Mark Latham Commodity Equity Intelligence Service

Wednesday 23rd September 2015
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    China Sep flash PMI dips further

    The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) further dipped 0.3 from the final figure in August to 47 in September, hitting a 78-month low, data showed on September 23.

    That compared with an expected reading of 47.5, posting the seventh consecutive month below the 50-point threshold separating growth from contraction, suggesting China’s economic conditions are still deteriorating.

    The output sub-index was 45.7 in September, down 0.7 from August, hitting a 46-month low, indicating a slower growth in manufacturing sector.

    The sub-indexes for new orders, new export orders and employment all posted declines, signaling the flat demand and the intensive downward pressure of manufacturing market.

    The slowdown in manufacturing sector in early September was mainly attributed to the decreasing demand and prices in the previous period, which signaling manufacturing sector is in the vital period of structural transformation, He Fan, Chief Economist at Caixin Insight Group said.

    Fiscal expenditure from central government has been greatly increased in August, indicating much more favorable fiscal policies in the sector. We should wait patiently for the effect, he added.
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    Does VW roil the auto market enough to put us in recession?

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    VW emissions cheating affects 11 million cars worldwide

    Volkswagen installed software designed to cheat emissions tests in some 11 million cars worldwide, the company said Tuesday, as the scandal surrounding the German car giant continued to escalate.

    The company said it will set aside $7.3 billion (6.5 billion euros) to cover the cost of repairing the cars and “other efforts to win back the trust of our customers.”

    Previously, American regulators had said about 482,000 cars in the U.S. were affected.

    But now VW is acknowledging that the fallout from the scandal will be felt around the world. It will be a major blow to the German car giant, which will have to fix more cars than it sold last year. (Worldwide, it sold 10.2 million vehicles in 2014.)

    EPA: Volkswagen used ‘defeat device’ to illegally skirt air-pollution controls

    In a video message, VW CEO Martin Winterkorn addressed the loss of customer confidence directly.

    “Many millions of people around the world trust our brands, our cars and our technologies. I’m endlessly sorry that we disappointed this trust,” he said. “We will do everything to regain your trust step by step.”

    “Volkswagen is working intensely to eliminate these deviations through technical measures,” VW said in a statement.

    Pressure on the company began mounting Friday, when the Environmental Protection Agency announced VW had admitted to installing software that let its diesel cars detect when they were being checked for emissions and cheat on the test.

    While the cars, from model years 2009 to 2015, passed emissions tests, they spewed nitrogen oxide at up to 40 times federal standards on the road.

    VW says the issue is limited to vehicles with Type EA 189 engines. The company didn’t list which cars use that engine, but the EPA has said it is eyeing VW’s Beetle, Golf, Jetta and Passat models and the Audi A3, made by its luxury sister brand Audi.

    The scandal engulfing Volkswagen has spilled into the precious metals market, reflecting growing fears of a consumer shift away from the diesel engines that account for almost a half of the world's platinum demand.

    Platinum prices dropped 3.6 percent on Tuesday, their biggest one-day fall in more than two years, "whacked" by concerns that the German carmaker's years-long effort to dupe U.S. regulators on diesel emissions will hurt sales of diesel engines, said Ed Meir, metals analyst at INTL FCStone.

    The price of palladium, which is preferred for gasoline-powered engines but less so for diesel, barely dipped 0.6 percent.

    The collapse highlights not only the enormity of the diesel industry's woes, but also the growing threat to platinum markets if, as some analysts now wonder, Volkswagen's scandals coupled with tougher regulations end a decades-long preference for diesel cars in Europe.

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    Lanxess, Aramco Form $3.1 Billion Venture to Buoy Rubber Unit

    Lanxess AG and Saudi Arabian Oil Co. said they will form a 2.75 billion-euro ($3.1 billion) venture to draw on the Middle East company’s access to raw materials and make a struggling synthetic-rubber division more competitive.

    Each party will hold 50 percent in the business, the two companies said in statements Tuesday. Saudi Aramco will pay about 1.2 billion euros in cash for the stake, adjusted for debt and payables. Bloomberg earlier reported the planned transaction.

    The oil-and-gas major outbid suitors including Ineos Group AG, according to people familiar with the situation. Berenberg in a July report said that Aramco would be among the “very well-fitting potential partners.” On its own, Lanxess suffered from higher costs for raw-materials such as benzene and styrene at a time when the market for its synthetic rubbers is in a phase of oversupply.

    Lanxess Chief Executive Officer Matthias Zachert, who returned to the company to take the helm in April 2014 after a previous stint as finance chief, is transforming the business. As well as seeking a partner for the rubber business to reduce exposure to that industry, he has also cut jobs and streamlined production.

    Shares of Lanxess, which dropped out of the benchmark DAX index this week, rose 1.5 percent to 46.50 euros as of 11:59 a.m. in Frankfurt. The company has a market value of 4.3 billion euros. Proceeds from the transaction will be used for buybacks, repaying borrowings and investments.

