Mark Latham Commodity Equity Intelligence Service

Friday 8th January 2016
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    Oil and Gas


    China Southern Power Grid 2015 power transmission up 10pct on yr

    China Southern Power Grid Co., Ltd, a major state-owned power company in China, transmitted a total 189.1 TWh of electricity from the west to the east of China in 2015, up 10% from the year prior, hitting a new high for the fourth consecutive year, it said on its official website on January 7.

    Of the total, transmission of clean hydropower accounted for 70% or so.

    So far, eight AC and eight DC 500KV-above power transmission lines have been built for the company’s "West-to-East" power transmission project, with maximum capacity at 35 GW per annum.

    During the “12th Five-Year Plan” period (2011-2015), China Southern Power Grid saw the newly-added power transmission capacity for the “West-to-East” project reach 11.4 GW a year, and total electricity sent to eastern China exceeded 715 TWh.

    The energy availability of the company’s DC power transmission lines in 2015 reached 96.7%, maintaining a high level for the fifth consecutive year.

    China Southern Power Grid, established in December 2002, is mainly responsible for the investment, building and operation of the power grids and management of power transmission business in southern China including Guangdong, Guangxi, Yunnan, Guizhou and Hainan.

    By end-2014, total installed capacity of the company stood at 246 GW per year, with 127 GW thermal power, taking 51.5% of the total; 103 GW hydropower and 7.2 GW nuclear power, accounting for 42% and 2.9%, respectively.

    Meanwhile, installed capacity of non-fossil energy accounted for 48% of the total, far above the national average level of 33%.
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    How pulling the Chinese yuan thread frays the fabric of global markets

    If ever proof were needed of how deeply financial markets are interconnected and dependent on investors' "sentiment", look no further than the worldwide tremors set off by a 1 percent fall in China's currency this week.

    Free-floating currencies routinely fluctuate by greater amounts in a single day. Nevertheless, the yuan's seemingly miniscule move is being blamed for everything from the crash in Chinese stocks to oil's slide to a 12-year low to the worst start to the year on Wall Street since 2001. Few corners of the financial world have been untouched.

    The yuan remains far from a free-floating currency, and is tightly controlled by the Chinese authorities, so the 1 percent fall against the dollar is significant. It's the largest weekly drop since the People's Bank of China's mini-devaluation last August and the second biggest on record.

    This week's turmoil echoes the turbulence of last summer after the Chinese central bank staged the 2 percent devaluation on Aug. 11 in the midst of an emerging market and commodity rout. This culminated in Wall Street's biggest one-day fall in four years on Aug. 24. China matters.

    This GRAPHIC shows how currencies, stocks, commodities, bonds and some economic indicators have reacted to the yuan slippage since last August: title

    The yuan moves suggest Beijing is trying to engineer a weaker currency to cushion the impact of slowing growth in its economy, a slowdown that many analysts believe is much more serious than official statistics indicate.

    As the main driver of global economic growth over the past 15 years, a "hard landing" in China would be bad news for everyone.

    The prospect of weakening demand from China has clobbered the price of oil, industrial metals, energy and resources. This means the budgets, exchange rates and economies of commodity exporting countries - mainly emerging markets - are suffering.

    Falling emerging market demand slows trade and economic activity with the developed world. Together with falling commodities and EM exchange rates, it also creates a powerful global deflationary force that pushes down bond yields.

    It's a vicious circle, one that looks increasingly difficult to break out of until China's economy roars back to life.

    It's also an increasingly difficult one for global policymakers to tackle given that many analysts say central banks and governments have used up all their ammunition fighting the global financial crisis and recession of 2007-09.

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    Cargill reports lower quarterly operating earnings, revenue

    Global commodities trader Cargill Inc on Thursday reported a 13 percent drop in quarterly earnings before special items, citing lower commodities prices and weaker demand in some markets.

    A milder-than-normal start to the winter in North America curbed earnings from products such as road salt and pressured prices of natural gas and power, which hurt the privately held company's energy trading results.

    Earnings in the fiscal second quarter ended Nov. 30 were further weighed down by liquidation of hedge funds managed by its Black River Asset Management subsidiary. Cargill is splitting the unit into three separate firms.

    Minnesota-based Cargill's profit fell to $574 million from $657 million a year earlier while revenue declined 10 percent to $27.3 billion.

    The results excluded gains from the sale of its U.S. pork business in October for $1.45 billion and the $720 million sale of its 50 percent stake in a U.S. steel mill venture as part of a broader restructuring at the 150-year-old company.

    Cargill's animal nutrition and protein segment posted slightly lower results on pressure from cattle and beef businesses in North America and Australia.

    Earnings in its origination and processing unit dropped on weak results from cotton, soft seed and sugar businesses.

    The food ingredients and applications segment also recorded lower results, pressured by weakening currencies and recessions in countries like Brazil and Argentina.
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    Brazil's industrial production plunges in November

    Brazilian industry contracted in November by even more than economists' dire predictions had indicated, as the country's worst recession in decades deepened.

    Industrial production plunged 2.4% from October in seasonally adjusted terms and 12.4% from November 2014, the Brazilian Institute of Geography and Statistics, or IBGE, said Thursday.

    A survey of economists by the local Agência Estado newswire had produced a median estimate of a 0.9% decline in month-on-month terms, with the even worst forecast calling for a 1.8% drop.

    Struggling with poor infrastructure, rigid labor laws, unproductive workers and crushing bureaucracy, Brazilian manufacturers and other industries are at the forefront of the country's myriad economic troubles.

    Economists surveyed last week by the central bank estimated that industrial production contracted by 7.8% in 2015 and would tumble an additional 3.5% this year. November was the sixth consecutive month of lower output.

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    Iran Accuses Saudi Arabia Of Bombing Its Embassy In Yemen

    Last weekend, an already chaotic geopolitical landscape was complicated immeasurably when Saudi Arabia moved to execute prominent Shiite cleric Nimr al-Nimr.

    The Sheikh was a leading voice among Saudi Arabia’s dissident Shiite minority and it was his role in a series of anti-government protests that ultimately sealed his fate. “In any place he rules—Bahrain, here, in Yemen, in Egypt, or in any place—the unjust ruler is hated,” Nimr once said of the Sunni monarchies. “Whoever defends the oppressor is his partner with him in oppression, and whoever is with the oppressed shares with him his reward from God. We don’t accept al-Saud as rulers. We don’t accept them and want to remove them.”

    The Saudis branded Nimr a “terrorist” and insist that he was no different from the 43 Sunnis who were executed last Saturday.

    The Shiite world isn’t buying it - not for a second.

    In fact, it seems likely that Riyadh knew good and well that killing the Sheikh would precipitate a firestorm. Even John Kerry warned the Saudis against executing the popular Shiite figure. In light of that, it seems just as likely as not that Riyadh wanted to create an excuse to sever ties with the Iranians and escalate the regional proxy wars playing out in Yemen, Syria, and Iraq.

    In short: Saudi Arabia is losing. The Russian intervention in Syria has turned the tide against the Sunni extremist elements battling the SAA, what was supposed to be a quick victory in Yemen has devolved into a protracted stalemate, and Iraq has become an Iranian colony. The so-called “Shiite crescent” is waxing and the Saudis appeared powerless to stop it.

    So they created a crisis. They engineered sectarian strife and then blamed Tehran for good measure.

    From the time protesters took to the streets in Bahrain last Saturday we’ve been asking how long it would be before the “diplomatic” spat became part and parcel of the multiple regional proxy wars unfolding across the Mid-East.

    On Thursday, we got the answer. Tehran now says Saudi Arabia has bombed the Iranian embassy in Sana’a.

    "Tehran holds Saudi Arabia responsible for the damage caused to its embassy in Yemen," Bloomberg reports, adding that "an unspecified number of embassy guards were wounded."

    Tehran says the missile attack represents a violation of international law.
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    China FX reserves fall $512.66 billion in 2015, biggest annual drop on record

    China's foreign exchange reserves, the world's largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record, central bank data showed on Thursday.

    The December figure missed market expectations of $3.40 trillion, according to a Reuters poll.

    China's foreign exchange reserves fell $512.66 billion in 2015, the biggest annual drop on record.

    The value of its gold reserves stood at $60.19 billion at the end of December, up from $59.52 billion at the end of November, the People's Bank of China said on its website.

    Gold reserves stood at 56.66 million fine troy ounces at the end of December, up from 56.05 million at end-November.

    China's International Monetary Fund (IMF) reserve position was at $4.55 billion, down from $4.60 billion the previous month. It held $10.28 billion of IMF Special Drawing Rights at the end of last month, compared with $10.18 billion at the end of November.

    The central bank in July shifted to reporting its foreign exchange reserves on a monthly basis after adopting the IMF's Special Data Disseminati.

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    The most obvious fact about 2015.

    First, a painful look back

    Back in January, we listed the 10 stocks with the highest implied upside potential among S&P 500 SPX, -2.37% companies with majority “buy” or equivalent ratings.

    Here’s how that list has performed since we pulled it on Jan. 5:

    Company Ticker Industry Total return - Jan. 5, 2015 through Dec. 18, 2015 Total return - 2014
    Freeport-McMoRan Inc, FCX, -9.08% Precious Metals -71% -36%
    Nabors Industries Ltd. B, -3.60%NBR, -6.68% Contract Drilling -33% -23%
    QEP Resources Inc. QEP, -4.40% Oil and Gas Production -37% -34%
    Range Resources Corp. RRC, +0.29% Oil and Gas Production -59% -36%
    EQT Corp. EQT, +4.72% Oil and Gas Production -33% -16%
    Noble Energy Inc. NBL, -2.52% Oil and Gas Production -26% -30%
    Wynn Resorts Ltd. WYNN,-9.41% Casinos/ Gaming -55% -21%
    Newfield Exploration Co. NFX, -2.10% Oil and Gas Production 27% 10%
    Williams Cos. Inc. WMB,-10.00% Oil and Gas Pipelines -47% 21%
    Quanta Services Inc. PWR, -2.67% Engineering and Construction -28% -10%
    Source: FactSet

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    ARAMCO coming public?

    A Thatcherite revolution

    All latest updates

    Saudi Arabia is considering an IPO of Aramco, probably the world’s most valuable company

    The biggest oil of all

    • Timekeeper

    SAUDI ARABIA is thinking about listing shares in Saudi Aramco, the state-owned company that is the world’s biggest oil producer and almost certainly the world’s most valuable company. Muhammad bin Salman, the kingdom’s deputy crown prince and power behind the throne of his father, King Salman, has told The Economist that a decision will be taken in the next few months. “Personally I’m enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”

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    The House of Saud defends itself

    What is Arabic for Thatcherism?

    The plunge in the price of oil, from $110 a barrel in 2014 to less than $35 today, was partly because Saudi Arabia seems determined to protect its share of the oil market. Nevertheless, low prices are a time-bomb for a country dominated by oil and a government that relies on it for up to 90% of its revenues. The budget deficit swelled last year to a staggering 15% of GDP. Although the country has $650 billion of foreign reserves, they have already fallen by $100 billion.

    When oil prices fell in the 1990s, the Saudis simply borrowed heavily. They were saved when China’s boom sent commodity prices soaring again in the 2000s. This time no one, including the Saudi rulers, expects a return to triple-digit oil prices. Instead, they acknowledge that the economy must change. Speaking to The Economist this week (seeBriefing), Prince Muhammad laid out a blueprint for reform that amounts to a radical redesign of the Saudi state.

    The first step is fiscal consolidation. The goal is to eliminate the budget deficit in the next five years, even if the oil price stays low. Though there is much flab to cut, that is still a perilous undertaking which means dismantling the system according to which petro-cash, not taxes, pay for free education and health care as well as highly subsidised electricity, water and housing. More than money is at stake: this largesse has disguised how far the economy is chronically unproductive and dependent on foreign labour. It has been too easy for Saudis to avoid working, or to snooze away in government offices.

    The new leadership has made a start. Spending cuts in the last months of 2015 stopped the deficit from soaring to more than 20% of GDP. The 2016 budget includes steep rises in the prices of petrol, electricity and water (though they remain heavily subsidised). The prince pledges to move to market prices by the end of the five-year period. He is also committed to new taxes, including a value-added tax of 5%, sin taxes on sugary drinks and cigarettes, and levies on vacant land.  

    Recalibrating taxes and subsidies is only the first step. Roughly 70% of the 29m-plus Saudis are under 30. At the same time, two-thirds of Saudi workers are employed by the government. With the workforce projected to double by 2030, the country will prosper only if the sleepy statist economy is turned on its head, diversifying from oil, boosting private business and introducing market-driven efficiencies.

    Talking late into the night with the news left on throughout, Prince Muhammad discusses his country’s interventionist foreign policy and its uncompromising response to terrorism and sedition. Asked whether the kingdom’s actions were stoking regional tensions, he said that things were already so bad they could scarcely get any worse. “We try as hard as we can not to escalate anything further,” he says; and he certainly does not expect war. But for his entourage, Saudi Arabia has no choice but to stop Iran from trying to carve out a new Persian empire.

    If his defence of Saudi foreign policy was unrepentant, even more striking was his ambition to remake the entire Saudi state by harnessing the power of markets. No economic reform is taboo, say his officials: not the shedding of do-nothing public-sector workers, not the abolition of subsidies that Saudis have come to see as their birthright, not the privatisation of basic services such as education and health care. And not even the sale of shares in the crown jewel: Saudi Aramco, the secretive national oil and gas producer that is the world’s biggest company.

     Iran, the Shia power that has long alarmed Sunni Arabs, has spread its influence across the region, particularly through the militias it grooms—in Lebanon, Iraq, Syria and most recently in Yemen, Saudi Arabia’s underbelly. The Arab world is confronted not just by a Shia Crescent, “but by a Shia full moon”, says one confidant of the prince. As well as Shia militants, Saudi Arabia also faces resurgent Sunni jihadists: a revived al-Qaeda in Yemen to the south, and Islamic State (IS) in Iraq and Syria to the north. Both seek to lure young Saudis raised on the same textbooks and homilies that the jihadists use.

    Pillars of the House of Saud

    The Al Sauds have survived by making three compacts: with the Wahhabis to burnish their Islamic credentials as the custodians of the holy places of Mecca and Medina; with the population by providing munificence in exchange for acquiescence to absolutist rule; and with America to defend Saudi Arabia in exchange for stability in oil markets.

    But all three of these covenants are fraying. America is semi-detached from the Middle East. The plummeting price of oil, which provides almost all of the government’s revenues, means the old economic model can no longer sustain the swelling and unproductive population. And the alliance with obscurantists brings threats, because they provide intellectual sustenance to jihadists, and form an obstacle even to modest social reforms that must be part of any attempt to wean the country off oil and create a more productive economy.

    Not surprisingly, Saudi Arabia’s many critics have dusted off their obituaries of the House of Saud. But for Prince Muhammad the lesson of the Arab spring, and of history, is that regimes that lack deep roots are doomed to be swept away; by implication the Al Sauds are here to stay.

    Yet he knows that change must come, and fast. He has injected new energy into government, and is taking huge gambles. What he lacks in experience and foreign travel, he compensates for with confidence, focus and a battery of consultants’ reports. He reels off numbers and policies with ease, pausing only to take a call from John Kerry, America’s secretary of state. He speaks in the first person, as if he were already king even though he is only second in line. Over five hours King Salman is mentioned once; his cousin, the crown prince, Muhammad bin Nayef, does not figure at all, though he is in charge of internal security and may be biding his time.

    Prince Muhammad’s most dramatic moves may be at home. He seems determined to use the collapse in the price of oil, from $115 a barrel in 2014 to below $35, to enact radical economic reforms. This begins with fiscal retrenchment. Even after initial budget cuts last year, Saudi Arabia recorded a whopping budget deficit of 15% of GDP. Its pile of foreign reserves has fallen by $100 billion, to $650 billion. Even with its minimal debt of 5% of GDP, Saudi Arabia’s public finances are unsustainable for more than a few years (see chart).

    Under his “Transformation Plan 2020”, set for publication by the end of the month, the prince wants to develop alternatives to oil and drastically to cut the public payroll, which acts as a form of unemployment benefit. To do so he wants to create jobs for a workforce that will double by 2030. Ministers speak of doubling private education to cover 30% of students, establishing charter schools and transforming public health care into an insurance-based system with expanded private provision. In addition to Aramco, the prince wants to sell stakes in state assets from telecoms to power stations and the national airline. The government is to sell land to developers, such as the 4m square metres it owns around Mecca, the most expensive real estate in the world. The prince sees huge promise in developing Islamic tourism to the holy sites; he hopes to boost the 18m annual visitors to 35m-45m in five years.

    Surprisingly, perhaps, for a Saudi royal with no Western education, Prince Muhammad speaks about America passionately.
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    Shorts: Day to cover.

    Security Name Last Days to Cover
    Athabasca Oil Corporation 1.05 30.12
    Copper Mountain Mining Corporation 0.29 21.97
    Crew Energy Inc. 2.92 20.47
    CARBO Ceramics Inc. 15.87 17.26
    Energy XXI Ltd 1.02 15.23
    Cliffs Natural Resources Inc. 1.83 14.64
    Delphi Energy Corp. 0.58 14.08
    Coeur Mining, Inc. 2.38 10.64
    Fortress Paper Ltd. Class A 3.35 10.52
    Comstock Resources, Inc. 1.51 9.87
    Cloud Peak Energy Inc. 1.98 9.82
    Chesapeake Energy Corporation 4.68 9.46
    Peabody Energy Corporation 7.34 8.84
    AK Steel Holding Corporation 2.52 8.06
    Alacer Gold Corp. 1.9 7.91
    Goodrich Petroleum Corporation 0.26 7.8
    C&J Energy Services Ltd. 4.09 7.7
    Canadian Oil Sands Limited 5.3 7.5
    Detour Gold Corporation 10.89 7.27
    CVR Energy, Inc. 37.73 6.74
    Denbury Resources Inc. 1.71 6.53
    Birchcliff Energy Ltd. 2.68 6.18
    Agrium Inc. 85.65 6.17
    First Quantum Minerals Ltd. 3.38 5.59
    Franco-Nevada Corporation 47.61 5.49
    Gerdau S.A. Sponsored ADR Pfd 1 5.16
    Bill Barrett Corporation 3.69 5.01
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    You can buy Anglo American - lock, stock and two smoking barrels for $5.7bn

    Anglo American and Glencore led a slump in mining stocks to the lowest in more than a decade as commodity prices tumbled on concern that China’s market turmoil will cut demand for raw materials.

    The 80-member Bloomberg World Mining Index dropped as much as 3.8% on Thursday, with Anglo sliding as much as 11% to a record low and Glencore down as much as 7.9% in London. The Bloomberg Commodities Index dropped to its lowest level since 1999 as industrial metals and oil sank.

    Investors are shunning metals amid more bad news on the economy in China, the world’s biggest consumer. Chinese stock exchanges halted trading on Thursday for the second time this week after China’s central bank lowered the currency’s daily reference rate by the most since August. Equities have tumbled around the world as the weakening of the yuan fuels fears about the strength of the global economy.

    The sharp weakening of the yuan “raises a lot of concerns about how the Chinese economy is tracking and what the central bank there is thinking,” Angus Nicholson, market analyst at IG Markets, said by phone from Melbourne. “The People’s Bank and the big institutions there should have a much better insight than us, and the real concern is that things are worse than what is showing up in the data we see.”

    The Bloomberg World Mining Index fell to the lowest since June 2004.
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    Private capital won't touch mining

    According to a new report by private capital tracker Preqin, fundraising for natural resources investment reached record levels in 2015, with 62 funds raising a total of $63bn. That was up 14% compared to 2014 and edged past 2013’s banner year when more than 111 funds were active in the market.

    Investors, perhaps anticipating that valuations are close to bottoming, threw money at closed-end fund managers and limited partners who were able to rake in 113% of what was targeted for the year. 2015 was the third consecutive year target sizes were exceeded.

    Only 0.6% of private capital raised in 2015 for natural resource investment is for mining projects–one wind farm fund attracted more than the entire sector

    Despite plummeting crude oil and natural gas prices, according to Preqin energy-focused funds were once again the main driver of growth in 2015, accounting for more than $9 out of every $10 raised during the year. The bulk of the cash will be invested in North America.

    Mining and metals made up a paltry 0.6% of funds raised (more money were raised for timberland) with just two funds closing on $400 million in 2015. Nearly ten times the amount of money went into investment in agriculture and farmland in 2015.

    Image titleSource: Preqin

    This year 10 metals and mining focused private closed-end funds are hoping to raise $3.6bn, compared to 38 funds in the market targeting $7.7bn for agriculture and farmland investment, mostly outside North America.

    Water has now become enough of a focus for private capital that Preqin, which has tracked the industry since 2003, is breaking out the numbers, identifying six funds in the market which want to attract at least $4bn.

    The vast majority of funds are once again raising money for energy investments in 2016, but with oil prices reaching fresh 11-year lows in January it will be interesting to see how close the funds active in the sector come to the more than $114bn targeted.

    It’s also telling that one of the largest energy-focused funds in the market this year is the Green Investment Bank which is targeting over $1.5bn to build offshore wind farms. In October, the UK-based bank announced it’s more than 80% there with $1.2bn already in the kitty.

    Image titlePrivate capital encompasses a range of investment vehicles and strategies including traditional private equity such as buyout, venture capital and turnaround funds, private debt including distressed debt and direct lending, and private real estate, infrastructure and natural resources funds. A total of $550bn were raised by 1,061 funds across all strategies and sectors in 2015 according to Preqin data.

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    Anger grows in Saudi Arabia's Shi'ite areas after executions

    Since Saturday's execution of four Shi'ite Muslims in Saudi Arabia, hundreds or thousands of the minority sect have marched nightly in protest, and their anger could herald wider unrest.

    The execution of one of them, dissident cleric Nimr al-Nimr, caused an international crisis as Shi'ite Iran and its allies responded angrily, but it also caused upset in his home district of Qatif, where many saw his death as unjustified.

    "People are angry. And they are surprised, because there were positive signals in the past months that the executions would not take place. People listen to his speeches and there's no direct proof he was being violent," a Qatif community leader said by phone.

    The protests in Qatif, an almost entirely Shi'ite district of about a million people in the oil-producing Eastern Province, have been mostly peaceful, though a fatal shooting and gun attacks on armoured security vehicles have also taken place.

    Qatif is located near major oil facilities and many of its residents work for the state energy company, Saudi Aramco. Past incidents of unrest have not led to attacks on the oil industry, but a bus used by Aramco to transport employees was torched after a protest on Tuesday night.

