Mark Latham Commodity Equity Intelligence Service

Monday 11th April 2016
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    No more "free" Saudi money for Egypt -Saudi businessman

    Saudi Arabia's financial support for strategic ally Egypt will no longer involve "free money" and Riyadh will focus on soft loans and a return on investment to help it grapple with low oil prices, a Saudi businessman familiar with the matter said.

    "This is a change in strategy. Return on investment is important to Saudi Arabia as it diversifies sources of revenue," the businessman told Reuters on Friday during what has been described as a "historic" visit to Cairo by Saudi King Salman.

    Saudi Arabia, the United Arab Emirates and Kuwait showered Egypt with billions of dollars after then-military chief Abdel Fattah al-Sisi toppled President Mohamed Mursi of the Muslim Brotherhood in 2013 after mass protests against his rule.

    But low oil prices and differences over regional issues have called into question whether such strong support is sustainable.

    Egypt is struggling to revive an economy hit by years of political upheaval triggered by the 2011 uprising that ousted President Hosni Mubarak, as well as an Islamist militant insurgency based in the Sinai Peninsula.
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    Panama Papers: Map

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    Saudi-Egypt Bridge.

    King Salman announces Saudi-Egypt bridge in rare Cairo visit

    Cairo Saudi King Salman on Friday announced plans to build a bridge over the Red Sea to Egypt, in a lavish show of support for the government of President Abdel Fattah al-Sisi.

    The 80-year-old monarch is on a rare five-day trip to Egypt, a country that Riyadh views as a cornerstone to its ambitions in the changing region.

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    Egypt to cut fuel subsidies as government seeks to reduce deficit

    Egypt will reduce spending on fuel subsidies by nearly 43 percent in the 2016/17 budget due mainly to lower global energy costs, officials said on Saturday.

    Finance Minister Amr al-Garhy told a news conference state energy subsidies would fall to 35 billion Egyptian pounds ($3.94 billion) from about 61 billion pounds in the 2015/16 budget.

    Consumers reacted angrily when the government cut spending on energy subsidies in mid-2014, a measure that caused domestic prices of natural gas, diesel and other fuels to rise by as much as 78 percent. They were reduced again in the current budget.

    However, the deputy finance minister for fiscal policy said a decline in international oil prices would account for the bulk of the reduced subsidy spending in the next fiscal year.

    "Most of the savings in petroleum product subsidies will be a result of lower global oil prices," the deputy minister, Ahmed Kojak, told Reuters.

    "There is also a saving of about 8-10 billion (Egyptian) pounds that will come as a result of new reforms that the Petroleum Ministry will outline in agreement with us," he added.

    Egypt is struggling to revive its economy since a popular uprising in 2011 shook investor confidence and drove tourists and foreign investors away. Its foreign currency reserves stood at $16.56 billion in March, down from about $36 billion in 2011.

    The government has been trying to cut subsidies, which eat up a big chunk of the budget.

    President Abdel Fattah al-Sisi has approved a draft state budget that reduces the budget deficit in the 2016/17 fiscal year to 9.8 percent of gross domestic product (GDP) from the current 11.5 percent.

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    BTG Pactual Said to Plan $1.6 Billion Commodities Arm Spinoff

    Grupo BTG Pactual is spinning off its commodity-trading unit and renaming the division Engelhart Commodities Partners in a deal valuing the business at about $1.6 billion, according to a person familiar with the matter.

    The bank is planning to announce the deal today, said the person, who asked not to be identified because the information isn’t public. BTG has been considering plans to grant equity in the unit to top managers and traders, two people with knowledge of the situation said in February.

    The formal separation of the commodity-trading house, headed by Chief Executive Officer Ricardo Leiman, is designed to retain talent and insulate the unit from the Brazilian bank following the arrest of its founder and former CEO Andre Esteves in November in a corruption investigation. Founded in 2013, the commodity-trading arm has been a bright spot for BTG amid troubles at other operations. The business has grown rapidly in three years to secure a place behind some of the world’s biggest trading houses.
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    Longyuan Power Mar power output up 6.2pct on year

    China Longyuan Power Group Co., Ltd, a subsidiary of China Guodian Co., Ltd, one of China’s top five power producers, produced 3.78 TWh of electricity in March this year, up 6.17% from a year ago, the company announced on April 7.

