Mark Latham Commodity Equity Intelligence Service

Monday 23rd November 2015
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    Argentina Elects Pro-Business President; Big Change Expected

    Argentina voted for deep change on Sunday, electing the center-right opposition leader Mauricio Macri to be president in a decisive end to 12 years of leftist populism, setting the stage for economic liberalization, a warming of relations with the U.S. and political reverberations across Latin America.

    The candidate of the ruling party, Daniel Scioli, conceded defeat and called Macri to congratulate him. With more than 98 percent of the ballots counted, Macri had 51.5 percent, while Scioli followed with 48.5 percent, according to the National Electoral Council.

    At Macri’s headquarters late on Sunday, cumbia music boomed, balloons were released and supporters danced and cheered for "Macri Presidente." Ernesto Sanz, a lawmaker and ally, said, "Argentina won’t be the same starting tonight."

    “A wonderful new stage begins for Argentina," Macri told his supporters in his victory speech.

    The 56-year-old mayor of Buenos Aires is a wealthy businessman and former head of one of the country’s most popular soccer teams. He has promised to lift currency controls and negotiate with hedge fund creditors to boost investor confidence amid the lowest reserves in nine years. He will also focus on cutting inflation, fixing the largest fiscal deficit in 30 years and luring back international investment dollars.

    Scioli and his supporters have warned that such policies, which they dismiss as "savage capitalism," will erode vital social welfare programs on which the poor depend and create an economy that caters to the rich. Macri will govern with a minority in both houses of Congress, although he is bolstered by the surprise capture of Buenos Aires province in last month’s election.

    He also will have the support of many of the country’s 32 million voters -- 81 percent of them took part on Sunday -- who say they are tired of the rule of President Cristina Fernandez de Kirchner which they consider often dishonest.

    "The government is constantly saying we live in paradise," said Santiago Canedo, 28, a law student who voted for Macri. "They say one thing and then do the next. I’m optimistic that things will change."

    Argentina, under Fernandez and her deceased husband Nestor Kirchner for the past dozen years, has stood shoulder-to-shoulder with other leftists in the region, including the Castro brothers in Cuba, Nicolas Maduro in Venezuela and Rafael Correa in Ecuador. Macri calls his approach the opposite of Venezuela’s "21st century socialism": "21st century development." He has threatened to have Venezuela ousted from regional bodies over its anti-democratic policies and human rights abuses.

    Fernandez, who will hand over power to Macri on Dec. 10, has used a number of levers to promote her policies, including seizing pension fund assets and the nation’s largest energy company while increasing welfare programs and battling U.S. hedge funds over defaulted debt.

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    El Nino Record.

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    Oil and Gas

    Scant signs of Russia-OPEC output cut deal ahead of Vienna meeting

    There is little likelihood Russia will work with OPEC on cutting oil output ahead of or on the sidelines of a meeting of the exporter group in Vienna next month, officials and industry insiders say.

    OPEC made a historic policy shift late last year, led by Saudi Arabia and backed by its Gulf allies, and refused to cut production to prop up sliding prices in order to defend market share. The group confirmed the strategy at a meeting in June.

    Organization of the Petroleum Exporting Countries ministers will meet on Dec. 4 to coordinate the group's production, and a delegation from Russia, which accounts for about 12 percent of global oil output, may take part in a pre-meeting consultation once again.

    A source close to the consultations said that Venezuela, an OPEC member which has been a proponent of output cuts, is keen to organise a meeting with non-OPEC countries beforehand.

    "Russia's stance has not changed: we will make no cuts in oil production," the source said.

    Russia, which depends heavily on oil revenues for its budget, has so far staunchly resisted making cuts to production, in part because it is locked in a battle for market share and knows a cut could see it cede ground.

    Any cuts would therefore need to be synchronised with OPEC.

    Russian officials have said that domestic companies would not be able to easily restart wells if they close them as part of any production cuts due to the harsh climate of Siberia, its oil heartland.

    They also say that the government is unable to order companies to curb output as many of the oil producers are privately held.

    On Friday, Russian Energy Minister Alexander Novak said he was ready to attend consultations in Vienna on Dec. 3, but that there had been no formal arrangements or invitations so far. He gave no indication of Russia's readiness to cut oil production.

    "We are discussing the situation, the prospects, the value of oil production, the balance of demand and supply," Novak told reporters.

    Analysts say Russian companies are quite resilient in the face of falling prices of Urals blend, Russia's top crude oil grade, which have plunged from their June 2014 peak of more than $111 per barrel to just over $40 currently.

    "Despite the recent fall in oil prices, Russian production continued to accelerate as oil producers remained profitable even in the lower oil price environment, helped by the effect of the weak rouble on costs and lower taxes, which decline in a lower oil price environment," Bank of America Merrill Lynch said in one of its reports.

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    Russian energy minister says gas exporters' forum supports long-term contracts - RIA

    Russian Energy Minister Alexander Novak said on Saturday the Gas Exporting Countries Forum had reaffirmed the importance of long-term gas contracts, the take-or-pay mechanism, and a link between the gas price and the oil price, according to the RIA news agency.

    Participants of the Forum, which represents major gas exporting countries, are meeting today in the Iranian capital Tehran.

    Read more at Reuters
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    Vaca Muerta ‘to double output by 2018’

    Argentina’s Vaca Muerta shale play is expected to double production by 2018 although it will need more joint venture deals to become fully developed,according to a new study.
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    Petronet near to winning better gas terms from Qatar-sources

    India's biggest gas importer Petronet LNG is close to renegotiating a major deal with its Qatari supplier Rasgas, lowering the cost of gas shipments and avoiding a $1.5 billion penalty fee for lifting less gas than agreed, two sources said.