    Footage of marchers shouting "down with the Al Saud" and other anti-government slogans, corroborated by witnesses contacted by Reuters, is circulating on social media along with video clips showing shots fired at armoured cars.

    "I did not hear shooting last night, but I heard it a lot on the two nights before," a resident of Nimr's home village, al-Awamiya, told Reuters by phone. Like others Reuters spoke to in Qatif, he asked that his name be withheld.

    Saudi Arabia only permits foreign news media, including Reuters, to visit Qatif if accompanied by government officials, which it says is to ensure journalists' safety.

    The security forces believe they can quash any mass protests in Qatif, like those that began during the 2011 Arab Spring when Nimr became a figurehead, or the 1979 uprising inspired by Iran's revolution, analysts say.

    Qatif is almost entirely populated by Shi'ites and can be physically isolated by the government. Checkpoints stand at its main street entrances.

    "The security forces are very confident. The Shi'ite population is confined in certain places. They are a small minority compared to a big majority. They think they have the capability to control them," said Mustafa Alani, a security analyst with close ties to the Interior Ministry.

    Shi'ites have long complained they face entrenched discrimination in a country where the semi-official Wahhabi Sunni school regards their sect's beliefs as heretical. They say they face abuse from Wahhabi clerics, rarely get permits for places of worship and seldom get senior public sector jobs.

    Those basic complaints have over the years been aggravated by what Qatif residents call a heavy security hand against their community, accusing the authorities of unfair detentions and punishments, shooting unarmed protesters and torturing suspects.

    Reuters has met several Saudi Shi'ites detained after the 2011 protests who said they were repeatedly beaten and deprived of sleep to extract confessions of rioting.

    A series of Islamic State attacks in Saudi Arabia since November 2014 has mainly targeted the kingdom's Shi'ites as part of an apparent strategy to leverage the sectarian divide as a way of building support among conservative Sunnis.

    Such divisions are easier to aggravate because of the wider struggle between the kingdom and Iran, with many Saudis, and their government, seeing Tehran as using ties with Shi'ites across the Middle East to seek dominance and persecute Sunnis.

    "The Iranians and their allies have been pushing and promoting terrorism and recruiting people, inciting and providing weapons and explosives to people, and Nimr al-Nimr was one of them," Saudi Foreign Minister Adel al-Jubeir told Reuters in an interview this week.

    During and after the 2011 protests, eight policemen and seven civilians were killed in attacks by Shi'ites that were connected to Iran and carried out by people linked to Nimr, Riyadh says.

    Iran denies all those charges and Nimr's family say he advocated peaceful change, took no part in violence and had no links to Tehran.

    The police said Nimr was arrested when he fired on them with an assault rifle, injuring two, while trying to prevent the capture of another suspect, the act which most swayed judges to pass the death sentence on him, Alani said.

    Nimr and the three other Shi'tes were executed on Saturday along with 43 Sunni al Qaeda convicts.
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    Turbulence in China Punishes Oil to Copper as Gold Haven Emerges

    China’s market turmoil is kicking commodities when they’re down.

    The central bank on Thursday cut the yuan’s daily reference rate by the most since August, guiding the currency lower amid tepid growth. While that may help stimulate the flagging export sector, it’ll make everything from oil to copper and corn costlier to import into the world’s biggest user of energy, metals and grains. Additionally, more overseas shipments of surplus raw materials such as steel and diesel will add to oversupplied global markets.

    Commodities are coming off their worst annual performance since the 2008 global financial crisis, and the latest move by Chinese authorities heightens concerns that the slowdown in Asia’s biggest economy is deeper than anticipated. Weaker demand in the nation have dragged returns from raw materials to the lowest since 1999, after a decade of soaring consumption fueled a so-called supercycle and a boom in prices.

    “From China’s perspective, crude and other commodities will get more expensive when the yuan weakens,” Hong Sung Ki, an analyst at Samsung Futures Inc. in Seoul, said by phone. “Being the biggest commodities importer, depreciation of the yuan is a bearish factor in the demand and supply picture as China will cut purchases, which will push down prices.”

    The Bloomberg Commodity Index dropped as much as 0.6 percent to 76.1579 by 2:26 p.m. in Singapore, the lowest intraday level since March 1999 for the measure of returns from 22 raw materials.

    Market Turmoil

    The slump extended to equities, with energy and resources shares tumbling the most on the MSCI Asia Pacific Index. China Coal Energy Co. plunged 8.2 percent in Hong Kong, while Australian explorer Origin Energy Ltd. and miner South32 Ltd. slid more than 7 percent in Sydney. BHP Billiton Ltd. traded 4.8 percent lower.

    China’s mainland shares were routed, forcing the world’s second-largest stock market to shut early for the second day this week. An unexpected yuan devaluation in August had also roiled global markets on concern the move would fuel a currency war and exacerbate deflationary pressures in the developed world.

    West Texas Intermediate oil futures in New York dropped as much as 3.7 percent to $32.71 a barrel, extending losses from the lowest close in seven years. Brent crude in London lost 3.8 percent to $32.94 a barrel.

    Copper on the London Metal Exchange dropped 1.2 percent to $4,565 a metric ton, while nickel slumped 2 percent and zinc declined 2.2 percent. Corn futures in Chicago slipped 0.4 percent as wheat and soybeans fell 0.2 percent.

    Investor Panic

    Investors are being driven “more by emotion and panic” rather than market fundamentals, according to David Mann, the chief economist for Asia at Standard Chartered Plc in Singapore.

    “The main conclusion that people are drawing from this depreciation is that they suspect it’s a last-ditch attempt to support the economy,” Mann said by phone. “That all other options to boost growth are used, and that it must be because things are even worse.”

    Amid the turmoil, gold’s status as a haven drew investors to the metal. Spot bullion climbed 0.5 percent to $1,099.23 an ounce, according to Bloomberg generic pricing. It has climbed 3.6 percent this year in the longest run of daily gains since October.

    The rout in equity markets is spilling into commodities, said Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS Group AG’s wealth-management unit in Hong Kong.

    Chinese investors have “been living with a strengthening currency for a long, long period of time and now you see weakness and it becomes more clear that the economy will slow, the currency will be weak and a lot of capital likes to leave,” he said. “That leaves the currency vulnerable and a lot of asset classes vulnerable.”
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    Li Keqiang urges less overcapacity, more innovation

    China must put "unyielding effort" into eliminating excess industrial capacity to make way for new growth engines, especially mass entrepreneurship and innovation, Premier Li Keqiang has said.

    Li made the remarks during the first inspection tour of 2016 on Monday and Tuesday in north China's Shanxi Province, which is known for large coal reserves and output.

    After visiting Taiyuan Iron and Steel Group, a world-leading stainless steel producer, Li said the steel sector is suffering badly from excessive production and flagging demand.

    "China should put unyielding effort into restructuring by eliminating outdated capacity and forbidding the construction of new capacity," he said.

    Companies should take pains in enhancing technology, quality and management to expand the country's effective supply with more quality products, Li said.

    In a coal mine of Xishan Coal Electricity Group, Li took a tramcar more than 300 meters underground to talk with miners and check the company's safety conditions.

    "The coal mining sector is facing hardship it has rarely seen in the face of a serious glut and plunging prices," he said.

    Mines should take the initiative in reducing output while helping laid-off workers find new jobs, according to the premier.

    Li also visited a technology park in Taiyuan with more than 200 high-tech companies.

    "China has huge market potential and bright prospects; growth impetus from innovation will create new jobs," Li said.

    He vowed more government support for entrepreneurs.

    The premier then went to a shantytown that will be renovated into apartment buildings this year, urging local governments to lessen people's wait times before moving into the new buildings.

    He also urged companies to innovate and take risks, after visiting a museum on ancient Shanxi merchants who played a dominant role in finance and trade during the Ming and Qing dynasties.

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    Offshore Chinese yuan plunges to five-year low against dollar

    The Chinese yuan plunged to a five-year low in offshore trading and the gap between it and its mainland counterpart widened sharply on Wednesday, reflecting growing expectations of further weakness in the currency amid an economic slowdown and a slump in stock markets.

    The offshore yuan fell to 6.6915 against the greenback, the lowest rate of exchange since at least the last quarter of 2010 and a 2.1 percent discount to the onshore yuan's 6.5506 level. While the yuan is primarily traded on the mainland and subject to strict central bank supervision, its offshore counterpart is accessible to everyone.

    "The spread between the onshore and offshore yuan has now reached some of the highest levels in the pair's history – a clear indication of both volatility and intervention," said Angus Nicholson, a market strategist at IG.

    Markets generally expect the onshore yuan to continue depreciating against the dollar on the back of sluggish growth prospects, accelerating capital outflows and demand for overseas assets.

    "The combination of weak cyclical and structural forces is seen working against the currency," HSBC analysts said in a research note. "In the near-term, there could be stronger dollar demand against the onshore yuan as the latter's depreciation expectations remain entrenched."

    China intervention casts doubts on market reform drive

    The latest trigger for the slump came after the People's Bank of China (PBOC) set the onshore yuan midpoint rate at 6.5314 per dollar, the weakest fixing since 2011.

    The fix represented a 0.22 percent decline from the previous session, a faster pace than witnessed recently. This was despite Tuesday's suspected intervention by the central bank to halt currency declines.

    Analysts said the somewhat confusing message—buying yuan in the secondary market only to guide it lower the next day—was part of the PBOC's plan to let the onshore yuan reflect market forces.

    "To achieve a more market-balanced yuan, the PBOC has to ensure an orderly depreciation before they can see an eventual appreciation in the currency," explained Maybank analysts in a note, calling the increased volatility "a natural order of change."

    The widening spread between the offshore and onshore rates may be used as a gauge as to how much more the latter will have to adjust before it reaches an equilibrium level, Maybank added.

    "In fact, we think that the next time the offshore and onshore rates converge completely, it could mark the beginning of the end of the offshore yuan."
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    Mr Buckley says India's solar surge may slash coal imports

    Business Day reported that dramatic cost declines in solar power tenders in India have shaken up expectations on pricing for the renewable fuel and have triggered warnings that the country's need for thermal coal imports will be much lower than some are banking on.

    Huge solar power contracts awarded by Indian states to global players in November and December have been priced at levels more than 20 per cent below 12 months ago and point to solar power rapidly overtaking thermal coal imports in competitiveness for power generation.

    The figures signal that forecasts for growth in thethermal coal trading According to Mr Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, which supports renewable energy, market by the International Energy Agency are too bullish even though they were cut back in December.

    Mr Buckley said that coal miners such as Adani and BHP Billiton were guilty of "ingrained thinking" in pressing ahead with coal expansion plans.

    He said that a company that denies a technology change is real makes mistakes. The implication is for coal mining, coal railways and coal ports."

    India's Minister for Energy, Piyush Goyal said India should be able to end thermal coal imports by 2017.

    However, others doubt this target can be met. Melbourne-based Project Monitor describes the assumptions underlying claims from environmental groups that renewable energy growth would damp India's coal demand as "tenuous". It points out the problem of intermittent power generation from solar and wind, and casts doubt on India's ambitions to meet its 2020 coal production target.

    The consultancy said that "The confidence expressed by some that, over the next decade, coal demand will slow significantly and imports will drop to near-zero is almost certain not to be realised."

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    US EPA sues VW, Audi and Porsche for alleged Clean Air Act violations

    The US Department of Justice on Monday filed a federal court civil complaint in Detroit, Michigan on behalf of the US Environmental Protection Agency (EPA) against German automotive manufacturers Volkswagen, Audi and Porsche, collectively referred to as Volkswagen. 

    The complaint alleged that nearly 600 000 diesel engine vehicles had illegal defeat devices installed that impaired their emission control systems and caused emissions to exceed the EPA’s standards, resulting in harmful air pollution. 

    The complaint further claimed that Volkswagen had violated the Clean Air Act by selling, introducing into commerce, or importing into the US, motor vehicles that were designed differently to what Volkswagen had stated in applications for certification to the EPA and the California Air Resources Board. “With today’s filing, we take an important step to protect public health by seeking to hold Volkswagen accountable for any unlawful air pollution, setting us on a path to resolution. 

    So far, recall discussions with the company have not produced an acceptable way forward. These discussions will continue in parallel with the federal court action,” stated EPA assistant administrator for enforcement and compliance assurance Cynthia Giles. 

    The civil complaint sought injunctive relief and for civil penalties to be assessed. In line with the EPA’s notices of violation, issued on September 18, for two-litre engines, and on November 2, for certain three-litre engines, the complaint alleged that the defeat devices caused emissions to exceed the EPA’s standards during normal driving conditions. 

    The Clean Air Act required vehicle manufacturers to certify that their products would meet applicable federal emissions standards to control air pollution. The EPA advised that motor vehicles equipped with illegal defeat devices could not be certified. The complaint further alleged that Volkswagen equipped certain two-litre vehicles with software that detected when the car was being tested for compliance with EPA emissions standards and turned on full emissions controls only during that testing process. 

    During normal driving situations the effectiveness of the emissions control devices was greatly reduced. This resulted in those cars meeting emissions standards in the laboratory and at the test site, but not during normal on-road driving, when oxides of nitrogen (NOx) were emitted at levels of up to 40 times the EPA compliance level. 

    In total, the civil complaint covered about 499 000 two-litre diesel vehicles sold in the US since the 2009 model year. The complaint further alleged that Volkswagen also equipped certain three-litre vehicles with software that sensed when the vehicle was undergoing federal emissions testing. When the vehicle sensed the test procedure, it operated in a “temperature conditioning mode, meeting emissions standards. 

    At all other times, including during normal vehicle operation, the vehicles operated in a “normal mode” that permitted NOx emissions of up to nine times the federal standard. In total, the civil complaint covered about 85 000 three-litre diesel vehicles sold in the US since the 2009 model year.
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    PBOC Injects Most Cash Since September in Open-Market Operations

    China’s central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system after money-market rates surged and equities slumped.

    The People’s Bank of China offered 130 billion yuan ($19.9 billion) of seven-day reverse repos on Tuesday at an interest rate of 2.25 percent. The monetary authority suspended the operations in the last auction window on Dec. 31, ending a six-month run of cash injections that helped drive borrowing costs lower in an economy estimated to grow at the slowest pace in more than two decades.

    Nicholson Says Rate Cut Coming Before Chinese New Year

    The overnight repurchase rate, a gauge of interbank funding availability, fell one basis point to 2.01 percent as of 1:41 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. It climbed to 2.12 percent on Dec. 31, the highest since April.

    “Liquidity is tight in the market and the PBOC has to react to that,” said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. “Capital outflows may keep liquidity tight and there is likely to be more easing from the PBOC.”

    The monetary authority cut the reserve-requirement ratio for major lenders by 250 basis points in 2015 to 17.5 percent, and is forecast to further lower it to 15 percent by the end of this year, according to a survey last month. A central bank research bureau economist last week damped speculation reserve requirements will be eased, saying that any adjustments should avoid causing too much volatility to short-term rates.

    Stock trading in China was halted on the first trading day of the year after a 7 percent selloff in the CSI 300 Index triggered circuit breakers. The gauge fell 0.4 percent Tuesday.

    “By offering such a big amount of reverse repos, the PBOC is also trying to comfort the market following the equities slump yesterday,” said Liu Dongliang, a senior analyst at China Merchants Bank Co.

    The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was unchanged at 2.34 percent, data compiled by Bloomberg show. Sovereign bonds declined, with the 10-year yield rising two basis points to 2.91 percent, according to National Interbank Funding Center prices.

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    Brazil's Lula summoned to testify in bribery case

    Former Brazilian President Luiz Inacio Lula da Silva was summoned to testify as a witness for a lobbyist accused of paying bribes to alter legislation in favor of businesses, local media reported on Monday.

    Lula and other former and current officials including Deputy Finance Minister Dyogo de Oliveira will testify on Jan. 25 at the request of the defense for jailed lobbyist Alexandre Paes dos Santos, media reported. Reuters could not immediately confirm the reports.

    A spokesman for Lula did not immediately respond to emails seeking comments.

    In December, Lula was called in for questioning by federal police in the same bribery investigation, which also involves his son Luis Claudio.

    Lula is not under investigation in the case known as "Operacao Zelotes."

    Paes dos Santos is accused of charging businesses to change legislation in their favor during the Lula administration between 2003 and 2011.

    Many lawmakers from Lula's ruling Workers' Party are under investigation for possible links to a separate bribery scandal at state-run oil company Petrobras <. Senator Delcidio do Amaral, the government's leader in the Senate, was arrested in November and charged with obstructing the Petrobras investigation.
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    US Industrial Recession Now Inevitable As Manufacturing ISM Worst In Six Years

    Following China's disappointing drop in Manufacturing PMI overnight, this morning started off poorly with Canada's PMI crashing to its lowest reading since records began at 47.5. Then US Manufacturing PMI tumbled to 51.2 - its lowest print since October 2012 (with US factory orders collapsing to weakest since 2009). But The ISM Manufacturing crashed to 48.2 (deep in contraction) - the weakest level since June 2009, with employment bumping along at its lowest level since September 2009 and imports (reflecting domestic demand perhaps) crashed to levels only seen twice in 20 years.

    The manufacturing recession is now inevitable: the only question is when and how it will spread to the service sector and be recognized by the NBER:

    Image title

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    Saudi Arabia to Support Egypt With $3 Billion of Loans, Grants

    Saudi Arabia agreed to provide Egypt with more than $3 billion in loans and grants to help its dollar-starved economy.

    The kingdom will loan $1.5 billion to develop the Sinai peninsula and $1.2 billion to finance Egypt’s oil purchases, Egyptian Minister of International Cooperation Sahar Nasr told Bloomberg News from the Saudi capital, Riyadh. Egypt will also receive a $500 million grant for buying Saudi exports and products, she said, without providing further details. The loans are on favorable terms and will be formally signed on Tuesday, she said.

    The fresh aid suggests that Saudi Arabia is still committed to supporting Egypt even as the oil-rich kingdom cuts subsidies to shore up its finances, though it is significantly smaller than the tens of billions which Saudi Arabia along with Kuwait and the U.A.E poured into Egypt after the 2013 military-led ouster of Islamist President Mohamed Mursi. Egypt has offered tourism and housing projects to Saudi funds, an Egyptian government official said last week.

    Last month, Saudi Arabia promised to invest 30 billion riyals ($8 billion) in Egypt through its public and sovereign funds. It also said it will help Egypt meet its oil needs for five years on favorable terms.

    Egypt’s currency crisis caused business activity to contract the most in more than two years in November. The new aid package should free up dollars needed to import capital goods and raw materials, and help authorities avoid an uncontrolled currency devaluation.
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    One of the world's most reliable economic indicators has bad news about all major markets

    One of the more reliable indicators of the global economy continues to confirm fears of a worldwide slowdown.

    South Korean exports — also referred to as the world's economic canary in the coal mine — fell 13.8% in December from a year earlier.

    This was a deterioration from the 4.8% decline in November, and it was much worse than the 11.7% decline expected by economists.

    Korea's exports generally reveal more about the country's global trading partners than it does about what's happening internally.

    "By destination, exports to all major markets fell," Barclays' Wai Ho Leong and Angela Hsieh observed. "All in, we think the underlying trend of a challenging external environment will likely extend into 2016."

    Economists look to Korean exports because they are the world's imports. Major traded goods are as varied as automobiles, petrochemicals, and electronics such as PCs and mobile devices.

    Furthermore, this report is the first monthly set of hard economic numbers — as opposed to soft-sentiment-based reports like purchasing managers surveys — from a major economy.

    In December, most major categories of goods saw declines, except for mobile devices which added 0.13 percentage points to the the aggregate exports number.

    From a regional perspective, the declines were broad, with exports to the US, European Union, and Japan.

    But the biggest source of weakness was China, which hacked 4.3 percentage points from exports.

    All of this may explain at least some of the volatility we're seeing in world markets.

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    Byron Wien: One year on, and boy he is a bear.

    Byron R. Wien, Vice Chairman of Multi-Asset Investing at Blackstone, today issued his list of Ten Surprises for 2016. This is the 31st year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.

     Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined Blackstone in September 2009 as a senior advisor to both the firm and its clients in analyzing economic, political, market and social trends.

     Byron’s Ten Surprises for 2016 are as follows:

     1. Riding on the coattails of Hillary Clinton, the winner of the presidential race against Ted Cruz, the Democrats gain control of the Senate in November.

    The extreme positions of the Republican presidential candidate on key issues are cited as factors contributing to this outcome. Turnout is below expectations for both political parties.


    2. The United States equity market has a down year. Stocks suffer from weak earnings, margin pressure (higher wages and no pricing power) and a price- earnings ratio contraction. Investors keeping large cash balances because of global instability is another reason for the disappointing performance.


    3. After the December rate increase, the Federal Reserve raises short-term interest rates by 25 basis points only once during 2016 in spite of having indicated on December 16 that they would do more. A weak economy, poor corporate performance and struggling emerging markets are behind the cautious policy. Reversing course and actually reducing rates is actively considered later in the year. Real gross domestic product in the U.S. is below 2% for 2016.


    4. The weak American economy and the soft equity market cause overseas investors to reduce their holdings of American stocks. An uncertain policy agenda as a result of a heated presidential campaign further confuses the outlook. The dollar declines to 1.20 against the euro.


    5. China barely avoids a hard landing and its soft economy fails to produce enough new jobs to satisfy its young people. Chinese banks get in trouble because of non-performing loans. Debt to GDP is now 250%. Growth drops below 5% even though retail and auto sales are good and industrial production is up.

    The yuan is adjusted to seven against the dollar to stimulate exports.


    6. The refugee crisis proves divisive for the European Union and breaking it up is again on the table. The political shift toward the nationalist policies of the extreme right is behind the change in mood. No decision is made, but the long-term outlook for the euro and its supporters darkens.


    7. Oil languishes in the $30s. Slow growth around the world is the major factor, but additional production from Iran and the unwillingness of Saudi Arabia to limit shipments also play a role. Diminished exploration and development may result in higher prices at some point, but supply/demand strains do not appear in 2016.


    8. High-end residential real estate in New York and London has a sharp downturn. Russian and Chinese buyers disappear from the market in both places.

    Low oil prices cause caution among Middle East buyers. Many expensive condominiums remain unsold, putting developers under financial stress.


    9. The soft U.S. economy and the weakness in the equity market keep the yield on the 10-year U.S. Treasury below 2.5%. Investors continue to show a preference for bonds as a safe haven.


    10. Burdened by heavy debt and weak demand, global growth falls to 2%. Softer GNP in the United States as well as China and other emerging markets is behind the weaker than expected performance.


    Added Mr. Wien, “Every year there are always a few Surprises that do not make the Ten either because I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are ‘probable.’”


