Mark Latham Commodity Equity Intelligence Service

Wednesday 10th May 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China's commodity imports return to more normal levels


    The pullback in China's imports in April of crude oil and major bulk commodities, except coal, is more of a reminder that strong gains can't last forever than a warning that demand is waning in the world's biggest importer of natural resources.

    On the surface, the sharp falls in April imports of crude oil, iron ore and copper certainly appear to be a bearish signal, a warning that commodity-intensive sectors, such as construction and manufacturing, may be losing some momentum.

    However, there are some short-term factors that help explain the declines, and it's far too early to call an end to the trend of robust demand for commodities in the world's second-largest economy.

    Take crude oil first, where April imports dropped to 8.37 million barrels per day (bpd), down nearly 9 percent from a record 9.17 million bpd in March.

    But put that number into context and a different picture emerges.

    In the first four months of 2017, crude oil imports are up 12.5 percent from the same period last year to around 8.46 million bpd.

    This is also substantially higher than the 7.6 million bpd imports averaged for 2016, showing that China's appetite for crude has jumped substantially so far this year, notwithstanding the pullback in April.

    It's also worth noting the impact of domestic policy considerations in China, with many of the smaller, private refiners believed to have nearly exhausted their first-half crude import quotas.

    This will likely lead to a moderation in imports in the second quarter before a likely recovery in the second half.

    Lower quotas for exports of refined products will also likely result in moderating crude imports, and April's numbers show this dynamic at work.

    Exports of refined fuels fell 25.1 percent in April from March, dropping to 3.5 million tonnes, or about 930,000 bpd.

    WEATHER EFFECTS

    Iron ore imports slumped 13.9 percent in April to 82.23 million tonnes, the lowest monthly total since October, again something that sounds bearish but isn't really once viewed in context.

    The last eight months have seen four months with imports above 90 million tonnes, including 95.6 million in March, which was the second-highest on record.

    April's imports were most likely hit by weather-related disruptions in the main exporting region of northwest Australia during March, when many of the cargoes would have been loading.

    Falls in iron ore prices will also serve to boost China's imports, as higher-quality but lower-cost ore from Australia and Brazil will displace domestic supplies.

    COPPER WOES

    If you were looking for a bearish commodity story out of China, then copper is the answer.

    Imports of unwrought copper dropped 30.2 percent to 300,000 tonnes in April from March, and 33.2 percent from the year earlier month.

    Up to now, it had been possible to make the argument that China was replacing imports of refined metal with ores and concentrates, but they too slumped in April.

    Imports of ores and concentrates dropped 16.6 percent from March to 1.36 million tonnes, suggesting a lack of appetite among China's copper smelters for imported ore.

    Whether this is a signal of a broader slowdown in China's copper demand or whether it's merely a reflection of adequate domestic supplies and inventories is still uncertain.

    Nonetheless, copper is often viewed as the canary in the commodity coal mine, and a sustained downturn in China's imports would likely raise the market's level of concern.

    http://www.reuters.com/article/us-column-russell-china-commodities-idUSKBN1851FY

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    Bitcoin demolishes Gold!

    Image titleImage title(Gold is the sad yellow line at the bottom of the chart.)
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    Bitcoin Soars Over $1700 - 2017's Best-Performing Currency


    Bitcoin is now up for 16 of the last 18 days, soaring over 50% in the last month and up almost 90% in 2017 - making its the year's best performing currency.

    There appears to be no specitic catalyst for today's move as the surge in Japanese interest (as we detailed here) and news that Russia is considering, like Japan just did, to allow cryptocurrencies as a legal payment method are outweighing fears over 'hard forks', SEC rejections, and Chinese crackdowns.

    We summarized the ongoing bitcoin frenzy as follows last week: "just as the Chinese bubble frenzy in bitcoin is fading, it may be replaced with a new one, in which thousands of Mrs. Watanabe traders shift their attention away from the FX market and toward digital currencies" and added that "If the transition is seamless, there is no telling just how far this particular bubble can grow."

    Five days later and $250 dollar higher, we are observing first hand how accurate this prediction may have been, although like last week, we have no way of telling how long this particular mania phase will last.

    http://www.zerohedge.com/news/2017-05-09/bitcoin-soars-over-1700-2017s-best-performing-currency
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    Mitsubishi, Mitsui swing back to profitability on surging metal prices


    Mitsubishi Corp and Mitsui & Co, Japan's biggest and second-biggest trading houses by assets, returned to profitability in the financial year ending in March, boosted by rising prices for coal and iron ore.

    Even after years of trying to diversify their operations into non-cyclical businesses, the results from Japan's "big five" trading houses have underlined their continued vulnerability to swings in commodities prices.

    Mitsubishi on Tuesday reported net profit of 440 billion yen ($3.88 billion) in the last financial year, against a loss of almost 150 billion yen a year earlier, while Mitsui posted a 306 billion yen profit, up from an 83 billion yen loss.

    "Higher prices and lower operation costs at our coking coal mines in Australia contributed to a rebound in our earnings," Mitsubishi's Chief Financial Officer (CFO) Kazuyuki Masu told a news conference.

    Also on Tuesday, Sumitomo Corp (8053.T) said profit for the financial year more than doubled to just over 170 billion yen, while Marubeni Corp (8002.T) reported a 150 percent gain in profit to 155 billion yen.

    Itochu Corp (8001.T), the least dependent among the big five trading houses on resources, last week reported record profit, driven by the rise in commodities prices.

    All of them forecast that profits for this financial year would improve, even as prices have come off in recent weeks.

    Like global miners, the Japanese traders are profiting from higher commodity prices after a renewed appetite in China for raw materials.

    In the year before, the five companies clocked up a total of about 1 trillion yen in write-offs due to a slump in valuations, with Mitsubishi and Mitsui announcing their first annual losses since they were founded after World War Two.

    Commodity prices, however, remain volatile.

    The price of coking coal - a steelmaking ingredient - more than tripled between March and late November 2016, then halved through March 2017. Iron ore prices have gained 48 percent in the past year to March, but have dropped recently as Chinese steel demand faltered.

    "Trading houses' earnings are still very correlated to commodities and their share prices have a high correlation with what's happening in China and the larger macro pictures," said Thanh Ha Pham, an equity analyst at Jefferies.

    "Earnings were helped by favourable metals and energy prices but looking at the share performance, there seems to be concerns about the future outlook," he said.

    Commodity prices have risen enough to spur greater investment in exploration, but traders remained cautious.

    "Our plan to freeze natural resource assets growth through the end of March 2019 will remain unchanged," Mitsubishi's Masu said.

    Sumitomo CFO Koichi Takahata said: "We are not yet in a stage to make aggressive investment in resources."

    http://www.reuters.com/article/japan-traders-results-idUSL4N1IB345
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    Oil and Gas

    Shale Drillers Are Outspending the World With $84 Billion Spree


    U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices.

    Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

    That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group.

    “The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.”

    Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash. The pain also swept across the Organization of Petroleum Exporting Countries, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day.

    Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.

    So far, independent American explorers such as EOG Resources Inc. and Pioneer Natural Resources Co. are holding fast to their ambitious growth plans. Some recently finished wells in the Permian region yielded 70 percent returns at first-quarter prices, EOG Chief Executive Officer Bill Thomas told investors and analysts during a conference call on Tuesday.

    EOG, the second-largest U.S. explorer that doesn’t own refineries, plans to boost spending by 44 percent this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33 percent increase to $2.8 billion. The sub-group that includes North American shale drillers like EOG and Pioneer is collectively targeting $53 billion in spending this year, up from $35 billion in 2016, according to the Barclays analysts led by J. David Anderson.

    U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1 percent increase from the April forecast.

    Next year, U.S. fields will pump 9.96 million barrels a day, 0.6 percent more than the department estimated last month.