    Lanxess will contribute its tire and specialty rubber operations and an elastomers unit. The sale will provide Zachert with the financial flexibility to expand other areas of the business less tied to the automotive industry, such as chemicals to treat water supplies.

    Under the leadership of its new chief executive, Amin al-Nasser, Saudi Aramco is looking to become one of the world’s largest integrated energy companies by the end of this decade. It’s building a $20 billion chemical plant in Jubail with Dow Chemical Co. that will be fully operational next year, and creating special zones to manufacture end products using its chemicals around its new refineries in Jubail, Rabigh and Jazan. It’s building another one around Sadara, its chemical venture with Dow in Jubail, and earlier this year obtained $10 billion in loans to finance mergers and acquisitions.
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    Three states to kick-start power sector reforms - Report

    Business Standard reported that the National Democratic Alliance government has started the process of setting the power sector right, with Goa, Uttarakhand and Meghalaya taking the lead in joining hands with the Centre. Besides regular rate increases and debt restructuring to clean up their books, these states will also initiate schemes to enable 24x7 power supply to consumers, at a cost of INR 7,563 crore.

    Unlike the United Progressive Alliance government’s financial restructuring plan for distribution companies, the NDA government’s programme will have no grant from the Centre to incentivise reduction in debt and losses. The Centre is pursuing states to tackle these issues by increasing rates and raising funds from the market. Budgetary support from the Centre would be solely for its flagship schemes the Deendayal Upadhyaya Gram Jyoti Yojana and the Integrated Power Development Scheme.

    Till FY19, the overall requirement of funds for Uttarakhand will be INR 4,854 crore, Meghalaya INR 2,553 crore and Goa INR 1,576 crore. Any shortage will be met through external/market borrowings from financial institutions or developmental aid agencies, which the state concerned will facilitate.

    The door to central funds, however, won’t be completely shut. A statement following the signing of agreement with the three states said that “The state can ask for financial support but only when its generation, transmission and distribution utilities abide by the respective state electricity regulatory commission.”

    Earlier, CRISIL had prepared a report on state utilities and suggested measures to reform the system. It had proposed rate increases of 1.7% for Uttarakhand, 11% for Goa and 15% for Meghalaya from the next financial year.

    Attached Files
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    Glencore CDS explode higher, stock in free fall, the vultures circle.

    Two weeks ago, in a stunning development, Glencore officially folded the towel on not only its global expansion ambitions and its bullish commodity case, but admitted it was far too levered for the current recession in commodity prices. As a result, Glencore CEO Ivan Glasenberg unveiled a $10 billion deleveraging plan in order to prepare for a "doomsday scenario" for commodity prices.

    Sure enough, the company's CDS which Zero Hedge had said back in early 2014 with "Is This The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch?" was the best way to bet against the Chinese blow up currently in progress, tumbled from a level in the mid-400s to 300 bps on hopes Glencore would be able to successfully delever to a 2x net debt level.

    The first crack in these hopes emerged just a few days after the company's deleveraging announcement when Moody's downgraded Glencore Baa2 outlook to negative, despite the proposed equity raise, asset sales and capex mothballing.

    In doing so Moody's merely confirmed our skepticism from September 7 when we said this Glencore's action "merely reinforces our thesis and allows all those who missed the initial blow out in GLEN credit default swaps to put the trade on... at levels not seen since about a month ago. Because as a result of today's asset-stripping and equity-raising activity, Glencore is now a that much better levered bet on China's economy in a broad sense, and copper pricing in a narrow one."

    Our conclusion from the Monday two weeks ago, when GLEN CDS was trading back down at 300 bps:

    "with every passing week that neither China's economy rebound nor copper reverses recent losses, expect GLEN CDS to accelerate its widening once again, and overtake its recent multi-year high level of 445 bps in very short notice."

    Fast forward to this morning when not only did Glencore stock drop below 100p for the first time ever as we noted in our overnight wrap, but according to CMA, the shock that the company's deleveraging will not be enough is now shaking the entire capital structure, and, lo and behold, as of moments ago, GLEN CDS just soared by 74 bps to a whopping 464 bps - the widest since January 2012, and hitting our target in just two weeks.

    We expect this CDS blowout to continue.

    What's worse, if the company is downgraded from investment grade to junk, watch as the "commodity Lehman" scenario for Glencore, which much more than a simple copper miner just happens to be one of the world's biggest commodity trading desks, comes full cricle leading to waterfall collateral liquidations and counterparty freeze-outs as suddenly the world is reminded that there is a vast difference between a real and a rehypothecated commodity, and that all collateral rehypothecation chains are only as strong as the weakest counterparty!

    Incidentally, today's Glencore implosion is a far greater risk to the capital markets and the global economy than Volkswagen: a few executive resignations, a few bribes to US Congress, and the scandal will be promptly snuffed.

