year lows and markets have been concerned the high debt levels could compromise the Swiss company's ability to run its trading unit effectively.

    Glencore said on Wednesday it expects the deal, which values Glencore Agri at $6.25 billion, to close during the second half of 2016 and eight years after that either CPPIB or Glencore could move to take the business public.

    The Swiss company said Glencore Agri would be run by Chris Mahoney and a board to which CPPIB and Glencore would each appoint two directors.

    Reuters reported in October that Glencore was in talks with a Saudi Arabian sovereign wealth fund, China's state-backed grain trader COFCO and Canadian pension funds to sell a stake in the agricultural business.

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    Farmer belt-tightening threatens U.S. ag companies' profits

    North Dakota farmer Randy Thompson plans to apply 30 percent less nitrogen fertilizer to his corn this year to save money in the face of crashing crop prices.

    In Minnesota, Andy Pulk is trucking crop nutrients to his farm from 350 miles (563.3 km) away because he found a better price than his local cooperative could offer. He has also halted purchases of machinery.

    "We're on a complete spending hold across the farm," Pulk said.

    With more acres than ever before likely to be planted with soybeans and corn in the U.S. Midwest this year, companies including seed maker Monsanto Co and fertilizer seller CF Industries Holdings might have expected a windfall for earnings.

    But with grain prices near five-year lows and farm incomes at their lowest levels since 2002, growers are tightening their belts by reducing spending on everything from fertilizer to seeds to chemicals.

    Monsanto, the biggest U.S. seed maker, will give investors a glimpse into the impact of the cost cutting on Wednesday, when the agribusiness sector kicks off quarterly earnings reports.

    Last month, the company cut its full-year earnings forecast, citing pricing pressure in seeds and farm chemicals, and lowered its guidance for second-quarter earnings from ongoing operations to $2.35 to $2.45 per share. That was down from $2.90 in the same quarter in 2015.

    Analysts, on average, expect Monsanto to report an 8.5 percent drop in revenue to $4.756 billion and a 16 percent decline in per-share profit to $2.436, according to Thomson Reuters Starmine.

    Earnings potential has suffered as farmers have become less willing to pay up for seeds and chemicals, Goldman Sachs said in a note last month.


    Seed discounts by Monsanto and its rivals, including DuPont Pioneer, have been the steepest in at least six years, Monsanto executives have said.

    Monsanto cut prices to preserve its customer base after Pioneer, in particular, "came out with offers like free seed and other pretty significant discounts," Michael Frank, Monsanto's chief commercial officer, said in a telephone interview last month.

    Together, the companies' products blanket some 70 percent of all corn and soybean acres in the United States.

    DuPont, in a statement, said it prices its products competitively. It is due to report earnings on April 26.

    Some seed dealers said more and more farmers were foregoing new varieties to save money.

    Nathan Kizer, seed manager at South Dakota Wheat Growers, a 5,000 member cooperative with locations in North and South Dakota, said farmers have been moving away from costlier seeds that are "stacked" with three or more biotech traits. Instead, they have been buying varieties that have been on the market three to five years.

    "We're not planting a bunch of the old dogs but we are using a lot of the middle-of-the-pack stuff," Kizer said.

    Some farmers said they were giving up the practice of applying excess fertilizer to their fields to boost yields.

    Yet, Bert Frost, senior vice president of sales, distribution and market development for CF Industries, said farmers will not reduce nitrogen use because that could hurt yields. CF Industries is set to report quarterly earnings in early May.

    "The one variable that you can count on to pick up maximum yield is nitrogen," Frost said.

    Savings are crucial for farmers as the U.S. Department of Agriculture forecasts net incomes will fall 3 percent this year after a 38 percent slump in 2015 and a 27 percent drop in 2014.

    "You've got to be really efficient to make money now," said Thompson, the North Dakota farmer who plans to use less fertilizer.

    "Unless the markets come back, it's going to be really ugly for a lot of guys."

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    China's grain reforms to boost depressed corn processing industry

    China's plan to let the market set corn prices is bad news for international grain exporters, but should boost the country's struggling corn processors that use the grain in products ranging from food additives to paper and textiles.

    New demand from corn processing companies, as well as the feed and ethanol industries, will be vital to help China start cutting the 250 million tonnes of corn reserves built up under stockpiling policies, or more than the country can consume in a year.

    In its biggest grain reforms in a decade, China said this week it will stop stockpiling corn and halt price support schemes, narrowing the gap between international <0#C:> and local prices <0#DCC:> and encouraging the use of local grain rather than imports of cheaper substitutes, such as sorghum and the ethanol byproduct distillers' grains (DDGS).

    Food processors use corn to make starch, syrup and alcohol, but China's corn starch industry has been running losses over the past three years, with more than half of its capacity lying idle.

    "It is good news for the industry," said Fan Chunyan, secretary general of the China Corn Starch Association

    "More companies would raise production and become profitable and some companies may be able to export their products," said Fan, adding that utilization rates could recover to about 70 percent, up from as low as 40 percent in recent years.

    Corn starch is used to make thousands of products, including the food additives lysine and citric acid, which China once was the world's largest exporter, as well as corn syrup, which can replace natural sugar in the production of soft drinks and cakes.

    Major players in the industry include COFCO Co Ltd[CNCOF.UL], Global Bio-chem Technology Group Co. Ltd and the Xiwang Group.

    Global agribusinesses Cargill [CARGIL.UL] and Wilmar International also run some corn starch joint ventures in China.


    The decade-old corn stockpiling policy, which will be scrapped from the autumn, has pushed domestic corn prices up to 50 percent above international prices, saddling feed mills and food processors with higher costs.

    "Many plants were dead because of the stockpiling policy. For those which are still alive, definitely there is a chance," an executive at a corn processor in the province of Liaoning told Reuters.

    The industry had been suffering losses for many years and his own company's plant had shut, said the executive, who declined to be identified.

    Chinese feed mills bought a record volume of foreign feed grains in 2015, which together with corn imports, replaced more than 42 million tonnes of domestic corn production, about a quarter of annual consumption.

    Beijing controls quotas on low-tariff corn imports, which encourages users in China to seek out lower priced substitutes once the quotas have been reached.

    Cheap imports of cassava and cassava starch have largely been used instead of domestic corn in refineries, whose main products include ethanol and corn syrup. Chinese imports of cassava hit nearly 10 million tonnes in 2015.

    "With the drop in domestic corn prices, soft-drink makers will increase their use of corn syrup to help cut costs," said Lief Chiang, an analyst with Rabobank.

    The policy change will also slash feed costs for China's pig industry and boost profits of ethanol producers.

    "The feed grain price drop would prolong the high breeding margins for hog breeders, which are now recovering their herds, while for the corn processing industry, some products can be competitive globally," said Chiang.

    China's appetite for cheap U.S. ethanol could also wane this year as domestic companies increase production, said an official at the China Alcohol Industry Association. China imported a record volume of ethanol in 2015 due to expensive domestic corn.

    "A drop in raw material prices would increase ethanol output and imports would shrink," said the official, who declined to be identified.

    "China may be able to export ethanol to other countries, including South Korea and Southeast Asia, and compete with the United States and Brazil," the official added.

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    Precious Metals

    Indonesia Bumi Resources Minerals' shares up on hopes of Newmont unit stake sale

    Shares of PT Bumi Resources Minerals Tbk surged as much as 22 percent on Wednesday on hopes that the Indonesian miner would reap profits from selling a stake in Newmont Mining Corp's Indonesian operations to a consortium.

    The deal is expected to be announced this week, Indonesian businessman Arifin Panigoro, a key member of the group, told reporters on Tuesday. A unit of Bumi ResourcesMinerals owns a 24 percent stake in Newmont Nusa Tenggara, which operates the second-biggest copper mine in Indonesia.

    Shares of Bumi Resources Minerals hit 62 rupiah on Wednesday, the highest level since October last year. The broader Jakarta stock exchange was up 0.4 percent.

    Bumi Resources Minerals is controlled by family-owned conglomerate Bakrie Group.
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    Silver Is A Coiled Spring, Poised To Catch And Surpass Gold

    Silver was battered so low in recent years’ gold bear that it’s spent 2016 trading near stock-panic levels relative to gold. Such super-low prices aren’t sustainable.

    So silver is due for a massive mean reversion higher as investors start to return. Their lagging buying finally began in March, and will soon accelerate and become self-feeding.

    These big new capital inflows squeezing into such a small market will drive up silver prices faster than gold’s, eventually catching then surpassing gold's gains as in the past.

    Silver's reluctant, sluggish participation in early 2016's powerful gold rally has been glaringly obvious. Instead of amplifying the yellow metal's big gains as in the past, silver largely failed to even keep pace. The lack of silver confirmation for gold's big move has certainly raised concerns. But despite silver's vexing torpidity in recent months, it is a coiled spring ready to explode higher to catch and surpass gold.

    Silver has always been something of an investing enigma, somehow combining attributes of a highly-speculative investment, a conventional industrial commodity, and an alternative currency. Silver trades like each from time to time, stymieing attempts to classify it. Silver tends to grind sideways boringly for long periods of time, and then skyrocket higher in bulls of such magnitude that they are celebrated for years.

    Silver's primary driver has always been the price of gold. While silver can decouple over the short term, these two precious metals have very-high correlations across most multi-year spans. This is the result of silver's unique supply-and-demand profile. Silver's industrial demand, including all fabrication, jewelry, and silverware, accounts for around 4/5ths of total global demand. This tends to be fairly constant over time.

    Thus the relatively-static lion's share of silver demand has little impact on its price. But while investing is responsible for just the other 1/5th, it varies wildly depending on sentiment. So it effectively sets silver's price at the margin. And the overwhelmingly-dominant driver of how bullish or bearish investors feel about silver is the price of gold. Silver effectively acts like a gold sentiment gauge, mirroring gold's action.
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    Mag Silver & Fresnillo: Bonanza deposit much larger.

    Image title
    Four new exploration step-out holes were targeted approximately 100 metres below the existing "Deep Zone" Indicated and Inferred Resources (see press release dated May 27, 2014). The four holes were drilled on 150 metre centres over a strike length of approximately 500 metres below the en echelon overlap zone between the East and West Valdecañas Veins and include the three widest and deepest intercepts to date on the property (see Table 1). This new zone appears to be the extension of the southwest dipping Valdecañas Vein system and it remains open to depth along the entire strike length within the Joint Venture boundary.

    These intercepts widen progressively up to 32.09 metres (true widths) towards the east in the central portion of the property, significantly extending the widening Deep Zone to depth. The intercepts also show significant amounts of calc-silicate (skarn) alteration in and around the veins and the first significant copper values for the entire area; both indications of higher temperature mineralization conditions. The high silver and gold in Holes P2 and P3 coincide with zones of overprinted quartz veins that cut across earlier base-metal rich calc-silicate vein stages, indicating superimposition of an additional precious-metals rich vein stage. 

    "We are extremely pleased to see such a dramatic widening in tandem with strong grades in the Valdecañas Vein at these depths. The geological providence of this system continues to deliver significant results." said George Paspalas, President and CEO of MAG Silver.