    To be sure, most of the biggest U.S. and European explorers -- an elite caucus of five companies known as the supermajors -- are pursuing a contrary path and cutting expenditures this year. As deepwater, oil-sands and other high cost, high risk investments soured during the slump, the supermajors were battered and had to regroup. But shale drillers, unburdened by such large-scale projects, have been better able to quickly respond to price changes.

    Holding Tight

    Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc are reducing or holding flat on 2017 spending. Only Exxon Mobil Corp., the largest member of the group, is pushing up its budget, planning to spend $22 billion this year compared to $19.3 billion last year.

    West Texas Intermediate, the U.S. benchmark, lost 14 percent of its value since April 11 amid signals the global crude glut isn’t shrinking at the expected pace. The futures fell 1.3 percent to $45.82 at 1:15 p.m. on the New York Mercantile Exchange. The price hasn’t poked above the $50 mark since April 26.

    Shale drillers can afford to be sanguine despite oil’s recent tumble because they’ve cushioned themselves with hedges, Martin said. Hedges are financial instruments that lock in prices for future output and shield producers from volatile market movements.

    “There is some price malaise creeping in,” Martin said. “But the aristocracy of the U.S. independents have insulated themselves” through hedging.

    https://www.bloomberg.com/news/articles/2017-05-09/shale-drillers-challenging-opec-with-84-billion-spending-spree

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    Top Oil Trader Warns Shaky Demand Risks Thwarting OPEC's Aim


    Demand isn’t expanding as much as expected: Vitol’s Asia head
    Shale production is growing faster than forecast: Vitol’s Kho


    OPEC and its allies are seeking to pump less for longer in a quest for higher prices. The world’s biggest independent oil trader says their efforts could be in vain.

    Demand isn’t expanding as much as expected, and U.S. shale output is growing faster than forecast, according to Vitol Group. That’s increasing the burden on the world’s biggest producers, who need to stick to their pledges to cut supply just to keep prices from falling, said Kho Hui Meng, the head of the company’s Asian arm.

    Oil has given up all its gains since the Organization of Petroleum Exporting Countries and other producers signed a deal late last year to limit supply for six months from January. Prices have been hit by surging output in the U.S., which is not part of the agreement. Any recovery in crude will depend on sustained usage by nations such as China, India and the U.S. as much as OPEC’s efforts to control supply.

    “What we need is real demand growth, faster demand growth,” Kho, the president of Vitol Asia Pte., said in an interview in Kuala Lumpur. “Growth is there, but not fast enough.”

    While consumption was forecast to expand this year by about 1.3 million barrels a day, growth has been limited to about 800,000 barrels a day so far in 2017, he said, adding that U.S. output had grown 400,000-500,000 barrels a day more than expected. “If demand goes back to where it should, where it’s forecast, then it’ll help, but my gut feel tells me it is still a bit long,” he said.

    The International Energy Agency has trimmed its forecasts for global oil demand growth this year by about 100,000 barrels a day to 1.3 million a day as a result of weaker consumption in Organisation for Economic Co-operation and Development member countries and an abrupt slowdown in economic activity in India and Russia, according to a report last month. The Paris-based IEA cut its estimate for India’s 2017 oil-demand growth by 11 percent.

    There’s also concern that consumption may slow in China, the world’s second-biggest oil user. Independent refiners, which account for about a third of the nation’s capacity, have received lower crude import quotas compared with a year earlier, prompting speculation their purchases could slow.

    “The oil market is looking for growth but there’s no growth,” Vitol’s Kho said, adding that the refiners may only get approval for the same volume of imports as last year. And while U.S. gasoline consumption is expected to hit its seasonal summer peak soon, demand growth “is not there yet,” he said.

    The world’s biggest crude exporter is nevertheless bullish. Saudi Arabia expects 2017 global consumption to grow at a rate close to that of 2016, Energy Minister Khalid Al-Falih said on Monday. “We look for China’s oil demand growth to match last year’s, on the back of a robust transport sector, while India’s anticipated annual economic growth of more than seven percent will continue to drive healthy growth,” he said in Kuala Lumpur.

    While some fear a slowdown in Chinese oil demand, Sanford C. Bernstein & Co. doesn’t see any cause for concern. Growth in the nation’s car fleet will support gasoline demand, with increasing truck sales and air travel also helping fuel consumption, it said in a report dated May 9.

    Saudi Arabia and Russia, the world’s largest crude producers, signaled this week they could extend production cuts into 2018, doubling down on an effort to eliminate a surplus. It was the first time they said they would consider prolonging their output reductions for longer than the six-month extension that’s widely expected to be agreed at an OPEC meeting on May 25.

    Global oil inventories probably increased in the first quarter despite OPEC’s near-perfect implementation of production cuts aimed at clearing the surplus, the IEA said last month.

    Shale Boom

    “We’ve always talked about the call on OPEC, how much OPEC oil is needed to satisfy world demand,” said Nawaf Al-Sabah, chief executive officer of Kufpec, a unit of state-run Kuwait Petroleum Corp. “Now, in this new paradigm, it’s really becoming the call on shale. And the market is setting itself at the marginal cost of a shale barrel.”

    U.S. output has jumped for 11 weeks through the end of April to 9.29 million barrels a day, the most since August 2015, Energy Information Administration data show. American benchmark West Texas Intermediate is trading near $46 a barrel in New York, while global marker Brent crude is near $49 a barrel in London. Both are more than 50 percent below their peaks in 2014.

    “I am still watching the U.S. summer gasoline demand,” said Vitol’s Kho. “OPEC has said it will try and extend its output cuts beyond June. So if that happens, and the discipline is good, and if the U.S. lack of growth in demand changes into summer, then we may see oil go back to the low $50s, but the prevailing mood today is not.”

    https://www.bloomberg.com/news/articles/2017-05-09/top-oil-trader-warns-shaky-demand-risks-scuppering-opec-mission

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    Saudi to cut June oil supply to Asia as local demand rises: source


    Saudi Aramco will reduce oil supplies to Asia by about 7 million barrels in June, a source said on Tuesday, as the oil giant cuts output as part of global supply pact and trims exports to meet rising domestic demand for power during hot summer months.

    An OPEC-led agreement to cut global oil supplies is currently due to end in June, although Saudi Arabia and other producers in the group of OPEC and non-OPEC states have indicated curbs could be extended to the end of 2017 or beyond.

    OPEC and other producers are expected to discuss an extension at a meeting on May 25.

    When OPEC announced the cuts, Saudi Arabia was quick to tell its customers in Europe and the United States that they would receive lower volumes but shielded most of Asia from the cuts.

    However, summer is a peak period for power demand in the desert kingdom, as citizens turn up air conditioners to keep homes and offices cool, pushing up domestic oil consumption.

    This year is likely to see an earlier spike in demand as the Muslim fasting month of Ramadan starts sooner, beginning in late May. The traditional big evening meals with family and friends to break the fast tend to create a surge in power demand.

    As a result, Asia will now also face heavier cuts from the world's top oil exporter in June.

    According to the June nomination plans, Aramco will cut supplies by 1 million barrels each to Southeast Asia, China and South Korea, a source, who has knowledge of the nominations but did not wish to be identified, told Reuters.

    A separate industry source said the action in June did not mean Saudi Arabia was preparing to deepen cuts to Asia in the rest of 2017.

    The kingdom will cut supplies by a little more than 3 million barrels for India and slightly less than 1 million barrels for Japan, the source with knowledge of the nominations said. In total, the cuts should be equivalent to about 233,000-234,000 barrels per day (bpd).

    Under the global supply pact, OPEC states, Russia and other major producers agreed to cut output by about 1.8 million bpd from Jan. 1 until June 30.

    Saudi Arabia accounts for about 40 percent of the cuts pledged by OPEC. It has reduced output by more than 500,000 bpd so its total production now runs slightly below 10 million bpd, mostly involving cuts in output of medium and heavy oil grades.

