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Commodity Intelligence q3: Ugly, What Next?

Commodity Intelligence q3.pdf

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From 'Ugly' to 'Dire'

ugly
ˈʌɡli/ adjective

1. unpleasant or repulsive, especially in appearance. "she thought she was ugly and fat"

synonyms:

unattractive, ill-favoured, hideous, plain, plain-featured, plain-looking,unlovely, unprepossessing, unsightly, displeasing, disagreeable;More

2. involving or likely to involve violence or other unpleasantness. "the mood in the room turned ugly"

synonyms:

unpleasant, nasty, alarming, disagreeable, tense, charged, serious,grave, dangerous, perilous, threatening, menacing, hostile, ominous,sinister.

dire
ˈdʌɪə/ adjective

1. extremely serious or urgent. "misuse of drugs can have dire consequences"

synonyms:

terrible, dreadful, appalling, frightful, awful, horrible, atrocious, grim,unspeakable, distressing, harrowing, alarming, shocking, outrageous;More

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Palladium Takes a Bath

Palladium fell by the most since 2011 on concerns that the market is heading for oversupply. Gold dropped as gains in U.S. consumer confidence damped demand for a haven.

In South Africa, mine output of platinum and related metals, including palladium, surged 84 percent in June from a year earlier, official data showed Tuesday. The country is the world’s top palladium producer after Russia. Futures in New York plunged as much as 8.1 percent, the most since December 2011.

While most industrial metals climbed Tuesday on easing concerns over Chinese economic growth after the nation cut interest rates, palladium failed to get a boost because of speculation that the move won’t be enough to buoy auto sales in the country. China accounts for about 22 percent of global demand for the metal used in pollution-control devices, according to Bloomberg Intelligence data. Prices are heading for a third straight monthly decline.

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China lawmakers discuss new pollution bill, coal cap clause expected

Chinese legislators are considering a new air pollution law that could give the state new powers to punish negligent local authorities and industrial enterprises and provide a legal mandate to impose caps on coal consumption.

Amendments to China's 15-year old Air Pollution Law are expected to be approved this week by the National People's Congress, the country's parliament, and will make local governments directly responsible for failing to meet air quality targets.

China's ruling Communist Party has acknowledged the damage that decades of untrammelled economic growth have done to the country's skies, rivers and soil, and it is now trying to equip its environmental inspection offices with greater powers and more resources to tackle persistent polluters and the local governments that protect them.

"Local governments will become responsible to assess and meet standards by a certain time," said Tonny Xie, director of the Clean Air Alliance of China, which has been involved in consultations on the law.

"Previously, there was one sentence in the law about 'making plans' to treat air pollution, rather than 'achieving plans'."

A 31-page draft includes sections on controlling pollution from coal combustion and will provide a legal basis for the establishment of consumption caps and restrictions on low-grade imports, but legislators continue to debate the precise details.

"We have been lobbying for the inclusion of a specific timeline for coal consumption to peak, but this won't be included," said a source with an environmental group involved in consultations.

Coal, China's biggest source of air pollution, accounts for around two thirds of total primary energy use.

According to a notice on Tuesday from the Ministry of Environmental Protection, legislators are still deliberating on whether to include clauses banning the direct combustion of low-grade coal as well as new fuel oil standards.

The draft law gives the central government the ability to suspend local authority powers to approve new projects if they fail to meet pollution targets. It bans firms from temporarily switching off polluting equipment during inspections and outlaws other behaviour designed to distort emission readings.

It also includes provisions to limit pollution from industry and automobiles, though legislators have already excised a clause allowing local governments to set their own restrictions on car use, official news agency Xinhua said.

China's new Environmental Protection Law, which came into force at the beginning of this year, put an end to the "maximum fine" system that allowed firms to pollute with impunity once they had paid a limited penalty. It also puts them at risk of criminal punishments should they continue to break rules.

According to the environment ministry, concentrations of hazardous breathable particles known as PM2.5 fell 17.1 percent in the first half to 58 micrograms per cubic metre, but China doesn't expect to meet the state standard of 35 micrograms until 2030.

http://www.reuters.com/article/2015/08/25/china-pollution-idUSL4N10Z3EW20150825

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Newly constructed Panama Canal locks cracked

IHS Maritime 360 reported that One of the newly constructed locks in the Panama Canal has sprung a leak, raising fresh questions on the expansion project's already delayed timetable.