    Of this, output of wind power and thermal power increased 5.59% and 8.58% year on year to 2.8 TWh and 934.5 GWh, respectively; that of other renewable energies slid 4.41% from a year ago to 46.8 GWh.

    In the first quarter this year, total power generation of the company posted a year-on-year rise of 4.61% to 10.05 TWh. Output of wind power and other renewable energies increased 6.19% and 12.34% on year to 7.34 TWh and 151.4 GWh, separately, while that of thermal power fell 0.06% on year to2.56 TWh.

    Power plants in Inner Mongolia reported the largest wind power output of the company in March, which was 413.7 GWh, down 12.3% on year. Total power generation by these power plants over January-March slid 16.19% on year to 1.1 TWh.

    The company’s subsidiary power plants in Southwestern China’s Chongqing posted the fastest growth in wind power output, which were reported at a growth rate of 273.47% on year to 34 GWh in March and 165.34% on year to 53.9 GWh over January-March.

    In addition, the company’s power generation project in Canada witnessed the power output in the first quarter drop 2.52% on year to 78.9 GWh, with that in March down 27.76% on year to 21.2 GWh.

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    US Wholsale Inventories Drop Most Since 2013; Sales Miss As Slowdown Accelerates

    There was one thing keeping US GDP growing in recent months: rising inventory. Well, no more. Moments ago the Dept of Commerce reported the latest inventory data and following major historical revisions, not only was last month's inventory print slashes from 0.3% to -0.2%, but the February Inventory number was a dramatic -0.5% drop, far below the -0.2% expected.

    It wasn't just inventories: wholesale sales also declined by 0.2%. The ongoing declines refuse to paint a pretty picture of the US economy.

    Worse, the nominal dollar spread between wholesale inventories and sales remains at record highs suggesting that the long overdue inventory liquidation has nowhere near begun yet.

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    There was some good news: the inventories/sales ratio was 1.36, a modest decline from the January print. While perhaps hinting of some long overdue renormalization, this would mean that should inventory selling commence, the US GDP is about to lose as much as 1.5% in annualized growth, potentially pushing 2016 GDP growth to 1% or lower.

    And now we wait for the Altanta Fed to update its Q1 GDP model with a negative print.

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    China Mar PPI down 4.3pct on year

    China’s Producer Price Index (PPI), which measures inflation at wholesale level, dropped 4.3% year on year but up 0.5% month on month in March, showed the latest data released by the National Bureau of Statistics (NBS) on April 11.

    In the same period, prices of coal mining and washing industry fell 16.6% on year and down 0.6% on month; prices of oil and natural gas mining industry posted a plunge of 33.8% on year but up 9.9% on month.

    Besides, prices of ferrous metal industry dropped 13.1% from the previous year but up 3.6% from February, data said.

    In March, Purchasing Price Index of Raw Material dropped 5.2% on year but up 0.3% on month.

    In the first quarter this year, China’s PPI dropped 4.8% on average from the previous year; prices of production raw materials fell 5.8% on year.

    Of this, the average price of coal mining and washing industry fell 17.3% on year; while the price of oil and natural gas mining industry decreased 36.1% on year; price of ferrous metal industry dropped 16.9% from the previous year, data showed.

    The data came along with the release of the Consumer Price Index (CPI), which rose 2.3% from the year prior and unchanged on month in March.
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    Oil and Gas

    Iraq Boosts Oil Production to Record Before Talks to Cap Output

    Iraq increased crude output to a record level in March, ahead of a meeting in Qatar of OPEC members and other producers on capping production to curb a global glut.

    Crude output in OPEC’s second-biggest producer rose to 4.55 million barrels a day last month from 4.46 million barrels in February, according to the state-run Oil Marketing Co. Exports increased to 3.81 million barrels a day in March from 3.23 million the previous month, the company, known as Somo, said in an e-mailed statement.

    The Organization of Petroleum Exporting Countries and other major producers such as Russia are set to meet in the Qatari capital Doha on April 17 to decide on a possible freeze in crude output in an attempt to shore up prices. Iraq supports an agreement reached in February between Saudi Arabia, Russia, Venezuela and Qatar to cap output at January levels, Iraqi Oil Ministry Spokesman Asim Jihad said on March 23, without confirming if the country agrees to freeze its own production.