    Also rans:


    11. As a result of enhanced security efforts, terrorist groups associated with ISIS and al Qaeda do NOT mount a major strike involving 100 or more casualties against targets in the U.S. or Europe in 2016. Even so, the United States accepts only a very limited number of asylum seekers from the Middle East during the year.


    12. Japan pulls out of its 2015 second half recession as Abenomics starts working. The economy grows 1%, but the yen weakens further to 130 to the dollar. The Nikkei rallies to 22,000.


    13. Investors get tough on financial engineering. They realize that share buybacks, mergers and acquisitions, and inversions may give a boost to earnings per share in the short term, but they would rather see investment in capital equipment and research that would improve long-term growth. Multiples suffer.


    14. 2016 turns out to be the year of breakthroughs in pharmaceuticals. Several new drugs are approved to treat cancer, heart disease, diabetes, Parkinson’s and memory loss. The cost of developing the breakthrough drugs and their efficacy encourage the political candidates to soften their criticism of pill pricing. Life expectancy will continue to increase, resulting in financial pressure on entitlement programs.


    15. Commodity prices stabilize as agricultural and industrial material manufacturers cut production. Emerging market economies come out of their recessions and their equity markets astonish everyone by becoming positive performers in 2016.

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    NDRC announces to cut on-grid and retail thermal power tariffs

    China’s National Development and Reform Commission has officially announced to lower on-grid thermal power tariffs by 0.03 yuan/KWh ($0.0047/KWh) on average, starting from January 1, 2016, according to a document released on its website on December 30.
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    Weak Caixin PMI revives China slowdown fears

    The Caixin Purchasing Managers' Index (PMI) came in weaker than expected, spurring fresh fears over China's economic growth and sending markets around the region lower.

    The manufacturing PMI fell to 48.2 in December, from 48.6 in November, contracting for a tenth month and coming in below a Reuters poll forecast for 49.0. Levels below 50 indicate contraction. The Caixin PMI is a closely-watched gauge of nationwide manufacturing activity, which focuses on smaller and medium-sized companies, filling a niche that isn't covered by the official data.

    "Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December," Markit, which compiles the survey, said in a release. "As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements."

    Markets around the region certainly weren't cheering. The Shanghai Composite was down as much as 4.1 percent after the data's release, while Australian shares erased early gains, with the S&P/ASX 200 index off as much as 0.4 percent. The Australian dollar dropped from around 72.86 U.S. cents before the reading on one of its largest trading partners to as low as 72.05 U.S. cents.

    The sharp drop in the Caixin PMI contrasted with a small tick up in the official PMI data released over the weekend, which showed the index was at 49.7 in December, in line with forecasts from a Reuters poll and up a tad from November's 49.6.

    The official non-manufacturing PMI, which tracks the services sector, rose to 54.4 in December from 53.6 in November.
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    Moody's cuts Noble's rating to junk, company CEO defends financials

    The chief executive of embattled commodity trader Noble Group Ltd defended its financial position after what it called an "unexpected" move by Moody's Investors Service to cut its credit rating to junk status, slamming its stocks and bonds.

    The one-notch cut to a Ba1 rating by Moody's, which said on Tuesday it had concerns over Noble's liquidity, means financing will become more costly for Asia's biggest commodity trader, investors said. Moody's had put Noble on review for a possible downgrade in mid-November.

    The cut to non-investment grade status came just a week after Noble agreed to sell its remaining 49 percent stake in its agribusiness venture to China's COFCO International Ltd for $750 million in cash. As Noble sought to cut debt swiftly and retain its investment grade rating, the deal was priced comparatively low.

    "We clearly feel this decision does not reflect the positive ratings impact of the recent Noble Agri (NAL) deal," Yusuf Alireza told employees after Moody's downgrade, in a letter reviewed by Reuters.

    In its official statement, Noble said it will work with Moody's to ensure its rating "reflects the financial metrics that Noble will attain".

    Announcing the cut on Tuesday, Moody's said the downgrade also reflected low profitability and consistent negative free cash flow from core operating activities, which exclude proceeds from asset sales. The firm, the first of the three main rating agencies to lower Noble's ratings to junk, said the outlook remains negative.

    Noble's shares fell as much as 10.2 percent on Wednesday, to their lowest in two weeks, in heavy trading that made it the most active stock on the Singapore exchange.

    The shares have shed around two-thirds of their value since mid-February after allegations around its accounting practices by blogger Iceberg Research. Noble rejected the claims and in August a report by board-appointed consultant PricewaterhouseCoopers found no wrongdoing.

    "I expect that ongoing weakness in the company's operating environment could impair Noble's ability to extend the trend of positive cash flow generation," said Mary Ellen Olson, a Hong Kong-based analyst at Credit Agricole.

    Noble's bonds due 2020, which had already been trading at levels considered junk, were quoted at 64/66 cents on the dollar, having traded as high as 83 last month. The firms perpetual bonds were quoted at 43/45, 20 points lower from last month's level.

    "The cost and security required for revolving credit will increase and suppliers will ask for tighter terms," said Robert Medd, an analyst at Hong Kong-based GMT Research, "all of which will reduce margins."

    In its downgrade, Moody's said the worsening year-long rout in commodities, which has punished prices of raw materials that Noble handles from oil to copper, has overshadowed cost-cutting plans and will likely hurt access to funding and challenge its profitability.

    Earlier this month, its peer Standard & Poor's said the agribusiness sale could "weaken Noble's business position, including its business diversity and long-term competitiveness". S&P currently rates Noble at BBB-, a single notch above junk status, but has placed the rating under review with negative implications.

    Meanwhile Fitch Ratings has a stable outlook on its rating for Noble of BBB-, again just one notch above junk.

    "I am sure Fitch and S&P will catch up soon, the bonds are already trading at sub-investment grade levels," said one Singapore-based bond trader, speaking on condition of anonymity.
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    3d printing: ceramics

    With just a $3,000 3D printer, engineers use pre-ceramic resin with materials needed to form the final product. Then, by using a UV laser, the resin turns into a polymer, which is fired at 1,000 degrees Celsius overnight, and converts it into a ceramic. As senior scientist Tobias Schaedler demonstrates, the crystalline ceramic can be held with bare hands while an intense flame does nothing to damage the material. Metal, on the other hand, melts in seconds. 

    3D-printed ceramics have the potential to be used in a ton of different ways from engines in planes and cars to electrical mechanical systems. HRL Laboratories's paper on the ceramics manufacturing was published in the January 2016 issue of Science magazine

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    The three big indicators: update

    Image titleActivity:
    Image titleInventory:
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    Capex plans for 2016


    In a 8 December report, Kotak Institutional Equities, which analysed capex plans of 130 large companies, said that capex for fiscal year 2017 may actually decline by 15%. This would be the third year of declines after a 3.9% and 4.1% drop in fiscal 2015 and fiscal 2016, respectively, showed data compiled by the brokerage house.


    Hopes for a capital expenditure (capex) boom remain on hold.

    Morgan Stanley's Capex Plans Index fell to 13.4 in December, the lowest reading since July 2013.

    "Continued softness in capex plans echoes the declining trend in capital equipment orders and a heavy inventory correction that has weighed on the manufacturing sector. The effects of dollar strength and uncertainty over falling energy prices have been persistent themes in regional manufacturing surveys in 2015," Morgan Stanley's Ellen Zentner said in a note to clients on Tuesday titled "Damage lingers."

    Image title

    SEMI sees 0.5% capex rise this year; 2.6% rise in 2016

    Electronics Weekly-11 Dec 2015
    Worldwide semiconductor fab equipment capex growth (new and used) for 2015 is expected to be 0.5% reaching $35.8 billion, says SEMI, ...

    Corporate America likely will continue to focus the greater share of cash it shells out in 2016 on buying back stocks and issuing dividends, according to a Goldman Sachs analysis.

    Image titleMMM plans for Capex of $1.3-$1.5 billion for 2016 (vs. $1.4-$1.5 billion for 2015)


    "While consumption growth is far from cancelling out the ongoing decline in capex spending, the clear uptrend discernible in a range of consumer indicators is pointing to steady and expanding consumption in 2016."

    EU IT:
    Meanwhile, disruptive new services-based business models are undoubtedly emerging as an alternative to the traditional capital expenditure approach. According to Ovum, over 80 per cent of enterprises globally will be using infrastructure as a service (IaaS) by 2016. That is a significant change over a short period. By the same year, IDC predicts there will be an 11 per cent shift of IT budget away from traditional in-house delivery, toward various versions of cloud computing as a new delivery model; 11 per cent of the global market is no less than $385bn. 

    And finally, analysts are projecting a fall in enterprise demand for solutions that fail to deliver the benefits of virtualised, cloud-driven and software defined technology. According to a ComputerWorld survey, 52 per cent of organisations with more than 1,000 employees have increased spending on cloud computing this year. The only standout planned decrease was on hardware, with
    24 per cent agreeing they would cut budget in this area. 

    EU CFO's:

    Image titleBit dated: September polling.

    But hope reigns eternal:

    FXStreet (Delhi) – Janet Henry, Global Chief Economist at HSBC, suggests that a revival in US capital spending feeds through into higher productivity, supporting real wage growth and boosting confidence.

    Key Quotes

    “After years of persistent disappointment, 2016 could finally be the year that we see a strong revival in US capital spending. The worst of the persistent cost cutting, cutbacks in shale investment and uncertainty over fiscal gridlock should now be behind us. Investment is at historically low levels as a share of GDP. Indeed, the capital stock is now shrinking and the efficiency of ageing capital is declining. Moreover, company share prices are no longer responding as positively to share buybacks and, after the strong pick up in M&A activity over the past two years, attractive acquisitions are becoming harder to find.”

    “Not only may investors encourage management to expand capital spending but, with the economy at full employment and nascent wage pressures emerging, companies start to find it harder to find affordable skilled labour so embark on investment projects in an attempt to lift productivity. The recent improvement in final sales, particularly consumer spending, adds to confidence about the outlook for future demand and with dollar strength abating, the profit share in GDP hits a new high. Credit conditions also remain favourable against a backdrop of only very gradual Fed tightening.”

    “The investment revival could quickly feed through into stronger productivity, slower employment growth and more robust nominal wage growth, providing continued support to real wage growth as the boost to disposable incomes from low oil prices fades.”

    The last is from Mckinsey Economic Quarterly:Image title

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    Macquarie Horror Outlook

    After what can only be described as a horrific year for metals and bulk commodity prices, market attention is now quickly turning to what the new year will bring.

    Some believe that the worst is now over while others think the bear market that has gripped the commodities complex this year is only getting started.

    In a note released earlier this week, analysts at Macquarie research have pondered that very question and it doesn’t make for pleasant reading for commodity bulls.

    They suggest 2016 will be about the three Ds – destocking, divestment and desperation. Unfortunately for commodity bulls, another D – demand – is unlikely to feature in their opinion. As a result, they’ve made aggressive price downgrades across the vast majority of commodities they cover on the back of “the weaker demand outlook and general cost curve deflation”.

    Here’s a snippet from the report explaining their view. Our emphasis is in bold.

    For us, 2016 will be the year of the three D’s for commodities: destock, divestment and desperation. Unfortunately not demand, as it is very hard to see where strong, co-ordinated demand acceleration could come from. We are currently projecting 2016 demand for all major metals and bulk commodities remaining well below the 10-year norms. With financial markets taking an increasingly negative view on the long-term health of the industry, pressures on metals and bulk commodity producers seem set to get worse.Image title

    In their opinion, the chief cause behind the subdued demand outlook for commodities remains weakness from their largest consumer: China.

    The Chinese government used to be like the best company out there – they would give you five-year forward guidance through their five-year plans (backed by a managed political cycle). Now however, the 13th five year plan has little to hang your hat on with few solid targets. Meanwhile, the economy itself has developed a two-speed nature, with the service sector continuing to grow at a fast pace but the old school industrial economy at best stagnating.

    This has clearly added to the uncertainty among Chinese commodity consumers, with a knock-on effect back up the chain to producers. Chinese industry, pretty much across all sectors, has built capacity for demand which has not emerged at the same place.

    What the researchers at Macquarie are pointing out is that investment decisions from miners and industry made in the past were based on the premise that Chinese demand would continue to grow at astronomical rates for the foreseeable future.

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    La Nina follows El Nino? Bullish Gas for sure.

    “The likelihood that the current El Niño peaks soon and turns into a potentially strong La Niña by late 2016 or early 2017 is something that participants in agricultural markets should track closely,” Mr. Norland said.Image title
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    A Bullish View!

    The pork cycle is to economics what the law of gravity is to physics. You can count on it. Every single time. The only thing that makes economics the trickier science, is timing. Because you never know when the market hits peak or bottom. But economics is not an exact science. Investors don't need to get the cycle exactly right to make money. About right cuts it.

    The key to understanding the broad commodity cycle, which functions just like the pork cycle, is the time lag between the investment decision and the creation of new supply. What would happen in case there wouldn't be a time lag? An uptick in demand causes a price increase. The price increase causes additional investment. And the surplus demand would immediately be filled by new supply. Same thing on the downside: demand drops, price drops, investment falls, and production would be cut instantaneously. Our hypothetical result: steady prices.

    Of course, reality is different. Breeding the hog takes time. When the price of oil or copper rises, companies can probably squeeze out some extra output. But to substantially increase production to fill the new demand, they need to increase exploration budgets. That means hiring new geologists, given that companies probably fired those when prices were low - if they are still around. The geologists need time to search for the treasure. When they find something, engineers need time to figure out how to drill the well or build the mine. Permits need to be arranged. The company might also need to raise capital. And only then, construction would commence.

    By the time the whole new enterprise is up and running, demand starts to drop. Due to the price mechanism, users increased efficiency or switched to substitutes. Or a recession hits. At that point, the commodity producers will be holding the bag. And anyone who invested in commodities lately will know exactly what that means.


    Our current cycle started in December 2001, when China joined the WTO. That event marked the beginning of the greatest commodity boom the world ever witnessed. The hungry Chinese giant craved commodities. Commodity producers were throwing everything at it, but it never seemed saturated. Then the global financial crisis hit in 2008. After a commodity collapse, prices bounced quickly and forcefully. This strengthened the China hypothesis even further. We were now in a new era.

    Except we were not, of course. Multi-billion dollar mines with long lead times came online just as China started slowing down. The law of gravity took commodity prices down to levels not seen since 1974. Continuing our science metaphor, we are witnessing Newton's Third Law applied to economics: the large upward force caused a force equal in magnitude, but opposite in direction. After the Great Boom, we're now in the Great Collapse.

    There even seems to be another new paradigm, which is sort of the mirror image of the boom: China switches its economy from industry to services. With the flip of a switch, every factory worker becomes an app developer. Nobody needs stuff anymore, as everything is now 'in the cloud'. China's pace of growth will continue to fall. Commodity prices will extend their tailspin.

    Well, maybe the pundits are right. We don't have a crystal ball. But just allow us to add some balancing facts to the China discussion. China is ramping up government spending, just as it did after the financial crisis.

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    We're not sure how this will end, but the business cycle is also a cycle. China has been slowing down for four years already. No matter what, these measures will provide additional Chinese demand.

    Now, more importantly, back to the commodity supply side. The table below shows an extract from a recent Americas Metals & Mining report by Deutsche Bank. Commodity producers are cutting their CAPEX in a huge way. Globally, we see the same picture across the board. That's your pork cycle at work right there. We are once again setting ourselves up for future commodity shortages.

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    What will cause commodity prices to turn? Well, increased demand and reduced supply of course - nothing new here. But the specifics will be hard to predict. For example, in 2011, nobody was yet aware of fracking. We now know this new technology turned the oil market upside down. There will probably again be some factor we're currently not expecting. An example could be rapidly accelerating growth in India, which is now where China was decades ago. China has 1.36 billion inhabitants. India has 1.25 billion.

    It's just a guess. But the commodity cycle will turn. We will know what made it turn only after the fact. But that's not even relevant to you as a shrewd investor. The only thing that matters is that you need to act now if you're serious about making serious money. And gradually expand your exposure to commodities. As the legendary trader Stan Druckenmillernoted:

    "The first thing I heard when I got in the business....was bulls make money, bears make money, and pigs get slaughtered. I'm here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig."

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    Oil and Gas

    NYMEX February NatGas futures settle 11.5 cents higher on storage withdrawal

    NYMEX February natural gas futures settled 11.5 cents higher at $2.382/MMBtu Thursday following the report of a larger-than-expected storage withdrawal.

    US natural gas in storage dropped 113 Bcf to 3.643 Tcf for the week ended January 1, the Energy Information Administration said Thursday, above consensus expectations of a withdrawal between 93 Bcf and 97 Bcf. A 4-Bcf reclassification of base gas to working gas made the implied flow from storage for the week 117 Bcf.

    The withdrawal was right around the 116-Bcf withdrawal reported at this time in 2015 yet below the 140-Bcf five-year average withdrawal, according to EIA data.

    "The overall message is that the baseline supply/demand balance has tightened at least somewhat, with either some moderation in supply or greater sensitivity to winter cold than had been anticipated," Tim Evans, energy futures specialist with Citi Futures, said in a note.

    Evans added the pull could carry over into stronger expectations for reports to follow.

    WSI's updated 11- to 15-day forecast showed below-average temperatures across portions of the eastern and southern US. Above-average temperatures were expected across the Northwest and north-central US, as well as much of Canada. The forecast was a bit colder than the previous day's, WSI said.

    The level of natural gas demand that the storage numbers indicate is encouraging for bullish traders, said Aaron Calder, an analyst with Gelber & Associates.

    "Producers reported roughly 14 Bcf of freeze-offs last week. Typically we discount freeze-offs as a one-time surprise from the first cold of the year but more could be on the way due to the low-price environment," Calder said in a note.

    "It may not be worth it to freeze-proof wells that are barely breaking even as it is," he added.

    The February contract traded between $2.271 and $2.429/MMBtu during the session.
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    Venezuela's oil industry could be privatized

    Venezuela’s socialist President Nicolas Maduro says the new majority in the National Assembly plans to privatize the country’s most lucrative industries, the state-run oil and telecommunications sectors.

    Members of Democratic Action, which had made up an opposition party for 17 years under the late President Hugo Chavez and Maduro, his successor, were sworn in Tuesday as the country’s new legislative majority.

    Democratic Action had won a two-thirds majority in last month’s elections, giving it super-majority status in their challenge to change Maduros’ approach to government. But at the last moment, the country’s Supreme Court refused to allow four of them to take their seats because of accusations of electoral fraud, and only 163 of the 167 took oaths of office. The two-thirds majority status is now in limbo.

    Still, Maduro is leery of the plans of the new majority party, which he says is planning to destabilize the country with a threat to privatize the state oil company Petroleos de Venezuela and the state television channel CANTV. On Monday he announced plans to take steps that he said would avert an “economic emergency.”

    “I’m evaluating the strengthening of a strategic plan,” Maduro said in an address to the nation. “We are going to activate an emergency plan and reconstruct our economy.”
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    Shell sees BG deal working with oil at $50 for two years

    Royal Dutch Shell has told investors its purchase of BG can work even if oil prices average $50 a barrel for two years, its lowest estimate to date as it seeks to secure shareholder support for the $51 billion deal amid plunging crude markets.

    The Anglo-Dutch group is confident investors will back the deal at a Jan. 27 meeting, even though crude prices are languishing near 12 year lows around $32 a barrel and it faces a cut to its credit ratings due to higher debts, sources with knowledge of its meetings with analysts and investors said.

    When Shell (RDSa.L) announced the deal in April 2015, with oil trading around $55 a barrel, many investors saw it as a bold move to buy a weakened rival on the expectation that prices would recover to around $90 per barrel within three years.

    Initially, Shell indicated the combined group would be profitable with prices in the mid $70s a barrel. Last month, it said the merger would work in the low $60s, as it identified new synergies and cost cutting opportunities.

    On Wednesday, finance chief Simon Henry told analysts Shell had conducted stress tests that showed it could withstand oil at $50 a barrel over the next two years, the sources told Reuters.

    A Reuters poll on Monday showed analysts expect benchmark North Sea Brent crude futures to average $52.52 a barrel this year.

    To weather such an environment, Shell plans to cut capital spending further below the planned $35 billion for 2016, delay share buybacks and extend scrip dividends, where investors are offered discounted shares instead of cash, Henry told analysts.

    Shell plans to keep the size of its dividend unchanged, however.

    Henry also met this week in London with several of Shell's top 10 investors, including BlackRock and Capital Group, seeking to address concerns about the deal.

    Chief Executive Ben van Beurden is expected to meet other leading investors in London on Friday and both he and Henry will hold phone briefings with U.S. investors next week, according to company sources.

    The investors are being asked how they plan to vote on the deal. Several so far have confirmed their support, but most have refused to disclose their plans, according to the sources.

    Despite weak oil prices, the deal is expected to win the backing of a majority of Shell's shareholders.

    "I would be very surprised if the deal didn't get the support of the Shell's shareholders. A 50 percent vote is very likely to happen," one top investor told Reuters.

    Ben Ritchie, senior investment manager at Aberdeen Asset Management, a top ten investor in both Shell and BG (BG.L), had previously indicated his company would vote in favor of the deal.

    A Shell spokesman confirmed company executives had held meetings with top investors but would not comment on the content of the discussions.

    Shell shares fell 2.9 percent on Thursday, having slumped more than 30 percent since the deal was announced on April 8, trailing most of its peers.

    In the analyst briefing, Henry said that although the oil market would take time to recover from its worst downturn in three decades, prices would likely average at least $60 a barrel over the next 15 years, the long-term level at which Shell says the deal is profitable, according to sources at the briefing.

    The chief financial officer (CFO) nevertheless acknowledged that the weaker outlook and larger debt Shell will assume to finance the deal means credit rating agencies such as Standard & Poors (S&P) and Moody's will likely lower their ratings.

    Lower credit ratings could make borrowing more expensive but are unlikely to significantly change access to debt markets.

    S&P last July cut Shell's rating by one notch to 'AA minus' from 'AA' due to weaker oil prices, warning of possible adverse effects on credit metrics due to the BG acquisition.

    Shell has outlined plans to sell $30 billion of assets over the next three years in order to finance the deal, but Henry said Shell was unlikely to achieve a third of that total this year due to low oil prices, the sources said.
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    Corporate Raider Mason Hawkins Now Owns 23.1% of CONSOL Energy

    There’s little doubt about who now is, or soon will be, calling the shots at CONSOL Energy: corporate raider Mason Hawkins.

    Hawkins, along with corporate raider buddy Carl Icahn, is responsible for firing Aubrey McClendon from the company he co-founded (Chesapeake Energy) and further firing some 2,000 or more Chesapeake employees–all in a bid to put more money in his pocket.

