Mark Latham Commodity Equity Intelligence Service

Thursday 16th April 2015
Background stories on

News and views:

MacroOil and GasAlternative EnergyUraniumBase MetalsSteel, Iron Ore and Coal


Brazil Police Arrest Workers’ Party Treasurer Joao Vaccari Neto

Brazil’s federal police arrested João Vaccari Neto, the treasurer of Brazil’s ruling Workers’ Party, or PT, as part of an investigation of alleged corruption involving contracts between state-run oil firm Petroleo Brasileiro SA and construction firms.

Mr. Vaccari is accused of receiving “irregular donations” from companies for the party, according to a federal police spokesman. The spokesman didn’t elaborate on the allegation and said more details would be given at a news conference later Wednesday.

Earlier this month, Mr. Vaccari testified before a congressional committee investigating allegations of kickbacks and bribery at Petrobras and said donations to his party were all legal and approved by the country’s electoral court.
MGL: More arrests. 

Oil and Gas

IEA says oil supply boost may defer market tightening

World oil markets may take longer to tighten than expected due to a surge in OPEC supply and a potential rise in Iranian exports, even as demand shows signs of strength, the International Energy Agency said on Wednesday.

The agency raised its forecast for global oil demand growth in 2015 for a second consecutive month, citing strong pockets of consumption in Europe, India and the United States.

Global oil demand is rising faster than projected, but so is supply, and the IEA, which advises industrialised countries on energy policy, rolled back its prediction of when the market would tighten.

"Recent developments thus may call into question past expectations that supply and demand responses would tighten the market from mid-year on," the IEA said in its monthly report.

OPEC production surged to 31.02 million barrels per day (bpd) in March, almost a two-year high, led by Saudi Arabia.

Saudi oil output rose by 390,000 bpd in March to 10.1 million bpd, its highest since September 2013, confirming industry reports of a surge in production as the kingdom meets domestic demand and bolsters its global market share.

Saudi output is likely to keep rising, analysts say, reducing global spare production capacity. London-based consultancy Energy Aspects said this week Saudi crude production could reach a record 11 million bpd this summer.

Iranian oil production could rise sharply if economic sanctions are removed from the Islamic Republic.

The IEA raised its forecast for growth in world oil use this year by 90,000 bpd to 1.08 million bpd, bringing demand in 2015 to an average of 93.60 million bpd.

It said consumption may falter in some areas but OPEC production was likely to stay high and could even rise further in April.

The agency left its forecast of demand for OPEC crude in 2015 unchanged at 29.50 million bpd, pointing to a rising supply surplus if OPEC keeps the same output.
MGL: How does the EIA know that final Oil demand is rising?

We have good data on storage and inventory fill in North America.  So here's the data:

Image titleThis shows a downtick as inventory effects fade.

The EU has an Energy Portal which gives us stuff like this:

Image titleSo its really cool if I need to know my consumer energy rights, but pretty useless if I want updated final Oil demand. The last comprehensive data I found covered 2012. Thats helpful. Delving into the individual country data produces a real smorgisbord of results.

Consultants like Energy Aspects are suggesting 'light end' product demand globally is 'strong' but are completely in the dark about tertiary inventory effects. 

Real final end demand right now is a mystery. Time will tell, and surely there has been some lift in demand. 

On supply, we really only have good data from the JODI database, and even that data is suspect. 


Russia says is in "unprecedented" consultations with OPEC

Russia's energy ministry has been holding active consultations with the Organization of Petroleum Exporting Countries and Latin American oil producers which Deputy Prime Minister Arkady Dvorkovich described on Wednesday as "unprecedented".

He did not elaborate on his comments but told a energy ministry panel that such discussions should continue.

Russia has tried to forge closer ties with OPEC after oil prices plunged. Moscow is expected to send a delegation to talks with some OPEC members in June.
MGL: For the first time since the oil price crashed we see a news story that could perhaps stabilise the Oil market.  Before readers open the Champagne,  you have to consider what Saudi intentions are here. It would not surprise me if Saudi is asking OPEC, and Russia to help stabilise the Oil market at around the $60 level.  June is an intriguing date for a meeting, its after the final 'in principle' deal with Iran is supposed to go into action, and that could involve 1-1.5mbpd of additional Iranian crude hitting markets. 

