Mark Latham Commodity Equity Intelligence Service

Monday 1st February 2016
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    China PMI: it's getting wait, it's getting better

    Chinese PMI data has sent conflicting signals as the private Caixin manufacturing PMI points to a moderate recovery (in line with our expectations) whereas the official NBS manufacturing PMI has hit the lowest level in 2½ years.

    The Caixin PMI manufacturing index beat expectations rising to 48.4 in January (consensus: 48.1) from 48.2 in December and the new orders sub-index rose to the highest level since June 2015. The official NBS PMI manufacturing, on the other hand, fell to 49.4 (consensus: 49.6) from 49.7 in December.

    Looking at other data, we would be inclined to put more weight on the signal from the Caixin PMI. Import data has pointed to a recovery recently and the big credit burst in 2015 is normally followed by higher activity.

    The Caixin index has always been more cyclical in nature with more swings relative to the official PMI. This may be because the Caixin statistics capture better smaller- and medium-sized companies relative to the official NBS PMI that has higher weight on big state-owned enterprises (SOEs). Since the big overcapacity and struggles are in the big SOEs, this could explain the current deviation.

    Other details of the report show that the export order indices fell slightly in both statistics but are still off the lows from earlier in 2015. NBS also published service PMI, which mirrored the decline in the manufacturing sector, showing a decline to 53.5 in January from 54.4 in December. It comes after decent gains in late 2015, though, and is still higher than during the autumn.

    This is one of the rare cases where China is unlikely to be accused of fiddling with the data unless you can make a case that China would have an interest in showing a weakening picture.
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    Venezuela is on the brink of a complete economic collapse

    The only question now is whether Venezuela's government or economy will completely collapse first.

    The key word there is "completely." Both are well into their death throes. Indeed, Venezuela's ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it's hard to see that getting any better for them any time soon — or ever. Incumbents, after all, don't tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It's no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.

    That's not an easy thing to do when you have the largest oil reserves in the world, but Venezuela has managed it. How? Well, a combination of bad luck and worse policies. The first step was when Hugo Chávez's socialist government started spending more money on the poor, with everything fromtwo-cent gasoline to free housing. Now, there's nothing wrong with that — in fact, it's a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn't.

    Why not? The answer is that Chávez turned the state-owned oil company from being professionally run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn't go in. That last part was particularly bad, because Venezuela's extra-heavy crude needs to beblended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn't been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.

    The rest is a familiar tale of fiscal woe. Even triple-digit oil prices, as Justin Fox points out, weren't enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more. And by "some," I mean a lot, a lot more. That, in turn, became more "a lots" than you can count once oil started collapsing in mid-2014. The result of all this money-printing, as you can see below, is that Venezuela's currency has, by black market rates, lost 93 percent of its value in the past two years.

    It turns out Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system.

    Now you might have noticed that I talked about Venezuela's black market exchange rate. There's a good reason for that. Venezuela's government has tried to deny economic reality with price and currency controls. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it's not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That's left Venezuela's supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela iswell-supplied with are lines.

    Although the government has even started rationing those, kicking people out of line based on the last digit of their national ID card.

    And it's only going to get worse. That's because Socialist president Nicolás Maduro has changed the law so the opposition-controlled National Assembly can't remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn't even believe there's such a thing as inflation to be the country's economic czar. "When a person goes to a shop and finds that prices have gone up," the new minister wrote, "they are not in the presence of 'inflation,' " but rather "parasitic" businesses that are trying to push up profits as much as possible. According to this — let me be clear — "theory," printing too much money never causes inflation. And so Venezuela will continue to do so. If past hyperinflations are any guide, this will keep going until Venezuela can't even afford to run its printing presses anymore — unless Maduro gets kicked out first.

    But for now, at least, a specter is haunting Venezuela — the specter of failed economic policies.

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    $1m+ Cat goes for $55k at auction

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    Radar Iron: Gone in a Flash

    Australian iron ore explorer Radar is reviewing options for realising value for its mineral assets after signing an exclusive option agreement with Israeli company Weebit Nano to acquire next-generation "flash" memory technology it says is smaller, faster, more reliable and energy efficient than any commercial rivals.
    The deal, for the issue of 750M shares, is due for completion in April.
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    Oil and Gas

    Iranian oil output recovering as first cargoes sold to Europe -sources

    Iran is on track to raise oil production by 500,000 barrels per day after the lifting of sanctions this month and has already sold 6 supertankers with additional crude to buyers in Europe and Asia, a Iranian oil source said.

    The source, familiar with export operations, said three supertankers with additional volumes of crude have been sold to buyers in Europe and three to Asian customers for delivery in February.

    Trading sources said Litasco, the trading arm of Russia's Lukoil, looked set to become the first buyer in Europe since the lifting of sanctions.

    The Swiss trader will deliver one million barrels of Iranian Light grade to Lukoil's Petrotel refinery in Romania, loading at Iran's Kharg Island terminal on February 5.

    "Iran raised its crude oil production by at least 500,000 bpd and the market will see it in the next few days," said the Iranian source, who is familiar with export operations.