    Industry sources told Reuters in April that higher domestic demand for oil in the summer would weigh on exports especially if Saudi Arabia kept output at about 10 million bpd.

    Saudi Arabia usually burns about 700,000 bpd of oil for power generation to keep the nation cool in the hottest months from May to August.

    This summer, the kingdom is planning to raise energy prices and use more natural gas in power stations to reduce oil usage. Those measures are expected to cut consumption by about 200,000 bpd, industry sources said.

    http://www.reuters.com/article/us-aramco-oil-idUSKBN1851ZK
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    Shell says Prelude FLNG to start production in 2018


    Shell’s giant Prelude FLNG facility will come on stream offshore Western Australia next year, Chief Financial Officer Jessica Uhl said.

    “Prelude remains on schedule… We’ve indicated that start-up was in 2018 and we remain confident in that timing,” Uhl told journalists on a conference call on May 4 after discussing the company’s first-quarter results.

    The Hague-based LNG giant Shell has never been clear on when it expects to start producing chilled gas from the giant floating facility to be located at the Prelude gas field off Australia.

    However, the company’s Chief Executive Ben van Beurden said at an event last year that Shell expects “real material cash from Prelude in 2018.”

    Shell’s Prelude FLNG facility is the largest of its kind with 488m in length and 74m in width.

    It is currently being built at Samsung Heavy Industries’ Geoje shipyard in South Korea, where an incident took place on May 1.

    Six people died and more than 20 were injured when a crane collapsed during the construction of an oil platform for French energy company Total.

    Uhl expressed condolences to everyone impacted by the “unfortunate incident”, adding that it did not have anything to do with Shell’s assets.

    The incident is expected not to have any effect on the construction of the Prelude FLNG.

    “The project itself is progressing well and the timeline for 2018 remains a good timeline,” she said.

    The Prelude FLNG facility is expected to stay moored at the Prelude gas field for 25 years. It is designed to produce 3.6 mtpa of LNG, 1.3 mtpa of condensate and 0.4 mtpa of LPG for export.

     http://www.lngworldnews.com/shell-says-prelude-flng-to-start-production-in-2018/
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    Indonesia's Pertamina to swap 0.7 mil mt of LNG from its US offtake


    Indonesian oil and gas major Pertamina is to sign an agreement with a portfolio seller by the end of 2017, for a swap of 0.7 million mt of LNG over five years from its contractual offtake commitment with US-based Cheniere, a senior official from Pertamina said Tuesday.

    Pertamina is already in negotiations with the portfolio seller, Djohardi Angga Kusumah, Pertamina's gas and power senior vice president, said at the 19th Asia Oil and Conference in Kuala Lumpur, Malaysia.

    The swap is to take place over the initial five years of Pertamina's contract with Cheniere, which expands over 20 years starting from 2018-2019, Kusumah added.

    The volume is nearly half of its contractual commitment with Cheniere for the offtake of 1.52 million mt/year, including 0.76 million mt that is to be supplied from the Corpus Christi LNG plant in the US Gulf.

    The agreement will be similar to another US LNG swaps deal Pertamina signed with France-based portfolio seller Total in February 2016, Kusumah said.

    Under the agreement with Total, the French company will purchase from 2020 onwards around 0.4 million mt/year of Pertamina's contracted LNG volumes from Corpus Christi LNG in Texas, where operations at both trains are expected to begin in 2019.

    In parallel, Total will supply from its global portfolio to Pertamina a volume growing over time from 0.4-1 million mt/year of LNG.

    https://www.platts.com/latest-news/natural-gas/kualalumpur/indonesias-pertamina-to-swap-07-mil-mt-of-lng-27827748
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    Japan reports successful gas output test from methane hydrate


    Japan's trade ministry on Monday reported success in producing gas last week by extracting methane gas from methane hydrate deposits offshore Japan's central coast.

    The tests being run at two different wells are the first since 2013, when Japan achieved the world's first-ever extraction of gas from offshore deposits of methane hydrate, a frozen gas known as "flammable ice".

    Japan's Ministry of Economy, Trade and Industry (METI) said the methane hydrate production tests will continue for a combined four to five weeks. Japan's first methane hydrate tests in 2013 ended abruptly after less than a week due to problems with sand flowing into the well.

    Japan, which imports nearly all of its energy sources, has been aiming to launch private sector commercial production of methane hydrates by between 2023 to 2027, but METI officials have said the goal will still be a challenge as many obstacles remain to be solved.

    Japan is the world's top importer of liquefied natural gas (LNG), and its need for domestic gas resources has become greater since the Fukushima nuclear crisis in 2011 shut down most of its nuclear power plants and sharply raised fossil fuel imports such as LNG and coal.

    Methane hydrate is formed from a mixture of methane and water under certain pressures and conditions. India, Canada, the United States and China are among the countries also looking at exploiting hydrate deposits as an alternative source of energy, the trade ministry said.

    A Japanese study has estimated that at least 40 trillion cubic feet (1.1 trillion cubic meters) of methane hydrates lie in the eastern Nankai Trough off the country's Pacific coast, equal to about 11 years of Japanese gas consumption.

    http://in.reuters.com/article/japan-methane-hydrate-idINL4N1IA35A
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    Malaysia's Petronas gets flexible on LNG contracts as supply builds


    Malaysia's state energy firm Petronas may try shorter-term LNG contracts and smaller cargo sizes to entice buyers, senior company officials said, at a time when it has major contracts coming up for renewal and the market is awash in supply.

    The liquefied natural gas (LNG) marketing drive at Petroliam Nasional Berhad, or Petronas, coincides with rising production after the start-up of Train 9 at its Bintulu export terminal and its first floating LNG unit. Malaysia is the world's third-largest LNG exporter.

    The global LNG market has become a buyers' market as growth in new supplies, mainly from Australia and the United States, exceeded demand and depressed prices. Asian spot LNG prices have dropped by more than 70 percent since 2014.

    "New demand creation is becoming a norm," Ahmad Adly Alias, vice president of Petronas' LNG Trading & Marketing said at the Asia Oil & Gas Conference on Tuesday.

    "We have recently restructured our organization to put a lot more focus on Middle East and South Asia... We've also set up a team to cover Southeast Asia," he said.

    The company's upstream chief executive officer Mohd Anuar Taib told Reuters on Monday that it sees significant potential demand growth in India, Pakistan, Bangladesh and some parts of Southeast Asia.

    In China, Petronas plans to work with a partner to sell smaller parcels to meet the demand of small buyers, Ahmad said.

    Petronas is also exploring LNG sales as a transportation fuel for trucks and ships, the officials said.

    CONTRACT NEGOTIATIONS

    Producers, who used to sell their cargoes on long-term contracts, now have to become more flexible on selling terms, including allowing customers to swap contracted supplies and sell more cargoes in the spot market.

    Petronas will soon start negotiating with customers in Japan, its biggest buyer, as some contracts are set to expire next year, with some even looking to reduce the volume of LNG they buy.

    Japan's biggest utility Tokyo Electric Power Company has a contract to buy up to 4.8 million tonnes per year (tpy) of LNG, while Tokyo Gas Co's contract is for up to 2.6 million tpy. They both expire in March 2018.

    "(Our) priority is to recontract in Malaysia but probably volume-wise it will be changed. And, how we can agree to new terms and conditions with better flexibility or pricing," said Shigeru Muraki, executive advisor at Tokyo Gas.

    "We will compare with other sources, we will consider the diversification of supply sources or diversification of pricings."

    Petronas' Ahmad said the company was currently working with long-term buyers to renew the contracts, but did not give details.