    The renegotiation is another sign of how falling oil prices and a global gas glut are bringing producing giants such as Qatar to the negotiating table.

    Petronet, which has a 25-year contract with Rasgas to annually buy 7.5 million tonnes of liquefied natural gas (LNG) has reduced purchases by about a third this year due to high prices -- even though it is only allowed to take 10 percent less, making it liable for a $1.5 billion penalty.

    Petronet and Rasgas opened renegotiation proceedings during Qatari Emir Sheikh Tamim bin Hamad Al-Thani's visit to New Delhi in March.

    If India manages to renegotiate a deal with Qatar it would be Prime Minister Narendra Modi's biggest diplomatic win in the energy sector since coming to power last year. Indian oil minister Dharmendra Pradhan reinforced the need to renegotiate prices and quantity under the long term deal with Qatar during his visit to Doha this month.

    According to the sources the two firms are exploring the possibility of altering the contract's pricing formula, in which the LNG is valued based on a 60-month average of a basket of Japanese crude oil prices.

    Instead, a 3-month average of Brent crude is being considered, which would be a major coup for Petronet by lowering its LNG costs in line with sharply lower crude oil prices.

    Petronet currently pays about $12-$13 per million British thermal units (mmBtu) for Qatari LNG under a deal that began in 2004, compared with around $7-$8 per mmBtu for LNG in the spot market.

    Petronet has been increasingly substituting costly Qatari LNG with spot shipments. But the proposed revision should allow it to step up Qatari imports as prices fall.

    Under the new deal, Rasgas will also grant relief to Petronet from paying a $1.5 billion penalty on the condition that the Indian firm lifts full volumes in subsequent years, said one of the sources.

    Rasgas was not immediately available for comment, while Petronet LNG's head of finance R. K. Garg did not respond to a request for comment.

    Read more at Reuters

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    Santos and the looming retail shortfall

    Santos' retail shareholders may have one more week to decide whether to buy into the company's $1.375 billion retail entitlement offer, but hedge funds are already tipping up to 70 per cent or almost $1 billion of rights will not be taken up.

    While Santos management has been out selling the deal to retail brokers, hedge funds reckon support for Santos shares will drop off this week as the company's newest and biggest investor Hony Capital steps out of the market.

    Hony, which bought a $500 million stake in Santos at $6.80 a share earlier this month, confirmed on Friday it had been topping up its stake at much lower prices in the secondary market. The buying helped Santos shares finish the week at $4.14, which was well clear of the $3.85 a share rights issue price.

    However, there is a limit to Hony's buying. The investor agreed to a 9.9 per cent cap as part of the strategic placement - although it is currently at 12.16 per cent until the retail component of the rights issue completes.

    Should Santos shares dip below $4 and towards the $3.85 a share rights issue price, it would be hard to see too many retail shareholders subscribing for new stock.

    Sources said it was also likely that hedge funds and institutional investors who had sub-underwritten the offer through brokers Citi, Deutsche Bank and UBS were likely to be managing their risk through a series of shorts ahead of the retail close.

    The retail offer is scheduled to close on November 30. Left over shares will be sold in an institutional bookbuild on Thursday, December 3.

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    U.S. driving hits record for September -DOT

    The resurgence in U.S. driving continued with force in September, as motorists logged 259.9 billion road miles, a 4.3 percent bump from last year and the most in the month's history, according to new data released Friday by the U.S. Department of Transportation

    The strong September figures contributed to a record-breaking year for road miles in the United States, bucking predictions that Americans have lost their appetite for driving as the population ages and the youth migrate more to urban areas.

    Year to date, drivers have logged 2.36 trillion miles on U.S. roads, the highest figure through September in history and a 3.4 percent jump compared to the same stretch last year, DOT figures show. The year-over-year percentage increase is the largest since 1997, data shows.

    "It's a huge number," said Phil Flynn, an analyst with the Price Futures Group. "It shows you that drivers are being inspired by the low prices. It also shows you that the economy may have bottomed out and is on the uptick."

    With the September 2015 estimates, the series of consecutive monthly mileage increases now stands at 19 months

    The fresh numbers are the latest piece of evidence showing a sustained U.S. road revival that has been fueled by a rout in global petroleum prices and a growing U.S. economy. The national average price for gasoline on Friday was $2.10 per gallon, down from $2.85 a year ago, according to AAA, the motorists' advocacy organization.

    Driving activity in the United States is closely watched since the country accounts for about 10 percent of global gasoline demand.

    The surge in driving buoyed crack spreads and profits for U.S. refiners this summer, as they ran their plants at full tilt to take advantage of the increased demand. In August, U.S. refiners supplied 293.5 million barrels of gasoline, the highest amount since 2007, according the U.S. Energy Information Administration.

    Read more at Reuters

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    Oil-Rig Count Declines in Latest Week

    The U.S. oil-rig count dropped by 10 to 564 in the latest week, according to Baker Hughes Inc., a bigger change than seen in recent weeks.

    The latest data represents a return to a drop after last week’s modest increase of two rigs broke a 10-week streak of declines.

    The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year.

    There are 65% fewer rigs from a peak of 1,609 in October 2014.

    According to Baker Hughes, the number of gas rigs was unchanged from last week at 193.

    The U.S. offshore-rig count was 30 in the latest week, down three from last week and down 23 from a year ago.