    Iraq is boosting output and exports after decades of economic sanctions and war. The country pumped a then-record 4.43 million barrels a day in January, the International Energy Agency said in a report published last month. Iraq holds the world’s fifth-biggest crude oil reserves.

    Oil prices have dropped more than 60 percent in the past two years and are squeezing revenue for the government, which is waging a costly campaign against Islamic State militants who have seized northern sections of the country.

    Iraq’s Oil Minister Adel Abdul Mahdi suspended his participation in the cabinet last month, citing disarray in government ministries. Nizar Saleem Numan, who was nominated to replace him, withdrew his candidacy earlier this month, citing a lack of agreement over the make-up of the proposed cabinet.

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    Nigeria May Sell 40% of Future State Oil Company Within 10 Years

    Nigeria’s government may sell 40 percent of a new national oil company within 10 years of its creation, according to a draft law.

    At least 10 percent of the company will be divested within five first years, according to the draft bill handed to reporters in Parliament in the capital, Abuja. Nigeria’s Petroleum Ministry will hold 51 percent while the Bureau of Public Enterprise is to hold the remaining 49 percent for government.

    Last month, President Muhammadu Buhari approved a restructuring of the Nigerian National Petroleum Corp. into five units in a bid to reform the behemoth and make it profitable again. The business units comprising upstream, downstream, gas and power, refinery and a ventures group will each be headed by a chief executive officer and will have at least two other subsidiaries.

    The NNPC lost 267 billion naira ($1.34 billion) last year after being dragged down by its refining business and as the finances of Africa’s top crude producer has been battered by a drop in oil prices in the past 12 months. Buhari has made it a priority to restructure the company and rid it of the corruption that multiple probes have said is rampant.
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    Petrobras February output falls 5.2 pct to 2-year low

    Brazil's Petroleo Brasileiro SA said on Friday that output dropped 5.2 percent in February to 2.65 million barrels of oil and equivalent natural gas a day from a year earlier.

    Petrobras, as the state-run company is known, said the lowest February output in two years was largely due to stoppages for maintenance work.

    Considering only output in Brazil, Petrobras said it produced 2.48 million barrels of oil and equivalent natural gas a day in August, down from its local output of 2.69 million barrels in August.

    The company, which is trying to overcome a massive corruption scandal, said crude oil production in Brazil was 2 million barrels per day in February, level with the previous month, which had the lowest output since May 2014.

    Oil production fell despite advances in output in the subsalt polygon off the Brazilian coast where Petrobras and its partners produced 874,000 barrels per day, a 6.2 percent increase from January.

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    Worst yet to come for diesel, casting refinery profits in doubt

    Oil refineries are shifting into high gear to produce as much gasoline as possible for the world's fuel-hungry drivers - kicking the problem of a worsening diesel glut further down the road.

    The "margin" or profit derived from refining crude into diesel has plunged in Europe, hitting multi-year lows this week as demand for the fuel - used heavily for heating in the Northern Hemisphere - wilts towards the end of winter.

    But gasoline buying and margins are surging as U.S. drivers rev up for the summer and consumers in China and India also hit the road in record numbers. Bank of America Merrill Lynch said it now expects global gasoline demand growth of 500,000 barrels per day (bpd) - some 65 percent above the 10-year average.

    Traders and analysts said such lopsided demand could depress diesel profits for at least another year, as refineries running for gasoline are configured in such a way that they cannot produce it without pumping out thousands of barrels of middle distillates that the world is not consuming.

    "The worst is definitely yet to come. The diesel crack can still move lower ... to negative, even," said JBC analyst Michael Dei-Michei, referring to the gap between the price of diesel and the cost of the crude needed to produce it - a measure of profitability. "That's not out of the question."

    Gasoline demand over the past year and a half defied all expectations as drivers spurred by cheap oil hit the road in huge numbers and bought more gas-guzzling SUVs.

    The development was a lifeline to oil producers, encouraging refineries around the world to run at full steam.

    But refiners, who for years struggled to produce enough diesel to power industrial growth worldwide and who bet on flat to falling gasoline demand due to more fuel-efficient cars, spent years and invested hundreds of millions to maximize diesel.

    Saudi Aramco and its partners recently opened massive new refineries in the Middle East that were built to produce more than 60 percent middle distillates, while companiesincluding ExxonMobil, Total, Galp and Repsol invested in European refineries to boost diesel.