    In the interview Monday, upstream CEO Anuar said long-term contracts have "almost become a novelty." Petronas could do both short- and long-term contracts, he said.

    http://www.reuters.com/article/malaysia-petronas-lng-idUSL4N1IB2ID

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    Urals CIF Rotterdam crude oil grade at premium to Urals CIF Augusta for 1st time in over 2 years


    Urals CIF Rotterdam established a premium over Urals CIF Augusta after Monday's assessment as a change to fundamentals of the crude loading out of the Baltics and the Black Sea has moved the grades in opposite directions over the past month.

    The Urals CIF Rotterdam premium over Urals CIF Augusta stood at 3 cents/b Monday after trading at a discount to its Mediterranean counterpart since January 2015, S&P Global Platts data showed.

    The change in the spread comes as a result of Urals CIF Rotterdam climbing to 2.5-year high Thursday and only reverting marginally since, while Urals CIF Augusta hit a one-month low Monday.

    Over the past three weeks, the spread between the two grades weakened by $1.05/b, a magnitude not seen in the last two years.

    The flip in the spread is largely seen as a result of a fundamental supply structure of Urals exports on the back of pipeline maintenance feeding Urals to the port of Primorsk.

    The Sever pipeline network links Vtorovo-Yaroslavl-Kirishi-Primorsk and ships ultra low sulfur diesel from Russian refineries for export to Europe.

    A number of pumping stations along the route are due for launch in the second half of this year, and one of the measures Transneft, the pipeline operator, has taken is to upgrade some of the current crude pipelines so that they can also be used for diesel transportation.

    The second stage of the conversion project is due for completion in 2018.

    The result of the upgrading and maintenance work is that crude exports out of the Baltics were down by some 244,887 b/d month on month in May, while exports out of the Black Sea were at their highest of the year at 555,077 b/d.

    For the June program, some traders are expecting a further significant decrease in Baltic-loading crude exports, with one trader saying that "I would not be surprised to see a double-digit drop in Urals loadings out of Primorsk in June compared to May."

    Trading sources said that the crude intended to be exported via Primorsk and Ust-Luga will now be sent via pipeline to Novorossiisk for export via the Black Sea, as well as larger volumes being shipped to Belarus after Russia and Belarus settled their gas pricing disputes earlier this year.

    "Once the pipeline has been upgraded, volumes will be increasing again out of the Baltics, but there is an expectation in the market that supply fundamentals will change in the long run nevertheless as an overall larger amount of barrels exported from the Black Sea and less crude exported from the Baltics, compared to 2015 average values," a Urals trader said.

    Market participants currently expect the pipeline upgrade to be done in August, while others said it could take until the end of the year.

    However, the CIF Rotterdam premium above CIF Augusta is not widely expected to last for long.

    "Urals CIF Rotterdam have ticked up a lot in recent days and I am wary there is much room for further increases. On the contrary, Urals CIF Augusta, at the current price level, should be capturing some of the West Mediterranean business, [which usually takes Urals from the Baltics] and that could exert some bearish force on Urals NWE and bullish pressure on Urals Med," a refiner sourcing Urals crude said.

    https://www.platts.com/latest-news/oil/london/urals-cif-rotterdam-crude-oil-grade-at-premium-26731532

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    Eni confirms full-year targets after best quarter in two years


    Italian energy company Eni reported its best quarterly profits in two years on Wednesday buoyed by higher oil prices and production and confirmed its full-year targets.

    Adjusted net profit for the first quarter rose to 744 million euros ($810 million) from breakeven a year earlier and topped the 610 million expected by analysts.

    Like many of its peers, state-controlled Eni has benefited from higher crude prices after a two-year price downturn that rocked the industry.

    BP, ExxonMobil, Chevron and Total have all beaten analysts' profit forecasts for the quarter.

    CEO Claudio Descalzi confirmed Eni's targets for the year, and noted first-quarter cash generation of 2.6 billion euros was its strongest performance in seven quarters.

    "We expect that in 2017 organic cash generation, coupled with proceeds from disposals, will allow us to fully fund our capex and dividend requirements at an oil price well below the current level," Descalzi said.

    Eni, which in recent years has made major gas finds in Mozambique and Egypt, holds one of the best discovery track records in the industry.

    On Wednesday it confirmed production would grow by 5 percent this year to 1.84 million barrels of oil equivalent per day (boed) lifted by start-ups in Egypt and Kazakhstan.

    In the first quarter Eni produced 1.795 million boed, up 2.3 percent from a year earlier.

    http://www.reuters.com/article/us-eni-sults-idUSKBN1860LN
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    Bidding said to open soon for oil and gas exploration under India’s new OALP


    India is likely to offer 26 unexplored oil and gasfields to domestic and international exploration and production (E&P) majors to kick-start the government’s newly unveiled Open Acreage Licensing Policy (OALP).

    Prospective investors have been allowed access to geological data of these oil and gas fields and, although no official confirmation was available, sources say the bidding process will open in the next two months.

    Under the OALP, prospective bidders will be free to bid for any of the potential oil and gas fields, but the government has reserved the right to invite counter bids before awarding the field.

    Last month, the government formally approved the launch of OALP under which domestic and foreign E&P will be free to carve out areas from demarcated fields and choose where they would want to explore.

    An official familiar with the process pointed out that once an investor carved out a block and submitted an offer, it would trigger an invitation for counter bids, which would also be considered before the government awards the bid.

    The directorate general for hydrocarbons would provide prospective investors with access to the National Data Repository, which would enable the investor to make an informed decision on putting in bids for exploration and subsequent production, the official added.

    “In the new model, the government will not micro-manage, micro-monitor the producers. The government will only take a share of the revenue. It will be an open and regular affair,” Petroleum and Natural Gas Minister Dharmendra Pradhansaid in a recent media statement.

    Although officials were hesitant to divulge details, claiming that it was still “too early days of the new OALP”, industry sources say it is possible that the government will put on offer an estimated three-million square kilometers of unexplored sedimentary basin in the current financial year.

    The OALP will demand stricter prequalification requirements than the marginal and small oil and gas fields that government recently awarded. The OALP requires that an investor has at least a year’s experience in operating, as well as a record of holding an acreage as per specific technical parameters laid down under the policy.

    http://www.miningweekly.com/article/bidding-said-to-open-soon-for-oil-and-gas-exploration-under-indias-new-oalp-2017-05-09
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    Higher U.S. crude output to cap oil prices through 2018: EIA


    Higher crude output from the United States should limit any upside to global oil prices through the end of 2018, the U.S. government said on Tuesday, ahead of a meeting of major oil producers later this month to discuss extending supply cuts.

    U.S. crude production is expected to rise by more than previously expected in 2017 to 9.31 million barrels per day from 8.87 million bpd in 2016, a 440,000 bpd increase, the U.S. Energy Information Administration said.

    It expects total output for 2018 to rise to nearly 10 million bpd, with most of that coming from the increase to the 2017 forecasts. Higher output in non-OPEC countries, particularly the United States, Canada and Brazil, has offset OPEC's deal reached last year to cut production and kept pressure on oil prices.

    The Organization of the Petroleum Exporting Countries and non-OPEC member countries will meet in Vienna on May 25 to discuss whether to continue output cuts of 1.8 million bpd in an effort to reduce a global crude glut and support prices.

    The OPEC deal reached in November helped lift prices but also breathed new life into U.S. producers, who have boosted drilling in shale regions and raised U.S. output to levels not seen since mid-2015.

    Last month the EIA forecast a 350,000 bpd year-over-year increase, according to its monthly short-term energy outlook.

    For 2018, the EIA's growth forecast is 650,000 bpd, down from its previous forecast of 680,000 bpd. Its forecast for total output in 2018 rose to 9.96 million bpd from 9.90 million bpd.

    "Also, we should start to see Dakota Access pipeline and other infrastructure improvements liberate more and more U.S. barrels. We have only just started to see the real rebound in shale," he said.

    Top oil exporter Saudi Arabia said on Monday that it would "do whatever it takes" to rebalance a market that has been dogged by oversupply for more than two years.