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    Base Metals

    Malaysia extends bauxite mining ban by another three months

    Malaysia will extend its ban on bauxite mining by another three months, effective April 15, in order to clear stockpiles and remove the risk of the aluminium-making ingredient contaminating the country's rivers, the environment minister said on Friday.

    While lower output at the world's top exporter of bauxite threatens to interrupt supply to the world's biggest aluminium producer, China, traders expect the impact to be limited given China's ample stocks of the raw material.

    Malaysia's largely unregulated bauxite mining industry has boomed in the past two years to meet demand from China, filling in a supply gap after Indonesia banned exports, but the frenetic pace of digging has led to a public outcry with many complaining of water contamination and destruction of the environment.

    Late last year, bauxite mining was blamed for turning the waters and seas red near Kuantan, the capital of Malaysia's third-largest state and key bauxite producer Pahang, following which, in January, the government imposed its first three-month ban on mining the commodity.

    "The cabinet today agreed to the ministry's suggestion that the bauxite moratorium in Kuantan be extended by three more months," said Wan Junaidi Tuanku Jaafar, Malaysia's natural resources and environment minister at a press conference.

    "One reason for the moratorium extension is to clear the stockpile, only then can we clean the stockpile areas. This is so that we remove the possibility of remnants of the bauxite stockpile contaminating the river and sea in the event of rain."

    Existing bauxite stockpiles in Kuantan must be exported before the moratorium can be lifted, Wan Junaidi said, adding that there were 3.6 million tonnes of stocks in Kuantan.

    Malaysia had shipped out around 3.5 million tonnes of the commodity to China in December, but exports dwindled to slightly under 1 million tonnes in February.

    Malaysia will resume issuing bauxite export permits to help miners clear existing stockpiles, Wan Junaidi said. It had frozen export permits during the first moratorium.

    If producers are unable to clear up stockpiles within three months, it is up to them to apply for additional extension, the minister added.

    A Singapore-based alumina trader said he expected the impact of the extended ban to be limited due to China's ample stocks as well as low metal prices on the London Metal Exchange (LME) that have curbed production.

    Aluminium prices sank 18 percent last year on a China-driven supply overhang and have not made any gains so far in 2016.

    China may hold more than 20 million tonnes of imported bauxite stocks, said Xu Hongping, an analyst at China Merchants Futures. "Their stocks could support five months of production."

    "China has also started importing bauxite from Guinea, which should replace the bulk of demand from Malaysia," Xu said.

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    Chile's Escondida copper mine looks to counteract falling ore grades

    Chile's Escondida, the world's biggest copper mine, said it is banking on a new $4.2-billion concentrator, its third, and $3-billion water desalination plant to counteract falling ore grades and help boost production over the coming years. 

    Once all three of its concentrators are up and running, Escondida expects to produce around 1.2-million tonnes of copper annually for the next decade. The mine, nestled high in Chile's arid Atacama desert, produced 1.15-million tonnes in 2015.

    "Escondida has the potential to operate its three concentrators in the medium term, this will compensate for the natural decline in ore grade and contribute to recovering production in the medium term," the company said on Thursday as it unveiled its third concentrator. 

    The mine halted its first concentrator in February for renovation work and other adjustments, and the company expects it to be back in operation from July 2017. 

    Boosting production is also dependent on the completion of Escondida's second water desalination plant, which is slated to be ready in 2017. BHP Billiton controls Escondida with a 57.5% stake, while Rio Tinto owns 30%.

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    Workers at Freeport’s copper mine in Peru to down tools

    Workers at Freeport-McMoRan's Cerro Verde copper mine in Peru will begin Friday a 48-hour strike to protest what they describe as the near disappearance of their profit-sharing bonus this year.

    The Arizona-based company, which own a majority stake in the mine, has informed workers they are scheduled to receive an average bonus of $146 (483 soles) this year based on 2015 profits, down from about $9,090 (30,000 soles) they obtained in 2014, local newspaper La Republicareported (in Spanish).

    The union said it would stop all activities for an initial period of 48 hours, which would then be extended to 72 hours and finally moved into an indefinite strike until its members demands are heard.

    While Freeport has reacted to low copper prices by making several cutbacks at existing operations, the miner has gone ahead with a $4.6 billion expansion of its Cerro Verde open pit mine, which has been in production since the mid-1800s.

    The project, which should be close to completion, would triple capacity at the concentrator plant to 360,000 tonnes per day and it is set to catapult Cerro Verde to the top three global copper operations by 2017.

    About $22 billion worth of projects have been cancelled or delayed in Peru in recent years due mainly to anti-mining protests.

    The copper and molybdenum mine produced 41,873 tonnes of copper in February, up 180% when compared to output during the same month the previous year, according to official data published this week (in Spanish).

    Mining investments in Peru, which drove economic growth during the past decade, has fallen dramatically in the past two years as violence linked to relentless anti-mining sentiment keeps scaring investors away.

    It is estimated that about $22 billion worth of mining projects have been cancelled or delayed in the South American nation in recent years as a result of social conflicts and red tape.

    Peru is the world’s No 3 copper producer and mining accounts for about 60% of its export earnings.
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    China ramps up aluminium output as 20% rally allows restarts

    Aluminum smelters in China, which supply more than half the world’s metal, are restarting idled plants after a price rally, according to the industry group that brokered an agreement in December to curb capacity.

    As much as half of Chinese smelter capacity is profitable at current prices, Wen Xianjun, deputy chairman of the China Nonferrous Metals Industry Association, said in a phone interview, adding the restarts weren’t a breach of the December accord because the pact allowed for flexibility in production.

    Prices of the metal used to make everything from window frames to aircraft have climbed more than 20% from a low in November on the Shanghai Futures Exchange as Chinese policymakers signaled their willingness to bolster growth. The new production may reverse a decline in exports after they flooded world markets last year and hurt producers from the US to India.

    “While we’re continuing to limit strictly the addition of new capacity, we’re encouraging those who can achieve positive cash flow to restart output because demand is good,” Wen said from Beijing on Wednesday.

    The move fulfills a prediction from Macquarie Group that rising prices of aluminium and steel would bring back output, threatening the rebound. Rates had shot beyond expectations, partly because companies that closed smelters and furnaces doubted the rally’s sustainability, Ian Roper, a director in the commodities research division, said in an interview last week.

    China Hongqiao Group, the world’s biggest aluminium producer, already announced an increase in supply. The company will expand capacity by 16% this year to about 6 million metric tons, chief executive officer Zhang Bo said last month. That came after the country’s aluminium production fell in the first two months as companies cut output to stem losses.

    Smelters mainly in the southern provinces such as Guizhou will restore 1.4 million tons of capacity this year, including around 800 000 tons in the first half, said Wan Ling, chief aluminium analyst with consultancy CRU Group. New supply will reach the market as early as June, pressuring global prices, Wan said. The country idled 3.8 million tons in 2015, according to Wan.

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    China set to shake up world copper market with exports as stockpiles rise: traders

    China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs, onto the global market.

    Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports - which are usually tiny - in the next few months. China's refined copper exports averaged less than 10,000 tonnes a month in the first two months of 2016, and around 17,000 a month in 2015.

    If higher exports materialize, they will be a major jolt to producers and investors in the metal across the world - in particular because it would come during what is traditionally the strongest period of demand for copper from China, the world's largest consumer of the metal.

    It will also be a further sign that the Chinese economy is still struggling against headwinds. Some sectors that buy copper - such as construction and manufacturing - have been hit especially hard in the past couple of years.

    Traders and analysts in China say slowing building construction and electronics manufacturing has stifled demand for refined copper from the nation's massive smelting sector at a time when the country is already swimming in the metal.

    China's copper consumption has been a crucial measure of the country'seconomic growth as the metal forms the essential network of its infrastructure, carrying water, conducting electricity and comprising the circuits in its machines.

    "The situation for copper smelters in China is probably the worst it has been in 20 years. But they won't admit it.

    It wouldn't surprise me in the least if they start exporting," said a source at an Asian copper producer, who declined to be named because he is not authorized to speak to the media.

    Increasing Chinese exports would mark an abrupt turnaround in global copper trade flows as China's refined copper imports hit a record in 2015.

    Any exports could deliver a major psychological blow to market sentiment that has been buoyed lately by a more than 10 percent rally in prices since mid-January.

    The outbound flow of metal would also question the wisdom of the world's top mining companies to dial up copper production on the assumption of strong long-term demand out of China.

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    U.S. International Trade Commission launches aluminium trade probe

    U.S. International Trade Commission launches aluminium trade probe

    The U.S. International Trade Commission said on Wednesday it had launched an investigation into the U.S. aluminium industry and the global trade in the metal, a move that analysts said was aimed at staunching a steady flow of exports from China.

    The investigation is the first formal move by U.S. regulators to probe the impact on domestic smelters of lower-cost imports following a prolonged campaign by Century Aluminium Co, which is majority-owned by Glencore PLC.

    The commission said it would "report on factors of competition in major unwrought and wrought (semi-fabricated) aluminium producing and exporting countries, including the United States".

    The report did not specifically refer to China, the world's biggest producer and consumer of aluminium, which has been churning out much more of the metal than it can use, buttressed by local government subsidies to an industry that is a major employer.

    U.S. producers, along with United Company Rusal have accused Chinese producers of circumventing a 15-percent export tax on primary aluminum by shipping so-called "fake" semi-fabricated products that are intended to be re-melted later, piling pressure on overseas rivals.

    The announcement comes just days after Alcoa Inc stopped production at one of the last remaining U.S. smelters. Its 269,000 tonne Warrick Operations smelter in Evansville, Indiana, closed at the end of March.

    "The principal driver of exports is China's oversupply. That's not likely to change in the near term because production is still well over demand," said Paul Adkins, managing director of Beijing-based consultancy AZ China.

    AZ China expects China's output to grow by 2 million tonnes this year. China produced 31.4 million tonnes last year, according to government statistics, and exported a record 4.2 million tonnes of semi-finished products.

    The commission said that it expected to deliver a report by June 24, 2017.

    "The USITC will examine industry characteristics, recent trade trends and developments, competitive strengths and weakness, factors driving unwrought-production capacity increases, and government policies that affect aluminum production and exports in these countries."

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    Copper Demand: Better than the market thinks?

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    Copper miners' game of chicken continues

    The latest edition of the closely followed GFMS Annual Copper Survey forecasts primary production to continue to grow over next three years, albeit at a slower pace than in the recent past, as miners deliver on investments made during the boom years.

    World mine production was up 3.5% or 652,000 tonnes in 2015 to just over 19 million tonnes, compared with a 2.1% increase in 2014, but down substantially from 2013's 8.2% clip. Peru led the pack with a 28% rise in production which saw it surpass the US in the global rankings to take third place behind Chile and China.

    Given the well-publicized trend of falling grades and increasinglycontaminated concentrate at the world's biggest mines it's interesting to note that a full 722,000 tonnes of increased production came from higher yields, more than the additional supply from expansions, new mines and restarts combined.