    But now that they are up and running, the diesel outlets, such as oil drilling, railroads, construction and other heavy industries, are languishing. Figures in myriad countries, including China, Brazil and the United States, show diesel consumption flatlining or falling.

    A warm winter across the northern hemisphere kept households from burning heating oil at the usual pace, meaning stocks of distillates did not draw down as much as they normally would over the winter and the refinery maintenance season.

    "There's nothing that can give a (diesel) demand boost until we have a cold winter," Dei-Michei said.

    A string of analysts have said economic run cuts – when refineries slow production to avoid producing unwanted or unprofitable fuel – will come to the rescue.

    But a variety of trading and refinery sources said that if gasoline demand grows at expected levels, the profits for selling it will keep refineries from slowing – placing even more diesel into glutted storage tanks and forcing margins lower.

    "It's a pretty bitter pill to swallow for those who invested (in diesel) to improve their margin," a European refinery source said.

    Refineries have been working for months to cut diesel production – doing everything from changing their crude slate to shutting upgrading units such as hydrocrackers. But sources said these efforts can sustainably cut only a maximum of around 2 percent for most refineries.

    "The European refining system is too exposed to diesel," one oil trader said. "If 65 percent of your products are negative, you'd need $35 gasoline cracks" to run on negative diesel margins.

    Still, Dei-Michei and others said a maintenance-season diesel stock draw, which dried out thousands of barrels from floating storage as well as on-land tanks, along with the construction of new tank space, means there is room in storage despite brimming stocks at hubs in Europe, Asia and Singapore.

    But the flood into storage could blunt diesel profits until as far as 2018.

    "The last time diesel stocks were high at the end of 2009, we entered a period when diesel demand grew more than gasoline, and yet it still took years to run through those excess diesel inventories," said Andrew Reed, analyst with ESAI.

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    Inpex: Ichthys LNG moves ahead, new civil works contracts awarded

    Construction works on the Ichthys LNG’s onshore facilities are progressing as the project operator Inpex informed in its monthly update on Thursday.

    The Japanese company revealed that two new work packages at the project’s construction site at Bladin Point near Darwin have been awarded to Laing O’Rourke Australia and Territoria Civil.

    The Australian unit of the UK-based construction company Laing O’Rourke, secured an A$200 million package to deliver a range of miscellaneous civil finishing works including concrete pavements, hand railings and foundation works.

    Territoria Civil won an A$80 million package to deliver roads and paving works including asphalt laying and permanent traffic signage.

    Inpex also noted that the installation of the 40,000 tons of mooring chains that will keep the Ichthys LNG’s offshore processing facilities in place is scheduled for completion by the end of May 2016.

    The central processing facility and the floating, production, storage and offloading facility that had its flare tower installed in February will be held in place by 77 kilometers of mooring chains.

    The Ichthys project’s FPSO flare tower installation, at Daewoo Shipbuilding and Marine Engineering (DSME) in Okpo South Korea.

    During February, the installation of the project’s 140 kilometers of rigid subsea flowlines has been completed. Also in February, the project completed the reinforced concrete roofs for both of its onshore LNG storage tanks at the facility.

    The project was initially scheduled for start-up at the end of this year, however, in September last year, Inpex delayed the production start-up of its $34 billion project for the third quarter of 2017, raising the production 6 percent from 8.4 mtpa to 8.9 mtpa of LNG.

    The Ichthys project is a joint venture between Inpex, major partner Total, CPC Corporation and the Australian subsidiaries of Tokyo Gas, Osaka Gas, Kansai Electric, Chubu Electric Power and Toho Gas.
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    Tokyo Gas, Kansai Electric in LNG procurement partnership

    Japan's biggest city gas supplier Tokyo Gas and second-biggest power utility Kansai Electric Power Co said on Monday they agreed on a partnership on liquefied natural gas (LNG) purchases and a technology tie-up on gas-fired power plants.

    Both utilities are among the biggest LNG buyers in Japan, which takes in about a third of global shipments of the fuel.
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    U.S. oil rig count drops by eight, Baker Hughes says

    U.S. oil rig count drops by eight, Baker Hughes says

    The number of rigs drilling for oil in the United States fell by eight this past week, Baker Hughes reported Friday, bringing the nation’s overall rig count to its lowest point in its multi-decade history, to 443.