    For all rigs, including natural gas, the week’s total fell by ten to 757.

    Earlier this week, the U.S. Energy Information Administration said domestic crude-oil inventories rose by 252,000 barrels last week, less than expected by the market. However, U.S. oil inventories are near levels not seen for this time of year in at least the last 80 years.

    For most of 2015, Texas oil fields have led the pullback in rigs. But on Friday, Baker Hughes data showed that Texas gained three rigs in the last week, with losses coming in three other states. Wyoming and Colorado each shut down three rigs, and Oklahoma shut down four.

    Texas’ biggest oil and gas field, the Permian Basin in West Texas, idled five rigs last week, but gains elsewhere made up for that loss statewide.  The oil rig count for the Permian stood at 219 Friday, Baker Hughes said.

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    Halcon Resources Refinances More IOUs at High Interest Rate

    Halcon Resources, a company that “guessed wrong” by leasing 140,000 Utica Shale acres in the northern part of the play and currently doesn’t drill in any of that acreage, is one of the eight Marcellus/Utica companies on David Fessler’s “Oil Company Death List”.

    In August, Halcon refinanced $1 billion worth of outstanding IOUs with a third lien, paying a 13% interest rate on debts that had been 8.875% to 9.75%.

    Yesterday Halcon launched yet another offer–this time offering second liens for IOUs. The new interest rate offered is 12% for debts that previously had rates of 8.875% to 9.75%.

    We don’t pretend to understand high finance, but why would anyone, in these market conditions, purchase a second or third lien IOU? That means one or two other people are in line before you to collect money if the company defaults and can’t repay the IOUs, which seems like all too real a possibility…
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    Alternative Energy

    139 Countries could be self sufficient in energy by 2050

    Mark Jacobson and Mark Delucchi have done it again. This time they’ve spelled out how 139 countries can each generate all the energy needed for homes, businesses, industry, transportation, agriculture—everything—from wind, solar and water power technologies, by 2050. Their national blueprints, released Nov. 18, follow similar plans they have published in the past few years to run each of the 50 U.S. states on renewables, as well as the entire world. (Have a look for yourself, at your country, using the interactive map below.)

    The plans, which list exact numbers of wind turbines, solar farms, hydroelectric dams and such, have been heralded as transformational, and criticized as starry eyed or even nutty.

    Determined, Jacobson will take his case to leaders of the 195 nations that will meet at the U.N. climate talks, known as COP 21, which begin in Paris on Nov. 29. His point to them: Although international agreements to reduce carbon dioxide emissions are worthwhile, they would not even be needed if countries switched wholesale to renewable energy, ending the combustion of coal, natural gas and oil that creates the vast majority of those emissions, and without any nuclear power. “The people there are just not aware of what’s possible,” says Jacobson, a civil and environmental engineering professor at Stanford University and director of the school’s Atmosphere and Energy Program. He is already scheduled to speak twice at the meeting, and will spend the rest of his time trying to talk one on one with national leaders and their aids.

    Mark Jacobson and Mark Delucchi have done it again. This time they’ve spelled out how 139 countries can each generate all the energy needed for homes, businesses, industry, transportation, agriculture—everything—from wind, solar and water power technologies, by 2050. Their national blueprints, released Nov. 18, follow similar plans they have published in the past few years to run each of the 50 U.S. states on renewables, as well as the entire world. (Have a look for yourself, at your country, using the interactive map below.)

    The plans, which list exact numbers of wind turbines, solar farms, hydroelectric dams and such, have been heralded as transformational, and criticized as starry eyed or even nutty.

    Determined, Jacobson will take his case to leaders of the 195 nations that will meet at the U.N. climate talks, known as COP 21, which begin in Paris on Nov. 29. His point to them: Although international agreements to reduce carbon dioxide emissions are worthwhile, they would not even be needed if countries switched wholesale to renewable energy, ending the combustion of coal, natural gas and oil that creates the vast majority of those emissions, and without any nuclear power. “The people there are just not aware of what’s possible,” says Jacobson, a civil and environmental engineering professor at Stanford University and director of the school’s Atmosphere and Energy Program. He is already scheduled to speak twice at the meeting, and will spend the rest of his time trying to talk one on one with national leaders and their aids.

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    Bangladesh fires up large-scale solar to boost power generation

    The government of Bangladesh has approved construction of a large-scale solar park as part of a push to increase the share of power from renewable sources in this electricity-starved country.

    The new solar park, which is due to begin generating within the next 18 months, will supply up to 200 megawatts (MW) of electricity to the national grid.

    Sun Edison Energy Holding (Singapore) Pte Ltd will build the park in Teknaf sub-district, the southernmost point in mainland Bangladesh.

    The solar power will be cheaper than electricity from conventional power stations. The tariff rate has been fixed at Tk 13.26 per kilowatt/hour ($0.17), two-thirds the price of electricity generated by oil-fuelled plants.

    Teknaf is one of several large projects in the pipeline as the government aims to reach a target of 2,000 MW, or 10 percent of overall capacity, generated from renewable sources by 2020.

    Current daily grid generation is 7,000 MW, against a peak demand of 8,500 MW, although the actual need is certainly higher since only 62 percent of the population have access to electricity through the grid.

    The government plans to increase installed capacity to 20,000 MW by the end of the decade. Ahmad Kaikaus, an official at the ministry of power, energy and mineral resources, said in an interview that the government hopes that 500-600 MW of this will be generated by public-sector solar power plants.

