Mark Latham Commodity Equity Intelligence Service

Thursday 23rd April 2015
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Peoples Daily Changes its Tune

People's Daily Calls for Slower Growth, More Reform in China 8 Dec 2014 - Communist Party Flagship Newspaper Says Stimulus Shouldn't Be Used 

Dec 14 2014. 

MGL: For reform read crackdown and faction fight. BUT now Peoples Daily is changing its tune:

BEIJING, April 22 (Reuters) - Days before Beijing cut bank reserve requirements to boost lending to China's slowing economy, officials in Hebei province met with dozens of banks and steel mills to find financing to revive local industry and tackle chronic environmental problems.

During the meeting with 32 banks and 64 steel mills, which came a month after Premier Li Keqiang voiced support for financing initiatives for the smoggy northern province, 18 banks agreed to lend more than 623 billion yuan ($100 billion) for "technological renovation and industrial transformation" this year, Hebei's industry bureau said.

As China's economy struggles and heavily leveraged banks restrict lending to polluting industries, Beijing is urging targeted capital injections not only to improve the environment, but also to stimulate growth in cutting-edge industries like emissions controls and water treatment.

Economic growth in the first quarter fell to its slowest rate in six years, prompting the People's Bank of China (PBOC) to cut how much banks must keep in reserve by 100 basis points on Sunday, the biggest cut since 2008, in a bid to get banks lending more.

Growth in Hebei slipped to 6.5 percent last year, one of the lowest rates in the country, and Premier Li told the province's delegation to the annual parliament last month that central government should help out with preferential financing policies.

"Hebei is enjoying favourable financing support due to its proximity to the capital and the urgency of cleaning up air pollution," said Chen Bo, economist with the Central University of Finance and Economics.

The Hebei government would not comment for this story but has previously said banks had pledged a further 761.3 billion yuan to help develop the private sector in the province.

The PBOC also cut reserve requirements for the Agricultural Development Bank, a policy lender, by an additional 200 bps.

"This is because of a State Council meeting after the spring festival, which called on ADBC to increase support to the bridge loans for major national water projects," a bank executive said.


Hebei's steel mills have to comply with tough state pollution standards by the end of the year, but with cash scarce and demand weak, firms are struggling to comply.

Neither the reserves cut nor the financing package is expected to rescue Hebei's worst-performing firms, but it could help favoured enterprises pay for upgrades and cover higher compliance bills.

Hebei said banks would provide 35 billion yuan to help cover the 100 billion yuan cost of renovation at 32 major steel enterprises in the province, and said the entire financing deal would alleviate risks for "enterprises that have a market and are competitive but are temporarily experiencing difficulties".

Though many private steel and cement plants could perish, China hopes its war on smog will benefit hundreds of environmental enterprises.

According to the official People's Daily, a recent action plan to clean polluted water could boost GDP by 5.7 trillion yuan. Firms set to benefit include Sound Environment , Beijing Origin Water Technology and Guangxi Bossco Environmental Protection, whose share price has soared 250 percent since listing in February.

Hebei's financing plan, together with the country's wider commitment to reduce emissions, is also likely to boost firms making equipment to treat industrial emissions, including Fujian Longking and Wuhan Kaidi Electric Power. Soil treatment firms like Dongjiang Environmental also stand to benefit from a clean-up campaign.

But even as Beijing makes more credit available, economists remains sceptical that banks will have the latitude to help out private cleantech firms, with struggling state enterprises still likely to be the biggest beneficiaries of new financing.

"There are banks that still favour big state-owned companies, and new financing mechanisms are required," said Wang Yao, a climate and energy economist from the Central University of Finance and Economics. ($1 = 6.2006 Chinese yuan) (Additional reporting by Kathy Chen, Ruby Lian and the Shanghai newsroom; Editing by Will Waterman)

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MGL: Beijing changes its tune.

First of all we saw the President allow the burial of Zhou Ziyang. We read that as a victory lap.

Now we're seeing detail emerge in the state press. This is a big change of direction from even December when the Peoples Daily was championing reform above growth.

Impact on resources?

Its the miners stupid!

Iron ore is where the shorts are located:
Image titleThe big three: Vale, Rio, BHP.  As an investment we rate BHP, it has a decent yield which is covered.

Vale has the explosive Brazilian volatility, but we're mindful that Vale is a big capex spender inside of Brazil, and we fret about corruption spreading to Vale. 

Copper has some merit.Image title
Inventories are not excessive given the ugly economic background.

Unlike ARAMCO, Codelco is struggling to sustain its production. That leaves growth in copper demand in the private sector.

Image title

Chinese copper ore imports just made a record high, so thats bullish.


Glencore, BHP have good exposure of the megacaps.

GMexico has the best portfolio and track record of the pure play quoted coppers:

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RTZ's subsidiary  Turquoise Hill has an excellent deposit, and the recent deal with the Mongolians has ignited the stock off a five year low.

Hot Junior?

Mariana Resources in London:

"I expect you’ll be hearing a lot more about the Hot Maden gold-copper project this year. Indeed, it now deserves special attention as one of the most promising copper-gold discoveries made in recent memory.

That was hard to say just a month ago when Mariana Resources (AIM: MARL) released a single extremely eye-catching intercept that was drilled at Hot Maden, Eastern Turkey, by Lidya. Lidya is a Turkish company earning a 70% stake in the project through $2.5 million in expenditures over four years.