Nevertheless, its yet another excuse for a market that is dying to bull crude.

Asia's crude oil storage seen sufficient as contango spurs stocking

Asia still has ample room to store crude in the midst of one of the longest sustained periods of contango that oil markets have seen since 2010, with capacity available from South Korea to new facilities near Singapore.

First-month Dubai crude prices have been at a discount to third-month Dubai prices since October 27, 2014, according to Platts data.

It is the most sustained contango since November 2009-November 2010, the data showed.

China would be the mostly likely place to store crude at present as oil demand growth remains strong even as the country's overall economy slows. Commercial storage sites may have at least 10 million barrels of capacity available, according to Platts calculations.

The Dalian West Pacific Petrochemical Corp. or Wepec refinery operated by PetroChina has crude tanks capable of holding 6.3 million barrels, which are less than 40% full as the refinery prepares for maintenance, a refinery source said.

PetroChina's Dalian refinery has commercial crude storage facilities totaling 8.8 million barrels of capacity and the tanks are about 90% full, said a refinery source.

In southern China, Sinopec has gradually filled its 16 million barrel storage base in Hainan province since late 2014 to be 100% full at end March, according to a source at Sinopec's Hainan refinery. However, the refinery still has room at its own storage facilities, which have 6.9 million barrels of capacity.

Sinopec's Maoming refinery in Guangdong province has been keeping its inventory steady at between 5.2 million and 5.8 million barrels, although its total capacity for crude is 9.6 million barrels.

Sinopec subsidiary Sinopec Storage and Transportation has a separate storage site in Maoming, where utilization is now at 87%, from above 50% in the first half of 2014. There are 15 storage tanks totaling 11.8 million barrels of capacity, 13 of which are full, a company source said.

Commercial crude stocks in China totaled around 250 million barrels at end February, according to Platts estimates based on data released by China Petroleum Stockpile Statistics. This equates to about 24 days of apparent oil demand.
MGL: Confirms likely ongoing Chinese inventory build, but this is now almost a constant these last two-three years.

Oil historian Yergin sees prices locked in ’W’ formation

Oil historian and economist Daniel Yergin has a forecast for where the price of crude is headed: all over the place.

The much debated shape of the oil-price curve will take the form of a W as crude is whipsawed by mixed signs from a rattled US shale boom, while Saudi Arabia refuses to balance a global supply glut, Yergin said in an interview.

As spending cuts are forecast to begin easing production from shale next month, the fate of world oil markets is largely in the hands of a myriad of US wildcatters, all with different strategies and an unusual ability to respond quickly to changed circumstances.

Ramping down will be quicker and easier than stepping up production as prices recover, said Yergin, vice chairman of IHS Inc. Increased supply will renew downward pressure on prices and volatility will be exacerbated by storage and investment decisions, he said.

“It’s not a light switch,” he said of the producers’ response to an oil price slump, one of the themes to be discussed at next week’s IHS CERAWeek energy conference in Houston. “There isn’t going to be a landing place for oil.”

Oil stored in anticipation of higher prices in the future will also put a ceiling on a near-term rebound, he wrote February 13. Tertzakian has called it a “seesaw recovery.”

Yergin, author of “The Prize,” identified this year as one of the most momentous in the history of the commodity.

Demand growth from China, perhaps the biggest reason for oil’s meteoric rise in the last decade, has slowed. Meanwhile, risk to supply abounds in producing countries, from the proxy war being waged in Yemen by Iran-backed rebels and Saudi forces to ongoing tensions between Russia and Ukraine, he said.

“There is a lot of risk in the world, but there isn’t much of a risk premium in oil, which is unusual,” he said. “There is so much oil, the supply of it is so great that the fear of supply being disrupted in some fashion” is very small.
MGL: All good stuff from Yergin

Lukoil Says Was Asked to Reduce Iraq Output

Russia's Lukoil was asked to sharply reduce output in Iraq this year and earlier after the country's exports were disrupted by bad weather and quality issues.

"We've got the letter to curb our enthusiasm," Ravil Maganov, who is in charge of Lukoil's upstream division, told reporters.