    "(There are) three contracts finalised with European customers... Iran is also talking with its traditional customers in Asia, especially India."

    Iran has promised to begin regaining market share lost during years of curtailed output after European sanctions on its oil industry were lifted this month.

    Tehran has said it would boost output immediately by 500,000 bpd and by another 500,000 bpd within a year, ultimately reaching pre-sanction production levels of 4 million bpd seen in 2010-2011.

    The source said that by the end of March or start of April Iran will also introduce a new heavy crude blend, West Karun, to win back more customers.

    "We have been in the market for a long time... We think we are ready to be as good as before," the source said.

    Iran is expected to add barrels in an already oversupplied market where its rivals Saudi Arabia and Iraq have consistently raised production, helping create one of the biggest gluts in history and contributing to a price plunge to 12-year lows.

    But OPEC officials have said the markets have begun to rebalance as investment is being curtailed due to low oil prices. The market can therefore absorb additional Iranian volumes without suffering much extra pain, OPEC officials have said.

    European refiners bought as much as 800,000 bpd from Iran before the sanctions and have in the past few years replaced those volumes with oil from Iraq, Saudi Arabia and Russia.

    Iran has said it is willing to win its customers back quickly and has already agreed to resume sales to Greek Hellenic Petroleum and France's Total.

    But the first shipments have been complicated by a lack of clarity on ship insurance, dollar clearance and European banks' letters of credit.

    "It's just a matter of price. If the price is good, we'll buy it," Marco Schiavetti, director of supply and trading with Italy's Saras said of Iranian oil this week. "Obviously we will talk to them soon, and we will consider."
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    Iran Says It Won't Support Any Supply Cut Or An Emergency OPEC Meeting

    The main reason for oil's torried surge over the past 2 days is that following yesterday's Russia-Opec "oil production cut" headline fiasco, crude traders - who as we previously reported already had a record net short position - scrambled to cover their exposure on the assumption that where there is oily smoke, there will be fire.

    We can now put to rest any speculation that OPEC will proceed with any supply cuts, whether Russia requests it or not, because as the WSJ reported moments ago, not only will OPEC not support a supply cut but it will also not support an emergency OPEC meeting.

    Will oil respond negatively to this headline as it did so positively to yesterday's volley of speculation that sent it surging? Judging by the initial response, the short covering may have ended...

    ... although it remains unclear if it will undo all gains over the past 24 hours.

    Still, remember the Saudis previously warned the oil market is oversupplied by about 3MM B/D, which means that all those fundamentals that ceased to matter this week will be back front and center in the coming hours.
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    EU signals support for Schaeuble's petrol tax proposal: magazine

    European Commission Vice President Valdis Dombrovskis has suggested he was open to German Finance Minister Wolfgang Schaeuble's proposal for a special tax on petrol in EU member states to finance refugee-related costs.

    In comments published by German magazine Der Spiegel on Saturday, Dombrovskis said he agreed with Schaeuble's call for "innovative European concepts to cope with the refugee crisis".

    Schaeuble attracted criticism from fellow conservatives and the Social Democrats (SPD) for suggesting earlier this month that the money from the extra levy could be used to pay for strengthening Europe's joint external borders.

    He did not specify how high the additional tax on gasoline should be and whether Brussels or the EU member states would be in charge of collecting it.

    "A gasoline tax, be it on a national or on a European level, could be a possible source of funding, especially when you consider that the oil price is at a historically low level now," Dombrovskis was quoted as saying.

    He added that measures under consideration to better secure Europe's external borders were expensive.

    "Security is a public good that Europe should ideally ensure collectively," he said.

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    Chevron Posts First Loss Since 2002

    Chevron Corp. lost money for the first time in more than 13 years as a collapse in prices for the global oil explorer’s main product forced it to write down the value of crude and natural gas fields. Shares fell.

    The fourth-quarter net loss was $588 million, or 31 cents a share, compared with profit of $3.5 billion, or $1.85, a year earlier, the San Ramon, California-based company said in a statement on Friday. The per-share result was worse than any of the 22 analysts in a Bloomberg survey whose estimates ranged from gains of 29 cents to 63 cents.

    Chevron’s results were hurt by $1.1 billion in charges as the plunge in energy prices slashed the long-term earning power of its portfolio of oil and gas holdings, according to the statement. The impact of tumbling prices more than wiped out any upside from the 3.5 percent increase in output from Chevron’s wells during the quarter. The company’s geologists discovered enough new crude and gas to replace 107 percent of what it produced during 2015.

    Shares were down 1.8 percent to $84.37 as of 8:51 a.m. in New York, in trading before regular market hours.

    “We’re taking significant action to improve earnings and cash flow in this low price environment,” Chief Executive Officer John Watson said in the statement.

    U.S. Upstream

    Chevron’s U.S. oil and gas business posted a $1.95 billion loss for the period as falling crude prices that lessened the future value of its fields added to the pain from rising exploration expenses.