Recall that intercept in drillhole HTD-04. It was 103 metres @ 9 g/t Au and 2.2% copper, starting near surface, with up to 33 metres @ 18.3 g/t Au and 3.3 % copper. It’s been a while since a junior released a result like that on a more or less virgin target.

But with just one result out – with much narrower intercepts otherwise – it was reasonable to be extremely skeptical. (I was.) It could have been that Mariana and Lidya had punched its gold whopper down the throat of an otherwise smaller or narrower structure; down a breccia pipe, or a steeply dipping fault structure. It might have turned out to be a one-hole wonder.

It isn’t. Last week Mariana released the next round of results (drilled by Lidya) and they include a step out 100 metres south of what might fairly be called the discovery drillhole described above. It, HTD-05, was better grade wise than the first with 82 metres @ 20.4 g/t Au and 1.9% copper with as much as 13 metres @ 88 g/t Au and 2.5% copper therein.

It was an important drillhole not only in grade and width but also because it was drilled a decent ways south of HTD-04 and in the opposite direction (also fairly close to surface). It begins to show that the mineralized system appears to have both some continuity, albeit with limited testing so far, and that partners Lidya and Mariana didn’t drop a drillhole straight down some otherwise limited, or narrow, mineralized structure."

Other metals?

Aluminium will really enjoy having some growth, and the metal is in liquidation which is always good.

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Big cap concept stock: Chalco. Chinese SEO. Moving from terrible to merely bad. Enormous capacity. Stopped spending money.

China Hongqiao is the best quoted China Al play, and also a big beneficiary from the end of the faction fight.

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Many other good names: Rusal, Norsk Hydro, Alcoa all deserve mention. Rusal and Norsk Hydro benefit from costs in depreciating petrocurrency.

But here's my sneak mentions:


All that water remediation implies much plastic pipe...


China Apr flash HSBC PMI contracts to one-yr low

China’s flash HSBC/Markit Purchasing Managers' Index (PMI) contracted at its fastest pace in a year to 49.2 in April, suggesting China’s economic conditions are still deteriorating.

The sharp decline in employment witnessed in March moderated somewhat and export orders rose for the first time in three months.

New orders declined further to a one-year low of 49.2 from March's 49.8, pointing to softer domestic demand.

Meanwhile, declines in input and output prices, which had appeared to moderate in March, showed signs of accelerating again, signaling intensifying deflationary pressures which are a key worry for policymakers.

Weighed down by a cooling property market, industrial overcapacity and local debt, China's economy grew 7.4% in 2014, its slowest expansion in 24 years. Economists expect growth to cool further to 7% in 2015, even with additional stimulus measures.
MGL: Employment.

Thats a red rag to a Beijing bull. Social strife is the enemy in China, always has been, always will be.

See People's Daily article on the change in tune from Beijing.

Anglo American production update, cuts diamond output

Anglo American said it planned to cut diamond production this year in response to lower prices, signalling reduced confidence in a prompt rebound.

Anglo also said its iron ore output rose in the first three months of 2015 thanks toimproved productivity. However, copper production fell because of limited water supplies at its Chilean operations.

Diamond demand has slowed since late 2014 as middlemen who buy rough stones struggle with a stronger dollar and liquidity problems. De Beers, the largest producer of rough diamonds by value, has said it would produce sufficient quantities to match demand.

On Thursday, Anglo reduced its 2015 diamond production forecast to 30 to 32 million carats from 32 to 34 million carats, "in light of current trading conditions."

Nomura analysts forecast each 1 million carat cut in diamond production implies a 1.5 percent drop in Anglo's 2015 earnings per share.

Iron ore output from Anglo's Kumba division rose 7 percent in the first quarter from the same period a year ago to 12.2 million, thanks to some operational improvements at its South African assets.

However, copper output fell 15 percent to 171,800 tonnes due to water supply problems which prompted the company to temporarily shut a processing plant in Chile.

Platinum, a troublesome divisions for Anglo, hit by recurrent labour strike and stubbornly weak prices, saw output rise by 50 percent in the first quarter to 536,000 ounces. Last year's production was heavily affected by industrial action.
MGL: Resource companies are all about position, and unfortunately Anglo's new CEO has been left a deck of cards which is tough to play. The two major thrusts of the last ten years: iron ore and coking coal are both busts. Bad execution, and poor pricing hamstrings cashflow off these big assets. Platinum is still a headache, and the labour situation in South Africa, thought improved, remains grim. Neither does South African politics or electricity situation encourage or give comfort. 

The rating is blargh. 14x eps, 6x ev/ebitda, 5.6% yield. Not really cheap. Not a pick for a mining rally on the China stimulus.

German power sector CO2 emissions

 Embedded image permalink

MGL: Unintended consequences: dash for renewables has produced more coal burn, and more emissions.

It would be funny if it wasn't so sad.

Oil and Gas

Oil chiefs explain why U.S. shale boom hasn’t gone global

Has billionaire oil man Harold Hamm ever been tempted to take the U.S. shale revolution abroad and expand his oil empire from North Dakota to the rest of the world?

“I have not,” Hamm told a gathering of energy executives Tuesday.

The question had come from Daniel Yergin, vice chairman of IHS. Hamm, CEO of Continental Resources, one of the biggest oil producers in the Bakken Shale, was one of three oil-company chief executives speaking from the stage during a panel at the IHS CERAWeek energy conference at the Hilton Americas-Houston.