    The domestic fleet of drilling rigs probing U.S. land for oil – at 354 unit on Friday – has fallen by more than three quarters since the downturn began in late 2014. Only 89 rigs seeking natural gas remain. In Texas, the oil-and-gas rig count has dropped from a peak of 905 a year and a half ago to 197 this week. Each rig employs dozens of oil-patch workers.

    U.S. crude in early trading Friday jumped $2.41 to $39.67 a barrel on the New York Mercantile Exchange. Global benchmark Brent climbed $41.81 a barrel on the ICE Futures Europe.

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    US Oil Production and Credit.

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    TransCanada Restarts Keystone Oil Pipeline After Leak

    The Canadian company said it has completed repairs to the leak, which caused a spill of about 400 barrels, or 16,800 gallons near the company’s Freeman pump station in Hutchinson County. It said it would initially operate the pipeline at reduced pressure to make sure it is working normally, with aerial patrols and visual inspections of the leak site.

    “Clean up and land restoration has already started and will continue over the coming days,” the company said regarding the spill.

    The 3,000-mile-long Keystone pipeline carries light and heavy crude oil from Hardisty, Alberta to a refinery and oil terminal in Illinois, as well as storage facilities at Cushing, Okla. and refineries in Port Arthur, Texas.

    Phillips 66 said last week that it has been forced to run its 306,000-barrel-a-day refinery in Wood River, Illinois at a slower pace while Keystone was closed.
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    Alternative Energy

    California has too much solar power. It needs another grid to share with.

    The US has no national electricity grid. Instead, it has a patchwork of grids, operated as closed-off regional and local fiefdoms with little trade among them.

    One of the most important steps America can take to integrate more wind and solar power is to connect and expand those grids.

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    California is trying to take a small step in that direction. In the process, it is revealing the kinds of political tensions that stand in the way of grid integration.

    California needs somewhere to put all its solar energy

    The story comes to us via an excellent report by Lauren Sommer at KQED Science. It's about a problem that's beginning to hit in California — and will hit in other places in years to come, as renewable energy spreads.

    Every so often, solar panels in California produce more solar energy than the grid needs. When these oversupply events occur, grid operators manually "curtail" solar production, cutting some panels off from the grid, effectively letting clean, zero-carbon energy go to waste.

    This doesn't happen all that often yet — roughly 2.2 GWh of renewable energy were curtailed due to oversupply in 2014, relative to the 44,000 GWh of renewable energy the grid used — but the problem is expected to get worse as wind and solar expand in the state.

    This illustrates the key challenge that wind and solar (together known as variable renewable energy, or VRE) pose to self-contained grids: their intermittency. A lot of solar comes flooding in at midday, and then it all goes away at night. Sometimes it can go away all at once and come back a few minutes later (a phenomenon known as "clouds"). Wind can come all at once and then die down all at once.

    It's a challenge for today's grids to handle both the quantities involved at peak VRE production times and the steep "ramps" up or down in supply and demand that come with VRE.

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    France to ban some glyphosate weedkillers on health concerns

    France's health and safety agency has decided to ban weedkillers that combine chemicals glyphosate and tallowamine because of uncertainty over possible health risks, it said on Friday.

    The ANSES agency sent a letter this week to manufacturers informing them that it intends to withdraw the authorisation for such products, Francoise Weber, the ANSES deputy director-general, told Reuters.

    The agency had reviewed products combining glyphosate and tallowamine after conclusions published in November by the European Food Safety Agency (EFSA) suggested greater potential risks compared with glyphosate alone, she said.

    "It is not possible to guarantee that compositions containing glyphosate and tallowamine do not entail negative effects on human health," Weber said by telephone.

    Glyphosate, a common ingredient in weedkillers such as Monsanto's Roundup, has been the subject of fierce debate in the past year since a World Health Organisation body classified it as probably carcinogenic, and European Union countries are discussing whether or not to extend its EU-wide licence.

    France's environment minister has been pushing for an EU-wide ban on glyphosate-based products and is also supporting legislation going through the French parliament that would outlaw a type of pesticide blamed for harming honey bees.

    Tallowamine, technically referred to as polyethoxylated (POE) tallowamine, is used in weedkillers to allow them to be absorbed effectively by plants.

    The substance is combined with glyphosate in many weedkillers but a large number of glyphosate products without tallowamine are available in France, Weber said.

    Glyphosate and tallowamine combinations were previously withdrawn from the German market in a voluntary step by manufacturers, she added.