    According the Thomson Reuters GFMS study copper miners had a hard time driving costs down amid the falling price environment. Net cash costs for full year 2015 stood at an estimated $3,586 a tonne ($1.62 per pound), a modest 4% or $160 tonne decline year-on-year. However, total costs (a better proxy for sustaining production levels at mines) for the sector at $4,626 a tonne ($2.10 per pound) were only lower by a paltry 2% from levels in 2014.

    The cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision

    While costs proved difficult to curb revenues declined steeply with the average copper price achieved in 2015 at $5,503 or $2.50 a pound. Average total costs at the world's copper mines are also painfully close to the ruling price which on Tuesday was $2.14 or $4,718 a tonne.

    Despite these pressures, GFMS calculates that only 200,000 tonnes of production were cut back on an annualized basis last year with the bulk coming from Glencore suspensions of production the Katanga mine in the DRC and Mopani operations in Zambia. (GFMS also points out that these mines are due to come back on line next year following expansions and upgrades).

    GFMS says one explanation for the muted impact of paper thin margins is that it was only in the third quarter of last year that the average copper price dipped below the 90th percentile.

    The study points to further closures in coming years but the authors warn that "the scale of any new mine closures should not be overstated":

    First, disinflationary pressures from a weak crude price, weak inflation expectations and a strong dollar could potentially shift the cost curve lower in the next three years. Furthermore, the cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision of shutting a mine.

    Source: Thomson Reuters GFMS

    Primary supply growth will filter through to higher refined output, which was estimated to grow by an average of 2.1% in the next three years. With an estimated 400 000 t/y of copper smelting capacity ramped up towards the end of last year, GFMS expected a further addition of smelting capacity to enter the markets this year.

    The copper world remains all about China, with the country's forecast global share to increase to 46% in 2018, a touch higher than 45.5% in 2015 according to the authors. China’s copper consumption growth however, was expected to slow down to an average of 3.2% per year.

    "Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely"

    Moderating demand growth and the robust supply picture will see surpluses through the end of the decade according to the study. Following last year's 363,000 tonnes surplus – the largest in several years – for 2016, GFMS expects the copper market to experiences a surplus of at least 150 000 tonnes, with the same again expected for 2017, as improving demand growth offset rising mine and refined production.

    Given the unbalanced picture GFMS predicts the copper price would suffer its fifth year of declines in 2016.  The authors forecast prices to improve from 2017 onwards as the global economy picks up some momentum, to gain by 5% year-on-year to reach $5,100 a tonne ($2.31 per pound). Coupled with shrinking surpluses, GFMS expects prices to see a much stronger upswing of 12.5% in 2018 to reach $5,738 a tonne ($2.44).  In real terms (2015 prices) however, GFMS expects the price to remain below $5,000 a tonne in 2016, and will only see a positive turn by 2018 according to the study.

    “Bearing in mind demand growth consistently below 3% compared with circa 4% as recently as 2014, the transition to a sustained deficit market will now extend beyond our three-year forecast horizon to around the turn of the decade. “Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely.

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    In mining slump, used equipment dealers stockpile in rebound bet

    Dealers of used mining equipment, from the United States to Chile and Australia, are making a risky bet that an end to the industry's four-year slump may be in sight, stocking up on a glut of crushers and conveyors.

    Inventory is piling up as mines close or production slows. Buyers are especially scarce for highly specialized mineral-processing equipment, dealers say.

    "We're being flooded with machinery," said Eduardo Bennett, business manager for Chilean used equipment seller Copal.

    The equipment glut is depressing prices as much as 20 percent, Bennett said.

    A used 20-ton Komatsu Ltd bulldozer that sold for nearly $130,000 a few years back, now leaves the lot for $100,000, for example.

    Executives from across the global copper industry are meeting in Chilean capital Santiago this week for the annual Cesco/CRU conference, where concerns about China's slowing growth and subdued global metal demand are prevalent.

    But some veterans of the used equipment industry, who have survived decades of commodity booms and busts, note that such deep pessimism tends to mark the bottom of the cycle. They expect the closing of high-cost mines and cuts to exploration budgets to tighten supply and reverse falling metals prices.

    Used mining machinery dealers tend to be small and privately held, and some also deal equipment for construction and agriculture. Much of the equipment goes straight to auction, where it is sold to the highest bidder by companies including Ritchie Bros Auctioneers Inc and Iron Planet.

    At half a dozen abandoned mines and several warehouses, California-based Machinery & Equipment Company Inc, established in 1938, owns more mining equipment than at any time in the last seven years.

    While the company's results are private, the last such boom generated record sales for the company in 2007-09, said president Mike Ebert, who predicted another rebound may only be a year away.

    "I wish we had unlimited capital to invest in this equipment - everything we did have in stock (those years) was sold at full price," Ebert said. "It is starting to feel better out there with an increase in inquiries."

    Evans Equipment, a Missouri-based reseller of Caterpillar Inc equipment, is carrying twice its normal inventory.

    Co-owner Bryce Evans, who is banking on a mining rebound in 2018, said the fact that many struggling miners have delayed replacing equipment as commodity prices fell will also help.

    "There is pent-up demand worldwide," he said.


    For now though, the glut of used mining machinery, an approximately $23 billion sector according to Ritchie Bros Auctioneers, has made for bargain shopping.

    While cheaply bought used equipment offers potential profit for re-sellers, it limits future sales upside for manufacturers like Joy Global Inc and Caterpillar. They are part of a $70 billion to $75 billion global new mining equipment industry, according to S&P Global Market Intelligence.

    "Their customers don't have nearly as much money as they used to and so I think customers will be fairly cost-conscious for the next several years," said Morningstar analyst Kwame Webb of the new equipment makers, which have already cut staff and curtailed operations.

    Marcello Marchese, chief executive of Finning-CAT's South America unit said Chile's mining industry used to buy 280 to 300 units of large-scale equipment each year.

    "Last year there were 90 total sold," he said.

    The soft used equipment market is also bad for miners hoping to recover some costs from failed projects. Barrick Gold Corp , which suspended its Pascua-Lama gold and silver project in 2013, is trying to unload equipment originally earmarked for the mine.

    Supplies are likely to expand in coming months as some of Australia's biggest projects reach completion, said Frank Lee, general manager of Ross's Auctioneers and Valuers, in Western Australia.

    "Exploration and drilling has pretty much dried up, but the big thing has been the wind-down in expansions," Lee said, citing iron ore projects owned by Rio Tinto , BHP Billiton and Fortescue Metals Group .

    The longer the mining slump drags on, the more likely that equipment available today will fail to meet future specifications on mine sites, Lee warned.

    "Some of this stuff will just be scrapped."

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    Codelco's future copper output to fall as spending is slashed

    Chile's state copper producer Codelco is slashing spending by $6 billion over the next five years in the wake of a steep fall in the price of copper, significantly reducing its targeted output, Chief Executive Nelson Pizarro said on Tuesday.

    The world no.1 copper miner has previously said it would trim some $4 billion of budgeted spending from its key investment plan.

    Added to other cost cuts, that implied around $6 billion spending cuts over the next five years - meaning a loss of 13 percent of planned output over the next 25 years, said Pizarro at the annual Cesco/CRU copper conference in capital Santiago.

    Cooling demand in key buyer China has driven the copper price to over a six-year low in recent months, leading miners globally to reduce production, freeze operations and lay off workers. The cumulative effect of those cuts would likely lead the market to a deficit from 2018, said Pizarro.

    Although the price slide had hit some small mining operations in Chile, the larger outfits could easily survive at the current market level, said Diego Hernandez, chief executive of London-listed copper miner Antofagasta, on the sidelines of the conference.

    "There are no signs that the price will change this year...and we have to adapt ourselves to this reality," he said. Antofagasta had cash positive operations and "most large mining operations in Chile can resist current prices," he said.

    But for Codelco, the copper price fall has come just as it was seeking to implement an ambitious investment plan to open new mine projects and revamp older ones.

    Its spending cuts would mean 70,000 fewer tonnes of refined copper between 2015 and 2019, rising to 600,000 tonnes less in the next five years, Pizarro said.

    Over 25 years, that would add up to 4 million tonnes, about 13 percent of the 44 million tonnes it had planned. Last year Chile overall produced around 5.76 million tonnes of copper.

    Codelco returns its profits to the state and is funded by a combination of government financing and debt issuance. Pizarro said that 2016 was already financed and no more funds were needed, but that there remained a gap for 2017.

    "Next year we have an investment plan of around $3 billion and probably we will need an additional loan injection," he said. When asked if the shortfall would be made up with a debt issue, he replied "yes"

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    Norilsk to link dividends to net debt to earnings ratio

    Russia's Norilsk Nickel will approve a new dividend policy at a board meeting on April 11 linking payments to the ratio of its net debt to core annual earnings, the company said on Monday.

    Norilsk, the world's second-largest nickel producer, has been hit by weakening metal prices although the rouble's fall against the dollar has partially offset this negative impact.

    The decision to review the dividend targets was taken amid "probably the most challenging market conditions in a decade", Pavel Fedorov, Norilsk's first vice-president, said in a statement.

    Norilsk's new dividend policy will mean a payout of 60 percent of earnings before interest, tax, depreciation and amortisation (EBITDA) if the company's net debt to EBITDA ratio is below 1.8.

    The payout will decline on a sliding scale if the ratio is 1.8 or above, falling to 30 percent of EBITDA if the ratio, a measurement which shows how many years it could take a company to pay back its debt, is above 2.2.

    The minimum dividend payment for 2016 results will be $1.3 billion, plus proceeds from the sale of Norilsk's stake in the Nkomati nickel mine in South Africa, the company said.

    The minimum payment for annual results in the five years starting in 2017 will be $1 billion per year. Norilsk's current dividend policy entails a minimum annual payment of $2 billion.

    Norilsk, part-owned by Russian tycoon Vladimir Potanin and aluminium producer Rusal, said its final 2015 dividend would be calculated in line with the existing policy: half of 2015 EBITDA, minus the two interim dividends already paid.

    Norilsk's net debt to EBITDA ratio was 1.0 at the end of 2015.

    Norilsk trails Brazilian miner Vale SA in nickel production and is the world's largest palladium producer. Its dividend payments have been supporting Rusal in recent years amid weak metal prices.

    Norilsk also said its cumulative capital expenditure would come to $4.4 billion in 2016-2018, excluding the Bystrinsky copper project in Russia's Transbaikal region and a sulphur project in its Polar division.

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    Copper firm Aurubis to shun Africa in hunt for acquisitions

    Aurubis, Europe's biggest copper smelter, is looking for potential acquisitions in emerging markets, but prefers those with less political risk, its chief financial officer said on Monday.

    "So that means Africa may not be at the top of our list, we are also a little shy of Chinese opportunities," Aurubis CFO Erwin Faust told Reuters on the sidelines of a copper industry conference in Santiago.

    Faust added that German-based Aurubis was open to opportunities elsewhere in Asia and in the Americas, but said there was nothing on the table at the moment. "There are not too many opportunities."

    Aurubis' last acquisition was in 2011, when it bought the rolled copper operations of the Luvata group.

    Faust also said spot treatment and refining charges (TC/RCs), the cost of processing ore, were rising.

