Mark Latham Commodity Equity Intelligence Service

Wednesday 29th July 2015
Background Stories on

News and Views:

Attached Files


    Commodity Super Bubble Bursts.

    WE’RE still in a super commodity cycle — except that Credit Suisse says it’s a “super down” cycle.

    And have we got further to fall? Perhaps, considering that oil ­prices are still 35 per cent above their 40-year inflation-adjusted norm, and minerals are 41 per cent above.

    Real commodity prices are not that low. Credit Suisse shows that, in real terms and over a trajectory of the past 50 years, present prices are still well above the norm. In fact, on only four occasions since 1964 have commodities in real terms been higher than now: during the two oil shocks of the 1970s, then in the 2007 culmination of the recent commodity boom and finally during the temporary recovery surge after the GFC. We’re still well ahead of what miners and oil drillers received right from the early 1980s through to about 2005.

    The one piece of good news in the Credit Suisse report is that iron ore prices might soon level off. In the previous iron ore bear market prices fell 54 per cent. This time they are down 55 per cent.

    What has got the analysts at Credit Suisse really worried, though, is the Chinese triple bubble: credit, real estate and investment. China’s private sector debt to GDP ratio is 30 per cent above trend; property prices are down six months in a row; China’s investment share of GDP is now 48 per cent, significantly higher than in Japan and South Korea at similar stages in their industrialisation.

    “We think there is a high probability of a hard landing for China at some point over the next three years,” the report concludes.

    Attached Files
    Back to Top

    LyondellBasell sees 13 percent increase in profits

    LyondellBasell’s profits climbed 13 percent as the chemical giant soaked up vast supplies of cheap natural gas and natural gas liquids and continued operating when competing plants shut down.

    “Planned and unplanned industry downtime created favorable global conditions, demonstrating that the industry is operating with a fundamentally tight supply and demand balance,” CEO Bob Patel said in a statement.

    The company on Tuesday reported earnings of $1.33 billion, or $2.82 per share, during the three-month period ending June 30. During the same period last year, the company posted earnings of $1.18 billion, or $2.23 per share.

    And Lyondell is expecting to continue growing its earnings in the third quarter amid continued access to swells of cheap natural gas and natural gas liquids, which the company uses as feedstock to manufacture its chemicals.

    Unexpected plant shutdowns across the world caused global supply shortages of olefins and polyolefins — raw materials used to make food packaging, automative parts, bottles, paints and coatings — giving a boost to Lyondell, which ran its plants hard to take advantage of the tight market. But that imbalance has started to resolve as supply returns to market, the company said.

    Lyondell in the coming weeks is planning to shut down two plants that make propylene oxide and its derivatives — used to make insulation, home furnishings, cosmetics and foam cups — as well as one European olefins plant.

    The company’s refining segment also reported a stronger second quarter even though it processed about 2,000 fewer barrels per day of crude oil. Falling oil prices helped give Lyondell better margins for its refined products, the company said.
    Back to Top

    Oil and Gas

    BP less likely to be acquired after $18.7 bln settlement - CEO

    BP is less likely to be acquired following its $18.7 billion settlement over the 2010 Macondo oil spill, Chief Executive Officer Bob Dudley said on Tuesday.

    The has been much speculation in recent months that the British oil and gas giant could become an acquisition target for a larger rival, leading the British government to warn it would oppose any takeover bid.

    While some analysts expected BP to be even more attractive following its settlement with the U.S. authorities this month to resolve most claims from the Gulf of Mexico oil spill, Dudley sought to quell any speculation.

    "As a result of the settlement in the U.S. it is actually less likely that someone would want to acquire BP and it is certainly not our intention to put the company up for sale," Dudley told reporters.

    Merger and acquisition activity in the energy sector has been rekindled as company valuations slumped along with oil prices, highlighted by Royal Dutch Shell's $70 billion bid to acquire BG Group earlier this year.

    BP shares are still some 35 percent below their value before the 2010 Macondo rig explosion and spill that killed 11 workers. The company's second-quarter profit slumped by nearly two thirds from a year ago as it took a huge $10.8 billion charge related to the settlement.
    Back to Top

    Russia's Gazprom gas output seen at all-time low in 2015

    Russia's Economy Ministry said on Tuesday it expected gas production at Gazprom to decline to 414 billion cubic metres (bcm) this year, an all-time low, due to sluggish demand and a decline in upstream investments.

