Mark Latham Commodity Equity Intelligence Service

Wednesday 13th January 2016
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    After "Murderous" Squeeze, China Boosts Capital Controls By Ordering Banks To Limit Yuan Outflows

    Back in September, just weeks after China's first dramatic currency devaluation, and when Bitcoin was trading at $220, we wrote that "China Scrambles To Enforce Capital Controls" and explained why this is "Great News For Bitcoin." Sadly, China's attempts to boost its capital controls failed as confirmed a few months later by the biggest one-month reserve liquidation in history which took place this past December, while fears about ongoing currency devaluation have led to lines of people rushing to exchange their Yuan into dollars. Oh yes, Bitcoin today is double where it was in September.

    So, now that China renewed its currency devaluation over the past 2 weeks with the CNY and CNH both plunging and unleashing the latest round of cross-asset selling across the world, it was only a matter of time before China boosted, or at least tried to, capital controls once again. Which according to Bloomberg it did moments ago:


    Actually, since all Chinese banks are at least partially state-owned, change that "ask" to "order." Here are the details:

    China’s foreign-exchange regulator has verbally instructed some banks operating in the mainland to limit yuan outflows and reduce offshore yuan positions and liquidity, according to people with knowledge of the matter.

    Banks are asked to better manage net yuan outflows in their capital accounts in the near term, according to the people, who asked not to be identified because the information hasn’t been made public.

    Banks are also requested to properly manage cross-border interbank yuan borrowing and corporate offshore yuan lending.

    The State Administration of Foreign Exchange didn’t immediately respond to a faxed request for comment after office hours.

    This takes place after overnight the PBOC unleashed a "murderous" liquidity squeeze, which sent the deposit rate on the offshore Yuan to 66%, or an overnight widowmaker for anyone who was short the currency.

    What happens next? Most likely a rerun of September, when a comparable (failed) attempt to boost capital controls and preserve capital outflow simply lead the public to find more effective ways to evade said capital controls... and also lead to a doubling of bitcoin in 4 months.

    Finally, how long before it becomes obvious to everyone that what is going on in among the top echelons of power in China can be summarized with one word: panic.
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    China Trade Surplus Swells as Exports Rise in Boost for Yuan

    China’s trade surplus widened and exports recovered last month, offering support to a weakening currency that has roiled global markets this year.

    The nation’s trade balance widened to $60 billion, taking the full-year tally to $594.5 billion, helping offset capital outflows that have pressured the yuan. Exports slid 1.4 percent in U.S. dollar terms in December from a year earlier, and rose when counted in the local currency.

    Asian equities and the Australian dollar climbed. China’s tumbling shares, which fell again Wednesday, and its weakening currency have shaken global markets in 2016, eroding confidence in an economy that’s struggling to stabilize after it likely grew last year at the slowest pace in a quarter of a century.

    "The Chinese economy is stabilizing rather than collapsing," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd. in Sydney, adding that the trade surplus weakens the case for a substantial yuan depreciation. "Last week’s renewed share market turmoil in China owed more to regulatory issues around the share market than telling us much about the state of the Chinese economy."

    Exports climbed 2.3 percent in yuan terms from a year earlier, the customs administration said Wednesday, compared with a 3.7 percent drop in November. Imports extended a stretch of declines to 14 months, falling 4 percent in yuan terms, compared with a 5.6 percent drop a month earlier.

    In U.S. dollar terms, imports fell 7.6 percent from a year earlier, less than the 11 percent drop forecast by economists. In volume terms, the import data looks better, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note.

    "China’s purchases of major commodities remain on trend, and even accelerated slightly in December," they wrote. "Commodities markets might be concerned about China’s growth outlook, but based on current purchases there’s little cause for alarm."

    China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. Iron ore imports jumped to a record last month, while steel exports climbed as the nation sells its glut overseas.

    Raising question marks over the sustainability of any export recovery, shipments to Hong Kong led the advance last month. Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.
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    Gundlach warns stock, credit markets to struggle in first half, near term low in Oil

    Gundlach warns stock, credit markets to struggle in first half, near term low in Oil

    Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital and was prescient in his call for lower oil prices in 2015, said on Tuesday that oil hit a short-term bottom and that stock and credit markets will struggle during the first half of the year.

    As oil prices per barrel flirted with the $30-mark on Tuesday, Gundlach told Reuters: "Fundamentals are lousy but the technicals call for a short-term bottom today. A short-term bottom is due today, actually."

    Gundlach, who oversees $85 billion at Los Angeles-based DoubleLine Capital, said the snowball effect of lower oil prices will prompt Standard & Poor's to launch a barrage of credit-rating downgrades. "It's already happening, in fact," he said.

    Gundlach has also said the U.S. economy faces a 30 percent chance of recession this year. "Commodity prices so weak suggest dwindling global growth," Gundlach said.

    Gundlach said weak nominal gross domestic product growth; falling commodity prices, especially in energy which portend higher corporate default rates; tightening financial conditions and higher financing costs for corporations will affect growth.

    In a webcast later on Tuesday, Gundlach said both stock and corporate credit markets will struggle during the first half of the year. Gundlach said if the strong rhetoric by Federal Reserve officials continue, the S&P 500 index will come under renewed selling pressure.