    Chevron, the largest U.S. oil producer after Exxon Mobil Corp., has slashed headcount, canceled drilling projects and frozen dividend payouts to slow the exodus of cash as the collapse in world energy markets saw prices spiral downward 70 percent.

    Spending on drilling rigs, steel pipe, floating platforms and other equipment dropped 16 percent in 2015 to about $34 billion, according to the statement. Last month, the company said it plans to spend about $26.6 billion on such developments this year, which would be a 22 percent cut from 2015.

    Watson is betting population growth and rising standards of living in the globe’s most-populous regions will boost demand for diesel, kerosene, liquefied natural gas and other petroleum-based fuels for decades to come.

    Temporary Conditions

    The current glut-driven slump in prices is a temporary phenomenon that will be eclipsed by long-term demand growth, Watson has said repeatedly since the global benchmark Brent crude began its precipitous fall from a June 2014 high of $115. Chevron’s output worldwide is about 66 percent crude; the rest is natural gas and gas byproducts.

    The glut has prompted a market-share battle between The Organization of Petroleum Exporting Countries and other global producers. Saudi Arabia, the world’s biggest exporter, has refused to curtail its output and said it will be up to higher-cost producers such as U.S. shale drillers to help rebalance the market.

    Chevron’s statement was released before the opening of regular U.S. equity markets. Chevron rose 3.2 percent to $85.92 on Thursday in New York trading. The stock has tumbled 17 percent in the past year.

    Chevron said Wednesday it will pay out a $1.07-a-share dividend in March. The payout, which hasn’t been raised since April 2014, will cost the company about $2 billion.
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    Chevron: LNG from Gorgon “within few weeks” Wheatstone delayed

    US-based energy giant Chevron said Friday it expects to start production at its US$54 Gorgon LNG project in Australia soon.

    “We made significant progress on our LNG projects in Australia, in particular the Gorgon project where we expect to be producing LNG within the next few weeks,”  Chevron’s CEO John Watson said in the company’s fourth-quarter statement.

    Chevron recently commenced the cool-down of the LNG storage and loading facilities at its Gorgon project on Barrow Island in Western Australia.

    The Gorgon project is a joint venture between the Australian subsidiaries of Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

    The cost of Chevron Corp.’s Wheatstone liquefied natural gas project in Australia with partners including Woodside Petroleum Ltd. may rise about 14 percent to $33 billion after its start date was delayed by about six months, according to Macquarie Group Ltd.

    That would add to budget overruns in the LNG industry in Australia, which is forecast to overtake Qatar as the world’s biggest supplier of the fuel. Chevron said last week it expects first LNG cargoes from Wheatstone in about mid-2017, citing a delay in building parts of the project in Malaysia. The company had expected the plant in Western Australia to begin in late 2016.

    While Chevron didn’t provide an updated cost estimate with a review of expenses to be carried out in the second quarter, “schedule slippages rarely do not transpire to additional cost pressure,” Kirit Hira, a Sydney-based analyst at Macquarie, wrote in a note on Monday.

    A weaker Australian dollar will probably ease some of the pressure on the project, previously estimated to cost about $29 billion, according to Macquarie. Chevron owns a 64 percent stake in Wheatstone. Other partners include Kuwait Foreign Petroleum Exploration Company and Kyushu Electric Power Co.

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    PetroChina Expects 2015 Profit to Fall as Much as 70% on Oil Slump

    PetroChina Co., the country’s biggest oil and gas producer, expects its 2015 profit to have fallen 60 percent to 70 percent from a year earlier because of the slump in energy prices.

    The company sees the oil market continuing to be weak this year and is seeking to cut costs, it said in a statement to the Hong Kong stock exchange on Friday. PetroChina cited the fall in crude and lower domestic natural gas prices for the drop in earnings, estimates for which were compiled according to China Accounting Standards. The company reported net income of 107.2 billion yuan ($16.3 billion) for 2014.

    “As the price of international crude oil has declined significantly and the price of domestic natural gas has been driven down, a relatively large reduction in the company’s profit occurred,” PetroChina said in the release. “The market of international oil and gas is expected to continue to slump.”

    Brent crude, the benchmark for more than half the world’s oil, plunged 35 percent last year, the third annual decline. PetroChina in October posted an 81 percent slump in third-quarter profits after reporting that net income in the first half fell 63 percent.
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    Report: Sakhalin-2 LNG production hit by technical glitch

    The Sakhalin-2 project is reportedly experiencing production problems at its 9.6 mtpa LNG export facility located on Sakhalin Island, in Russia’s Far East region.

    A technical “glitch” occurred on January 26 at a gas compressor and the plant is evaluating the impact of the accident on production and exports, Reuters said in a report..

    However, ICIS reported on Friday the LNG project declared force majeure on 28 January due to a technical issue. According to the report, the length of the outage could not be confirmed yet.

    Gazprom recently said that the liquefied natural gas project exceeded its design production capacity by 1.2 million tons in 2015. The LNG project consists of two trains with Shell and Gazprom working to add the third train.