    Monsanto said the commercial impact on the company would be "minimal" given that it had already shifted away from using tallowamine.

    In an emailed statement, the U.S. crop seed and chemical company described the debate around glyphosate in Europe as "political" and said that tallowamine-based products "do not pose an imminent risk for human health when used according to instructions".

    Like the debate over pesticides and bees, arguments over glyphosate weedkillers have divided scientists and pitched environmental protection groups against chemical companies and farmers who say there are no viable alternatives.

    A final decision by ANSES on withdrawing glyphosate-tallowamine mixtures would take at least several weeks because the agency must first consider comments by the manufacturers, which have two weeks to submit arguments, Weber said.
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    Vertellus Specialties skips debt interest payment -sources

    Vertellus Specialties Inc, a U.S. manufacturer of agricultural chemicals such as pyridine, is in talks to cut a deal with its lenders after missing a debt interest payment, according to people familiar with the matter.

    Weak agricultural markets, combined with overcapacity and increased competition from China, have hit the chemical company, owned by buyout firm Wind Point Partners. Moody's Investors Service Inc said the company, which has about $555 million in debt, will need assistance meeting the requirements of some of that debt as sales and profits plummet in some key divisions.

    Vertellus hopes to clinch a forbearance agreement with lenders as early as next week, the people said this week. The company is working with investment bank Jefferies LLC on debt restructuring options, the people added.

    Vertellus has also been exploring the sale of its specialty materials and sodium borohydride units to pay down debt, the people said. The sodium borohydride unit could fetch as much as $200 million, according to one of the people.

    The sources asked not to be identified because the deliberations are confidential. Requests for comment to Wind Point and Vertellus were not immediately returned. Jefferies declined to comment.

    Indianapolis, Indiana-based Vertellus has manufacturing plants across the United States, Asia and Europe. It reported revenue of $596 million in 2015, Moody's said.

    Vertellus' term loan and revolving credit facility do not mature until 2019, according to Thomson Reuters data.

    Moody's said that without help from Wind Point, the company will not be able to meet covenants in the term loan this year.
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    Steel, Iron Ore and Coal

    Russia Q1 coal exports up 8.4pct on year

    Russia, a country boosting rich coal resources, exported 37.49 million tonnes of coal in the first quarter this year, up 8.4% from a year ago, showed the latest data from its national Energy Ministry.

    Coal exports of Russia rose 11.78% on month to 13.24 million tonnes in March, data showed.

    The country produced 31.93 million tonnes of coal in the month, climbing 2.82% from the year prior.

    Coal sales stood at 28.31 million tonnes in the same month, data showed.
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    EPH to acquire Vattenfall's German lignite coal assets -sources

    EPH to acquire Vattenfall's German lignite coal assets -sources

    Czech investor EPH is set to acquire Vattenfall's loss-making German lignite coal mines and associated power plants in Germany, three people familiar with the matter said on Friday.

    The deal is expected to be signed next week, one of the sources said, while Vattenfall's supervisory board is expected to give a final nod in about 10 days, two other sources said.

    Vattenfall and EPH both declined to comment.

    Contender Czech Coal had dropped out of the bidding, one of the people said.

    A proposal from German energy group Steag and Australian investment fund Macquarie had asked for a large contribution from Vattenfall and was therefore seen as having lower chances than EPH's bid, another source said.
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    China to open up iron ore futures to foreign investors

    China is planning to open up the world's most liquid iron ore futures to overseas investors, an official with the Dalian Commodity Exchange said on Friday, a move that would increase China's sway over pricing as the world's top iron ore consumer.

    The Dalian exchange is applying for approval from the China Securities Regulatory Commission to allow offshore investors to directly trade in the raw material, said Jing Mingyi, a manager with the exchange's industrial products department.

    "We are actively working on it and hope to finish the relevant work regarding the trading system, connection with banks, deposit centre and futures firms," Jing told an industry conference.

    China has banned investors abroad from directly trading local commodity futures unless they set up a local unit in China.

    Dalian iron ore futures have become a benchmark for Chinese steelmakers and iron ore traders to assess prices for ore delivered to China.

    They have also attracted large capital flows from Chinese commodities funds. The iron ore contract surged as much as 19.5 percent in a day in March amid a rally in prices. The volatility prompted the Dalian Exchange to enact measures to curb the sharp movements in prices.