Regarding Lukoil's production at the huge Iraqi West Qurna-2 oilfield, Maganov said: "We were restricted to 250,000 barrels per day (bpd) due to weather and level of sulphur, we are dealing with the problem."

He said Lukoil's current production at West Qurna-2 was 380,000 to 390,000 bpd.

Lukoil is building an oil pipeline with a capacity of 1.6 million bpd to Iraq's southern port of Faw.

The Iraqi government reimburses costs incurred by Lukoil, as well as other producers, with oil.

Oil companies have proposed cuts to development spending in Iraq after Baghdad told them that low oil prices and the fight against Islamic State had made payments difficult.

In a letter sent to the companies last month seen by Reuters, the firms were told such cuts should not reduce current oil production levels.

- See more at:
MGL: West Qurna 2 is supposed to pump 1.2mbpd by 2017, and this update on production numbers confirms industry reports that 120/- bpd facility completed in Q1. That Iraq is asking for a capex slowdown across the board is news, and likely reduces Iraqs growth rate from the current 200/- to 400/- kpd per year down somewhat. 

Petrobras may sell stakes in sub-salt blocks -paper

Brazil's Petrobras may include stakes in some sub-salt oil fields in an asset sale program aimed at reducing capital spending amid a massive corruption scheme, a local newspaper reported on Wednesday.

Petroleo Brasileiro SA, as the state-run oil company is formally known, could include some exploration licenses that are not under production-sharing agreements and a 10 percent stake in the Libra field in the sale plan, newspaper Valor Economico reported. The paper did not specify where it obtained the information.

The asset sales are part of a $13.7 billion divestiture program announced early in March, set to take place this year and next.

Petrobras had said previously that divestitures in exploration and production could account for roughly 30 percent of the total value to be raised.

Subsalt deposits refer to an area in Brazil's Santos and Campos basins where large oil discoveries have been made deep beneath the seafloor under a layer of salt.

According to Valor, Petrobras decided to hire Bank of America Merrill Lynch to find potential buyers or partners in those areas. The mandate included high-quality blocks in the asset sale in order to make it more attractive to investors, the paper added.
MGL: This is exactly what Petrobras needs to do to remediate its enormous contractual liability problem.
Image title
Image title
Total EV is thus $317bn on the most recent audited data we have. In September PBR showed this slide:
Image title
Which strongly suggests contractual commitments were rising strongly into the Oil price collapse.

On this data EV would be $345bn.  On current Oil prices Petrobras likely makes $20-$25bn of EBITDA, depending on how low the Real falls. (Falling Real brings down local pump prices from their present higher than normal levels)

That leaves EV/Ebitda at just north of 15, which is just excessive. This is not Google.

Petrobras reports audited q4 on the 22nd April, and we strongly suspect, given the 'ramp' going on in the stock, and the piles of fiction called analysis landing on my desk, that there's a secondary in the wind. On the corruption numbers:

WSJ: Found so far $700m.
Market consensus: $5bn, (we think this is figure inferred from existing arrests and testimony)
Judges comment: $30bn (this figure seems to be 3% of capex over the last 10-15 years)

Which is all a bit like Oil reserve reporting! 

Mind your eye!

Active accounts could even consider a short into the numbers on the 22nd April.

The Shell/BG deal potentially gives Petrobras a route out of this mess. IF the current ridiculous Brazil sub-salt legislation could be altered, we could infer a value for sub-salt resource of around the $2 a boe level, rather than the pathetic 47c a boe accorded by the M&A markets, and reflecting the appalling record of Petrobras operatorship over the last few years. 

This is not easy.


Rosneft experiences increased gas production

Russian-based gas production firm has experienced increased activity during the first quarter.

Rosneft’s gas production increased by 19.7% compared to the same period last year and amounted to 15.8 BCM.

Factors contributing the growth include an increase of use of produced gas, an organic increase in production from existing production facilities, as well as commissioning of new fields  such as Northern Chayvo at the Sakhalin island.

The company has said it is working to improve the utilization of associated petroleum gas, which reached 87% in the first quarter of 2015 compared with 81% in 2014.

This year it hopes to achieve an APG utilization level of 95%.
MGL: More gas, less flaring.