A publicly posted video reveals water leaking through cracks in the Cocoli Locks on the waterway's Pacific side. Asked by IHS Maritime about the severity of the issue, the Panama Canal Authority responded that earlier in June, the filling of the new locks began, signalling the start of a deliberate and methodical phase of operational testing. This stage of testing is meant to detect and correct any imperfection.

As part of this testing, some water-filtration issues were detected in a specific area of the new Cocoli Locks, located on the Pacific side of the waterway. The imperfection was detected in the step that divides the middle chamber of the locks from the lower chamber, known as 'Lockhead 3'.

The Panama Canal technical team is closely involved to ensure that these tests meet all quality standards and is working with Grupo Unidos por el Canal [GUPC], the contractor for the third set of locks project, to resolve this issue.

GUPC has the obligation to ensure the long-term performance on all aspects of the construction of the locks and to correct this issue. Moreover, GUPC's contract with the ACP dictates that the group is responsible for modifications and corrections.

The ACP said that at this time and based on preliminary evaluations, the project's completion timeline as well as the expected date for commercial operation are not expected to change. The overall project is 93% complete. The current schedule calls for full commercial operations in 1H16.

In general, the relationship between the ACP and GUPC has been strained over the course of the project. Work stopped for an extended period in early 2014 amidst a contentious dispute between the two parties on cost overruns. Earlier this month, during a labour dispute between GUPC and one of its worker unions, the GUPC described ACP's behaviour as ‘intransigent’ and displaying a ‘negative attitude.’

GUPC has yet to respond to requests for comment on its plan to rectify the leak.

http://steelguru.com/logistic/newly-constructed-panama-canal-locks-cracked-report/432896#tag

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BHP Billiton's credit ratings fragile in FY16, agencies warn

BHP Billiton's investment-grade credit ratings might come under pressure in the current financial year, ratings agencies said on Wednesday, after the top global miner posted its weakest profit in a decade but still hiked dividends.

While BHP has long sought to protect its 'A+' rating by Standard and Poor's and 'A-1' rating by Moody's, it reiterated a pledge on Tuesday to never cut its dividend through the highs and lows of commodity price cycles.

But both ratings firms said that with commodity prices likely to remain weak in the fiscal year to June 2016, the company's debt to earnings balance may temporarily put it out of the range needed to hold on to its ratings.

S&P said its 'A+' rating could withstand a dip in earnings ratios as long as the agency believed those metrics would recover by the following fiscal year.

"Should the weak trading environment persist further, the recovery in credit metrics is unlikely to occur based on BHP Billiton's earnings alone," it said.

Both agencies said even with BHP's sharp cut in capital spending and plans to pare costs beyond the $4.1 billion already slashed in the 2015 financial year, funding the dividend from cash flow would be a challenge if commodity prices worsened.

"This would place further pressure on credit metrics and the rating," Moody's said.

http://www.reuters.com/article/2015/08/26/bhp-billiton-rating-idUSL4N1111QZ20150826

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China Daily on Tianjin: confessions of the state press!

How did Rui Hai International obtain a permit to store toxic chemicals?

For many residents, that is the key issue.

The company at the heart of the police investigation is Rui Hai International, which storedchemicals at the site without, it is claimed, the knowledge of local authorities.

With registered capital of 100 million yuan ($15.7 million), Rui Hai International was set up inDongjiang Free Trade Port Zone in 2012. The company's business facilities are made up ofwarehouses, storage terminals, storage yards, wastewater sumps and office buildings.

The company's website showed that it received a permit by Tianjin Maritime Safety Administration to operate storage and distribution works for toxic chemicals. These included calcium carbide, sodium nitrate and potassium nitrate for use in domestic and overseas markets.

Tianjin police has struggled to clearly identify the substances being stored at the blast site because the company's offices were destroyed. Confused documentation has also been a problem.

In another twist, Xinhua News Agency reported that Rui Hai International had only been granted a license to handle toxic chemicals less than two months ago. This poses the question: Had the company been operating illegally since October 2014 after its temporary license had expired.

Did the company flout government regulations?

That is impossible to say at this stage as the investigation continues, although there havebeen accusations.

Dong Shexuan, the deputy head of Rui Hai International, who holds 45 percent of thecompany's shares, is reported to be well connected with officers inside the Tianjin police forceand fire service. Although details are sketchy, it has been alleged in The Beijing News that hemet with officials of the Tianjin port fire brigade during a safety inspection.