    "The stock market is having a hard time (after the December rate hike). This is not a time to be a hero," Gundlach said about buying dips. "I think we're going to take out the September low of the S&P 500."

    He said stock markets are likely to struggle early in 2016 before a "buying opportunity" later in the year. Gundlach also said it was: "Too early to be buying a lot of speculative credit."

    Gundlach said the Fed began its rate-tightening cycle in December because average hourly earnings were trending higher. He said Fed officials needed to dial back their rhetoric, given softness in global markets and economic growth.

    On the U.S. dollar, Gundlach said the U.S. dollar "has peaked out" for the near term. Gundlach also said he didn't recommend investments in China anytime soon.

    DoubleLine Capital posted a net inflow of $1.03 billion into its open-end mutual funds in December, marking the 23rd straight month of inflows. Those funds attracted $14.31 billion overall in 2015. The firm's flagship DoubleLine Total Return Bond Fund, with $51.78 billion in assets, had a net inflow of $10.94 billion in 2015.
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    Whiff of Panic in the air?

    RBS Warns: Sell Everything

    RBS economists have urged investors to “sell everything except high quality bonds,” warning of a “fairly cataclysmic year ahead.”

    Writing in a client note dated Jan. 8, the bank’s European rates research team said that clients should be concentrating on “return of capital, not return on capital,” and that an ominous outlook to the world economy “all looks similar to 2008.”

    The Key Points

    • • The note is particularly bearish on China and global commodities, and predicts that oil could fall as low as $16 a barrel.
    • • In a grim set of predictions, Andrew Roberts, head of European economics, rates & CEEMEA research said that the world has “far too much debt to be able to grow well.”
    • • He also warned that advances in technology and automation are set to wipe out up to half of all jobs in the developed world.
    • • The note says equities could fall 10% to 20%.
    • • It predicts the year will be spent focussing on how to exit positions which have benefited from long running QE, including emerging markets, credit and equities.

    “The world is slowing, trade is slowing, credit is slowing, we are in a currency war, global disinflation is turning to global deflation as China finally realises what it needs to do (devalue soon, and sharp) and the US then, against ALL THIS countervailing pressure, then stokes the fire by hiking rates.”
    Andrew Roberts, head of European economics, rates & CEEMEA research, RBS

    While the Fed’s interest rate move last year suggests a positive outlook for the US, the ECB’s quantitative easing is having a powerful effect, and eurozone activity picked up at the end of last year, there are undeniable headwinds, not least from China, oil and commodities.

    RBS is not the first bank to kick off the year with a series of bearish predictions on the world economy:

    Bears Out in Force

    • • JP Morgan today became the third bank to push back its forecast for the timing of a Bank of England rate rise, joining Goldman Sachs and Bank of America Merrill Lynch.
    • Morgan Stanley wrote in a note on Monday that oil prices could still fall a further 10% to 25% if the dollar continues to strengthen.
    • • Other major banks including Bank of America Merrill Lynch, Barclays, Deutsche Bank, Societe Generale and Macquarie have also cut their oil forecasts in the past week.
    • • Ratings agency Standard & Poor’s has more companies on a negative outlook than at any time since the financial crisis.
    • • A survey published by M&G and YouGov on Tuesday, based on data collected in the final quarter of 2015, shows that UK consumer inflation expectations are at their lowest level in three years.

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    Anglo $2bn sale target "a stretch", say analysts

    ANGLO American put the finishing touches to the sale of its Tarmac business after divesting of Tarmac's Middle East operating joint ventures to a subsidiary of Bouygues Group, the French industrial company.

    Anglo announced in July that it would sell its 50% stake in Tarmac to Lafarge for $1.6bn - a valuation above expectations.

    The transaction today sees Bouygues company Colas SA buy Tarmac joint ventures in the United Arab Emirates, Oman and Qatar. "The sale to Colas of an additional non-operating joint venture entity in Oman is pending satisfaction of certain outstanding conditions," said Anglo in an announcement.

    There is scepticism, however, that Anglo American will be able to see the sale of some 30 to 35 of its other businesses at the same level of success, especially given the deterioration in the commodity market.

    Following the likely sale of its Rustenburg Platinum Mines, Anglo American guided to some $2bn worth of disposals in 2016/17 consisting of its niobium and phosphates division, as well as its Australian and South African thermal coal assets.

    Using an industry multiple, HSBC calculated that Anglo would try to get the niobium and phospates assets away for $400m and $500m respectively. It added, however, that "... the weak market backdrop may delay the potential sale or severely depress sale value".

    "Similarly, Australian and South African coal assets are unlikely to attract generous valuations, and as such we view the targeted disposal proceeds as a stretch," the bank said in a report.

    A "firesale" at Anglo’s Kumba Iron Ore was also expected by HSBC if iron ore prices were to fall lower amid ‘financing pressures’, it said.

    Anglo American said last year that Kumba Iron Ore may well test covenants with lenders if market prices were to persist and it failed to lower its break-even. Anglo would not have the appetite to put more capital into the company, said HSBC.