So why haven’t U.S. shale producers tried to tap into shale formations overseas? The best shale rock can only be found in volatile countries with unstable political regimes – in North Africa, the Middle East and Russia. In many regions outside the U.S., there’s no private mineral ownership, a factor that has driven the U.S. shale boom for the last six years, said Scott Sheffield, CEO of Pioneer Natural Resources, one of the biggest oil producers in the Permian Basin in West Texas.

“The cost to do business is two to three times,” he said. “It’s not going to work in today’s prices at all.”

Few countries have met a reasonable criteria to make shale a viable resource, said John Hess, CEO of oil producer Hess Corp. Hess said a nation needs five key shale “enablers” that producers can find in the United States and Canada – the right geology, private mineral rights to give local land owners an incentive to let drilling rigs on their property, infrastructure capable of supporting thousands of trucks moving rig equipment, a pragmatic tax system and a pragmatic regulatory system.

Said Yergin: “How many countries meet all five criteria?”

“Not too many that we’ve found yet,” Hess said, though he noted Argentina is moving ahead with plans to exploit shale rock. “They’re at the start of the journey that the US was 10 years ago.”
MGL: Seared into my brain is a comment by a frenchman years ago who moved to London in disgust at french taxes:

"There are two versions of the enlightenment:

Life, Love and Liberty (the anglo-saxon, embedded in Magna Carta, and the US constitution)
Life, Love, and Brotherhood. (the French romantic ideal, embedded in socialism.)

The first is investable, and the latter is not"

You'ld never receive a promotion for taking this to an investment committee.  

Magna Carta was all about property rights. 

These sniffy shalers understand this in a profound way. 

Libya's Hariga port reopens after guards end strike - official

Libya's eastern port of Hariga reopened on Wednesday after security guards ended a strike over salary payments, and a tanker has started lifting about 700,000 barrels of crude, an oil official said.

The guards had staged the strike on Tuesday, the latest in a series of such walkouts.

"The port management persuaded the guards to end the strike," the official said, asking not to be named.

OPEC producer Libya has managed to boost output to almost 600,000 barrels per day (bpd) by reopening two western fields and keeping eastern ports open despite militant attacks and fighting between factions allied to two rival governments.

But the oil sector is facing uncertainty. The internationally recognised government based in the east has unveiled plans to sell oil via a new state firm, bypassing the established entity in the capital Tripoli.
MGL: 120kbpd add to Oil supply-- this week!

Could really hurt Oil, the speculators are really piled in high here, and Saudi is visibly happily turning the taps on.

Spot LNG price sees gain for first time in 6 months

For the first time since November 2014, the prices of spot liquified natural gas (LNG) have seen a northward movement. Despite a steep year-on-year decline, the average Japan Korea Marker (JKM) — the benchmark price assessment for spot physical cargoes — for May showed an increase of 1.4% at $7.380/mBtu against $7.279 in April, show data from Platts.

This spells good news for PSU gas marketing and trading company GAIL (India), which is reeling under pressure as it imports most LNG through long-term contracts that are costlier than spot and finding no buyers. As few northeast Asian buyers remained by the end of the assessment period, the focus shifted to India, where importers were seeking prompt cargoes for May delivery. This provided support to prices in the country, with India becoming the premium market in the last few days of the trading month.

“Spot LNG demand for India does look strong heading into the summer. There has been more activity from GAIL, Petronet and GSPC for summer cargoes, possibly due to supply from Yemen being cut off. The more expensive LNG from Qatar delivered on long-term contracts has been cut down,” said Max Gostelow, Platts pricing analyst for Asia LNG.

Year-on-year demand from India looks stable, say analysts. Over the first quarter in 2014, total imported volumes were 3.07 million tonne, while Indian buyers imported only 3.01 million tonne in 2015. The LNG offtake from West Asia is significantly lower at 2.4 million tonne during January-March period compared with 2.78 million tonne in the same perid last year.

“The main reason for this is the lower Qatari (the more expensive long-term contract prices) volumes this year. Qatar sent 2.71 million tonne during January-March 2014 against 2.05 million tonne in the same months this year,” said Gostelow.

GAIL’s contracts to purchase 5.8 million tonne per annum (mtpa) of Henry Hub linked gas and the selling that in India starting 2018-19 was expected to provide large operating leverage and earnings growth to the company. However, in the current scenario where spot purchases are cheaper, GAIL’s expected upside is at risk, say analysts. Industry watchers feel while GAIL may be able to divert cargoes closer to the US (lower shipping costs), there is a risk GAIL may be forced to pay unutilised take-or-pay charges on LNG capacity.
MGL: Effectively the Indians are swapping long term Oil index LNG for spot, and thats supporting spot LNG. Image title

Here's the Japan Korea Marker, this is 'traded' on the NY mercantile exchange and is one of a plethora of Asian spot LNG contracts out there right now. If there's any volume traded on this exchange, I have failed signally to find it! 

Small note in passing the peak of this contract $15, is the  centre point for Cheniere's recent analyst day presentation numbers, and just above the price required to justify Shell's bid for BG.

Petrobras takes $17 bln charge in wake of scandal, promises 'normality'

Brazilian state-run oil company Petrobras reported its biggest-ever loss on Wednesday, the result of a 50.8-billion-real ($16.8 billion) write-down in the wake of a massive corruption scandal.