    The EIA forecast U.S. oil demand for 2017 to rise 290,000 bpd, up from its previous forecast for a 250,000 bpd increase. For 2018, oil demand is expected to increase by 300,000 bpd, down from a previously forecast rise of 340,000 bpd.

    http://www.reuters.com/article/us-usa-oil-eia-steo-idUSKBN185297
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    API Reports Biggest Crude Draw This Year


    The American Petroleum Institute (API) reported a hefty draw of 5.789 million barrels in United States crude oil inventories, compared to analyst expectations that markets would see a crude oil draw of 1.8 million barrels for the week ending May 5.

    Gasoline inventories rose by 3.169 million barrels, according to the API, against an expected draw of 700,000 barrels. Gasoline inventories continue to worry markets, as refiners continue to turn crude oil into gasoline above demand for the fuel.

    So while crude oil has experienced an overall drawdown over the last couple of weeks, it’s simply being converted to gasoline, and extra inventories are moving from one side of the refinery to the other. Gasoline inventories have continued to build for four weeks in a row, if the EIA confirms this week’s build tomorrow.

    According to the EIA, gasoline inventories have climbed almost 5.1 million barrels in the last three weeks ending April 28—if confirmed, the four-week build would be over 8 million barrels.

    http://oilprice.com/Latest-Energy-News/World-News/Oil-Rebounds-After-API-Reports-Biggest-Crude-Draw-This-Year.html
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    Carrizo Oil & Gas Announces First Quarter Results and Increases 2017 Production Guidance

    Carrizo Oil & Gas Announces First Quarter Results and Increases 2017 Production Guidance

    Carrizo Oil & Gas, Inc. today announced the Company’s financial results for the first quarter of 2017 and provided an operational update, which includes the following highlights:

    Crude oil production of 28,844 Bbls/d, 12% above the first quarter of 2016
    Total production of 46,367 Boe/d, 10% above the first quarter of 2016
    Net income of $40.0 million, or $0.61 per diluted share, and Net Cash Provided by Operating Activities of $76.4 million
    Adjusted Net Income of $12.1 million, or $0.18 per diluted share, and Adjusted EBITDA of $94.2 million
    Increasing 2017 crude oil production growth target to 26%Borrowing base recently increased to $900 million, with an elected commitment of $800 million

    Carrizo reported first quarter of 2017 net income of $40.0 million, or $0.61 per basic and diluted share compared to a net loss of $311.4 million, or $5.34 per basic and diluted share in the first quarter of 2016. The net income for the first quarter of 2017 and net loss for the first quarter of 2016 include certain items typically excluded from published estimates by the investment community. Adjusted net income, which excludes the impact of these items as described in the non-GAAP reconciliation tables included below, for the first quarter of 2017 was $12.1 million, or $0.18 per diluted share compared to $9.2 million, or $0.16 per diluted share in the first quarter of 2016.

    For the first quarter of 2017, Adjusted EBITDA was $94.2 million, an increase of 2% from the prior year quarter due to higher production volumes and commodity prices, partially offset by lower cash receipts for derivative settlements. Adjusted EBITDA and the reconciliation to net income (loss) are presented in the non-GAAP reconciliation tables included below.

    Production volumes during the first quarter of 2017 were 4,173 MBoe, or 46,367 Boe/d, an increase of 10% versus the first quarter of 2016. The year-over-year production growth was driven by continued performance from the Company’s Eagle Ford Shale and Delaware Basin drilling activity, the addition of production from the Sanchez property acquisition in late 2016, and an increase in Marcellus Shale production given improved netbacks. Oil production during the first quarter of 2017 averaged 28,844 Bbls/d, an increase of 12% versus the first quarter of 2016; natural gas and NGL production averaged 78,088 Mcf/d and 4,508 Bbls/d, respectively, during the first quarter of 2017. First quarter of 2017 production exceeded the high end of Company guidance due primarily to stronger-than-expected production from the Company’s Niobrara Formation and Delaware Basin assets.

    Drilling and completion capital expenditures for the first quarter of 2017 were $128.2 million. More than 85% of the first quarter drilling and completion spending was in the Eagle Ford Shale, with the balance weighted towards the Delaware Basin and Niobrara Formation. Land and seismic expenditures during the quarter were $14.5 million. As a result of the improvement in commodity prices earlier this year, Carrizo has seen a material increase in planned non-operated activity on its acreage in the Niobrara Formation and Delaware Basin. Given this, the Company has increased its planned non-operated budget by approximately $30 million. Carrizo expects to offset this incremental capital through efficiency gains realized since the beginning of the year as well as a slight reduction in planned completion activity in the Eagle Ford Shale during the year. As a result, the Company is maintaining its 2017 drilling and completion capital expenditure guidance of $530-$550 million. The Company is increasing its land and seismic capital expenditure guidance to $45 million for the year from $20 million previously.

    Based on the continued strong performance from the Company’s operated activity, Carrizo is increasing its 2017 oil production guidance to 32,400-32,700 Bbls/d from 31,400-31,900 Bbls/d previously. Using the midpoint of this range, the Company’s 2017 oil production growth guidance increases to 26% from 23% previously. For natural gas and NGLs, Carrizo is adjusting its 2017 guidance to 71-75 MMcf/d and 5,300-5,500 Bbls/d, respectively, from 69-73 MMcf/d and 5,600-5,900 Bbls/d, respectively. Carrizo continues to expect to deliver a three-year compound annual growth rate of more than 20% for its crude oil production. For the second quarter of 2017, Carrizo expects oil production to be 31,800-32,200 Bbls/d, and natural gas and NGL production to be 67-71 MMcf/d and 4,800-5,000 Bbls/d, respectively. A full summary of Carrizo’s guidance is provided in the attached tables.

    S.P. “Chip” Johnson, IV, Carrizo’s President and CEO, commented on the results, “We are off to a good start in 2017 with production exceeding our expectations. While sequential crude oil production growth in the first quarter was impacted by a large number of planned shut-ins, the underlying production from each of our key regions continues to perform well. As a result, we expect to see a double-digit sequential increase in our crude oil production in the current quarter and now expect to grow our crude oil production by approximately 26% in 2017. This is up from 23% previously without any increase to our planned drilling and completion capital expenditures for the year.

    http://boereport.com/2017/05/09/carrizo-oil-gas-announces-first-quarter-results-and-increases-2017-production-guidance/
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    Trump Names Picks for U.S. Energy Agency Crippled Without Quorum


    President Donald Trump has chosen a longtime aide to Senate Majority Leader Mitch McConnell and a state utility regulator to serve on the Federal Energy Regulatory Commission, bringing the agency one step closer to regaining its power to rule on natural gas pipelines and utility mergers.

    Trump plans to nominate Neil Chatterjee, a senior energy adviser to McConnell who previously worked for the National Rural Electric Cooperative Association, and Robert Powelson, a member of the Pennsylvania Public Utility Commission, for terms expiring in 2021 and 2020, respectively, an emailed statement from the White House late Monday shows. Kevin McIntyre, co-head of Jones Day’s global energy practice, is said to be Trump’s pick to lead the agency.

    Federal lawmakers and industry groups including the Independent Petroleum Association of America and Interstate Natural Gas Association of America have been urging Trump to fill the three vacancies on the Federal Energy Regulatory Commission quickly. The agency lost the quorum it needs to make major decisions when former chairman Norman Bay resigned in February, leaving two Democrats to serve on the panel. His departure has threatened to stall a massive expansion of the U.S. gas pipeline network brought on by the shale boom.

    The confirmation process could take two to three months if expedited, cautioned Brandon Barnes, an analyst at Bloomberg Intelligence. The last time a commissioner was confirmed, Bay in 2014, it took six months.