According to claims from a senior official, who declined to be named, from the Industrial and Commercial Bureau of the Tianjin Binhai New Area, Dong gave fire service officers safety appraisal files, but an independent assessment of the site was not carried out. Dong, who is now in police custody, was unavailable to comment about these allegations.

What does appear clear is that Dong was given the green light for operating a storage facility close to a residential area. To many local residents, this appeared unusual as similar companies operating in the chemicals sector had been closed down by authorities.

So far, the police has detained senior managers of Rui Hai International, including Dong, as well as the son of a former police officer in Tianjin, and Yu Xuewei, a former State-owned company executive. Both are shareholders in Rui Hai International.

"Obtaining a safety risk assessment license should not be that easy," Zhu Liming, deputy head of the planning and land management bureau at Binhai New Area, said.

"It should involve not only the local fire brigade but also safety experts who have the experience and expertise in this area. They are needed to identify all the potential safety risks and should be part of the evaluation team," Zhu added.

Why were the warehouses located so close to residential areas?

Again, this is a difficult question to answer. Yang Baojun, vice-president of the China Academy of Urban Planning and Design in Beijing, has called for the planning process to be overhauled.

"Because of economic development, the fast pace of urbanization and rising land prices in higher-tier cities, local governments need to pay greater attention to the distance separating residential areas from dangerous manufacturing and energy facilities," Yang said. "These should include chemical plants, power stations and paper mills."

Existing laws in China state that warehouses containing toxic materials must be at least 1,000 meters from major transport hubs and public buildings. But the Rui Hai International complex was only 560 meters away from a residential area and 630 meters from the railway station.

"It is impossible to improve production technology and storehouse methods over a night,"Yang said. "But governments at different levels should be able to produce an urban plan that safeguards people's homes from potential harmful plants."

In Germany, industrial facilities, or warehouses, that use toxic or store chemicals, are built in isolated areas to protect the general public. The Berlin government also stipulates that these facilities have detailed safety and rescue plans in place. Plants are constantly monitored and regular safety checks are carried out.

How can disasters such as the Tianjin port explosion be averted in the future ?

Views on this subject are mixed. He Liming, chairman of the China Federation of Logistics and Purchasing, an industry body in Beijing, has pointed to the financial costs involved.

Moving chemical plants and warehouses outside of cities could prove difficult unless companies are heavily compensated

"As many chemical plants are located in the cities where land prices in China's urban area shave surged, they will not easily relocate unless they are paid the full value for the land they occupy," He said.

In addition, local governments rely on these companies to generate jobs, growth and taxes. In fact, they have become vital to domestic economies across the country.

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Oil and Gas

Fourth Tanker leaves Iran floating storage since nuclear deal

Platts Oil

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Qatar raises its game to fend off next LNG giants

Gas giant Qatar is becoming commercially sharper, using traders and tenders to grab new customers, and fighting to hold on to its share in the prized Asian market.

Qatar is the world's top supplier of liquefied natural gas (LNG), but in the coming five years it could be surpassed by Australia, a shift which threatens its dominance in Asia -- which accounts for almost three quarters of the global market and has paid the highest prices.

"Previously Qatar's strategy had been about retaining price, in future it's going to be about retaining market share," said Noel Tomnay, head of global gas and LNG research at Wood Mackenzie.

"As lots of Australian LNG comes into the market, it's inevitably going to push out some Qatari volumes from Asia," Tomnay said.

This has prompted Qatar to work more closely with trade houses who are focused on short-term deals, often in riskier markets, while also lowering its price expectations.

"In the past Qatar did not need to be commercial. Now they are a lot more commercial, a lot sharper," said a trader at an international trade house. "They are dealing with traders more and have started participating in tenders."

With the help of trade houses, Qatar has been supplying LNG to some of the newest importers including Egypt, Jordan and Pakistan, who are securing vast amounts via short term tenders.

The global LNG market was based on bilateral long term deals, with contracts lasting years, but the new supply has increased uncommitted volumes, triggering more focus on 'spot' trade.

"Qatar as a supplier can afford to provide their long term contracts and then on top of that they have flexible LNG to attack new markets. It's a strategy to adapt itself to the new world," a trader at an oil major said.

Independent LNG consultant Andy Flower estimated Qatar's exports to Asia in the first half of the year fell by around 2.7 million tonnes compared to the same period a year ago, while exports to Eastern Mediterranean countries including Israel, Jordan and Egypt were up by 0.4 million tonnes and exports to Europe were up by around 2.5 million tonnes.