    Sakhalin Energy is the Sakhalin-2 project operator with the ownership distributed among Gazprom (50 percent plus one share), Shell (27.5 percent minus one share), Mitsui (12.5 percent) and Mitsubishi (10 per cent).
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    Gazprom Meets Investors as It Prepares Record Exports to Europe

    Gazprom PJSC, the Russian natural gas producer preparing to meet investors in New York and London this week, seeks to increase supplies to Europe to record levels.

    The Moscow-based exporter, which provides about 30 percent of the European Union’s gas needs, plans to boost flows to Turkey and the EU bar the Baltic States by 2 percent this year to a record, with further growth through 2018, according to its non-public budget obtained by Bloomberg. That is more ambitious than public statements by the company to maintain supply.

    Russia, which relies on pipeline gas sales outside the former Soviet Union for more than 10 percent of its total exports, has increased its dominance in Europe as crude’s 30 percent decline over the past year made Gazprom’s oil-linked prices more attractive. The company will Monday hold an annual Investor Day in New York for the first time since 2014 after last year seeking to woo bond and shareholders in Asia.

    The gas exports to most of the EU and Turkey are seen at 162.6 billion cubic meters (5.7 trillion cubic feet) this year, up from 159.4 billion in 2015 and above a record 161.5 billion in 2013, the budget shows. Supplies are seen at 166.1 billion cubic meters in 2017, with 166.3 billion in 2018. Most of the increase is seen in flows through the Nord Stream gas pipeline under the Baltic Sea to Germany.

    Gazprom’s press service declined to comment. The company has scheduled an investor meeting in London for Feb. 4

    Gazprom budgeted its gas output at 456.7 billion cubic meters this year, up from about 420 billion in 2015, a record-low level for the company. Its dividend payments set in the budget match last year’s level of 7.2 rubles a share and are in line with public statements made by Gazprom executives over the past months.
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    DVB Bank America Seizes Deepwater Drill Ship: Auction next month.

    DVB Bank America has decided to arrest the drillship "Deepsea Metro II," as a result of the company which owns the ship, Chloe Marine Corporation, has defaulted on the loan on the ship and that the sales process has been ongoing since not August have not given results, reports Nordic Trustee Tuesday night.

    Through different companies and a joint venture owner Odfjell Drilling 40 percent of the ship, which are laid buoys on Curacao. The remaining 60 percent of shares were handed over by Metro Exploration to bondholders in spring.

    It was the bondholders who initiated the sales process of the ship which therefore have failed. DVB Bank, as one of the bondholders, has so taken the step to arrest the current drillship.

    Odfjell Drilling has already written down the value of their belongings in the vessel to zero, and the company says to DN that the arrest of respect not "change the company's reality."

    - We are familiar with the situation, but beyond that we have no comment, says Odfjell Drilling's communications director Gisle Johanson.

    Director of Investor Relations, Lasse H. Johannsen, say they have been in contact with possible buyers of "Deepsea Metro II ', but no bids have been placed.

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    Beijing encounters natural gas supply shortage due to scarcity

    According to local authorities, Beijing experienced a limited natural gas supply on Friday due to temporary scarcity.

    According to Beijing Municipal Commission of City Administration and Environment, China National Petroleum Corporation, the country's largest oil and gas supplier, encountered a gas shortage due to growing demand in continued cold weather.

    An emergency plan was carried out to maintain indoor temperatures at public buildings no higher than 14 degrees Celsius. The affected areas include workplaces, schools, department stores and entertainment venues.
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    Alberta Spares Oil-Sands Producers in Royalty Revamp on Glut

    Alberta’s oil-sands producers dodged a bullet after the Canadian province recognized the industry faces an “existential threat” from the U.S. shale boom and left rates unchanged for heavy oil in a long-awaited royalties review.

    A panel found the current 1 percent to 9 percent rate on revenue from so-called bitumen mines before costs are paid off, and as much as 40 percent after that, is “appropriate,” Premier Rachel Notley said in a prepared statement Friday. Some rates for other forms of crude and natural gas will decline on wells drilled next year and beyond.

    “At this moment in our history, with prices and markets being what they are, what Albertans need us to do is help improve their and industry’s returns by removing distortions and disincentives in the system and ‘grow the pie,”’ Notley said.

    The revamped payment regime comes as Alberta’s oil industry is suffering from plummeting crude prices that have made many oil-sands operations unprofitable. Companies have slashed budgets and reduced their workforces in a bid to stay afloat and weather the sinking commodity market. No large-scale oil-sands projects are expected to be developed in the foreseeable future because of oil prices and increased competition for investment, the panel said.

    Gas Incentive

    The review, which initially stirred concerns that costs would rise for producers, also included provisions to encourage the use of gas for a wider range of petrochemicals and more upgrading of bitumen and oil.

    The plan removed a ‘perceived overhang’ as similar rates of return are targeted at both the old and new frameworks on average, RBC Capital Markets said in note to clients.

    This is “better than people would have expected,” Rafi Tahmazian, a portfolio manager at Canoe Financial in Calgary, said by phone. “But I think there is still a massive unknown here in the range and pace of acceleration of the royalty after payout” for conventional production, he said.