    “It’s a very political process where there’s horse-trading, negotiating,” said Martin Edwards, head of government affairs for the Interstate Natural Gas Association of America. “It means delays in deploying project capital to build infrastructure.”

    More than $50 billion worth of project applications are pending before the commission, including an application for the $2 billion Nexus gas line in the Midwest, which is scheduled to start by year-end. Other issues awaiting agency action are a proposed rule on commercial battery storage, and a decision on the commission’s income tax allowance policy for pipelines run by master limited partnerships.

    COMPLIANCE, ENFORCEMENT

    As an adviser to McConnell, Chatterjee served as an architect of major energy and environmental policy in the Senate, helping to coordinate attacks against President Barack Obama’s Clean Power Plan that requires power plants to cut carbon dioxide-emissions.

    Powelson has been on the Pennsylvania Public Utility Commission since June 2008, and also served as its chairman, according to the commission’s website. He was elected president of the National Association of Regulatory Utility Commissioners, a Washington-based advocacy group, in November.

    The commission normally consists of five members who serve five-year terms. Cheryl LaFleur, a Democrat and former utility executive, has been on the commission since 2010. The only other commissioner right now is Colette Honorable, a Democrat who previously served as chair of the Arkansas Public Service Commission. Honorable’s term ends in June, and she has said she won’t pursue another one.

    http://boereport.com/2017/05/09/trump-names-picks-for-u-s-energy-agency-crippled-without-quorum/
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    Magnolia LNG receives FERC approval to commence site preparation


    LNG Limited has announced that its wholly owned subsidiary, Magnolia LNG LLC, has received Notice to Proceed (NTP) from the Federal Energy Regulatory Commission (FERC) to begin initial site preparation activities for the Magnolia LNG project.

    The project – based in the Port of Lake Charles, Louisiana, US – involves the construction and operation of up to four LNG production trains, each of which will have a capacity of 2 million tpy or more, utilising the OSMR® process technology. The project will also include two 160 000 m3 full containment storage tanks, ship, barge and truck loading facilities and loading infrastructure. The LSTK EPC contract includes all elements of the project required to bring the facility into full guaranteed production operations. Magnolia LNG is fully permitted – having received its FERC order and both FTA and non-FTA approval from the Department of Energy (DOE). A final investment decision (FID) and the initiation of construction is expected upon the execution of sufficient offtake agreements to support financing.

    The Chief Operating Officer at Magnolia, John Baguley, said: “We are appreciative to FERC for the issuance of the NTP on our request for authorisation to commence initial site preparation activities. FERC’s comprehensive review of our submittals and concurrence that we have complied with Conditions for these initial activities as required under the April 15, 2016 FERC Order demonstrate the project’s readiness.”

    The Managing Director and CEO of LNG Limited, Greg Vesey, added: “The FERC NTP for initial site preparation is a key milestone for the project and underscores our position as ‘Shovel Ready’. Nevertheless, the pacing item for our Final Investment Decision (FID) and initiation of construction for Magnolia remains the finalisation of our LNG offtake agreements, and our team remains fully engaged in advancing this activity.”

    https://www.lngindustry.com/liquefaction/05052017/magnolia-lng-receives-ferc-approval-to-commence-site-preparation/
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    Alternative Energy

    TransAlta eyes 8,000 MW in North American wind/gas projects


    TransAlta has its eye on about 8,000 MW of renewable and natural gas projects in North America and expects to propose three shovel-ready wind farms totaling 350 MW into upcoming solicitations in Alberta and Saskatchewan, according to Dawn Farrell, TransAlta president and CEO.

    Potential investments include 500 MW in natural gas and renewable acquisitions in the US as well as expansions at existing renewable facilities, according to the company. The Calgary-based company owns about 220 MW of wind and solar generation in Massachusetts, Minnesota and Wyoming, as well as the 1,340-MW coal-fired Centralia plant in Washington.

    TransAlta has decided to retire or mothball 560 MW of coal-fired generation in Alberta and convert another 2,400 MW of coal in the province ahead of schedule to natural gas to take advantage of low natural gas prices and reduce capital costs, Farrell said during a Monday earnings call with analysts.

    The plans call for retiring Sundance Unit 1 and mothballing for two years Sundance Unit 2 on January 1. The power plant company expects to spend about C$300 million ($219 million) to convert Sundance units 3-6 and Keephills Unit 1 and Unit 2 in the 2012-2023 time frame, according to Farrell.

    The company plans to bid the capacity into an expected capacity auction that is being developed by Alberta's grid operator.

    The plants will likely run for 15 years after the conversion, initially as baseload plants, but as renewables come online in Alberta, more as peaking plants, Farrell said.

    About 6,000 MW is expected to be built in Alberta and Saskatchewan in the next 15 years, according to Farrell. TransAlta will offer three wind projects into solicitation the provinces will hold later this year at a cost of about $1.5 million, she said.

    TransAlta is in talks with the Alberta government about building the Brazeau pumped storage facility that could range from 600 MW to 900 MW, Farrell said. The project is expected to cost $1.3 billion to $1.8 billion.

    POWER PRICES CLIMB

    Average wholesale power prices in Alberta jumped 22% in the first quarter to C$22/MWh from C$18/MW a year ago, and prices in the Pacific Northwest increased 24% to $21/MWh from $17/MWh, according to TransAlta.

    For the rest of the year, TransAlta expects power prices in Alberta to be "slightly better" than 2016 because of higher natural gas prices and incremental carbon costs that increase the variable cost of generation.

    However, prices can vary based on supply and weather conditions.

    Prices in the Northwest will be lower in the second quarter due to a strong hydro season, TransAlta said, noting that third and fourth quarter wholesale prices are expected to be similar to last year.

    TransAlta's energy marketing segment lost C$4 million in operating income in the first quarter, compared with a $22 million gain a year ago. The company lowered the expected contribution from its energy marketing segment to C$60 million to C$70 million for the year, below the company's initial target of C$70 million to C$90 million. Power markets have "normalized" in the second quarter, Farrell said.

    At the end of the first quarter, TransAlta said it had hedged 86% of its capacity at average prices for its short-term physical and financial contracts at about C$45/MWh in Alberta and $45/MWh in the Pacific Northwest.

    https://www.platts.com/latest-news/electric-power/portland-maine/transalta-eyes-8000-mw-in-north-american-projects-21671638

    Attached Files
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    Vivint Solar reports quarterly profit on lower costs


    U.S. solar company Vivint Solar Inc reported a quarterly profit on Tuesday compared with a year-ago loss, helped by lower costs.

    The company, which largely caters to the residential solar market, reported net income attributable to shareholders of $13.3 million, or 11 cents per share, in the first quarter ended March 31, compared with a loss of $31.2 million, or 29 cents per share, a year earlier.

    The company recorded a one-time impairment charge of $36.6 million in the year-ago quarter. Excluding items, the company's loss narrowed to 50 cents per share from 65 cents.

    Total revenue rose to $53.1 million from $17.2 million.

    Vivint Solar carried out 6,581 installations during the quarter, down from 7,704 installations in the year-ago period.

    http://www.reuters.com/article/vivint-solar-results-idUSL4N1IB5O2
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    SunPower Corp posts bigger quarterly loss


    U.S. solar company SunPower Corp reported a bigger loss on Tuesday, hurt in part by higher costs.

    The company, which is majority owned by France's Total SA , said its net loss attributable to shareholders widened to $134.5 million, or 97 cents per share, in the first quarter ended April 2, from $85.4 million, or 62 cents per share, a year earlier.

    Total revenue rose to $399.1 million from $384.9 million.

    http://www.reuters.com/article/sunpower-results-idUSL4N1IB5P5
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    Agriculture

    K+S vows new Canadian mine will not undermine prices


    German potash miner K+S vowed it would not have to undercut rivals on price as it brings 2 million tonnes of new potash capacity to the North American market next year.