"This suggests that they are showing increased flexibility in responding to the changes in the markets," Flower said.

Qatar was previously able to charge a premium on the basis that they were a very reliable supplier. Its major LNG producers Qatargas and RasGas produce around 77 million tonnes per year.

"Qatargas and RasGas are no longer averse to talking about making changes to existing contractual agreements in light of the completely changed market dynamics," a source at importer Gail India said.

http://www.reuters.com/article/2015/08/25/us-qatar-lng-idUSKCN0QU12120150825

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PIRA: Qatar ups LNG deliveries to Europe

NYC-based PIRA Energy Group reports that Qatari LNG pushes to Europe to support Asian prices.

Increases in European LNG buying are largely centered on Qatari firms pushing more volume into their equity-owned terminals. With more Australian LNG coming, Qatari volumes to Europe will go up unless the two Qatari firms make a stronger push for market share in Asia through lower prices, PIRA said in its report.

In the United States, despite drilling efficiency gains, 2Q15 production was tempered by price-driven curtailments in Appalachia. As a result, overall U.S. production sustained growth but at a decidedly slower pace than in the prior quarters. Output within the PIRA Group grew, but was unimpressive compared with considerably larger 1Q15 and 4Q14 year-on-year gains.

Weakness on the front end will continue to be an issue with seasonal gas demand in Europe, reaching its low point for the year. Over the next six months, gas demand will more than double from current levels to nearly 2-bcm/d if the weather emerges under a normal pattern. In this context, PIRA sees underlying demand growth as well, although through the second and third quarter PIRA ran through a string of downward revisions. Germany has been an exception to this slowdown in demand growth.

Following recent LNG reforms in Mexico, floundering domestic production continues to underscore the critical need for new outside capital to stymie this downtrend. Given this reality, PIRA found the results of Mexico’s first upstream tender troubling (only 2 out of 14 blocks awarded). The Mexican government has recognized the importance of relaxing fiscal/operating terms to avoid similar results in subsequent rounds, but Mexico runs the risk of seeing deeper production losses in the years ahead unless those changes in terms prove to be effective.

http://www.lngworldnews.com/pira-qatar-ups-lng-deliveries-to-europe/

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Iraqi oil minister says $9 bln in arrears paid to foreign oil companies

Iraq's oil minister said on Tuesday his country had paid foreign oil companies $9 billion in remaining arrears for 2014 and was paying 2015 arrears in stages until the beginning of 2016.

Adel Abdel Mehdi wrote in the local al-Adala newspaper that the ministry would study with foreign oil companies ways to reduce costs and link them to oil prices.

Service contracts with Western oil companies are currently based on a fixed dollar fee for additional volumes produced, meaning that with the drop in oil prices over the past year, the amount of crude needed to pay the companies has roughly doubled.

http://www.reuters.com/article/2015/08/25/iraq-oil-debt-idUSL5N1101H820150825

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CNOOC first-half net profit slumps 56 pct on crude price fall

China's top offshore oil producer CNOOC Ltd said its consolidated first-half net profit fell 56.1 percent, as a precipitous drop in crude prices offset higher production.

The company reported a net profit of 14.73 billion yuan ($2.30 billion) for the first half, compared to the 33.6 billion profit a year earlier, according to a filing with the Hong Kong stock exchange.

The results are unaudited.

Net production of oil and gas for the first-half was up 13.5 percent on year to 240.1 million barrels of oil equivalent.

CNOOC chairman, Yang Hua, said in the filing that the "severe operating environment" is expected to continue through the second half of the year, and that the company will "focus more on economic efficiency" rather than just on "production volume".

http://www.reuters.com/article/2015/08/26/cnooc-results-idUSL4N1112R420150826

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Mexico sweetens oil auction terms again to avoid repeat of flop

Oil companies competing in the next phase of Mexico's historic Round One auction will know the minimum level of profits demanded by the government prior to the auction, the sector regulator said on Tuesday, in a bid to raise investor interest.

The oil regulator, known by its Spanish-language acronym CNH, also said it will offer companies the possibility to conduct additional exploration and extraction beyond reserves that have already been discovered.

The changes are aimed at avoiding a repeat of the first phase of the auction, in which the government missed its own modest expectations, awarding just two of 14 contracts offered.

During that auction, Mexico's finance ministry only revealed the minimum level of profits companies would have to pay the government after firms presented their bids.