The 2014 full-year net loss of 21.6 billion reais, which exceeds the company's total accumulated profit for nearly four years, comes as new Chief Executive Aldemir Bendine seeks to restore investor confidence. A widening international probe of contract fixing, bribery and political kickbacks at the company, formally called Petroleo Brasileiro SA, led to lengthy delays in publishing the results.

Of the write-downs, 6.19 billion reais, or about 12 percent, were directly related to the corruption probe, Petrobras said. It said the rest was "impairment" resulting from poor planing, declining oil prices, unrealized refinery project goals and excess costs such as over-priced goods purchased under tough national content rules.

"From here on in, Petrobras guarantees a return to normality in its relationship with investors, shareholders and creditors in Brazil and abroad," Bendine, who took over as CEO in early February, said at a press conference announcing the delayed financial results.

The write-down is one of Petrobras' first concrete steps to restore access to capital markets since the scandal forced the delay of audited financial statements in November. The company's financial difficulties have led to debt downgrades by major ratings agencies.

Even so, Petrobras has already said it will be forced to cut investment aimed at developing offshore oil discoveries that are the among the world's largest in four decades. Those discoveries had led investors to drive the company's market value up to nearly $300 billion in 2008 and helped sell $70 billion of new stock in 2010. Petrobras is worth only $56 billion today.

While the write-down helps shine a light on one of the company's darkest moments, challenges remain for the company and Brazil as whole.

Petrobras, whose annual investment is frequently double the government discretionary infrastructure budget, said on Wednesday that it would cut 2015 capital spending to $29 billion, 34 percent below the planned average for each of the next five years. Bendine said it would cut spending by another 13 percent to $25 billion in 2016 and unveil a new strategic plan in 30 days.

The company reported a fourth-quarter net loss of 26.6 billion reais. Earnings before interest, tax, depreciation and amortization - a measure of the company's ability to generate cash from operations - were 20.1 billion reais.

Petrobras also released audited third-quarter financial statements on Wednesday, revising net income to a loss of 5.3 billion reais on net revenue, or total sales minus sales taxes, of 88.4 billion reais.

The risk of default was removed by Wednesday's financial release.

"The audited results are likely to improve overall expectations and reduce the risk of further downgrade from credit rating agencies for the time being," Joao Castro Neves, Latin America director for the Eurasia Group in Washington said in a note.
MGL: There were some real wrinkles in this report:

1> Q3 numbers are STILL unaudited.
2> Corruption charges small-ish, but the write-offs were huge.
3> No balance sheet I could find, no statement of contingent liability, and thats the crucial analytical number.

Petrobras has had a lovely run into this number, but the valuation on the equity is grotesque. 

Total Sees Deep Offshore, LNG Acquisition Potential as Oil Falls

Total SA said it may take advantage of the slump in crude to make acquisitions that build on the strengths of Europe’s third-biggest oil company in deepwater offshore fields and liquefied natural gas.

“When we are in a low price environment, it’s natural and not surprising that big oil companies are opportunistic,” Yves-Louis Darricarrere, president of upstream at Total, said at the CIS O&G conference in Paris on Wednesday. “We are second to none on deep offshore and LNG and we have a clear strategy to keep and reinforce these strong points.”

Total has developed deep offshore fields in Angola and has LNG projects in Australia and Papua New Guinea.

“If there are good opportunities Total could act,” CEO Patrick Pouyanne said April 16. “We have a financial situation that means that in today’s environment of cheap money we could do everything. The question is whether we would.”

Total wants to raise $5 billion through asset disposals this year, and is targeting a total of $10 billion through 2017. Former CEO Christophe de Margerie began a wave of sales that saw Total divest pipelines, producing fields and refinery stakes. So far, there haven’t been any major acquisitions.

“It’s a bit early for me,” Pouyanne said last week. “The opportunities will really come if oil prices remain low over a longer period. Then you will see real opportunities for major companies like Total.”

Total is sticking to a forecast for production growth of 8 percent this year as eight projects start, Darricarrere said. The company is “putting pressure” on spending including on exploration and lowering the break-even point for projects partly through cost-cutting in response to lower crude prices, he said.

The French company has said it will become more selective in drilling exploration wells after years of expanding its budget failed to result in major finds.
MGL: Total is nothing if not predictable. 

Total is French, and has an enormous suite of offices in Paris, with many high paid execs, engineers and personnel. 

If you are Exxon, BP, Shell, Suncor, Halliburton, Baker Hughes or anyone else NOT French, you take an axe to costs, and let people go, either by attrition or plain pink slips. Thats how you manage your core costs in a downturn. 

If you are Total, you don't have that option. So instead you find a juicy target that's a good fit, buy it, sack the staff wholesale and roll the operation into your Paris office. 

So who do they buy and how do they pay?

Two names hit me: Chesapeake and Encana.

They are big. ( ~$25bn odd to buy one as a guess). So they make a difference. They have gas, which Total likes. They understand fracking, which Total needs.


Gazprom and YPF will sign agreement to develop Argentina shale

YPF CEO Galuccio in Moscow to sign a contract on joint exploitation of the rich Vaca Muerta shale oil and gas fields

YPF and Russia's powerful Gazprom International are expected to conclude a Memorandum of Understanding (MOU) during Galuccio’s visit to Moscow.