    Faced with the gradual depletion of its domestic reserves over the next 35 to 40 years, K+S built its new Bethune mine, previously known as Legacy, in western Canada even as many experts describe the North American market as oversupplied.

    "We will not undermine our price levels from the additional volumes that we will get out of Bethune," Chief Executive Norbert Steiner, who will hand over to finance chief Burkhard Lohr this week, told analysts during a call to discuss quarterly results.

    "Our customers have asked us to ship more than we were able to do, this is now the time where we can sell more to them... This will not be pushed into the market with, let’s say, brutality, we wanted to maintain decent price levels and so far we have never undercut price levels in the past and we will continue to act in this way," he added.

    He said while output capacity will be ramped up to 2 million tonnes per year in 2018, the company expects actual output to be in the 1.7 to 1.8 million tonne range.

    Market researchers expect 2018 demand for potash of 66 million tonnes amid global output capacity of 84.4 million tonnes.

    http://www.reuters.com/article/us-k-s-results-prices-idUSKBN1850Z2
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    Precious Metals

    Silver Wheaton lifts bottom line 49% as streaming volumes jump


    Canadian precious metals streaming firm Silver Wheaton has reported bumper profit for the first quarter ended March, as precious metals received in the period rose and prices increased.

    The Vancouver-based firm reported net earnings of $61-million, or $0.14 a share, compared with $41-million, or $0.10 a share, for the comparable period in 2016, representing an increase of 49%, or a 36% increase on a per share basis, the company reported after market close Tuesday. Earnings were in line with analyst forecasts, but revenue missed the average estimate calling for $214.16-million.

    Revenue for the period was 6% higher year-on-year at $198-million, of which 46% was attributable to the sale of silver, and 54% was attributable to the sale of gold.

    In the first quarter, Silver Wheaton's gold output and sales volumes climbed over 35% relative to the first quarter of 2016, putting the company on track to meet or exceed full-year gold production guidance.

    "For the third quarter in a row, revenue was roughly balanced between silver and gold, further supporting the proposed name change to Wheaton Precious Metals," president and CEO Randy Smallwood stated.

    First quarter silver production and silver sales were impacted by strike action at Primero Mining’s San Dimas mine, in Mexico.

    Attributable output in the quarter totalled 6.5-million ounces of silver and 84 900 oz of gold, compared with 7.5-million ounces of silver and 61 900 oz of gold a year earlier, with silver output having fallen 14% and gold production having increased 37%.

    On a silver-equivalent basis, attributable output was 12.5-million silver equivalent ounces (SEOs), flat when compared with that of a year earlier.

    SEO sales in the quarter were 11.4-million, 10% down when compared with 12.7-million SEOs a year earlier.

    The average realised price per silver ounce sold was 19% higher, at $17.45, in the first quarter and $1 208/oz of gold, representing an increase of 3%, compared with the first quarter of 2016.

    The board has declared a dividend in the amount of $0.07 per common share, in line with the company’s dividend policy whereby the quarterly dividend will be equal to 20% of the average of the operating cash flow of the previous four quarters.

    Silver Wheaton believes that the $115-million of cash and cash equivalents as at March 31, combined with the $900 000 available under the $2-billion revolving facility and ongoing operating cash flows positions the company well to fund all outstanding commitments and known contingencies, as well as providing flexibility to acquire further precious metal stream interests.

    Silver Wheaton has guided for 2017 output of 28-million silver ounces and 340 000 gold ounces. Over the next five years, the company expects attributable output to be about 29-million ounces of silver and 340 000 oz of gold a year. Excluded from the guidance, the company retains potential upside from any production from Barrick Gold’s Pascua-Lama project, straddling the Argentina/Chile border, or from Hudbay Minerals’ Rosemont project, in Arizona.

    http://www.miningweekly.com/article/silver-wheaton-lifts-bottom-line-49-as-streaming-volumes-jump-2017-05-10
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    Franco-Nevada impresses with earnings surprise; lifts dividend


    Canadian gold royalties and streaming firm Franco-Nevada Corp has reported better-than-expected first-quarter earnings on the back of strong output in the period, prompting it to revise upwards its quarterly dividend for the tenth consecutive year since it went public in 2007.

    The Toronto-based company reported net earnings of $45.6-million, or $0.26 a share, which was a 52% increase when compared with the same period of 2016.

    Stripped of special items, Franco-Nevada reported headline earnings of $0.25 a share, beating average Wall Street analyst forecasts calling for adjusted earnings of $0.22 apiece.

    Attributable output came in at 132 000 gold equivalent ounces (GEOs), which represented a new record and a 23.4% increase year-over-year.

    Franco-Nevada noted the strong performance of its Guadalupe-Palmarejo contract, which generated $23.7-million in revenue.

    The company now has 339 assets – 107 producing, with 41 of the 107 tied to precious metals.

    Franco-Nevada reconfirmed its full-year guidance, which calls for 470 000 GEO to 500 000 GEO, with oil and gasrevenue totalling $35-million to $45-million.

    The company also announced a $0.01 increase to its quarterly cash dividend, which now stands at 0.23 a share per quarter.

    Franco-Nevada had $1.6-billion in available capital as of March 31, comprising $356-million in working capital, of which $283-million is in cash, $117-million is in marketable securities and $1.1-billion of available credit falls under its credit facilities. The company has also extended the term of its $1-billion credit facility by about 16 months to March 22, 2022.

    http://www.miningweekly.com/article/franco-nevada-impresses-with-earnings-surprise-lifts-dividend-2017-05-10
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    Base Metals

    Red Kite says copper scrap supply has tightened


    Supply of copper scrap has tightened recently after growing in the first quarter, while disruptions at major mines earlier in 2017 are hitting availability of the metal, the co-founder of metals hedge fund RK Capital Management, said on Wednesday.

    Crimped supply of copper, used in everything from wiring to construction, would drag on prices that have eased this year after surging in 2016.

    "We are hearing that scrap availability has tightened up. Some of the disruptions to mine supply in the first quarter will be felt in metal supply now," David Lilley said at the LMEWeek Asia conference in Hong Kong.

    A strike at the world's biggest copper mine in Chile and a dispute over mining rights in Indonesia hit copper markets earlier in the year.

    Meanwhile, Lilley said that it was "hard to be optimistic" on the outlook for nickel prices given ample inventory throughout the supply chain and the resumption of exports from places such as the Philippines.

    At least eight nickel mines in the Philippines have been suspended since last year for environmental breaches under a crackdown launched by former environment secretary Regina Lopez. But she was ousted last week by a panel of lawmakers that confirm appointments.

    "At some stage, the price will do its job of rationing supply whether that is at $9,000 (per ton), $8,500 or $8,000, I'm not sure, somewhere in that range," said Lilley.

    International nickel prices stood around $9,225 per ton on Wednesday.

    RK Capital Management is often referred to as Red Kite.

    http://www.reuters.com/article/us-lmeweek-asia-copper-idUSKBN1860B4
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    BHP starts process to sell its Cerro Colorado copper mine


    BHP Billiton said on Wednesday it has started a sales process to potentially divest its Cerro Colorado copper mine in Chile, one of its smaller operations in South America.

    "The evaluation is at an early stage, no final decisions have been made and there is no guarantee that a transaction will result," BHP said in a statement emailed to Reuters.

    Cerro Colorado is located in Chile's Tarapacá Region and yielded 77,000 tonnes of copper in fiscal 2016.

    BHP's flagship mine, Escondida, also in Chile, yields more than 10 times that amount annually.

    Banking sources have named Chile's Empresas Copec SA COP.SN, a conglomerate that has voiced interest in diversifying into copper, and Canadian companies such as Lundin Mining Corp (LUN.TO), as possible buyers.

