Mark Latham Commodity Equity Intelligence Service

Monday 17th August 2015
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    The Good News.

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    The Elephant in the room


    Image titleWe know 'resourceworld' is entering crisis, but 'internetworld' just keeps going.
    Image titleOnly 4% of US readers use paper. This is just apocalyptic it it is any measure of future resource demand.
    Image titleSmartphones are ubiquitous and increasingly the main access point between the consumer and the economy. That means that over time more and more stuff is going to be bought/consumed via a smartphone. We cannot blithely assume that patterns of consumption of raw materials will remain unchanged with this transition.
    Image titleThis is the new economy, its 'on demand' and available 24/7. Its where the growth is to be found right now. As a general observation this raises the utilisation rate of formerly dormant capital stock (cars/housing/hotels/'stuff'), and as a consequence lowers the rate of formation of new capital stock. Thats not good for capex in general. It's excellent for economic efficiency, but a disaster for resource intensity. 
    Image titleClose to a trillion dollars of 'stuff' now moving across internet platforms. That's still only ~5% of global GNP. What happens when the other 95% joins the party? 
    Image titleThere's not one quoted EU company in the top 20. It's striking. 

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    Disruptive technologies

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    The Emerging Middle Class is not happy.



    Image titleHere's the emerging middle class, from 2000-2012, if you like the classic period of emerging catch up.Image titleAnother graph showing the same effect.
    Image titleThis slide shows the classic, easy to understand, 'catch up' slide for the emerging economies: growth at OECD's expense, via low wage manufacturing job replacements.
    Image titleThe problem for emerging, and its actually two fold, is 1> dependence on commodity exports for income, 2> Maturity and mix effects:



    Image titleTaking China as a superb example: Miners and Steelworkers simply do not have the 'earnings power' to drive wage growth higher. 
      
    Image titleHere's coal power installs in 2010: BIG!

    Image titleHere's the IEA on coal today, according to the IEA we are quite literally at peak coal usage NOW. The emerging middle class hates pollution. 

    There's a stunning silence on the web about the emerging middle class travails, but I did find this blog from the OECD in 2013:

    http://oecdinsights.org/2013/07/01/emerging-middle-class-blues/

    Yet, the urban middle class youth is in revolt in Brazil, Turkey and other fast-growing countries. The controversy around Easterlin Paradox, a key concept of happiness economics, suggests that happiness grows more slowly than incomes. Leaders in many emerging countries are today confronted with a dilemma that reflects the dual rural-urban structure of their large societies. While the internet-savvy young urban middle-class has left poverty behind and demands voice, participation and efficient public services, there still coexist the poor in the rural hinterland striving to leave individual poverty behind.  

    Exit, voice and loyalty, the late Albert O Hirschman´s intriguing basic categories that drive societal change, can be used to better understand the current conundrum. Loyalty, through adherence to a political party or to religion, can block change but is waning. Exit and voice have different potential in a rural-urban context: exit from the rural to the urban sector is a preferred option for the rural poor but is mostly a one-way street; whence voice as the preferred option for the urban middle class.

    Much of the emerging-country middle class is fragile. Lousy education, poor health and urban congestion are the biggest risks to the lower strata of the middle class, by way of social and economic exclusion. A higher proportion of middle-class citizens translates into higher prices for private schools, hospitals and transports or, alternatively, overcrowding. The private provision of quality public services is a socially dividing, hence limited, costly option. In other words, exit to private education and health services – an option for the “happy few” – will raise prices to the point that it triggers voice while the size of the middle class rises.

    “First-world soccer stadiums; third-world schools and hospitals”, was one of the slogans advanced by Brazil´s protesters. Brazil has already spent more than $3bn, three times South Africa’s total four years earlier, and only half the World Cup stadiums are finished. Public health spending occupies a mere 4 per cent of GDP in Brazil (despite a constitutional declaration for universal health care rights), compared to 6 in Turkey and 7 in the OECD on average. The latest PISA test scores rank Brazil 57th out of 65 survey countries for mathematics, Turkey is ranked 43rd. These numbers suggest that there is a political and social premium on best practices in the governance and allocation of public spending of tax receipts. Apparently, that premium has not been reached.

    Emerging-country leaders might ignore the insights of the OECD Latin American Outlook 2011 at their peril. The policy recommendations put forth there rightly emphasize the need for “fiscal legitimacy”. To avoid the emerging middle class blues, public finances need to strengthen the social contract, provide better opportunities for the vulnerable people and better quality public services. Middle-income citizens are more willing to pay taxes for services, such as transport, health care and education, if they perceive them to be of high quality and if “white elephants” – trophy public investments with little social value – are avoided.


    Coca Cola reported unit volumes of 2% in Latin America, 3% in Asia, 4% in Eurasia/Africa in q2 2015, which adds some numbers to our sense of emerging middle class woes.

    Global car sales advanced a slower-than-expected 2% in the first half of 2015, 
    Read more at http://www.econotimes.com/Global-auto-sales-report-75145#ffMqAEJcjd5DYdLL.99

    Here's a familiar narrative from the Philippines:

    Grace Poe’s emergence as a potential “third force” in Philippine politics has led many commentators to ask if something fundamentally new may be emerging this presidential season: a major candidate who is neither backed by the administration nor is seen to lead the opposition to it.

    But a look back at previous post-Marcos elections suggests a very different interpretation is more plausible.

    Poe, like all major presidential contenders, has aligned herself with one of the two major “narratives” of Philippine politics, that of “reformism” or “good governance” carried out by “moral leaders.”