The large shale oil and gas deposit in western Argentina's Vaca Muerta was discovered in 2011 and is estimated to hold one of the world's largest reserves of shale-based hydrocarbons. However the development of the reserves needs huge financial investments which Argentina currently lacks as the country is absent from world financial markets.

The contract is part of the bilateral agenda to be addressed by visiting Argentine president Cristina Fernandez on Thursday, when she meets with Vladimir Putin.
MGL: Gazprom wants to play in the shale too!

This is a big turnaround for a company whose CEO told Putin some years ago that the "shale is US propaganda  written in the WSJ to embarrass Gazprom".

Putin sacked that CEO, and Gazprom has been playing catchup ever since.

Eni CEO: first Mozambique LNG shipment in 2020

Italian energy giant Eni expects to ship first liquefied natural gas cargo from Mozambique in 2020.

The company aims to take an FID for the LNG export project in Mozambique, which includes a 2,5 Mtpa floating LNG unit in the Rovuma Basin, in 2015, Eni’s CEO Claudio Descalzi said at IHS CERAWeek in Houston on Wednesday.

According to Descalzi, Eni is close to signing commercial agreements to sell 2,5 million tonnes of LNG from the floating plant. The FLNG is the first stage of the project, which will be followed by two onshore trains.

The price of Mozambique LNG would fit well into European gas markets when Italian company Eni ships its first cargo in 2020, Claudio Descalzi, CEO of Eni, said in a keynote address Wednesday at IHS CERAWeek.

Europe has been using only 25% of its LNG import and regasification capacity because it has been relying more on lower-priced pipeline gas and coal.

Mozambique LNG would be priced correctly to fit European markets because the gas exploration and production costs there are very low.

US LNG prices would fit better into the Asian markets, he said, leaving Europe open to supply from Mozambique.

“Mozambique gas is good for development because the upstream side is not too expensive,” he said.

It takes only three to four weeks to drill a well in Mozambique, and production can be increased quickly, which makes Mozambique gas very competitive, Descalzi pointed out.

Mozambique gas could also be shipped to Europe. The company’s gas finds in Mozambique could cover Italy’s total needs for the fuel for 30 years, he concluded.
MGL: If the Petronas data we showed you yesterday is correct, we might reasonably expect this FLNG contract to come in around the $600 a mt mark at completion ($750- minus the prevalent capex discount we're hearing from the market). This is clearly a 'marker' contract. The size of discoveries could justify 10x this amount of gas, but the economics are dubious right now. 

We simply don't have enough data to calculate economics, but we must expect other 'marker' LNG projects from Anadarko, and perhaps Shell/Statoil in Tanzania. Simply put, they are big finds, and the companies need to show faith with gov't and turn them into output.

InterOil Won’t Exclude Takeover Offers

InterOil Corp., the independent oil-and-gas company working with France’s Total SA to explore one of Asia’s largest undeveloped gas fields, isn’t ruling out a possible takeover if the price is right, a senior InterOil executive said.

“You never say never,” said Isikeli Taureka, InterOil’s executive vice president in an interview on the sidelines of a natural-gas conference in Beijing. “If anybody comes along and offers a price and it’s the right price, then you’ve got to take it back to the shareholders to make that decision.”

His comments came as an upheaval in global gas markets threatens to spawn a new industry consolidation.

Industry analysts have said InterOil’s resource base in Papua New Guinea could make it a potentially attractive target for deals-hungry energy companies eager to capitalize on a drop in oil-and-gas prices that has left many firms reeling. For example, Credit Suisse has described InterOil as an “obvious choice” as a target for Australia’sWoodside Petroleum Ltd. InterOil has a market capitalization of around $2.46 billion.
MGL: Total might take a look at Interoil, its an obvious fit, and they have the inside track.

Technip Q1 EBITDA up; tweaks 2015 forecasts

French oil services provider Technip reported a 34.9 percent rise in first-quarter adjusted core profits on Thursday and tweaked its forecasts for 2015 as its subsea division was seen outperforming and its onshore/offshore unit lagging.

The Paris-based group said it was now expecting adjusted operating profit from recurring activities in offshore/onshore around the bottom of a previously indicated range of 250 million-290 million euros in 2015.

In its subsea division however, it now expects the adjusted operating profit around the top of a 810-840 million euro range for this year.

Technip said its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 243.7 million euros ($260.81 million) in the first quarter, giving an EBITDA margin of 8.5 percent, up from 7.3 percent a year ago.

Reported revenue rose 16.8 percent to 2.883 billion euros and underlying net profit rose 60.7 percent to 108 million euros.

Analysts had expected on average 2.59 billion euros in sales and a net profit of 123 million euros, according to a Thomson Reuters I/B/E/S consensus.

Capital spending cuts by oil companies following the more than 50 percent drop in crude prices have made life harder for oil equipment and service suppliers worldwide.
MGL: Revenues rose? 
But order intake fell 47%.
Backlog is now just under 2 years sales.

CEO comment:

"More broadly, we confirm our views on the market situation expressed in our full year results in
mid-February: we continue to expect the slowdown to be prolonged and harsh. The sharp fall in
oil prices has had a substantial impact on our clients' behaviour, NOCs and IOCs alike. New
projects are of course being deferred as clients assess their investment priorities in a durably
changed economic environment. Projects launched in 2014 and earlier continue to progress but
tension along the supply chain is exacerbated by the lack of financial flexibility from some clients
and, as we said as early as second quarter last year, negotiations are protracted on contract
changes and variations, in particular on Onshore/Offshore projects.