    For Glencore, however, which suddenly the entire world realizes is - as we said in March 2014 - the way to trade China, it may now be too late.

    Attached Files
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    Oil and Gas

    Asian LNG prices seen sinking as low as $4 in ‘ugly’ market

    The slump in LNG prices still has further to go, even after a plunge of 60% from last year’s peak, according to FGE, an energy consultant.

    LNG prices may sink as low as $4 per million British thermal units by 2017 because of a glut and probably won’t rise above $8 before 2020, FGE Chairman Fereidun Fesharaki said in a phone interview. That compares with the latest spot price of $7.10 for LNG shipped to northeast Asia, according to New York-based Energy Intelligence Group.

    “It’s an ugly environment,” Fesharaki said.

    While the International Energy Agency four years ago envisioned the possibility of a golden age of gas, Japan’s return to nuclear power after the 2011 Fukushima disaster and cheaper alternatives are threatening demand. LNG producers, meanwhile, are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.

    The bulk of the new supply is coming from Australia, where companies including ConocoPhillips, Origin Energy Ltd., Chevron Corp. and Royal Dutch Shell are spending more than $150 billion on export ventures. Most LNG projects have long-term contracts with customers linked to the price of crude oil, which has slumped about 50% in the past year.

    “But as we go forward, the outlook looks better and better in the early 2020s,” said Fesharaki, whose firm advises big oil companies and banks. “The challenge is to persuade your board to go forward and put the money up. Nobody wants to spend that kind of money in this environment.”

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    RIL may have to sell coal bed methane gas at USD 3.8

    Times of IndiaTimes of India reported that the Mukesh Ambani-led Reliance Industries has received a setback with the government clarifying that the prevailing natural gas prices will apply to coal bed methane producers as well. This means RIL will have to settle for 1/3 of the USD 12 per million British thermal unit it had sought for gas set to be generated from next month at its Madhya Pradesh CBM blocks.

    Mr Dharmendra Pradhan, Oil Minister of India, said that "We don't come out with company-specific policy. It is a government of India policy and applies to all players, including Reliance and there is no change."

    The current natural gas price in India is USD 5.1 per million British thermal unit, approved by the NDA government and is expected to come down to USD 3.8 per million British thermal unit when it is revised in September-end. This will be much below the USD 4.2 per million British thermal unit that the companies were getting until last year under the UPA regime.

    Declining to comment, an RIL official said that the company has not received any official notification from the government.

    RIL is on the verge of commencing gas production from its CBM blocks in Madhya Pradesh and Chhattisgarh and is awaiting the completion of its pipeline to transport gas to users. The company is expected to produce 4 to 5 million standard cubic meter of gas per day of gas from its blocks, taking India's CBM gas production to 6 million standard cubic meter of gas per day from 1.1 million standard cubic meter of gas per day being produced by Essar Oil and Great Eastern Energy Corporation.

    With the revision of gas prices from October 1st, RIL may not have to deposit the surplus amount to the gas pool account of the government as the new prices will be lower than USD 4.2 per million British thermal unit, a price RIL is authorized to recover from the buyers.

    The company, which is currently producing 11 million standard cubic meter of gas per day of gas against a target of 80 million standard cubic meter of gas per day, has maintained that the company will not be able to invest in augmenting production in the future unless it gets marketlinked prices.

    Currently, GEECL's Raniganj South and Raniganj East held by Essar Oil are the only 2 blocks under production. ONGC's Jharia block started test production but is yet to achieve commercial stage. The petroleum ministry has already received inputs from the industry about non-viability of CBM operations at a lower gas price. In contrast, GEECL sells gas from its CBM block at USD 1011 million British thermal unit as the government has approved a minimum floor price for these fields.
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    Petrobras Selling Stake in Natural Gas Distributor to Mitsui

    Petroleo Brasileiro SA, Brazil’s state-controlled oil company, is in the final stages of selling a stake in a natural-gas distribution holding company to Mitsui & Co. as it seeks to raise cash by divesting assets.

    The sale of a 49 percent stake still needs final approval from the board of directors and regulators, Rio de Janeiro-based Petrobras said in a statement Tuesday. Financial terms of the deal weren’t disclosed.

    Petrobras has more than 7,000 kilometers (4,350 miles) of gas pipelines in Brazil that supply residential and industrial users, according to its website. The company is cutting spending at peripheral businesses to focus on its most promising oil fields in deep waters in the South Atlantic.