    "Given the cost profile and challenging operating environment for Minas Rio, we think Anglo would consider any bids though we struggle to identify buyers,” it said of Anglo’s Brazilian operation, the value of which it had written down.

    Barclays Capital sounded a slightly more optimistic note on Anglo, however, based on the fact the share had heavily under-performed which, in turn, was "starting to offer a glimmer of support from valuations".

    "However we are staying underweight given that commodity price risk still remains to the downside, in our view, and the prospect of a significant capital raising cannot be ruled out in those circumstances," it said.
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    Obama says must change the way nation manages fossil fuel resources

    President Barack Obama on Tuesday said he would seek changes in the way U.S. oil and coal resources are managed, prompting a flood of reaction from environmental groups pushing him to do more to limit fossil fuel production - and producers anxious about regulatory changes.

    "I'm going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet," Obama said in his State of the Union address.

    As he enters his final year in office, Obama is looking to secure his legacy on priorities like curbing climate change. The White House did not provide details on Tuesday.

    "That's an issue I would say, stay tuned for the months ahead," White House Communications Director Jen Psaki told reporters during a briefing ahead of the speech.

    "This is not a speech where I would expect a 25-page fact-sheet. This is more talking about his vision and the issues we need to address," Psaki said.

    The Western Energy Alliance, a group that represents oil and natural gas companies that drill on public lands in the western states, said it suspected the lack of immediate details meant that Obama would look for ways to act without Congress.

    "He’ll close out his term by continuing to issue new rules through the federal agencies that kill jobs and economic growth in order to promote his climate change agenda," said Tim Wigley, the group's president, in a statement.

    Environmental groups noted Obama's pledge comes as his administration works on a new five-year plan for offshore oil and gas leases. They are also calling for changes to rules for production of oil and gas on federal lands.

    "For far too long, the Interior Department has given away our publicly owned fossil fuels to mining and drilling companies without regard for the damage they cause to communities and our climate," said Annie Leonard, executive director of Greenpeace USA, in a statement.
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    Oil and Gas

    Crude Curve Collapses - Market Sees Sub-$50 Oil Through 2021

    The crude curve has just collapsed, especially since the rebound after China’s Golden Week reprieve ended around October 15. As Alhambra's Jeff Snider notes, the entire futures curve is under $50, an upsetting commentary on everything from US "demand" to long-term implications and especially those that are derived from economists’ somehow continued insistence that this is all just "transitory."

    Image title
    Transitory just died.

    Attached Files
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    Oil Rebounds From Below $30 as Threat of More Declines Persists

    Oil bounced back after tumbling below $30 a barrel for the first time in 12 years. A persistent oversupply means prices still haven’t staved off the threat of further declines.

    Futures rose as much as 2.2 percent in New York, after dropping 3.1 percent on Tuesday. While the industry-funded American Petroleum Institute was said to report U.S. inventories fell 3.9 million barrels last week, government data on Wednesday is forecast to show supplies expanded. The world is now “confronting $20 oil,” according to Citigroup Inc.

    “The big picture for the market is still oversupply,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “It’s going to be a tough couple of months for prices, $30 oil is very painful.”

    Oil May Rise to $60 in 12 Months, UBS's Purcell Says

    Supplies at Cushing, Oklahoma, the delivery point for New York futures and the biggest U.S. oil-storage hub, declined by 300,000 barrels last week, the API said Tuesday, according to a person familiar with the figures. Nationwide inventories probably rose by 2 million barrels through Jan. 8, according to a Bloomberg survey before an Energy Information Administration report.

    The EIA cut its 2016 forecast for WTI by 24 percent to $38.54 a barrel, according to its monthly Short-Term Energy Outlook Tuesday. U.S. output will drop an average 700,000 barrels a day in 2016, and an additional 270,000 barrels a day next year, the report showed. Production averaged 9.2 million barrels a day through Jan. 1, according to EIA’s weekly data.

    “The $20 number is something you have to talk about,” Ed Morse, the global head of commodities research at Citigroup, said Tuesday in Calgary. “When you’ve seen a $10 price slide and WTI is trading just slightly above $30, the likelihood is fairly great. Clearly oil markets cannot maintain a price at below the $30 level for very long. The question is how much longer.”
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    Amid global price rout, China crude oil imports hit record

    China's crude oil imports hit a record 7.82 million barrels a day (bpd) in December, customs data showed, as the world's No.2 oil consumer took advantage of low crude prices to fill strategic reserves, but also increased its exports of refined fuels to an all-time high.

    Crude imports for December were 33.19 million tonnes, up 21.4 percent on the month and 9.3 percent on the year, well above earlier estimates by Thomson Reuters Oil Research and Forecasts.

    The December import figures may mean China challenges the United States to be the world's top importer of crude, although the U.S. Energy Information Administration has yet to provide its December data. Chinese monthly imports surpassed U.S. imports once, in April 2015.

    China shipped in 335.5 million tonnes of crude oil for the year, the data showed on Wednesday. That was up 8.8 percent, or roughly 542,600 bpd, to 6.71 million bpd - also a new record.