    "We have asked public-sector power companies to set up equipment for generating electricity from solar," Kaikaus said. "They are carrying out feasibility studies."

    Kaikaus said that in addition, scores of local and foreign private-sector companies are submitting preliminary proposals to invest in solar power generation, with projects ranging in size from 5-100 MW, and the government is so far considering 14 of these.

    Taposh Kumar Roy, chairman of the Sustainable and Renewable Energy Development Authority (SREDA), identified a shortage of uncultivated land in this densely populated country as a significant constraint to planning large-scale solar plants.

    "Large-sized solar power plants need a huge area of land to install solar panels. In Bangladesh such barren field is hardly available. Our policy is to set up such plants only in non-agriculture lands to keep food production unhampered," he said.

    Among the places solar panels could be placed is on rooftops of residential, commercial and industrial buildings, he said.

    At present, renewables account for 405 MW, or around 5.7 percent, of Bangladesh's total daily electricity generation.

    This includes 150 MW from solar home systems, and 11 MW from rooftop systems. A further 230 MW are generated by hydropower.

    The government also is collecting data on wind power potential from 13 locations, he said.

    According to Roy, some $2.76 billion will be required to implement both large- and small-scale solar projects in the country, of which $2.23 billion is expected to come from development partners, with the rest from government and the private sector.

    Ruhul Quddus, a World Bank consultant on solar home systems in Bangladesh, said renewable energy has become cost-effective as technology constantly improves.

    Quddus said an investment of around $1 billion by the state-owned Infrastructure Development Company Ltd (IDCOL) has enabled the installation of some 3.7 million solar home systems since 2009, as well as solar-powered irrigation pumps and mini-grids.

    The home systems have eliminated the need for 180,000 tonnes of kerosene fuel, saving an estimated $225 million annually, he said.

    According to IDCOL, more than 65,000 solar home systems are now being installed each month. The company aims to finance 6 million systems by 2017, increasing the estimated generation capacity from the systems to 220 MW.

    Read more at Reuters

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    Canada's Alberta to introduce economy-wide carbon tax in 2017

    The Canadian province of Alberta, home to the country's controversial oil sands, said on Sunday it will implement an economy-wide tax on carbon emissions in 2017, addressing long-standing criticism it is not doing enough to combat climate change.

    The provincial government estimated the plan, including a pledge to phase out pollution from coal-fired electricity generation by 2030 and a limit on emissions from the province's oil sands industry, would generate C$3 billion ($2.25 billion) in annual revenue.

    Backed by prominent representatives from industry and the environmental movement, Premier Rachel Notley said the province was trying to do the right thing for the future.

    Notley's left-leaning New Democratic Party took power earlier this year, ending 44 years of Conservative rule.

    "It will help us access new markets for our energy products, and diversify our economy with renewable energy and energy efficiency technology," Notley said in Edmonton. "Alberta is showing leadership on one of the world's biggest problems."

    Alberta has the world's third largest crude reserves, but its oil sands industry is also Canada's fastest growing source of greenhouse gas emissions.

    That status has prompted fierce opposition from environmental groups to proposed pipelines that would allow the industry to access new markets, including the recently rejected Keystone XL pipeline, proposed by TransCanada Corp.

    U.S. President Barack Obama rejected that project on Nov. 6, explaining that "shipping dirtier crude oil" into the United States would not enhance the country's energy security.

    Alberta's energy sector has also been hammered with thousands of layoffs in recent months due to slumping global oil prices.

    The government said all oil sands operators would still be allowed to increase their combined annual carbon pollution from about 70 million tons to a maximum of 100 million tons per year under proposed legislation.

    It said this plan was endorsed by several major oil companies, including Suncor Energy, Cenovus, Canadian Natural Resources Ltd and the Canadian division of Royal Dutch Shell Plc.

    Environmental groups, including the Pembina Institute, Forest Ethics and Environmental Defence Canada, also endorsed the plan, the province said.

    The province estimated its new plan would cost the average household about C$320 per year in 2017 and C$470 per year in 2018.

    Notley will bring her plan into a meeting of Canadian premiers with Prime Minister Justin Trudeau, to prepare Canada's national strategy at the upcoming Paris climate change summit.

    Read more at Reuters

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    SunEdison's problems cast shadow over future of solar yieldcos

    SunEdison Inc's decision to halt sales of solar power plants to its dividend-paying "yieldco" units has drawn attention to the company's missteps at a time when the oil price slump has claimed renewable energy stocks as collateral damage.

    So-called yieldcos are publicly traded entities that house solar and wind projects sold to them by their parent companies.

    These units have long-term agreements to sell power, giving them stable cash flows, but they are dependent on the transfer of assets from their parents to increase dividends.

    Yieldcos are supposed to be safe bets for people looking to invest in the volatile solar market, which is why SunEdison's decision has prompted a selloff in its stock and raised fresh questions about the viability of the yieldco model.

    Some analysts and investors think SunEdison lost the plot as it tried to grow too quickly through acquisitions it couldn't afford, leaving it with little choice but to sell assets to third parties for higher prices rather than to its own units.

    So, they say, it's unlikely rivals will follow SunEdison's lead and halt sales to their asset-holding businesses.

    SunEdison, run out of Belmont, California, has lost two-thirds of its value since it said on Oct. 7 that it would halt so-called "asset drop downs". The company's stock hit a three-year low of $2.55 on Friday.

    "It's more a reflection of SunEdison's strategy than the yieldco structure," said Hood River Capital portfolio manager Brian Smoluch. "I wouldn't throw out the whole asset class."