    Chief Executive Officer Aldemir Bendine said Monday that the company is working to reduce costs to withstand a combination of lower oil prices and a weaker local exchange rate, which has increased costs to service the company’s debt. Petrobras joins other major oil companies including Chevron Corp. and ENI Spa in selling assets amid a rout in oil prices to raise cash and reduce operating expenses.
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    Halcon Resources Corp's Day of Reckoning Might Be Closer Than You Think

    Halcon Resources Corp investors need to mark this date on their calendar: December 31, 2018. That's the date the company expects to survive through given its current liquidity. That said, the hope is that by that time oil prices will be much higher making it a moot point. However, if oil doesn't improve the company's day of reckoning could be much closer than the end of 2018 because its liquidity isn't quite as solid as the company boasts.

    Some breathing room
    Over the past year Halcon Resources has undertaken a handful of initiatives to improve its liquidity and remove debt from its balance sheet. These initiatives include raising equity, engaging in a debt-for-equity exchange, and issuing new debt to pay off its credit facility and buy back some of its senior notes. According to CFO Mark Mize,

    The end result of these efforts is that we have no near-term maturities and we have sufficient liquidity to fund our operations and service our debt for years to come. We continue to look for ways to further strengthen our balance sheet as it relates to leverage and liquidity. We ended the second quarter with just over $900 million of liquidity and we can comfortably operate the company through 2018 at the current drilling pace with the current financial resources available to Halcon Resources.

    What Mize is saying is that Halcon Resources has crunched the numbers and it can survive through 2018 on $900 million plus the cash flow it expects to generate from its oil and gas wells. That cash will enable the company to fund its daily operations, drill new wells to at least keep its production flat, and pay the interest on its debt. That sounds great, however, there's just one problem. That $900 million number he mentioned could easily vanish well before 2018.

    When liquidity isn't quite so solid
    The reason its liquidity could dry up well before 2018 is because that liquidity consists almost entirely of the availability under the company's revolving credit facility. It's a borrowing base that the company's banks actually revisit each spring and fall, meaning they could theoretically reduce it a number of times between now and 2018 should oil remain weak.

    In fact, that number recently slipped to $850 million after the company's most recent debt refinance where it exchanged $1.02 billion in new 13% notes for $1.57 billion in lower yielding notes. This is because as part of the agreement the company also reduced its borrowing base by $50 million. Any future debt agreements could result in additional slices being taken out of its credit facility.

    Further, while Halcon Resources expects that new $850 base to stick this fall during its regularly scheduled redetermination, there are no guarantees. There is a very real possibility that its banks could show it a cold shoulder this fall as analysts expect $10 billion in credit to be withdrawn from the oil patch with credit facilities seeing an average reduction of as much as 15%. Now, that doesn't necessarily mean that Halcon's will be cut as it probably has a good idea from its banks that the $850 number will stick. However, it can't be so sure that the number will stick this spring when its banks redetermine that number once again. If oil prices remain weak, and/or we have a rash of bankruptcies in the oil sector, there could be deep cuts in oil company credit lines next spring. That suggests that Halcon Resources can't really count on its bank credit line being a solid source of liquidity through 2018.
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    US Gas pipeline flows jump in September

    Bloomberg graph below which shows US natural gas pipeline flows in billions of cubic feet per day (bcf/d).
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    If my comments in the graph end up being true, then that would suggest the cheaper Marcellus gas will soon be displacing Canadian natgas in the US Midwest—which would mean a larger discount (lower price) is coming for Canadian gas to stay competitive in North America. And natgas storage on both sides of the 49th are very healthy; not quite burgeoning but close.

    Attached Files
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    Alberta should strengthen environmental rules -leader

    The Canadian oil-producing province of Alberta wants to strengthen its environmental regulations and bend the curve on its rapidly-rising greenhouse gas emissions, Premier Rachel Notley said in a radio interview broadcast on Tuesday.

    Notley said her government is proceeding with promises to review royalty rates paid by the oil and gas industry and improve its climate change policies. Her left-leaning New Democrats were elected in May, ending 44 years of Conservative rule in the western Canadian province.

    Alberta's oil sands, vast deposits of tar-like bitumen, are the world's third-largest crude reserves, but also carry some of the highest costs globally because of the scale of projects and energy-intensive production methods.

    The federal environment department has estimated that the oil sands industry is Canada's fastest growing source of heat-trapping greenhouse gas emissions, making it difficult for the country to meet Canadian Prime Minister Stephen Harper's international climate change commitments.

    Notley told CBC radio that Alberta's industry was suffering globally in part because people did not believe it was adequately protecting the environment. Her government, which raised the cost of greenhouse gas emissions for large industrial plants in June, is now waiting for an expert panel to advise it on a comprehensive climate change strategy.

    She said the end result would likely be somewhere between the demands of industry and environmentalists.

    "Are we going to immediately get to the same standards that everyone else is at? Probably not," she told the CBC. "But what we need to do is put together a credible, science-based plan that will sustain the review of experts, that bends the curve and sets Alberta on the right path."

    She said her government recognized it should not "pile on" with changes when oil and gas companies are struggling due to the plunge in global crude prices that have prompted thousands of layoffs.