South Korea's March LNG imports fall 26% on year to 3.05 million mt

South Korea imported 3.05 million mt of LNG in March, down 25.9% year on year and down 1.2% from February, customs data showed Wednesday, April 15.

The lower imports were a direct result of high inventories caused by weak downstream demand.

It was the third straight year-on-year drop in South Korea's monthly LNG import data.

The country imported 10.18 million mt in the first quarter, down 20.2% from Q1 2014.

State-owned Kogas earlier reported a 7.1% year-on-year drop in January LNG sales, with February LNG sales falling 9.1% year on year to 3.37 million mt.

The company's March sales data is not yet available.

Kogas has been trying to deal with its high inventories by carefully managing deliveries at its terminal operations.
MGL: Ugly.

Top India Explorer’s Spending Bucks Big Oil as Crude Dips

Billionaire Mukesh Ambani’s Reliance Industries Ltd., which runs the world’s largest refining complex, overtook ONGC as India’s most profitable company five quarters ago. Photographer: Pankaj Nangia/Bloomberg

India’s Oil & Natural Gas Corp., grappling with aging fields, is prepared to sacrifice profits by retaining a plan to pump 11 trillion rupees ($176 billion) into a search for reserves despite the slump in crude.

The decision sets India’s biggest explorer apart from global producers such as Chevron Corp., which are tightening budgets. Crude’s drop has already taken a toll: ONGC’s profit fell the most in at least nine years in October through December, and the shares are down 5.5 percent in 2015.

“We’ve decided not to cut any capital expenditure,” Chairman Dinesh Kumar Sarraf said in an interview in New Delhi. “Higher spending in a low oil-price scenario will have an impact on our earnings. But we don’t have a choice.”

ONGC by 2030 plans to spend a sum roughly equivalent to the size of Vietnam’s economy to find more oil, as Indian Prime Minister Narendra Modi seeks energy security. While investing as profits drop signals potential stress for the company, longer term ONGC could benefit as its output rises and oil prices recover, according to Emkay Global Financial Services Ltd.

“We just hope crude prices will recover going ahead,” Sarraf said in the April 13 interview. “Our capex now will come to good use when we are back in days of higher prices.”
MGL: "But we dont have a choice"

Strongly implies that ONGC is heavily contracted into this downturn. Company generates cash, and the fall in prices has actually relieved balance sheet stress by drastically reducing the scale of the subsidy receivables.  So there's not much issue at ONGC stock, but it adds to the picture of ongoing supply addition post the collapse in Oil.

WTI Spikes Above $55, Crude Inventories Rise At Slowest Pace In 14 Weeks

For the 14th week in a row, US crude inventories rose; but against expectations of a 3.5mm build (and weak API overnight), DOE printed a mere 1.294mm bbl build - the lowest since the build streak began on the first week of January. Crude prices are spiking on the news (though we note last week saw the biggest build in 30 years with the 2 week average above trend). Total crude inventory continues to make new record highs (and pressure Cushing capacity).
MGL: Now the question becomes whether this inventory build represents an improvement in Oil demand/supply fundamentals, or a lack of economic storage available. Given the scale of the fracklog,and the implied fall in US shale production.

Here's North Dakota and Texas data through January/February:
Image titleImage title
Now this is bullish crude, and the market loved it.

I was watching Saudi crude trade this am. At first it rallied strongly above $60, then it was hit by a seller and dropped a $1 in under an hour, so the chart shows Saudi crude dead on the price point where ARAMCO is willing to turn on the export tap:

Image title

There has been no question that our newsflow over the past month has turned distinctly bullish on crude. We've seen the emergence of an enormous Fracklog in the US which must be cutting into US production by some 1mbpd to 2mbpd. In January it was definately more than 750kbpd. By march it could easily have doubled.

Yesterday felt like the final blowoff move, the celebration by the market that its instinct is correct. Implied market expectations are now at the very upper end of the $80-$90 level for Oil equity, firmly cemented by increasing demand, falling supply, and Shell's BG bid, paying 3x NPV.

ARAMCO now aces the market, with the capacity to move an additional 1-1.3mbpd into markets above $60. That capacity increases to 2mbpd by the end of 2017 as they switch Oil for Gas in domestic electricity generation. It is certain Saudi has said $60 on every occasion its officials have made a public utterance.

Shorts gentlemen please.


But almost all the Oil equity we've looked at is overpriced.


EIA Predicts Natural Gas Production Starts Declining In May

The report is based on the average rig count for the month of March. The rig count has fallen by more than 10% from the March rig count average.

Based on the recently released EIA Monthly Drilling Productivity Report, the EIA will soon be lowering their forecast for 2015 natural gas production from the lower 48 United States. The report now predicts natural gas production will decline overall by 23 million cubic feet per day in May from the seven shale basins followed in the report.

According to the EIA, all of the growth in natural gas production in the lower 48 has come from the seven shale basins followed in the report. Natural gas production has already been declining from the regions not followed in the report. So, overall natural production in May can be expected to fall by more than 23 million cubic feet per day.
MGL: EAI estimates are RIG based, the state estimates are completion and royalty based. We think the state numbers, which now show DECLINES in production of some 700kbpd on the published data are more accurate. That data is Jan/Feb. March completion activity in the US is being reported at around 30% of rig activity right now. That implies 2mbpd of uncompleted wells.

US E&P Q1 reports are going to be a horror show. 

EOG has lion's share of 900 North Dakota wells awaiting fracking

Oil producer EOG Resources Inc has the lion's share of an estimated 900 North Dakota wells waiting to be fracked, according to state data, showing that even major oil titans are mothballing operations while they hope for a rebound in oil prices.

For months the conventional wisdom in North Dakota's Bakken shale formation had been that smaller producers with weak cash flow comprised the bulk of that estimate.

While the estimate had been published monthly, it was not clear until a Tuesday update from the state's Department of Mineral Resources (DMR) who was dominating the list. Oilfield service companies have aggressively sought the information, hoping to drum upnew business.

By late May, the number of wells waiting to be fracked is expected to breach 1,000, DMR officials said, fueled largely by cheap oil and a $5.3 billion industry tax break expected to hit in June.

Oil producers have up to a year to frack the wells before they must ask state officials to label them "temporarily abandoned."

The fact that industry stalwarts like EOG are having to hold off on fracking new wells shows how much low prices make the remote Bakken far less economical compared to other U.S. shale plays.

EOG has kept three North Dakota drilling rigs operating since January, though it has not fracked any of the wells that it has drilled. Most of the uncompleted wells are in the Bakken's Parshall Field.

"These are tremendously productive wells," said the DMR's Lynn Helms. EOG is "able to drill a lot of wells and maintain production and still bank a lot of wells for future price increases."
MGL: EOG has been most forthright in their refusal to complete wells. In a Q&A session post the Howard Weil conference they intimated that $75 was the kind of price they were looking for to complete what now must be a sizeable fracklog, but thats analysts putting words in EOG's management's mouth, and there was no clear definitive statement that we are aware of.


Hunting's operating profit falls on oil sector slump

Oilfield services company Hunting Plc said its first-quarter operating profit fell about 60 percent, hurt by falling global rig counts and reduced capital expenditure across the sector.

Shares in the company fell 8 percent to 536 pence in early trade on the London Stock Exchange on Wednesday.

Hunting said its subsea, electronics and tubular component machining sectors performed better in the quarter compared with last year, offsetting weakness in its North American drilling tools business. (

"The decline of 60 percent y-o-y headline number looks severe at first glance, but we highlight this was versus a much stronger environment in the first half of 2014," Barclays analyst Mick Pickup said in a note.

The company, which provides services and equipment for drilling, completing and maintaining oil and gas wells, had said in February that it expected the impact of weak oil prices to show up from the second quarter.

The faster- and steeper-than-expected fall in North American rig counts accelerated the impact of the slowdown, specifically the decline in the traditionally sturdy Gulf of Mexicoregion, Finance Director Peter Rose told Reuters on Wednesday.

"That is an environment where we thought we would have some degree of protection... but even there we are all seeing some rig contracts being cancelled and we're seeing some slowdown there."

Hunting said it had cut about 20 percent of its headcount so far this year, more than half of it in the United States, as part of a cost cutting program started in February.
MGL: Hunting rallied to the close, the stock now trades 19x eps, 9.6x ev/ebitda with a 3.4% yield.  Hunting in it's last big presentation had two interesting slides on Oil declines:
Image titleImage titleWe now know, and the market is just waking up to the fact, that US shale output is likely already down 1-2mbpd in March, but thats mainly driven by the fracklog.

Alternative Energy

This striking chart shows why solar power will take over the world

Solar energy cost and installed capacity chart

Over the past few years, many graphs have been worth thousands of words on the rise of solar power. It's almost impossible to overstate how important the revolution that is happening right now is, and like most transitions, most people will only realize what's going on after it's mostly over. But not you guys and gals, you are ahead of the curve, and you're grasping the importance of all this. In fact, I'm sure that many of you are driving this progress forward and helping it happen!
MGL: We like the North American names:


We note we first wrote this up as a buy in q1 last year. Very few, if any of you have any exposure to the alt-energy space.

It is very notable from the recent round of client presentations that index hugging is in fashion.

No questions on:

~Alt Energy
~Small cap.

Large amount of whinging because I refused to provide an big index Oil name that was a decent source of return.  


Massive Nuclear Build-out Here Will Require A Lot More Uranium

Indian Prime Minister Narendra Modi arrived in Canada yesterday. With his arrival representing the first India-Canada governmental visit in 42 years -- and a chance to discuss securing uranium supply for India's growing nuclear sector.

Prior to departing for the trip, Modi made it clear that uranium was a key issue in talks with Canada. Noting that "sourcing uranium fuel for our nuclear power plants" was one of his biggest goals for the current visit.

Sources told local press that talks are already well advanced between Indian interests and Canadian uranium producers. With mining giant Cameco being mentioned as the most likely supplier.

A look at the numbers makes it clear why uranium is such a big priority for India. Because the country's nuclear program is in the middle of a massive build-out.

India's current installed nuclear capacity stands at 5,780 megawatts. But according to reports released by the government last month, that is expected to jump to 10,080 megawatts by 2019.

That represents a 74% increase in nuclear generation. All of it coming in the next few years.

India does have some domestic production of uranium to support its reactors. But not nearly enough to be completely supplied.

Uranium imports are thus going to be a big issue for the government over the coming months and years. Watch for details on supply deals being completed in Canada -- and for investigations into production from other parts of the world.

Canada and India have inked a $350 million uranium supply deal that will see Saskatchewan-based Cameco Corp., the world's largest publicly traded uranium miner, provide fuel for Indian reactors.

The deal formally ends a long-dragged dispute that began after New Delhi used Canadian technology to develop a nuclear bomb in the 1970s.

Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years.

As part of the agreement, Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years. The deal is the Canadian miner’s first with India, which the firm called the second fastest growing market for nuclear fuel.
MGL: Uranium markets caught between the Japan Nuclear court decision and Modi in Canada decided to trade sideways. Cameco and Denison finally woke and expoded upwards on high volume. Uranium is one of the few commodities where the bear seems exhausted. Its going to be a slow grind out of the hole, but core demand is,perhaps,  back on the uptick

Canada and India sign historic uranium supply deal

Canada and India have inked a $350 million uranium supply deal that will see Saskatchewan-based Cameco Corp., the world's largest publicly traded uranium miner, provide fuel for Indian reactors.

The deal formally ends a long-dragged dispute that began after New Delhi used Canadian technology to develop a nuclear bomb in the 1970s.

Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years.

As part of the agreement, Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years. The deal is the Canadian miner’s first with India, which the firm called the second fastest growing market for nuclear fuel.
MGL: Good news for uranium!


Base Metals

Peru okays Southern Copper's $1.2bn Toquepala mine expansion

Peru approved Southern Copper's planned $1.2-billion expansion of its Toquepala mine, in southern Peru, putting it on track to double the operation's concentrating capacity, the company said on Wednesday.

Southern Copper, controlled by Grupo Mexico, said in a regulatory filing that the expansion aims to boost the capacity of the mine's copper concentrator to 120 000 t/d from 60 000. 

The company said Tuesday that it also expects the government to issue a construction permit for its stalled $1.4-billion Tia Maria project in coming months, despite ongoing protests by farmers.
MGL: Southern Peru, or GMexico, still has the best metrics of any of the quoted coppers.Image title
Its expanding primarily low cost copper oxide leach operations gradually over the next three years:
Image title
These copper oxide leach operation are notably low in Capex intensity, which leaves capex falling.

This leaves SPCC/Gmexico with simply the best global profile of any of the large cap miners. Gmexico looks the cheaper, and better entry point here.

Copper is...difficult!


China nickel prices get boost on worries over exchange-approved supply

The six Chinese producers approved to supply nickel against the Shanghai Futures Exchange's new contract for the metal may not be able to provide sufficient output to fill July deliveries, yielding a bump in prices in the near term in China.

Insufficient supply from these producers - plus their unwillingness to sell at current low futures prices - have helped widen the premiums of spot prices for locally produced refined nickel to as much as 1,400-1,500 yuan ($230-$240) per tonne over imported metal this week, according to data provider SMM. That's at least twice as much as premiums were before the Shanghai nickel contract started trading on March 27.

The most-active Shanghai nickel contract for July has lost 7 percent since then, as high Chinese prices prompted arbitrage selling in Shanghai and buying on the London Metal Exchange, as well as short-selling as prices dropped.

Some of the producers are now cutting spot sales due to lowprices, raising fears that the shorts may be forced to covertheir positions or be squeezed, pointing to higher prices tocome, said industry and market sources.

"Prices are too low and we have no profits anymore. Webasically do not sell spot nickel currently," said an executiveat one of the six producers, whose production are registered forthe delivery to the Shanghai nickel contract <0#SNI:>.

The producers whose output is deliverable to the Shanghai futures contract include the Jinchuan Group, Xinjiang Xinxin Mining and Shanxi Huaze Nickel & Cobalt.

Still, delivery volumes needed for July are likely to shrink as some investors exit their shorts. Relief could also come ifthe Shanghai exchange approves imported nickel from producers such as Russia's Norilsk Nickel for delivery against the futures contracts, the sources said.

The Shanghai exchange and Norilsk have been discussing delivery of Russian metal against the nickel contracts for thepast two months, although no timing of an approval has been indicated so far, one of the Chinese producer sources and a source at a metals broker said.

The exchange and Norilsk declined to comment on any talks on deliveries.

Open positions in July nickel on Wednesday require about 66,000 tonnes of the metal for deliveries by the settlement date of July 15, an amount nearly double China's refined nickel production in December 2014.

Russia provided more than half of China's imports of 130,617tonnes of refined nickel and alloy in 2014.
MGL: Image title
Here's Nickel. Its a picture dominated in the last year by the Indonesian nickel ban, and the sneaky underhand issue of export licenses that the market missed.Image title

Here's inventory. All that sneaky Nickel from the Indonesians passes straight through to the stainless steel makers via FerroNickel, and the traders never see it.

But finally, it looks like we might be killing some Chinese producers!


Iluka revenues collapse in March quarter

Mineral sands miner Iluka has reported a 50% slump in revenue for the quarter ended March, compared with the previous quarter, owing to lower production and the deferral of sales. Revenue for the quarter reached A$115.2-million, compared with the A$233.9-million reported in the previous quarter. 

Iluka said on Thursday that the company had deferred some 11 000 t of zircon sales and 12 000 t of synthetic rutile sales until after the end of the quarter, in line with shipping schedules, while also scheduling bulk synthetic rutile shipments to align with the restart of synthetic rutile kiln 2 production. 

Sales were also affected by a hiatus in zircon orders and deliveries during March, while the company engaged with customers regarding new pricing and payment frameworks, as well as lower ilmenite and by-product revenues associated with the lower Murray Basin ilmenite sales. 

Furthermore, revenue was also impacted by lower production levels, with Iluka producing only 167 200 t of mineral sands during the quarter, compared with the 207 000 t produced in the previous quarter. Zircon production declined from 84 200 t reported in the December quarter to 65 700 t, while rutile production was down from 58 000 t to 20 300 t. The lower zircon and rutile production reflected the idling of the Hamilton mineral separation plant, in the Murray Basin of Victoria, during January and February this year. Processing was restarted in March. 

Meanwhile, mining at the Tutunup South mine, in Western Australia, restarted in February this year, with full capacity reached within 12 hours. Production rates have been as planned, and ilmenite from the mine was used as feed source for synthetic rutile kiln 2, which was reactivated during March. The re-commissioning of the kiln was progressing smoothly, Iluka said, and first product was planned to be shipped in April. Yearly production capacity would be around 200 000 t, and some 140 000 to of product would be produced in 2015.
MGL: Ilmenite makes white paint which goes on Chinese houses, which haven't been built.


Steel, Iron Ore and Coal

China Coal Energy Q1 coal output down 31.5 pct on yr

Total coal sales of China coal energy Co., Ltd., the country’s second largest coal producer, slumped 31.5% on year to 20.53 million tonnes in the first quarter, it said in a statement late April 15.

In March, China coal produced 7.64 million tonnes of coal, down 26.5% year on year, the ninth consecutive year-on-year drop.

However, it represented a 30.8% rebound from February, when the miner cut production amid weak demand during the Lunar New Year holidays.

Total coal sales in the first quarter reached 24.22 million tonnes, down 27.3% on year.

In March, China Coal sold 9.15 million tonnes of coal, plummeting 30.4% on year, the second straight month for year-on-year drop staying above 30%.

Yet, it was a 22.2% leap from a month ago, ending a five-month month-on-month slide, as demand increased following further price discount.

The March sales of self-produced coal stood at 5.66 million tonnes or 61.9% of the total, dropping 45.2% year on year but up 2.4% month on month.
MGL: Image title

These Chinese punters are buying the HK line of this stock because it is at a discount to Shenzen.

They think Beijing will ride to the rescue of China Coal, its an SEO, its a big employer.

Image title
Here's EBITDA to Interest coverage. 26 to 3 in three years. A 31% fall in sales this year won't improve that number!

Coal demand in China is shrinking. Beijing has dethroned Coal because of pollution. 

But the punters are winning in the stockmarket, for now.

Image title
We stopped out our shorts, and will watch from the sidelines-- for now!


Cost cuts keep Fortescue in black despite iron ore plunge

Australia's Fortescue Metals Group Ltd slashed costs more than expected to stay in the black last quarter, as it scrambles to avoid the fate of smaller rivals in the beaten down iron ore market.

The attack on costs sent the miner's stock up as much as 9 percent on Thursday, although the shares have still halved in value over the past seven months in line with plummeting prices for the steelmaking raw material.

Two small iron ore companies have shut mines in the past week, while Goldman Sachs says half the world's so-called "tier two" miners - which includes Fortescue - are at risk of closure as mega miners boost supply.

"The current state of the industry has been a disaster for everyone. It's ripped the heart out of the industry," Fortescue chief executive Nev Power said, adding that the miner aimed to cement its place in the business, irrespective of any further price falls.

"Absolutely there's a Plan B, C, and D, and whatever the market price is, we'll respond to that and make sure that we can maintain a positive cash margin," he told reporters on a conference call.

In its third-quarter production report, the miner said it had improved its total delivered cost by 17 percent on the prior quarter, and was now targetting a breakeven price of $39 a tonne.

This compares with a current price for delivery to China - Fortescue's main market - of $49.70 a tonne, down about 60 percent from a year ago .IO62-CNI=SI.

Fortescue also said its lower operating costs should allow it to keep its cash at or above $1.5 billion this quarter, reassuring investors who had feared the company was burning through its cash pile at current ore prices.

Power said Fortescue had no plans to increase production further and was assessing options to raise extra capital. The company has previously canvassed selling a stake in its infrastructure, but he said it was not considering an equity raising.

17% q on q...what were they doing before?
MGL: Here's Fortescue's cost history as they have ramped up production:

Image title

So first lets look at the impressive data:Image title

Some points:

1> Fortescue isn't lying down and surrendering. These are really good numbers!!
2> Target C1 is on a par with the big three, so don't write these boys off!Image title

Now here's the catch: Fortescue shipped from stocks, and reduced overburden removal by 28%. Thats not sustainable. 
(But you can keep it up long enough to upset your competitors!)

Iron ore bear is not over, but right now we have a bounce as Chinese economic activity picks up somewhat.

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.