    Conventional Production

    The new rates for non-oil sands production will be applied only to wells drilled after 2017. The flat rate of 5 percent applied to oil, natural gas and gas liquids in the early stages of drilling is a reduction in some cases from as much as 30 percent and is designed to provide an incentive for drillers, the panel said. The cost of the new carbon price will be considered an additional cost that companies can deduct against revenue. The oil sands accounted for about 57 percent of Canadian production in 2014, according to the Canadian Association of Petroleum Producers.

    “Completion of the royalty review provides certainty, predictability and helps increase investor confidence in the province,” said Bill McCaffrey, chief executive officer of oil-sands producer MEG Energy Corp., in a statement.

    Regulation Overhaul

    Alberta’s left-leaning New Democratic Party government has implemented sweeping changes to the industry, including policies that will limit carbon emissions and an increase in corporate taxes. Notley rose to power last May in a wave of voter discontent after more than four decades of rule by Progressive Conservatives that worked closely with Calgary’s oil executives.

    Those same executives have warned about the risks of tampering with a royalty system that spurred more than C$100 billion ($71 billion) in oil and gas investments over the past 15 years, which until last year made Alberta the engine of the Canadian economy. With the review complete, some of the policy uncertainty associated with the change in government has been reduced.

    “The new royalty framework is principle-based and provides a foundation to build the predictability industry needs for future investment,” said Tim McMillan, CEO of the CAPP lobby group, in an e-mailed statement. “The fact that the new rules will only apply to projects starting in 2017, and maintaining the oil sands royalty regime, are signals that the government is serious about encouraging investment in Alberta at this difficult time.”

    Royalty revenue has plummeted to an expected C$2.8 billion in the current fiscal year compared with more than C$10 billion in 2009. The new royalty regime isn’t expected to increase the government’s take until oil prices increase and projects reach payout. It also won’t have an impact on the budget for the next two years, Alberta Finance Minister Joe Ceci said in an interview after the announcement.
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    Oil rigs fall under 500 in latest count

    Oil drillers sidelined another 12 rigs this week, bringing the number of rigs chasing crude under 500 for the first time since 2010.

    Baker Hughes reported Friday that the combined oil and gas rig count fell by 18 to 619 active rigs. Rigs chasing oil fell by 12 to 498, the first time fewer than 500 have been active since March of 2010. Natural gas rigs fell by six to 121, the lowest count in Baker Hughes records stretching back to 1987.

    The number of active oil rigs have now fallen by 69 percent from the October 10, 2014 peak. Over the past 12 months, the oil rig count is down 59 percent.

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    U.S. refiner Phillips 66 reports better-than-expected profit

    U.S. refiner Phillips 66 reported a better-than-expected quarterly profit, helped by robust gasoline margins due to lower crude costs.

    The company's shares were up about 1 percent at $79.75 in premarket trading on Friday.

    Adjusted earnings, excluding special items of $60 million, were $710 million, or $1.31 per share, beating analysts' average estimate of $1.25 per share, according to Thomson Reuters I/B/E/S.

    However, the company's quarterly profit was hurt by lower earnings from its midstream and chemicals businesses.

    Adjusted earnings at the company's midstream business more than halved to $42 million in the quarter, hurt by a fall in natural gas prices.

    The company's consolidated earnings fell to $650 million, or $1.20 per share, in the fourth quarter ended Dec. 31, from $1.15 billion, or $2.05 per share, a year earlier.
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    Consol Energy loss bigger than expected; idles coal mine

    Coal and natural gas producer Consol Energy Inc (CNX.N) reported a bigger-than-expected quarterly loss and said it would idle another coal mine amid a prolonged slump in commodity prices.

    The company said it would temporarily idle its Harvey coal mine in southwestern Pennsylvania.

    Pennsylvania-based Consol Energy, which has shifted its focus to natural gas production from coal, spun off its thermal coal business into a publicly traded company last year.

    Net income attributable to Consol fell to $30.4 million, or 13 cents per share, in the quarter ended Dec. 31, compared with a profit of $73.67 million, or 32 cents per share, a year earlier.

    On an adjusted basis, the company posted a loss of 11 cents per share, bigger than analysts' average estimate of 9 cents, according to Thomson Reuters I/B/E/S.

    Revenue fell nearly 19 percent to $761.9 million, missing Wall Street expectations of $935.7 million by a large margin.
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    Alternative Energy

    Gamesa shares soar after report of interest by Siemens

    Shares in Spanish wind farm manufacturer and operator Gamesa jumped more than 20 percent on Friday after a media report that German engineering giant Siemens may be interested in making a takeover offer.

    In a statement to the market regulator, Gamesa did not acknowledge it had had contact with the German company, but said, in relation to the report, that no decision had been made and no deal had materialised.

    "In relation to the news and rumours of a possible corporate operation between Gamesa and Siemens, Gamesa, as part of its normal activity, regularly analyses strategic opportunities presented to the group," Gamesa said in a filing to the stock market regulator.

    According to a report in Spanish online newspaper El Confidencial, the German company has appointed Deutsche Bank to look into a possible acquisition of the Spanish group, citing sources with knowledge of Siemens' plans.