    Gazprom, Russia's and the world's biggest natural gas producer, said in its latest forecast in May that it expected its natural gas production to recover this year to 450 bcm after it declined last year to just above 444 bcm.

    The economy ministry figures were published after it announced Russia's gross domestic product (GDP) shrank by 4.2 percent in June from a year earlier, when the country's growth prospects deteriorated sharply due to Western sanctions over the Ukraine conflict and a drop in the price of oil.

    Gazprom, which normally accounts for around 8 percent of Russian GDP, earlier this year stopped publishing its gas output on a monthly basis via monitoring agency CDU TEK at the energy ministry.

    The economy ministry said Gazprom's gas exports to the EU and Turkey declined by 6.2 percent to 66.8 bcm in the first half of the year due to lower gas consumption in Europe and increasing gas usage from storage facilities in winter.

    The ministry sees total Russian gas exports at 164.6 bcm in 2015, down 5.5 percent from the last year. It also said Russia's average export price for gas stood at $249.7 per 1,000 cubic metres in January-May, down from $335.7 in the year-earlier period.

    The ministry, citing Gazprom data, said investments into gas production in January-April fell by more than 60 percent at current prices.

    Gazprom has been hit by a pricing dispute with Ukraine, which is battling pro-Moscow insurgency in its eastern regions. Ukraine stopped buying Russian gas starting from July 1 after EU-brokered talks collapsed without a deal on how much Kiev should pay for its supplies.

    The Kremlin-controlled company also lost its position as western Europe's top gas supplier to Norway earlier this year.

    In another setback for Gazprom, it has failed so far to agree with Turkey on an underwater p[peline.
    Back to Top

    Total Profit Beats Estimates as Production, Refining Advance

    Total SA posted a better-than-expected profit in the second quarter after production and refining surged, almost making up for a crude price slump. 

    Net income, excluding some non-recurrent items, slid 2.1 percent to $3.09 billion from a year earlier, beating the $2.67 billion average of 15 estimates compiled by Bloomberg. The Courbevoie, France-based producer said Wednesday in a statement its dividend would remain at 61 euro cents ($0.67) a share.

    Total confirmed a target to cut costs by $1.2 billion while increasing output by 12 percent to the equivalent of 2.3 million barrels of oil a day as new projects started in Angola, the North Sea and Russia. The production gain and the highest refining margins in at least 12 years are helping Europe’s second-biggest oil company weather a crude-price crash.

    Total reported “very strong refining and chemicals on the back of stellar refining margins and a resilient upstream,” Raymond James analyst Bertrand Hodee said in a note. Cost-savings are “likely to exceed market expectations,” he said.

    Total is focused on lowering costs to “sustainably reduce its breakeven and maximize cash flow,” Chief Executive Officer Patrick Pouyanne said in a statement.

    Total confirmed a target to raise output by more than 8 percent in 2015 and said the start of projects before year-end include the Gladstone liquefied natural gas development in Australia, Laggan-Tormore and the Surmont 2 oil-sands unit in Canada. Increasing output from new prospects and a concession in Abu Dhabi in the quarter helped the company offset a halt at its LNG unit in Yemen.

    Net income dropped 4 percent to $2.97 billion. Adjusted net operating income from refining and chemicals, which benefit from lower oil prices, rose threefold to $1.35 billion.

    In the refining business, European margins rose to $54.10 a metric ton from $47.10 in the first quarter and $10.90 a year earlier. It was the highest level since at least 2003.

    Total plans to cap spending at $23 billion to $24 billion in 2015, down from $26 billion last year. The company also announced the sale of a 20 percent stake in the Laggan-Tormore project west of the Shetlands Islands in Scotland to SSE Plc for 565 million pounds ($882 million).

    The producer has plans for $10 billion of asset sales through 2017, including $5 billion this year. Total said second-quarter asset sales amounted to $733 million, bringing those for the first half to $3.5 billion.
    Back to Top

    India defers taking delivery of 20 LNG cargoes from Qatar

    As global gas prices slumped, India has deferred taking deliveries of at least 20 shiploads of expensive liquefied natural gas (LNG) from its main supplier Qatar and wants a rate cut matching the 60 per cent fall in international rates.

    India buys 7.5 million tonnes a year of LNG on a long-term from RasGas of Qatar on a 25 year contract, indexed to a moving average of crude oil price.

    The price of LNG from Qatar comes close to USD 13 per million British thermal unit as compare to the USD 6-7 rate at which it is available in the spot or current market.