    Hawkins and Icahn control Chesapeake by owning a combined 20% or so of the company’s outstanding shares of stock. In February 2015, MDN shared the disturbing news that Hawkins and his Southeastern Asset Management had amassed 14% of CONSOL’s outstanding shares of stock.

     By July that number ballooned to 21% and Hawkins was throwing his weight (and money) around.

    Now? We spotted a notice that Southeastern Asset Management’s stake in CONSOL has grown to 23.1% of the company’s outstanding shares. Which means Hawkins can have his way with the company…
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    Iran's Bid for Oil Investment Seen at Risk From Saudi Dispute

    Iran’s diplomatic rift with regional rival Saudi Arabia will stiffen the challenge it faces in attracting foreign investment once sanctions on its economy are lifted, according to analysts from IHS Inc., Energy Aspects Ltd. and Emirates NBD PJSC.

    The breakdown in ties stoked tensions just as Iran is preparing for the removal of sanctions. An international agreement to limit Iran’s nuclear program, when it takes effect, would free the country to seek more than $100 billion in investment it says it needs to rebuild its oil and natural gas industries.

    Regional instability stemming from the diplomatic crisis will threaten these efforts, leading to prolonged power struggles that make it harder for companies to evaluate the risks of investing in Iran, Richard Mallinson of Energy Aspects said by phone from London.

    “That adds to the calculus of making a long-term capital investment decision in Iran,” Victor Shum, IHS’s head of oil market research, said by phone from Singapore. “It will slow down investment, possibly by months or even years, and slow the addition of new output.”

    Iran plans to boost crude exports immediately after curbs are lifted and to attract foreign money and technology to revive energy production sapped by years of under-investment. The country was the second-largest producer in the Organization of Petroleum Exporting Countries until sanctions were intensified in 2012. It’s currently fifth-biggest in the group, data compiled by Bloomberg show.

    Saudi Arabia severed relations with Iran, and the kingdom’s Arab allies are taking similar steps. Qatar, which shares the world’s biggest gas field with Iran, has recalled its ambassador to Tehran, state-run Qatar News Agency reported Wednesday. The United Arab Emirates and Kuwait also recalled their envoys, according to those countries’ state news agencies.
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    Petrobras ‘readies leaner budget plans’

    Brazilian state-run player Petrobras will reportedly present a five-year investment plan next month that will be even lower than the $19 billion plan announced last year.
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    The U.S. EPA Called Fracking Safe. Now Its Scientists Disagree

    A landmark study by the U.S. Environmental Protection Agency that concluded fracking causes no widespread harm to drinking water is coming under fire -- this time, from the agency’s own science advisers.

    The EPA’s preliminary findings released in June were seen as avindication of the method used to unlock oil and gas from dense underground rock. A repudiation of the results could reignite the debate over the need for more regulation.

    Members of the EPA Science Advisory Board, which reviews major studies by the agency, says the main conclusion -- that there’s no evidence fracking has led to "widespread, systemic impacts on drinking water" -- requires clarification, David Dzombak, a Carnegie Mellon University environmental engineering professor leading the review, said in an e-mail. The panel Dzombak heads will release its initial recommendations later this month.

    "Major findings are ambiguous or are inconsistent with the observations/data presented in the body of the report," the 31 scientists on the panel said in December, in a response to the study.

    The scientific panel’s recommendations aren’t binding and the EPA is not required to change its findings to accommodate them. But they already are raising questions about the most comprehensive assessment yet of a practice that has driven a domestic oil and gas boom but also spawned complaints about water contamination.

    An EPA spokeswoman said the agency will use comments from the scientists and the public to "evaluate" possible changes to the report.

    A significant change could be a big blow to an industry that is celebrating major policy wins, including the end of trade restrictions that for four decades blocked the export of most raw, unprocessed U.S. crude.
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    "Under $65 in equities, but no bottom in sight?"

    But equities, the vehicle most investors use to bet on energy prices, may not be as close. Consider, for example, the widely held Energy Select SPDR exchange-traded fund. Down 43% from its June 2014 peak, it fetched a similar price as recently as October 2011 and is some 50% above its recession low. In other words, a steep loss, but hardly panic territory.

    Analysts at Deutsche Bank estimate that North American exploration-and-production stocks now factor in a long-term oil price of under $65 a barrel. That is low relative to the $110 hit 18 months ago, but that was in a world of seemingly insatiable emerging-market demand. Today, that is in doubt, particularly when it comes to China.

    Energy stocks probably present an attractive buying opportunity since the average Brent crude price of the past decade was a little above $80 a barrel. But those with the willingness, and ability, to hang on to realize a profit must be aware that we are a long way from there—and perhaps even a good distance from the bottom.

    ~Heard on the Street.
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    LOOP crude storage auction sees sustained high prices, high demand

    January's auction for crude storage space at the Louisiana Offshore Oil Port saw sustained high prices for a second month in a row, after prices jumped in December's auction due to increased demand for offshore storage, according to the host of the auction.

    With LOOP storing sour crude and the Mars outright assessment in contango for the next three months, according to Platts data, there is an incentive for sour crude storage in the short term, and as a result, bidding for LOOP storage space is becoming increasingly competitive, according to one source.

    The front-month/third-month Mars spread closed at minus $1.85/b Tuesday, compared with minus 80 cents/b September 1, when the cost of LOOP crude storage was around 14 cents/b.

    As LOOP caverns fill up and the number of players increases, the level of competition could intensify in the coming months.

    NEO Markets hosted the latest monthly auction of LOOP Capacity Allocation Contracts, comprising physical forward agreements and block futures contracts, Tuesday.

    The auction offered 500,000 barrels more of physical oil storage capacity than the previous month's auction, with 7.2 million barrels of February, March, the second-quarter 2016 strip, third-quarter 2016 strip and fourth-quarter 2016 strip storage space up for auction.

    Auction activity included 3,500 block futures trading between 25 cents/b and 36 cents/b per month, compared with the 3,400 block futures that changed hands during December's auction between 21 cents/b and 31 cents/b per month.

    In contrast, the November auction saw 3,300 block futures trade between 13 cents/b and 14 cents/b per month.

    The auction also offered 3,700 physical forward agreements, which traded between 21 cents/b and 35 cents/b per month, compared with the 3,300 physical forward agreements that traded in December's auction between 20 cents/b and 36 cents/b per month.

    In November's auction, 3,800 physical forward agreements traded between 12 cents/b and 15 cents/b per month.

    CME's exchange-traded storage futures contract, launched in March 2015 with a May 2015 contract, is based on crude storage capacity at the LOOP Clovelly Hub in Louisiana.

    The contract allows the buyer the right, but not the obligation to store crude for a calendar month at the LOOP storage facility.

    Total open interest of 14,800 contracts on Tuesday was at an all-time high, according to exchange data.

    Once the auction is done for the time period, a secondary market for the LOOP storage contract trades as a differential to the Neo Markets auction result.

    "Today's auction results show continued demand for crude oil storage along the US Gulf Coast as well as expanded market participation and acceptance of a freely traded contract for crude oil storage," J. Robert Collins, co-CEO of NEO Markets, said in a statement.

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    World's Cheapest Crude Hits Record Low as Oil Slump Deepens

    A deepening oil market slump is adding fresh pain for producers of the world’s cheapest crude, raising the prospect that more production will be curtailed.

    Spot prices for the Western Canadian Select grade fell to $19.81 a barrel on Wednesday, the lowest since tracking began in 2008, according to data compiled by Bloomberg. The benchmark, made up of heavy conventional production and bitumen blended with synthetic crude and condensate, fell with global grades after U.S. gasoline inventories surged the most in 22 years and crude supplies at the American storage hub in Oklahoma climbed to a record.

    The low prices may push more of the highest-cost output offline. Producers including Baytex Energy Corp. and Canadian Natural Resources Ltd. have shut in more than 35,000 barrels a day of heavy oil and bitumen production, according to company presentations and a report on the Alberta government website.

    Current prices are “below shut-in levels,” said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. There’s no incentive to ship Canadian crude to the U.S. Gulf Coast and producers may start annual maintenance sooner than planned, he said. “We’re the last barrel produced and we’re the first barrel shut in.”

    Maya crude, a heavy grade from Mexico, sank to $25.55 a barrel Wednesday, the lowest since 2004. West Texas Intermediate, the U.S. benchmark, tumbled to the lowest close in seven years, at $33.97. Brent, the European gauge, dropped to its lowest settlement since 2004 at $34.23.

    Canadian producers are getting some cushion from the country’s currency, which has seen its value shrink along with crude. Most of Canada’s oil is exported and producers are paid in U.S. dollars, while many of their expenses for labor and equipment are paid in cheaper Canadian dollars. Western Canadian Select was worth C$28.14 on Wednesday, above the December 2008 low of C$27.03.

    Still, the pain is being felt across Alberta, Canada’s largest oil-producing province. Energy companies are shelving new oil-sands projects and have cut more than 40,000 jobs nationwide, the industry’s main lobby group estimates. Capital spending for the 25 largest producers is poised to fall for a second straight year, dropping another 16 percent in 2016, data compiled by Bloomberg show.

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    US oil production up on previous week and year

                                              Latest Week   Week Ago    Year Ago

    Domestic Production '000...... 9,219           9,202           9,132
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    Summary of Weekly Petroleum Data for the Week Ending January 1, 2016

    U.S. crude oil refinery inputs averaged over 16.6 million barrels per day during the week ending January 1, 2016, 65,000 barrels per day less than the previous week’s average. Refineries operated at 92.5% of their operable capacity last week. Gasoline production decreased last week, averaging about 8.8 million barrels per day. Distillate fuel production increased last week, averaging 5.0 million barrels per day.

    U.S. crude oil imports averaged over 7.5 million barrels per day last week, down by 382,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.8 million barrels per day, 5.9% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 602,000 barrels per day. Distillate fuel imports averaged 164,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.1 million barrels from the previous week. At 482.3 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 10.6 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 6.3 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 1.4 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 7.3 million barrels last week.

    Total products supplied over the last four-week period averaged 19.7 million barrels per day, down by 2.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.0 million barrels per day, down by 3.6% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 9.3% from the same period last year. Jet fuel product supplied is down 0.9% compared to the same four-week period last year.


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    Halliburton Faces Long EU Probe on Missing Early Offer Slot

    Halliburton Co. passed on a chance to offer early concessions to European Union regulators, meaning it will likely face a protracted antitrust review of its plan to buy oil services rival Baker Hughes Inc. for $26 billion.

    Halliburton had until midnight Tuesday to propose remedies to the European Commission in Brussels but passed up the opportunity, according to the regulator’s press office. The EU will probably open an in-depth investigation into competition concerns by Jan. 12, the regulator’s cut-off for an early ruling.

    The commission’s review will add to the intense scrutiny of the merger from regulators across the world. The U.S. Justice Department told the world’s No. 2 and No. 3 oil service companies that officials aren’t satisfied with Halliburton’s proposals for eradicating competition concerns related to the deal. The companies countered that their package of asset sales is “more than sufficient” to address competition worries.

    Extending the probe would push the EU’s final deadline for a decision into May, beyond the companies’ self-imposed April 30 date to close the deal. While the commission seldom waits until the last minute, the timing puts pressure on Halliburton to build a package of commitments that convinces the EU authority to give its blessing.

    Halliburton and Baker Hughes didn’t immediately respond to calls and e-mails seeking comment outside of U.S. business hours.

    In-depth probes are standard for deals that would significantly cut the number of players in a market or where there are overlapping activities, especially in complex industries.

    Halliburton announced an agreement to buy Baker Hughes in November 2014 to compete with industry leader Schlumberger Ltd. by achieving scale and building a better technology portfolio in a market where the ability to innovate is increasingly critical for success. At that time, Halliburton said it planned to divest assets that generate as much as $7.5 billion in annual revenue to win antitrust approval.
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    Petrobras ends rig contract with Ensco over bribe charges

    Rig contractor Ensco Plc said Brazilian oil producer Petrobras has ended a contract for a drillship over allegations of corruption.

    Petroleo Brasileiro SA, or Petrobras, chartered the DS-5 in 2008, when it was owned by Pride International, a company Ensco bought in 2011.

    Petrobras said in a notice on Monday that Pride had knowledge that the rig's shipbuilder made "improper payments" to a marketing consultant who then shared the money with former employees of Petrobras, Ensco said. (

    Ensco said it has found no evidence that Pride, the company or any current or former employees were aware of or involved in any wrongdoing.

    The rig contractor said it planned to assert its legal rights under the contract.

    Ensco's other rigs leased to Petrobras will continue to work under their contracts, the driller said.

    London-based Ensco said it has not been contacted by other Brazil government authorities regarding alleged wrongdoing.
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    Consol Energy slashes oil and gas capex by 41 pct

    Coal and gas producer Consol Energy Inc cut its 2016 capital expenditure budget for its oil and gas division by 41 percent due to weak commodity prices.

    The company said it now plans to spend $205-$325 million on oil and gas drilling, down from its previous estimate of $400-$500 million.

    Pennsylvania-based Consol shifted its focus to natural gas from coal as coal prices began to weaken, giving it a slight advantage. However, oil and gas prices have also plummeted, forcing the company to tighten its purse strings.

    Consol also cut its 2016 sales forecast for its coal division to 27-32 million tons from 30.6-33.4 million tons, and said it expects coal prices to fall further due to an "unusually warm winter weather".

    Separately, CNX Coal Resources LP, which was spun off from Consol and mines coal used in power generation, cut its sales forecast for the year to 4.4-5.2 million tons from 5.0-5.4 million tons.

    Consol said it expects low natural gas prices to impact coal consumption.
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    China issues 20.93 mln mt in product export quotas in first 2016 round up 115%

    China has more than doubled its first round oil product export quotas to 20.93 million mt from a year ago to 27 refineries in 2016, industry sources told Platts Tuesday.

    It contrasted to the 9.75 million mt released for the same period last year.

    In addition to the traditional quota winners, the state-owned oil majors, five new qualified refineries also get their first batch of a total 430,000 mt quota for oil products exports.

    This volume comprised of 250,000 mt of gasoline and 180,000 mt of gasoil. A total of 330,000 mt of quotas were given to four independent teapot refineries -- Lijin Petrochemical, Yatong Petrochemical, Sinochem Hongrun and Dongming Petrochemical -- in eastern Shandong province.

    The remaining 100,000 mt of the quota for the new players goes to Huajin refinery in northeastern Liaoning province which is a subsidiary of state-owned Norinco.

    These refineries all had been given both import quotas and import licenses last year.

    In mid-November, they were allowed by China's Ministry of Commerce to apply for quotas to export oil products from 2016.

    Dongming Petrochemical, which exported its first 10,000 mt cargo of gasoline from Rizhao port of Shandong, this time was allotted a total quota of 120,000 mt, including 90,000 mt for gasoline and 30,000 mt for gasoil.

    The quotas, issued late last week, also cover 11 refineries with Sinopec, nine with China National Petroleum Corp., China National Offshore Oil Corp's Huizhou refinery, and Sinochem's Quanzhou refinery.

    State-owned oil companies, as well as independent refineries which joined the fleet recently, normally seek export quotas for some oil products from the government based on their requirements and can also request to have unused volumes from the quota of a particular oil product switched to another one.

    Quotas are given out roughly every quarter and unused volumes can be rolled over to the following quarter.

    The latest quotas were approved by the Ministry of Commerce and General Administration of Customs late last week, according to sources.

    Last year, China issued a total of 29.8 million mt of oil products quotas in five rounds, up 52.8% from 2014.
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    The Shale Defaults Begin Here: Banks Quietly Shrink These 25 Companies' Credit Facilities

    Everyone knows that at $35/barrel oil, virtually every US shale company is cash flow negative and is therefore burning through cash and other forms of liquidity such as bank revolvers and term loans, just as everyone knows that should oil remain at these prices, the US shale sector is facing an avalanche of defaults.

    What is less known is who will be the next round of companies to default.

    One good place to get an answer is to find which companies' bankers are quietly tightening the liquidity noose (because they don't want to be stuck holding worthless assets in bankruptcy or for whatever other reason), by quietly reducing the borrowing base on existing credit facilities.Image title

    It is these companies which find themselves inside this toxic feedback loop of declining liquidity, which forces them to utilize assets even faster, thus even further shrinking the borrowing base against which their banks have lent them money, that will be at the forefront of the epic bankruptcy wave that is waiting to be unleashed across the US, leading to tens of billions of defaults junk bonds over the next 12-18 months.

    So, without further ado here are 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners.

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    Pioneer Natural Resources Company Announces Upsizing and Pricing of Common Stock Offering

    Pioneer Natural Resources Company announced that it has priced a public offering of its common stock at $117.00 per share. The size of the offering has been upsized from 10.5 million shares to 12 million shares. Pioneer will receive total gross proceeds (before underwriters’ discounts and commissions and estimated expenses) of approximately $1.4 billion. BofA Merrill Lynch, Citigroup, Credit Suisse and J.P. Morgan are acting as joint book-running managers on the offering. The Company has also granted the underwriters an option for 30 days to purchase up to an additional 1.8 million shares of the Company’s common stock. The offering is expected to close on or about January 11, 2016.

    The Company expects to use the net proceeds from this offering for general corporate purposes, including continuing to actively develop its acreage position in the Spraberry/Wolfcamp play in West Texas while maintaining a strong balance sheet during the current period of low commodity prices.

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    Sapped U.S. shale budgets to come in lower than 1980s bust

    As crude prices languish below $40 a barrel, American drillers are retreating from domestic oil fields even faster than in the tumultuous 1980s oil bust.

    U.S. oil companies are set to curb investments by 24 percent this year to $89.6 billion, meaning that from the beginning of last year to the end of this year, domestic drillers will have cut their annual capital budgets by 51 percent. That’s more than the industry’s 46 percent cut in the mid-1980s, according to Cowen & Co., which began its oil-company spending survey in 1982.

    But the oil field exodus eventually will pay off. U.S. crude production surged in recent years but it began to decline last year. Crude traders are watching domestic output data to figure out when the global oil glut might start to shrink. For the oil market, the faster, the better.

    “These conditions will ultimately cleanse the oil patch and set the stage for a sustained upcycle,” said James West, an oil field services analyst at Evercore ISI, who has also released an oil company spending survey.

    Through the first half of the year, though, it will be rough in the U.S. oil patch. Deep budget cuts are expected to prompt another exodus of drilling rigs from Texas and North Dakota, with the average U.S. land rig count dropping by about 300 this year, Cowen says. Each rig is tied to dozens of oil field jobs, and the Federal Reserve estimates the nation has lost 70,000 U.S. oil and gas jobs already.

    Related: Far East trumps Mideast in oil-market influence as prices slide

    To make matters worse for Houston’s oil equipment makers, Cowen’s estimate for the 2016 spending reduction may be too conservative because the survey went out in November, when oil was $48 a barrel. U.S. crude has tumbled to about $36 a barrel, and if prices stay that low for much longer, drillers will likely have to shed more capital dollars than they anticipated.

    Evercore ISI’s survey indicated a 19 percent drop in spending this year, but with oil prices much lower than they were just two months ago, official budgets may come in 40 percent to 50 percent below initial projections, West said.

    The domestic oil industry wasn’t designed to function with $36 oil. Even though some rigs can drill 20 percent more wells and some wells can produce 40 percent more oil, U.S. oil producers’ overall cash flow is expected to come in 35 percent lower this year, the worst haul since 2002, according to Raymond James.

    Hidden behind the stark budget cuts is a marked change in the strategy that U.S. oil companies have employed since technological breakthroughs opened up commercial production in dense formations. A record proportion of drillers — 80 percent — are planning to spend within their cash flow this year, according to Evercore ISI.

    “This is a record and dwarf’s last year’s 55 percent,” West said.

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    Sinopec strikes high-yielding oil at China's Beibu Bay test well

    Sinopec Corp said it struck high-yielding oil and gas in a test well offshore Beibu Bay near China's southwestern coast, marking a rare offshore oil and gas find by the state firm that is largely focused onshore.

    The Wei-4 well, some 110 kms (68 miles) southwest of the coastal city of Beihai, tested a daily output of 1,264 tonnes of crude oil and 71,800 cubic metres of natural gas at a first layer, after identifying oil-bearing layers nearly a hundred metres thick.

    On the second layer, Sinopec struck 1,184 tonnes of daily oil flow and 76,000 cubic metres of natural gas, the company said in a statement on Wednesday.

    The well, drilled in the shallow part of the sea, is 3,783 metres deep. It took 29 days to drill.

    "It's a high-flowing offshore test well rarely seen over the last decade," said Sinopec.

    China's offshore oil and gas activities have long been dominated by Sinopec's smaller domestic peer CNOOC Ltd .

    Before Beibu Bay, Sinopec's limited offshore works were mostly conducted in East China Sea where the firm discovered several natural gas fields.
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    Biggest No Longer Means Best in Qatar's Strategy for LNG Wealth

    For Qatar, the world’s largest exporter of liquefied natural gas, preparing for a looming glut of the fuel isn’t about being the biggest seller. It’s about being the most efficient.

    Global LNG output is expected to rise by a third to about 330 million metric tons annually by 2018, according to Sanford C. Bernstein & Co. Most of the new fuel will come from the U.S. and Australia, which is poised to topple Qatar as the biggest supplier. Unlike Saudi Arabia, the largest oil shipper, Qatar won’t be fighting for market share at the expense of earnings.

    Instead, the sheikhdom will continue as one of the most profitable LNG sellers by taking advantage of the industry’s lowest production costs and a control over supply routes that lets it redirect LNG quickly between continents to exploit opportunities, said Ibrahim Ibrahim, vice chairman of Ras Laffan Liquefied Natural Gas Co., known as RasGas.

    “A lot of people have gas, but we have an integrated project,” he said in an interview in Doha. “We are not trying to maintain a leadership role.”

    The Persian Gulf nation faces a challenge similar to the one Saudi Arabia has grappled with in oil markets, as competitors take market share and drive down prices, according to a Nov. 13 report by the Arab Gulf States Institute in Washington, a research center. Prices for LNG delivered to Asia have plunged more than 60 percent from a record in 2014.

    Buyers such as Tokyo Electric Power Co., South Korea’s Chubu Electric Power Co. and Petronet LNG Ltd., India’s biggest gas importer, are haggling for better terms.

    “Most of the long-term prices will expire around 2020,” Chung Yangho, South Korea’s deputy minister of energy and resources policy, said on Nov. 9 in Doha. “If the oversupply continues, we hope to see there will be less rigid market conditions.”

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    More guards killed in Islamic State attacks on Libya's oil ports

    Islamic State militants attacked checkpoints near the Libyan oil port of Es Sider for a second day on Tuesday and an oil storage tank in the port was set on fire by a long-range rocket, a spokesman for the security guards said.