    But she said the NDP was less dependent on the industry for political support than the Conservatives were, and her government intended to ensure that Albertans are getting their fair share of resources at the end of a royalty payments review, expected to conclude in December.

    Notley's government has also pledged to phase out coal-fired electricity generation, and has said it would introduce new plans to promote energy efficiency and more renewable energy.
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    North Dakota oil producers, regulators spar over new rules

    North Dakota's oil producers and their federal regulators spared at an industry conference on Tuesday over a raft of new rules with broad implications for energy development, the latest escalation in a war of words that has both parties aiming to sway public opinion.

    The public spat at the North Dakota Petroleum Council's annual meeting comes as federal agencies move to exert greater control over how oil companies extract crude from shale formations and how even small bodies of water are used nationwide.

    Both proposals, from the Bureau of Land Management and U.S. Environmental Protection Agency (EPA), respectively, as well several other unrelated measures have sparked condemnation from energy executives, though environmentalists say they are crucial.

    The oil industry sees such efforts as the egregious overreach of a group of regulators setting their sites on a new target after tightening oversight of coal-fired power plants.

    "Now that that's over, they're going to be focusing on us," Dawn Coughlin, an environmental affairs manager at oil producer Hess Corp, said at the conference as federal regulators sat in the audience. "We're next."

    Wayne Stenehjem, North Dakota's attorney general and a rumored candidate for governor in 2016, touted a dozen lawsuits opposing the new regulations that he said he would pursue "with zeal."

    "We really don't need the EPA to tell us they love our land more than we do," Stenehjem said. "We're the ones who live here."

    Regulators from five federal agencies then took the stage for a panel discussion where they politely shot back.

    Dennis Neitzke of the U.S. Forest Service asked why oil producers couldn't work together more to construct shared pipelines rather than try to each build their own, a step that delays approval and heightens regulatory oversight.

    "Right now we're reviewing three or four pipelines for three or four oil companies," Neitzke said. "What would it take for companies to say, 'I wonder if we could use the same pipe?'"

    Wendy Hart Ross, superintendent of Theodore Roosevelt National Park, said the industry must do more to mitigate light and sound damage to national park land.

    "I get more comments on a daily basis about oil and gas impacts on the park," said Ross.

    Coughlin, the Hess manager, did cite one recent regulatory decision as signs of a possible detente: the Obama administration's decision on Tuesday to deny Endangered Species Act protection to the greater sage grouse.
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    ConocoPhillips Said to Be Near Deal to Sell Canadian Assets

    ConocoPhillips, the third-largest North American oil and gas producer, is nearing a deal to sell several Western Canadian assets to various buyers including Canadian Natural Resources Ltd., people with knowledge of the matter said.

    An agreement could be reached as early as this week, said the people, who asked not to be identified because the discussions are private. A deal hasn’t been finalized and talks could still fall apart, the people said.

    Production from the properties, located in Alberta, British Columbia and Saskatchewan, represents about 20 percent of the Houston-based company’s Canadian volumes outside of oil sands.

    The properties produce the equivalent of almost 35,000 barrels of oil and gas a day and include a net working interest in 2.4 million acres for future drilling, according to the marketing material for the assets, an area slightly larger than Yellowstone National Park. Based on that, the group of assets could be valued at $ 1 billion or more, according to data compiled by Bloomberg.

    A spokesman for ConocoPhillips declined to comment, as did a spokeswoman for Canadian Natural.

    ConocoPhillips is among producers that have turned to asset sales to shore up their balance sheets and focus on core areas after oil prices plunged by more than half since last year’s highs.

    Earlier this month, the company said it plans to reduce its workforce by about 10 percent, or 1,800 jobs.
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    Alta Mesa sells Eagle Ford acreage for $125 million

    Small U.S. oil producer Alta Mesa Holdings is selling an Eagle Ford Shale unit for $125 million to shore up cash for its balance sheet.

    The sale of subsidiary Alta Mesa Eagle to EnerVest, which is expected to close by the end of the month, includes 7.8 million barrels of oil equivalent in reserve, most of which are in Karnes County, one of the most active regions within the South Texas shale play. After the deal, Alta Mesa will have sold off all of its assets in the region.

    Analysts expect oil-company asset sales to increase in coming months as lenders reassess the loans they made to oil producers when crude prices were higher.

    In late July, Moody’s Investors Service downgraded the Houston company’s credit rating saying low commodity prices will keep the company struggling with its “weak liquidity, high leverage and limited cash flow generation” through 2016.

    Alta Mesa said it also signed paperwork that could grant its Oklahoma subsidiary an option to buy about 1,700 net acres in Kingfisher County, Oklahoma by the end of the year.
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    Alternative Energy

    China calls for better management of small hydropower stations

    Officials said that China still has vast potentials to develop small hydropower plants but better management should be in place to minimize their environmental impact.