    The most actively traded September contract on the Dalian Exchange was down 0.1 percent on Friday at 377 yuan ($58.24) a tonne.
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    Cutting output more important than capacity: steel official

    Cutting steel capacity is important but controlling output is more important, as steel exports in 2016 are highly likely to fall as governments in foreign markets move to protect their own domestic producers, China Iron and Steel Association (CISA) Secretary-General Liu Zhenjiang was quoted as saying by Reuters on Saturday.

    In 2015, crude steel production in China stood at 804 million tons, down 2.3 percent year-on-year, the first decline in three decades, data from the CISA showed in February.

    Domestic consumption was 700 million tons, decreasing 5.4 percent year-on-year.

    But a surge in exports last year and the previous year has caused concern and raised flags in some countries, with trade protectionism on the rise and the global environment for steel exports deteriorating, Liu was quoted as saying by Reuters on Saturday.

    There are buyers in other markets who use steel products from China for their low prices and good quality, Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Sunday.

    Wang and other experts said steel producers should not put too much stock in the China-initiated Belt and Road initiative, which aims to boost infrastructure and connectivity among a number of countries and regions to revive the former glory of the Silk Road.

    "The initiative is a long-term development program. The demand for steel will be generated project by project, and over a relatively long period of time, so steel mills should not rely too much on the initiative's ability to absorb steel supply glut," Wang noted.

    Liu's comments came as Britain asked China on the same day to speed up the process of tackling steel industry overcapacity, in an effort to stem the flood of cheap imports into Europe.

    India-based Tata Steel has blamed these shipments for its decision to pull out of the UK, putting 15,000 jobs at risk, media reports have said.

    Tata Steel, an Indian multinational steel company, said on March 30 that the company was set to sell its British business for several reasons, including a global oversupply of steel and continued weakness in domestic demand for the product, according to a statement on the company's website.

    The Reuters report Saturday said that China's plans to shut steel mills over the next five years will cut capacity to an estimated 1.13 billion tons by 2020 - but that will still exceed domestic demand.

    Weakened domestic demand has prompted Chinese steel mills to look at the global market. China's steel exports rose 50.5 percent year-on-year in 2014 and increased by another 19.9 percent in 2015 to reach 112 million tons, according to a speech by Liu published on the website of the CISA on Thursday.

    The EU opened three anti-dumping investigations into Chinese steel products in February and imposed new duties on imports after the European steel industry said thousands of jobs were at stake.

    Chinese steel mills lost a total of 100 billion yuan ($15.47 billion) in 2015, according to Liu.

    Wu Chenhui, an independent analyst, told the Global Times Sunday that domestic steel mills are expected to gain from any rise in steel prices, which he said have bottomed.

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    India steel ministry may appeal to Modi over anti-dumping rules

    India's steel ministry is considering appealing to Prime Minister Narendra Modi to back a proposal to toughen up anti-dumping rules to tackle a flood of cheap imports threatening its steel industry, a government source said.

    India is among a number of countries and groups such as the European Union weighing up taking further measures against cheap exports from countries such as China and South Korea.

    Indian purchases of Chinese steel products rose 5 percent in the 11 months to February, provisional government data showed, after more than trebling in the fiscal year ending March 2015. Imports from Japan were up 39 percent, while shipments from South Korea rose 54 percent between April and February.

    Because of the distress in India's steel industry, the ministry had written a letter seeking to change anti-dumping rules, said the source, who declined to be named because he was not authorised to speak to media.

    According to the source, the letter had asked the trade ministry to alter anti-dumping rules unchanged for two decades to reflect only the dumping margin. This should effectively raise the duty and bring India in line with the United States and Canada, while meeting World Trade Organization (WTO) rules, the source said.

    But the trade ministry turned the proposal down and Trade Secretary Rita Teaotia said current rules were internationally accepted and followed, among others, by the European Union.

    "They are asking us to amend the rules, but they are looking at only one country, the United States," Teaotia told Reuters.

    The steel ministry was now considering approaching the federal planning body, Niti Aayog, or the Prime Minister's office to press its case, according to the government source.

    India's steel secretary and Modi's office were not immediately available for comment.

    India last week extended a safeguard import tax on some steel products until 2018 and imposed a floor price on overseas purchases in February, but companies such as JSW Steel , Tata Steel and Kalyani Steels have been lobbying for more measures.

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