    With few takers for high priced LNG, India has "deferred taking deliveries of 20/21 cargoes so far in 2015 calendar year", a top source said.

    In a full year, 7.5 million tonne of LNG translates into 120 cargoes or shiploads.

    "Price is an issue," the source said, adding that high price of LNG under the long-term contract has led to users in fertiliser and power industry finding it cheaper to use alternate fuels like naphtha and fuel oil.

    Petronet LNG which buys LNG from Qatar on a long-term contract since 2004, has asked RasGas for a cut in import volumes this year, he said.

    "The contract is a take or pay wherein the buyer has to take the contracted volume every calendar year or pay for it. But the contract also provides for a flexibility that gives the buyer (the option) to defer taking 30 per cent of the supplies in a year. These volumes can be taken at anytime during the duration of the contract," the source said.

    Similarly, the contract also provides for the buyer to seek 10 per cent more quantity over the contracted volume in any year, with the excess volume being adjusted during the remaining duration of the contract.

    Read more at:

    Attached Files
    Back to Top

    UAE shifts fuel prices as the Gulf watches

    The United Arab Emirates has become the first Gulf state to take a major step towards taming the gas-guzzling habits of its drivers, who see cheap fuel as part of their birthright.

    The UAE said it would raise domestic prices for gasoline and cut them for diesel in a politically sensitive reform designed to save it money and encourage fuel efficiency.

    State subsidies have long kept domestic fuel prices at some of the lowest in the world - part of the welfare packages which Gulf governments offer in their drive to maintain social stability.

    This has led to a preference for huge sports utility vehicles, and the subsidy costs have become harder to bear for governments since last year's global oil price plunge slashed energy export revenues.

    The International Monetary Fund projects the UAE will post its first fiscal deficit this year since 2009, and estimates the country spends $7 billion annually on petroleum subsidies.

    So this month, the UAE said it was shifting from a system of fixed, subsidised fuel prices to one of adjusting prices monthly in response to global trends. It did not reveal details of its new formula or say whether subsidies would be removed entirely, but announced that prices would be "based on the average global prices with the addition of operating costs".

    The price of a litre of octane 95 gasoline will climb 24 percent to 2.14 dirhams (58 U.S. cents) at the start of August, while diesel will fall 29 percent to 2.05 dirhams, state news agency WAM reported on Tuesday.

    The moderate size of the price changes suggests there will be little immediate impact on domestic consumption. Demand in the UAE has more than doubled since 2009 to reach almost 400,000 barrels per day last year, according to the Joint Oil Data Initiative which compiles figures from governments worldwide.

    Attached Files
    Back to Top

    Anadarko Petroleum posts 73 percent decline in net income, production boost

    Anadarko Petroleum Corp. posted a 73 percent decline in second-quarter net income Tuesday as it got lower prices for the extra oil and gas it was pumping from wells in Colorado and Texas.

    The Woodlands-based oil explorer’s profits fell to $61 million, or 12 cents a share, in the second quarter, down from $227 million, or 45 cents a share, in the April-June period last year. Revenues fell from $4.4 billion to $2.6 billion.

    The company boosted its oil sales by 42,000 barrels a day, overshooting its production guidance by 18,000 barrels a day because of “continued improvements in productivity and ongoing operating efficiencies,” Anadarko CEO Al Walker said in a written statement.

    Shaving off time and money from processes that lift oil out of the ground has allowed the company to increase its production by 13 percent, or 35,000 barrels of oil a day this year. That’s “enhancing our relative cash margins and enabling us to drill more than 100 additional wells this year – all while staying within our capital guidance,” Walker said.

    Anadarko has sold off more than $1.1 billion in assets this year. It had about $2.2 billion in cash on hand at the end of the second quarter.

    The company sold 77 million barrels of oil and gas in the second quarter, an average of 846,000 barrels of oil equivalent a day. It expects to produce 298 million to 302 million barrels of oil equivalent throughout all of 2015. That’s up by 2 million to 6 million barrels compared to last year, adjusted for asset sales.

    Its U.S. output was driven by its Wattenberg field in Colorado, as well as its stake in the Eagle Ford Shale and the Delaware Basin in Texas.

    Attached Files
    Back to Top

    Billionaire Ambani Said to Weigh Sale of U.S. Shale Gas Holdings

    Indian billionaire Mukesh Ambani’s Reliance Industries Ltd. is weighing a sale of its U.S. shale gas investments, people with knowledge of the matter said.