    Mr Tian Zhongxing, an official with the Ministry of Water Resources said that China had 47,000 small hydropower stations, each with an installed capacity of less then 50,000 KW, at the end of last year,

    The aggregate installed capacity of the small hydropower stations hit 73 million kW with an annual electricity output of 220 billion kWh, which accounted for one fourth of China's total hydropower output.

    Mr Tian said that however, the small stations represent only 41% China's small hydropower potential, lagging far behind developed countries,the rate stood at 97% in Switzerland and France, 96% in Spain and Italy, and 84% in Japan.

    Mr Tian called for more efforts to develop hydropower as most of China's untapped hydro resources are based in 832 impoverished counties. Related projects can stimulate local economic growth.

    Mr Liu Huan, director of the International Center of Small Hydro Power under the MWR said that there are dissenting voices on the construction of small hydro stations. But the environmental impact, such as soil erosion, is resulted from a lack of oversight and management.

    Mr Tian said that "With scientific planning and management, we can minimize or even eliminate the adverse effect on the environment."

    China aims to bring the installed capacity of small hydropower stations to 75 million kW by 2020.
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    Base Metals

    Mining Bears: 2 more lean years say SNL.

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    The report compares the current downturn to the previous bear market in mining which ran from 1997 to 2002 and argues that capex cutbacks are far from over.

    Instead the industry should brace itself for at least another two years of shrinking budgets and outlays with the first signs of a "subdued" recovery only appearing early in 2018.

    But even this prediction could be too bullish.

    "Worryingly, metal prices have already fallen 12% further than they did during the bear market in the 1990s. In the last bear market, capex only recovered to its pre-crash (1997) level after seven years (2004)," according to Fellows.

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    Indonesia puts 500,000 tonnes copper concentrate in doubt

    Newmont's Indonesian copper export permit, which expired on Tuesday, will not be renewed because the company failed to meet government stipulations for developing a domestic smelter, government officials said.

    Chief Executive Gary Goldberg said on Tuesday Newmont is in talks with the Indonesian government and he said he expected it would take "a couple of weeks" to sort out," according to the report:

    "In the meantime we continue to operate at full capacity. The last export shipment was earlier today," Goldberg said in an interview at an industry conference in Denver.

    Newmont, the country's number two exporter behind Freeport, is forecast by the Indonesian government to produce 500,000 tonnes of copper and gold concentrate in 2015.
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    Congo drops objections to Ivanhoe Mines' copper deal

    Democratic Republic of Congo's government supports Ivanhoe Mines' $400 million sale of a stake in its Kamoa copper mine to China's Zijin Mining , it said on Tuesday, dropping earlier objections to the deal.

    The sale is a pre-requisite for the development of Kamoa, which is thought to be the world's largest untouched high-grade copper discovery. A feasibility study on the Kamoa project is expected at the end of next year.

    In a statement, mines minister Martin Kabwelulu and portfolio minister Louise Munga Mesozi added that Ivanhoe had agreed to sell an additional 15 percent stake in the mine to the government, which currently controls five percent.

    The government said in June that Vancouver-based Ivanhoe's sale in May of a nearly 50 percent stake in the copper project in southeastern Congo to Zijin for $412 million should be suspended until concerns over the purchase of its own stake were addressed.

    It was not exactly clear what the government's objections were, although industry sources said they wanted guarantees on their own stake first.

    The conditions of the sale to the government still needed to be finalized in a contract with Ivanhoe subsidiary Kamoa Holding Limited and the mine, the statement said.
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    Steel, Iron Ore and Coal

    Coal futures drop to $50/T first time since 2003 as Goldman calls peak

    Coal futures are trading at $50 a tonne for the first time since 2003 as the commodity downturn deepens, and U.S. investment bank Goldman Sachs says the resource will never gain enough traction again to lift it out of its slump.

    Tumbling coal and metals have weighed heavily on mining shares this week, led by the world's biggest thermal coal producer Glencore, which saw its stock fall to a record low of 106.35 pounds ($163.19) on Tuesday. Glencore shares are down 82.1 percent since the firm was listed in 2011 and two-thirds lower than at the start of this year.

    Benchmark coal futures hit historic peaks in 2008, when coal traded above $200 per tonne, and like most commodities has not returned to such heights.

    Yet the plight for coal has been worse than for other fuel as its latest downturn started in 2011, while the current slump for oil and natural gas only started in 2014.

    Coal's fall has also been steeper, plunging 77 percent since 2008 and 63 percent since 2011, compared with 69 percent and 60 percent drops for oil since the same two years.

    Asian natural gas prices (LNG) are down two-thirds since their peak, which came later than in other commodities, in 2014.

    Goldman Sachs said coal is in terminal decline.

    "Peak coal is coming sooner than expected," Goldman said in a note to clients this week, adding that its consumption would peak before the end of the decade.

    "The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues," Goldman said.