    Ali Hassi said militants had attacked checkpoints 30-40 km (19-25 miles) from the port, and that two guards were killed and 16 wounded in the fighting. Seven guards were killed and 25 were wounded in Monday's clashes, he said.

    The National Oil Corporation (NOC) said the oil tank fire started just as firefighters were close to bringing under control another blaze at an oil tank that was hit during fighting in the nearby port of Ras Lanuf on Monday.

    Both fires were still burning on Tuesday afternoon.

    Es Sider and Ras Lanuf, Libya's biggest oil ports, have been closed since December 2014. They are located between the city of Sirte, which is controlled by Islamic State, and the eastern city of Benghazi.

    Libya descended into chaos after the fall of Muammar Gaddafi in 2011 and rival governments and militias have been competing for the country's oil wealth ever since.

    The U.N. is trying to win support for a deal to form a national unity government, but many members of Libya's rival parliaments have not signed up.

    The country's crude oil production has dropped to less than a quarter of a 2011 high of 1.6 million barrels per day.

    Islamic State militants have taken advantage of a security vacuum to tighten their grip on Sirte, and have been threatening to advance east along the coast. They have not managed to take control of any oil installations yet, as they have in Syria.

    On Monday, Islamic State suicide car bombers struck near Es Sider and there were clashes between its fighters and security guards. The tank that was hit in Ras Lanuf, 20 km (13 miles) from Es Sider, was holding about 400,000 barrels of oil.
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    Eclipse Resources Drilling 1 Well in 2016, Restricting Production

    Eclipse Resources issued their fourth quarter 2015 operational update yesterday, along with publishing an updated investor’s PowerPoint. Eclipse is a smaller but important Marcellus/Utica driller with its headquarters in State College, PA–although they do almost all of their drilling in Ohio’s Utica Shale.

    In November word leaked out that Eclipse is shopping the company. There was no overt or implied reference to that in yesterday’s update.

    What the update did say, however, is that save a single well they plan to drill in the first quarter of this year, Eclipse is not planning to do any more drilling until the price of natgas increases. They also said that although previously drilled wells going online have the potential to boost Eclipse’s production in 2016, they plan to reign in the flow rates to keep them at 2015 levels–again, until the price of natgas goes up.

    Nobody is predicting an increase in natgas prices any time soon (at least not in 2016), but it appears Eclipse is buckling in for a long ride through low-price valley.
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    Oil Tumbles After Saudis Slash Prices To Europe

    "The Saudis are preparing for Iran’s return," said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry, as they sharply cut the prices they charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program.

    Saudis have slashed prices with the biggest discount to Europe sionce Feb 2009...

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    Which has sent crude prices lower...
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    As The Wall Street Journal reports,

    Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.

    Saudi Arabian Oil Co., or Saudi Aramco, the kingdom’s state-owned oil company, didn’t mention the conflict in its news release about the price cuts.

    Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery.

    Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.

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    OPEC December oil output slips, still near record

    OPEC oil output fell in December, a Reuters survey found on Tuesday, led by lower supply from Iraq following a record-breaking month in November and smaller declines elsewhere in the producer group.

    The Organization of the Petroleum Exporting Countries is still pumping close to record amounts as Saudi Arabia and other big producers focus on market share, weighing on any recovery in oil prices from near 11-year lows.

    OPEC supply fell in December to 31.62 million barrels per day (bpd) from a revised 31.79 million in November, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants.

    Oil prices have more than halved in 18 months and hit an 11-year low in the wake of OPEC's Dec. 4 decision to keep its year-old policy of no output restraint. The current crisis between Saudi Arabia and Iran - expected to pump more oil as sanctions are lifted - makes cooperation over supply even less likely, analysts say.

    "There is certainly no chance of Saudi Arabia scaling back its oil supply to make space for Iranian oil," said Carsten Fritsch, analyst at Commerzbank, adding the tensions still justify a risk premium on prices because they could escalate.

    "In other words, the existing oversupply may actually grow further in the short term."

    OPEC has boosted production by almost 1.40 million bpd since its November 2014 refusal to cut supply and prop up prices. Output is not far below July's 31.88 million bpd, the highest since Reuters records began in 1997.

    The biggest monthly decline in output came from Iraq, the world's fastest growing source of supply growth last year.

    Exports from Iraq's main outlet, its southern terminals, have slipped from November's record level which had been boosted by delayed October cargoes, but are likely to reach new highs in the coming months, industry sources said.

    Shipments from Iraq's north by the Kurdistan Regional Government via Ceyhan in Turkey have edged lower, while those by Iraq's State Oil Marketing Organisation have remained at zero for a third month, the survey found.

    Top exporter Saudi Arabia has kept output steady to slightly lower, sources in the survey said, due to less demand from outside the country and largely steady domestic use.

    "Directionally supply is down a little bit," said a source who tracks Saudi output. Saudi production reached a record high of 10.56 million bpd in June.

    Nigerian output declined by 50,000 bpd due to disruptions to exports from the Brass River and Bonny production streams, sources in the survey said.

    Output in Iran, eager to reclaim its spot as OPEC's second-largest producer when sanctions over its nuclear program are lifted, is edging up, the survey found. Kuwait and Qatar also posted small supply rises.

    Indonesia, which rejoined OPEC on Dec. 4 bringing the membership to 13, will be included in the January survey.

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    Statoil renegotiates terms with suppliers in NOK11 billion deal

    Statoil has renegotiated the terms of two of its long-term contracts with its suppliers.

    The Norwegian operator today confirmed two new contracts worth a combined NOK11billin with Beerenberg Corp AS and Prezioso Linjebygg AS.

    The deals include scaffolding and surface treatment services to 20 of the company’s 29 installations on the Norwegian continental shelf (NCS) over the next 15 years.

    The two new contracts will replace the company’s existing contracts with these two suppliers regarding NCS services, according to the firm.

    Jon Arnt Jacobsen, senior vice president for procurements in Statoil, said: “The suppliers understand the industry challenges and want to help solve them. Beerenberg Corp AS and Prezioso Linjebygg AS have during the renegotiations expressed that they focus on permanent improvements as well as quality and cost.”

    Kjetil Hove, senior vice president for operations technology of development and production in Norway, added: “These contract awards mark an important milestone in the long-term improvement effort within insulation, scaffolding and surface treatment services.

    “Beerenberg Corp AS and Prezioso Linjebygg AS have competitive deliveries, and with these long-term contracts we ensure a predictable and clear contribution to the cost reductions we want to achieve together.”
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    North Dakota rigs slip below 60 for first time since 2009

    The number of drill rigs in North Dakota slid below 60 on Monday for the first time since 2009 as crude prices tumble and companies focus on richer portions of the state’s oil patch.

    State Department of Mineral Resources data show 59 rigs were operating Monday in western North Dakota’s oil-producing region, down from 171 rigs on the same day last year and 192 in 2012.

    North Dakota, the nation’s No. 2 oil producer behind Texas, produced about 1.1 million barrels of oil daily in October, which was about 60,000 barrels per day less than the record set in December 2014. October production is the latest available; data typically lags about two months.

    State and industry officials said North Dakota should be able to maintain oil production at the current level if the number of drill rigs stays above 50.

    “As long as we can keep those rigs and completions at today’s level, we’ll be able to maintain that production,” said Ron Ness, president of the North Dakota Petroleum Council.

    There are more than 13,100 active oil wells in North Dakota, a number that has nearly tripled since 2010. Almost all of the new wells are targeting rich Bakken and Three Forks formations in the western part of the state.

    North Dakota sweet crude was fetching $37 a barrel on Monday, about $25 less than the price a year ago.

    The state has about 1,000 wells that have been drilled but have yet to undergo hydraulic fracturing, a process that uses pressurized water, chemicals and grit to break open oil-bearing rock. Completing the wells through hydraulic fracturing will be spurred if oil reaches about $60 a barrel, state and industry officials said.

    Meantime, companies are “concentrating rigs in higher performing areas,” said Justin Kringstad, director of the North Dakota Pipeline Authority.

    In October, the last month data is available, 76 wells were both drilled and completed, down from 118 in September.

    Kringstad said rigs have become more efficient in recent years and are now able to drill a well in two weeks, instead of the month it took in 2012.

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    Four China teapot refineries apply for 14.47 mil mt/year of crude quotas

    Four more Chinese independent teapot refineries, with a total capacity of 15.6 million mt/year, have joined others in applying to the National Development and Reform Commission to process around 14.47 million mt/year of imported crudes, the government said on its website late Tuesday.

    The four new applicants, together with three other refineries still waiting for the NDRC's final nod for a total of 9 million mt/year of crude import quotas, and 11 that have been granted quotas, will bring the total applicants to 18.

    Once those seven teapots get approved, it will bring the total volume of crude quotas granted to teapot refineries to 72.66 million mt/year, with 49.19 million mt/year awarded to 11 teapot refineries.

    This will be around 22% of the country's total imports in a year, since China has imported around 6.63 million b/d of crudes over January-November this year, according to the latest customs data.

    The four new teapot refinery applicants, three from eastern Shandong province and one from central Henan province, have a combined installed capacity of 15.6 million mt/year.

    All four have committed to get rid of small crude distillation units smaller than 2 million mt/year (40,000 b/d) and to update fuels to National Phase 5 standard, setting up gas infrastructure such as storage tanks in order to qualify for a crude import quota.
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    Active bidding expected for Origin gas assets

    Prospective bidders for Origin Energy's $300 million gas interests in Western Australia have been told the undeveloped Waitsia field is the largest onshore conventional gas find in the country for 30 years and could easily undercut competing supplies from the North West Shelf venture in the Perth market.

    In a confidential flyer distributed to interested parties, Origin's adviser, UBS, says the package of assets up for sale in the Perth Basin offers a "rare opportunity to participate in one of the most prospective discoveries in Australia".

    The Perth Basin package, part of a targeted $800 million divestment program by indebted Origin, includes a 67 per cent stake in the producing Beharra Springs gasfield and Dongara processing plants, in addition to the stakes in undeveloped fields including Waitsia and Senecio.

    The assets are understood to have attracted the attention of Quadrant Energy, controlled by Brookfield Infrastructure and Macquarie, although any move by the private player is expected to attract the attention of the national competition regulator, given Quadrant's strong existing position as a gas supplier into the Perth market.

    Woodside Petroleum is also thought to be interested, with one source suggesting the WA player could use the gas to help supply an expansion of its Pluto liquefied natural gas venture.

    AWE owns a minority stake in the Beharra Springs/Dongara venture, as well as 50 per cent of the L1/L2 venture holding Waitsia and Senecio. Citigroup analyst Dale Koenders has estimated Origin could fetch $300 million for its Perth Basin assets.

    Two Cooper Basin asset sets

    Separate flyers have been distributed for two sets of Cooper Basin assets that Origin has also put on the block as part of a $4.7 billion rescue plan announced in September, which included a $2.5 billion capital raising. Those assets could fetch $212 million, UBS equity analyst Nik Burns said in a research note in late September.

    One set involves Origin's stakes in the Santos-operated Cooper Basin ventures in South Australia and Queensland, of 13.19 per cent and 16.74 per cent, respectively, as well as minority stakes in seven more joint ventures all also operated by Santos.

    However, some sources have low expectations of a reasonable sale price for this interest, given Santos' market testing for its larger stake in September-October is understood to have only elicited a low-ball offer from private equity firm KKR & Co.

    The second set of Cooper Basin interests involves Origin's interests in an unconventional exploration venture with junior Senex Energy which it signed in February 2014. The flyer describes the venture as "one of the most prospective gas plays in Australia" with "multi-tcf" (trillion cubic feet) potential that has the potential to provide significant volumes of gas to the east coast market.

    Expressions of interest for all three sets of assets have been requested by January 29. UBS says in the flyers that offers for both sets of Cooper Basin assets "will be viewed favourably".

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    Islamic State attack on Libyan oil port kills two, storage tank ablaze

    An attack by Islamic State militants on Libya's Es Sider oil export terminal on Monday killed two guards and set an oil storage tank on fire, a Petrol Facilities Guard source said.

    The guards were killed when two suicide bombers targeted the terminal, the source said, adding that the Islamic State fighters had retreated to neighboring areas.
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    El Nino and sluggish freight upend U.S. heating oil market

    Heating oil prices in the United States are trading as if it was mid-summer rather than winter, as warm weather and sluggish demand from freight companies combine to make heating oil cheaper than gasoline.

    Heating oil normally trades at a substantial premium to gasoline in winter and then moves to a discount during the second and third quarters as heating demand fades and the summer driving season ramps up.

    But this winter, heating oil is trading at the sort of discount normally only seen between March and July as heating demand fades away and refiners prepare for the summer gasoline campaign.

    On Dec. 31, the front-month futures price of heating oil closed at $1.10 per gallon, a discount of almost 17 cents to the futures price of gasoline.

    It was the largest seasonal discount for more than a decade and compares with a normal premium of around 26 cents per gallon at this time of year.

    Consumption of distillate fuel oil, used in trucks, trains and ships, and to heat homes and office buildings, is down by more than 450,000 barrels per day, 11 percent, compared with the end of 2014. 

    Warmer-than-normal weather since October due to El Nino has cut heating demand by around 25 percent according to the U.S. National Oceanic and Atmospheric Administration. (

    And freight movements by road, rail, barge and pipeline have been essentially flat for the last 12 months after five years of strong growth, according to the U.S. Bureau of Transportation Statistics. (

    Freight is being hit by the shift from coal to gas in power production, the end of the U.S. oil drilling boom, and over-ordering by retailers and wholesalers earlier in the year, which has left them trying to cut excess stocks.

    Despite weak demand, the supply of distillate fuel oil is increasing because U.S. refineries are processing crude oil at a seasonal record high to meet strong demand from motorists for gasoline.

    Strong gasoline margins are incentivising refiners to produce as much as possible, making excess distillate as an unwanted co-product.

    U.S. refiners produced 5.5 million barrels per day of distillate in the four weeks leading up to Christmas, up from 5.25 million in the prior-year period, according to the U.S. Energy Information Administration.

    Since the beginning of the oil boom, U.S. refineries have increasingly turned to exports to dispose of excess production of distillate fuel oil.

    But with warmer-than-normal weather across most of Europe and northeast Asia, it is proving difficult to export any more of the surplus.

    Distillate stocks are 27 million barrels, 22 percent higher than at the same point last year. 

    Distillate fuel oil is the most oversupplied part of the fuels market. With the effects of El Nino likely to linger well into the first half of 2016, that overhang looks set to remain for some time.

    In contrast, gasoline stocks are more than 7 million barrels, or 3 percent, lower than at the end of 2014, and the market looks balanced.

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    Petronet, RasGas agree new LNG price, penalty waived

    India’s largest LNG importer, Petronet said it has come to an agreement with RasGas of Qatar to revise the 7.5 mtpa LNG import deal terms significantly cutting the price.

    Under the initial deal signed in 1999, Petronet agreed to pay about US$13 per million British thermal units, while the revised price is reduced to around US$6 to US$7, according to India’s minister for petroleum and natural gas, Dharmendra Pradhan.

    The two companies said in a joint statement last week that the revised price will be linked to the oil index that closely reflects the prevailing oil prices.

    Additionally, Petronet has avoided paying the US$1.5 billion penalty for taking less LNG than it contracted for 2015, but under the new agreement, it will have to take and pay for all of the volumes it has not taken in 2015 during the remaining term of the 25-year SPA.

    Petronet also agreed to buy additional 1 mtpa of LNG from RasGas for further sale to Indian Oil, Bharat Petroleum, GAIL and Gujarat State Petroleum, with the delivery starting in 2016.
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    U.S. oil 'strippers' manoeuvre to keep pumping amid crude slump

    U.S. "stripper well" operators, the nation's smallest oil producers seen as most likely to succumb to the crude price slump, are hanging in tough, reducing the chances of near-term production cuts needed to rebalance the domestic oil market.

    The conventional wisdom is that "strippers" would be the first to fold in the face of oil's slide below $40 given their tiny size - some may pump as little as few hundred dollars' worth of oil a day - limited access to capital and high costs compared with bigger, more efficient shale producers.

    Yet interviews with executives and experts show those smallest, often family-owned, businesses are also among the most resourceful, keeping the oil flowing even as prices near 11-year lows and a growing number of their wells lose money.

    While hopes for a rebound are fading, "strippers" are doing everything they can to keep their "nodding donkey" pumps working so they can hold on to land leases that give them access to oil reserves.

    “The small operators of the stripper wells are pretty resilient," says Mike Cantrell, head of the National Stripper Well Association. "They’ve always made it through and will still make it through."

    Stripper wells pump no more than 15 barrels of oil per day but together over 400,000 wells scattered across the nation's oilfields produce over a tenth of U.S. oil output, enough to affect the market supply-demand balance and prices.

    Drawing analogies to the 1980s oil slump, some analysts had warned that half of stripper wells could shut if crude prices held below $40 a barrel, helping ease the supply glut and possibly underpinning the prices.

    The tenacity of the stripper well producers is challenging that view.

    For example, Nelson Wood who runs Wood Energy, a family business founded by his parents more than 60 years ago, has laid off 14 of his 32 employees and closed 10 of 150 wells in the Illinois Basin, but so far the production is down only 4 percent.

    He may have to shut more wells, based on electricity, labor, maintenance and salt water disposal costs, but said one key concern was meeting the requirements of oil and gas mineral rights.

    "We run some wells at a loss to keep the lease active," he said.

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    Gladstone LNG secures more gas

    The Gladstone liquefied natural gas (GLNG) participants have executed a sales agreement with AGL Energy to purchase 254 petajoules of gas for supply to the GLNG project. 

    The gas would be delivered at Wallumbilla over a period of 11 years starting in January 2017, with pricing based on an oil-linked formula. The gas will be sourced from coal seam gas fields in Queensland. GLNG’s VP for downstream, Rod Duke said the agreement with AGL added to GLNG’s diverse gas supply portfolio, comprising supply from GLNG’s own coal seam gas fields, Santos portfolio gas, underground storage and third party supply. 

    “When combined with GLNG’s quality LNG off-take contracts with project partners PETRONAS and KOGAS, this supply portfolio delivers significant value to the project.” “Since our first LNG cargo in October, ramp-up of LNG train 1 has progressed well with the train having already produced well above nameplate capacity. 

    Six LNG cargoes have already been shipped to our customers.” “Commissioning work on GLNG’s second LNG train has commenced with a number of its subsystems now operational, and we are on track for first LNG from train 2 in the second quarter of 2016,” Duke said. 

    The $18.5-billion GLNG project involved the development of gasfields from the Bowen and Surat basins in south-western Queensland and transporting the gas through a 420 km underground pipeline to a two-train LNG plant on Curtis Island, off the coast of Gladstone, with the capacity to produce 7.8-million tonnes of LNG a year at full capacity. 

    The project is jointly owned by ASX-listed Santos, which has a 30% interest in GLNG, and PETRONAS, which holds 27.5%, Total, which also holds 27.5%, and KOGAS, which holds a 15% share.
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    US sees ‘huge jump’ in ethanol exports to China

    The US has seen a “record increase” in ethanol exports to China.

    According to the US Department of Agriculture (USDA), the figure has jumped from $8 million (£5.4m) to more than $86 million (£58m) since May 2014.

    In October, the country exported 32.5 million gallons of the renewable fuel to China – more than the previous 10 years combined, it added.

    That was 46% of total US ethanol exports for the month, valued at around $57 million (£38m).

    It follows the USDA’s partnership with 21 states to nearly double the number of fuelling pumps nationwide earlier this year, expanding the ethanol refuelling infrastructure by nearly 5,000 pumps.

    USDA Under Secretary for Farm and Foreign Agricultural Services Michael Scuse said: “These are the kind of initiatives that strengthen our rural communities and open new doors and help our farmers and ranchers capitalise on the tremendous export potential for American agricultural products.”

    China is the largest market for US food and farm products, with agricultural exports to the country tripling over the last decade, now accounting for nearly 20% of all foreign sales of US agricultural products.
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    Russian Oil Output Hits Post-Soviet Record Amid Lower Price

    Russia’s crude output set another post-Soviet record in December, according to Energy Ministry data, as the nation’s producers seek to withstand the slump in oil prices.

    The country’s crude and gas condensate production increased to 10.825 million barrels a day last month, beating the previous record set in November by 0.4 percent, Bloomberg calculations based on the data show. Output for the year increased 1.4 percent compared with 2014, exceeding 534 million metric tons, or almost 10.726 million barrels a day, according to the preliminary information e-mailed from Energy Ministry’s CDU-TEK unit.

    Russian crude producers have been setting post-Soviet records even amid plunging prices and U.S. and European Union sanctions that cut access to foreign financing and technology. The companies have managed to squeeze more crude out of some aging fields in West Siberia and brought a few mid-sized new projects on line.

    Russia’s crude export rose to 5.25 million barrels a day in 2015, according to the data, with supplies to countries outside the former Soviet Union jumping 11 percent to more than 4.42 million barrels.

    The Russian government, which relies on oil for about 40 percent of its budget revenue, doesn’t expect a drop in production this year. Investments made two to three years ago have been supporting output in 2015 and will do so in 2016, Energy Minister Alexander Novak said Dec. 22. Still, production may decline next year if Russia has to increase the tax burden on the industry to narrow the budget gap given the plunging oil price, he said.

    Natural gas output in Russia is declining as the main producer, the state-controlled Gazprom PJSC, faces stronger competition from its domestic rivals and lower sales in former Soviet republics. The nation’s total production decreased 1 percent to 635 billion cubic meters, the lowest level since 2009, according to the data.

    The ministry hasn’t been disclosing Gazprom data since the start of last year, although the company predicted its 2015 output would fall to the record low of about 420 billion cubic meters.

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    First U.S. Oil Export Leaves Port; Marks End to 40-Year Ban

    The first U.S. shipment of crude oil to an overseas buyer departed a Texas port on Thursday, just weeks after a 40-year ban on most such exports was lifted.

    The Theo T tanker has left NuStar Energy LP’s dockside facility in Corpus Christi, Texas, along the western shore of the Gulf of Mexico, Mary Rose Brown, a spokeswoman for NuStar, said in an e-mail. The ship is carrying a cargo of oil and condensate to Italy from ConocoPhillips’s wells in south Texas that was sold to Swiss trading house Vitol Group.

    A campaign by oil explorers including Continental Resources Inc., Chevron Corp. and Exxon Mobil Corp. to lift the 1970s-era export prohibition culminated in a Dec. 18 congressional decision to end the ban.