    "We see them in the high $80s (a tonne) now. We expect them to go further because the Peruvian mines coming on stream have good quality concentrate."

    More concentrate on the market may mean miners have to pay higher treatment and refining charges.

    Peru's output of copper surged 43.8 percent in January on a year-on-year basis and is expected to rise further this year as a large project ramps up production.

    Faust said it was difficult to work out what was going on with copper demand in China, which accounts for nearly half of global copper consumption, but that physical demand in Europe was "okay."

    "Opinion (on China) changes very quickly, sometimes week to week, definitely month to month," Faust said. "Demand for wire rod, where we are the dominant player in Europe, has been good."

    Some 70 percent to 75 percent of global copper supply is used by the wire and cable industries.

    Faust also said Aurubis was a net beneficiary of the stronger dollar and weaker euro, but not because of the resulting boost to the company's exports.

    "We have a structural long position in dollar," Faust said. "We have more dollar earnings than costs, that is mainly due to TC/RCs and other things paid in dollars."

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    Copper set for worst run since January on China demand worries

    Copper is sinking. The metal used in wiring and plumbing is headed for the longest losing streak in more than two years amid concern that a global glut will persist as miners press on with cost cuts and banks including Barclays forecast further losses.

    The metal dropped as much 0.9% to $4 791 a metric ton on the London Metal Exchange, the lowest in more than a month, and traded at $4 795 at 2:45pm in Singapore. Prices are lower for a seventh straight day, set for the longest run of declines since February 2014.

    While prices capped a quarterly gain last week for the first time in almost two years after some producers including Glencore reined in supply, the head of Chile’s Codelco has warned there are few signals of improving demand and it doesn’t see a recovery starting until 2018. Barclays reiterated its bearish outlook on Monday, saying prices would drop this quarter. Weaker currencies in producer nations and lower oil prices are helping suppliers trim costs, curbing the need to make output cuts, according to Societe Generale SA.

    “On the ground level, the mines and the producers are not under the pressure to cut supply that one might think they’d be under,” said  Mark Keenan, Societe Generale’s head of commodities research for Asia in Singapore. “Demand growth is going to be subdued relative to what we’ve been historically used to, as a function of the slowdown in China.”

    Yesterday’s Story

    Prices dropped 2.2% last week even as China’s official factory gauge released on Friday showed improving conditions for the first time in eight months. The encouraging data results from China may turn out to be yesterday’s story, not evidence of a turn, Barclays said in a report, noting surging stockpiles in the largest user.

    “Prices have converged with our view that the recent rally was unsustainable, as it was built on transient technical factors and poor fundamentals,” Barclays analyst Dane Davis said. “In the second quarter, we see copper continuing to weaken, as the seasonal uptick in Chinese economic activity is not enough to offset strong inventory levels and a worrisome medium-term outlook.”

    While inventories in LME sheds have dropped this year, they’ve surged in China. Stockpiles in LME-tracked warehouses stood at 143 400 tons last week, the lowest since August 2014 and 39% down this year. Holdings monitored by the Shanghai Futures Exchange soared to a record last month, and Bloomberg Intelligence estimates the amount in bonded warehouses is now the highest in seven months.

    Codelco chief executive officer Nelson Pizarro said last week that the market is susceptible to a pullback. The recent rally is very vulnerable to losing steam as a strong structural reason doesn’t appear to be there, Pizarro said in an interview with Bloomberg News.

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    Supply the differentiator for base metals in first quarter

    Supply the differentiator for base metals in first quarter

     After last year's collective slump base metals showed signs of bottoming out over the first three months of 2016.

    Even the worst performer among the LME's major contracts, lead, ended the quarter down by just 2.3 percent.

    The two best performers were tin and zinc, both up almost 16.0 percent, a double manifestation of the current overriding narrative in the industrial metals world.

    With all the base metals reeling from the shock of slowing demand growth in China, the differentiator of price performance right now is supply.


    The reason tin and zinc were the out-performers in the first quarter is down to faltering supply in both markets, a clear and present danger for tin, a looming threat for zinc.

    The LME tin contract, the smallest and least liquid of the core metals traded on the London market, has been plagued by low stocks and tight spreads for much of the last three months.

    The benchmark cash-to-three-months period CMSN0-3 flexed out to $220 per tonne backwardation in late February.

    That has sucked some metal into the LME warehouse system but at a current 4,810 tonnes, registered inventory is still down 14 percent on the start of the year and cash was still commanding a modest $29 premium as of Thursday's close.

    As ever with tin, this is all about Indonesia, the world's largest exporter of the soldering metal.

    Exports slumped by 45 percent over the first two months of 2016, largely due to yet another tightening of the regulatory screw on the hub of independent producers operating on the Bangka and Belitung islands.

    Exports should recover over the coming period but that low level of LME stock is indicative of a market facing structural supply issues.


    Zinc bulls are pinning their hopes on similar structural supply issues resulting from the closure of some of the world's biggest mines.

    There is tangible evidence the raw materials supply chain is starting to tighten, even if there remains considerable uncertainty as to when that will feed through into metalavailability.

    But with tin too small a playground for the market's bigger players, zinc is the best bullish supply story in town.

    Encapsulating the high hopes for this market was a report issued this week by Leon Westgate, analyst at ICBC Standard Bank.

    "Refined deficits of 550,000 tonnes in 2016 and 660,000 tonnes in 2017, representing nearly 5 percent of refined consumption, will rapidly destock the zinc market and will provide the foundations for zinc to reach record high prices in the next 24 months." 

    The previous record high was $4,580 all the way back in 2006, which still looks a long, long way up from the current price of $1,850.

    Zinc has, however, re-established a premium over sister metal lead, the laggard of the LME base metals pack.

    This is partly seasonal. Lead is moving out of the period of seasonally strong winter demand for replacement automotive batteries.

    But it may also partly reflect the conflicting signals emanating from LME stock movements.

    These have been distorted by a long-running battle for units between warehouse operators. The resulting loss of visibility on the real state of the physical lead market has not been helped by a still-to-be clarified reporting error in LME stocks held at the Dutch port of Vlissingen.


    Copper was the third-best base metals performer of the quarter with gains of around 5.0 percent.

    It was doing better until a week or so ago when the Shanghai Futures Exchange (SHFE) contract started coming under renewed bear attack, a running feature of the copper market for many months.

    Chinese investors may well take a negative view of copper's prospects given the huge build in SHFE stocks this year. Even with a sharp drop over the last week, they have still more than doubled to 368,725 tonnes.

    LME stocks, by contrast, are low and still falling. Open tonnage, meaning that not earmarked for physical load-out, is hovering around two-year lows and front-month spreads are tightening accordingly.

    The cash-to-three-months spread CMCU0-3 ended March valued at $32 per tonne backwardation, the tightest the period's been since August last year.

    Is this market in feast or famine? Rather confusingly, it appears to be showing symptoms of both depending on where you look.


    No such doubts as to either the nickel or aluminium markets. Both are burdened by high stocks and excess production.

    Nickel's supply side has proved curiously inelastic to low prices with most producers hanging on in there in the hope that Chinese nickel pig iron (NPI) producers will close first.

    China's NPI sector is being squeezed by low prices and low availability of the nickel ore it uses as a raw feed and there is mounting evidence that run-rates are now steadily declining.

    The problem is that supply everywhere else is running too strong and stocks are still building, particularly in Shanghai.

    Even if the global market does move into deficit, it will take a long time to translate into tangible tightness.

    Such considerations explain why the LME nickel price is doing no more than tread water at its current bombed-out levels. It ended the quarter flat on where it started at $8,500.

    Aluminium fared better with a 3.0 percentage gain after a run-up over the last half of March.

    That may have been a reaction to a strong rally in Shanghai, itself a possible sign of improving dynamics in China, the source of the global market's problems of excess capacity and over-production.

    Chinese production appeared to drop sharply over December and January which would help explain the strength of the local rally in prices.

    But everyone's wary of Chinese production figures around the end of the year, both calendar and lunar, and those for February remain conspicuous by their absence.

    The LME market itself, meanwhile, has been more about spreads than outright prices. The latest spasm of tightness has passed but the aftermath is still playing out in the form of massive cancellations of LME stocks prior to physical load-out.

    This metal is largely on its way to cheaper off-market storage and as it moves, at the new faster rates stipulated by LME rules, the store of available tonnage in LME warehouses is going to tumble sharply.

    Another bout of spread contraction looks to be just a matter of time.

    If so, it will merely extend the contradiction sitting at the heart of the aluminium market, namely its increasing tendency towards technical tightness even at a time of huge stock overhang.
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    The Largest Copper Gold Deposits in the World.

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    Reserves & Resources (Au Oz.)


    Northern Dynasty Minerals


    Potchefstroom Goldfield

    Sibanye Gold



    Seabridge Gold


    Sukhoi Log

    Government of Russia



    Millhouse Capital



    Novagold Resources, Barrick Gold


    Reko Diq

    Antofagasta, Balochistan Dev. Authority, Barrick Gold



    Sibanye Gold


    ERPM Extension




    Polyus Gold



    Pretium Resources


    La Colosa

    AngloGold Ashanti


    Cerro Casale

    Barrick Gold, Kinross Gold



    Black Economic Empowerment


    Oyu Tolgoi

    Turquoise Hill Resources, Government of Mongolia



    Pan African Resources


    Tujuh Bukit

    Private Interest, PT Indo Multi Niaga



    Newcrest Mining, Harmony Gold Mining


    Las Cristinas

    Crystallex De Venezuela



    Exeter Resource


    Lookout Hill

    Turquoise Hill Resources, Entrée Gold, Sandstorm Gold



    Village Main Reef


    Pascua Lama

    Barrick Gold, Silver Wheaton


    Frieda River

    Guangdong Rising Assets Manage, Highlands Pacific



    Rio Tinto, Private Interest, Government of Papua New Guinea



    International Tower Hill Mines



    Chesapeake Gold


    Far Southeast

    Gold Fields, Lepanto Consolidated Mining



    Newmont Mining, Sumitomo



    Supatcha Resources, Local Interest


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    Steel, Iron Ore and Coal

    China's Maanshan Steel to cut output 20 pct over next three years

    China's Maanshan Iron & Steel plans to cut its steel capacity by about 20 percent over the next three years as it tries to a weather a slowing economy and an industry-wide supply glut, a company executive said on Friday.

    China as a whole is trying to cut steel-making capacity by between 100 million and 150 million tonnes in the next five years as it tries to tackle a chronic glut that has sent prices into a tailspin and saddled steel mills with huge losses and mounting debt.

    Large-scale steel mills made combined losses of 11.4 billion yuan ($1.76 billion) in the first two months of this year and more than 100 billion yuan last year, according to the China Iron and Steel Association.

    Maanshan Steel plans to cut 4.2 million tonnes of capacity over the next three years, from current 22 million tonnes currently, Qian Haifan, the general manager of the company told Reuters on the sidelines of an industry conference.

    The company, the listed unit of the Maanshan Steel Group, one of China's biggest state-owned steel enterprises, also aims to expand its foreign business, and will increase its overseas units from four to seven by 2017.