    BHP has earmarked large long-life copper mining as a key growth sector in years to come as expansion work in its iron ore mining business in Australia slows down.

    http://www.reuters.com/article/us-bhp-billiton-chile-idUSKBN18607L
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    Philippines Q1 nickel ore output falls 51 pct on rains, crackdown


    Nickel ore output in the Philippines, the world's top supplier, fell 51 percent in the first quarter due to rains and the suspension of mine operations, government data showed on Wednesday.

    Of the country's 28 nickel mines, 21 reported zero output during the period, the Mines and Geosciences Bureau said. Unprocessed nickel ore shipped in the January to March period totalled 1.71 million dry metric tonnes (DMT) compared with 3.46 million DMT a year ago, the data showed. Most of the Philippines' output is shipped to China where it is used to make stainless steel.

    Most nickel mines are in the southern Philippines where monsoon rains and rough seas occur between October and March, making it difficult for miners to operate and load ships. Other mines are also under maintenance and care, the bureau said.

    At least eight nickel mines have been suspended since last year for environmental breaches under a crackdown launched by former Environment Secretary Regina Lopez. She was ousted last week by a panel of lawmakers that confirm appointments.

    President Rodrigo Duterte has named former military chief Roy Cimatu as Lopez's replacement, a move welcomed by miners but opposed by environmental groups who said Cimatu does not have a track record in environmental conservation.

    Cimatu told Reuters on Tuesday it was possible to strike a balance between allowing mining and protecting natural resources, and he wanted time to assess the mine closures ordered by his predecessor.

    In terms of other metals, the Philippines' gold output rose 5 percent to 6,167 kilograms, while copper concentrate production fell 22 percent at 72,194 DMT, the bureau said.

    http://www.reuters.com/article/philippines-mining-output-idUSL4N1IC1GU
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    Duterte's old soldier seeks middle path to settle Philippine mining malaise


    The new Philippines environment minister on Tuesday said he wants to balance conservation and mining interests, signaling intent to settle a bitter dispute that has been one of the biggest economic conundrums of Rodrigo Duterte's presidency.

    Former military chief Roy Cimatu takes over in the thick of a crisis for mining firms hit by a sweeping campaign of shutdowns and suspensions at the hands of predecessor Regina Lopez, a staunch environmentalist who was dismissed last week by lawmakers scrutinizing her appointment.

    The Philippines is the world's top nickel ore supplier and markets will be closely watching Cimatu's early moves in a post he had no idea he would be offered.

    He admitted his knowledge and experience of mining and the environment was limited, and he needed time to get familiar with the task in hand before deciding what comes next.

    "I will not take any action on things that I haven't seen or read or reviewed. I will look at them first," he told Reuters.

    Among those are 22 of 41 operating mines Lopez ordered closed in February, and her ban on open-pit mining.

    Her campaign won huge public support and the backing of the populist president, but that was not enough to see her spared by the Committee on Appointments.

    Green groups say that panel caved in to mining interests against the will of Filipinos, though several panel members rejected that, and said Lopez was blinded by her agenda and rode roughshod over regulations.

    Duterte has largely kept out of the mining controversy, which if not managed well risks upsetting elements of the rural poor who elected him, or unnerving investors key to his economic ambitions.

    His appointment of a retired soldier with scant knowledge of the role suggests he opted for someone he trusts to unravel arguably the biggest economic problem of his 10-month administration.

    Cimatu is "extraordinarily gifted for the task of balancing environmental concerns with mining operation concerns," said Duterte's spokesman, Ernesto Abella, adding that Duterte wanted Cimatu for his "objective point of view."

    FAMILIAR FACE

    Cimatu said it was possible to develop a mining industry while preserving the environment.

    "There are countries where mining contributes a lot to the economy and environmentalists are not screaming," he said.

    The 70-year-old former military comptroller is the latest addition to a Cabinet stacked with allies of Duterte from his university years or his two decades as mayor of Davao City.

    Cimatu was a regional brigade commander in the 1990s when Duterte was mayor and he played a key role in his 2016 presidential election campaign.

    He served as his liaison for issues involving the estimated 10 million overseas Filipino workers. Duterte had considered making the post a ministerial portfolio.

    When he was summoned to the presidential palace on Monday Cimatu thought it was to discuss support for Filipinos in South Korea amid tensions on the Peninsula.

    "All of a sudden I was pulled somewhere else, then soon after was appointed," he said.

    Cimatu said he admired the passion of Lopez and would seek her insight. Asked about speculation they might work together at the ministry, he said it was doubtful Lopez would want that.

    Lopez on Tuesday said she doubted she would even be asked.

    Cimatu's appointment has been opposed by environmentalists because of his inexperience, but miners are cautiously optimistic.

    Dante Bravo, president of nickel ore miner Global Ferronickel Holdings Inc, said Duterte may have picked Cimatu because he was a military man and could be "an effective enforcer" against environmental violations.

    http://www.reuters.com/article/us-philippines-mining-env-idUSKBN185083

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    Steel, Iron Ore and Coal

    China's largest polyolefins project to be fully operated in July


    The second production line of China's biggest coal-to-polyolefins processing project is expected to go into full operation in July in the Inner Mongolia autonomous region, with annual output worth 13 billion yuan ($1.89 billion).

    The Ordos-based Zhongtian Hechuang Energy Co Ltd is expected to produce 1.37 million tonnes of polyethylene and polypropylenes each year from 25 million tonnes of coal.

    Polyolefins-polyethylene, polypropylenes and some other polymers-account for more than half of total plastics consumption in the world.

    The demonstration project is a good example of industrial upgrading, realizing coal deep processing from extensive production.

    There will be more of such demonstration projects in the near future in Ordos and Baotou, two cities in the west of the Inner Mongolia autonomous region, thanks to its success in industrial transformation and rich mineral resources.

    Around 12 cities and economic areas including Ordos and Baotou were chosen to build demonstration areas, with all of them old industrial cities and resource-based cities, according to an April statement released by the National Development of Reform Commission and other four ministry-leval bodies.

    Supporting policies on industry, innovation, investment, finance and land for these demonstration areas were initially identified, the statement said.

    Cities in demonstration areas will be included in redevelopment pilots for inefficient urbanland. In the pilots, industrial and mining wasteland is encouraged to be reclaimed and reused.

    The statement called for Baotou and Ordos to develop industrial cooperation in adjacent cities and upgrade traditional industries such as coal, steel and rare earths.

    http://www.sxcoal.com/news/4555800/info/en
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    Glencore puts Australian coking coal mine on block


    Glencore said on Tuesday it has begun a sale process for its Tahmoor coking coal mine ahead of plans to halt operations next year, adding to a growing number of collieries on the block in Australia.

    In August 2016, Glencore, which mainly mines thermal coal, said the mine in eastern Australia's Southern Highlands would not meet an internal investment criteria after 2018.

    The mine, which employs about 340 people, last year produced nearly 1.8 million tonnes of coking coal, used to make steel.

    The move comes as a number of coking coal mines in Australia go on the block.

    The sale of two Rio Tinto coking coal mines is attracting scores of interested buyers, while investors are also looking at mines for sale from companies including Anglo American, Wesfarmers and Peabody Energy .

    "We believe the asset has a number of development options for the future and presents a potential buyer with the opportunity to establish or increase a strategic position in the Australian coking coal industry," Glencore said in a statement emailed to Reuters.

    http://www.reuters.com/article/glencore-australia-coal-idUSL4N1IB1BE
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    Fortescue raises $1bn to repay debt


    Iron-ore miner Fortescue Metals was hoping to raise $1-billion through a bond offering of senior unsecured notes.

    The company said on Tuesday that proceeds from this issue would be used to repay existing debt.

    The miner in March this year announced a $1-billion repayment of its 2019 term loan, reducing its 2019 debt to less than $1-billion and generating annual savings of around $38-million.

    http://www.miningweekly.com/article/fortescue-raises-1bn-to-repay-debt-2017-05-09
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