    As a result the bank, which sold its coal mines in August, has cut its coal price forecast.

    Goldman set its forecast for Australian thermal coal at $54 per tonne for 2016, $52 for 2017, and $51 for 2018.

    "We also reset our long-term forecast to $50/T, down 23 percent from $65/T, to reflect what we see as the remote likelihood that the market will tighten ever again," it said.

    Coal's weakness started in developed economies, where natural gas and renewables eroded its market share, but spread in 2014 to emerging markets like China and India - which rely largely on coal to meet energy demand.

    The biggest impact has come from top commodity consumer China, where the economy is now growing at its slowest in decades, pulling down January-August coal imports by nearly a third from a year ago, with talk of China becoming a net coal exporter.

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    China Aug thermal coal imports down 24% on yr

    China imported 7.2 million tonnes of thermal coal in August, down 24.4% on the year but up 1% from July to a four-month high, according to the latest data released by the General Administration of Customs.

    The volume included 5.16 million tonnes of bituminous and 2.04 million tonnes of sub-bituminous coal, but excluded imports of lower CV lignite material.

    The largest shipper of thermal coal to China in August was Australia at 3.71 million tonnes, although the volume dropped 35% on the year and also fell 7% from July to a six-month low.

    China imported 2.38 million tonnes of Indonesian thermal coal in August, down 16% from the same month in 2014, but up 12% on the month to a four-month high.

    Thermal coal imports from Russia rose 21% on the year to 961,468 tonnes, while there were no shipments from South Africa or Colombia and just 38 tonnes from the US.

    Total lignite imports for the month slipped 19% from July to 4 million tonnes, of which 3.76 million tonnes was from Indonesia.

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    Daqin autumn maintenance to last 20 days from Oct 8

    China’s leading coal-dedicated Daqin rail line, connecting Datong City of coal-rich Shanxi province with northern Qinhuangdao port, will start routine autumn maintenance from October 8, sources said.

    The maintenance will last 3-4 hours each morning for 20 days, and repair work will cover rail tracks replacement, reconstruction on signal lamps and contact lines, several sources told China Coal Resource (CCR).

    One insider with the Taiyuan Railway Administration, operator of Daqin line, said the administration has yet to release a notice officially.

    Usually, utilities would increase coal shipment from northern ports before the maintenance to build up stocks to ensure supply during the maintenance, which would bolster the coastal coal demand to some extent.

    But that was the case seen in recent autumn maintenances. The coal market situation has been worsening this year, with average daily coal haulage by Daqin in August down to 1.09 million tonnes, close to the level during the 2014 autumn maintenance over October 9-24.

    Most utilities ran low coal burn and had comfortable stocks of 26 days’ coverage on average, with no urgency to stock up on coal before the maintenance.

    Coal vessels waiting for loading at the benchmark Qinhuangdao port stayed low at 37 on September 22, 6 less than a week ago, showed the CCR data.

    Coal stocks at power plants under the six coastal utilities fell 0.37% from the previous week to 13.48 million tonnes on September 21, enough to cover 26 days of consumption, flat with a week ago; daily coal use declined 3.77% on week to 0.51 million tonnes.

    Market participants generally held that this upcoming maintenance may provide limited support to the coastal coal market.

    Prices of thermal coal at the coastal market have been slowly sliding since entering September, and the Fenwei CCI 5500 Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was assessed at 381 yuan/t with VAT on September 22, FOB basis, falling 4.5 yuan/t from the start of the month.

    The CCI 5000 Index was assessed at 335 yuan/t, inclusive of VAT, FOB Qinhuangdao, for domestic 5,000 Kcal/kg NAR coal on the same day, down 1 yuan/t from the month beginning.

    Even so, coal inbound railings to northern ports by Daqin are expected to decrease during the maintenance, which may cause tightness in supply of some coal varieties, especially low-sulfur and low-CV coals for blending purpose.
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    TECO sells coal unit for $0.

    TECO Coal sale complete

    TECO Energy Inc. has closed the sale of its coal mining subsidiary, TECO Coal LLC, to Cambrian Coal Corp. There were no up-front purchase payments for the sales agreement, however the agreement does include future contingent consideration of US$60 million if certain coal benchmark prices meet particular levels over the next five years.

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    Vale vows deeper iron ore cost cut as China's steel demand peaks

    Iron ore miner Vale said it will cut its production cost to less than $13 per tonne by 2018, as the world's largest producer of the commodity maximises profit margins in an era of weak prices.

    A global glut and falling Chinese steel demand have dragged iron ore prices to less than $60 a tonne from a high of nearly $200 in 2011. The price is forecast to drop to $50 over the next two years, a Reuters poll showed.

    "Vale is progressing to reach the lowest cash cost of the industry and will be competitive at any price scenario," Claudio Alves, global director of marketing and sales at Vale, told a conference in China's port city of Qingdao.