    Wu Kang, Beijing-based vice chairman of FGE Asia, said the two driving factors behind growth in 2015 were new demand from small, independent "teapot" refineries who gained the right to use imported crude oil in the latter part of the year, and stockbuilding in strategic reserves and commercial storage.

    Nearly 20 small refiners have been granted quotas to use imported oil or import oil directly themselves.

    China seized the chance to add up to 147 million barrels to its reserves in the first eleven months of 2015, according to Reuters calculations, following a more than 50 percent slump in oil prices LCOc1 since mid-2014.

    China said it more than doubled the size of its strategic crude oil reserves between November 2014 and the middle of last year, building inventories at a rate exceeding analyst estimates of the country's stockbuilding.

    Industry experts said Chinese firms could expand purchases possibly even more this year, as new tanks become available.

    "2016 might be more interesting as the two driving factors are set to become more powerful as the government relaxed control both on crude imports as well as fuel exports, at a pace faster than thought," Wu said.

    Demand for crude oil could rise 4.9 percent in 2016, the country's petroleum industry association said on Tuesday.

    Even so, with waning economic growth, growth in demand for gasoline was moderate last autumn and appetite for diesel has fallen, putting oil demand - refinery throughput plus net imports of fuels - down 2.5 percent in November.

    Fuel exports have risen as a result, hitting a record 4.32 million tonnes in December, or 975,500 bpd, up 5.4 percent on the year. Exports marked a record 693,300 bpd in 2015, up 21.9 percent.

    Net fuel exports were 1.48 million tonnes in December.

    China has allowed independent refineries to export fuel for the first time, having granted an estimated 440,000 tonnes of quotas under the first batch release.
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    Europe refiners rush to make more gasoline after diesel hangover

    Europe refiners rush to make more gasoline after diesel hangover

    After years of building up diesel production, European oil refiners are using every trick in the book to maximize gasoline output to meet unabated global demand as the two fuels stage a sharp reversal of fortune.

    Many operators on the continent, including Total, BP, Royal Dutch Shell and ExxonMobil, have invested hundreds of millions of dollars over the past decade to increase production of diesel, the road fuel of choice in the region, while seeking to lower gasoline output, seen as a mere "by-product" of that process until recently.

    But today the world faces a growing excess of diesel and spectacular demand in Asia and the United States for gasoline and naphtha, a feedstock for plastic manufacturing.

    While oil refineries can not maintain high output of gasoline without also ramping up diesel production, they are now taking every possible step to tweak production in order to favour gasoline and naphtha.

    One such step is using as feedstock lighter crude oil grades with higher yields of gasoline and naphtha. For example, light Nigerian crude prices have outperformed heavier grades

    Some refineries have also opted to lower operating levels, or runs, in diesel producing units known as hydrocrackers.

    In recent weeks, as naphtha cracks surged to record levels, some refiners have tweaked the distillation boiling temperature, or "cut point", in order to favour naphtha over kerosene and jet fuel, according to refinery sources and traders.

    The results are already showing -- yields of middle distillates, which include gasoil and diesel, dropped to around 50 percent in December, date from industry monitor Euroilstock showed, the lowest in around 6 years.

    "We expect European refiners to do all sorts of things... They are already doing this as the market is sending such strong signals. We will see fractions pulled out of the diesel pool and moved into jet and we will see naphtha fractions taken out of jet and moved into light ends," according to Robert Campbell, head of oil products research at consultancy Energy Aspects.

    Benchmark European gasoline refining margins, or cracks, rose to around $15 a barrel this week -- nearly three times higher than a year ago and ten times above 2013 levels -- as demand in China and Asia for the road fuel remains unabated.

    Diesel cracks, on the other hand, have languished due to rising global production, slower demand and a mild winter that has filled storage tanks to the brim.

    The small changes in refining slates are having an incremental effect. A 1 percent swing in yields could lower Europe's diesel production by more than 250,000 tonnes per month, according to Campbell.

    "It is not enough by itself to right the market but would help a little bit. A similar development in the U.S. Gulf Coast would shave another 150,000-200,000 tonnes off the balance and that starts to have a pretty significant effect on the overall number of cargoes being shown."

    The global shortage in gasoline is expected to continue this year too.

    "With new refinery additions less tailored towards light products and increasing demand for petrol in Asia, it appears increasingly likely that the market could find itself short of gasoline again as it did over the summer of 2015," Barclays said in a note.

    In the near term, the sharp decline in crude oil prices due to a persistent supply glut is likely to support refining margins but Energy Aspect's Campbell expects "modest" cuts in refining rates in both Europe and the United States.

    Once crude supplies tighten towards the end of the year, "that support will go away and margins will really struggle," he said.
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    BP to slash thousands more jobs in face of oil downturn

    British oil and gas company BP announced plans on Tuesday to slash 5 percent of its global workforce in the face of a continued slump in oil prices.

    It said it aims to reduce its global oil production, or upstream, headcount by 4,000 to 20,000 as it undergoes a $3.5 billion restructuring program. BP said its headcount totaled around 80,000 at the end of 2015.

    With crude oil prices at 12-year lows of around $32 a barrel, the world's biggest oil and gas producers are set to continue aggressively slashing spending this year as they face their longest period of investment cuts in decades.