I read that as pre-crash contracts are being whittled down by buyers to minimum expenditure, and that there are none of the customary bells and whistles that make the service companies pretty margins.

To my eye, the stock looks like a short.


EIA: U.S. production declines inventories up

The EIA said on Wednesday that U.S. production declined by 18,000 barrels per day (bpd) last week, a fall of 0.19 percent.

"It's another decline in production and the market is certainly anxiously awaiting more of those, at least people who are on the long side," said Dominick Chirichella, senior partner at New York's Energy Management Institute.

U.S. crude stocks, however, rose by 5.3 million barrels last week, higher than the 2.9-million-barrel build expected by analysts in a Reuters survey, to a record 489 million barrels.

Stocks at the key delivery point of Cushing, Oklahoma rose by 789,000 barrels, the EIA said. Energy markets intelligence firm Genscape said tanks at Cushing were nearly 80 percent full.

John Kilduff a partner at New York's Again Capital, also pointed to a draw in gasoline stocks supporting prices.

"Gasoline demand continues to be strong, as well, with the 9.0 million bpd implied demand approaching summer-like levels," he said.

"Prices will likely key off of the supportive aspects of the report more than incredible amount of crude oil inventories."
MGL: Production down, inventory up.Image title
Saudi holds the line in the sand.Image title
Saudi exports to the US surging.
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Canadian crude exports to the US surging.

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Big fat bear market rally in crude.

"Oil is trading around $55 a barrel, and most U.S. shale fields are seen as having break-even costs of $40-$70 a barrel. In fourth-quarter earnings calls, operators initially were looking for prices cuts for services like fracking of around 20 percent. Now those savings appear to be steeper. "We're seeing costs fall more for fracking than drilling," Mike Bahorich, chief technology officer at Apache Corp told a CERAWeek breakfast meeting. He estimates Apache's fracking costs have fallen about 30 percent, while drilling costs have tumbled 20 percent. Gary Gould, senior vice president of operations at Continental Resources Inc said his company, which has its largest operations in North Dakota's Bakken Shale, had seen service costs "falling most steeply in recent weeks and months." Analysts at IHS CERA expect fracking costs to fall 32 percent this year, down from a prior forecast for a decline of 24 percent. Lower fracking costs, along with steep cuts to capital spending and a focus on drilling in only the most profitable areas in shale basins are helping producers weather the downturn. - See more at:"

Shale breakevens dropping. 

Shorts please!


Weatherford increases job cuts to 10,000

Weatherford International says it plans to bump up its job cuts to 10,000, about 18 percent of its workforce, with most of its layoffs stemming from the battered North American oil service sector.

The move increased its payroll reductions from the 8,000 jobs the oil field service company announced it would cut earlier this year. Weatherford expects to save the $640 million annually from its cuts. It also plans to shut down or consolidate 60 facilities this year, it said in its first-quarter earnings release Wednesday.

“North America will remain very challenged,” Weatherford CEO Bernard Duroc-Danner said in a written statement. “Our approach is to treat this down cycle as an opportunity to become a much leaner, more efficient and streamlined organization.”

The world’s No. 4 oil field services firm, based in Switzerland but with main offices in Houston, posted a net loss of $118 million in the first quarter, or a loss of 15 cents a share, compared with a loss of $41 million, or 5 cents a share, in the same period last year. Its revenues fell from $3.6 billion to $2.8 billion.

With Weatherford’s cuts, layoffs at the the world’s four largest oil field service firms now total 49,500. Weatherford said it will continue to weigh whether it needs to make for cuts in coming months. It had 56,000 employees at the end of last year, according to regulatory filings
MGL: Weatherford revenues were down 25% in q1 yoy, but that reflects its exposure to short cycle shale operations.  

Alternative Energy

China could install 20GW of solar this year: Deutsche

Solar installations in China were up about 100% on the first quarter last year, Deutsche Bank says, with the nation now on target for a massive 20GW, Bloomberg reports.

China has a 17.8GW target for solar installations this year, but got ahead of the game with a 5.04GW first quarter.

Deutsche analysts Vishal Shah told Bloomberg the second quarter was looking similarly big, and that the year-end total could reach 20GW, up from its target of 14GW last year, which it roughly achieved.

"It shows positive momentum in the China market and the potential for upside surprise to the government's 17.8-gigawatt installation target for 2015," Shah wrote in the note, adding that he recommended buying Trina shares.

The first quarter is traditionally the slowest in China, and other nations, as developers rest after the late year rush, and Q1 was only expected to see 2-3GW added, the news service said.
MGL: JA Solar, our pick of the Chinese players, took off like a rocket.

Last year Beijing announced huge solar, but local difficulties prevented much happening.

Its becoming clear that Beijing has cleared the obstacles to implementation, and the growth rate is surging. 

Now as with any Chinese 'event' in renewables, the impact will likely be on external pricing. As domestic demand lifts, spare export capacity will drop, and the pressure on everyone elses margins will fade. So this is also bullish for the other big global players.

SolarCity launches fund for U.S. commercial solar projects

SolarCity Corp has started a fund that includes an investment from Credit Suisse to finance more than $1 billion in commercial solar energy systems for companies, schools and government organizations in the United States.