    Siemens has been in contact with Iberdrola, which holds 19.7 percent of the Spanish renewables company, over its plans, the sources said.

    Spokespeople for Gamesa, Iberdrola and Siemens declined to comment on the report.

    Analysts at Barclays were cautious about the advantages of any deal.

    "Given Siemens' mixed track record in managing its own wind business to date (quality issues, execution problems), we would need to see some convincing points on how a potential new combined entity would be better run," said Barclays in note, adding that it didn't believe the timing was right for Siemens.
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    Germany considers $5,500 incentive for electric cars

    German politicians and auto executives will discuss creating incentives worth up to 5,000 euros ($5,500) to boost sales of electric and hybrid cars, a senior ally of Chancellor Angela Merkel said on Friday.

    Germany has set itself a goal of bringing 1 million electric cars onto its roads by 2020, but has so far made little progress in encouraging drivers to switch from more polluting - but also generally cheaper - diesel and petrol vehicles.

    The heads of the three parties in Merkel's ruling coalition have discussed introducing a subsidy for electric car buyers, said Horst Seehofer, head of the Christian Social Union (CSU), sister party of Merkel's Christian Democratic Union (CDU).

    He added the government was looking into whether car companies could co-finance the new incentive and that Merkel would discuss the issue with company executives next week.

    Asked whether he was backing proposals to introduce an incentive of up to 5,000 euros, Seehofer said: "Bavaria is very much in favour of the buyer's premium."

    Seehofer is state premier of Bavaria, the southern German state where carmaker BMW is based.

    A spokeswoman for Germany's Economy ministry said: "Talks within the German government are constructive. We are counting on arriving at a good solution to help achieve our goals."

    In 2015, 23,500 electric and plug-in vehicles were registered in Germany. Of these, only 12,300 were pure electric cars, according to Stefan Bratzel at the Center of Automotive Management in Bergisch Gladbach.

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    Japan Inches Closer to Nuclear Revival as 3rd Reactor Starts

    The restart of the third nuclear reactor in Japan to clear post-Fukushima safety rules on Friday is a small step in the country’s quest to re-establish atomic energy as part of its energy mix.

    Kansai Electric Power Co. resumed operations at the No. 3 unit of its Takahama plant near the ancient Japanese capital of Kyoto at 5:00 p.m., the company said in a statement. The country’s 40 other operable reactors remain shut in the aftermath of the massive earthquake and tsunami in March 2011 that caused a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi facility. Twenty-five have applied to restart.

    More nuclear-powered electricity generation will help reduce Japan’s fuel import bill and lead to lower electricity rates for consumers. The restart will also help the government reach its goal of having nuclear power make up as much as 22 percent of the nation’s energy needs by 2030. A total of about 30 to 33 reactors will need to restart to meet the government’s target, according to Syusaku Nishikawa, a Tokyo-based analyst at Daiwa Securities Co.

    The restart at Takahama “underscores the country’s commitment to returning to nuclear energy,” said Rob Chang, a managing director and head of metals and mining for Canada, who forecasts three reactors will come back online this year, bringing the nation’s total to five. Eight more will start in 2017 and a total of 37 reactors will be online by 2020, he said in an e-mail.
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    Steel, Iron Ore and Coal

    U.S. coal for electricity plummets to 45-year low

    The amount of coal used for electricity generation in the United States has sunk to a 45-year low. In 1970, the last year that the percentage of coal use compared to other energy inputs like natural gas, nuclear, wind and solar energy was this paltry, President Richard Nixon was in his second year of office, Blood, Sweat and Tears won the Grammy for Album of the Year, andMidnight Cowboy became the only X-rated film to win Best Picture at the Academy Awards.

    According to the Energy Information Administration (EIA), coal-fired power plants produced just 29 percent of U.S. electricity in November, compared to 35 percent last July and 39 percent for all of 2014. “Coal generation is about as low as it’s ever been,” EIA analyst Glenn McGrath told Climate Central, in a story carried by Scientific American. “It’s never been that low for a particular month.”

    Coal generation is about as low as it’s ever been. It’s never been that low for a particular month.

    In 2015, for the first time in U.S. history,power plants running on natural gas produced more electricity than those running on coal. Older coal power plants are being retired due to the high cost of meeting environmental regulations being trumpeted by the Obama Administration. But according to McGrath, the Administration's climate change plan bears less blame for coal's demise than economics.

    “The Clean Power Plan hasn’t even hit [utilities] yet,” McGrath was quoted saying. “Gas is just dirt cheap, it’s that simple. It’s probably unprecedented to see, on a Btu (British thermal unit) basis, to see gas undercut coal. Gas has been taking coal’s share away for a while.”

    According to the EIA, at the start of the gas fracking boom, natural gas prices were at $13 per million Btu, then fell to $2/MBtu, before jumping again in 2014. Prices have since fallen again, reaching a bottom of $1.68 in December, as a warm U.S. winter has crimped demand and failed to draw down inventories that have been in storage since the summer.