    "We want to simplify (our) structure and reduce costs without compromising safety. Globally, we expect the headcount in upstream to be below 20,000 by the end of the year," a company spokesman said.

    In the North Sea, he said BP planned to reduce headcount by 600 people over the next two years with most cuts likely in 2016.

    BP shares, which have fallen by around 40 percent since the oil price began to slide in mid-2014, were up 1.2 percent at 1157 GMT compared with a 0.8 percent rise for the broader sector index.

    Oil companies including Royal Dutch Shell and Chevron have already slashed tens of thousands jobs globally to deal with a near 75 percent drop in oil prices since June 2014 that has seen earnings collapse.

    BP, which must also pay $20 billion in fines to resolve the deadly 2010 Gulf of Mexico spill, announced in October plans for a third round of spending cuts and said it would limit capital spending, or capex, to $17-19 billion a year through to 2017.

    The company, which has already sold over $50 billion of assets in recent years in order to cover the spill costs, said it expected an additional $3-5 billion of divestments in 2016.

    Fourth-quarter upstream earnings for oil majors are expected to fall by 84 percent from a year earlier and 48 percent from the previous quarter, according to analysts at Macquarie.

    BP will report fourth quarter and full-year results for 2015 on Feb. 2.
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    Petrobras Reduces Production Estimates on Deeper Spending Cuts

    Brazil’s state-controlled oil producer Petrobras has deepened spending cuts and reduced production growth estimates amid the worst oil market in a generation and a massive corruption scandal.

    Petroleo Brasileiro SA, as the company is formally known, has slashed its business plan for five years through 2019 to $98.4 billion, the latest adjustment to the original $130 billion in programmed outlays it announced last year, it said Tuesday in a filing. The company reduced its 2020 target for Brazilian oil production by 3.6 percent to 2.7 million barrels a day as a result.

    “Petrobras has been working to constantly improve its business plan and rapidly adapt to changes in the business environment,” the company said in the statement.

    Rio de Janeiro-based Petrobras has been beset with the collapse in oil prices as it navigates Brazil’s biggest corruption scandal, which blocked some of its suppliers from future contracts and a sent a group of former executives to jail for allegedly taking bribes. The world’s most-indebted oil company still plans to divest $14.4 billion this year to help finance investments.

    The company plans to invest $20 billion in 2016, up slightly from its most recent estimate of $19 billion, it said. It expects Brent crude prices to average $45 a barrel this year, down from its previous estimate of $55 a barrel.

    Petrobras’ shares fell 4.1 percent to 5.84 reais ($1.45) at 10:57 a.m. local time, the lowest since 2003.
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    Petrobras mulls sale of Braskem stake - newspaper

    Brazil's state-controlled oil producer Petrobras is seeking to sell its 5.8 billion Brazilian real ($1.4 billion) stake in petrochemical producer Braskem SA, newspaper Folha de S. Paulo reported on Wednesday.

    Petróleo Brasileiro SA (Petrobras) has hired Brazilian bank Banco Bradesco SA as a financial adviser and has started to pitch the sale to foreign investors, Folha said, without naming sources.

    Petrobras owns a 36 percent stake in Braskem, Latin America's largest petrochemical producer. The sale would help Petrobras meet its target of selling $15.1 billion worth of assets in 2015-16, a key part of its plan to cut debt as oil prices plunge to 12-year lows.

    Petrobras Chief Executive Aldemir Bendine late last year said the pace of divestments in 2016 would likely be faster than originally expected.

    Representatives of Petrobras, Braskem and Bradesco were not immediately available to comment.
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    Abu Dhabi-listed Dana Gas to axe jobs, slash costs by half

    Abu Dhabi-listed Dana Gas aims to slash its head office workforce by 40 per cent and cut general and administrative costs by half between 2015 and early 2016, its chief executive said on Tuesday.

    The energy company will continue to invest in Egypt and sees its production in the country increasing, Patrick Allman-Ward told reporters on the sidelines of a conference in Abu Dhabi.

    Dana produces 34,000 barrels per day of oil equivalent in Egypt, Mr Allman-Ward said, adding its Balsam field in the Nile delta came on stream in late 2015.

    The company has operations Egypt, the UAE and Iraq’s Kurdistan region.
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    PTTEP ‘in Bongkot offer to BG

    Thailand’s PTT Exploration & Production (PTTEP) has made an offer for UK gas major BG Group’s stake in the Bongkot gas field off Thailand, according to a report.

    The Bangkok-headquartered wing of state giant PTT is hoping to conclude the purchase of BG’s 22.2% stake in the field within months, Reuters quoted PTTEP chief executive Somporn Vongvuthipornchai as saying.

    "We have already proposed an offer and it should be concluded in the first half," he told reporters.

    Although not specifying an offer price, Reuters cited him as saying it could be lower than $1.2 billion, given the recent renewed dive in oil prices.

    BG, which is in the process of being taken over by Anglo-Dutch supermajor Shell, put the stake up for sale inSeptember, hiring Morgan Stanley to run the sale process. It had hoped to complete a deal before the end of last year.

    Thailand accounted for about 6% of BG’s global gas output last year, with the Bongkot field meeting about a fifth of the South-East Asian country’s gas demand.