    The Mumbai-based company may sell the holdings as part of a strategic review of its assets, as it believes their worth isn’t fully reflected in its market value, one of the people said, asking not to be named as the details are private. It has invested more than $8 billion in its unconventional gas joint ventures through the end of March, according to its annual earnings report.

    Reliance, the operator of the world’s biggest oil-refinery complex, said July 24 that earnings from its shale assets fell in the latest quarter as natural gas prices slumped. Hydraulic fracturing has opened up reserves from Texas to North Dakota, causing prices to fall 54 percent from the five-year high reached in 2014.

    Selling the shale assets would allow Reliance to put its capital to more productive uses, given the gas market may not improve for some years, according to one of the people. It hasn’t made a final decision to sell, and Reliance isn’t willing to part with the assets at a depressed price, another person said.

    BHP Billiton Ltd. wrote down an additional $2.8 billion on its shale assets this month, joining impairments by explorers Royal Dutch Shell Plc, Statoil ASA and Total SA. Tushar Pania, a spokesman for Reliance, didn’t reply to an e-mail seeking comment.

    Reliance, which has a market value of $51 billion, owns 45 percent of a project controlled by Pioneer Natural Resources Co. in south Texas’s Eagle Ford formation. It also has a 40 percent interest in a Chevron Corp. venture in the Marcellus shale deposit in Pennsylvania, as well as 60 percent of a project in the same area jointly owned with Carrizo Oil & Gas Inc.

    The Indian company and partner Pioneer Natural Resources this month sold a Texas pipeline and processing company to Enterprise Products Partners LP for $2.15 billion.
    Back to Top

    CONSOL Energy Reports Second Quarter Results

    CONSOL Energy Inc. reported a net loss of $603 million for the quarter, or ($2.64) per diluted share. This compares to a net loss of $25 million, or ($0.11) per diluted share from the year-earlier quarter. The net loss for the quarter includes a significant unusual item: an $829 million pre-tax impairment in the carrying value of CONSOL's shallow oil and natural gas assets largely due to the continuation of depressed NYMEX forward prices.

    After adjusting for certain unusual items, which are listed in the EBITDA reconciliation table, the company had an adjusted net loss1 in the 2015 second quarter of $84 million, or ($0.37) per share. Adjusted EBITDA1 was $138 million for the 2015 second quarter, compared to $246 million in the year-earlier quarter. Cash flow from operations in the just-ended quarter was $62 million, compared to $221 million in the year-earlier quarter.

    "CONSOL is focused on managing through what continues to be a very challenging commodity price environment," commented Nicholas J. DeIuliis, president and CEO. "Given this environment, we will manage the company to be free cash positive over the next 18 months, beginning in the second half of 2015. We are moving forward by resetting the company using zero-based budgeting, lean manufacturing and continuous improvement to hold our E&P production growth targets, while achieving our free cash flow targets."

    CONSOL's E&P Division achieved record production of 75.5 Bcfe, or an increase of 45% from the 51.9 Bcfe produced in the year-earlier quarter. CONSOL Energy's annual gas production guidance remains at 30% growth for 2015 and 20% for 2016. CONSOL lowered its 2015 E&P capital expenditures (CAPEX) forecast to $800 million, which is $120 million lower than the previous guidance due to a combination of improved well profiles, decreased cycle times, and the de-bottlenecking of midstream infrastructure. Also, due to lean manufacturing and continuous improvement, the company intends to significantly reduce E&P capital in 2016 to approximately $400 - $500 million depending on natural gas prices.
    Back to Top

    National Oilwell profit beats estimates due to cost cuts

    National Oilwell Varco Inc, the largest U.S. oilfield equipment provider, reported a higher-than-expected quarterly profit as cost cuts helped offset the impact of a fall in global drilling activity.

    The U.S. rig count has slumped to a five-year low as oil producers idle rigs due to a 50 percent drop in global oil prices since June last year.

    To cope with falling demand for oilfield services and equipment, National Oilwell, like its rivals, is cutting jobs and costs. The company said last month that it would cut its Norwegian workforce by 1,500 by the end of this year.

    Expenses fell more than 18 percent to $417 million in the second quarter ended June 30 from a year earlier, the company said.

    "The operating margins delivered by our segments this quarter reflect our focus on reducing costs to become more efficient," Chief Executive Clay Williams said in a statement.

    Operating margins at the company's rig systems business, which accounted for nearly half of total revenue, rose to 20.5 percent from 19.3 percent in the first quarter.