    Vitol, which owns stakes in refineries from northern Europe to Australia, has a second cargo of U.S.-sourced crude scheduled to depart a Houston port within days.
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    U.S. oil drillers cut rigs for a sixth week in seven - Baker Hughes

    U.S. energy firms cut oil rigs for a sixth week in the last seven, data showed on Thursday, a sign drillers were still waiting for higher prices before returning to the well pad.

    Drillers removed 2 oil rigs in the week ended Dec. 31, bringing the total rig count down to 536, oil services company Baker Hughes Inc said in its closely followed report.

    That decrease brought the total rig count down to about a third of the roughly 1,500 oil rigs operating a year ago. Since the end of the summer, drillers have cut 136 oil rigs.

    Baker Hughes issued the report a day ahead of its usual weekly release, due to Friday's New Year holiday.

    The rig count is one of several indicators traders look to when forecasting whether oil production will rise or fall in the future. Other indicators include productivity gains and the completion of previously drilled wells.

    Crude oil prices were up about 3 percent on Thursday on short-covering and buying support in a thinly traded market ahead of the New Year holiday.

    Global oil benchmark Brent and U.S. crude's West Texas Intermediate (WTI) futures were both poised to end 2015 down by 30 percent or more, weighed by an unprecedented global supply glut. [O/R]

    Higher crude prices encourage drillers to add rigs. The most recent period that prices were much higher than now was in May and June, when WTI averaged $60 a barrel. In response, drillers added 47 rigs over the summer.

    The drop in oil prices since then has coincided with declines in U.S. production.

    Federal energy data showed U.S. oil production declined for a fourth straight month in October, slipping to 9.3 million barrels per day from 9.4 million bpd in September.

    Beyond the front month contract in WTI, U.S. crude futures were trading above $40 a barrel for the rest of 2016 and closer to $50 a barrel for 2017. That could entice some producers to return to drilling later in 2016, traders said.
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    Iran says boosting oil exports depends on future demand

    A rise in Iran's crude oil exports once sanctions against it are lifted depends on future global oil demand and should not further weaken oil prices, senior officials were quoted as saying.

    Oil Minister Bijan Zanganeh said Iran did not plan to exacerbate an already bearish oil market.

    "We are not seeking to distort the market but will regain our market share," said Zanganeh, quoted by oil ministry news agency Shana.

    Oil prices are likely to come under further pressure this year, when international sanctions on Iran are due to be removed under a nuclear deal reached in July. Brent crude LCOc1 settled at $37.28 a barrel on Thursday.

    Iran has repeatedly said it plans to raise oil output by 500,000 barrels per day post sanctions, and another 500,000 bpd shortly after that, to reclaim its position as the Organization of the Petroleum Exporting Countries' second-largest producer.

    "The decision on the amount of exports highly depends on the future condition of the market. We will raise our market quota steadily," said Mohsen Qamsari, director general for international affairs of the National Iranian Oil Company (NIOC).

    "We will adjust our output to the global market's demand," he told Shana on Saturday.

    "We will exercise great caution to prevent a further decline in international prices and will adopt certain methods and strategies to this end," he added, without elaborating.

    Oil prices fell as much as 35 percent for 2015 after a race to pump by Middle East crude producers and U.S. shale oil drillers created an unprecedented global glut that may take through 2016 to clear.

    The sanctions have halved Iran's oil exports to around 1.1 million bpd from a pre-2012 level of 2.5 million bpd, and the loss of oil income has hampered investments.

    Qamsari said Iran would be looking to export its crude to Asia and Europe giving examples of China and India as potential buyers post sanctions. Another possibility would be buying stakes in refineries abroad, he said.

    "One of the methods to ensure the country's oil sale is buying refineries in other countries but this has to be approved by the administration and the parliament," said Qamsari.

    "This is a method that countries like Saudi Arabia, Kuwait, UAE, the U.S., China and leading oil giants like Royal Dutch Shell and BP have adopted and we should not stay behind them in this field."
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    Egypt arrears owed to oil firms rises to $3 billion at end-2015

    Egypt's outstanding arrears to foreign oil companies rose to $3 billion at the end of December 2015 from $2.7 billion at the end of October, Petroleum Minister Tarek El Molla told Reuters on Sunday.

    The ministry had said in September that Egypt aimed to reduce the arrears owed to foreign oil companies to $2.5 billion by the end of 2015 and to pay them off completely by the end of 2016.

    Delays in paying back foreign petroleum companies had discouraged investment in the sector, but a drive to increase the price paid for domestic production and pay back arrears had encouraged new contracts signed in 2015.

    El Molla did not provide further detail on why total arrears have risen since November.

    Egypt has run short of hard currency since a 2011 uprising drove tourists and investors away. Reserves almost halved to $16.4 billion by the end of November.

    Once an energy exporter, Egypt has turned into a net importer because of declining oil and gas production and increasing consumption. It is trying to speed up production at recent discoveries to fill its energy gap as soon as possible.
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    Cheniere’s Sabine Pass LNG hits homestretch

    Houston-based LNG player Cheniere recently informed that the overall construction on its Sabine Pass liquefaction project is nearing completion, although slightly behind the projected plan.

    According to Cheniere’s filing to the Federal Energy Regulatory Commission (FERC), Train 1 and 2 overall project completion is 96.9 percent against the plan of 98.7 percent, while Train 3 and 4 project is at 78.2 percent against the plan of 83.3 percent.

    In its November report, Cheniere said Train 1 completed mechanical runs on all six compressors and commenced piping restoration. Startup completed leak checks on the amine and wet/dry gas treatment systems.

    The ethylene compressor piping system leak check was underway in preparation to run the ethylene compressors on nitrogen to heat up the waste heat recovery units and commence the dry out process for the system. Insulation of flanges and valves post system leak checks was underway.

    Cheniere expects Trains 1 and 2 to achieve substantial completion by March 2016 and June 2016, respectively. Trains 3 and 4 targeted substantial completion dates are April 2017 and August 2017.

    However, Genscape, the Kentucky-based commodity and energy market intelligence provider, informed earlier this month that its monitors recorded first substantial deliveries of 46 mmcf of gas to the Sabine Pass liquefaction facility which goes in hand with reports that the first LNG cargo will be dispatched from the facility in January 2016.

    Attached Files
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    Saudi vs Iran, or Sunni vs Shi'a

    Oil gained for a second day as Saudi Arabia cut ties with Iran a day after its embassy in Tehran was attacked to protest the Saudis’ execution of a prominent Shiite cleric.

    Futures rose as much as 3.5 percent in New York, extending Thursday’s 1.2 percent advance. Iran’s Supreme Leader Ayatollah Ali Khamenei warned of repercussions and protesters armed with rocks and firebombs attacked the Saudi embassy in Tehran on Saturday and set parts of the building on fire. The Middle East accounted for about 30 percent of global oil output in 2014, according to the Energy Information Administration.

    Saudi Arabia and Iran, respectively OPEC’s first- and fifth-ranked producers, are on opposite sides of Middle East conflicts from Syria to Yemen. Prices last week capped the biggest two-year loss on record amid speculation a global glut will be prolonged as U.S. crude stockpiles expanded and the Organization of Petroleum Exporting Countries abandoned output limits.

    “It may be seen by the market as an incremental step in a possible longer-term escalation of problems in the core oil- producing nations of Saudi Arabia and Iran,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “It’s likely to lead to some short covering and a bit of risk premium being built into pricing. There’s no immediate threat to production.”

                           Diplomats Expelled

    Iran’s ambassador in the kingdom has 48 hours to leave, Saudi Foreign Minister Adel al-Jubeir said late Sunday in Riyadh. The crisis is the worst between the two regional powers since the late 1980s, when the Sunni-led kingdom suspended ties with Shiite-ruled Iran after its embassy was attacked following the death of Iranian pilgrims during Hajj in Mecca.

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    Oil: 18 month drop matches all prior bears. Al Naimi: no change in policy.

    Image titleSaudi Arabian Oil Minister Ali Al-Naimi said the kingdom, the world's top crude exporter, does not limit its output and has the capacity to meet additional demand, state television Al Ekhbariya reported on Wednesday.

    "The increase in production depends on ... the demand of the customers. We meet our customers' demand, there is no longer a limit to production, as long as there is demand, we have the ability to meet demand," Al-Naimi said.

    The Wall Street Journal, which reported the same comments as Al Ekhbariya, also quoted Al-Naimi as saying Saudi Arabia's oil policy was "reliable" and would not change. He has made similar comments in the past when asked about plans to boost production.

    On Monday, Saudi Arabia, its finances hit by low oil prices, announced plans to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation.

    Saudi Arabia's planned cuts in spending and energy subsidies signal the kingdom is bracing for a prolonged period of low oil prices which this month hit their lowest levels since 2004.

    "We expect - from now on - efficiency of energy consumption to increase, which means the energy consumed will be reduced," Naimi said, in reference to the recent subsidy reforms.

    On Monday, Saudi Aramco's chairman Khalid Al-Falih said his country was better equipped to wait out low oil prices than other producers.

    The comment by the head of the state oil company was in line with Saudi Arabia's no-cut oil policy on output despite a sharp fall in global oil prices since mid-2014.

    Saudi Arabia led a shift in Opec policy last year by rejecting calls to reduce production to support prices, choosing instead to defend market share.  

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    LNG for Rail: GE's new solution.

    New opportunities for LNG

    We’ve previously discussed opportunities to use liquified natural gas (LNG) in vehicles including apilot program in the Pittsburgh area for towboats. Ms. Trillanes was able to provide insight into how LNG could be used in our rail systems, including the five major segments required. Her explanation highlights one of the possible benefits of the towboat pilot program: locating an LNG filling station near the rivers would also put it in close proximity to railroad lines in the area.

    Please note, all photos below come directly from her presentation and are property of GE Transportation.

    LNG Supply chain

    Obviously there are several factors to determining if LNG is an economical fuel source for locomotives. The reduced cost of LNG compared to diesel is a driving factor, but operators must also include the cost of operations, training, maintenance and securing a gas supply (or building a filling station).

    Another consideration is the replacement rate of diesel by LNG. There are several options when it comes to dual fuel technologies available. Ms. Trillanes explained that GE Transportation had decided the port injection method of using the two fuels as detailed in the chart below.

    LNG Injection

    Next steps

    Currently, GE has three different retrofit kit programs based on the engine technology of the locomotives and they estimate continued testing of the technology in North America throughout 2016.

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    Egypt cannot pay for LNG


    Egypt is going through a foreign currency crisis and is struggling to pay it debts to international trading partners, among them LNG suppliers, Reuters has reported.

    The currency crisis follows the blow Egypt suffered following the downing of a Russian jetliner on 31 October when flying over the Sinai Peninsula from the Sharam el Sheikh resort to St. Petersburg, Russia. All 224 onboard the flight were killed. Following the incident, tourism to Sharm el Sheikh suffered a sharp decline as European airlines curtailed flights and governments increased security arrangements. ISIS, the terror group which controls large swathes of Iraq and Syria and has an affiliate organisation in the Sinai Peninsula, claimed responsibility for the attack.

    Egypt, according to the Reuters report, is obliged to pay for LNG shipments within 15 days of a shipment's unloading. Now the Egyptian authorities are looking to extend that timeframe. Egypt used to get financial support from the Gulf Cooperation Council (GCC) countries and probably will still get it. However, due to lower energy prices, the support now is more limited. Egypt buys six to eight LNG cargoes monthly, each worth $20-$25 million. It is now in arrears of $350 million for that energy, one source estimated.

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    Alternative Energy

    German Solar Power Costs Drop 5.8 Percent in Government Auction

    Germany’s third test auction for solar capacity produced a bid 5.8 percent lower than in the previous round, underpinning government hopes that clean energy will become competitive more quickly when developers must compete for contracts.

    German energy regulator Bnetza awarded 200 MW of utility-scale power at 8 euro cents a kWh (8.6 U.S. cents) for the auction opened in December, it said Wednesday. That’s a drop from 8.49 euro cents that was the lowest offer in the second sale last year. Bidding rules determine that the highest winning price for any one bloc sets the price for the remaining winners. The next auction for 125 MW is due in April.

    The government is rolling out auctions for solar and wind power from 2017 to replace feed-in-tariffs, which guaranteed a specific price for electricity for all developers that qualified. Germany’s biggest clean-energy lobbies are concerned that planned auctioned capacity will be too little, hampering growth.

    Using the lever of auctions, the federal administration seeks greater control over clean energy expansion than it had since feed-in-tariffs kicked off in 2000. Clean power comprised 33 percent of all power consumed last year, up from 27 percent in 2014.
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    Lynas beats production expectations

    Rare earths miner Lynas Corporation on Wednesday revealed that neodymium/praseodymium (NdPr) production for the six months to December had exceeded production targets. NdPr production for the six months reached 1 860 t.

    As a result of Lynas exceeding its first NdPr production target, the interest rate under an existing Japan Australia Rare Earths (JARE) senior loan facility has been reduced from 7% a year to 6.5% a year, effective from January 1. In August last year,

    Lynas refinanced its long-term debt with JARE and the Mt Kellett-led bondholder group. Under the terms of the restructuring agreement, Lynas had been given a two-year extension of its principal debt maturity date, from 2016 to 2018. Principal repayments due prior to the maturity of the JARE facility had also been adjusted downwards from $206-million to $2-million in 2016.

    A further $20-million was due in 2017, with the remainder of the loan payable in 2018. A A$60-million liquidity buffer had also been created. The JARE senior loan facility agreement specified NdPr production targets for each six month period from July 2015 until December 2017.
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    EU opens in-depth probe into Drax biomass plans

    A new in-depth investigation into the UK’s plans to support the conversion of the Drax coal-fired power plant into biomass has been launched.

    The European Commission said it will investigate to ensure the public funds used to support the project do not result in overcompensation and do not give the operator an unfair advantage over competitors.

    Drax is seeking the government’s help to convert one of its six units at its coal plant in Selby, northern England, to burn wood pellets.

    It will have the capacity to generate 645MW of renewable electricity and be paid a strike price for the production.

    The project is estimated to supply around 3.6TWh of electricity per year and operate until 2027. The plant would require approximately 2.4 million tonnes of wood pellets annually, mainly sourced from the US and South America.

    Drax has so far switched two other units to biomass before the UK planned to slash subsidies in July last year.

    The Commission considered the estimates of the plant’s economic performance “may be too conservative” in its preliminary analysis.

    It added: “A positive change in operating parameters could significantly affect the project’s rate of return. At this stage, the Commission therefore has concerns that the actual rate of return could be higher than the parties estimate and could lead to overcompensation.

    “Moreover, the amount of wood pellets required is considerable, as compared to the volume of the global wood pellets market and demand from the Drax conversion project could significantly distort competition in the biomass market. The Commission is therefore also concerned that on balance the measure’s negative effects on competition could outweigh its positive effect on achieving EU 2020 targets for renewable energy.”

    Drax said it welcomes the opportunity to work with the UK Government and the Commission to complete the state aid clearance process.

    Last year the Commission approved UK state aid for theTeesside combined heat and power biomass plant and the conversion of Lynemouth power station to biomass.

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    One of the largest solar projects in history

    Miraah will be one of the largest solar plants in history, producing 1,021 MW of peak thermal energy. GlassPoint is building the project in partnership with Petroleum Development Oman, the largest oil producer in Oman and a joint venture between the government, Shell, Total and Partex.

    Miraah will use concentrating sunlight to generate 6,000 tons of solar steam each day. The steam will feed directly to PDO’s existing thermal EOR operations, providing a substantial portion of the steam required at the Amal oilfield in Southern Oman.

    Miraah will save 5.6tn British Thermal Units (Btus) of natural gas each year, which can be used for higher value uses in Oman boosting economic growth. The mega project dwarfs all previous solar EOR installations and is more than 100 times larger than the pilot project built by GlassPoint for PDO in 2012.

    The full-scale project will comprise 36 glasshouses, built in succession and commissioned in modules of four. The project is currently under construction with steam generation from the first glasshouse module projected to begin in 2017.

    Project completion will come in the following years and will span a total area of three-square kilometers, including supporting infrastructure.

    By using solar instead of burning gas to make steam, Miraah will reduce CO2 emissions by more than 300,000 tons each year. These carbon savings are equivalent of taking 63,000 cars off the road.
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    Hanergy Thin Film founder to sell 6 percent stake; firm valued at just $1.2 billion

    The founder of Hanergy Thin Film Power Group Ltd (0566.HK), once China's wealthiest man on paper, plans to sell a 6 percent holding at a fraction of the shares' last traded price in May, valuing the embattled solar technology firm at just $1.2 billion.

    The solar panel-making equipment manufacturer has been under investigation by the Hong Kong securities regulator after its shares tumbled 47 percent in 24 minutes on May 20 - a sudden rout that left it with a market value of around $21 billion at the time and which had followed a long run-up in its stock that had puzzled many analysts.

    Founder and chairman Li Hejun plans to sell stock at 0.18 yuan per share, a deal worth 450 million yuan ($69.4 million) according to a filing to the Hong Kong bourse. On May 20, it last traded at HK$3.91.

    Hanergy officials could not be immediately reached for comment on the buyer or buyers of the shares.

    Li's holding would be reduced to 74.75 percent from 80.75 percent.

    Hanergy had been criticized by analysts for relying on its parent company - Hanergy Holdings Group Ltd - for most of its revenue and profits.
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    Cameco aims for bigger uranium output from new mine

    Cameco Corp , the world's second-largest uranium producer, said on Wednesday it expects its newest mine at Cigar Lake, Saskatchewan to produce 16 million packaged pounds of uranium concentrate in 2016, subject to regulatory approval.

    Reaching the higher output target depends on regulators approving an increase in the annual production limit at the McClean Lake mill, which processes Cigar Lake ore and is owned by France's Areva SA, Cameco said in a statement.

    Cameco owns just over half of the Cigar Lake mine, with Areva holding a more than a one-third stake. Cameco said it would report last year's output at Cigar Lake next month.

    It had aimed for production of 6 million to 8 million pounds from the mine in 2015, but said in October that it exceeded the target.
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    CNNC, CGN to promote globalization of “Hualong One” technology

    China National Nuclear Corporation (CNNC) and China General Nuclear Power Co., Ltd (CGN) signed an agreement to jointly build Hualong International Nuclear Power Technology Co., Ltd. to promote the globalization of “Hualong One” technology, sources learned from National Energy Administration (NEA) on January 4, 2016.

    The “Hualong One”, based on the two companies’ rich experience of scientific study, design, manufacture and operation in nuclear power sector, is the advanced EPR nuclear technology which adopts the safety standards of the third generation nuclear technology in the globe.

    Hualong International Nuclear Power Technology Co., Ltd had a registered capital of 500 million yuan ($76.81 million), which shared averagely by CNNC and CGN. The company would push the operation of Hualong technology, brand and intellectual property at home and abroad, for its further globalization.

    In 2015, Fuqing nuclear power plant #5 and #6 units, Fangchenggang #3 unit and “Hualong One” Karachi project in Pakistan—trial projects of “Hualong One”—all started construction.

    Besides, China signed relevant frame agreement with Argentina, and investment agreement with UK, demonstrating the great breakthrough of “Hualong One” development in the globe.
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    Food Costs at 6-Year Low Trouble Central Banks and Aid Consumers

    Global food prices ended 2015 at the lowest in more than six years, adding to the headache for central banks concerned about deflation while bringing a windfall to the poorest consumers.

    A gauge of average annual food costs dropped for a fourth year, the longest slump since 2000, the United Nations’ Food & Agriculture Organization said in a report Thursday. Ample supplies of wheat to soybeans to milk, a strong dollar and tepid demand from some emerging-market buyers meant that the average price of 73 food items in 2015 fell by almost a fifth year-on-year.

    Lower food costs are a predicament for central banks in Europeand the U.S. that have failed to meet inflation targets at or near 2 percent. The U.S. has missed its goal for more than three years as slumping oil and commodities and a stronger dollar kept a lid on prices. At the same time, that’s given cash-strapped buyers more disposable income to spend on other goods and services. In the euro area, consumer confidence last month was the highest since 2011.

    “Food prices are one of the elements of central banks’ inflation calculations, and obviously the fall in the broader commodity complex, energy prices and industrial metals, has been a factor as well in low inflation rates,” Hamish Smith, a commodities economist at Capital Economics Ltd., said by phone from London. “But from a consumer perspective, falling food prices are beneficial.”

    While importing countries will see some benefits from lower prices, weaker currencies have diminished purchasing power in some emerging nations, Smith said. The global food-import bill was estimated at a five-year low of $1.09 trillion in 2015, according to a UN report in October.
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    Widely used pesticide can harm bees in some cases -EPA

    An insecticide widely used on cotton plants and citrus groves can harm bees that come into contact with those crops under certain conditions, the U.S. Environmental Protection Agency said on Wednesday.

    The agency said a preliminary risk assessment of imidacloprid, a neonicotinoid insecticide chemically similar to nicotine, found that chemical residues of more than 25 parts per billion would likely harm bees and their hives and result in the bees producing less honey.

    The EPA, which collaborated with California's Department of Pesticide Regulation, said data showed imidacloprid residues in pollen and nectar above that threshold level in citrus and cotton crops.

    But residues found on corn and leafy vegetables were below at-risk levels, the agency said. Some crops needed more testing.

    The federal agency is expected to finalize a broader assessment of risks the chemical may pose to pollinators by the end of the year.

    Debate over neonicotinoids, also known as neonics, has intensified as concern grows over the health of pollinators crucial to the production of many foods.

    A two-year moratorium on imidacloprid and two other neonics took effect in Europe last year. The EPA proposed a rule last year to create temporary pesticide-free zones when crops are in bloom and farmers are using commercial pollinators such as bees.

    On Wednesday, the Center for Food Safety and a coalition of farmers and agriculture groups filed a lawsuit against the EPA, accusing it of failed oversight over millions of pounds of neonic-coated seeds sold and planted.

    The case was filed in U.S. District Court for the Northern District of California. The EPA could not be reached for comment.

    Pesticide critics called on the EPA on Wednesday to suspend the sale and use of imidacloprid and other neonicotinoid pesticides.

    "They're not taking into account the realistic exposures in the field, they're not looking at the impact of these pesticides on bees or wild pollinators over time," said Lisa Archer, food and technology program director at Friends of the Earth.

    Bayer CropScience, Syngenta AG and other firms that produce or sell neonic products have said mite infestations and other factors are to blame for bee deaths.

    Bayer Cropscience said in a statement it was reviewing the EPA's preliminary findings, but added they appeared to "overestimate the potential for harmful exposures in certain crops, such as citrus and cotton, while ignoring the important benefits these products provide and management practices to protect bees."
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    Monsanto's profit falls on lower seed prices, strong dollar

    Monsanto Co, the world's largest seed company, reported a quarterly loss, compared with a profit a year earlier, hurt by lower corn prices and a strong dollar.