    Thailand’s state-owned PTT Exploration & Production (PTTEP) has a 44.4% stake in the field, while France's Total owns the remaining 33.3%.

    Reuters also said PTTEP may chop its $3.4 billion investment budget for this year even further due to the oil price malaise.
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    EIA Jan DPR: Marcellus Production Way Down Again, Utica Up

    Yesterday our favorite government agency, the U.S. Energy Information Administration (EIA), issued our favourite report, the Drilling Productivity Report (DPR).

    The January 2016 report shows what the EIA predicts oil and natural gas production will be in February from the seven largest commercial shale plays in the U.S. What does the report show?

    The biggest drop in production will once again be the biggest natgas producer in the country–the Mighty Marcellus. The EIA predicts the Marcellus will produce 15.222 billion cubic feet per day (Bcf/d) in February, vs. 15.447 Bcf/d in January, a decrease of 225 million cubic feet per day (MMcf/d).

    Meanwhile the Utica Shale will continue to show an INCREASE in production month over month–from 3.206 Bcf/d in January to 3.249 Bcf/d in February, a 43 MMcf/d increase month over month. The Utica, for a second month in a row, shows the largest increase in natgas production of all seven plays covered in the DPR.

    Overall the DPR shows that oil production month over month will decrease in February, the seventh month in a row, and natural gas will decrease for the eighth month in a row…
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    EDF sinks to all-time low as nuclear waste cost estimate soars

    Shares in French utility EDF sank to all-time lows on Tuesday after the country's Andra nuclear waste agency said that storage costs could be higher than EDF's estimates.

    Mirroring German utilities E.ON and RWE , which saw their shares hit decade lows late last year over worries about nuclear decommissioning costs, EDF fell as much as 7.3 percent before recovering to 4.1 percent lower.

    A string of brokerage price target downgrades and French forward power prices falling to new decade lows only added to the gloom.

    In a report released late on Monday, Andra said costs for the Cigeo deep geological storage project could be as high as 30 billion euros or as low as 20 billion depending on assumptions about different cost factors in coming years.

    "There are different views on the calculation, more or less conservative, depending on estimates for future technological progress and optimisation," Andra said in a statement.

    In a letter to the energy ministry, posted on the ministry's website, EDF, fellow state-controlled company Areva and the CEA (Atomic Energy Authority) said they estimated the cost at around 20 billion euros.

    "Andra's study only took into account a small number of possible optimisations," said the letter, adding that a certain number of costs and ratios used by the state agency were not in line with their experience.

    "We are waiting for a decision of the energy minister on the cost of storage," an EDF spokesman said.

    Energy Minister Segolene Royal's decision on the 10 billion euro gap in estimates could have a huge impact on the already stretched balance sheet of EDF, which operates 58 nuclear plants in France and generates the bulk of the country's nuclear waste.

    EDF already needs to borrow money just to pay its dividend and is set to spend tens of billions of euros on upgrading its ageing reactors, building new nuclear plants in Hinkley Point, Britain and buying the reactor arm of Areva.

    "This report is clearly negative for all nuclear operators, and most specifically for EDF and Areva," Bryan, Garnier analyst Xavier Caroen said in a note, adding that the risk of a cost revaluation was not new.

    EDF shares are down more than 44 percent in the 12 months, the second-worst performer in the Stoxx utilities index after RWE. The company has been replaced in France's CAC-40 index of leading shares by shopping centre operator Klepierre .
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    Precious Metals

    Eldorado CEO says mining halt in Greece will cost 600 jobs

    Canadian miner Eldorado Gold expects the suspension of much of its mining activities in Greece after confrontation with the country's leftist-led government will cost more than 600 jobs, its chief executive said on Tuesday.

    The Vancouver-based gold miner had to resort to Greece's top administrative court to annul a government decision that revoked its mining permit in northern Greece on environmental concerns. It won a favourable ruling in November.

    The government revoked Eldorado's permit in August, disputing the miner's tests for a so-called flash-melting method to ensure against any environmental damage.

    "Our investment is treated as a political toy, we never anticipated this," CEO Paul Wright told reporters in Athens. "Failure to receive timely licenses and permits has proved very expensive.

    "It's bad for Greece because it is seen as such from off-shore," he said.

    Wright will meet with leaders of opposition political parties and Energy Minister Panos Skourletis in the next days.

    Skourletis told Parapolitika radio earlier on Tuesday the government would not be blackmailed.

    "Judging from the behaviour of the company, it is another attempt at creating blackmailing situations. No company, Greek or foreign can blackmail the Greek state," he said.

    On Monday, Eldorado said it would suspend construction at its Skouries project in northern Greece and warned that it would do the same at its Olympias project if it did not receive a permit by the end of March.

    Eldorado has said it has created around 2,000 direct jobs in Greece, which suffers from a jobless rate of 25 percent, the highest in the euro zone.

    Its Greek assets make up about 30 to 40 percent of the company's net asset value, according to analysts' estimates. Eldorado's shares have shed 40 percent in the last 12 months, largely due to its problems in Greece.

    Wright said the treatment of Eldorado by the Greek government would be seen as a litmus test by other potential investors in the country.