    "We will stick to our export strategy of selling about 10 to 15 percent of our production abroad," Qian said. "Steel mills have to become more international."

    China's mills have been accused of dumping millions of tonnes of cheap steel on the global market, causing producers elsewhere to close and raising the risk of more anti-dumping actions against the country's firms.

    With protectionism on the rise, China's exports were expected to fall this year, from a record 112 million tonnes in 2015, Qian said.

    Maanshan Steel is aiming to move up the value chain and produce high-end steel products like bearing steel and auto sheets, which China currently imports. Qian said the firm would aim to upgrade its low-end production lines by 2020.

    The company will also modify its production lines to customise its products in accordance with the requirements of its downstream users.

    "Supply side reform doesn't simply mean capacity cuts but also restructuring in both output and quality," he said.

    He said the steel market as a whole was likely to see an improvement on last year, and mills would even make a profit in the peak consumption season from March to May.

    However, global iron ore prices were likely to remain at around $45-50 a tonne this year, with steel mills likely to maintain low levels of stocks, said Qian.

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    China's Steel sector’s overall losses not yet reversed despite favourable signs, CISA

    China’s steel sector began to see favorable signs since late December last year, with prices gradually rebounding, which, however, had not reversed the overall losses haunting the whole industry since July last year, said Liu Zhenjiang, secretary of China Iron and Steel Association (CISA), on a recent meeting.

    The first two months of this year still saw the combined losses of 11.4 billion yuan ($1.76 billion) across the steel industry, in the wake of the worst-performed year of 2015, he added.

    Meanwhile, the steel prices of the first three months were around 500 yuan/t, 400 yuan/t and 300 yuan/t lower than the same month last year, indicating the growing deficit compared with the year prior.

    In 2015, China’s key steel makers were tangled in losses of their core businesses for 12 consecutive months, which were combined at 100 billion yuan and even more. Total deficit in their profits stood at 64.5 billion yuan last year, compared with the profits of 22.59 billion yuan in 2014.

    The rebounding steel prices recently was mainly because prices have hit the bottom with almost no space for downturn, and the state’s supply-side structural reform brought some positive influences.

    The steel mills’ prudence toward expanding production amid unclear prospect also helped to avoid the reoccurrence of oversupply and price drop.

    Yet, the not-so-bright future of the steel market still calls for the further stabilization of prices and control of production within an appropriate range, for a more steady and healthy development of the industry, Liu said.
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    Adani being investigated for alleged involvement in US$4.4bn coal-pricing scandal

    The mining and resources giant Adani is being investigated for alleged involvement in a US$4.4bn pricing scandal around coal sales by Indian power companies.

    Adani Enterprises is one of six Adani Group companies named for the first time in connection with an industry-wide scandal in which Indian energy companies are accused of profiteering on coal imported from Indonesia. The company denies being involved over-valuing the coal.

    It comes days after Adani Enterprises’ Australian subsidiary, Adani Mining, was granted mining leases by the Queensland government for the country’s largest proposed coal project in the Galilee basin.

    The Adani Group companies are among dozens of companies targeted in an 18-month investigation by the Indian Directorate of Revenue Intelligence (DRI), the Economic and Political Weekly revealed.

    DRI last week issued a “general alert” to customs offices claiming that power companies were exploiting “higher tariff compensation based on [the] artificially inflated cost of the imported coal” from Indonesia, it reported.

    Profits from the alleged scam by companies supplying state-owned power utilities were being “siphoned” overseas, the DRI alert said.

    An Adani Group spokesman told Guardian Australia it was “aware of the investigations being conducted by the DRI, and has fully co-operated, and shall continue to co-operate with the investigating agencies”.

    “Adani Group denies the allegations of over valuation and there is no show cause notice received till date,” he said.

    The DRI, an agency attached to the Indian finance ministry, made its first arrest as part of the investigation in February, in a case unrelated to the Adani Group.

    In court documents following the arrest, the DRI alleged a number of Indian power plants were inflating the prices of their Indonesian coal imports, passing on the costs to customers and hiding the profits overseas, the Economic and Political Weekly reported.

    The power companies typically used front companies in Singapore, Hong Kong and Dubai to inflate the prices of coal in official billing documents, the DRI alleged.

    Indian energy minister Piyush Goyal told Economic and Political Weekly that the DRI was “investigating cases related to misdeclaration of value (over invoicing) of coal imported from Indonesia and supplied to power plants of NTPC [the former National Thermal Power Corporation, India’s biggest power producer]”.

    The publication named Adani Group companies Adani Enterprises, Adani Power, Adani Power Rajasthan, Adani Power Maharashtra, Adani Wilmar and Vyom Trade Link as targets of the investigation.

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    Australia lifts 2016 iron ore price forecast by 11 pct

    Australia lifted its 2016 price forecast for the country's biggest export earner iron ore by 11 percent on Friday, though kept it well under current market prices.

    The department now sees iron ore averaging $45 a tonne this year versus a December forecast of $40.40.

    "While global iron ore demand is projected to remain relatively flat, continued displacement of domestically produced iron ore in China with seaborne iron ore is expected to result in a modest increase in international trade," Australia's Department of Industry, Innovation and Science said in its latest quarterly commodities paper.

    Iron ore .IO62-CNI=SI stood at $53.80 a tonne, according to the latest quote from The Steel Index, following a 24 percent gain between January and March.

    "While prices briefly rebounded to $61 a tonne in early 2016, increasing global supply coupled with lower demand from China's steel sector is forecast to result in prices softening by end of the year to average $45 a tonne in 2016," the department said.

    It revised lower its price forecasts for metallurgical coal to $82.80 from $83.80 a tonne, while maintaining its thermal coal forecast at $59 a tonne. Coal is Australia's second-most valuable export-earning commodity after iron ore.

    The outlook for growth in Australia's thermal coal exports is moderate because of lower or slowing import demand in major importing countries such as China, Japan and India, and slowing domestic production, according to the department.
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    Glencore says SA coal strike violence worsens

    Glencore has laid arson charges against a South African mining union as a three-week coal strike turns increasingly violent, the mining company said on Thursday.

    Workers from the Association of Mineworkers and Construction Union (Amcu) torched two trucks and offices at the Wonderfontein Mine on Wednesday night, taking the petrol bomb incidents to around ten since the strike started, Glencore said.

    Around 60 striking workers accused of intimidating other employees and damaging nearby farms have been arrested.

    Amcu and the police were not available to comment.

    Wonderfontein is a joint venture between Glencore and Shanduka Group, which was founded by Deputy President Cyril Ramaphosa. The mine produces 3.6 million tonnes annually.

    Glencore said it was engaging with Amcu leadership over a wage dispute.

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    Shanxi suspends consolidated mines under top five producers

    North China’s coal-rich Shanxi planned to suspend and rectify consolidated mines under the province’s top five miners – Shanxi Coking Coal, Datong Coal Mine Group, Lu’an Group, Yangquan Coal Industry and Jincheng Group – for at least one month, according to a document released by the local government on March 30.

    Shanxi has around 200 consolidated mines under the top five producers, including 132 operating mines with combined capacity at 130 Mtpa, and 68 mines in construction.

    These mines shall resume work only after passing strict safety checks, according to the document.

    The move may reduce Shanxi’s coal supply by 12 million tonnes in April, accounting for 4% of the total monthly output in China, analysts said.

    It’s worth mentioning that Datong Coal Mine Group, one major coal producer in northern China’s Shanxi province, has halted production at all of its consolidated coal mines in the wake of a mine accident at its subsidiary Anping Coal Industry Co., Ltd on March 23. In fact, many non-consolidated mines in the province were asked to suspend operation for a week after the mine accident.

    The province also vowed to strictly implement 276 working days in mines in 2016, according to the document.

    The province also exposed 16 illegal operating mines which haven’t carry out formalities for approval, and asked them to stop operation and construction immediately.

    These mines have a combined capacity of 79.4 Mtpa, including capacity of coking coal, anthracite, and thermal coal at 32 Mtpa, 29 Mtpa and 18.4 Mtpa, respectively.

    Analysts said the move may reduce supply and support prices to some extent, but persisting weak demand will continue to weigh on the long-run market.

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    Australia's Arrium in administration, highlighting pressure on small miners

    Australian iron ore and steel group Arrium Ltd has been placed in administration, underscoring the uphill battle facing smaller companies with high debt competing against larger and more efficient sector giants.

    Arrium's decision on Thursday to enter voluntary administration and raise the possibility of a break up or bankruptcy shows how creditors are souring on indebted resources companies in the current tough climate.

    Data compiled by Reuters shows at least 10 Australian companies in the materials sector hold debt three times their earnings before interest and tax and amortisation in 2015.

    "These are GFC (global financial crisis) levels and not a good sign," said Shaw & Partners analyst Peter O'Connor.

    Debt to EBITDA is used to determine the ability of a company to service its debt.

    Already facing the prospect of years of low iron ore and steel prices, Arrium endured a backlash from creditors who rejected a $927 million recapitalisation plan signed with Blackstone private equity group's GSO Capital Partners in February. The plan would have left lenders of A$2.8 billion ($2.14 billion) in unsecured debt with repayments of only 55 Australian cents on the dollar.

    Arrium is not the only company struggling with dissatisfied lenders.

    Atlas Iron could face insolvency if a debt-for-equity deal is not approved by lenders and shareholders in coming weeks. Even then, the iron ore miner could still find itself unable to keep up its loan payments.

    The deal would transfer 70 percent of equity to lenders in exchange for reducing loan debt by 48 percent to $135 million.

    If the deal fails, there is a risk that Atlas will breach its debt covenant test by June 30.

    According to an independent expert's report prepared for lenders by PPB Advisory and released by Atlas, it is doubtful that Atlas will meet its end-December 2016 covenant, triggering demands for immediate repayment of secured debt.

    "It is unlikely that the group would have sufficient liquidity or be able to raise sufficient capital/external finance to repay the secured debt in such a short time," raising the spectre of insolvency, according to the PPB report.

    Arrium and Atlas illustrate the struggles of smaller-sized Australian resources companies that used debt to buy second-tier iron ore mines to feed Chinese industrial expansion.

    But they found themselves far out-produced by sector giants such as Rio Tinto and BHP Billiton . Most of these smaller firms were left in the red as Chinese industrial growth slowed and iron ore and steel prices contracted.

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    Vale cuts spending, management salaries

    Brazil’s Vale, the world’s largest iron ore and nickel producer, is once again reducing its expected capital spending for the year to $5.5 billion from the previously forecast $6.2 billion.

    The mining giant is also slashing allocated compensations for its management and members of board. According to Noticias de Mineracao(in Portuguese), the firm has set apart this year US$24 million (90 million Reals) for its top executives’ salaries. The figure, adds the report, represents a 9.8% drop from 2015 levels and it follows a US$7.3 million-cut (27 million Real) in bonuses paid to directors.

    Vale has had to repeatedly tighten its capital budget in recent years as commodity prices declined.

    The situation contrasts dramatically with the firm’s situation in 2014, when Vale's senior executives got a nearly 20% pay rise, including bonuses for targets achieved the year before.

    In a presentation Wednesday, Vale reiterated it plans to sell core assets and use that money to reduce debt by $10 billion through 2017.