    Net loss attributable to the company was $253 million, or 56 cents per share, in the first quarter ended Nov. 30, compared with a profit of $243 million, or 50 cents per share, a year earlier.

    Total net sales of the company, which is known for its genetically engineered corn, soybeans and the Roundup herbicide, fell 22.7 percent to $2.22 billion.

    Monsanto Co, the world's largest seed company, said it expects 2016 earnings to be in the lower half of its previous forecast but reported a smaller-than-expected quarterly loss as soybean sales rose in Brazil.

    The company now expects full-year adjusted earnings to be in the lower half of the $5.10 to $5.60 range, partly due to weak currency in Argentina.

    Monsanto has come under renewed pressure to pursue a merger with Swiss agrochemical maker Syngenta after the ongoing merger between DuPont and Dow Chemical Co paved the way for an industry shake-up.

    Monsanto, which is known for its genetically engineered corn, soybeans and the Roundup herbicide, abandoned a $45 billion bid for Syngenta in August.

    Monsanto to slash 1,000 more jobs, total planned cuts at 3,600

    Net loss attributable to the company was $253 million, or 56 cents per share, in the first quarter ended Nov. 30, compared with a profit of $243 million, or 50 cents per share, a year earlier.

    On an adjusted basis, Monsanto reported a loss of 11 cents per share.

    Analysts on average had expected a loss of 23 cents, according to Thomson Reuters I/B/E/S.

    Total net sales of the company fell 22.7 percent to $2.22 billion.

    Attached Files
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    El Nino Is So Last Year, Here Comes La Nina to Wreak More Havoc

    As the effects of the most severe El Nino in almost 20 years still reverberate around the world, preparations are already under way for La Nina.

    Indonesia is set to distribute water pumps to farmers and assessing its rice stockpiles in anticipation of the weather event materializing in October, Agriculture Minister Amran Sulaiman told reporters in Jakarta on Wednesday. La Nina, sometimes thought of as El Nino’s opposite, typically brings more rainfall to the region, threatening crops with flooding and delaying harvests. Australia says El Nino has peaked and there’s a chance of its counterpart occurring in the second half of the year.

    El Nino has hampered cocoa crops in Ivory Coast, curbed the monsoon in India and forced the Philippines to import more rice. Indonesia deployed planes last year for artificial rain to help alleviate drought conditions that restricted palm oil output and exacerbated forest fires that engulfed the region in haze. Based on the 26 El Nino events since 1900, about 50 percent have been followed by a neutral year with 40 percent by La Nina, Australia’s weather bureau said Tuesday.

    “We’ll anticipate early, like we did on drought,” Sulaiman said.

    Palm oil output may stagnate or fall about 3 percent this year, according to Bayu Krisnamurthi, the head of the government-appointed Indonesia Estate Crop Fund for Palmoil.

    El Nino is a warming in the equatorial Pacific Ocean, while La Nina is a cooling of the waters. Each can impact agricultural markets as farmers contend with too much or too little rain. A large part of the agricultural U.S. tends to dry out during La Nina events, while parts of Australia can be wetter than normal.

    The previous La Nina began in 2010 and endured into 2012. Conditions typically last between 9 months and 12 months, while some episodes may persist for as long as two years, according to the National Oceanic and Atmospheric Administration. Both La Nina and El Nino tend to peak during the Northern Hemisphere winter.

    What does the BBC think?
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    World Population Growth below Ag productivity?

    Image titleImage title

    Attached Files
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    Precious Metals

    Foreign banks in China could face curbs if they snub gold benchmark

    China has warned foreign banks it could curb their operations in the world's biggest bullion market if they refuse to participate in the planned launch of a yuan-denominated benchmark price for the metal, sources said.

    The world's top producer and consumer of gold has been pushing to be a price-setter for bullion as part of a broader drive to boost its influence on global markets.

    Derived from a contract to be traded on the state-run Shanghai Gold Exchange, the Chinese benchmark is set to launch in April, potentially denting the relevance of the current global standard, the U.S. dollar-denominated London price.

    China needs the support of foreign banks, especially those who import gold into the mainland, but they could be wary given the global scrutiny on benchmarks following the manipulation of Libor rates in the foreign exchange market.

    Banks with import licences will face "some action" if they do not participate in the benchmark, said a source who did not want to be named as he was not authorised to speak to media.

    "Maybe China won't cancel the licence but we won't give them the import quota or will reduce the amount under the quota," the source said. Banks with licences must apply to regulators for annual import quotas.

    Australia and New Zealand Banking Group, HSBC and Standard Chartered are the foreign banks with import licences. Another 12 Chinese banks can also import.

    HSBC declined to comment, while ANZ and StanChart did not respond to calls and emails.

    Banks had been told China would take "some measures" if they did not participate in the fix, a banking source said.

    "They passed on the impression that 'maybe your quota will be limited or you cannot be a market maker for swaps or forwards'," he said.

    In a trial run for the fix in April 2015, some foreign banks participated along with many major Chinese banks.

    Traders at those banks said earlier that while they were interested in the benchmarking process, their legal and compliance teams may be reluctant.

    "For foreign banks to take part in that fixing procedure, it is very hard. There are compliance issues for every foreign bank," said the second source, adding that the issue was not with China, but the regulatory attention benchmarks have attracted in the last few years.

    Details of the fix are yet to be revealed, but sources say it would be derived from a contract traded on the bourse for a few minutes, with the SGE acting as the central counterparty.

    A yuan fix would not be seen as an immediate threat to the gold pricing dominance of London and New York, but it could gain momentum if China's currency becomes fully convertible.
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    Lonmin says third-largest shareholder divests stake

    Jan 4 Platinum producer Lonmin Plc said in a regulatory filing that Kagiso Asset Management sold nearly 33 million shares in the company in December, fully divesting its stake.

    Cape Town-based Kagiso, Lonmin's third-largest shareholder, sold the shares on Dec. 17, a week after a crucial rights issue by the company failed to find favour with investors.

    Lonmin, hurt by plunging platinum prices and high labour costs, raised $400 million through the rights issue, which priced shares at just a penny each.

    The issue made Public Investment Corp, which manages South African government employee retirement funds, the largest shareholder in Lonmin with a stake of nearly 30 percent.

    Kagiso was not immediately available to comment.
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    Base Metals

    Alcoa to shutter Warrick smelter, Indiana

    US aluminium specialist Alcoa will permanently close its 269 000-metric-ton Warrick Operations smelter, in Evansville, Indiana, by the end of the first quarter. 

    The NYSE-listed firm noted that the Midwest transaction aluminium price had dropped by about 30% and that the Alumina Price Index fell about 40% during 2015.

    The company also announced that it would decrease alumina production by one-million tons by the end of the second quarter, which included curtailing the remaining 810 000 t of refining capacity at its Point Comfort operations, in Texas. 

    Alcoa expected to book an associated charge of about $120-million after-tax, or $0.09 per share, in the fourth quarter – of which about 45% would be non-cash. 

    Once fully executed, Alcoa expected to have curtailed or closed 812 000 t of smelting capacity and 3.3-million tons of refining capacity since it announced a review in March last year of 500 000 t of smelting capacity and 2.8-million tons of refining capacity.
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    Goldman, JPMorgan, Glencore defeat U.S. lawsuit over zinc prices

    A U.S. judge on Thursday dismissed a private antitrust lawsuit in which zinc purchasers accused affiliates of Goldman Sachs Group Inc, JPMorgan Chase & Co and Glencore Plc of conspiring to drive up the metal's price.

    In an 87-page decision, U.S. District Judge Katherine Forrest in Manhattan said purchasers failed to show that the defendants artificially inflated zinc prices by violating the Sherman Act, a federal antitrust law.

    "It remains possible that shenanigans drove up the price of physical zinc," Forrest wrote. "But, at long last, plaintiffs have not adequately alleged that such price movement was due to a plausible antitrust violation, as opposed to parallel, unilateral conduct beyond the reach of that statutory scheme."

    Christopher Lovell, a lawyer for the purchasers, did not immediately respond to requests for comment. Goldman spokesman Michael DuVally, JPMorgan spokesman Brian Marchiony and Glencore spokesman Charles Watenphul declined to comment.

    The lawsuit echoes a similar case alleging aluminum price manipulation. It is among several in Manhattan in which investors and businesses accused banks and other defendants of conspiring to rig prices in financial and commodities markets. U.S. and European regulators also have examined such activity.

    Zinc purchasers accused the defendants in a proposed class-action lawsuit of conspiring since May 2010 to ensure lengthy queues for the metal at their warehouses, which were licensed by the London Metal Exchange.

    The purchasers said the alleged conspiracy included hoarding, moving zinc from one warehouse to another, falsifying shipping records and manipulating LME rules. They said the moves caused artificial supply shortages that boosted prices.

    Forrest, however, said other factors independent of any alleged conspiracy may have influenced prices.

    "Plaintiffs cannot adequately plead their broad, five-year conspiracy simply by noting developments in the zinc market, particularly when many of those developments occurred at vastly different times over the class period such that the possibility of causation is hard to assess," she wrote.

    Forrest said the plaintiffs may replead some claims against Glencore, the Anglo-Swiss mining company, or its Pacorini Metals USA unit, which operates several warehouses. A lawyer for Pacorini did not immediately respond to requests for comment.

    Zinc is used to coat steel to protect against corrosion and also is used in batteries, castings and alloys such as brass. It is, according to court papers, the world's fourth most widely produced metal by weight, trailing iron, aluminum and copper.

    The case is In re: Zinc Antitrust Litigation, U.S. District Court, Southern District of New York, No. 14-03728.
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    Gloves off in LME's long battle with warehouse operators

    This is set to be the year in which the London Metal Exchange (LME) finally kills off the load-out queues that have plagued its physical delivery network over the last five years. But the cost of doing so has just become apparent.

    Average storage rents and load-out charges, weighted by stock levels at the end of November, will jump by 10 percent and 12 percent respectively from next April.

    Some sort of warehouser reaction to the raft of rule changes targeting the load-out queues was always on the cards.

    The scale of that reaction, however, was unexpected. Some of the increases in exchange storage costs are unprecedented.

    Also unexpected was the identity of those challenging the LME with the most aggressive hikes in charges.

    There is no doubt that some warehouse operators have thrown down the gauntlet. It only remains to be seen how the LME chooses to respond.

    There are no easy options because now laid bare is the true heart of the LME's warehousing problem. The cost of exchange storage has been a bone of contention for as long as anyone can remember.

    The LME has on many occasions shied away from tackling it, fearing the legal consequences of doing so. But the latest rent increases may be the final straw for both exchange and users.

    The increases in rent and load-out charges for the financial year beginning April mark the opening of a new front in the long-running war between the LME and its warehouse operators.

    The exchange had called for "restraint" in cost increases in the last two rent cycles and had been rewarded with stock-weighted average rent increases of three percent in both years.

    Now, however, the gloves have come off.

    This was always a possibility, as the LME itself has warned on several occasions.

    The queue-based rent cap (QBRC) rule comes into effect in March. It will reduce by half the amount of rent payable on metal stuck in a queue longer than 30 days and eliminate rent completely after 50 days.

    That of course fractures the revenue model of those operators with a long load-out queue and hiking rents and load-out charges was always the most likely response.

    All eyes were on Pacorini, the LME warehousing arm of Swiss commodities giant Glencore.

    Not only is Pacorini the largest storer of LME-registered metal, holding just over 53 percent as of the end of November, but it also "owns" the longest queue at the Dutch port of Vlissingen, 471 days for aluminium at the end of the same month.

    Yet Pacorini seems to have carefully calibrated its rental and load-out charge increases for the coming financial year. Aluminium rental charges will rise from 49-51 cents per tonne per day to 50-54 cents, although no surprise that the top end of that range applies to Vlissingen.

    Pacorini's load-out charge, or the "free on truck" (FOT) charge as it is known in LME parlance, will increase by 6.44 percent to 31.40 euro per tonne at the Dutch port.

    It's of course possible that these relatively restrained increases are a compromise resulting from the annual December push-and-shove negotiations between the LME and its warehouse operators before rental and FOT charges are formally announced.

    Evidently resistant to such soft coercion, however, was Metro, the operator of the original load-out queue at Detroit, once controversially owned by Goldman Sachs but since sold to the Reuben brothers.

    It has raised aluminium rents by a third to 72 cents per tonne from 54 cents in the current rental year to March. It has also jacked up its FOT charges by 39 percent to $55.55 per tonne in the U.S. and by even more at its South Korean locations.

    After all, the Detroit load-out queue has been diminishing at a steady rate of around 30 days per month. As of the end of November it was "just" 206 days and, unlike Pacorini, there is relatively little uncancelled metal at Detroit, meaning the queue cannot flex significantly longer.

    Indeed, at its current decay rate that queue should shorten to the LME's targeted 50 days around May, limiting the likely hit from QBRC on rental revenue.

    Metro doesn't have any queues at any of its other locations and has seen its total share of LME storage slide to under 10 percent from close to 20 percent a year ago.

    The LME has no current powers to cap rents and FOT charges and if it tries to do so, it will almost certainly face a legal challenge.

    But the scale of increases just announced may leave it with little option but to throw the legal dice.

    As long as it doesn't, it will still be treating the symptoms not the root cause of its warehousing woes.

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    Imperial Metals suspends copper mining at British Columbia mine

    Canada's Imperial Metals Corp said it suspended mining at a copper mine in British Columbia due to declining prices, affecting 100 employees.

    Imperial, which has 260 employees in the Huckleberry mine, said it would retain the remaining employees to mill stockpiled ore.

    The company has a 50 percent stake in the Huckleberry mine, while Mitsubishi Materials Corp, Dowa Mining Co Ltd, Furukawa Co Ltd and others own the rest.

    Imperial, which has been reviewing options for the mine, was expecting 2015 copper production of about 22 million pounds from its stake in the mine.
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    Malaysia imposes three-month ban on bauxite mining

    Malaysia imposed a three-month ban on bauxite mining, effective from January 15, due to concerns over its impact on the environment in a move that could hurt stockpiles of the aluminium making ingredient in China. 

    Malaysia's bauxite mining industry has boomed in the past two years to meet demand from top aluminium producer China, but a lack of regulations has led to a public outcry with many complaining of water contamination and environmental damages. 

    Just last month, bauxite mining was blamed for turning the waters red on a stretch of coastline and surrounding rivers in eastern peninsula Malaysia after heavy rains. "Everything will come to a complete stop on Jan 15," Malaysia's natural resources and environment minister, Wan Junaidi Tuanku Jaafar, said in a press conference on Wednesday. 

    Other than clearing of stockpiles and installation of cleaning facilities, all other activities will stop, he added. Malaysia will also freeze new bauxite export permits for the three months, the minister said. In the first 11 months of 2015, Malaysia exported more than 20-million tonnes of bauxite to China, surging nearly 700% from a year ago. 

    In 2013, it shipped 162 000 t. The Southeast Asian nation has been exporting increasing amounts of the raw material to China, filling in a supply gap after Indonesia banned bauxite exports in early 2014.

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    China’s state stockpiler said to seek domestic copper supplies

    China’s State Reserve Bureau is seeking as much as 150,000 metric tons of domestically produced refined copper for its stockpiles amid a collapse in prices to six-year lows, according to people with knowledge of the situation.

    The state agency issued the tender, which closes Jan. 10, to multiple sellers including smelters at a meeting in Beijing on Tuesday, the people said, asking not to be identified because the information is private. The tender was reported late Tuesday by

    Smelters in China, the world’s largest producer and consumer of metals, are contending with a collapse in prices as the nation’s growth slows to its weakest in a quarter century. The SRB’s move to soak up excess supply follows industry pledges in December to cut output and sales, and lobbying of the government to step in to support the market.

    Nobody answered phone calls and a fax seeking comment from the National Development and Reform Commission, which overseas the SRB. Calls to the SRB’s trading department also were unanswered.

    China’s refined copper surplus was forecast to narrow last year to 1.14 million tons as imports fell, according to state- run researcher Beijing Antaike Information Development Co. in October. At the same time, Antaike projected that domestic production would grow 7.7 percent to 7.42 million tons.
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    Bauxite Mining and Alumina Refining Companies Mull $69 Billion in Project Activity

    Researched by Industrial Info Resources (Sugar Land, Texas) --

    It has been a tough couple of years for the mining industry. Mining companies have cut back production and capex worldwide on the heels of low commodity prices.

    That trend, for most metals and minerals, will continue in 2016. However, a recent spate of bauxite mining projects points to the commodity bucking the trend in spite of current weak pricing trend.

    Combined bauxite mining and alumina refining projects account for about $69 billion worldwide. This includes 110 bauxite mining projects totaling $23 billion and 130 alumina refining projects totaling about $46.9 billion, according to Industrial Info'sGlobal Mining Project Database.
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    Indonesia export ban to be reconsidered?

    - Indonesia may relax rules on the export of metal concentrates following the collapse in metals prices, while keeping a ban on raw ore shipments, according to Energy and Mineral Resources Minister Sudirman Said.

    The policy on concentrate shipments, due to be halted from 2017 to push mining companies to build smelters, should be examined to provide maximum value for the domestic economy, Said said in an interview. The government will soon discuss changes to the mining law with parliament, he said on Monday.
    “2017 is the deadline for processed-metal exports, but can we meet the targets for smelter construction by 2017? It must be reviewed,” Said said in his office in Jakarta. “We must be realistic to ensure a conducive investment climate,” he said.

    Southeast Asia’s largest economy banned overseas sales of raw ores including nickel and bauxite in 2014, while permitting the continued export of semi-processed concentrates for a further three years. Since the ban on ore shipments went into effect in January 2014, base metals have plunged on the slowdown in China, while rival shippers emerged, including producers in the Philippines and Australia.

                          ‘Come to Grips’

    “Indonesia has had to come to grips with the present reality of the resource sector environment,” Gavin Wendt, founding director at MineLife Pty Ltd. in Sydney, said by e-
    mail. “The key here is Indonesia’s authorities are realistic about current challenges and are keen to appease foreign investors, whilst maintaining their longer-term economic goals.”

    The curbs were intended to spur investment in processing across the archipelago, enabling Indonesia to produce higher- value commodities. Freeport-McMoRan Inc. and Newmont Mining Corp. are companies that produce copper concentrates in the country. Unless the law is revised, exports of concentrates from Indonesia will also be prohibited from January 2017.

                        ‘Almost Inevitable’

    “It was almost inevitable that the 2017 deadline for the export of metal concentrates, would have to be pushed out,” Bill Sullivan, a lawyer specializing in mining at Christian Teo &
    Partners in Jakarta, said by e-mail. “The more interesting issue is whether, having pushed out the deadline for the export of metal concentrates, the government will also reconsider the existing export ban on unprocessed metal minerals, notably bauxite and nickel.”

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    China is expected to construct 7 million mt/year of new aluminium smelting capacity in 2016

    China is expected to construct 7 million mt/year of new aluminium smelting capacity in 2016, but how much of the new capacity would be brought online will depend on cheap availability of power, refined aluminium prices, demand and stock levels, brokerage Galaxy Futures said in its aluminium industry report issued Monday.

    The new smelters will be mainly based in Shandong Province and the autonomous regions of Guangxi, Xinjiang and Inner Mongolia.

    China added over 5 million mt/year new aluminium smelting capacity in 2015, chiefly in Shandong province, North China, and Northwest China, where power costs are relatively lower in comparison to the rest of the country, according to China Nonferrous Metals Industry Association.

    However, China also shut a total 4.91 million mt/year aluminium smelting capacity last year on poor refined aluminium prices, supply glut and high stocks, CNIA said last month.

    The shut capacity was located in Liaoning, Hubei, Hunan, Gansu, Yunnan, Qinghai provinces, Chongqing City, and the autonomous regions in Xinjiang and Inner Mongolia.

    As of end-2015, China's total smelting capacity stood at 40 million mt/year, according to CNIA.

    If the new smelting capacity this year cannot be put into operation, then the total capacity kept shut would be 12 million mt/year in 2016, including the 4.91 million mt/year shut last year, the brokerage firm said.

    Availability of cheap power is a major factor for Chinese aluminium smelters, with those having low power costs surviving and those incurring high costs being driven out of the industry, the brokerage firm said.

    It forecast China's aluminium sector to be increasingly populated with smelters having low power costs as they would enjoy competitive edge over the others in the coming years.

    Looking ahead, Galaxy Futures said as there was surplus aluminium supply in the global market now from a previous deficit, high stocks at London Metal Exchange warehouses and domestic supply glut in China amid poor demand from the real estate and manufacturing sectors, consumption will be under great pressure this year.

    Galaxy forecast Shanghai Futures Exchange's most active aluminium futures contract prices to hover around the low Yuan 9,000-11,500s ($1,440-1,840s)/mt in 2016, noting that prices had already fallen below most smelters' production costs so there was little room for a big fall ahead.
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    China's Aluminium Demand To Surge 34% In 2016-20 On Growth In Transport Sector:

    China's aluminium consumption is expected to surge 34% in the 13th Five-Year Plan period (2016-20), on anticipated demand growth by the transport industry, a source with China Nonferrous Metals Industry Association said Wednesday.

    CNIA forecast China's aluminium demand to reach a maximum 44 million mt/year by 2020, up from an estimated 32.8 million mt/year in 2016, with the zenith value of 44 million mt/year to sustain for a long period of time after 2020.

    Besides demand from the traditional aluminium-consuming industry -- the construction sector -- the CNIA source told Platts that the transport sector, including new energy vehicles (Nevs, or vehicles partially or wholly powered by electricity), lighter weight vehicles, airplane manufacturing, aluminium alloy flyovers -- is also expected to be a principal driver of domestic aluminium consumption in the next few years.

    China's new energy vehicles' output and sales volume in January-October hit 181,225 and 171,145 units, surging 2.7 times and 2.9 times year on year, figures from Ministry of Commerce showed.

    State-owned Chinese metals consultancy Beijing Antaike, CNIA's affiliate, forecast China's per capita aluminium consumption to reach 30 kg by 2020, up from 17.4 kg back in 2012. It attributed the consumption growth to mainland China's ongoing urbanization.
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    Malaysia seeks to suspend bauxite mining after environmental scare

    Malaysia is pushing to suspend bauxite mining due to concerns about its impact on the environment, a cabinet source said on Saturday, threatening to interrupt supply of the aluminum-making ingredient to China.

    The largely unregulated industry has grown rapidly in the last two years to meet Chinese demand. Bauxite mining was blamed for turning the waters red on a stretch of coastline and surrounding rivers in eastern peninsula Malaysia after two days of heavy rain earlier this week.