    Asked whether the company was considering pulling out, Eldorado's CEO said the miner is not considering giving up on its investment.

    "No, we are here for a long haul," Wright said.
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    Base Metals

    Alumina jumps most since ’09 as curbs tipped to spur prices

    Alumina, the Australian partner of Alcoa in the world’s largest alumina producer, rose the most in almost seven years after Citigroup upgraded the stock, citing expectations that global production cuts can drive a recovery in prices.

    The Melbourne-based producer rose as much as 13% in Sydney, the most since March 2009, and closed 11% higher at A$1.095, trimming its decline in the past 12 months to 44%.

    Alcoa, the largest US aluminum producer, forecasts an alumina deficit of 2.8 million metric tons in 2016 as a result of global production curbs, including at the Point Comfort refinery in Texas. The Alcoa World Alumina & Chemicals venture has taken about 3 million tons of capacity out of the market, Citigroup analysts including Sydney-based Clarke Wilkins wrote in a note dated January 12.

    “The savage price fall is driving curtailment of production that should bring market into balance, driving a recovery in the spot price,” the analysts wrote, upgrading Citigroup’s recommendation to neutral from sell. The price of alumina tumbled 42% in 2015, according to Metal Bulletin data.

    Malaysia Ban

    Alumina is the only listed company to generate the majority of its earnings from bauxite and alumina, according to Bloomberg Intelligence. Bauxite is a mined material that’s processed into alumina, an intermediate product that’s further refined into aluminum.

    Malaysia, which supplied more than 40% of China’s imports of bauxite last year after Indonesia imposed a ban on shipments in January 2014, is imposing a three-month ban on bauxite mining in Pahang, the largest producing state, amid an investigation into alleged corruption and complaints over environmental impact.

    Alumina has a 40% stake in Alcoa World Alumina & Chemicals with Alcoa holding the remainder. The venture has interests in bauxite mines and alumina refineries from Brazil to Western Australia.
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    Six Chinese firms to form JV for commercial aluminium stockpiling - Antaike

    Six large Chinese aluminium producers in China are considering forming a joint venture company that will handle primary aluminium stockpiling, a report by state-backed research firm Antaike said on Tuesday. 

    The six companies -- four state-owned firms and two private enterprises -- include Aluminium Corp of China (Chinalco), State Power Investment Corporation, Yunnan Aluminium, Jiugang group, Jinjiang group and Weiqiao Aluminium & Electricity, Antaike said. 

    The amount that the joint venture company will stockpile has not been decided, according to the report. An aluminium stockpiling plan has been discussed over the past few weeks after aluminium prices fell to multi-year lows in the second half of last year, and is likely to be funded by commercial loans, sources have said. 

    The stockpiling amount is expected to be between one and two million tonnes. The JV group may not need to stockpile as much as anticipated as production cuts currently in place are reducing supply, said Xu Hongping, an analyst at China Merchants Futures. "If they stockpile 500 000 t in the first half of this year, the Chinese market may have a supply deficit," she said.
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    Steel, Iron Ore and Coal

    Premier Li says to set demand-based caps on coal and steel output

    Chinese Premier Li Keqiang called for setting caps on coal and steel output based on market demand, as he presided over a work conference on overcapacity in Taiyuan, the capital city of coal-rich Shanxi province earlier this month.

    The government should continue to keep a very tight rein on new capacity and set appropriate goals in eliminating excess capacity in coal and steel industries in the next three years, Li said.

    Steel mills failing to meet national environmental and safety standards or being outdated should be scrapped from the market this year.

    Those mines, which use government-prohibited coal mining methods or technologies unlikely to be upgraded or don’t meet safety production requirements, should be closed completely.

    In 2016, a total 13 kinds of small outdated coal mines in the country, including those with approved capacity below 30,000 tonnes a year and coal and gas outburst mines below 90,000 tonnes per year, must all be closed in line with relevant laws, he emphasized.

    It will mainly be coal and steel companies themselves to make effective cut on output and rein in new capacity to get rid of overcapacity. Li made similar remarks during a visit to Shanxi coking coal Group’s Guandi Mine on January 5.

    Meanwhile, the government will offer some favorable policies, such as providing subsidies and other financial support for companies actively involved in resolving overcapacity.

    Banks are asked not to renew loans for illegal companies and "zombie companies" -- those should go bankrupt owing to bad performance but managed to avoid bankruptcy on bank loans and government funds.

    Attached Files
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    Beijing to end coal use by 2020 to reduce smog

    China's capital Beijing and its adjoining areas will end coal use by 2020 to reduce the recurring smog in Beijing and improve air quality with a host of measures including replacement of coal-fired stoves with that of electricity and gas, state-run China Daily reported.

    Boosting efforts to cut air pollution in northern China, especially winter smog from the burning of coal, is a mission for this year, an official of the Beijing's Environmental Protection Bureau said.

    Among the efforts, Beijing has declared that it will wipe out coal use in its most rural areas by 2020.

    As much as "60% of smog content is caused by coal burning in the starting phase of each smog", Fang Li, an official with Beijing's Environmental Protection Bureau said.