    The Rio de Janeiro-based company noted that capital expenditures in 2015 came in about $200 million higher than projections.

    The miner said its free cash flow is already near balance for the year and that the oversupply in iron ore markets should ease. Regardless of price conditions, Vale expects cash flow to exceed capital spending, especially since the company has already finished work on major expansion projects, such as its $14 billion S11D mine in Brazil’s Amazon.

    Vale has had to repeatedly tighten its capital budget in recent years as a result of a rout in commodity prices that hit two of its main divisions — iron ore and nickel — the hardest.
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    China's coal offtake from Australia's Gladstone port recovers strongly in March

    Australia's Gladstone port shipped 415,000 mt of coal exports to China last month, spiking 176% from February's 150,000 mt, which was a seven-year low at the time, Gladstone Ports Corporation said in an operating report.

    China's offtake of coal exports at Gladstone port last month was less than half its 983,000 mt in March 2015, GPC data showed.

    Over January-March, China took delivery of 1.13 million mt of Gladstone coal shipments, down 56.5% year on year from 2.6 million mt in January-March 2015, according to the data.

    India's offtake of coal exports at Gladstone port rose 10% month on month in March to 1.3 million mt from 1.18 million mt in February, and its shipment volume was 1.25 million mt in March 2015, the data showed.

    A total of 3.6 million mt of coal exports were shipped to India from Gladstone port in the January-March quarter, up from 2.8 million mt in the corresponding 2015 period.

    Customers in Japan booked 1.99 million mt of Gladstone's total coal shipments of 5.66 million mt in March, making it the leading destination for coal exports, according to the GPC operating report.

    Japan's offtake was up 27.5% month on month from 1.56 million mt in February, said the report.

    Shipments to South Korea from Gladstone's coal terminals were steady in March at 1.3 million mt, from 1.26 million mt in February, bringing its total for the January-March quarter to 4.1 million mt.

    For the year-ago quarter, Gladstone had shipped 2.58 million mt of coal cargoes to South Korea.

    Fifteen mines operated by companies including BHP Billiton-Mitsubishi Alliance, Ensham Resources, Jellinbah Resources, Wesfarmers and Yancoal Australia supply coal exports to Gladstone port and its three coal terminals in Queensland.
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    Brazil wants Samarco to stop leaks before operations resume

    Samarco Mineração SA will not receive Brazilian government authorization to resume iron ore mining operations at the site of a dam burst that killed 19 people until leaks of tailings are stopped, environmental protection officials said on Wednesday.

    Samarco, which is jointly owned by mining companies Vale SA and BHP Billiton Plc, hopes to resume operations at the start of the first quarter to be able to pay for a 20 billion real (US$5.53 billion) damages settlement.

    The restart depends on authorization from the Minas Gerais state environmental agency Semad, which told Reuters that the miner needs to find a solution for the leaks from dikes built after the dam burst. Tailings are mineral waste and water sludge left over from mining operations and stored in ponds.

    Samarco has taken first steps toward reopening the mine, applying for permission to use old mining pits to store tailings. A permit, however, will only be issued once the leaks are stopped, Semad deputy director Geraldo Abreu said.

    Abreu said he expected Samarco to find a solution to the leaks in the six months that it will take to issue a permit.

    Federal environmental protection agency Ibama said the leaking was allowing water with above-permitted turbidity levels to flow down to the Rio Doce river.

    Ibama coordinator for emergencies, Fernanda Pirillo, said half of the 24 million cubic meters of tailings that remained in the dam after it burst have leaked into the provisional dikes, which are leaking the turbid water into the environment.

    Samarco representatives said provisional measures taken by the miner comply with environmental norms and a final solution was being sought.

    Samarco Chief Executive Roberto Carvalho said last month that iron ore pellet production for the initial two to three years would likely be at a reduced 19 million tonnes per year as the company develops a long-term plan to store the mining waste known as tailings. Before the dam disaster, Samarco was producing about 30 million tonnes per year.
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    Physical coal prices drop as northern hemisphere enters spring

    Physical coal prices have fallen since the beginning of April as key consumer regions in the northern hemisphere move out of the peak-demand winter heating season and into spring. 

    Benchmarks serving the Asia/Pacific region, where demand in some emerging markets remains strong, continue to outperform those into Europe, where strong renewable output has been eating into fossil-fuel consumption already falling due to improved energy efficiency and low population and economic growth. 

    Prices for coal cargoes out of South Africa's Richards Bay and Australia's Newcastle terminals , which are the main benchmarks for the Asia-Pacific region, have both fallen around 5%, to $54.10 and $51 per tonne respectively, since the beginning of April as the key winter heating season ends in China, Japan and South Korea. 

    Similarly, coal imports into Europe's main ports of Amsterdam, Rotterdam or Antwerp (ARA) have become almost 7% cheaper since late March, when the first mild spring-time weather started to emerge, last settling at $43.30 a tonne. All three benchmarks started the year around $50 per tonne. The steep discount of up to $10.80 a tonne for ARA coal - which is bigger still when considering that cargoes into Europe include the price of freight while those from South Africa and Australia don't - is largely a result of strong renewable output, traders said. 

    Prices serving Asia were in part supported by strong demand from emerging markets. "Ongoing strong renewable output from wind and solar, although mostly not above the seasonal norm recently, has been added to by rising hydro power availability in northern Europe and the Alps, which can be fed into the continental interlinked power grid, reducing the need for fossil-fueled power generation," said one European utility trader. 

    In Asia, by contrast, there were signs of strengthening demand in some emerging markets. Vietnam imported about 2.8 million tonnes of coal between Jan. 1 and March 15, a surge of 300% from a year earlier, while it bought nearly 7 million tonnes from abroad in the whole of 2015, Vietnam Customs data showed on Wednesday. 

    In South Africa, output could be hit by a wave of mining strikes that have turned violent in parts and resulted in the arrest of over 50 miners at a coal mine owned by Glencore.

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    Coal enterprises told to reduce production days

    The Chinese authorities' latest order to coal enterprises to reduce production can help cut supply in the industry, experts said Tuesday, but they noted that the weak economy and grim industry situation will make it hard for China's coal enterprises to get out of the red in the next several years.

    Four ministries, including the National Energy Administration, have recently released a document ordering all coal mines to cut their production days, the Shanghai Securities News reported on Tuesday.

    All coal mines, except those that produce specific types of coal or have specific safety requirements, can only produce at most 276 days a year, the document said. Previously, mines could produce 330 days a year.

    Also, North China's Shanxi Province ordered all integrated coal mines under the five large provincial coal enterprise groups to stop output and construction to rectify safety risks, the newspaper said.

    "Apart from preventing hidden safety troubles, the main purpose of these policies is to reduce supply in China's coal sector, which is seriously oversupplied," Xing Lei, a veteran industry expert and a professor at the Central University of Finance and Economics, told the Global Times on Tuesday.

    On February 5, the central government said in a document that China will cut 500 million tons of coal production capacity in the next three to five years.

    Amid the tough industry conditions, about 90 percent of coal enterprises in China recorded losses in 2015, China Business News reported in January.

    Xing said the latest move to cut production won't immediately have an effect. "Industry-wide losses won't vanish in the next several years," he said.

    He cited the weak economy and China's economic transition, which have put heavy pressure on the coal industry.

    The current market demand is also sluggish. In most time of the first three months, China's six major power generation groups consumed less coal than in the corresponding period of 2015, Xu Gao, chief economist of China Everbright Securities Co, was quoted as saying in a note sent to the Global Times on Tuesday.

    Faced with these difficult conditions, coal companies have taken different strategies.

    One of the largest coal enterprise in the country, Beijing-based China Coal Energy Co, has cut its production target for 2016.

    Meanwhile, Shandong Province-based Yankuang Group decided to increase production in 2016, reported on Sunday.

    "Small coal enterprises don't have the resources to cope with long-term losses," Xing noted.

    As for the advice that coal enterprises should transform themselves, Xing said, "It's not that easy."

    "There are no promising coal-related industries in today's sluggish economy," he said.

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    China’s top ten coal producers see coal output at 220 mln T over Jan-Feb

    The top ten large coal producers in China saw raw coal output combined at 220 million tonnes over January-February, accounting for 60.4% of the ninety large coal enterprises’ total, which was reported at 370 million tonnes during the same period, dipping 5.3% on year, showed the latest data from the China National Coal Association (CNCA).

    Of this, Shenhua, Datong Coal, Shaanxi Coal & Chemical, Shandong Energy, China Coal produced 65.8 million, 24.86 million, 19.96 million, 19.26 million and 16.85 million tonnes of raw coal.

    Yankuang Group, Shanxi Coking Coal, Jizhong Energy, Kailuan Group and Yangquan Coal followed with coal output standing at 16.53 million, 16.15 million, 15.07 million, 14.97 million and 12.92 million tonnes.

    Data from National Bureau of Statistics (NBS) showed that China produced a total 513.5 million tonnes of raw coal in the first two months, around 43% of which was contributed by the top ten coal miners, signaling an enhanced concentration of domestic coal production.

    While the low degree of concentration of coal industry, according to the relevant standards by American economist Bain, should also be the one factor to blame for China’s severe coal supply glut, as it led to coal producers’ price war and production expansion amid falling prices for maintaining their market shares, yet only to intensify oversupply in turn.

    Therefore, more concentrated layout of some large coal producers is conducive to exerting reasonable influences on market supply and stabilizing coal prices.
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    Outokumpu announces job cuts and bold profit targets

    The new chief executive of Europe's largest stainless steel marker Outokumpu announced job cuts and ambitious profit targets on Tuesday in a bid to turn the loss-making Finnish company around.

    Outokumpu, which is 26 percent state owned, has struggled since the financial crisis and an unsuccessful acquisition of Thyssenkrupp's Inoxum unit in 2012, failing to make annual underlying operating profit since 2008.

    Roeland Baan, a former executive at aluminium firm Aleris who took over in January, said Outokumpu was planning to cut up to 600 jobs worldwide, save 100 million euros ($114 million), and outsource operations that would affect 100 employees.

    Outokumpu also said it was aiming to reach an operating profit of 500 million euros by the end of 2020 at the latest, a far more ambitious target than expected by market analysts.

    "The true profitability potential of the company is far higher than the current financial performance shows. To bridge that gap, we must significantly improve our competitiveness," Baan said in a statement.

    The stock, which set a high 76 euros in 2008, rose 6.8 percent after the announcements to hit 3.6 euros by 1029 GMT.

    A glut of cheap Chinese steel exports combined with global overcapacity have hurt steel makers in Europe, the United States and elsewhere in Asia, leading to tit for tat import tariffs on steel products and job losses.

    According to Thomson Reuters estimates, analysts on average are forecasting annual operating profit of about 270 million euros by 2017.

    "The cost cuts came as no surprise. But the targets are very challenging and clearly above market expectations," said Evli brokerage analyst Antti Kansanen, who has a buy rating on the shares.

    Outokumpu's acquisition of Inoxum was supposed to offer the Finnish company a route to recovery, but the deal was partially reversed after the European Union demanded a significant mill in Italy be excluded.