    The cost reduction will come after the completion of Vale's 90-million-tonne expansion project known as S11D in the Brazilian Amazon, Alves said, as the miner focuses on producing more high-quality material.

    Vale's overall cost stood at $15.80 per tonne by the second quarter.

    That compares with $16.20 for Rio Tinto Ltd and $17.01 for BHP Billiton Ltd for the first half of the year, and $22.16 for Fortescue Metals Group Ltd by the second quarter, said Alves, citing estimates from the miners' latest profit reports.

    BHP expects to reduce iron ore unit costs at its Western Australia operations by 21 percent to $16 per tonne in the 2016 financial year.

    The end of the mining boom has forced Vale and its Australian rivals to focus on costs amid sliding iron ore prices.

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    Roy Hill on target to ship 55 MPTA iron ore in 15 months – Mr Fitzgerald

    Image Source: The West AustralianThe West Australian reported that Ms Gina Rinehart’s $10 billion Roy Hill project has accumulated more than 19 million tonnes of high-grade iron ore in stockpiles as it gets ready for first shipments.

    CEO Mr Barry Fitzgerald reiterated that Roy Hill should be exporting first cargoes from Port Hedland some time next month, in line with the adjusted timetable of a one-month delay to the original target.

    Bloomberg quoted Mr Fitzgerald as saying on the sidelines of the China International Steel & Raw Materials conference in Qingdao “We’re on target to increase mining capacity to 55 million tonnes a year in 15 months.”

    The much anticipated start-up of Roy Hill comes at a tough time for the iron ore industry, which has seen the price of the steel-making commodity fall from above USD 150 a tonne 2 1/2 years ago to below USD 60/t.
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    Fortescue says "open" to selling stakes in mines, infrastructure

    Australian miner Fortescue Metals Group is "certainly open" to selling stakes in its mines as well as its rail and port infrastructure, the company's chief executive said Tuesday.

    "If we have the right value and the right terms then we are prepared to look at it with a strategic partner," Neville Power told Reuters in an interview in the Chinese port city of Qingdao.

    Power said he expected demand for the firm's iron ore in China, the world's biggest consumer of the steelmaking raw material, to remain very strong.
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    Goa sells only 37% of iron ore 11th E auction

    Image Source: fm-baseTimes of India reported that low iron ore prices in the international market have resulted in just 37% of iron ore being sold at the eleventh e-auction held on Tuesday.

    The directorate of mines and geology had identified over 1.1 million tonnes of iron ore for the eleventh e-auction out of which only 417,000 tonnes were sold. The base price for the e-auction varied between 500 to 900 for different grades.

    DMG senior officer said that during the initial auction, the state government had sold entire lots of iron ore for higher price, but as international ore prices have now collapsed, there is no enthusiasm among buyers, thus resulting in the low prices.

    1.5 million tonnes of ore will be e-auctioned during the twelfth e-auction fixed tentatively for September 29.

    The state government has till date e-auctioned around over six million tonnes of iron ore and collected a revenue of over 800 crore.
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    LME gets industry execs on board ahead of steel contracts launch

    The London Metal Exchange (LME) has appointed four new members to its steel committee, including leading industry executives who are backing the exchange's new steel rebar and scrap contracts ahead of their launch in November.

    The newcomers include Goldman Sachs' Philip Killicoat and William Schmiedel from Sims Group, the world's largest listed scrap metals recycler.

    Also joining are Spencer Johnson from broker INTL FCStone and Gianpiero Repole from Liberty Commodities, a trade house.

    The LME, the world's biggest marketplace for trading base metals, is also close to sealing deals with market makers to guarantee liquidity for the new contracts.

    "There's a lot of interest in hedging scrap and rebar ... what's preventing us is a lack of liquidity in (existing) contracts so having a market maker would be lovely to see," said Antonio Novi, a director at Levmet, a metals trader that also provides hedging services to industrial companies.

    The LME said it has also appointed Christian Schirmeister, a metals veteran formerly at JP Morgan, to help promote the contracts.

    However, Novi said he was not yet entirely confident the contracts would succeed.

    Industry experts say that for real longevity, the contracts will need support from several major banks and the participation of top steelmakers and institutional investors.

    Steel derivatives have failed in recent years, including the LME's own billet future, partly because steelmakers outside China shunned them.

    This attitude is slowly changing, though, especially in iron ore, a key steelmaking ingredient.

    "Steelmakers have been looking at trading iron ore as a way of covering their price risk, but a lot of them don't have a mandate (from management) to trade because trading is seen as speculation," said an industry participant.

    According to the LME website, Tata Steel, Europe's second-largest steelmaker, will take part in a ferrous metals panel during the LME Week industry event in London this October.

    Sources told Reuters last year the steelmaker had taken a board level decision to start using iron ore derivatives, adding that the world's biggest steelmaker, ArcelorMittal, was already dipping its toes into the market..
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