    To start with, Beijing will replace coal-fired heating stoves with those powered by electricity or gas in 400 villages this year, before taking the campaign to the districts of Chaoyang, Haidian, Fengtai and Shijingshan by 2017, said Guo Zihua, a municipal rural development official. Beijing's downtown districts of Dongcheng and Xicheng eliminated coal burning last year, officials said.

    The capital and other places in northern China experienced several smog alerts in November and December, when peak readings were many times higher than the national safety level.

    Last month Beijing declared its first red alert as the city of over 22 million people was enveloped by heavily polluted smog leading to a host of emergency measures including closure of schools and restriction of traffic with odd and even number plates.

    Burning coal for winter heating has been listed as one of the primary causes of air pollution, Chen Jining minister of environmental protection has said at the annual meeting on environmental protection in Beijing.

    He said the ministry will do everything to prevent environmental protection from becoming a stumbling block for the country during the 13th Five-Year Plan period (2016-2020).
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    China illegal new coal capacity reaches 800 Mtpa in 2015

    China had 800 million tonnes per year (Mtpa) of coal mine projects newly built or in capacity expansion illegally by the end of 2015, said Jiang Zhimin, vice director of China National Coal Association (CNCA) in a meeting on January 9.
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    India to re-open commercial coal mining to private firms after 40 yrs

    India is getting ready to open up commercial coal mining to private companies for the first time in four decades, with the aim of shifting the world's third-biggest coal importer towards energy self-sufficiency, Anil Swarup, the director of the country's coal department, told Reuters on December 8.

    The government has identified mines it plans to auction, and is now finalizing other terms such as eligibility criteria for companies to take part and whether and how to set up revenue sharing.

    He said a plan should be ready in the 2-3 months, setting a clear timeline on a plan that has previously only been vaguely marked out.

    India has an ambitious plan to double its coal production to 1.5 billion tonnes a year by 2020, as part of Prime Minister Narendra Modi's push to bring power to 300 million people who live without electricity, and give a boost to manufacturing.

    It would also support the government's efforts to develop eastern parts of the country, which are resource-rich and hold most of India's coal reserves but have lagged the western states in development.

    State-owned Coal India (CIL) is on track to produce 1 billion tonnes a year by the end of this decade, and India is counting on private firms to produce the remaining 500 million tones - which may prove a tough target to achieve.

    As of now, only Coal India and a small government-owned company are allowed to mine and sell coal in India.

    "It's imperative that India opens up the sector so that private companies can bring in new technologies and the efficiencies that we keep talking about," said Dipesh Dipu at energy-focused Jenissi Management Consultants. "But I don't think private companies will be able to produce more than 100 million tonnes this decade as the process has yet to start."

    The move is likely to attract coal block bids from Indian conglomerates such as the Adani Group  and GVK, but the government may find it harder to lure big multinational miners such as Rio Tinto, BHP Billiton, Anglo American and Peabody Energy.

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    Daqin Dec coal transport down 14.5pct on yr

    Daqin line, China’s leading coal-dedicated rail line, transported 32.92 million tonnes of coal in December last year, up 12.58% on month but down 14.52% on year – the sixteenth consecutive year-on-year drop, said a statement released by Daqin Railway Co., Ltd on January 12.

    In December, Daqin’s daily coal transport averaged at 1.06 million tonnes, 8.9% higher than November’s 975,000 tonnes.

    Over 2015, Daqin transported a total 396.99 million tonnes of coal, down 11.82% on year, accounting for 94.52% of its annual target of 420 million tonnes in 2015.

    This decline was attributed to lesser coal delivery at northern ports amid decreasing coal price and weak demand, its routine maintenance in October and the snowy weather in November.

    In 2014, Daqin line accomplished a total coal transport volume of 450.2 million tonnes, up 1.11% on year, accounting for 27.42% of the nation’s total.
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    China crude steel apparent consumption over Jan-Nov down 5.5pct on yr

    China’s apparent consumption of crude steel in the first 11 months of 2015 decreased 5.5% from the same period last year to 645 million tonnes, said Zhang Guangning, director of the China Iron and Steel Association (CISA.

    According to the figures from CISA, its member steel enterprises or key steel makers in China suffered a total net loss of 53.1 billion yuan ($8.19 billion) over January-November last year, among which the enterprises in loss accounted for 50.5%, taking 47.38% of the total crude steel output.

    The top ten enterprises in profit posted a combined profit of 11.05 billion yuan, plunging 46.03% from the year prior; and the top ten in loss suffered a total loss of 49.50 billion yuan, 11.88 times of the loss a year ago.

    Steel industry has worsened further, as steel mills in loss were facing intensified loss, while the ones in profit saw their profitability decreasing.

    Over January-November, China’s net exports of crude steel totaled 93.9 million tonnes, a year-on-year rise of 28.1%.

    This increase was mainly dragged up by the expanding international demand, which indicated a stronger competitiveness of China’s steel products in the international market. But given the decreasing price advantage and frequent anti-dumping activities abroad, China steel export may be hindered in the future.

    Under the current situation, steel makers need to lower their production capacity and output to avoid overproduction and vicious competition before they could find a way out, said Zhang.

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