    Since then, the company has been hit by a string of internal and external problems. Lately, it has suffered as a steep drop in the price of nickel, an ingredient in stainless steel, has led to distributors holding back orders, while production problems have also harmed the business.

    Baan also said he would take on the operational lead of the company's Europe business, on top of his CEO duties.

    "I have a positive impression from him, he has significant experience from the sector and a hands-on approach," analyst Kansanen said.

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    China's Hebei bids 46 mln euros for Serbian steel plant

    China's Hebei Iron & Steel Group bid 46 million euros ($52.2 million) for a loss-making Serbian steel mill and pledged to invest $300 million in expanding production, Serbia's Economy Ministry said on Tuesday.

    Hebei Iron & Steel Group submitted the only valid bid for the state-run Zelezara Smederevo steel plant, which posted a net loss of $113 million last year, and the Serbian government said the bid met all its conditions.

    Hebei will not cut any of the plant's 5,050 staff, the ministry said. It plans to raise production, which was 875,000 tonnes last year, to a maximum of 2.1 million tonnes a year, the Economy Ministry said, without say how long this would take.

    The potential deal could boost Prime Minister Aleksandar Vucic who is seeking re-election on April 24. The deal would be the first major privatisation since he took office in 2014, allowing him to fulfil a central economic reform pledge.

    Europe's steel industry is suffering from over-capacity, which European steelmakers blame partly on a glut of cheap Chinese steel exports. Britain is battling to save its steel industry after India's Tata Steel put its British operations up for sale.

    The contract with the Chinese company will be signed after the state commission against money laundering gives the green light, the Economy Ministry said.

    The Chinese company pledged to invest in expanding the production line into galvanisation and to improve the plant's environmental performance, the ministry said.

    "They (Hebei Iron & Steel) plan to offer employment to all those who are currently working in the plant (5,050 people)," the ministry said.

    Any deal would need the approval of the European Commission, as Serbia is seeking to wrap up membership talks with the EU in 2019.

    The Serbian firm's chief executive Bojan Bojkovic told Reuters that the $300 million promised by Hebei was a "minimum investment over the next two years."

    Hebei province, where Hebei Iron & Steel is based, produces a quarter of China's steel but its mills are struggling with a huge price-sapping capacity surplus.

    The province has repeatedly urged its steel firms to shut capacity at home and replace it with projects overseas.

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    Japan sees April-June crude steel output sinking to 7-yr low

    Japan's crude steel output for April-June will fall 2.4 percent from a year earlier to the lowest for the quarter in seven years, the government said on Tuesday.

    That would come as the latest in a series of signals of economic slowdown, clouding the outlook for Prime Minister Shinzo Abe's drive to reflate the economy and spurring calls for more monetary stimulus.

    The Ministry of Economy, Trade and Industry (METI) estimated crude steel output would sink to 25.24 million tonnes in April-June, the lowest output for the quarter since 2009 when steel demand was hit hard by the global financial crisis. Against the previous quarter, output is seen falling 3.1 percent, it said, citing an industry survey.

    Demand for steel from the construction sector is forecast to slide 3.1 percent from a year earlier, while demand from manufacturing is seen dropping 1.7 percent for the quarter.

    "Construction demand for distribution warehouses is fairly solid, but demand for civil engineering and new shops is sluggish," Takanari Yamashita, director of METI's iron and steel division, told a news conference.

    "Automobile and electronics segments are likely to see a pick up in demand, but industrial machinery is expected to stay under pressure," he said.

    Slack steel demand elsewhere in Asia and anti-dumping steps taken by many countries will drag on exports, while slow demand for energy-related steel products such as drilling pipes in the wake of plunging oil prices will add to pressure, he said.

    Demand for steel products, including those for export, is forecast to sink 3.8 percent to 22.91 million tonnes in April-June compared with a year earlier. Steel product exports are expected to decline 6.3 percent.

    Asked when the ministry sees a recovery in demand, Yamashita said construction appetite would likely pick up from summer given an expected increase in the number of projects related to the Tokyo Olympics in 2020.

    "Although it's not definitive, we expect and hope to see a gradual recovery in demand in and after summer," he said, also citing higher capital expenditure that could bolster industrial machinery demand.

    Crude steel output for the financial year ended March 31 is estimated at 104.44 million tonnes, marking the lowest since the 2009 year, according to the ministry.

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    SA coal exports heading off a cliff?

    A decline in South Africa’s coal exports has continued but the country’s relatively strong position on the cost curve is expected to give coal producers some breathing room.

    Thermal coal exports fell 19.7% year-on-year to 4.82 million tonnes (Mt) in February, following a 7.2% decrease in annual exports in January.

    “Comparatively strong Richards Bay Free-On-Board spot prices have been hindering buying interest for South African thermal coal this year, with low dry bulk freight rates also allowing for competition from lower priced material from other origins into large market India, as well as Europe and Turkey,” said Platts in a note.

    According to the data provider, South Africa’s coal exports to India fell 12% month-on-month in February to 2.66Mt – the lowest monthly volume since September 2015. The Indian government’s attempts to stimulate its domestic output may further impact exports to the world’s second largest coal buyer.

    Although analysts say India is unlikely to meet its target to cease thermal coal imports by 2017, barring imports at some coastal power stations, the Modi Administration’s attempts to double Coal India’s production to 1 billion tonnes by 2020 are progressing relatively well.

    The state-owned company, which produces 80% of the country’s domestic thermal coal, increased output by 8.5% to a record 536Mt during the financial year ended March 31  2016.  According to a recent Bloomberg New Energy Finance report, Coal India achieved production growth of 2.7% year-on-year between its 2010 and 2015 financial years. “We believe that these higher growth rates are the ‘new norm’ as some of the production issues which have plagued their output historically are being overcome,” it said in reference to issues around permits, land acquisition and railway capacity.

    Dave Collins, an associate director at MAC Consulting, warned miners at a local conference against relying on the Indian market. “Whoever is thinking that India is going to save them, needs to investigate that very carefully,” he said citing the data from Bloomberg New Energy Finance, which deduces that Indian coal imports would only increase at a compound annual growth rate of 0.9% from 2020 to 2030 “in an excessively pessimistic” domestic production scenario.

    At the same time, China’s plans to cut domestic coal output don’t necessarily bode well for South African coal exports. In an effort to reduce industrial overcapacity, the world’s largest coal consumer aims to eliminate 60Mt of domestic coal output in 2016 and a total of 500Mt in three to five years. The country’s National Energy Administration has also ordered 13 provincial governments to suspend approvals for new coal-fired power plants until the end of 2017. A Greenpeace report on the global coal plant pipeline shows that the “aggressive” construction of new coal-fired power stations saw the country’s plant utilisation rate fall to 49.4% – the lowest level since 1969.

    China’s coal consumption fell by 3.7% while imports fell 30% to 204.1 million tonnes in 2015, partly due to the effects of the country’s economic rebalancing. “We haven’t seen coal shipments from Richards Bay to China since the middle of 2014. Several shipments have been diverted to India and China has been taking more coal from Australia and Indonesia,” Peter Sand, chief shipping analyst at BIMCO told Mineweb recently.

    Shoaib Vayej, a portfolio manager at Afena Capital, expects South African coal exports to hold up amid the challenging conditions. “South African producers are well positioned on the cost curve and the weakness in the rand is solidifying this position. From a volume perspective, I don’t see much of a change but prices will be affected and this will affect earnings,” he said.

    While coal prices haven’t topped $50/tonne, he said prices have remained resilient and has dismissed the futures market suggestion that prices should be closer to $40/tonne. “About 40% of the market is underwater. If we take away China and say India doesn’t grow, that’s still not enough to justify such prices. Unless half the market goes away $40/tonne isn’t warranted,” he said. According to Vayej, South African producers are still likely to break even at prices of $40/tonne, “Given the serious pain around the world right now, breaking even wouldn’t be too bad”.

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    Arrium lenders shoot down $927m bailout

    The federal government has come out in support of struggling steel and iron-ore company Arrium after lenders rejected a recapitalisation plan for the company. 

    Arrium in February secured $927-million in funding from GSO Capital Partners as part of attempts to restructure and level its debt in a low iron-ore price environment. The funding was to comprise a six-year senior secured term loan of about $665-million and a fully underwritten renounceable prorata rights issue to Arrium shareholders aimed at raising about $262-million. 

    As part of the recapitalisation, Arrium would have also sought to obtain secured working capital facilities of about A$500-million. Reducing  its debt of about $2-billion would allow Arrium to retain its mining consumables business, while allowing for the restructure of the steel and mining business units to make them more sustainable. 

    Local newspapers report that the lenders have been angered by a lack of consultation from Arrium ahead of the announcement of the GSO offer in February. The proposed package would have given lenders about 55c in the dollar owed. With the lenders voting against the recapitalisation plan, Arrium has gone into a trading halt while it considers its options. 

    In the meantime, Industry, Innovation and Science Minister Christopher Pyne said on Tuesday that the government would continue its work on policy levers to give Arrium “every opportunity to transition in this difficult global market”. Pyne pointed out that the government had already reformed anti-dumping laws to address the issue of foreign competition, while bringing forward the purchase of 72 000 t of steel for the Adelaide-Tarcoola rail line. 

    Further, the government has also repealed the carbon tax and provided a 100% exemption for emissions intensive, trade exposed industries from the Renewable Energy Target, and has secured an agreement from the state Ministers on the Council of Australian Governments Industry and Skills council to examine the opportunities and challenges of government procurement policies. 

    This is an uncertain time for steelworkers in Whyalla and the Australian government stands ready to assist,” Pyne said. South Australian Treasurer Tom Koutsantonis said the state’s Steel Task Force has been speaking to all of the parties involved in the negotiations about Arrium’s future to ensure that Whyalla continues to operate as a steel producer. 

    “The workforce at Arrium and their well-being is our number-one priority,” Koutsantonis said. “Both the state and federal governments are working diligently to resolve the current situation so that the steel works at Whyalla and the associated mines can continue to operate.” Koutsantonis noted that the company employed about 7 000 people across Australia and 22 000 around the world, and was a vital national asset.

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    Iron ore shipments to China rise 12 pct in March -Pilbara Ports

    Iron ore shipments to China from Australia's Port Hedland, used by miners such as BHP Billiton , rose nearly 12 percent in March, data showed on Tuesday.

    Exports to China from the port - the world's largest of its kind - reached 32.59 million tonnes in March, up from the 29.14 million tonnes in February, Pilbara Port authority figures showed.

    Stronger Australian iron ore exports helped underpin an upturn in prices for the steelmaking raw material. Iron ore .IO62-CNI=SI ended January-March with a 24-percent gain after pushing above $50 a tonne.

    It is still the top performing commodity this year despite falling 16 percent from last month's peak, but the wild swings have kept miners wary about the longevity of the price recovery.

    BHP has set a production target of 237 million tonnes and Fortescue Metals Group 165 million tonnes in fiscal 2016, ending June 30.
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    China March steel sector PMI rises to 23-mth high

    The Purchasing Managers Index (PMI) for China’s steel industry rebounded to 49.7 in March from 49 from February, posting a 23-month high since May 2014, the fourth consecutive monthly increase, showed data from the China Federation of Logistics and Purchasing (CFLP) on April 1.