    SunEdison's total debt of $11.67 billion is more than 10 times its market capitalization of about $900 million, according to Thomson Reuters data.

    Renewable energy companies such as SunPower Corp and Transalta Corp have reassured investors that their plans to sell assets to their yieldcos remain intact.

    In fact, a drop in prices of yieldco stocks have opened up buying opportunities, investors say.

    Yieldcos of companies such as NRG Energy Inc and NextEra Energy Inc are good bets because the parents hold many assets that can be dropped down, they said.

    Prices for all yieldcos have fallen sharply this year, caught up in a selloff caused by weak oil prices.

    Up to Thursday's close, SunEdison's yieldcos - TerraForm Global Inc and TerraForm Power Inc - had lost about two-thirds of their value.

    NRG Yield Inc shares have dropped about 39 percent, while Nextera Energy Partners LP's have fallen about 23 percent.

    "All yieldcos are not created equal," said Rob Thummel, portfolio manager at Tortoise Capital Advisors LLC, adding that the yieldco structure remained the best way to play rising demand for solar and wind energy.

    Read more at Reuters
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    Syngenta sues Cargill, ADM in GMO corn fight

    Swiss seed company Syngenta AG has sued top U.S. grain exporters Cargill Inc and Archer Daniels Midland Co over losses that U.S. farmers said they suffered from rejections of boatloads of genetically modified corn by China.

    The lawsuit, filed on Thursday in U.S. district court in Kansas, comes after Cargill, ADM and hundreds of farmers sued Syngenta last year to recover damages linked to the rejections, which began in late 2013.

    Syngenta's decision to sell a type of GMO corn seed called MIR 162, also known as Viptera, before obtaining import approval from China in December led to the rejections, U.S. farmers and exporters have said.

    Syngenta, the world's top crop chemical company, said it was not responsible for losses incurred by traders or farmers. But if anyone is responsible, it is the exporters that shipped GMO corn to China without approval, Syngenta said in its new lawsuit.

    ADM declined to comment on the lawsuit.

    "Syngenta's commercialization practices and conduct are responsible for the industry's damages," Cargill spokesman Mark Klein said on Friday.

    Syngenta said in the lawsuit that Cargill and ADM failed to keep MIR 162 corn separated from approved strains, even though they should have known the strain was not approved by China.

    "Cargill and ADM decided that it was in their economic interest to try to ship corn containing Viptera to China anyway" to profit from high corn prices, the lawsuit said.

    In January 2013, Syngenta told Cargill that China's approval for MIR 162 was not available yet, and Cargill thanked the seed maker for its "very clear" explanation, according to court documents.

    Cargill "nonetheless doubled down on its gamble" by entering into contracts from February to July 2013 to ship more than 2 million metric tons of corn to China, the lawsuit said.

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    $3.5B Saskatchewan potash mine put on hold

    Low potash prices have made the prospect of developing the Kronau potash mine in Saskatchewan uneconomic.

    In a letter to the community of Kronau, located 28 kilometres northeast of Regina, Vale SA stated that it would wait until market conditions improve to construct the $3.5 billion solution potash mine. Vale Potash currently has about 30 people working on the project, mainly in Regina.

    According to a project page on its website, Vale says the Kronau mine would produce 3 to 4 million tonnes of potash a year for a minelife of over 40 years. Construction would employ around 2,000 and once completed, the mine would create about 350 permanent positions.

    However development of the mine was shelved once before, in 2012, and virtually no work has been done on the site.

    Potash prices are in a multi-year slump, with producers of the fertilizer ingredient feeling the pain.
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    Precious Metals

    Europe Cracks Down On Bitcoin, Virtual Currencies To "Curb Terrorism Funding"

    In the past we have explained why when it comes to circumventing capital controls, primarily in the context of China, there are few as simple and as efficient alternatives to Bitcoin - contrary to what Bernanke may think, gold is concentrated money (and in India it now pays interest) but when it comes to transferring it across borders, it tends to be rather problematic. And now Europe appears to have figured this out, and as Reuters reports, European Union countries are preparing to crackdown on virtual currencies such as bitcoin, and anonymous payments made online and via pre-paid cards "in a bid to tackle terrorism financing after the Paris attacks, acording to a draft document."

    Just a week after the Paris terrorist attack, showing a dramatic ability for coordinated work by a continent that is known for anything but, today EU interior and justice ministers are gathering in Brussels for a crisis meeting called after the Paris carnage of last weekend. This happens days after theEuropean Commission already announced it would make procurement of weapons across Europe virtually impossible, if only for citizens who wish to obtain protection legally.

    According to Reuters, the justice minister will urge the European Commission, the EU executive arm, to propose measures to "strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards," draft conclusions of the meeting said.

    Conveniently, Reuters reminds us that "Bitcoin is the most common virtual currency and is used as a vehicle for moving money around the world quickly and anonymously via the web without the need for third-party verification. Electronic anonymous payments can be made also with pre-paid debit cards purchased in stores as gift cards."

    But no more: "EU ministers also plan "to curb more effectively the illicit trade in cultural goods," the draft document said."

    And with all of Europe sliding ever deeper into negative rates, and where a ban on cash bank notes is an all too realistic possibility, the easiest mechanism to evade the ECB's creeping financial oppression is about to be made illegal.