    However, total order backlog fell to $10.22 billion in the second quarter from $11.89 billion in the first quarter.

    Net income attributable to the company fell to $289 million, or 74 cents per share, in the second quarter, from $619 million, or $1.44 per share, a year earlier.

    Excluding one-time items, National Oilwell earned 77 cents per share, above the average analyst estimate of 64 cents, according to Thomson Reuters I/B/E/S.

    The Houston-based company's revenue fell 25.6 percent to $3.91 billion, slightly above analysts' average estimate of $3.86 billion.

    The company had said in April that it expected revenue to fall for the next few quarters.

    Up to Monday's close, National Oilwell's stock had fallen about 51 percent in the last year. The Dow Jones Oil and Gas Titans 30 Index had declined 31.5 percent in the same period.

    Attached Files
    Back to Top

    Alternative Energy

    China added 7.73 GW of solar capacity in H1 - energy regulator

    China increased its total solar power capacity by 7.73 gigawatts (GW) in the first half of 2015, China's top energy regulator said on Tuesday.

    The National Energy Administration said on its website ( that total solar power capacity now amounted to 35.78 GW.

    Of the total, 30.07 GW was in the form of solar power stations, with the remainder consisting of distributed power sources.
    Back to Top

    China Idles Solar Power for First Time Amid Grid Congestion

    China halted power flows from solar panels for the first time as congestion on its electricity grid prevented renewable energy from reaching customers.

    About 9 percent of the nation’s solar capacity sat idle in the first six months of the year, according to data from the National Energy Administration released Tuesday. Dormant generators were mainly in the northwestern region of Gansu and Xinjiang.

    China’s electricity grid is struggling to absorb quickly increasing flows from both renewables and coal-fired power plants. Authorities either delay hooking new plants to the grid or idle facilities whose output can’t be managed.

    Wind farms for years have suffered such delays, and solar now is joining. The problem is exacerbated by slower growth in electricity use and by more coal plants coming online.

    Gansu had the highest rate for idled solar plants, with 28 percent of power generation out of service. Xinjiang’s rate was 19 percent, the NEA said in a statement on its website.
    Back to Top

    SunPower profit falls 54 pct

    Solar panel maker SunPower Corp reported a 54 percent fall in quarterly profit due to lower revenue from its power plant business.

    The company's net profit fell to $6.5 million, or 4 cents per share, in the second quarter ended June 28 from $14.1 million, or 9 cents per share, a year earlier.

    Revenue fell 25 percent to $381 million.
    Back to Top

    China coal producer Shenhua plans $1 bln wind farm IPO in HK-IFR

    China's biggest coal producer, Shenhua Group, plans to list its wind farm assets in an initial public offering in Hong Kong valued at up to $1 billion, IFR reported on Monday, citing people familiar with the plans.

    The IPO is expected for the first half of 2016, according to IFR, a Thomson Reuters publication. The company has invited banks to pitch for the deal, though no mandates have yet been assigned, it reported.
    Back to Top


    DuPont cuts full-year outlook on weak farm sales

    Chemical and crop company DuPont reduced its earnings forecast for the year to account for the spin-off of its performance chemicals unit and a weak demand for agricultural products.

    DuPont said it expects its full-year operating earnings of about $3.10 per share. The company in April had forecast earnings at the low end of the $4.00-$4.20 range for the period.

    The company, whose international business accounts for about 60 percent of its overall sales, also reduced the impact of a strong dollar to its full-year earnings to 60 cents per share from 80 cents, due to the spin-off.

    Shares of DuPont, which completed the spin-off of Chemours Co on July 1, were down about 1.5 percent at $55.89 in premarket trading on Tuesday.

    The company in May defeated a campaign by Trian Fund Management to land seats on DuPont's board, delivering a landmark setback to one of the most influential activist investor firms.

    DuPont's agriculture business, which accounted for about 37 percent of its sales, is being weighed down by weak global demand for crop protection products, reduced corn farming in Latin America and lower soybean volumes in North America.

    On an operating basis, DuPont reported earnings of $1.18 per share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.

    Net income attributable to DuPont fell to $940 million, or $1.03 per share, in the second quarter ended June 30, from $1.07 billion, or $1.15 per share, a year earlier. Net sales fell 11.5 percent to $8.60 billion.

    Attached Files
    Back to Top

    Pork prices are surging in China

    Since March 2015, retail prices have risen on average by 7% year-over-year on a monthly basis, and prices of the more expensive cuts have risen by as much as 20% year-over-year.