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    Chongqing to eliminate 23 mln T coal capacity by end-2017

    Coal-rich Chongqing municipality, located in southwestern China, set new goals to eliminate 23 million tonnes of outdated coal production capacity and shut 340 coal mines by the end of 2017, Chongqing Daily reported on January 29.

    This was based on its goal to further boost reconstruction on the supply side and cut outdated capacity in coal industry.

    Chongqing closed 210 coal mines combined with annual capacity of 12.63 million tonnes in 2015, which was planned to be accomplished in three years by 2017.

    In order to realize the new target, Chongqin plans to shut 170 coal mines and eliminate 11.5 million tonnes of outdated coal capacity in 2016.

    In the meantime, it will also accelerate the construction of 22 demonstrated mines featured by mechanization and automation, build 25 standardized mines with national primary safety quality, and improve the current mechanization rate of mining equipment by 10% higher.
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    Fortescue welcomes signs of supply discipline in iron market

    Fortescue Metals Group, the world’s fourth-biggest iron ore producer, is “pleased” that rivals are taking heed of calls to slow supply growth that has contributed to a slump in global prices.

    “It’s good to see some better discipline coming in on the supply side,” chief financial officer Stephen Pearce said in a phone interview from Perth. “Our messaging has been fairly consistent for some time: we don’t intend to continue to allocate capital in the current market. We’re pleased that message seems to be broadly accepted.”

    Iron ore has collapsed to less than a quarter of its 2011 peak as producers including Rio Tinto Group and Brazil’s Vale increased supply amid concern that China’s economic slowdown would undermine demand. Fortescue chairman Andrew Forrest began agitating last year for the top miners to limit output to boost prices, saying they had committed “market vandalism” by overproducing. Rio, the world’s second-biggest shipper, then described the claims as inconsistent and overblown.

    Fortescue plans to hold volumes steady this fiscal year as it reported on Thursday increased shipments in the three months through December that exceeded analysts’ estimates. Rio sees its production rising about 7% to 350 million tons this year, slower than the 11% gain in 2015. BHP has forecast its output will climb 1.7% in the 12 months to June 30, compared with a 14% jump the previous year.

    Slower Pace

    “It’s starting to sink in that supply is part of the problem of this brave new world of low prices,” said Philip Kirchlechner, director of Iron Ore Research and the former marketing head at Fortescue. “Shareholders want to see capital discipline and not mindless expansions. Maybe increasing awareness of today’s realities could force the turning point we’ve been waiting for.”

    London-based Rio said in an e-mailed response to questions on Thursday that it hasn’t altered any of its global guidance. A spokeswoman for BHP declined to comment. The two companies have defended their strategy of raising output at a time of falling prices, saying cutting back wouldn’t be in their shareholders’ interest as forfeited supply would be filled by others.

    Fortescue shares rallied 14% to close at A$1.73 in Sydney, paring losses this year to 7.5% after a 32% slump in 2015. The stock was upgraded to outperform by Credit Suisse Group, which cited cost cuts and potentially higher iron ore prices in the next few months as construction activity and steel output pick up in China.

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    India's JSW Steel reports Q3 loss; lowers output, sales target

    India's JSW Steel Ltd said on Friday that its output and sales for the fiscal year to March will fall short of its target due to a delay in capacity addition, as it reported a $136 million quarterly loss.

    Steelmakers globally have been hit by weak prices and dumping of cheap steel by China. A sharp increase in imports from Japan and South Korea, who have free trade agreements with India, have also weighed on Indian steel companies.

    JSW Steel, however, does not expect prices to fall any further in its fiscal fourth quarter to March, commercial director Jayant Acharya, said, adding that he expects firm local demand.

    The company, which has the biggest steelmaking capacity in India, is adding 4 million tonnes to take its total installed capacity to 18 million tonnes. That expansion, which was scheduled to be commissioned in December, will now be completed by March, Joint Managing Director Seshagiri Rao said.

    "So, we may be short of around 5 to 6 percent in our full year production and salesguidance," Rao told a news conference on Friday after the company announced its results for its fiscal third quarter to December.

    JSW had targeted production of 13.4 million tonnes and sales of 12.9 million tonnes for the fiscal year.

    For the three months to December, it reported a consolidated net loss of 9.23 billion rupees ($136 million), hit by a one-off charge and weak domestic demand. It had posted a net profit of 3.29 billion rupees a year earlier.

    The latest results included a one-off charge of 21.22 billion rupees on impairment of its overseas assets.

    Consolidated net sales for the December quarter fell by about a third from a year earlier to 86.21 billion rupees.

    JSW Steel, which owns iron ore mines in Chile and coking coal mines in the United States, has halted production at the mines due to lower prices and weak demand.

    The mines will remain shut until prices of the commodities revive, Rao said.

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    Japan's Nippon Steel to take control of smaller rival as supply glut bites

    Japan's top steelmaker Nippon Steel & Sumitomo Metal Corp unveiled a plan on Monday to take control of fourth-ranked rival Nisshin Steel and trim some of their combined steel output in the face of a global supply glut.