    Finally, there was no word about the true source of terrorism funding: those mysterious "third parties" which keep pumping the Islamic State with hundreds of millions in cash in exchange for its crude oil. Perhaps Europe is so unwilling to dig down into this most important question (which as we said last night nobody is willing to ask) because it either already knows the answer, or realizes that the people implicated just may be some of the wealthiest and most respected Europeans, and the resulting stench could spread all the way to the various unelected politicians and ex-Goldmanite central bankers?
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    Base Metals

    Copper Slumps Below $4,500, Nickel Plunges as Metals Slide

    Copper fell below $4,500 for the first time since May 2009 as investors fear China’s shift to a consumer-driven economy from investment-led expansion will slow demand in the world’s biggest user. Nickel lost more than 5 percent to the lowest since 2003 and Shanghai futures fell the daily limit. Glencore Plc shares slid 4.1 percent and BHP Billiton Ltd. dropped 3.1 percent.

    Copper used in power grids and home wiring declined as much as 2.6 percent to $4,461.5 a metric ton before trading at $4,468 by 12:10 p.m. in Shanghai. Nickel fell to $8,235 a ton, while zinc erased the advance posted on Friday after Chinese smelters announced they planned to cut production next year.

    “Demand is still the key for commodities at the moment, and supply discipline and production cuts are uncertain,” said Helen Lau, an analyst at Argonaut Securities in Hong Kong. “There’s a chance that local producers will continue to ramp up production and replace the cuts that have been made. Everyone still wants to maintain cash flow at these prices.”

    Commodities extended their decline, with oil and industrial metals retreating with gold as the dollar cemented gains. The outlook at a conference last week in Shanghai was bearish amid the Chinese slowdown, while top producers are reluctant to reduce output further. Expectations that the Federal Reserve will soon raise U.S. interest rates are boosting the dollar, making commodities more expensive for buyers in other currencies.

    “Investors are shorting metals because they are bearish on the Chinese economy,” Xiao Jing, a senior analyst at Beijing Capital Futures Co., said by phone. “Metals premiums in China’s physical market didn’t rally after prices plunged, indicating very weak demand. Prices won’t rebound until late December, when the Fed makes its final decision.”

    The London Metal Exchange index of six industrial metals has plummeted 27 percent this year, the worst annual performance since the global financial crisis in 2008.
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    Newmont's Indonesian copper exports to restart

    Newmont Mining Corp were barred from exporting copper and gold concentrate from its operations in Indonesia in September, but the company is now free to resume exports again.

    The export licence forDenver-based  Newmont's local unit, PT Newmont Nusa Tenggara, was suspended because the company failed to meet government stipulations for developing a domestic smelter, but according to a report in the Jakarta Post a licence will be granted for six months following commitments from Newmont to partner with Freeport-McMoRan (NYSE:FCX), to build a facility.

    Newmont Nusa Tenggara has made "an early commitment of US$3 million to support the smelter development” according to the Asian nation's mines minister.  The smelter being built by Freeport in East Java is expected to cost $2.3 billion.

    Exports from the Batu Hijau copper and gold mine in Sumbawa Island and from Freeport's Grasberg mine in Papua province were halted for nearly nine months last year when a new rule took effect banning the export of unrefined minerals and punitive export taxes were levied.

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    Glencore's cuts come back to bite zinc bears

    The London zinc price touched a fresh six-year low of $1,497.50 per tonne on Thursday.

    Last month's flurry of excitement after Glencore's announcement of 500,000 tonnes of mine cuts had, it seemed, completely dissipated.

    But those cuts were carefully calibrated to get maximum impact out of the supply chain and the tremors are starting to be felt, judging by this morning's announcement of major production cuts by Chinese zinc smelters.

    And it's caught the many bears in this market on the hop. The London Metal Exchange (LME) three-month price has surged to a current $1,602 per tonne.

    Zinc, like copper, has been coming under sustained bear attack from China, where Shanghai Futures Exchange (SHFE) volumes and open interest have been surging even as the price has been sliding.

    Investment money elsewhere has followed suit. LME broker Marex Spectron estimates the collective speculative short on LME zinc is around 38 percent of open interest. That's the highest it's been since June 2012 and funds are more bearish on zinc than on any other metal.

    The irony is that the bears are attacking zinc just when there is finally some tangible sign of tightness creeping into the raw materials market. Tightness that is evidently starting to worry Chinese smelters.

    Such a development has been something of a holy grail for zinc bulls in recent years, much talked about but always elusive.

    One of the stand-out current features of industrial metals trading is the build in short positions on the SHFE. It's happening in copper. It's happening in aluminium. And its happening in zinc.

    Both Shanghai zinc market open interest and volumes have soared in recent weeks and are now at their highest since the tail-end of 2014. Given that prices have simultaneously been falling, the implication is a massive build of short positions.

    There's been much head-scratching as to what exactly is going on in Shanghai. Is it a return of the long equities/short metals trade that was in vogue earlier this year? If so, it's come back bigger and bolder than before.

    Or is it just a collective negative assessment of China's metallic prospects over the coming period with zinc picked out as being particularly vulnerable to further slowdown?

    Certainly, the mood at last month's China International Lead and Zinc conference in Xi'an was apparently gloomy, with delegates fretting about poor demand and high stocks, both of refined metal and concentrates.

    Stocks of refined zinc are undoubtedly high both in China and the rest of the world. Look no further than New Orleans, where the zinc carousel is still turning.

    LME warehouses received almost 240,000 tonnes of zinc over the course of August and September. So far this month almost 63,000 tonnes have been cancelled and are awaiting load-out.

    The inference is that behind this visible shuffling of metal, a combination of spread and storage arbitrage, lies a bigger inventory mountain in the off-market shadows.