    This current price surge is bringing back memories of China's 2011 inflation nightmare. Back then, the spike in pork prices – a major Chinese food staple – was the major contributor to the sharp inflationary pressures.

    And on top of that, many are worried that the return of pork price inflation could bring China's monetary easing to a grinding halt.

    But those fears are overblown. "Our view is much more benign,” writes Qu Hongbin, HSBC Chief Economist for Great China.

    “Pork prices are surging, but impact on inflation will be largely offset by falling prices elsewhere. We expect full year CPI inflation at below 1.5%, and well below official target of 3%, leaving room for further monetary easing," he continues.HSBC Global Research

    Qu lists two major reasons why HSBC analysts believe that's the case:

    First off, pork price cycles have "moderated quite significantly" over the years since 2011, which Qu attributes to more rational supply side management and relatively subued domestic demand. Furthermore, he continues, Beijing now has a price-stabilization program, which could be used if necessary.

    Secondly, the prices of other food items are either stable (such as grains) or falling (such as fresh fruits and eggs.) "This, plus weak property prices and falling fuel prices will largely offset the inflationary impact of pork prices," writes Qu.

    But even if — worst case scenario — pork prices keep rising à la 2011, it's still not terrible news.

    Read more:
    Back to Top

    Base Metals

    Southern Copper profit drops in first half on copper price slump

    Southern Copper Corp said on Tuesday its net income dropped 12.6 percent drop in the first half of the year due to the slump in global metal prices, but it said it was well-positioned to weather the "temporary downturn".

    The global mining company controlled by Grupo Mexico said first-half net income was $577.1 million compared with $660.6 million in the first half of last year.

    "Even though the current economic scenario is affecting metal prices, we believe this is a temporary headwind that will eventually fade, making the strong copper market fundamentals prevail," said German Larrea, chairman of the Southern Copper board and Grupo Mexico chief executive officer.

    Sales fell 6.5 percent to $2.658 billion compared with the same period in 2014 as a higher sales volume was unable to offset lower prices.

    Output rose 8.6 percent to 356,701 tonnes, the company said.

    Peru is the world's third largest producer of the red metal and its production of copper, gold, and silver will likely rise by 13 percent this year, the country's mines minister told Reuters last month. Zinc is set to rise 18 percent.

    Southern Copper said its earnings before interest, taxes, depreciation and amortization declined 13.3 percent to $1.193 billion in the first half of 2015.

    "We believe that Southern Copper s excellent reserve base, low cash cost, conservative capital structure and growth program, makes us the industry s best prepared company to weather this temporary downturn in metal prices," said Larrea.

    The company operates mines in Mexico and Peru, where it is on track to expand its Toquepala mine but has faced delays in rolling out its Tia Maria project amid protests.

    Southern Copper said last month it hoped to reach an agreement with protestors in time to begin construction of the planned $1.4 billion mine before the end of 2015.

    Mining conflicts in recent years have held up billions of dollars worth of investment in which is expected to contribute a significant amount to future global supplies.
    Back to Top

    Antofagasta cuts annual copper output forecast on Antucoya project delay

    Chilean miner Antofagasta cut is annual copper output forecast for the second time this year on Wednesday due to a delay in the start-up of its Antucoya project, as it posted a double-digit-percentage decline in half-year copper production.

    The London-listed miner, which has been hurt by a steep fall in prices, declining ore grades, unfavourable weather and environmental protests, produced 303,400 tonnes of copper in the first half, down 12.9 percent from a year earlier and below analysts' forecasts.

    It cut its full-year copper production guidance to 665,000 from 695,000 tonnes due to the delayed commissioning and subsequent ramp-up of its Antucoya project stemming from a technical issue.

    "Construction of Antucoya was completed on budget but we have experienced some commissioning issues on the crusher circuit which means we now expect first production to be delayed until the end of the first quarter," the company said in a statement.

    Torrential downpours in a desert region of northern Chile and environmental protests hit its first-quarter output, forcing it to reduce its annual production forecast by about 15,000 tonnes earlier this year.

    The firm is focusing on its $1.9 billion Antucoya greenfield project and other brownfield expansions to cope with a fall in production due to aging mines and declining copper grades.
    Back to Top

    OK Tedi PNG copper mine output stalled by low river water

    OK Tedi Mining Limited is preparing to temporarily shut down its copper mine in Papua New Guinea because dry weather is making operations difficult, the company said in a statement.