    She is seemingly aligned against a “populist” narrative of helping the poor against an uncaring elite that Vice President Jejomar “Jojo” Binay has made his own following in the footsteps of former president Joseph Estrada. (READ: Battle of Aquino, Binay narratives)

    Thus it is not surprising that Poe has won strong support from the middle and upper classes while basking in the favorable publicity provided by the press. In the same manner, Binay enjoys a core support of the poor while being denounced as corrupt by many key elites.


    This follows a now familiar story of non-establishment candidates making the running in emerging democracies. 




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    The Real Time Economy

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    Some 250 miles above the Earth, a flock of shoebox-size Dove satellites is helping to change our understanding of economic life below.

    In Myanmar, night lights indicate slower growth than World Bank estimates. In Kenya, photos of homes with metal roofs can show transition from poverty. In China, trucks in factory parking lots can indicate industrial output.

    Images from these and other satellites, combined with big-data software, are helping to create what former NASA scientist James Crawford calls a “macroscope” to “see things that are too large to be taken in by the human eye.” Aid organizations can use the results to distribute donations. Investors can mine them to pick stocks.

    “This is one of those really rare game changers that come along very infrequently but has the ability to remake the whole stock- and economic-research industry,” said Nicholas Colas, chief market strategist at Convergex Group, a New York-based brokerage. “We still make monetary policy in this country based on surveys of a few thousand households and businesses.”


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    Yuan China blows up!

     

    China's move to weaken the yuan last week could head off further similar "adjustments", and the yuan is likely to move in both directions as the economy stabilizes, Ma Jun, chief economist at the central bank said on Sunday.

    The People's Bank of China (PBOC) shocked global markets by devaluing the yuanCNY=CFXS by nearly 2 percent on Aug. 11. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports.

    The yuan's drop last week and its increased flexibility could help "sharply reduce the possibility" of similar adjustments in future, Ma said.

    In the near term, it is more likely there will be "two way volatility," or appreciation and depreciation of the yuan, Ma said in a question-and-answer statement sent by email.

    The central bank would move only in "exceptional circumstances" to iron out "excessive volatility" in the exchange rate, Ma said.

    Ma played down market fears that a "currency war" could be triggered by China's devaluation, which dragged some other Asian currencies to multi-year lows.

    "China has no intention or need to participate in a 'currency war'," Ma said in the statement.


    BUT

    The death toll in China from explosions at a warehouse storing hazardous materials rose to 112 Sunday, as authorities worked to remove chemical contamination.

    Some 95 people, including 85 firefighters, remain missing following the blasts Wednesday night in the port city of Tianjin, 75 miles east of Beijing, the state-run Xinhua News Agency reported.

    State-run news publications The Paper and the Southern Metropolis reported that the warehouse was storing 700 tons of sodium cyanide — 70 times more than it should have been.

    Sodium cyanide is a toxic chemical that can form a flammable gas upon contact with water, and several hundred tons would be a clear violation of rules cited by state media that the warehouse could store no more than 10 tons at a time, the Associated Press reported.


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    Is Glencore about to dump $16 billion of stockpiles?

    Is Glencore about to dump $16 billion of stockpiles?

    A new research note from JP Morgan Cazenove quoted in The Guardian warns that Glencore's debt – estimated to come in at a stomach churning $48 billion when the company reports half-year numbers next week – as the biggest issue facing the company.

    "Bold borrowings aren’t quite what they seem, it should be said, because Glencore’s marketing division holds a stockpile of commodities as inventories that can be turned into cash. Viewed that way, net debt might be nearer $30.5bn at year-end, estimates JP Morgan Cazenove.

    "But here’s the rub: Glencore might have to go ahead and turn some of that stock into cash if its wants to save its BBB credit rating. “At spot commodity prices, we calculate net debt needs to fall $16bn by year-end 2016 to safeguard Glencore’s BBB credit rating,” says JP Morgan.

    "Preservation of BBB is a financial priority, Glencore said in March, for the sound reason that a healthy rating is vital to keep funding costs low in the trading-cum-marketing division."

    Glencore has other ways to find some of that $16 billion in cash like nixing its dividend. But any large seller into an already depressed metals and minerals market can only make things worse.

    http://www.mining.com/is-glencore-about-to-dump-16-billion-of-stockpiles/
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    The Killing Zone.

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    EU on Recycling

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    Greenpeace on GHG's and Renewables.

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    London Property vs Global Growth

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    Oil and Gas

    Saudi money market turmoil shows bank jitters over bond issues

    Saudi money market turmoil shows bank jitters over bond issues

    Turmoil in the Saudi Arabian money markets suggests that financing the government's budget deficit in an era of cheap oil may not be smooth as banks worry about the risk of a liquidity squeeze.

    The government sold 20 billion riyals ($5.3 billion) of riyal bonds to banks last Tuesday to help to cover a huge deficit caused by low oil prices. It was only the second sovereign bond issue since 2007; the first, placed with quasi-sovereign institutions, occurred in July.

    Cash-rich Saudi banks easily absorbed last week's issue, but money market moves show concern about their ability to absorb the multi-year series of issues that may become necessary if oil prices remain low.

    Adding to the jitters is officials' secrecy about their bond plans. Authorities have privately told banks no more than 40 percent of the deficit will be financed with bonds; the rest will be covered by running down fiscal reserves.

    But authorities have not released a bond issuance calendar or detailed figures for the government's borrowing requirement.

    This has left banks in the dark about how many more bonds they might be asked to buy in coming months and years.

    Bankers, therefore, are scrambling to hedge against the risk of a liquidity crunch a year or two from now, causing the Saudi money curve to steepen even as the U.S. curve flattens in anticipation of an interest rate rise this year - an unusual divergence.

    The cost of two-year riyal deposits in the interbank market shot up to 1.53 percent last week from as low as 1.05 percent six weeks earlier. The cost of swapping fixed for floating payments with a one-year interest rate swap jumped 30 basis points from July.

    http://www.reuters.com/article/2015/08/16/saudi-bonds-rates-idUSL5N10O09S20150816
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    Iran

    One of the biggest mysteries in the oil market surrounds just how much oil Iran is hoarding at sea.

    That's a key question because Iran's nuclear deal with the West could lift crippling sanctions, and pave the way for tons of Iranian oil to hit the market. A surge in Iranian exports would only deepen the oil supply glut that has sent prices to fresh six-year lows this week to below $43.


    Iran claims it's not stockpiling oil in tankers in the Persian Gulf, but no one believes it. Up until recently, energy experts thought Iran's vessels held 30 million to 40 million barrels of oil.

    But maritime surveillance firm Windward has harnessed sophisticated technology to determine Iran is actually hoarding 50 million barrels of oil. That's up nearly 150% from April 2014 when Windward started tracking this closely-watched metric.


    Somebody had to go first—why not the Swiss?

    News that Switzerland has become the first Western country to start lifting sanctions on Iran will no doubt be followed swiftly by reports of other nations (and corporations) seeking some of the Islamic Republic’s soon-to-be-unfrozen billions. Russia and China have already begun talking up arms sales to Tehran; over the weekend, Moscow sent a pair of warships to the port of Anzali, to display Russian naval wares.



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    First US LNG spot export cargo

     

    LNG player Cheniere, based in Houston, has reportedly sold its first spot LNG cargo last week. 

    Sources told Platts that the maiden trade was completed at $7.20 per mmBtu and the cargo will be delivered onboard the 162,000 cbm Clean Ocean LNG carrier in July to an Asian buyer.

    Cheniere has chartered the vessel from Dynagas on a five-year deal ending in the second quarter of 2020 with an option to extend the deal for additional two years. The vessel has been chartered together with two Teekay’s 173,400 cbm LNG carrier newbuilds under construction by Daewoo Shipbuilding & Marine Engineering of South Korea scheduled for delivery in the first half of 2016.

    Cheniere plans to market up to 5 mtpa of LNG from its US-based export projects through its office in Singapore.

    The Clean Ocean LNG carrier is currently on idle offshore Singapore, according to shipping data.

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    China LPG prices continue to edge lower on seasonal demand lull

    China LPG prices continue to edge lower on seasonal demand lull

    Imported and domestically produced LPG prices continued to edge lower across southern and eastern China this week amid bearish market outlook and the seasonal lull in demand, local trade sources said Friday.

    Import cost for cargoes arriving in the first half of September was estimated below Yuan 3,000/mt ($468.68/mt) CFR China, based on recent Asian refrigerated LPG values, which was lower than the current spot prices in the domestic market, according to traders.

    This is believed to have dampened buying interest and exerted downward pressure on spot prices this week, trade sources noted.

    In China's southern Guangdong province, imported LPG cargoes of mixed propane and butane were said to have traded at around Yuan 3,350-Yuan 3,400/mt in the wholesale market this week, down slightly by Yuan 50/mt from Yuan 3,400-Yuan 3,450/mt in the previous week.

    "We are not optimistic about the price in the near future ... import cost for later arrivals have dropped to around Yuan 3,000/mt or even lower," a trader said.

    "Besides, LPG supply is ample amid weak seasonal demand, which has discouraged buying interest as well," he noted.

    Four refrigerated cargoes, totaling around 110,000 mt, were reported to have arrived in Guangdong province this week, up slightly from around 103,000 mt seen in the previous week, according to updated shipping data from Beijing-based energy information provider JYD Commodities Hub.

    Domestically produced LPG was said to have traded at Yuan 3,300-Yuan 3,400/mt in the region this week, also down by around Yuan 50/mt from last week.

    Trading activities remain thin as many buyers continued to maintain relatively low inventory levels amid a bearish market outlook, traders added.

    In eastern China, both imported and domestically produced LPG was said to have traded at around Yuan 3,550-Yuan 3,650/mt and Yuan 3,500-Yuan 3,600/mt, respectively, in the region this week, down by about Yuan 50/mt from a week ago as well.

    Bearish market outlook and weak demand were also cited as main reasons behind the fall in spot LPG prices in the region this week, according to traders.

    http://www.platts.com/latest-news/petrochemicals/singapore/china-lpg-prices-continue-to-edge-lower-on-seasonal-26178345
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    Russia’s Rosneft plans to increase oil output

    Russia’s Rosneft plans to increase oil output

    Russia’s Rosneft, the world’s top listed oil producer by output, plans to increase production, Chief Executive Igor Sechin told Prime Minister Dmitry Medvedev on Friday, according to the government’s website.

    Rosneft oil production was slightly down last year to 4.1 million barrels per day from 4.2 million bpd in 2013, due to lower output at mature fields.

    Sechin, who did not give a production forecast or a timing for the increase, said that Yuganskneftegaz, Rosneft’s largest oil producing unit, could be one of the sources of growth.

    Sechin said that Yugansk, a former Yukos asset, was expected to produce around 66 million tonnes of oil this year. He said new wells would be added in the field which pumped 64.5 million tonnes of oil last year.

    According to the Russian Energy Ministry, Rosneft’s oil production was down 1.2 percent in July, year-on-year.

    https://www.energyvoice.com/oilandgas/85100/russias-rosneft-plans-to-increase-oil-output/
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    Malaysia’s Petronas says operations won’t cover 2015 dividend

    Malaysia’s Petronas says operations won’t cover 2015 dividend

    Malaysia’s Petroliam Nasional Bhd (Petronas) on Friday said cash from operations will cover neither capital expenses nor committed dividends for 2015, forcing the state-owned oil firm to draw on reserves and further cost savings.

    Petronas contributes almost half of Malaysia’s oil revenue. But weak global prices have depressed income, leaving the country with a devalued currency and at risk of a credit-rating downgrade, while debts mount at state investment fund 1MDB.

    “We will have to persevere with more austerity measures,” said Petronas President and Group Chief Executive Wan Zulkiflee Wan Ariffin at an earnings briefing.

    Petronas said net profit fell 47 percent to 11.1 billion ringgit ($2.73 billion) in April-June due to weaker crude oil prices as well as lower sales of oil and liquefied natural gas.

    Still, “all the plans are in place” to meet the 26 billion ringgit dividend promised to the government this year, Wan Zulkiflee said.

    He said cost savings reached 600 million ringgit in the first half of 2015, and that oil prices will likely remain low for the rest of the year. “There’s growth in demand, but growth in supply is a lot bigger,” he said.

    Petronas booked its first quarterly loss in five years at the end of last year, but returned to profit in January-March.

    https://www.energyvoice.com/marketinfo/85098/malaysias-petronas-says-operations-wont-cover-2015-dividend/
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    Oxy breaks silence

    Executives of Occidental Petroleum Corp., on Thursday reported finding savings by extracting more oil for less money and reinvesting that money in the Permian Basin, where the company is the biggest oil producer in the region.

    Oxy, as the company is known, saved about $450 million by cutting costs during the first half of the year, and it channeled that money into the Permian Basin, where crude production grew by about 78 percent in the second quarter compared to the same period last year.

    Incoming CEO Vicki Hollub attributed those efficiency gains to reduced drilling and completion times aided by technological improvements in geophysical modeling, drilling fluid systems and 3-D seismic imaging.

    In the Permian Basin, the company saw the time it takes to drill a well drop from about 40 days to about 20 days. Well costs dropped from $10.9 million to $6.8 million. Hollub said the goal is to shave another $600,000 off those costs.

    Oxy’s report represented the latest case of Permian Basin oil and gas producers showing they can continue to drive up production amid low oil prices. That is an upside for energy and production companies who depend on continued production gains, said Joseph Triepke, a financial analyst from Odessa and managing director of Oilpro.com.

    But building production in a region that already pumps more than 2 million barrels of oil per day offers little relief to the oilfield services companies who make up some of Odessa’s top employers, Triepke said. That’s because the price drop resulted in part from global oversupply, and worry mounts that continued production growth will put more downward pressure on oil prices.

    So far, Oxy executives reported that company managers shifted employees around rather than opt for shrinking their workforce.

    “In previous industry down cycles we’ve seen in the industry overreact through widespread layoffs,” Hollub said. “We’re taking a different approach with our response to lower oil prices and have deployed many of our engineers in the early stages of their careers out into the field where they have replaced contractors. They are successfully helping to optimize our base production, improve drilling times and gain on the ground experience.”

    In the first half of the year, Oxy executives reported drilling 47 wells — 42 of which were horizontal. And they placed 71 wells, some drilled before 2015, on production.

    Hollub pointed to two of those wells as some of the best-producing ever in the Permian Basin, producing about 2,400 boe per day at their peak rates. Both were in the Delaware Basin west of the Odessa-Midland area, including parts of New Mexico.

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    Sewage flow turns down in Bakken

    The population of a U.S. oil boomtown that became a symbol of the fracking revolution is dropping fast because of the collapse in crude oil prices , according to an unusual metric: the amount of sewage produced.

    Williston, North Dakota, has seen its population drop about 6 percent since last summer, according to wastewater data relied upon heavily by city planning officials.

    They turned to measuring effluent because it was a much faster and more accurate way to track population than alternatives such as construction permits, school enrollment, tax receipts or airport boardings.

    U.S. Census Bureau figures are usually too old as a full-fledged population count only happens once a decade, with sporadic updates in between. That’s not going to catch any swift changes in the population of cities like Williston.

    “Here in Williston, the growth rate is not predictable,” said David Tuan, director of the city’s public works department. “Measuring wastewater flow tends to be the most-efficient way to track population.”

    The recent high-water mark for Williston’s population was 33,866 in August of last year, just before the oil price collapse. Crude oil has fallen more than 50 percent in the past year and hurt many companies’ finances, leading to massive cost cutting, including the cancellation of projects and lay offs.

    By June of this year, the town had shrunk to 31,800 people, according to the sewage data.

    “I attribute that to the slowdown in oil prices,” said Tuan.

    Among the companies who have made big job cuts here are Halliburton Co and Schlumberger NV, alongside many smaller peers.


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    Energy XXI slashes spending but maintains production estimates

    Energy XXI slashes spending but maintains production estimates

    Energy XXI expects to produce roughly the same amount of oil and gas for a fraction of the cost as it reaps the benefit of rapidly falling costs and more efficient operations.

    The Houston-based offshore oil company set its annual capital expenditure budget around $140 million, down from the $640 million to $670 million Energy XXI projects it spent during its 2015 fiscal year, which ended on June 30. That budget is based on $50-per-barrel oil, but Energy XXI said it would consider expanding development drilling if prices rebounded.

    Despite slashing its spending budget, Energy XXI says it will pump between 54,000 and 59,000 barrels of oil equivalent per day in the 2016 fiscal year, about the same as its prior year production rate of 58,900 barrels of oil equivalent per day. Oil and natural gas liquids comprise about two-thirds of its output estimates.

    As falling oil prices pull down lease operating costs, the Houston-based oil company said it can now extract a barrel of oil equivalent for about $52, down 30 percent from the same time a year ago.

    “In this challenging commodity price environment, I’m very proud of our team’s ability to maintain capital discipline and reduce per barrel lease operating costs,” Chairman, President and CEO John Schiller said in a statement Thursday. “More importantly, we have accomplished this while keeping production stable.”

    Amid a global crude slump that’s battered oil companies — Energy XXI’s stock has plummeted from $32.93 in October 2013 to below $2 in recent weeks — the company has been scrambling to cut costs and figure out cheaper ways to produce. It trimmed overall costs in part through a recent round of layoffs. The company declined to provide details about the extent of the job cuts, which happened in Houston and elsewhere.

    Energy XXI has also been targeting “low-risk oil opportunities,” including returning to already produced wells to extract additional oil and gas from different zones. Because infrastructure on these wells already exists, these so-called recompletions are a cheaper way to boost output, each costing about $3 to $4 million versus the $10 million it costs to drill and complete a new well.

    “It’s the most economic way to address our proved reserves,” Greg Smith, vice president of investor relations, said in an interview with Fuel Fix.

    Energy XXI said its recompletion program in a large salt dome field in the Gulf of Mexico 96 miles south of New Orleans has yielded good results, with costs coming in much lower than original estimates.

    So far, the company has brought online nine recompleted wells in the region and is working on a tenth, all told doubling its output in the field since the start of the year. Energy XXI has identified 25 projects for completion in fiscal year 2016.

    http://fuelfix.com/blog/2015/08/13/energy-xxi-slashes-spending-but-maintains-production-estimates/
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    Why U.S. rig counts are rising even as oil plunges to new lows

    Why U.S. rig counts are rising even as oil plunges to new lows

    U.S. oil production slowing, but not as fast as anticipated

    “The recent increase in rig counts is due to prices two months ago. There’s always a lag between price changes and drilling activity,” explained James Williams, economist at WTRG Economics in London, Ark. “With the recent drop in prices, we’ll probably see some pressure on rig counts to slack off again.”



    On Friday, oil-services firm Baker Hughes said the number of U.S. oil rigs rose for a fourth straight week. There were a total of 672 rigs as of Friday, up two from a week ago. The number of rigs bottomed at 628 in late June, ending months of steep declines. Still, the number of rigs is down 917 from this time last year.

    Oil began a plunge in mid-2014, driving the price of West Texas Intermediate futures on Nymex to less than $44 a barrel by March of this year from a high in June 2014 of around $107 a barrel.

    Oil then saw a spring rebound, notching a 2015 high at $61.43 on June 10 before coming under renewed pressure that saw crude CLU5, -1.27%  take out the March lows Thursday.

    http://www.marketwatch.com/story/why-us-rig-counts-are-rising-even-as-oil-plunges-to-new-lows-2015-08-14
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    Alternative Energy

    Sun Edison collapse?

    SunEdison (NYSE:SUNE) has experienced a disastrous past month, with the stock price approximately halving during this time period. With a growing number of acquisitions and businesses, SunEdison is clearly making investors more wary of a possible overextension. SunEdison's recent Q2 earnings results only further stoked this sentiment, as the company reported a whopping $263M in net losses. Despite the fact that the company crushed its growth guidance, delivering 404 MWs of solar/wind projects during the quarter, losses are clearly becoming a focal point for investors.

    With 8.1 GW of pipeline projects and a growing number of businesses, investors are right to be increasingly focused on losses. As debt has been one of the primary reasons for solar bankruptcies over the past decade, growth may become irrelevant if the company's losses keep piling up. With debt levels starting to surpass the double digit billions, SunEdison is clearly one of the riskier solar plays. While SunEdison is still likely undervalued at current valuations(especially after its recent drop), the risks associated with this stock are only rising. Some of the downsides of SunEdison's incredibly ambitious approach are finally started to show.Image title

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    Renewables, Coal, Gas and all things Electric.

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    US ethylene at a six-year low on oversupply, high run rates

    US ethylene at a six-year low on oversupply, high run rates

    August US spot ethylene fell 2 cents/lb Thursday to 23.75-24.25 cents/lb FD USG for August deliveries on continued talk of declining downstream derivative prices, weak energy complex, lengthening supply and inventories.

    Thursday's assessment is the lowest since August 3, 2009, when the spot price was assessed at 23.75 cents/lb, Platts data show.

    In active trading on Thursday, August was traded twice in the morning at 25 cents/lb MtB Wms and at 24.25 cents/lb MtB Wms, while in the afternoon August was traded at 24 cents/lb MtB Wms and 25 cents/lb MtB-other.

    After close of assessment, one August deal was concluded at 23.75 cents/lb MtB Wms, while January traded at 25.375 cents/lb MtB Wms.

    Prices have seen downward pressure since late September, when a number of production expansions started up.

    Early January brought more bearishness when a major transmission line was shut for repairs.

    Six expansions with total capacity of 2 billion lb have been brought online in the past year, pushing the total annual US ethylene production to over 61.7 billion lb/year, according to Platts data.

    This boosted capacity has been met with little corresponding downstream expansions, resulting in oversupply.

    US Gulf Coast producers are experiencing a rather uneventful 2015 to date, with ethylene prices holding to a range of 32.75-42 cents/lb until late July.

    Prices have recently dropped 9.125 cents/lb (or 28.6%) from the 33.625 cents/lb assessment on July 31 to Thursday's 24 cents/lb.

    By contrast, in the same period in 2014 -- January to early August -- ethylene prices were in a much wider range of 49.75-70 cents/lb, before a number of unplanned outages in third-quarter 2014 pushed prices to a record high in mid-September of 76.25 cents/lb FD USG, Platts data showed.

    Sources also pointed to high US production rates. Second-quarter ethylene production was 14.441 billion lb, up 695.6 million lb from Q1 and up 983.3 million lb from Q2 2014, according to American Fuel and Petrochemical Manufacturers data.

    Second quarter production was the highest quarterly output since fourth quarter 2004's 14.831 billion lb, the AFPM report showed.

    http://www.platts.com/latest-news/petrochemicals/houston/us-ethylene-at-a-six-year-low-on-oversupply-high-26178337
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    Hanergy says may post loss after cancelling deals with parent

    Hanergy says may post loss after cancelling deals with parent

    Hanergy Thin Film Power Group Ltd (HTF), under investigation by Hong Kong's share market regulator, said on Sunday it may record a loss for the first half of the year after suspending or terminating a large number of sales to its parent company and affiliates.

    Its unlisted Chinese parent, Hanergy Holding, buys solar panel-making machines from HTF and then makes solar panels for sale to third parties.

    But HTF said in a statement on Sunday that the cancellation of those deals have resulted in a substantial decline in the income arising from connected transactions during the period to around HK$200 million ($25.79 million), an over 90 percent drop from a year ago.

    "The Securities and Futures Commission (SFC) was concerned about the ongoing viability of the group given its financial dependence on (parent) Hanergy Holding Group Limited and its affiliates," HTF said in the statement to stock exchange.

    "Therefore the Company has suspended or terminated the majority of connected transactions with the member companies and other affiliates of Hanergy Holding."

    The company said last month it may launch a judicial challenge to a decision by the SFC to suspend trading in its shares, after the Hong Kong exchange said it had been directed by the securities regulator to extend a nearly two-month share trading suspension on HTF following a plunge in its share price in May.

    HTF's first-half revenue and net profit in 2014 were HK$3.2 billion and HK$1.7 billion, respectively.

    http://www.reuters.com/article/2015/08/16/hanergy-profit-warning-idUSL3N10R06M20150816
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    Base Metals

    Tiger CEO walks away

    Tiger CEO walks away 

    Copper cathode producer Tiger Resources has announced the resignation of its CEO Brad Marwood. Company director Michael Griffiths has been appointed interim CEO while the company seeks a successor to Marwood. 

    Griffiths has been a director of Tiger since the end of 2012 and has over 30 years experience in the Australian and African minerals and energy sectors. Marwood will serve as an adviser to Tiger for an interim period, to assist with the transition of the new leadership team. 

    Tiger is aiming to produce 25 000 t of copper cathode at its Kipoi project, in the Democratic Republic of Congo, in the current financial year. 

    A recent debottlenecking study of the solvent extraction and electrowinning plant revealed that copper production could be increased from the 25 000 t/y nameplate capacity to 32 500 t/y at a capital investment of $25-million.

    http://www.miningweekly.com/article/tiger-ceo-walks-away-2015-08-17
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    Vale ordered to halt production at giant Amazon nickel mine

    Vale ordered to halt production at giant Amazon nickel mine

    A Brazilian federal court on Friday ordered Vale, the world's number one nickel and iron ore producer, to halt activity at its Onça Puma nickel mine in northwestern Brazil.

    The judge said operations at the mine which produces nearly 9% of Vale's total production of the steelmaking raw material should cease until the Rio de Janeiro-based company sorts out compensation to indigenous communities in the region, reports Reuters.

    The court also ordered the company to deposit 1 million reais ($287,000) for each indigenous village in the area in Para state until a new payment program for the local communities can be implemented.

    They are being asked by indigenous peoples to finance services that are properly the responsibility of Brazil's federal and state governments

    Protestors have been disrupting operations by blocking Vale's railway line from its expansive Carajas iron ore and nickel mining complex in the state.

    Vale has said in the past that "despite working closely with native groups and supporting cultural and social projects, they are being asked by indigenous peoples to finance services that are properly the responsibility of Brazil's federal and state governments, not Vale."

    Vale overtook Russia's Norilsk Nickel last year to become the world's largest nickel producer in terms of output with mines in its home base, Canada, Indonesia, and New Caledonia producing some 290,000 tonnes a year.

    http://www.mining.com/vale-ordered-to-halt-production-at-giant-amazon-nickel-mine/
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    Aluminum production in China drops

    Aluminum production in China drops

    Production of the metal used in everything from cars to window frames dropped about 1.3 percent in July to 2.72 million tons from 2.76 million tons a month earlier, National Bureau of Statistics data show. Output had surged to a record in June as low-cost smelters ramped up output, fueling a surge in exports.

    The decline in July will offer some relief to global smelters who have cut output as they’ve seen earnings suffer with global prices slumping to the lowest levels since 2009. While exports from China fell 20 percent in July, they have surged 28 percent to 2.87 million tons in the first seven months, the highest ever for the period.