    And as for concentrates, four years of rising benchmark treatment charges, the best indicator of raw materials availability, suggest four consecutive years of surplus, upon which smelters, particularly Chinese smelters, have feasted.

    According to Chris Parker, zinc research director at Wood Mackenzie, "spot treatment charges for concentrate imported into China in November 2015 fell in the range $185-190 per tonne." The research house's indicative treatment charge for this month is $190, basis delivery at major Chinese ports.

    "This is a reduction of $20 per tonne from the peak of $210 in May-June 2015 and the lowest since $185 in September 2014," Parker noted.

    By way of comparison, this year's benchmark terms were set at $245 per tonne.

    Sliding treatment charges point to a tightening of availability and suggest downwards pressure on next year's benchmark terms.

    Read more at Reuters
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    China Signals Curbs on Aluminium Output in Accord With Russia?

    China signalled it's prepared to curb aluminium production to try to stem oversupply as part of an agreement with Russia.

    The Sino-Russian protocol on energy cooperation, signed Nov. 16 by Russian Deputy Prime Minister Arkady Dvorkovich and Chinese Vice Premier Zhang Gaoli, includes a section on bringing aluminum output into line with demand, according to a copy of the document obtained by Bloomberg News. It also supports tie-ups between Russia's United Co. Rusal and Aluminium Corp. of China Ltd., or Chalco, on developing mining and new alloys, the document shows.

    "China is finally ready to review its policy in aluminium and help to stabilize the market after the price declined to the level where all of its aluminium producers are working below break-even," Rusal's Deputy Chief Executive Officer Oleg Mukhamedshin said in a phone interview from Moscow. It's "mega news for the industry," he said.

    A flood of aluminium exports from China has depressed international markets this year, sending prices to the lowest since 2009 and forcing smelters around the world to reduce production. Rusal may move forward in December with plans to cut its output by 200,000 metric tons while its Kubal smelter in Sweden may be idled, the company said this week.

    The protocol between the two governments includes a "recommendation for optimization of aluminium production in line with demand by Chinese and Russian aluminium industries in order to avoid inefficient use of energy resources," Mukhamedshin said.

    The Chinese State Council Information Office didn't immediately reply to requests for comment. Aliya Samigullina, a spokeswoman for Dvorkovich, confirmed the signing of the protocol and referred to a Nov. 16 government statement on the meeting with China that said the parties welcomed talks to develop aluminium projects.

    Russia may offer to build new domestic smelting capacity to supply China as its production is cleaner and more commercially viable than that of the Asian country, Mukhamedshin said.

    "That won't happen now, only in at least three years, when the market will be stabilized and the oversupply issue solved," he said. Rusal and Chalco are working on developing new alloys, which may be sold to China, and they may consider joint projects in bauxite and alumina, Mukhamedshin said.

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    Steel, Iron Ore and Coal

    Shaanxi Coal to sell five coal mines to parent amid losses

    Shaanxi Coal Industry Co., Ltd, a major coal producer in northwestern China, planned to sell the stocks and assets of five coal mines to parent Shaanxi Coal & Chemical Industry Group, the company said in a statement on November 23.

    These coal mines were reportedly in great losses at present, and would be closed according to the government requirements. The move could help enhance asset quality of the list company, and produce positive effect on its future profitability, Shaanxi Coal said.

    The five coal mines, all located in Weibei mining area, have a combined capacity of 5.6 million tonnes per annum, and mainly produce lean coal and meagre-lean coal used for coke making and power generation, showed the coal mines database of China Coal Resource website.

    Shaanxi Coal suffered a loss of 1.81 billion yuan ($283.7 million) in the first three quarters, a slump of 295.6% year on year, with severe losses in the Weibei mining area and other subsidiaries.

    The five mines, with an unaudited net asset of 257 million yuan, are expected to complete relevant asset appraisal in early December this year. Transactions would be done before the end of the year.

    Against the backdrop of weak demand and low prices, more companies may put their loss-making mines on sale, while some companies may buy non-coal business assets to diversify asset portfolio for better profitability.
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    Peabody Energy to sell New Mexico, Colorado assets for $358 mln

    Peabody Energy Corp said it had agreed to sell its New Mexico and Colorado coal assets to Bowie Resource Partners LLC for $358 million in cash.

    Bowie will also assume about $105 million in related liabilities, Peabody said on Friday.

    Bowie, which confirmed the deal later in the day, said the acquisition would nearly double its production output to 25 million tons per year, generating annual revenue of $1 billion.

    The deal includes the El Segundo and Lee Ranch mines in New Mexico and the Twentymile Mine in Colorado, which have combined coal reserves of about 330 million tons, the company said.

    The mines are expected to produce 11 million tons and generate pre-tax cash flows after capital expenditures of about $70 million in 2016, Peabody said.

    The company said the deal will lower the amount of its self-bonding in place for reclamation obligations by more than $300 million.

    Peabody is one among many in an industry struggling to cope with a years-long slump in prices of steel-making and power-generating coal.

    Read more at Reuters
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    Chinese leading coal chemical firms report yearly rise in Oct sales

    Chinese leading coal chemical firms report yearly rise in Oct sales

    China Coal Energy, the listed body of China National Coal Group and China’s largest coal chemical firm, sold 33,000 tonnes of polythene in October this year, increasing 10% from September and up 22.2% on year, with sales over January-October soaring 331.9% on year to 298,000 tonnes, showed data from the company’s announcement on November 16.

    The output of polythene in the month stood at 29,000 tonnes, falling 3.3% on month but up 26.1% on year, with output between January and October up 306.8% on year to 297,000 tonnes, it said.

    The sales of polypropylene in October rose 34.6% on month and up 66.7% on year to 35,000 tonnes, with total sales for the past ten months up 407.4% on year to 274,000 tonnes.

    The company produced 28,000 tonnes of polypropylene in October, rising 3.7% from September and up 27.3% from the year prior. Total output between January and October stood at 278,000 tonnes, up 371.2% on year.

    Sales of urea in the month reached 130,000, posting the rise of 28.7% on month and up 51.2% from a year ago, with sales over January-October rising 79.6% on year to 1.3 million tonnes.

    Methanol sales in October fell 5.45% on month and down 33.3% on year to 52,000 tonnes, with sales during the same period up 28.5% on year to 604,000 tonnes.

    In addition, China Shenhua Energy, the listed arm of Shenhua Group, sold 29,500 tonnes of polythene in October, sliding 1% on month but soaring 2581.8% on year, with January-October sales up 23.2% to 2.73 million tonnes, the company said in its announcement released on November 17.

    The polypropylene sales of the company in the same month climbed 38.1% on month and up 2075% on year to 348,000 tonnes, with sales during the past ten months up 17.8% to 2.64 million tonnes, it said.

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    US judge dismisses Rio Tinto lawsuit against Vale

    A US judge on Friday dismissed Rio Tinto's lawsuit accusing rival Vale and others of conspiring to misappropriate its mining rights in the Simandou region, in Guinea. Simandou has some of the world's most valuable iron-ore deposits. 

    Rio Tinto had said in its April 2014 lawsuit that Vale had conspired with Israeli billionaire Beny Steinmetz and BSG Resources. But US District Judge Richard Berman in Manhattan said on Friday that Rio Tinto had waited too long to file the lawsuit after losing the mining rights in December 2008. 

    Under the Racketeer Influence and Corrupt Organizations Act, a US anti-conspiracy law, the Anglo-Australian company would have had to sue within four years, the judge said. "Judge Berman's decision was focused on a narrow point of law and he did not rule on the evidence Rio Tinto has been gathering in the case," Rio Tinto said in a statement. "Rio Tinto is free to both appeal Judge Berman's decision and pursue its claims in other forums, and is actively looking at all options." Vale said it was very satisfied with the decision. 

    "From the start, Vale has kept the most solid conviction that those allegations were groundless," Vale said in an emailed statement. Rio Tinto had accused the defendants of devising a fraudulent scheme to steal its rights over the northern half of Simandou.
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    China's steel output down 3.1% in October

    China's crude steel output dropped 3.1 percent year on year in October, widening from a decline of 0.3 percent for October 2014, the top economic planner said Saturday.

    In the first 10 months of this year, crude steel production dropped 2.2 percent year on year to 675.1 million tonnes, the National Development and Reform Commission said in a statement.

    The production of rolled steel products rose 1 percent to 934.3 million tonnes in the same period.

    The composite price index for domestic steel products stood at 60.11 points in October, down 1.62 points from September and 26.24 points from a year earlier, the statement said.

    The weak data came amid indicators of slowing economy. The country's GDP expanded by 6.9 percent in the third quarter of this year, the slowest quarterly growth in six years.
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    Moody's: Operating environment underpins ratings of Severstal and Gerdau

    Russian integrated steelmaking and mining company PAO Severstal's (Ba1 negative) significantly lower leverage and much higher profitability give it a stronger financial profile than its Brazilian investment-grade peer Gerdau S.A. (Baa3 negative), Moody's Investors Service has said today. However, Brazil (Baa3 stable), the domestic market of Gerdau, has a lower operating environment risk, higher institutional strength and is less susceptible to event risk than Russia (Ba1 negative), Severstal's base of operations. Although the more favourable operating environment, with lower risks, underpins Gerdau's higher rating relative to Severstal's, Gerdau's Brazilian operations continue to struggle with the tough market conditions. Moreover, we expect Brazil's recession to be fairly similar in size to Russia's with the South American country's GDP shrinking 3% in 2015 and 2% in 2016 vs a 4% contraction in Russia in 2015 and 1% in 2016.

    Moody's report titled "Peer Comparison - Severstal's Leverage Lower than More Diversified Gerdau's" is now available on Moody's subscribers can access this report via the link provided at the end of this press release.

    "Severstal's and Gerdau's core domestic markets, Russia and Brazil respectively, are both emerging economies with broadly similar characteristics and continue to drive the companies' cash flow" says Artem Frolov, lead analyst for Severstal.

    Severstal and Gerdau both have very strong positions in their respective domestic markets, where they generate a substantial part of their profits and incur the majority of costs. Gerdau is the largest producer of long-rolled steel in Brazil, a leading producer of long steel in the Americas and one of the largest suppliers of special long steel in the world, while Severstal is one of the biggest players in the flat steel market in the CIS. Both companies have strong positions in their main export markets. Both companies are rated at the level of their respective sovereigns.

    Both companies have a high level of vertical integration, although Severstal has an advantage in terms of raw material self-sufficiency. Severstal produces 97% of its own iron ore needs and 110% of coking coal needs. Gerdau is fully self-sufficient in iron ore and meets 30% of its coking coal needs from its own production in Colombia. Gerdau's ability to source suppliers of scrap metal for its mini-mills operations reduces its exposure to volatile scrap prices, particularly in the US.
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