    "River traffic on the Fly River into and out Ok Tedi's main river port at Kiunga has been unreliable for some weeks due to low water levels," state-owned OK Tedi Mining said.

    "Transport of copper concentrate product to Port Moresby for on-shipment has also been unreliable creating uncertainty with regard to cash inflows necessary to sustain operation."

    Analysts say the mine produced about 76,000 tonnes of copper last year.

    The company added that the low river flow also affected operation of the Ok Menga power station, which is the main source of power for its operations.

    "Concurrent with the planned stand down of the workforce due to the dry weather event, the permanent workforce number of expatriates will be reduced by 30 percent and nationals by 15 percent," it said.

    "These changes are essential to help position OTML to better cope with a low commodity price environment on resumption of operations."
    Back to Top

    Steel, Iron Ore and Coal

    China to punish coal mines in illegal construction or production

    China has vowed to "punish" coal mines in illegal construction or production, instead of the previous milder wording of "curb", in a bid to accelerate rebalance of the market supply and demand, 12 Chinese ministries concertedly said in a statement on July 27.

    New coal mines or mines in capacity expansion without approval, mines in production beyond capacity and mines under great safety risk will fall into the category, the statement said.

    All the coal mines under construction but in lack of official approval will be ordered to stop for rectification within a prescribed period of time.

    For mines already built without approval but qualified to get through relevant formalities, the approving authority will ask these mines to shut backward capacity in proportion to the new capacity.

    The government will set stricter conditions for illegal mines with regard to project approval, outdated capacity elimination target, power supply, governmental fund support, rail transport quota, etc.

    In early June, China pledged to curb illegal coal production, while the focus seemed leaning to requirement on power companies, of which power generation quota would be reduced if they buy thermal coal from mines under illegal production.
    Back to Top

    Rio's Mozambique coal assets eyes expansion

    Image Source: Rio TintoReuters reported that a year after Rio Tinto pulled the plug on its Mozambique coal venture, the Indian company that bought the assets is planning an ambitious expansion.

    Mr Nirmal Chandra Jha director of ICVL's Mozambique said that the Benga mine acquired from Rio by International Coal Ventures Private Limited (ICVL) has a current production capacity of about 5.3 million tonnes per year but its target is 13 million tonnes in five years' time.

    Mr Jha, speaking at a Mozambique coal conference, said the mine is currently producing about 4 million tonnes per year, less than half of which is export quality. Any expansion will hinge on upgrades to Mozambique's rail system, which can only handle about 6 million tonnes per year.

    He said that "We hope that in five years, the infrastructure will also improve. That's a big hope."

    Infrastructure challenges were a big reason behind Rio's decision to exit Mozambique, which has some of the world's largest untapped sources of coal but is still recovering from a civil war that ended two decades ago.

    The coal assets Rio bought through a USD 4 billion acquisition of Riversdale in 2011 were sold for just USD 50 million to ICVL.

    Depressed prices are an obstacle to investment and expansion in the present environment. But ICVL was set up by the Indian government to acquire and develop coal assets to meet the needs of state-owned firms such as the Steel Authority of India, and so the company has potentially deep sources of finance to tap.
    Back to Top

    China H1 large and medium steel mills loss 21.68 bln yuan, CISA

    China’s large and medium-sized steel mills posted a total loss of 21.68 billion yuan ($3.54 billion) in core businesses in the first half of the year, compared with a loss of 4.9 billion yuan a year ago, said the China Iron and Steel Association (CISA) on July 27.

    During the first half of the year, total crude steel output of China dropped 1.3% on year to 409.97 million tonnes, compared with a 3% growth from the same period last year, the first decline over the past 20 year, the CISA said.

    Meanwhile, China’s apparent crude steel consumption dropped 4.71% during the same period, compared with a 3.2% decline in 2014 and a 7.1% growth in 2013, signaling that steel consumption may have entered the peak period, said the CISA.

    China’s steel sector is suffering from falling demand from traditional steel guzzlers, persisting low prices and increased trade friction caused by high exports of steel products, said the CISA.
    Back to Top

    Peabody turns to cost cuts as coal prices slump

    Peabody Energy Corp said it was suspending its quarterly dividend, reducing production of steel-making coal and cutting jobs to stem losses as coal prices remain stubbornly low.

    The coal miner also reported a much bigger second-quarter loss on Tuesday as it took $900.8 million impairment charges.