    The cabinet wants to temporarily halt bauxite mining until regulations, licensing and environmental protection can be put in place, the source told Reuters on Saturday.

    "The idea is to suspend it for a time until all this is sorted out, but ultimately the prerogative for licensing lies with the state," the source told Reuters on condition of anonymity as he was not authorized to speak to media.

    Prime Minister Najib Razak has asked the resource minister to resolve the issues with the government of Malaysia's third-largest state and key bauxite producer Pahang, the source said.

    Waters and seas near Pahang's state capital Kuantan ran red earlier this week as downpours brought an increase in run-off from the ochre-red earth at the mines and the stockpiles, stoking environmental concerns.

    The state official in charge of the environment Mohd Soffi Abd Razak, however, said the pollution was caused by illegal mine operators and not by mines run by companies approved by the state government, according to local media reports.

    "We believe the illegal miners are causing the waters to be murky," local daily Malay Mail quoted the official as saying.

    Bauxite mines have sprung up in Malaysia since late 2014, notably in Kuantan, which faces the South China Sea.

    The mines have been shipping increasing amounts of the raw material to China, filling in a gap after Indonesia banned bauxite exports in early 2014, forcing the world's top aluminum producer, China, to seek supplies elsewhere.

    In the first 11 months of 2015, Malaysia exported more than 20 million tonnes of bauxite to China, up nearly 700 percent on the previous year. In 2013, it shipped just 162,000 tonnes.

    But the frantic pace of mining in Kuantan has brought in its wake a growing clamor of voices complaining of contamination of water sources and the destruction of the environment.

    Natural Resources and Environment Minister Wan Junaidi Tuanku Jaafar had previously said that Malaysia has come up with a raft of new regulations and guidelines for the industry, but needs the consent of the state government to impose them.
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    Steel, Iron Ore and Coal

    Coal India Apr-Dec sales up 10pct on year

    State-owned Coal India (CIL) sold 389 million tonnes of coal in the April-December period this fiscal, up 10% year on year, CIL said in a filing to BSE.

    That was 10 million tonnes lower than the planned sales during the same period, mainly due to high stocks at utilities, which has reached 31 million tonnes at present.

    The December sales was 97% of the targeted volume of 48.2 million tonnes, CIL said.

    Meanwhile, the company produced 373.45 million tonnes of coal over April-December this fiscal, which missed the target of 383.08 million tonnes for the period, but grew 9.1% from the previous year.

    Production in December stood at 52.07 million tonnes as against the target of 51.08 million tonnes for the month.

    CIL accounts for over 80% of the domestic coal production. Coal India missed the production target for 2014-15 by 3%, recording an output of 494.23 million tonnes.

    The government had set a production target of 550 million tonnes for the coal PSU for the current fiscal.

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    China key steel mills daily output down 0.6pct in mid-Dec

    China's key steel mills saw their average daily crude steel output post a fourth straight ten-day fall of 0.62% to 1.57 million tonnes in mid-December last year, showed data from the China Iron and Steel Association (CISA).

    In the same period, the national average daily crude steel output was 2.08 million tonnes, edging down 0.3% from ten days ago, according to the CISA.

    Stocks in key mills stood at 14.67 million tonnes by December 20, edging up 2.32% from December 10, indicating a recovery from two consecutive ten-day fall.  

    Domestic prices for steel products witnessed a rebound in late-December due to the improvement of downstream demand, with rebar price rising 2.2% from ten days ago to 1,847.9 yuan/t in late-December.

    China’s steel output in December may stay in a low level, due to a long-term loss and intensified environmental protection campaign at steel mills.

    Steel prices in January were estimated to rise first then fall, but to remain higher than that of December, said analysts from the CISA.

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    Ansteel funding doubts for Australian iron project

    China's Angang Steel Co (Ansteel) won't be able to inject new funds to shore up the Karara iron ore mine in Australia, according to an email to Karara staff cited in a newspaper report on Friday.

    Ansteel's minority partner in the A$3 billion Karara project, Gindalbie Metals Ltd, called a trading halt in its shares after the report, saying it would make an announcement on Karara by Tuesday, Jan. 12.

    The mine, 52 percent owned by Ansteel, produces mainly magnetite that has to be processed heavily to produce high quality iron ore concentrate, and has been hit like most iron ore producers by a plunge in iron ore prices.

    In an email to staff, Karara's chief executive Zhang Zhao Yuan said the project was making losses and facing "significant cost pressure", according to a report in the West Australian newspaper on Friday.

    "Firstly, its parent company is unable to continue providing funding support to Karara due to the impact of economic and industry downturn," the email was quoted saying.

    A Karara Mining spokesman declined to comment on future funding for the mine, but said the main point of the email was to focus on the business strategy for this year, including cutting costs and improving the mine's production performance.

    "Ansteel remains committed to Karara," the spokesman who is a senior executive, told Reuters.

    "What we're trying to emphasise is that Ansteel continues to provide support to the board and the leadership team of Karara," he said.

    Karara, which started exporting magnetite in 2013, has a capacity of 8 million tonnes a year and last year produced 5.9 million tonnes of magnetite concentrate, a tiny fraction of Australia's total 748 million tonnes of iron ore exports in the year to June 2015.

    Gindalbie, which booked an A$11 million loss in the year to June 2015, said in its annual report: "Karara is a highly geared project and needs the ongoing financial support of Ansteel to continue."

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    Shenshuo rail line 2015 coal transport down at 217 mln T

    Shenshuo rail line, which starts from Daliuta in Shaanxi province and ends in Shuozhou in neighboring Shanxi province, hauled 217.3 million tonnes of coal in 2015, down 15% year on year, said its operator Shenhua Group on January 5.

    This is the fourth consecutive year for its coal transport to stay above 200 million tonnes, after reaching 207 million tonnes in 2012.

    The railway realized a total profit of 2.29 billion yuan ($349.3 million) in 2015, data showed.

    The 266-km line, the second largest coal dedicated railway after Daqin line transporting coal from western production areas to eastern consumption areas, mainly delivers products from Shenfu and Dongsheng coal fields owned by Shenhua Group.

    Meanwhile, the 2015 coal transport volume of Baoshen rail line (Shenmu-Baotou) under Shenhua Group exceeded 150 million tonnes by December 25, compared with its 2014 transport at over 180 million tonnes.

    China’s coal railway transport volume in 2015 has seen a marked fall due to the slackness of coal market and low transport demand, with the total volume over January-November at 1.82 billion tonnes, down 13.5% year on year, showed data released by National Development and Reform Commission.

    During the same period, the coal transport volume of Daqin line is 364 million tonnes, falling 11.6% year on year, and the volume of Houyue line is 150 million tonnes, down 12.1% year on year.

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    Iron ore exports from biggest port climb as Rinehart Mine starts

    Iron ore cargoes from Australia’s Port Hedland climbed last month to cap a record year as billionaire Gina Rinehart’s Roy Hill project began overseas sales, joining miners shipping greater volumes into a global market that’s facing oversupply and sinking prices.

    Total shipments were 37.55 million metric tons from 37.33 million tons in November and 37.12 million tons a year ago, according to data from the Pilbara Ports Authority on Wednesday. Exports to China were 32.17 million tons from 31.73 million the previous month and 30.63 million a year earlier.

    Iron ore plunged in 2015 to post a third annual loss as rising low-cost supplies from Australia and Brazil, the top exporters, combined with contracting demand in China to spur a glut. Rinehart’s project shipped its inaugural cargoes through Port Hedland last month, and managers plan to ramp up output over 2016. The Hedland facility, the world’s largest bulk-export terminal, also handles cargoes for BHP Billiton and Fortescue Metals Group.

    Ore with 62% content delivered to Qingdao fell 2.8% to $43.11 a dry ton on Tuesday, according to data compiled by Metal Bulletin. The raw material, which sank 39% in 2015, bottomed at $38.30 on December 11, a record in daily price data dating back to May 2009.

    The increased cargoes through Port Hedland, a gateway for miners exploiting deposits in the ore-rich Pilbara, coincide with a jump in shipments from Brazil, which surged to 39.5 million tons in December from 28 million tons in November, according to government data.

    About 145 million tons of new supply will be added to the global market this year and in 2017, according to Fitch Ratings , which has forecast that prices are unlikely to recover. Rinehart’s project plans to expand annual capacity to 55 million tons, with most output under long-term contract.

    Cargoes from Australia will probably climb to 868 million tons this year from 767 million tons in 2015, Australia’s Department of Industry, Innovation & Science said last month as it cut its price outlook for 2016. The forecast increase in exports shows that miners in Australia will build market share in China, according to the government.
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    Shanxi Jan-Nov coking coal output down 6.3pct on year

    Shanxi, China’s largest coking coal production base, produced a total 473.3 million tonnes of coking coal over January-November this year, a drop of 6.3% year on year, showed the latest data from China Coal Resource.

    Output in November stood at 42.81 million tonnes, decreasing 0.3% on month, the third consecutive monthly decline, data showed.

    The effective supply of washed coking coal slid 3.2% on year to 181.5 million tonnes during the same period, with November supply at 16.39 million tonnes, down 0.7% on month.

    The drop in output was mainly due to miners’ production cut to reduce losses as prices of the steelmaking material fell below the break-even points, in addition to safety concerns.

    Coking coal market in the province continued to decline in November. Major producers lowered prices by 20 yuan/t for coking coal delivered by truck, and by 10-60 yuan/t for coal transported by railway.

    One leading Changzhi-based producer offered a 20 yuan/t discount for meager-lean coal, one coking coal variety used mainly for blending purpose, for buyers with shipment above 80,000 tonnes in November.

    More coal mines closed operation in the month, driven by falling prices, high stocks and tight credit. Washing plants also withdrew from the market, with many running below 10% capacity.

    The output of coking coal in Shanxi may further decline in December, as miners halt production for better safety record in the last month of 2015.

    Coking coal prices may stabilize in January, as supply further shrinks. Market sources said large miners may take 15-30 days holiday for Spring Festival, in a move to underpin prices amid weak demand and supply glut.

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    Iron ore price 16% rally off decade low comes to abrupt halt

    After falling to a near decade low of $37 a tonne on 11 December, the iron ore price clawed back 16% without registering a single down day to open 2016 trading at $43.10.

    That rally came to an abrupt halt on Tuesday with the Northern China 62% Fe import price including freight and insurance (CFR) losing 2.3%.

    The bad news out of China that roiled equities and metals prices finally caught up with the steelmaking raw material. And with no change to the fundamentals for the industry it's hard to why iron ore would continue to climb.

    Port inventories in China, responsible for more than 70% of the seaborne trade, are piling up again. China’s iron ore demand is set to fall by 4.2% in 2016 to just over 1 billion tonnes according to the country's Metallurgical Industry Planning and Research Institute as steel production shrinks 3.1%.

    While the demand picture is certainly not pretty, the main driver of a lower iron ore price has been growing supply.

    Hopes pinned on Big 4 to exercise their "unprecedented pricing power"

    In December, Australia's 55mtpa Roy Hill mine started shipments. Rio Tinto's 20mtpa Silvergrass mine could be up and running within a year and Vale's gigantic 95mtpa S11D project could follow soon after.

    Many smaller producers have exited the market and others are "hanging on by their fingernails" in the inimitable words of Rio CEO Sam Walsh, but there are now also signs that the majors, which still enjoy healthy margins at today's price, may be throttling production.

    Vale cut its iron ore production guidance for this year to 340–350mt from a previous forecast of 376mt and the Rio de Janeiro-based company also said it may slow down the S11D expansion. Anglo American is doing the same at Minas Rio, announcing the ramp up to 26mtpa will only happen in 2018. Kumba is cutting production at Sishen in South Africa by nearly 30% to 26mt.

    Morgan Stanley in a  research report quoted by Bloomberg noted that with more than three-quarters of global supply in the hands of just four companies "with unprecedented pricing power", it may be time for the majors to change tack:

    “What’s needed to buoy the ore price? Vale, Rio Tinto, BHP Billiton to end their competitive supply surge and act more rationally in this weakened market,” analysts Tom Price and Joel Crane wrote. “Vale’s the last to deliver big tons to the market: if a moderation of its supply-growth strategy is followed by the Australians, this will secure a price above that of market expectations.”

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    China Coal industry faces bleak future as mergers and reshuffle loom

    After being in a tight spot for over three years and writing off more than 80% of losses, China's coal industry faces another tough year with its overcapacity, Securities Daily reported.

    Authorities have stressed steps to accelerate the merger and reorganizations of the 'zombie' enterprises, or large-scale sectors with excessive productions suffering long-term losses and have little hopes turning the situations around.

    Coal sector has become the main target in the sweep.

    Starting from 2012, the coal price saw continuous slumps with a drop over 30%. Even though the price fell lower even than potatoes, many companies would rather lose profit than halt production in order to expand the market share. Industry insider told the newspaper that when production stops, the cash flow stops too which puts the companies in a more difficult situation.

    Statistics show that the coal sector suffers from an average asset liability ratio of 67.7%, the highest point in 16 years.

    Many coal companies are swamped. Hidili Industry International Development Limited, the biggest private owned coal mining company in Sichuan, has reportedly defaulted on its $183 million debt. China Shenhua Energy Co Ltd, the nation's biggest coal producer by volume, has seen a 40% salary cut.

    The China National Coal Group Corp (ChinaCoal), the nation's second-largest producer of coal by output, sold its low-profitable assets in hard cash worth 927 million yuan to reduce the debt and keep the cash flow. Half of the assets were sold by the end of 2015, but it only reduced the debt by 1%, which stood at 79% by Sept 30 last year.

    According to the company's third-quarter report, the miner has gained 44.8 billion yuan in the first three quarters of last year, a 13.8% decrease year on year. The net profit loss was about 1.67 billion yuan, a 352.8% slump year on year.

    With the bigger players having their hands tight, small fish find it harder to keep it together in the industry winter.

    China will accelerate the closing and reorganizing of the coal productions of old and low quality and control the capacity tightly, said Lian Weiliang, deputy director of the National Development and Reform Commission, at 2016 China Coal Trade Conference in December last year.

    Premier Li Keqiang said that China will lessen the pollution by 60% in electric power industry through upgrading, saving around 100 million tonnes of raw coal demands.

    According to statistics, 49 cases of mergers had taken place in coal mining industry in the first 11 months of 2015, a 58% of increase from the previous year.

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    Indonesian big coal miners plan higher production in 2016

    The Jakarta Post reported that the country’s major coal miners plan to further boost production in 2016 although analysts estimate that an oversupply in the world’s coal market will continue.

    The production levels proposed by large coal miners are quite different from those filed by small and medium coal miners, who mostly plan to reduce production on account of low demand in the world’s coal market.

    According to data from the Energy and Mineral Resources Ministry’s mineral and coal directorate general, by mid-December, as many as 71 companies, consisting of 64 coal contract of work holders and 7 permit holders, proposed a total of 303.33 million tons of production in 2016. The 2016 production plan will be far lower compared to the proposed 419 million tons in 2015.

    The ministry’s director for coal, Mr Adhi Wibowo, said that a large number of small coal producers had yet to file their production plans for this year. However, their contribution to the country’s total production is quite small.

    Figures from the mineral and coal directorate general showed that most big firms actually planned to increase their output.

    Among 11 firms producing more than 5 million tons, only two firms proposed lower output in 2016, namely PT Adaro Indonesia with a slight 0.8 percent cut and PT Kideco Jaya Agung with almost 18 percent.

    Mr Garibaldi Thohir, President director of Adaro Energy, the owner of Adaro Indonesia, said that his company would set output at a range of 52 to 54 million tons in 2016, around 7 percent lower compared to targeted output in 2015 of 54 to 56 million tons.

    Mr Thohir said that “We sell most of our coal under long-term contracts and only a little we offer on the spot market. We will reduce the amount [of coal offered] on the spot market.”

    Meanwhile, Kideco is unlikely to raise its production because its sales remain sluggish. Figures from Jakarta-listed Indika Energy, which is Kideco’s parent firm, showed that the subsidiary company had suffered from a 15.6 percent drop in selling price from January to September 2015.

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    Beijing investigates coal in fight against pollution

    Beijing's government is investigating coal and other mining companies, as well as firms producing dangerous chemicals, in an effort to raise safety standards and push polluting enterprises out of the city.

    Chinese authorities have come under growing pressure to combat a pervasive smog problem, which is a major source of public dissatisfaction, coming after decades of unbridled economic growth.

    Last year, city investigations into fire safety, construction, dangerous chemicals and other industries suspended 7,778 firms and shuttered 906 more, the official Xinhua news agency reported, citing the Beijing Administration of Work Safety.

    The city wants to improve safety standards across industries, the report said, and force companies to use modern technology and equipment.

    Higher standards would push high-risk and high-polluting enterprises, including those with high energy consumption, to leave the city, Xinhua said.

    State media has in the past blamed Northern China's reliance on coal for the energy needs, as well as heavy industries surrounding many northern cities, for the choking haze.

    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 like power, cement and steel, as well as a campaign to cut smog.

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    China to implement new coal-power price linkage mechanism

    China’s National Development and Reform Commission (NDRC) officially announced in a December 31 document to implement a new coal-power price linkage mechanism, starting from January 1, 2016.
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    Ferrochrome market nearing bottom of the cycle?

    The ferrochrome market is nearing the bottom of the cycle. This is evidenced by the fact that the latest price contractions have resulted in closures across the supply chain.

    This is one of the key takeaways from the latest research put together by Core Consultants.

    According to the report, stainless steel production in 4Q15 declined to 9.564m tonnes compared to 11m tonnes in 3Q15 and 9.9m tonnes in 4Q14.

    China produced 4.96m tonnes in 4Q15, slowing from 5.46m tonnes in 3Q15. Going forward, 2016 is expected to realise lower output (40.56m tonnes), compared to 2015 (40.9m tonnes) as mills draw down from existing stocks.

    A number of countries have instituted anti-dumping measures against Asian stainless steel exports including the EU and India, forcing Chinese producers to scale back production.

    The firm estimates that ferrochrome capacity utilisation has slowed to 54% in 2015, compared to 60% in 2014. Production has declined to 10.18m tonnes compared to 10.8m tonnes in 2014. At these levels the market is in deficit.
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    China Dec steel sector PMI rebounds to 40.6

    The Purchasing Managers Index (PMI) for China’s steel industry rebounded to 40.6 in December, a rise of 3.6 from November, showed the latest data from the China Federation of Logistics and Purchasing (CFLP).

    The rebound signaled a better condition in steel industry last month. However, it was still the 20th straight month below the 50-point threshold, indicating a persistently slack market.

    The output sub-index rose 3.1 from November to 38.5 in December, the 16th consecutive month below the 50 mark.

    China’s steel products output may see a slight increase in January, as steel mills may become active in production after seeing the recent price rebound.

    The new order sub-index increased 11.2 from November to 40.9 in December – the highest since May in 2015, and yet the 18th consecutive month below the 50 mark; the new export order index slightly rebounded 6.6 from November to 47.8 in the same month—the highest in recent four months, reflecting a potentially climbing trend of steel exports in later period.

    The sub-index for steel products stocks decreased 9.7 to 39.5 in December, after the rebound in November ending a four-month drop, and the lowest level since September in 2013, indicating the effect of destocking activities in steel mills.

    As of December 20, total stocks in key steel mills stood at 14.67 million tonnes, rising 2.32% from ten days ago but down 3.42% from November, said the CFLP.

    Domestic steel price is expected to rise in January, as low stocks and the subduing supply would offer some support. Yet, the growth room may be limited, given further shrink in demand amid slack season.
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    QHD coal stocks plunge on rebounded outbound shipment

    Coal stocks at Qinhuangdao port, the benchmark for China’s domestic market, had been plunging since December, the latest data showed.

    Coal stocks at the port stood at 3.3 million tonnes on January 4, 2016, falling 0.6% on day and down 14.7% from December 28, showed data from Qinhuangdao Port Group.

    It was mainly due to the increasing outbound coal shipment and meanwhile subduing inbound shipment.

    Daily inbound coal railings to Qinhuangdao port averaged 0.5 million tonnes during the past week, down 24.3% on week, as coal producers reduced deliveries amid falling coal prices.

    Daily outbound shipment was 0.58 million tonnes on average each day during the week, up 9.38% on week, given the resumption of blocked ships amid previous bad weather.

    Meanwhile, coal stocks at Caofeidian and SDIC Jingtang ports – stood at 1.24 million and 880,000 tonnes on January 4, falling 13.9% and 18.5% from December 28, data showed.

    Coal demand from utilities remained weak. Daily coal consumption at power plants under the six coastal utilities stood at 576,000 tonnes on January 4, down 4.48% from December 28, which was enough to cover 21 days.

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    No new coal mines to be approved for three years to cut stockpiles

    China is suspending the approval of any new coal mines for three years to eliminate stockpiles and increase new-energy consumption, according to a report in Economic Information Daily.

    Nur Bekri, director of the National Energy Administration, was quoted as telling a conference on Tuesday that with production overcapacity expected to last for quite some time, green and low-carbon forms of energy will be the main focus of the 13th Five Year Plan (2016-20).

    Bekri said the administration also plans to shut down 60 million tons worth of outdated production capacity next year.

    During the same time period, he said, more effort will be put into coastal nuclear power plants with new installed wind power capacity expected to reach more than 20 million kilowatts and that for solar power to 15 million kW.

    Bekri highlighted that different regions need different energy strategies. Western regions, for instance, must increase local energy consumption while high consumption industries in eastern and central areas of the country should gradually reduce lower reliance on transported energy sources.

    At the same time, the widespread practice of not using installed wind and solar power sources, due to difficulties in integrating resources to the national power grid, needs to be addressed, he said.

    National coal consumption has been slowing since 2012 after years of rapid growth, and last year saw its first fall in more than a decade. Coal-fired power plants account for around half of the country's coal consumption.

    It grew by an average 9.8 percent between 2002 and 2013, when it peaked at 2.05 billion metric tons, before dropping to 1.95 billion tons in 2014.

    Current figures suggest some 30 percent of installed wind power capacity in northern regions of China remains unused, and the amount of solar power not being fed into the national grid is also growing.

    Wu Jiang, an economics professor at Renmin University of China in Beijing, said coal will still remain China's dominant energy "for a very long time", as not every region has an overcapacity of coal because of widely different energy structures.

    "The problem with new-energy consumption is that it's not easy to integrate it into the conventional power grid.

    For that reason, a lot of wind and solar energy capacity has been suspended.

    "The central government has run some regional pilot programs to experiment such integration. Clean-energy consumption will be a lot higher if such technologies could be replicated elsewhere," Wu said.
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