    A deal would be the latest in a series of consolidations and plant closures as producers worldwide face a slump in prices ST-CRU-IDX due to falling demand and competition from surging Chinese steel exports.

    Nippon Steel, which already holds 8.3 percent of Nisshin, said the two firms struck a memorandum of understanding on Monday to turn Nisshin into a subsidiary. Nippon Steel said it is considering extending its stake to 51 percent to 66 percent.

    A formal decision was expected around mid-May, with Nisshin set to become a subsidiary around March 2017.

    Options for the acquisition included a tender offer for Nisshin Steel common stock and buying the shares issued via third-party allotment, Nippon Steel said in a statement.

    Shares in Nisshin Steel, which has a market capitalisation of 124 billion yen as of Friday, jumped as much up 23 percent by early afternoon.

    Under the deal, Nisshin Steel was considering halting one of two blast furnaces at Kure Works in Hiroshima prefecture, while Nippon Steel was set to supply it with steel billets, Nippon Steel said.

    China, which produces half of the world's steel, shipped a record 112.4 million tonnes last year as slowing economic growth prompted its mills to export excess steel, putting pressure on prices.

    The news also reflects soft domestic demand for construction steel despite a push by Prime Minister Shinzo Abe to reboot an economy plagued by deflation and a shrinking population.

    Japan's crude steel production fell 5 percent in 2015 to its lowest in six years.

    Shares in Nippon Steel jumped almost 11 percent in afternoon trade by 0428 GMT, boosted by the potential for cost savings.

    "The combined entity will be able to optimize production and shut down at least one blast furnace," Jefferies analyst Thanh Ha Pham said in a report.

    Nisshin Steel has two blast furnaces with production capacity of 3.6 million tonnes of crude steel and two electric arc furnaces with a capacity of 800,000 tonnes of stainless crude steel.

    Nippon Steel has 14 blast furnaces in Japan, two of which are due to be closed by the end of 2018. The company plans to produce 45.2 million tonnes of crude steel in the current business year ending March 31.

    Nippon Steel group and Nisshin each hold about 30 percent of Japan's stainless steel market, according to industry sources.

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    Toyota to stop Japan production for one week due to steel shortage

    Toyota Motor Corp said on Monday it would halt production at all car assembly plants in Japan from Feb. 8 to Feb. 13 due to a steel shortage following an explosion at a steel plant of one of its affiliates.

    The world's biggest automaker said on Saturday a blast at an Aichi Steel Corp plant on Jan. 8 had curbed production of steel used in auto parts including engines, transmissions and chassis. It gave no specifics on how car production would be affected.

    "Operations are scheduled to recommence on Feb. 15, and vehicle production on lines outside Japan will not be suspended," Toyota said in a statement.

    Toyota said it was looking at options including asking Aichi Steel to produce parts on alternate lines and procuring specialised steel from other makers.

    Late last week, it said it had enough inventory to keep the factories running until Feb. 6.
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    Vallourec unveils 1 bln euro capital hike, industrial shake-up

    Troubled French pipe maker Vallourec announced on Monday plans to raise 1 billion euros ($1.1 billion) in new capital and boost earnings through an industrial shake-up that will see it reduce its production capacity in Europe by half.

    Vallourec, whose steel pipes are used chiefly in the oil and gas industry, has been hit hard by plunging oil prices. Its shares were suspended on Friday after a drop of more than 14 percent to just over 4 euros following a Bloomberg report that it was preparing a capital increase.

    The company said the capital increase was supported by French state bank BPI France and Japan's Nippon Steel & Sumitomo Metal Corp, which would participate in a reserved equity instrument, in the form of a convertible bond, priced at 11 euros per share through which they would increase their capital stake to 15 percent each.

    The overall capital increase would be split between the reserved equity instrument and a rights issue, Vallourec said, giving a midpoint scenario of 490 million euros for the reserved part and 510 million for the rights issue, of which 445 million would be subscribed by the market.

    French business newspaper Les Echos had on Sunday reported that Vallourec would launch a capital hike worth up to 1 billion euros, along with an industrial restructuring in Europe. The daily Le Figaro had a similar report.

    The industrial restructuring would halve European pipe-making capacity through the closure of two rolling mills in France, one threading line in Germany and a heat treatment line in Scotland, leading to the loss of about 1,000 jobs in addition to previously announced cuts, Vallourec said.

    In Brazil and China, it plans to create improved production hubs by merging Vallourec & Sumitomo Tubos do Brasil and Vallourec Tubos do Brasil, and through the acquisition of Tianda Oil Pipe in China, the company said.

    The changes to its Brazilian operations will lead to the closure of two blast furnaces and one steel mill over 2016-2018, in order to concentrate all steel production at the Jeceaba facility.

    The restructuring measures are intended to generate around 750 million euros in additional earnings before interest, tax, depreciation and amoritisation (EBITDA) by 2020, thanks to measures implemented by end-2017.

    A shareholders meeting will be convened on April 6 so that shareholders can vote on the equity issuance. The equity issuance is to be carried out in the second quarter, subject to market conditions, Vallourec said.

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