    Prices for thermal coal used in power production have slumped as utilities switch to cheaper and cleaner natural gas. Prices for metallurgical, or steel-making, coal have also dropped due to weak demand from Chinese steel mills.

    Consol Energy Inc reported a much bigger quarterly loss earlier on Tuesday and said it was delaying a planned initial public offering of a unit holding steel-making coal assets due to weak prices.

    Peabody said it was cutting 550 jobs, including 300 across mines in Australia and 250 corporate and regional support positions, and closing some offices in Wyoming. The company had 8,300 employees as of Dec. 31.

    The miner said it was lowering annual production of steel-making coal by about 3 million tons. Peabody produced nearly 18 million tons of metallurgical coal in Australia in 2014.

    The company, which gets more than a third of its total revenue from mining operations in Australia, cut its metallurgical coal sales target for 2015 by about 1 million tons.

    Peabody also slashed its total sales volumes forecast for the year to 225-245 million tons from 235-255 million tons.

    The miner, which slashed its dividend by 97 percent in January, said it would suspend its quarterly dividend payout.

    It also said its board had authorized a reverse stock split, subject to shareholder approval.

    Net loss attributable to Peabody's common shareholders widened to $1.04 billion, or $3.84 per share, in the quarter ended June 30 from $73.3 million, or 27 cents per share, a year earlier.

    Revenue fell nearly 24 percent to $1.34 billion.
    Back to Top

    EU backs dumping duties on stainless steel from China, Taiwan

    EU members have backed the imposition of anti-dumping duties on imports of cold-rolled flat stainless steel from China and Taiwan, according to sources familiar with the decision.

    The European Union will charge tariffs of between 24.3 and 25.3 percent for sheet, coil and strip imports from China and of 6.8 percent for Taiwanese product, following a complaint lodged in May 2014 by the European steel producers association Eurofer.

    The European Commission launched its investigation in June 2014, determining that the provisional duties should apply in March.

    Those provisional duties are of 24.2-25.2 percent for China and of between 10.9 and 12.0 percent for Taiwan.

    Definitive measures, which are typically in place for five years, were put to a vote by the EU's 28 member states last week, with a sizeable majority supporting them. The Commission has until Sept. 25. to impose them.

    Eurofer has said China and Taiwan shipped 620 million euros ($686 million) of cold-rolled stainless steel into the EU in 2013, some 17 percent of the overall market, and were guilty of dumping, or selling at unfairly low prices.

    Imports from the two countries more than tripled from 2010 to 2014, Eurofer said, because of overcapacity there rather than market growth in Europe.

    Analysts have said the tariffs would probably not end imports from China, but were high enough to have a considerable impact.

    The companies affected include China's Shanxi Taigang Stainless Steel Co, Baosteel Stainless Steel Co and Taiwanese manufacturers Tang Eng Iron Works Co, Yieh United Steel Corp (Yusco).
    Back to Top

    U.S. Steel posts wider loss, revenue decline

    U.S. Steel Corp. posted a wider loss and reported a 34% revenue decline as the steel market remained "significantly challenging."

    The company said cost-cutting efforts have partly offset depressed volumes and low prices in tubular and flat-rolled markets and the effect of imports.

    U.S. Steel expects market conditions to improve in the second half of the year as supply chain inventories rebalance, primarily in flat-rolled markets.

    The company reported a loss of $261 million, or $1.79 a share, compared with a loss of $18 million, or 12 cents a share, a year earlier.

    The latest quarter included a write-down of 93 cents a share of its retained interest in U.S. Steel Canada, which applied for bankruptcy protection in late 2014.

    The loss excluding items was 79 cents a share.

    Net sales fell to $2.9 billion from $4.4 billion.

    Analysts polled by Thomson Reuters projected a loss of 65 cents a share on revenue of $3.04 billion.

    In April, U.S. Steel lowered its pretax 2015 earnings forecast, citing "massive" amounts of imports, low oil prices and excess inventories. The company said at the time it expected adjusted earnings before interest and taxes of between $115 million and $315 million, from a prior projection of between $550 million and $850 million. The company said Tuesday it continues to expect results within this range.

    Across the board, steelmakers in the U.S. are reeling as prices have dropped to their lowest levels since the 2009 financial crisis.

    A sharp decline in oil prices has led to a pullback by energy producers and lower demand for steel pipe for drilling.

    Under Chief Executive Mario Longhi, who took over in 2013, U.S. Steel has been aggressive about laying off workers and cutting costs.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP