Mark Latham Commodity Equity Intelligence Service

Friday 27th January 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Anglo American boosts 2016 output overall, copper down in fourth quarter


    Anglo American on Thursday reported a sharp production fall at its Los Bronces copper mine in Chile at the end of last year offsetting an overall increase in mineral output across its mines.

    The dip in output late last year weighed on Anglo American shares, which fell around a percent  although analysts said Anglo American's figures were broadly positive.

    They remain confident in the global mining sector, which recovered strongly last year led by Anglo American, the top performer in the FTSE 100 index .FTSE as the company's shares rebounded from a big sell-off in 2015.

    Anglo American said it had seen operational improvements across its portfolio, but Los Bronces output was difficult, as grade quality deteriorated, weather was bad and contractors carried out "illegal industrial action," Anglo said.

    "Together with positive contributions from ongoing ramp-ups at Minas-Rio, Grosvenor and Gahcho Kue, we will be reporting a 2 percent increase in copper equivalent production volumes for 2016 as a whole," CEO Mark Cutifani said in a statement.

    For the final quarter of 2016, the Los Bronces problems led to a 19 percent fall in copper output compared with the same time a year ago.

    Anglo American has put copper, along with platinum and diamonds, at the heart of its portfolio.

    Production at its diamond business De Beers rose 10 percent in the last quarter of 2016 compared with a year earlier as output was boosted in line with improved trading conditions relative to a difficult 2015.

    For platinum, up 2 percent, Anglo American said it continued to "maintain discipline by mining to demand".

    Bernstein analysts said in a note the news was positive.

    "Today's results do not materially change our view on the stock," it said, adding it maintained its "outperform" rating.

    Also on Thursday, Kaz Minerals (KAZ.L), a copper company focused on large scale, low-cost open pit mining in Kazakhstan reported 73 percent year-on-year output growth as new production came online.

    "We successfully ramped up Bozshakol and the Aktogay oxide plant," Chief Executive Oleg Novachuk said. "Our growth will continue in 2017 as Bozshakol reaches capacity and we commence production from sulfide ore at Aktogay."

    Kaz Minerals also said full-year gross cash costs would be around 20 percent less than the previous guided range of 140 to 160 U.S. cents per pound of copper.

    Share prices in the mining sector are broadly speaking extending last year's rally, but traders took profits in Kaz Minerals as well as Anglo American on Thursday.

    Reversing earlier small gains, Kaz Minerals was also down around a percent, slightly more than a dip in the overall sector. .FTNMX1770

    Copper prices on the London Metal Exchange CMCU3 were roughly flat.

    They jumped 18 percent last year, the first annual rise since 2012. Copper has been billed as the bulk commodity most likely to run into short supply, although output is still ample for now.

    http://www.reuters.com/article/us-angloamerican-outlook-idUSKBN15A162
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    Caterpillar Forecasts Fall Short as Demand Slump Persists


    Caterpillar Inc. forecast 2017 revenue and earnings that trailed analysts’ estimates as signs of a recovery in mining and energy have yet to translate into a rebound in demand for the company’s signature yellow machines.

    Revenue will be in a range of $36 billion to $39 billion, with a midpoint of $37.5 billion, the Peoria, Illinois-based company said in a statement Thursday. That is less than the $38.1 billion average of 16 analysts’ estimates compiled by Bloomberg, and indicates annual revenue may fall for a fifth consecutive year. Earnings excluding restructuring costs will be $2.90 a share at the midpoint, compared with the analysts’ estimate of $3.08.

    The company said the availability of used construction equipment will weigh on sales in 2017, and it expects capital spending among miners to be flat. In December, Caterpillar said analysts were overestimating its earnings prospects amid continued weakness in some markets. Any benefit from U.S. President Donald Trump’s infrastructure-spending plan and tax reforms probably wouldn’t be seen until some time in 2018, the company said Thursday.

    The lowered outlook “is happening because business still stinks,” Stephen Volkmann, a New York-based analyst for Jefferies LLC, said in a telephone interview. “The recovery is certainly not happening yet.”

    Caterpillar shares fell 1.2 percent to $97 before the start of regular trading in New York.

    Investors have made the company’s shares the best performer on the Dow Jones Industrial Average index in the past 12 months, rewarding management for cost cuts intended to mute the effects of a drop in demand from miners and energy explorers.

    “We continue to execute in a challenging economic environment and are focused on improving operating margins, profitability and shareholder returns,” Chief Executive Officer Jim Umpleby said in the statement. “While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging.”

    In late October, Caterpillar cut its 2016 sales forecast for a fourth time and warned that 2017 wouldn’t be much better as its customers defer orders amid sluggish growth. On Thursday, the company reported 2016 revenue of $38.5 billion, down from $47 billion a year earlier.

    Annual revenue of $37.5 billion would be the lowest since the recession in 2009, according to data compiled by Bloomberg.

    Commodities rebounded in 2016, with the Bloomberg Commodities Index rising for the first time since 2010 on signs of an improving U.S. economy and stabilizing growth in China. Higher commodity prices and better parts sales in each of the last three quarters, along with improvements in quoting and order activity in the fourth quarter, suggest mining-related sales may have bottomed, the company said.

    Last Quarter

    The quarter marked the last as chief executive officer for Doug Oberhelman, who stepped down on Jan. 1. He invested almost $20 billion into research and development, capital spending and deals as the commodity industry expanded, only to see emerging markets slow and commodity prices in early 2016 touch the lowest in at least 25 years.

    Oberhelman reorganized mining and energy segments, shutting down dozens of factories and cutting thousands of jobs. In early December, Oberhelman saidbecause of tax changes and other policies proposed by Trump he would consider retaining jobs in the U.S. that would have otherwise been shifted abroad. Investors are waiting to see how Umpleby will steer the cost-cutting effort.

    “They’re cleaning house,” Eli Lustgarten, an analyst at Longbow Securities, said in a telephone interview before the earnings report. “We’ll see how they follow it up with the changing of a guard happening in a transitioning environment. Can they make the transition now with the new management? And then the question is how do they prepare moving forward the rest of the decade?”

    Excluding restructuring costs, fourth-quarter earnings were 83 cents a share, topping the 66-cent average estimate of analysts. Revenue in the quarter dropped 13 percent to $9.57 billion.

    https://www.bloomberg.com/news/articles/2017-01-26/caterpillar-revenue-forecast-trails-estimates-on-demand-outlook

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    Polythene Prices Breakout.

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    BHP launches online freight platform to sink shipping costs


    BHP Billiton has launched an online system under which shippers compete to offer the best price to haul cargoes of commodities such as iron-ore and copper to the mining giant's customers.

    BHP this week allocated its first cargo using the auction-style platform, which it hopes will save money as it bypasses brokers who traditionally help negotiate vessel-hire rates between cargo owners and shippers.

    The company plans to gradually ramp up the platform, which it said was the first of its kind for a major charterer, although it follows in the wake of similar freight portals from companies including Ocean Freight Exchange.

    Such platforms could potentially overhaul the way miners contract freight services, reducing their costs at a time when commodity markets appear to be picking up following years of low prices.

    "It's the first of its kind, certainly for a charterer of our rank," Rashpal Bahtti, BHP Billiton Freight vice president, told Reuters before the first auction on Wednesday.

    BHP asked 13 ship owners and operators to submit offers through its online platform to transport 170 000 t of iron-orefrom west Australia to China next month.

    They included Japanese firms NYK Bulk and Mitsui OSK Lines, Greek owner Anangel Maritime Services and commodity trader Cargill, Bahtti said.

    More than 50 bids were submitted in an hour and the final agreed price was almost $0.30 below the spot price, said company spokeswoman Angela Perera, without identifying the winning company. The spot freight index rate from Western Australia to China closed at $5.19/t on Wednesday.

    BHP said five vessel owners that were not invited to bid in Wednesday's auction have asked to take part in a second auction next week.

    "We will extend (the auction system) to a certain percentage of our (freight) book," Bahtti said, without giving specific details or a timeframe.

    "(As) with any new technology, we want to ensure it works and works well," he added.

    The world's biggest miner has said it spent $764-million shipping 275-million tonnes of iron ore from Western Australia to global markets, mainly China, in the year to June 30.

    But such platforms could be a blow to the ship broking industry, said a dry cargo broker at French company Barry Rogliano Salles.

    "If BHP finds it workable, maybe Rio Tinto and FMG (Fortescue Metals Group) would do online auctions as well which will affect almost all brokers in the market," said the broker, who declined to be identified.

    "I do not see any big downside for shipowners. Only brokers will lose out big time," added a senior executive at a European shipping company.

    http://www.miningweekly.com/article/bhp-launches-online-freight-platform-to-sink-shipping-costs-2017-01-26

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    Amid rising bilateral tensions, Mexico mogul Slim calls news conference

    Amid rising bilateral tensions, Mexico mogul Slim calls news conference

    Mexican mogul Carlos Slim, who was attacked by President Donald Trump during his election campaign but who later met with the U.S. leader in Florida, on Thursday called a press conference for Friday amid growing tensions between the two nations.

    The rare news conference, in which a spokesman said Slim would take reporters' questions, comes as Mexico wrestles with Trump over the highly divisive proposition of a border wall and threats to trade between the two neighboring countries.

    Trump has consistently riled Mexicans by pledging to build a wall on the U.S. southern border and make Mexico pay for it, as well as threatening to ditch a joint trade deal and impose punitive tariffs on Mexican-made goods.

    Those pledges sparked criticism from business leaders including billionaire Slim, who said Trump's plans could destroy the U.S. economy. But following the Nov. 8 election, Slim offered a more upbeat take, saying that if Trump succeeded, it would be good news for Mexico.

    In December, after Trump won the U.S. election, the two men dined at Trump's Mar-a-Lago resort in Florida, with Arturo Elias, Slim's son-in-law and spokesman, saying the meal was "very cordial and with a very good vibe for Mexico."

    Slim's press conference was set for 12.30 pm local time (1830 GMT) on Friday, in Mexico City.

    Slim, the top shareholder in The New York Times Co, is one of the world's richest people, with an empire that encompasses telecoms, mining, banking and construction.

    http://www.reuters.com/article/us-mexico-slim-idUSKBN15B0AB
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    Oil and Gas

    THE SAUDI 41-VESSEL FLEET "BAHRI" HAS ADDED ON 3 MILLION BARRELS OF CRUDE OIL


    IN THE PAST 24 HOURS, THE SAUDI 41-VESSEL FLEET "BAHRI" HAS ADDED ON 3 MILLION BARRELS OF CRUDE OIL. FLEET IS NOW 59% FULL.

    @TankerTrackers  
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    Libya: an OPEC wildcard?


    Libya has the potential to upset the OPEC apple cart, and early expressions of high levels of compliance with the cuts agreed by OPEC and associated non-OPEC producers should be taken with a pinch of salt.

    According to an interview with S&P Global Platts’ Eklavya Gupte January 24, chairman of Libya’s National Oil Company Mustafa Sanalla is targeting oil output of 1.25 million b/d by year’s end. This target comes with many caveats, including consistent funding from the country’s Central Bank. Given the volatility in Libyan oil output in recent years, it is not a target you would hang your hat on.

    “We need some money for a quick restoration of our production,” he said. “The government has promised to give us money to have this amount of production.” He also said he was meeting officials from international oil companies in London with a focus on seeking investment and reconstruction in the country’s oil sector.

    Progress has been slow, owing to continued political tensions between Libya’s UN-backed Government of National Accord and the Petroleum Facilities Guards, a militia which controls the bulk of the country’s oil terminals. “I press on my view to restructure and reorganize PFG and to be under NOC like it used to be,” he said. “Others [militias] should join the Libyan National Army. We have to have policies to be able to control them. I am making my uttermost efforts to ensure this,” he said.

    Nonetheless, the current trend looks positive. Output has almost tripled since August last year when it was around 230,000 b/d. All the country’s major oil export terminals are currently open, although they are far from operating at full capacity as a result of damage caused after more than five years of civil year.

    Libyan oil output was up 40,000 b/d in December on average at 620,000 b/d, according to secondary source estimates, and Sanalla said January production would not be far off NOC’s initial target of 719,000 b/d. Steady gains through the year to 1.25 million b/d would mean the addition of 630,000 b/d from December’s levels. Pre-conflict, Libyan crude oil production was as high as 1.6 million b/d.

    The current deficit in the global market is between 700,000-900,000 b/d, which implies a stock drawdown this year of close to 300 million barrels. Large, but not that large when set against OECD commercial stocks that remain above the 3 billion barrel mark.

    Based on the forecasts of the International Energy Agency, US Energy Information Administration and OPEC, oil demand growth in 2017 will be around 1.2-1.63 million b/d, but non-OPEC supply returns to growth of 200,000-410,000 b/d and OPEC’s Natural Gas Liquid output — which like Libyan and Nigerian production is not included in OPEC production targets — is expected to rise by 100-350,000 b/d. Increases in Libyan crude production could therefore go a long way to extending the stock overhang, particularly if the US shale rebound proves more extensive than expected.

    This possibility makes compliance with the promised production cuts all the more important, both in terms of actual volumes and market sentiment. Although OPEC and its non-OPEC associates are talking the talk, it is still unclear whether they will walk the walk. Some of the minor commitments and early reports of reductions are not far off normal fluctuations in monthly output.

    Natural decline, already factored into forecasts, may make up others. The focus should be on export volumes and refinery throughput, as much as total output because variations in Middle Eastern oil for power demand could have a substantial seasonal effect – January and February are on average the two coolest months of the year for Saudi Arabia, reducing air conditioning demand there and more broadly across the region.

    http://blogs.platts.com/2017/01/26/libya-opec-wildcard/?hootPostID=decdbc285cafd267811d9c8765304abe

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    Iran Speeding Up Oil, Gas Deals


    The National Iranian Oil Company is keen to finalize high-priority oil and gas deals by the end of the current fiscal year in March, including Phase 11 of South Pars Gas Field and a plan to tender the giant South Azadegan Oilfield, NIOC's managing director said on Tuesday.

    “The agreement to develop Phase 11 of South Pars Gas Field in the Persian Gulf will be finalized by March," Ali Kardor was quoted as saying by Shana.

    NIOC signed a preliminary agreement, worth $4.8 billion, with Total S.A. and China National Petroleum Corporation in November to develop South Pars Phase 11, one of the least-developed phases of the joint field which has been plagued by years of procrastination.

    Kardor said that Total and CNPC have conducted the technical studies on the phase and NIOC is close to preparing a final draft of the contract.

    "Ninety percent of the work on drafting the contract with Total and CNPC is complete," he said.

    "Improving the rate of recovery is the most important aspect of collaboration with Total and CNPC," Kardor said, noting that gas production from Phase 11 will exceed 50 million cubic meters per day in 20 years.

    SP Phase 11 holds around 16 billion cubic meters of natural gas and some 834 million barrels of gas condensates, a type of ultra light crude. Oil Minister Bijan Namdar Zanganeh recently said that Total has pledged its long-term commitment to the South Pars project by using its advanced high-pressure boosters in the project.

    Iran is developing the giant South Pars field in 24 phases. It is the world’s largest gas field shared by Iran and Qatar, covering an area of 3,700 square kilometers of Iran’s territorial waters in the Persian Gulf.

    Azadegan Tender

    Asked about NIOC's other priorities, Kardor said the South Azadegan Oilfield will be the first to be offered for tender under the new model of contracts – the Iran Petroleum Contract.

    "The oilfield tender is scheduled for the near future," he said without elaboration.

    Located 80 kilometers west of Ahvaz in Khuzestan Province, Azadegan holds an estimated 33 billion barrels of oil in place.

    The Oil Ministry has issued a list of qualified companies to bid for its oil and gas tenders, but the list will be extended, Kardor said.

    Tehran has strongly ruled out bias or favoritism, insisting that all foreign companies will compete for the major energy projects on an equal footing.

    Early collaboration with several foreign companies, including with France's Total, Russia's Lukoil and Malaysia's state oil company Pertamina had fueled speculation that selected companies are given a head start in the oil/gas projects.

    Pointing to the experience of energy giants such as Total S.A., Anglo-Dutch major Royal Dutch Shell and Japan's Inpex, Kardor said NIOC is making efforts to bring together the three majors to benefit from their capability to develop the Azadegan field.

    http://tehrantelegram.com/story-z18135096
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    Deloitte: changing LNG markets suit adaptive companies


    Despite near-term headwinds, the long-term future of global liquefied natural gas is positive for participants able to adapt to a more fragmented market, according to Deloitte’s new report “Navigating the new world of LNG.”

    LNG players will have to adapt to new and different customer expectations and more short-term and flexible commercial arrangements.

    “The transformation of global LNG markets is underway, and the future is expected to look very different from the past and present,” said Andrew Slaughter, managing director of the Deloitte Center for Energy Solutions, Deloitte Services.

    In the near term, the industry expects to face headwinds of slowing demand growth, recent and imminent supply capacity expansions that could overtake the pace of demand growth and a lower price environment that challenges the economic viability of new developments, the report says.

    “Long-term, strong underlying demand drivers and the opening of new markets could provide substantial opportunity for participants. However, the industry may need to adapt to a more complex market, moving away from high volume, long-term, point-to-point supply arrangements of the past toward more flexible physical supply and commercial arrangements,” according to Slaughter.

    The report discusses how these evolving new external parameters will likely drive the emergence of new types of participants, such as financial intermediaries, traders, hub operators and more. These are expected to generate new business models to unlock profit down the value chain.

    For the participants who can weather the near-term hurdles, the LNG outlook over the next two decades comprises a rich mix of growth, change, uncertainty, challenge and opportunity.

    Natural gas is the fastest growing fossil fuel globally, the report says, benefiting from its flexibility of use in multiple demand segments, its competitive economics and its relatively lower emissions profile. LNG is well positioned to account for a substantial share of this growth, as many markets do not have indigenous or adjacent natural gas resources which can be delivered by pipeline. Increased action around the world to reduce the carbon intensity of economic activity provides additional support for the long-term prospects for LNG.

    The report also notes that long-term growth prospects look positive as traditional markets expand, new markets emerge in more and more diverse destination countries, and new technologies and applications, such as in land and marine transport, power generation and others. Growth and diversity of markets could stimulate similar growth and diversity of supply sources, including more geographical variety and a range of liquefaction plant sizes and technologies.

    The emergence of new suppliers, new markets, more flexible commercial arrangements and new technologies, all bring new options to participants right along the LNG value chain. From a period of historical development based on a limited number of suppliers, a limited number of large markets, fairly standard commercial arrangements and a small number of technologies, all these elements will likely change significantly over the next two decades.

    With change, however, comes uncertainty, but when high-capital projects like large-scale LNG developments face heightened uncertainty, this often increases the risk profile of those investments. Sources of uncertainty include: the pace of recovery in demand growth; the price outlook for oil, which is still linked to a high proportion of global LNG trade; and what will be the impact of U.S. LNG, the new entrant into global markets?

    The recent wave of LNG supply capacity expansions, led by Australia and followed by the U.S. has resulted in a capacity overhang, often challenging the viability of existing and new projects, according to the report.

    The duration of this period of overcapacity may be extremely challenging for operators and could put at risk the next phase of capacity expansions required early in the next decade.

    “Technology marches on, opening up new applications on the demand side and new supply options. Our research suggests that LNG is expected to remain one of the most dynamic segments of the energy industry, as it transforms to take a key role in the 21st-century energy mix,” concluded Slaughter.

    http://www.lngworldnews.com/deloitte-changing-lng-markets-suit-adaptive-companies/
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    Petrochemicals turn away from LPG as propane reaches competitiveness threshold


    European petrochemical end-users are reportedly switching away from maximizing the cracking of LPG as Northwest European propane cargoes reached a 22-month high and the gas becomes uncompetitive versus naphtha as a cracking feedstock.

    The CIF NWE propane physical cargo rose $3/mt to a 22-month high of $459/mt Tuesday, while in the paper market the front-month CIF NWE propane swap edged to a 35-month high versus naphtha as it was assessed at 90.03% of the front-month CIF NWE naphtha swap, up from 89.67% the previous day.

    The last time the front-month propane swap was assessed higher versus naphtha was February 3, 2014, when it was assessed at 90.97% of the front-month naphtha swap, S&P Global Platts data shows.

    It is generally considered that propane stops being attractive as an alternative cracking feedstock when it reaches 90% of the value of naphtha.

    Northwest Europe propane prices have been rallying since the end of December as a cold spell across the European continent boosted heating demand for the gas, and the spot propane arbitrage from the US to Europe became increasingly difficult to work.

    According to trading sources, at least two petrochemical end-users have been re-selling propane in NWE, preferring to maximize the cracking of naphtha.

    "We are starting to see signs of switching away from maximizing LPG," a naphtha trader said.

    According to an end-user, finding propane is the main problem.

    "Coasters have become too expensive, now [propane] is out of the cracking slate," he said.

    Another end-user said that it was more profitable to send propane from the US to Asia than to Europe, and this has left Europe a bit short.

    "When [the propane/naphtha spread] is minus $48/mt you can start to see reselling of propane and petchems get a different idea of what they want to crack as feedstock...we are reaching a kind of ceiling," he said.

    The CIF NWE naphtha physical cargo gained $3.25/mt Tuesday to be assessed at a 18-month high of $508.75/mt, while the front-month CIF NWE naphtha crack swap strengthened 5 cents/barrel on the day to a nine-month high of 50 cents/b, according to Platts data.

    http://www.platts.com/latest-news/petrochemicals/london/petrochemicals-turn-away-from-lpg-as-propane-26647204
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    Australia's LNG projects face major delays, benefiting U.S. producers


    Australia's plans for a huge increase in its production of liquefied natural gas are being dealt a big blow by a series of production delays, as energy companies struggle with technical problems and cost overruns.

    The country is still likely to become the world's biggest LNG exporter, dispatching about 85 million tonnes a year by the end of the decade, up from 30.7 million tonnes in 2015 and 45.1 million tonnes last year. But the pace of growth is much slower than expected because of snafus and higher-than-expected costs that have delayed plans to start or increase LNG exports from four megaprojects, Gorgon, Ichthys, Prelude and Wheatstone, all along or off the coast of northwest Australia.

    Now at least three of them, Shell’s Prelude floating LNG production vessel, Inpex’s Ichtys project, and the expansion of Chevron’s Gorgon operation, won’t begin exporting until 2018 or even later, rather than 2017 as previously planned, according to several sources with knowledge of the matter.

    Chevron, Shell, and Inpex would not comment on potential delays.

    It should all be a boon for other suppliers of LNG to Asian buyers, such as utilities in the region. These suppliers can also benefit from higher prices.

    Traders said that the beneficiaries include U.S.-based Cheniere Energy with its facility at Sabine Pass in the Gulf of Mexico, and global energy giant Exxon Mobil with its production in Papua New Guinea.

    Making matters even worse, the producers in Australia are having to go to their rivals to fulfill contracts.

    "The Australian producers have supply commitments, so when there's production delays they have to buy these supplies from competitors in the spot market," said an LNG trader involved in such deals who was speaking on condition of anonymity.

    "These guys will make a lot of money filling the gap of Australia's production delays," he said.

    AWAITING PRODUCTION VESSEL

    Once completed the four projects will have a combined annual LNG capacity of 36.5 million tonnes. The development costs will total $130 billion.

    Each one has had to hit the brakes. "All of Australia's recent wave of LNG projects have had cost and schedule overruns compared to expectations," said Saul Kavonic of energy consultancy Wood Mackenzie.

    The projects being built In Australia are amongst the biggest and technically most challenging ever attempted in the industry. One problem the LNG project developers have pointed to in explaining production delays is that they struggle to find enough qualified and experienced staff.

    "There aren't many experts and teams with relevant experience who can lead such huge developments. That's contributed to some of the delays," said on engineer who has worked on developing offshore oil and gas projects.

    At the $35 billion Ichthys project, engineering firm CIMIC this week pulled out of its contract to build the facility's power station, citing cost overruns.

    Ichthys, which includes a stationary rig and a floating production vessel, was due to start operations between July and September this year, but the power station problem will almost certainly cause more delays and costs.

    "Any delays to the delivery of the project may have very serious implications for Inpex. Low oil prices have already impacted the financial position of the company," said Tom O'Sullivan, managing director of energy consultancy Mathyos Japan.

    At Gorgon, which has cost $55 billion to develop and which started operations last year, there are problems in bringing expanded production online.

    Two sources with knowledge of the matter said that crews working on the expansion phase had to be shifted to repair operational facilities, delaying full completion.

    Chevron said it would not comment on daily operations.

    Delays are also expected at Shell's Prelude. The production vessel, the world's biggest ship at half-a-kilometer in length, is currently being built in South Korea.

    Scheduled to generate cash flow by 2018, one source with the shipyard and another with one of Prelude's LNG buyers said it was unlikely that Prelude would produce any gas before late 2018, maybe even 2019.

    Potential delays and cost overruns are likely to have a big impact on returns on investment.

    "On average, Australia's recent LNG projects were forecast to achieve an internal rate of return (IRR) of around 13 percent," Wood Mackenzie's Kavonic said. "They are now only forecast to realize below 8 percent,"

    Neil Beveridge, oil and gas analyst at AB Bernstein in Hong Kong, said that "the returns of many of the projects are going to be low and probably lower than the cost of capital in the current oil price environment."

    OTHERS MAKE THE MONEY

    Beyond adding to already huge costs for its developers, the delays will have a strong market impact.

    For 2017, they mean a tighter market than initially expected, and prices have already reacted. The Asian spot LNG price almost doubled between June last year and January 2017 to more than $9 per million British thermal units (mmBtu), its highest since 2014.

    The delays are happening just as new supplies are coming on stream elsewhere. Seven U.S. export projects are currently approved, with a potential to reach 50 million tonnes a year by the early 2020s.

    "Australian LNG projects will be competing with U.S. projects. Cost efficiency is going to be critical. And here, the Australians have to put in some serious effort," Kavonic said.

    http://www.reuters.com/article/us-asia-lng-delays-idUSKBN15A24L

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    Petrobras reduces diesel and gasoline prices at refineries


    Brazil's state-run oil company Petroleo Brasileiro SA announced on Thursday it is reducing diesel and gasoline prices at refineries, reflecting the fall in international petroleum products prices and the appreciation of the local currency against the dollar.

    In a statement, Petrobras, as the company is known, said diesel prices will be reduced 5.1 percent at refineries, and gasoline prices will fall 1.4 percent. This may result in a reduction of up to 2.6 percent in diesel prices and 0.4 percent in gasoline prices to consumers, the company said.

    http://www.reuters.com/article/petrobras-prices-idUSE6N14A048
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    Keppel Sees No Quick Recovery Despite Oil Gain; Shares Drop


    Keppel Corp., the world’s biggest oil rig builder that eliminated more than 10,000 jobs last year, said even a doubling of crude prices is failing to offer relief to an industry slammed by overcapacity as it braced for a prolonged slowdown.

    While OPEC’s recent decision to cut output renewed optimism, with spending by some oil majors expected to increase, a quick recovery isn’t in sight, Chief Executive Officer Loh Chin Hua said. The company, which reported a 65 percent drop in net income last quarter, said it is closing some yards and signaled additional job cuts as part of efforts to pare costs.

    “We are happy that oil prices are starting to pick up, so that’s a good thing,” Loh said on a conference call after the market’s close Thursday. “But we are also realistic and it might take a while before it will flow down and it’s an overbuilt market.”

    Keppel and peers including Hyundai Heavy Industries Co. have been slashing jobs and scaling back capacity as spending cuts by explorers crimped demand for offshore drilling rigs. The Singapore-based company had mothballed two overseas facilities earlier. Shares of the company declined Friday, after having rallied more than 30 percent in the past year on expectations the oil rebound will spur a revival.

    “We remain bearish on Keppel’s O&M division earnings outlook for 2017 as we see little improvement in operating fundamentals,” despite market expectations for an industry turnaround helped by oil prices rebounding, Royston Tan, an analyst at Daiwa Capital Markets in Singapore, wrote in a note dated Jan. 26.

    Keppel shares fell 2.2 percent to S$6.25 as of 9:03 a.m. in Singapore, the largest intraday decline since Dec. 15. The city’s Straits Times Index gained 0.3 percent.

    Brent crude prices traded near $59 a barrel earlier this month, compared with less than $30 about a year earlier, according to data compiled by Bloomberg.

    At its offshore and marine division, Keppel reduced its direct workforce by 2,620 in the quarter through December. For the whole of 2016, the unit shed about 10,600 workers, of which 3,800 were in Singapore.

    “The painful but necessary measures to rightsize our O&M division must continue,” Loh said.

    In October, Keppel said its senior managers and directors were taking a cut in their salaries.

    Fourth-quarter earnings were dented by additional provisions for impairment of S$313 million, Keppel said.

    “What we’re going through is a very long, harsh winter,” Loh said. “It’s not business as usual.” The decision to mothball yards was taken to make the division “stronger and more efficient,” he said.

    https://www.bloomberg.com/news/articles/2017-01-26/keppel-s-profit-drops-65-on-provisions-as-job-cuts-continue

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    US Oil Supply Response.

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    Baker Hughes expects North America onshore revenue to rise


    Oilfield services provider Baker Hughes Inc said it expected revenue from its onshore business in North America to increase in the first half of the year as customers ramp up drilling activity and pricing improves.

    The company, which is being acquired by General Electric Co, however, reported a bigger-than-expected fourth-quarter loss as prices for its services remained weak.

    Improvement in pricing would remain limited as the market remained oversupplied, Baker said, joining bigger rivals Halliburton Co and Schlumberger NV in forecasting a decline in drilling activity and pricing pressure in markets outside North America.

    In international markets, activity declines in its deepwater business are expected to be more severe, Baker said.

    On an adjusted basis, the company reported a loss 30 cents per share, much bigger than the analysts' estimate of a 11 cents per share loss, according to Thomson Reuters I/B/E/S.

    Net loss attributable to Baker Hughes was $417 million, or 98 cents per share, in the quarter ended Dec. 31, compared with a loss of $1.03 billion, or $2.35 per share, a year earlier.

    The latest quarter includes after-tax charges of $291 million.

    Baker Hughes' revenue fell about 29 percent to $2.41 billion, which beat analysts' expectations of $2.37 billion.

    http://www.reuters.com/article/baker-hughes-results-idUSL4N1FG3HF
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    US Gasoline Demand goes south.

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    Drillers face $43 billion cash shortfall in 2017, study says


    North American drillers could face a $43 billion cash shortfall this year even with oil prices on the rise, according to a new study.

    U.S. shale drillers and Canadian producers would need oil prices to skyrocket to $80 a barrel oil to finance operations without borrowing more money or cutting spending by a whopping 40 percent, consultancy AlixPartners said in a study released Thursday.

    The gap in the cash flow they need to keep operating in shale oil patches across the United States isn’t nearly as large as it was last year, when AlixPartners said the industry lacked $130 billion on much lower oil prices.

    But oil companies that haven’t already gone through bankruptcy proceedings or fixed their balance sheet problems by other means are still at a stark disadvantage. These firms have on average $26,000 for each barrel of oil equivalent per day they produce, twice as much as rivals that have already restructured their balance sheets. More than 200 North American oil producers and energy services companies filed for bankruptcy over the past two years, according to Dallas law firm Haynes & Boone.

    Despite the influx of optimism in the oil patch, drillers and service companies will likely continue to restructure their balance sheets or sell themselves in mergers and acquisition deals. AlixPartners said companies should behave as if crude prices are still around $45 a barrel, “to keep any surprises on the upside, not the downside.”

    “For those companies that take requisite actions, at long last 2017 could be a year of rebuilding,” said Bill Ebanks, managing director of AlixPartners’ oil, gas and chemicals practice, in a written statement.

    AlixPartners also said it estimates oil field service companies that operate on land have seen profitability fall 68 percent over the past three years, even as they cut 250,000 jobs around the world. Don’t expect a full recovery this year, but more of a transition to higher demand in 2018, the consultancy said.

    http://fuelfix.com/blog/2017/01/26/drillers-face-43-billion-cash-shortfall-in-2017-study-says/
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    Alaska state gas corporation in Kenai LNG plant purchase talks: official


    Alaska Gasline Development Corp, the state-owned gas corporation, is in discussions about purchasing ConocoPhillips' mothballed Kenai LNG plant at Nikiski, south of Anchorage, officials told state legislators Wednesday.

    The idea is at an early stage. "We haven't signed a confidentiality agreement yet," said Frank Richards, AGDC's engineering vice president. The state-owned corporation is briefing legislators in Juneau on the Alaska LNG Project this week.

    Fritz Krusen, AGDC's vice president for LNG, said owning the plant, which exported Cook Inlet gas and is not now operating, would help the state corporation in its current bid to build a much larger LNG export project using North Slope gas.

    "It could allow us to present an early production scenario to buyers," Krusen said, where the smaller ConocoPhillips plant, which is capable of liquefying up to 1.5 million mt/year, could begin exports before a 20 million mt/year project is constructed.

    The three-train liquefaction plant planned as a part of the Alaska LNG Project would be on a 600-acre tract of land near the site of the current ConocoPhillips plant. There are many ways AGDC's acquisition of the plant would benefit the larger project, Krusen said. "For example, it would give up control of much more waterfront acreage," on Cook Inlet, he said.

    Owning the plant would also allow AGDC to tap into a long history of reliable operations and relationships with customers, Krusen said.

    State Senator Bill Wielechowski asked Krusen about the status of discussions with ConocoPhillips during a briefing of the Resources Committee of the state Senate.

    "If I answered that, I'm afraid I would breach confidentiality," he replied.

    ConocoPhillips has operated the plant since 1969, but ceased regular shipments to Japan in early 2012. The company put the facility up for sale last fall.

    Company spokeswoman Amy Jennings Burnett did not confirm talks were underway with AGDC, but said discussions are being held with a wide range of possible buyers.

    "We are in the early stages of marketing the plant. ConocoPhillips is following a standard marketing process for the Kenai LNG plant. A virtual data room, which opened on January 10, provides critical information to help potential buyers assess the asset and determine if they are interested in submitting a formal bid," Burnett said in an e-mail.

    "Interested parties are currently reviewing the data room material and we anticipate receiving bids later this year. At that point, ConocoPhillips will evaluate the bids and determine a path forward. We are not in negotiations with any party at this time," she said.

    Phillips Petroleum built the plant in 1969 to ship LNG made from Cook Inlet gas, then in surplus, to Japan. At the time, it was the first long-distance shipment of LNG, and demonstrated the viability of the business.

    Much larger shipments of LNG to Japan from southeast Asia developed in following years.

    The Kenai plant made regular shipments until 2012, when long-term contracts with Tokyo Gas and Tokyo Electric expired. ConocoPhillips made periodic shipments following spot sales in 2014 and 2015, but made no shipments in 2016.

    The company recently sold the North Cook Inlet gas field, which had supplied gas to the plant, to Hilcorp Energy, which operates other Cook Inlet oil and gas properties.

    AGDC recently assumed control of the Alaska LNG Project from a consortium of three North Slope producers and itself, as one of four partners in pre-engineering work.

    Given the state of Pacific LNG markets, the three producers -- BP, ConocoPhillips and ExxonMobil -- have stepped back from the project for now, but are supporting the AGDC in continuing to work on, and pursue innovative commercial terms, like tax-exempt status, that would be available only to a state-owned project.

    If built, Alaska LNG would tap 35 Tcf of confirmed gas reserves on the North Slope with an 800-mile pipeline from north to south across Alaska, and also build the large LNG plant near Kenai and a gas treatment plant on the North Slope.

    The companies, and the state, have spent about $600 million to date on pre-engineering, environmental and regulatory work. AGDC is working to raise about another $1.5 billion to carry out the final engineering work and is seeking investors and gas purchasers. The three large producers may still participate in the project, they say.

    Overall project cost is now estimated at $45 billion. If built according to AGDC's current schedule, Alaska LNG could be operating by 2025.

    http://www.platts.com/latest-news/natural-gas/anchorage/alaska-state-gas-corporation-in-kenai-lng-plant-21708650
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    Alternative Energy

    India shows it's serious about solar with giant power plant


    It took 8,500 men working two shifts every day for six months - and three shifts for two months - to finish, ahead of schedule, the Adani Group's giant solar power plant in southern India.

    The vast, 10 sq km project in Ramanathapuram, in the southern state of Tamil Nadu, is the world's largest solar power station in a single location, according to the company.

    It has the capacity to power 150,000 homes - and it is one sign of how serious India is becoming about meeting its renewable energy targets.

    Considering the delays that commonly bog down infrastructure projects in India, the speed at which the 648 megawatt project was completed demonstrates the country's commitment to renewables, said an analyst.