    “Production fell as the pace of output cuts in high-cost capacity was faster than the increase in new production,” said Wang Chunhui, an analyst with SMM Information & Technology Co.

    Falling local demand and excess production are hurting China’s aluminum and steel industries, leaving exports as the only outlet. Overseas steel sales expanded 27 percent to 62.13 million tons in the first seven months, the highest ever for the period, according to data compiled by Bloomberg.

    New low-cost aluminum capacity in Xinjiang, Inner Mongolia and Shandong is boosting supply, while government subsidies keep high-cost plants operating, according to Goldman Sachs Group Inc. analysts including Max Layton and Jeff Currie.

    Price Slump

    Goldman Sachs cut its price forecasts by at least 21 percent from 2016 through 2018 and predicted gluts of about 2.5 million tons to 3 million tons from 2016 to 2019, the bank said in a report dated Aug. 10.

    Growth in Chinese demand was “very disappointing” in the first half, reflecting slowing credit, a rising real exchange rate and a weaker property market, the bank said.

    Aluminum prices on the London Metal Exchange have slumped 21 percent in the past year and touched the lowest in six years on Wednesday, while premiums in the U.S. have slid to a 43-month low, according to Harbor Intelligence.

    Century Aluminum Co., a U.S. producer, cited pressure from Chinese exports in announcing the permanent closure of an idled smelter. Shipments from China are a “real threat to orderly, competitive and strong markets,” Chief Executive Officer Michael Bless said in a conference call this month.

    http://www.mineweb.com/news/base-metals-and-minerals/aluminum-production-in-china-drops/
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    Steel, Iron Ore and Coal

    Yuan devaluation could trigger coal exports by world's biggest buyer

    Yuan devaluation could trigger coal exports by world's biggest buyer

    China's devaluation of the yuan may hit already oversupplied world commodity markets, as the surprise move increases the chances that the world's biggest coal importer will become a net exporter. That would not help global coal prices, already at their lowest for almost a decade.

    It would not be the first time such a reversal has occurred. China was one of the world's largest thermal coal exporters until around 2004 when rocketing demand at home helped drive the need for imports.

    China had been forecast to continue as a coal importer as the currencies of other major producers had been expected to weaken against the US dollar, while the yuan had been expected to remain firm, making Chinese exports less competitive.

    But faced with a run of weak economic data, China pushed down the value of the yuan this week, drawing accusations that it was unfairly supporting its exporters. The central bank says there is no basis for the yuan to fall further, but markets expect that could happen.

    Mr Stefan Ljubisavljevic, analyst at Macquarie Bank, said that "A week ago people would have said there was a slim chance China would become a net exporter... now people are reconsidering that and they think it could potentially happen on a five year view."

    Mr Ljubisavljevic said that "If you saw more protectionism of the domestic industry and devaluation continued, it could happen even sooner that China exports."

    Chinese coal imports have already fallen sharply in 2015, due to the government's concerns over the environmental impact of coal power generation and its desire to help financially distressed domestic coal producers.

    China's coal industry, which meets around 65 percent of the country's primary energy demand and employs nearly 6 million people, has been hit by a slowdown in sectors such as power generation, cement and steel, as well as a campaign to cut smog.

    http://steelguru.com/coal/yuan-devaluation-could-trigger-coal-exports-by-world-s-biggest-buyer-report/432068#tag
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    China may see 170 GW coal-fired power capacity idling this year

    China may see 170 GW coal-fired power capacity idling this year

    China is likely to see some 96-170 GW of coal-fired power capacity being idled this year, as slowing power demand would make it unable to absorb growing capacity, which may exceed 960 GW by the end of the year.

    Based on an average cost of 3,800 yuan/KW ($593.8/KW), the idling capacity would cost some 360-650 billion yuan of investment, according to the China Electric Power News.

    China’s power consumption has dropped amid weak industrial demand as the Chinese economy slowed. Total power use increased only 1.3% from a year ago to 2,662.4 TWh over January-June, compared with a 4.3% growth from the same period last year.

    In contrast, China added 23.43 GW of coal-fired power installed capacity in the first half, up 55% from the year prior.

    The average utilization of power generating units across the country dropped 7.2% year on year to 1,936 hours in the six-month period, and is forecast to be 4,100 hours this year, down 4.34% from the actual figure in 2014.

    Analysts pointed out that too fast growth in thermal plants construction was the main reason for the drop in capacity utilization and wastes in renewables like wind, hydro and solar.

    http://en.sxcoal.com/0/129882/DataShow.html
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    Shenhua among six parties potentially racing for Rio's coal business

    Shenhua among six parties potentially racing for Rio's coal business

    China's coal giant Shenhua Group is among six parties assessing bids for Rio Tinto's $4 billion thermal coal business in the Hunter Valley, Reuters reported, citing the Australian Financial Review.

    The interest from Shenhua, coal miner New Hope Corp Ltd and an unnamed specialist mining private equity firm broadens what had been expected to be a two-horse race between Glencore Plc and London-based X2 Resources.

    Shenhua has expressed interest just weeks after Australian Environment Minister Greg Hunt said he would review the government's approval for China Shenhua Energy Co's $1 billion Watermark thermal and soft coking coal project.

    Hunt announced the surprise review under pressure from agricultural groups, as the Watermark project is near prime farming land in New South Wales.

    The smaller New Hope, which has a market capitalisation of just $1.5 billion, is understood to be interested in only part of the Rio business, with industry players questioning whether they have the balance sheet to buy the full asset package.

    Industry sources suggested South32 may also take a look at the assets, but the company said on August 13 it was not interested.

    Rio last year rejected a takeover approach from smaller rival Glencore, snubbing a blockbuster deal that would have created a $160 billion mining and commodities trading giant.

    As Rio's coal business in the Hunter Valley is right next door to Glencore's coal business, Glencore is seen by many as the natural owner of the assets, but has only been prepared to pay a fraction of what Rio wants for the assets – which is thought to be about $US4 billion, with $US3 billion as a starting point.

    However, now that the competition is heating up, Glencore is considering a higher offer. A Rio-Glencore joint venture in coal would achieve about $500 million in annual savings or "synergies", Glencore told analysts last year.

    But London-based X2, which has $US5.6 billion in equity to spend on mining assets, could be the biggest snag for Glencore. Coal and copper are top of X2's wish-list, and sources said that X2 has been talking at least $US3 billion with Rio.

    Rio's coal boss left in February and the division was punted into the copper arm of the global giant.

    Rio's coal division in Australia has a book value of $US3.1 billion, which Rio would argue is already discounted because of the price malaise. That also includes two metallurgical coal mines in Queensland, which could be left out of any deal.

    http://en.sxcoal.com/0/129808/DataShow.html
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    Australia's Aurizon hikes dividend payout, putting growth on hold

    Australia's Aurizon hikes dividend payout, putting growth on hold

    Aurizon Holdings, Australia's top coal hauler, raised its dividend payout well above expectations after reporting a 15 percent rise in profit on Monday, with growth opportunities limited by a slump in coal and iron ore markets.

    Aurizon's shares jumped as much as 4.3 percent on the announcement, and are up more than 13 percent this year.

    Underlying net profit rose to A$604 million ($445 million) for the year to June, in line with analysts' forecasts for a net profit of A$602 million, according to Thomson Reuters I/B/E/S, underpinned by cost cuts.

    The rail transport group raised its final dividend by 64 percent to 13.9 cents a share and decided to increase its payout ratio to between 70 and 100 percent as it won't be committing to any growth projects until late in calendar 2016.

    Aurizon invested in the West Pilbara Iron Ore project last year with China's Baosteel before iron ore prices plunged and is also looking to build a rail line for Indian group GVK's Alpha coal project, which is on hold.

    "The external environment will continue to provide challenges," Chief Executive Lance Hockridge said in a statement, adding that the company is still looking to expand in the long run.

    On the West Pilbara project, Aurizon said it has slashed cost estimates for the rail and port by A$1.5 billion, or about a third of initial estimates, and said costs could be cut further on the contracting and funding front.

    A final investment decision with Baosteel, South Korean steel giant POSCO and resources investor AMCI is due in late 2016.

    "This current year is going to be a relatively flat year," Hockridge told reporters, with coal volumes expected to be steady at around 210 million to 220 million tonnes.

    "We have subdued expectations, but nonetheless the momentum around the transformation in the business wll continue," he said, pointing to a new labour agreement which should give the company more flexibility in how it deploys workers.

    http://www.reuters.com/article/2015/08/17/aurizon-results-idUSL3N10R0Q920150817

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    China's steelmakers hit by glut in production, sinking prices

    China's steelmakers hit by glut in production, sinking prices
     
    The country's steelmakers reduced output last month, adding to signs of waning demand in the world's largest producer as companies grappled with overcapacity, sinking prices and slowing economic growth.

    Crude-steel output fell 4.6 percent to 65.84 million metric tons from June, data from the National Bureau of Statistics showed on Wednesday.

    Production in the first seven months was 476 million tons, 1.8 percent less than a year earlier. Demand for steel in Asia's largest economy is falling for the first time in a generation, spurring mills to ship record amounts of the alloy overseas as prices slump.

    The yuan sank on Wednesday for a second day after China devalued it, and the move may help steelmakers sell even more of their output abroad.

    Lower steel production will hurt demand for iron ore, though, which tumbled to the lowest since at least 2009 last month.

    The drop also showed "that downstream infrastructure and property had no recovery, therefore demand for steel remained weak".

    Major mills in China, including Hebei Iron & Steel Co and Baoshan Iron & Steel Co, are the linchpin of the global industry, accounting for about half of the supply.

    The country's production probably peaked in 2014, according to a forecast from the China Iron & Steel Association.

    Output of steel products fell 6.2 percent to 92.3 million tons in July from a month earlier, according to the bureau. In terms of daily production, output averaged 2.977 million tons last month from 3.281 million tons a month ago, it said.

    Steel reinforcement bars used in construction dropped to 2,102 yuan ($327) a ton last month, the lowest price since at least 2003, according to Beijing Antaike Information. It was at 2,322 yuan on Tuesday, 16 percent lower than at the start of this year.

    Mills around Beijing including those in Hebei province, the largest producing region, may face government-ordered curbs later this month and in September as policymakers seek to clean up the air for a parade and sports event.

    "Some of the output cuts might become permanent as the government and market work in tandem to squeeze out the least-efficient and loss-making capacity," said Li Yaozhong, head of commodities at Beijing Low Risk Asset Management Co.

    Iron ore with 62 percent content in Qingdao fell 0.3 percent to $56.22 a ton on Tuesday, according to Metal Bulletin Ltd. Prices, which bottomed at $44.59 on July 8, are 21 percent lower this year.

    http://en.chinamining.com.cn/News/2015-08-13/1439430578d73272.html

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