The fund is expected to finance more than 300 megawatts of new commercial solar projects over the next two years, SolarCity said in a statement on Wednesday.

SolarCity, the top U.S. residential solar installer by market share, said it finalized the deal with Credit Suisse in February and began funding projects in March.

The fund was created to finance projects that utilize new SolarCity technologies, said the company, which is backed by Tesla Motors Inc founder Elon Musk.

"SolarCity has installed more than 1,800 commercial solar projects in 21 states, and we've barely scratched the surface of the addressable market," Chief Financial Officer Brad Buss said.
MGL: Solarcity has nearly $3bn in 'misc long term assets'; we take this to mean solar projects completed, and generating revenue on behalf of customers. Its a low yield asset. It is 3/4 of Solar City balance sheet. All year this move to sell completed assets has driven these North American Solar stocks.

Our picks are:

Best performing energy stock subsector in Q1. No one owns them.

VC, PE firms bet big on a rise in China's clean energy

Clean energy investments by venture capital and private equity firms totaled around $1.24 billion in China last year and are set to see substantial growth this year on the back of favorable policies, said a study from PricewaterhouseCoopers.

There were about 96 VC and PE investments made in China's clean energy and technology industry, the global consultancy firms said in the report published on Tuesday. It said the environmental protection industry was the major beneficiary and accounted for more than 50 percent of the total deal amount and investment value.

The clean energy and technology industry mainly includes environmental protection (such as smart power grids, new energy automobiles and water treatment plants), new energy (such as solar and wind power) and new materials.

"The outlook for the clean energy and technology industry remains bright this year and the industry is expected to benefit from a series of environmental protection acts rolled out in 2014 and 2015," said Gavin Chui, leader for energy, utilities and mining industry at PwC China.

"VC and PE investors will certainly increase investments this year. The good investment environment and availability of funds will act as positives for the long-term development of the industry," Chui said.

A water pollution prevention and control action plan was released in April to improve the water quality of major waterways in China by 2020 and achieve overall improvement in water quality control and conservation across the country by 2030.

In December, the Ministry of Finance rolled out 30 projects worth about 180 billion yuan ($29.32 billion) in the clean energy and technology industry to attract private capital, mainly as a public-private partnership.

The PwC report said wind power will see renewed focus this year as outlined during the national energy conference in December. Industries like smart power grids, new energy automobiles are also expected to see fresh momentum.
MGL: Check out Chiho Tiande, 976 HK, which we earmarked years ago as being interesting.  Its a metal recycler, and the stock has done a moon launch in the last few months.Image title
No analytical coverage.

Horizon Energy Systems Announces New 700Wh/kg Fuel Cell for Drones

Singaporean company Horizon Energy Systems (HES) announced a breakthrough on-demand hydrogen generation technology based on a solid fuel system, further improving the flight endurance of small fuel cell electric drones. The unique ability to perform long endurance missions with a low-altitude mini-UAV provides considerable new benefits in border patrol, infrastructure surveillance, exploration, critical asset and environmental monitoring.

“The new AEROPAK-S is the result of years of effort in simplifying what are typically complex systems and making them easy to deploy”

The company will officially unveil the new solid chemical AEROPAK-S at the May 3-7 AUVSI trade show in Atlanta, Georgia (booth 401) along with other innovations.

“The new AEROPAK-S is the result of years of effort in simplifying what are typically complex systems and making them easy to deploy,” said Taras Wankewycz, HES’ Chief Executive Officer. “We have explored a number of feedstock options through the years and our new system trumps them all on performance, safety and scalability in manufacturing.”

The new 700Wh/kg solid fuel AEROPAK-S completely eliminates the need for a complex catalytic reactor, which reduces size, weight and complexity, while offering a self-contained, plug & play fuel cartridge system.
MGL: Drones are cool. Hydrogen powered drones must be uber-cool.

Base Metals

Nickel Ore Prices to Fall Further on Supply Surplus, SMM Says

Nickel ore prices are expected to continue falling for the foreseeable future, Shanghai Metals Market predicts.

“The price of Philippine nickel ore, especially high-grade ore, will continue falling due to supply glut,” SMM’s nickel analyst said at SMM Nickel Summit.

Nickel ore inventories at China’s major ports are enough for more than half-year’s consumption, the analyst noted at the Summit.

New arrivals of shipments from the Philippines have been reported recently following the end of monsoon season there.

“The downward room of medium-grade ore will be relatively small as the price is nearing costs,” the analyst added.
MGL: Now that Nickel has collapsed the bears come out of the woodwork. 


Steel, Iron Ore and Coal

Vale hits new iron ore production record

Vale, the world’s largest iron ore producer, continued to flood the market in the first quarter of the year, logging record production volumes despite a current supply glut that has sent prices for the commodity plummeting.

The Brazilian miner produced 77.4 million tonnes of iron ore in the period, up 4.5% from a year earlier.

The Brazilian miner produced 77.4 million tonnes of iron ore in the period, up 4.5% from a year earlier. The figure includes 2.9 million tons of ore Vale acquired from third parties, a move that suggests the company is willing to deal with a short-term price pain in order to recover market share after from Australian competitors.

The announcement came just a few hours after BHP Billiton (ASX:BHP), the world’s third iron ore miner, said it would slow its expansion plansbecause of weak prices.