    "The government is very clear about its solar plan, and large installations are key to this plan," said Aruna Kumarankandath of the Centre for Science and Environment in Delhi.

    Prime Minister Narendra Modi "is a real evangelist", and has prioritised solar to meet the renewables target, she said.

    As a signatory to the Paris Agreement on climate change, India is committed to ensuring that at least 40 percent of its electricity will be generated from non-fossil-fuel sources by 2030.

    While coal still provides the lion's share of India's energy, officials forecast the country will meet its Paris Agreement renewable energy commitments three years early - and exceed them by nearly half.

    A 10-year blueprint released last month predicts that 57 percent of total electricity capacity will come from non-fossil sources by 2027.

    Solar energy is a particular focus. It makes up 16 percent of renewables capacity now, but will contribute 100 gigawatts of the renewable energy capacity target of 175 GW by 2022.

    Of that 100 GW target, 60 percent will come from large solar installations. The government is planning 33 solar parks in 21 states, with a capacity of at least 500 megawatts each.

    GETTING CHEAPER

    India's ambitious targets come at a time when renewable energy is at a turning point in the country, as generating electricity from renewables costs nearly the same as from conventional sources.

    The urgency also aims to fill a gap: India is among the world's fastest growing economies, yet one-third of its households have no access to grid power.

    The renewables goal will help ensure "uninterrupted supply of quality power to existing consumers and provide electricity access to all unconnected consumers by 2019", according to the blueprint.

    The Adani plant, built at a cost of 45.5 billion rupees ($661 million), reflects the government's ambitions. It comprises 2.5 million solar panel modules, 576 inverters and 6,000 km of cables, the company said.

    The government grants some subsidies for solar and has raised the investment target for solar energy in the country to $100 billion, with Japan's Softbank and Taiwan's Foxconn among others committing to the sector.

    But there are hurdles, with land availability for solar parks a chief concern. Conflicts related to land have stalled industrial and development projects in India, putting billions of dollars of investment at risk, according to a recent report.

    "Land is definitely a concern, and there's also the issue of transmission," said Kumarankandath.

    "It's all very well to produce all this energy, but do we have transmission lines capable of taking it up? We're also going to need large quantities of water to clean the panels."

    Some states are passing new land laws to make acquisitions easier, while the government is also exploring innovative places to install solar panels, including across the tops of irrigation canals.

    Meanwhile, the Adani group, India's biggest solar power producer and also its top coal-fired generator, may be unseated before long by China, which is building what it claims will be the biggest solar farm on earth: an 850 MW plant on 27 sq km of land.

    http://www.reuters.com/article/india-renewables-solar-idUSL5N1F74JN
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    Uranium

    Uranium output forecast to hit 76 493 t in 2020 – report


    New analysis by research and consulting firm GlobalData has forecast global uranium output to rise at a compound yearly growth rate of 4.3%, to 76 493 t in 2020.

    The company’s latest report states that growth in production is needed to meet upcoming demand from new reactors.

    There are 22 new reactors scheduled for completion in 2017, with a total capacity of 22 444 MW. This includes eight reactors in China with a combined capacity of 8 510 MW, two reactors in South Korea with a combined capacity of 2 680 MW, two reactors in Russia with a combined capacity of 2 199 MW, and four reactors in Japan with a combined capacity of 3 598 MW.

    Global uranium consumption is forecast to rise by 5%, to reach 88 500 t of uranium oxide this year. The major expansions to nuclear capacity are projected to occur in China, India, Russia and South Korea over the next two years. The US is forecast to remain the largest producer of nuclearpower in the short term, with the recent completion of the 1 200 MW Watts Bar Unit 2 reactor, in Tennessee, Global Data said.

    “Commercial operations at the Cigar Lake project in Canadacommenced in 2014, with an annual uranium metal capacityof 6 900 t. The project produced 4 340 t of uranium in 2015, compared with 130 t in 2014. Meanwhile, production at the Four Mile project, in Australia, rose from 750 t in 2014 to 990 t in 2015,” GlobalData head of research and analysis for mining Cliff Smee stated.

    By contrast, production from the US fell by 32% in 2015, while in Namibia it decreased by 20%. “This was due to respective declines of 33% each at the Smith Ranch-Highland and Crow Butte mines in the US, and falls of 20% and 13.6% at the Rossing and Langer Heinrich mines, in Namibia,” Smee added.

    Spot uranium prices continued to rise this year and analysts believe prices have bottomed after major producer Kazakhstan said earlier this year it will curtail its uranium output by about 10%, and on growing optimism that shuttered Japanese reactors will finally be restarted.

    http://www.miningweekly.com/article/uranium-output-forecast-to-hit-76-493-t-in-2020-report-2017-01-26-2

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    Agriculture

    Potash Corp posts lower-than-expected profit, shares fall


    Potash Corp of Saskatchewan Inc reported a lower-than-expected quarterly profit, hurt by weak prices, but said it expected potash sales volumes to rise in 2017.

    U.S.-listed shares of the company, which reported a 21.9 percent drop in fourth-quarter sales, were down 6 percent in premarket trading on Thursday.

    The company forecast 2017 potash sales volumes to rise to 8.7 million-9.4 million tonnes from 8.6 million in 2016.

    Potash prices are hovering around their lowest in nearly a decade, under pressure from bloated capacity and weakening farm incomes, but they have edged higher since summer.

    Potash Corp and rival Agrium Inc announced in September a plan to merge, combining Potash Corp's fertilizer capacity, the world's largest, and Agrium's farm retail network, North America's biggest.

    Agrium's chief executive said on Wednesday that the merger had received regulatory approval from Russia and Brazil but was awaiting approval from the United States, Canada, China and India.

    "The regulatory review and integration processes are advancing, and we expect the transaction will close mid-2017," Potash Corp CEO Jochen Tilk said in a statement on Thursday.

    The fertilizer company said it expected earnings of 35 cents to 55 cents per share in 2017, including merger-related costs of 5 cents per share.

    Potash Corp also said that it determined in the quarter that the carrying value of certain assets should be assessed for potential impairment.

    The assessment is ongoing, with a particular focus on phosphate, Potash Corp said, adding that the company expected to complete the process no later than late February.

    The company's net earnings plunged to $59 million, or 7 cents per share, in the fourth quarter ended Dec. 31, from $201 million, or 24 cents per share, a year earlier.

    Analysts on average had expected earnings of 9 cents per share, according to Thomson Reuters I/B/E/S.

    http://www.reuters.com/article/potashcorp-results-idUSL4N1FG3EG

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    Dow Chemical profit beats estimates as consumer focus pays off


    Seeds and chemical maker Dow Chemical Co (DOW.N) reported a better-than-expected quarterly adjusted profit, helped by its focus on consumer markets such as agriculture and automotive, and a move to take full control of its Dow Corning venture.

    Excluding the Dow Corning transaction, Dow's sales rose 2.5 percent to $11.75 billion in the fourth quarter ended Dec. 31, with sales increasing in four of its five businesses.

    "We are seeing early signs of positive economic momentum, with the United States in expansionary mode, driven by the ongoing strength of the consumer and the tailwind of a new incoming administration promising structural reforms," Chief Executive Andrew Liveris said in a statement.

    Liveris was appointed by U.S. President Donald Trump to lead a private-sector group on manufacturing that will advise the U.S. secretary of commerce.

    Dow Corning, previously a joint venture between Dow and Gorilla glass maker Corning Inc (GLW.N), makes silicone that are used in the manufacturing a host of products.

    Dow, which is merging with DuPont (DD.N), has continued to benefit from its strategy to focus on consumer markets by divesting billions of dollars of volatile, commodity assets over the years, including the $5 billion divestiture of most of its chlorine business.

    Net loss attributable to Dow's shareholders was $33 million, or 3 cents per share, in the fourth quarter, compared with a profit of $3.53 billion, or $2.94 per share, a year earlier.

    Excluding a one-time $1.1 billion charge, reflecting a change in the way the it accounts for legal costs associated with defending against asbestos claims, Dow's operating profit rose 6.5 percent to 99 cents per share.

    That was higher than analysts' average estimate of 88 cents, according to Thomson Reuters I/B/E/S.

    The company's net sales, including the Dow Corning deal, rose to $13.02 billion from $11.46 billion, beating analysts' average estimate of $12.38 billion.

    The $130 billion merger between Dow and DuPont has drawn scrutiny from regulators, particularly in the European Union, with concerns stemming from the overlap in the two chemical companies' seeds and crop protection businesses.

    DuPont said on Tuesday that the merger, announced in December 2015, may not close in the first quarter as planned and will now likely close in the first half of the year.

    "We are highly confident in the transaction," Howard Ungerleider, Dow's chief financial officer, told Reuters, adding that company was working with key regulators around the world.

    http://www.reuters.com/article/dow-results-idUSL4N1FG3IC

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    Precious Metals

    Russia sells Sukhoi Log gold deposit to Polyus-Rostec JV


    Russia has sold the right to develop Sukhoi Log, one of the world's largest untapped gold deposits, to a joint venture of miner Polyus and state conglomerate Rostec, Russian Natural Resources Minister Sergei Donskoi said on Thursday.

    This joint venture, SL Zoloto, was widely seen by industry players as the front-runner at the auction the Russian government held on Thursday after 20 years of promises to sell the deposit.

    SL Zoloto will buy the deposit for 9.4 billion roubles ($158 million). The starting bid price was 8.6 billion roubles.

    "The development of such a large project will have a significant impact on social and economic development of Irkutsk region (where Sukhoi Log is based)," Donskoi told reporters through his representative.

    Polyus and Rostec declined immediate comment.

    According to Soviet-era research, the deposit contains 1,943 tonnes (62.5 million troy ounces) of gold in its reserves. However, the real value of the deposit is hard to estimate because the research was done in the 1960s.

    Sukhoi Log will require up to $5 billion in investments, according to industry estimates based on a 10-year-old state feasibility study.

    http://www.reuters.com/article/russia-sukhoilog-idUSL5N1FG23A
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    Steel, Iron Ore and Coal

    Pa. met coal production expected to continue rebound in 2017: group


    Pennsylvania's coal industry -- particularly metallurgical coal producers -- performed better than expected in the latter half of 2016 and that trend is expected to continue in 2017, according to Rachel Gleason, executive director of the Pennsylvania Coal Alliance.

    The start of 2016 was "dismal," Gleason said in an email this week. However, the third and fourth quarters were better than forecast, "with the uptick in the met coal market. Pennsylvania outpaced Kentucky, and is now ranked third in the nation in production."

    Pennsylvania's production estimate is based mostly on anecdotal evidence, as the state Department of Environmental Protection is not expected to have final 2016 coal production figures for several months.

    State production had averaged more than 60 million st in recent years before falling to 51 million st in 2015. It is unclear if that figure was reached in 2016.

    The PCA represents only the state's bituminous region and does not include anthracite producers in northeast Pennsylvania. Moreover, not all Pennsylvania bituminous coal producers belong to the PCA. For instance, the former Alpha Natural Resources, now operating as Contura Energy following Alpha's bankruptcy, has not joined the PCA.

    Gleason said she believes the new Trump administration "gives coal a chance. We look forward to the Stream Protection Rule being addressed with the Congressional Review Act, and the end of unnecessary regulatory overreach that was designed to attack the industry from every angle."

    As many as three new underground met coal mines could open this year in Pennsylvania.


    Rosebud Mining and Corsa Coal are expected to open new room-and-pillar operations in 2017, Cresson in Cambria County and Acosta in Somerset County, respectively.

    In addition, AK Coal Resources could develop its new Polaris underground met coal mine in Somerset County.

    http://www.platts.com/latest-news/coal/louisville-kentucky/pa-met-coal-production-expected-to-continue-rebound-21708649

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    Peabody gets U.S. court approval to pursue reorganisation


    Peabody Energy Corp, the world's largest private-sector coal miner, can begin seeking creditor votes for a plan to cut $5 billion of debt and exit its Chapter 11 bankruptcy, a U.S. bankruptcy judge said on Thursday.

    U.S. Bankruptcy Judge Barry Schermer overruled objections from opponents including state regulators, shareholders, environmental activists and even former executives. Their complaints can still be debated at a confirmation trial on March 16.

    Peabody has said it hopes to emerge from its $8 billion bankruptcy in April with a plan that will raise what lawyers called "a monster" $1.5 billion in private capital and leave it with under $2 billion of debt.

    Judge Schermer also approved the private capital raising over objections regarding some terms of the offering, including large fees to be awarded to certain creditors as part of the deal.

    Peabody's biggest creditors support the plan, which the company defended in court over competing proposals by a small group of creditors that would see Peabody exit bankruptcy with about $2.4 billion of debt.

    Testifying in a packed courtroom, Peabody Chief Financial Officer Amy Schwetz said it would be "irresponsible" to take on more debt given the cyclical nature of the coal industry and put it at risk of another Chapter 11.

    "We only want to do this once," Schwetz said.

    Peabody resolved objections from certain noteholders, the United Mine Workers of America and federal bankruptcy watchdog the U.S. Trustee before Thursday's hearing.

    Indiana and environmental groups opposed the plan, saying that it fails to address whether Peabody can cover $1 billion in future mine cleanup costs with third-party bonds.

    Until now, Peabody has covered cleanup liabilities under "self-bonding." This federal program is under scrutiny for exempting presumably healthy coal companies from providing financial guarantees to cover their legal obligation to return mined land to its natural setting.


    Other objectors are generally upset about the way Peabody is allocating its value, which has fluctuated with swings in coal prices.

    Shareholders have said the company is worth more than it acknowledges and that their stock should not be cancelled.

    .http://www.reuters.com/article/peabody-energy-bankruptcy-idUSL1N1FG1FZ
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    Brazil plans flexible iron ore royalty rate of 2-4 percent: report


    Brazil's government plans to introduce a bill to set a flexible royalty rate for iron ore that would be between 2 percent and 4 percent depending on international prices for the steelmaking raw material, Broadcast reported on Thursday.

    The current iron ore royalty rate is 2 percent.

    In an interview with Broadcast, the real-time news service of newspaper Estado de S.Paulo, Mines and Energy Minister Fernando Coelho Filho said the government plans to review the country's mining royalty scheme as part of a wider reform of the sector.

    The ministry's press office was not immediately able to confirm the information.

    Brazil has been in the process of reforming its mining code since 2009, with a bill put to Congress in 2013. That proposal, which has been stalled due to Brazil's political crisis and a collapse in commodity prices, sought to double iron ore royalty rates to 4 percent.

    Coelho Filho has previously said he wants to break the current bill into three pieces whose passage can more easily be negotiated through Congress.

    Most of the details of exactly what the revised proposal will seek to change are still unknown, though the three strands of legislation will focus on a new regulator, government revenue from the industry and wider rules governing mineral extraction.

    http://www.reuters.com/article/us-brazil-mining-royalties-idUSKBN15A2S6
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    Gerdau raises prices for most US steel beam products $40/st


    Gerdau Long Steel North America is raising published prices for most beam products $40/st ($2.00/cwt), effective with new orders January 30.

    The increase is an effort to recover escalating raw material production costs, Gerdau said in a letter sent to customers Tuesday.

    "This price increase is a result of AMM Chicago Shred scrap prices rising over $100/st in 2016, while the published price of beams has only increased a net of $35/st, Gerdau said.

    Orders confirmed by January 27 will be price protected if shipped before March 1, the company said.

    Following the increase, Gerdau's list price for medium wide flange beams will be $755/st ($37.75/cwt). This is up from a list price of $715/st ($35.75/cwt) set in December when US mills announced a $35/st increase in beam products. US producers previously announced a $30/st increase in beam products in November.

    http://www.platts.com/latest-news/metals/bonitasprings-fla/gerdau-raises-prices-for-most-us-steel-beam-products-21708673
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    Thyssenkrupp CEO says steel solution will take time


    Thyssenkrupp Chief Executive Heinrich Hiesinger warned shareholders that it would take time to forge a deal for its Steel Europe business with a rival such as Tata Steel.

    "We too would like a speedy solution, but it has to be a good solution. A solution that secures the future of steel production in Germany and Europe - and that takes time," he said, according to the prepared text of a speech for the industrial group's annual general meeting on Friday.

    The German company and Tata have been in talks for about a year to merge their European steel operations to cut costs and overcapacity, but negotiations have been complicated by Tata's huge pension deficit in the UK.

    "We are conducting talks with Tata with great care. For example Tata would have to find a viable solution for its high pension obligations in the UK," Hiesinger said. "We will not be pressured by external factors."

    Thyssenkrupp - whose other business include car parts, submarines and materials distribution - is almost 20 percent owned by activist shareholder Cevian, which would like to split off parts of the group to increase its financial value.

    Hiesinger added that Thyssenkrupp's fiscal first quarter to end-December had been in line with the company's expectations.

    "It is too early yet to provide a detailed view of our business performance in the first quarter. But the way things are going I can say that the first quarter will be in line with our guidance. So we are well on track to achieving our full-year targets," he said.

    For its current year, Thyssenkrupp has forecast an increase in adjusted operating profit to around 1.7 billion euros ($1.8 billion) from 1.5 billion last year, a "clear improvement in net income" from last year's 261 million euros and slightly positive free cash flow before mergers and acquisitions.

    http://www.reuters.com/article/tata-thyssenkrupp-idUSL5N1FH0QG
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    Tata Steel UK's pensions trustee expects 1-2 bln pound deficit


    The trustee for Tata Steel UK's pension scheme is set to tell its members it expects to report a scheme deficit of between 1 billion and 2 billion pounds at its next actuarial valuation at end-March.

    In a letter to members seen by Reuters, the trustee said Tata Steel UK has confirmed that it does not expect to be able to pay contributions needed to close the deficit.

    The trustee added that the deficit estimate had increased sharply because the actuary has to take into account the fact that Tata Steel UK might no longer be able to access extra capital from the wider Tata Steel group, which is based in India.

    http://www.reuters.com/article/tata-steel-pension-idUSL5N1FG670
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    China's steel sector back in the black


    China's steel sector swung back into the black last year as capacity reduction pushed up steel prices, the top economic planner said on January 25.

    The profits of 373 steel companies are expected to reach 35 billion yuan (around $5.1 billion) in 2016, compared with a loss of 84.7 billion yuan in 2015, according to the National Development and Reform Commission website.

    Major coal companies will likely see profits more than double to 95 billion yuan last year.

    China has been reducing capacity since the beginning of 2016, shutting down inefficient mines and factories, and stopping new projects.

    Steel and coal, the two most troubled sectors, made great strides in cutting capacity. A large number of zombie coal mills were shut down. Two major steel companies -- Baosteel, and Wuhan Iron and Steel -- merged into a more competitive corporation.

    By the end of October, a total of 45 million tonnes of steel and 250 million tonnes of coal capacity had been cut, meeting annual targets ahead of schedule.

    From 2016 to 2020, steel capacity will be cut by 100 to 150 million tonnes, and coal capacity will be cut by about a half billion tonnes.

    http://www.sxcoal.com/news/4551807/info/en
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    US withdrawal from TTP to impact steel sector — Wood Mackenzie


    US President Trump's decision to leave the Trans-Pacific Partnership free-trade deal earlier this week will have little immediate impact on the country’s steel industry, though the long-term effects are likely to be significant, Wood Mackenzie is warning.

    Despite intense lobbying from Japan and other nations part of the deal, which never entered into force but was signed by the US, Japan, Canada, Mexico, Australia, New Zealand and six other countries, Trump officially removed the US on Monday citing concerns that multilateral deals were harming American industries.

    The kind of steel the US has traditionally exported to the TTP countries is high in value–added, the kind of product that helps keeping the high-cost local steelmaking business afloat.

    But analysts at Wood Mackenzie argue that not having easy access to the market such partnership provided will be a loss for the US steel industry:

    In 2015, around 30%, or 11 million tonnes, of all steel imported into the US came from the countries in the agreement at a value of approximately US$11 billion. At the same time, 89% or around 9 million tonnes of all steel exported from the US was destined to these countries – at a value of approximately US$12 billion.

    “This shows that the US steel industry made more money by selling steel to these trading partners than it lost by importing from them,” Wood Mackenzie says in a note released Wednesday.

    What’s more critical, the analysts argue, is that the kind of steel the US exported to the TTP countries was high in value–added, which is exactly the kind of product that helps to keep the high-cost US steelmaking business afloat.

    They do acknowledge the move will have a very minor immediate impact on steel as the majority of ‘TPP trade’ was done with Mexico and Canada (both under NAFTA) — accounting for 72% of ‘TPP-sourced imports’ and 99% of ‘TPP-destined exports’.

    “Ultimately, NAFTA plays a more important role for the sector,” they say, adding that it's important to keep in mind that US steel and manufacturing industries are heavily reliant on imports.

    As much as 60% of total steel consumed in the country, including imports in the form of manufactured goods, comes from foreign markets. But it remains unclear whether Trump would seek individual deals with the countries in the TPP, a group that represents about 13.5% of the global economy, according to World Bank figures.

    “Weaning itself off 'imported steel' will put pressure on manufacturers' costs and ultimately the US consumer will suffer,” Wood Mackenzie concludes.

    http://www.mining.com/us-withdrawal-from-ttp-to-severely-impact-steel-sector-wood-mackenzie/
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    Merafe increases FY output, reduces debt


    JSE-listed Merafe Resources’ attributable ferrochrome production from the GlencoreMerafe Chrome Venture for the year ended December 31, increased by 4% to 107 t, compared with the 101 t produced in 2015.

    Merafe on Thursday said that it expects to report basic earnings a share of between 20c and 23.5c for the full year, compared with the 13.7c recorded in the prior year, which would be an increase of between 46% and 72%.

    Headline earnings a share are also expected to increase by 44% to 69% to between 20c and 23.5c compared with 13.9c in the prior year.

    Merafe expects its net cash balance will decline to R263-million at December 31, compared with R310-million at the end of 2015, while its debt is expected to decrease to R409-million from R660-million the year before.

    http://www.miningweekly.com/article/merafe-increases-fy-output-reduces-debt-2017-01-26
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