    While indicating an apparent upturn in China’s steel industry, it was still the 23rd straight month below the 50 threshold, signaling the whole industry was still trapped in the woes.

    China’s domestic steel prices climbed in March, driven by low stocks at traders and end users before the Chinese Lunar New Year holidays, and intensive restocking activities and slow production recovery after the holidays.

    The output sub-index increased to 49.8 in March from 49.5 in February, the highest in recent 19 months, yet still below the 50 mark for 19 straight months.

    The new order sub-index also experienced a four-month rise, hitting 53.3 in March from February’s 509, the highest level since May 2014, indicating continuous rebound of steel demand at domestic market.

    While the new export order index decreased 9.3 on month to 36.9, the lowest in recent 14 months, mainly attributed to the narrowing price gap between domestic and overseas products amid weak demand and intensified international anti-dumping activities.

    This means that, as the release of production capacity accelerates at steel mills, increased domestic supply and low exports may curb the upward strength of steel prices.

    The sub-index for steel products stocks stood at 37.7 in March, down from 44.8 last month. It remained below the 50-point threshold for eight straight months, a result of the nationwide destocking in the steel sector.

    Daily crude steel output of key steel mills averaged 1.66 million tonnes in mid-March, up 4.71% from ten days ago, the highest since 2016, according to China Iron and Steel Association (CISA).

    The rising crude steel output, mainly due to the expanded production recovery spurred by the rebound of steel prices, may exert pressure on further price increase, analysts said.

    Steel products stocks in key steel mills stood at 13.76 million tonnes on March 20, a decline of 5.94% from ten days ago and 20.72% lower than the same period last year, showed the CISA data.

    Domestic steel prices are expected to gain further upward strength in April, given the rising demand and low inventories lately observed at domestic market. Yet, the room of growth may be limited due to the potential increase of operation rate at steel mills, constrained exports and stricter macro-control of housing sector at China’s big cities.

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    China’s 2016 coal output targeted at 3.65 bln T, NEA

    China was expected to produce 3.65 billion tonnes of coal in 2016, down 0.82% from 3.68 billion produced last year, said the National Energy Administration (NEA) in a guideline.
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    Coal India FY 2015-16 coal production up 8.5pct

    India's state-run coal producer Coal India Limited (CIL) produced 536.51 million tonnes of coal in fiscal year 2015-2016 ended March 31, up 8.5% on year, the company said in a regulatory filing late April 1.

    Coal ministry officials attributed this to the clearing of 4,179 hectares of forested land.

    CIL missed its production target for the fiscal year by 13.49 million tonnes, the company said in the filing to the Bombay Stock Exchange.

    Sales for the year stood at 532.26 million tonnes, up nearly 9% year on year but below targeted 550 million tonnes, it said.

    CIL accounts for around 80% of India's domestic coal production, and has an ambitious target to double its output to 1 billion tonnes by 2020.

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    Brazil's Vale says it will sell CSA steel plant stake to ThyssenKrupp

    Brazilian miner Vale SA said on Monday it will sell its entire 26.87 percent stake in the struggling CSA steel plant to Germany's ThyssenKrupp for a token value, in a bid to focus on core mining businesses with commodity prices at historic lows.

    Vale's announcement confirmed a Reuters report on Friday which said the world's largest iron ore producer was planning to exit the steel venture.

    By selling the plant for a purely symbolic amount, Vale will be free of the heavy debts linked to the mill. It will also be entitled to a slice of earnings from any future sale by ThyssenKrupp over a certain period of time, though Vale did not say how long.

    The CSA plant cost $10 billion to build and was Brazil's most expensive ever foreign investment project. It reported 2.6 billion euros in total liabilities at the end of the 2015 fiscal year.

    Once considered a showpiece for Brazil's steel industry, the mill saw production costs soar amid high inflation, currency volatility and a deep recession.

    The plant, which has total production capacity of 5 million tonnes a year, exports slabs that are further processed at ThyssenKrupp's sister plant in Alabama.

    The exit from CSA comes as Vale wrestles with the impact of slumping iron ore prices. Chief Executive Officer Murilo Ferreira said in February the firm is looking to sell about $10 billion of assets as it battles to reduce debt.

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    Iron ore miner Fortescue drops Downer EDI in costs drive

    Australia's Fortescue Metals Group on Monday continued its drive to reduce overhead amid a wary outlook for iron ore, saying it won't renew a contract with Downer EDI Ltd.

    Mining services companies in Australia such as Downer have been hard hit by a sharp drop in the prices of iron ore, which sells for roughly a quarter of its near-$200 a tonne peak of 2011, leading more producers to self-operate.

    Miners typically seek to cut costs by removing fees incurred by outsourcing. Companies also believe they are more in control by managing their own mines.

    Fortescue said it would take over operations at its Christmas Creek mine in Western Australia once its outsourcing contract with Downer expires in September.

    "Adoption of an owner-operator model will further reduce Fortescue's costs through ongoing improvement of the efficiency and productivity of our Christmas Creek mining operations," Fortescue Chief Executive Officer Nev Power said in a statement.

    The market capitalisation of Australian mining services companies in a Deloitte index of stocks fell by $5.56 billion in the second half of 2015 versus the first half.

    Australia is home to the world's single-biggest biggest iron ore deposits. Fortescue, along Rio Tinto and BHP Billiton , controls more than half the 1 billion-tonne-per-year global seaborne trade in the steel-making ingredient.

    The Christmas Creek mine is located in the Chichester ranges in the Pilbara iron belt and, along with another mine called Cloudbreak, can produce up to 90 million tonnes of ore a year. Fortescue is forecasting overall production this year of 165 million tonnes.

    Fortescue, controlled by founder Andrew "Twiggy" Forrest, announced in February its had cut its production costs by 47 percent from the prior year and forecast it would drop to $13 a tonne by the end of 2016.

    "The industry has been extremely clever about reducing costs and increasing competitiveness in a really tough market," said Simon Bennison, chief executive of the Association of Mining and Exploration Companies in Australia.

    Downer confirmed that it was handing over operations at Christmas Creek, but said it did not expect the change to affect its 2016 financial results.

    BHP initiated a move away from contract mining in 2011 by acquiring HWE Mining, which was operating some of its Pilbara iron ore mines.

    Rio Tinto, which runs it own mines, has said it reduced working capital by 83 percent in 2015 and saw a 20 percent productivity improvement.
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    Anglo American continues coal divestment's

    Diversified major Anglo American on Monday announced plans to divest of its 70% interest in the Foxleigh metallurgical coal mine, in Queensland. 

    The company has entered into a sale and purchase agreement with a consortium led by Taurus Fund Management. The transaction would be effected through a share sale in Anglo American subsidiaries, which hold the Foxleigh mine. 

    While the terms of the transaction remained confidential, Anglo American noted that the transaction was subject to a number of conditions precedent. Anglo American in 2007 spent $620-million to acquire a 70% interest in the Foxleigh opencut mine, which delivered 1.86-million tonnes of saleble production to Anglo American’s bottom line in 2015. 

    Korean steel company POSCO and the Japanese trading and mining investment company Itochu hold the remaining 20% and 10% interests respectively. The divestment of the Foxleigh mine comes after Anglo American earlier announced a re-focus on its core diamond, platinum group metal and copper assets, with the miner pointing out that it would dispose of its Moranbah and Grosvenor metallurgical coal projects. 

    Anglo American in January this year entered into a sales agreement for its Callide thermal coal mine, also in Queensland, selling the asset to Batchfire Resources. It also sold its Dartbrook coal mine, in New South Wales, to Australian Pacific Coal, in December of last year, in a deal valued at A$50-million.
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    Australia's green groups keep heat on Adani after mine approval

    Environmental campaigners say they hope two outstanding court cases can still stop India's Adani Enterprises Ltd from developing a A$10 billion ($7.6 billion) coal project, even after it received a key state government approval.

    The granting of a mining lease by the state government marked another step in Adani's long-running bid for approval to mine and ship an estimated 11 million tonnes of coal reserves, building roads, power lines and pipelines to do so.

    But activists - some 200 of which protested outside the Queensland parliament on Monday - say the ongoing federal court challenges could still throw Adani's plans into doubt.

    Benedict Coyne, a lawyer for the Wangan and Jagalingou people, who have rejected a land use agreement with Adani, said he was surprised a decision had come while the cases were still in process.

    "If it is found that the decision was not made lawfully, then any (further) decisions are called into question," he said.

    Adani said in a statement on Sunday that it had a "clear and positive" commitment from the government and welcomed the approval as an important milestone.

    The group said it expected appeals to be resolved in 2016, allowing construction to begin in 2017.

    Adani, which has battled opposition from green groups since work on the project began five years ago, will now need to resolve its financing, with banks under increased pressure not to provide loans for coal in particular.

    Several international banks have said they will not provide financing for coal mining in the Galilee Basin, while Standard Chartered and Commonwealth Bank of Australia pulled out of the project in August.

    Adani has said tough market conditions should not put pressure on the project because most of its coal is already earmarked for Adani-owned power plants in India, rather than for sale on the open market.
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    Shanxi power installed capacity to reach 100 GW by 2020

    Northern China’s coal-rich shanxi province plans to boost its installed capacity of power generation to 100 GW or so by 2020, the ending year of "13th Five-Year Plan" period (2016-2020), state media Xinhua News Agency reported.

    The move was part of the province’s efforts to advance the supply-side structural reform in its coal industry, which has been hit hard by a plummet in prices of the fossil fuel, to absorb its surplus coal production capacity and help miners get out of the red.

    Shanxi had total coal capacity of 1.46 billion tonnes per annum by November last year, with excess capacity reaching 400-500 million tonnes per annum.

    The coal industry across the province has been in overall deficits presently, and coal producers are burdened with great pressure amid high debt ratios.

    Pinglu district in Shanxi’s Shuozhou city, ranking top three of counties across the nation in terms of its raw coal output saw its coal output drop 20% on year to 92 million tonnes last year, with losses averaging 40 yuan/t.

    "Fifty out of the total fifty-one operating coal companies in the district were in deficit, with combined losses amounting to 4.8 billion yuan ($744.4 million)," said Wang Haifu, assistant of the district’s head.

    Major thermal power producers in Shanxi, on the contrary, turned losses into profitability, a robust support for the province to further implement the coal-electricity integration.

    By end-February this year, the province’s installed capacity of power generation reached 70.2 GW, ranking 8th in China.

    Shanxi has started construction on nine UHV power transmission projects. By 2017, the province will see four UHV lines connecting the Central China Grid, Beijing-Tianjin-Tangshan Grid, Shandong Grid and Eastern China Grid, with outbound transmission capacity reaching 45.8 GW.

    Additionally, Shanxi will accelerate direct power sales to end users inside the province and pilot trans-provincial and trans-regional direct power sales, allowing the market to determine the electricity sales price.

    More market participants will be seen entering the power generation and sales arena, which will increase competition, and perfect the market-determined electricity pricing mechanism.

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