Vale’s record quarterly iron ore output was due, in part, to the results from the newly opened N4WS mine, in the company’s Carajas complex. The operation kicked off mining activities in December and contributed to an 18% rise in the overall Carajas output for the quarter, the company said.
MGL: Vale's build out starts now, and finishes in early 2017.

Capex peaks this year. 

It has a variable dividend distribution depending on profit, current expectations have it on 7.5% yield. That dividend is not covered by free cash flow.

The balance sheet is reasonable, though all the debt is dollar denominated.

7x ev/ebitda. Small discount to Rio's, premium to BHP. Difficult to justify given free cashflow and its parastatal status.

There's a risk that the capex program was polluted by corruption, after Petrobras it is the biggest spend in Brazil.

It has the best quality ore in the world.

Its likely trading up, but I refuse to recommend it.


Fortescue pays up to get $2.3 bln bond over the line

Australian miner Fortescue Metals Group has refinanced $2.3 billion of its debt pile on a third attempt, but was forced to pay a higher yield amid investor concerns about the state of the iron ore market.

Fortescue sold senior secured notes in New York at a 10.25 percent yield on Wednesday, a far richer price than the 8.5 percent the company offered just a month ago but which was pulled after it failed to tempt investors.

"They should have priced when they could have issued at 9 percent," one leveragedfinance banker told IFR, a Thomson Reuters publication. "Now they are out with a smaller deal at much wider levels."

Fortescue chief executive Nev Power said on Thursday the funds would be used to repay the company's 2017 and 2018 debt in full, refinance part of its 2019 debt and bolster its balance sheet.

The decision to pay up to refinance, which Power described as a "great outcome", comes just a week after chief financial officer, Stephen Pearce, said the company was totally comfortable with its decision to scrap the March bond sale.

Fortescue also provided additional security to back the bond, including mining tenements, according to Fitch Ratings. Fitch has a BBB- rating on the bond, one notch higher than the company's BB+ rating due to the quality of the collateral.

This time around, the company stuck to just a bond after last month cancelling plans for a $4.9 billion loan extension that ran alongside the initial bond offering. Credit Suisse led those failed deals with JP Morgan, but missed out on a role this time round.
MGL: Credit markets take return from equity holders pockets in this deal. (Thats assumes they survive of course, but Beijing may have changed tack in the nick of time!)

BHP Billiton ups iron ore production forecasts

BHP Billiton is not sitting on the sidelines as the prices of commodities languish.

The Anglo Australian miner increased its forecast for the amount of iron ore it would produce this year on Wednesday, despite a 54 per cent fall in the price of the commodity over the past twelve months.

BHP Billiton now projects that it will produce 225m tonnes of iron ore in its fiscal 2015 year, which runs to the end of June. That guidance represents a 13 per cent rise in production in the current year from the prior 12 months, and is 5m tonnes above its previous expectations.

The company also increased its forecasts for Western Australian iron ore production to 250m tonnes, two per cent higher than earlier guidance. BHP added that further growth in capacity could lift that figure to 270m tonnes without extra investments in its plants.

Andrew Mackenzie, the BHP chief executive, said:

Our focus remains on producing at the lowest possible cost with Western Australia iron ore unit costs now below $20 per tonne as we continue to improve productivity.

BHP produced 59m tonnes of iron ore in the quarter to the end of March, a fifth higher than the prior year's quarter. Production of petroleum commodities rose 1 per cent from a year earlier to 61.5m barrels of oil equivalent, while copper output climbed 11 per cent to 460m tonnes.
MGL: BHP is the investment grade miner of choice. The 6% dividend is covered. Productivity is working, (and note costs must be falling per tonne as more tonnes move through the same infrastructure). It is shareholder friendly. 

Yes, they made a mess in the shale.

Weak Russian rouble pushes Severstal's Q1 margin to record high

Russian steelmaker Severstal reported on Thursday its highest core earnings margin in the first quarter of 2015, helped by a weakened rouble which lowered costs and increased profitability.

Severstal, Russia's second largest steel producer, and other exporters have benefited from a 50-percent decline in the rouble against the dollar since mid-2014, as their costs fell in dollar terms.

Severstal said its margin on earnings before interest, taxes, depreciation and amortisation (EBITDA), a measure of a company's operating profitability, reached 38.5 percent - the highest level in its history as a public company.

The company reported net profits of $343 million, slightly dampened by foreign exchange losses but up from a net loss of $795 million in the previous quarter, when its bottom line was hit by write-offs.

Revenue fell 18.5 percent quarter-on-quarter to $1.5 billion, the company said in a statement. EBITDA also slipped to $590 million, down 2 percent.

Despite Russia's flagging economy, hit by a collapse in global oil prices and Western sanctions over the Ukraine crisis,

Severstal said steel demand was better than expected this year.

"Although visibility remains limited, we are seeing resilience in domestic steel demand," said Alexey Mordashov, the company's chief executive and main owner.

Severstal said on Wednesday its board had recommended a dividend payout of 12.81 roubles ($0.24) roubles per share for the first quarter of 2015.
MGL: Good numbers. 7%+ yield. Massive assist from the Ruble.

Does China's stimulus lighten steel export pressure? Thats hard, there's a tonne of excess capacity in China, and the stimulus isn't steel intensive that we can see.

Severstal is shareholder friendly. It's really tough finding emerging buys right now, I can see the value, and the dividend stream, but it is difficult to see the upside, unless the market thinks it should yield 6%, or less. 
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