The next round will be awarded on September 30, and involves five production-sharing contracts covering nine shallow water oil fields along the southern edge of the Gulf of Mexico.

The regulator already said in August that it would lower the corporate guarantee - money a consortium has to put up in case of an accident- for the second phase.

Twenty companies have pre-qualified for the late September auction, either as individual operators or in consortia, including international oil majors Chevron and Royal Dutch Shell.

Mexican billionaire Carlos Slim's Carso Oil and Gas is also among the firms that have pre-qualified to bid, partnering up with two winners from last months auction; Talos Energy and Sierra Oil and Gas.

Mexico's oil regulator is running the five-phase Round One auction, which aims to lure billions of dollars in investment and reverse a decade-long dip in crude output.

http://www.reuters.com/article/2015/08/26/mexico-oil-idUSL1N1102OA20150826

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Gulf Marine Services Profit Higher, Expects Second Half Earnings Boost

Gulf Marine Services PLC on Tuesday posted a solid set of results for the first half, with profit and revenue both higher and the group's fleet utilisation remaining strong, along with confidence that earnings will improve in the second half.

The company, which provides self-propelled self-elevating support vessels to the offshore energy sector, said its pretax profit for the six months to the end of June was USD36.1 million, up from USD34.3 million a year earlier, as revenue for the group increased to USD98.2 million from USD90.7 million.

Gulf Marine said its fleet utilisation in the half was 98%, with charter day rates in line with its guidance. The group said its fleet expansion programme is now more than half complete and is on time and on budget. The three new vessels it has commissioned most recently have been immediately deployed to new contracts.

The company added it would pay a flat interim dividend of 0.41 pence per share.

The group is anticipating a reduction in planned special projects in the second half of the year and, in addition to the new vessels which will be added to its fleet in the third quarter, expects an increase in total available days of more than 25% in the second half. More than 95% of its total available days for the second half have already been contracted, it said, and this should lead to a substantial rise in second half earnings.

"Given the group's continued success in winning contracts for the new vessels, we expect to see growth in our revenue earning capacity feeding through to the bottom line and dividend prospects in 2016 and thereafter," said Chief Executive Duncan Anderson.

"As the period of capital investment associated with the current new build programme concludes in 2016 and the group captures the earnings benefit from the enlarged fleet, the board will consider the appropriate dividend policy that balances the opportunities to invest to continue to grow the business with the potential for increased shareholder returns," Anderson added.

http://www.lse.co.uk/AllNews.asp?code=zja2llj0&headline=Gulf_Marine_Services_Profit_Higher_Expects_Second_Half_Earnings_Boost

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Encana sells Haynesville gas assets for $850million

Encana Oil and Gas is to sell its Haynesville natural gas assets in northern Louisiana, to GEP Haynesville in a $850million deal.

Encana operates approximately 300 wells in the area. Estimated year-end 2014 proved reserves were 720 billion cubic feet equivalent (Bcfe) of natural gas.

Its natural gas assets include approximately 112,000 net acres of leasehold, plus additional fee mineral lands.

GEP Haynesville is a joint venture formed by GeoSouthern Haynesville and fund manager GSO Capital Partners.

Through the transfer of current and future obligations, Encana will reduce its gathering and midstream commitments – which will be substantially complete by 2020 – by approximately $480 million on an undiscounted basis.

Encana will transport and market GeoSouthern’s Haynesville production on a fee for service basis for the next five years. It will use the total cash consideration to reduce its net debt.

Over 80% of 2015 capital will be invested in the company’s four most strategic assets in the Permian, Eagle Ford, Duvernay and Montney.

Encana chief executive Doug Suttles said: “This transaction delivers significant proceeds that we’ll use to strengthen our balance sheet. In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas marketing arrangement.”

https://www.energyvoice.com/oilandgas/85923/encana-sells-haynesville-gas-assets-for-850million/

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Alternative Energy

Tech challenges, severed contracts cloud Hanergy's outlook

Hanergy Thin Film Power Group Ltd (HTF), which is being probed by Hong Kong regulators after its stock suddenly plunged, will have to convince shareholders about its outlook after it cut ties with its parent, which last year alone bought about two-thirds of its solar panel making equipment.

HTF, whose valuation peaked at $48.5 billion in March only to plunge by nearly half in less than one hour two months later, has already warned the unravelling of these contracts may result in a first-half net loss, which would be its first since 2009.

The company, whose stock has been suspended since it crashed on May 20, reports first-half results on Friday. It did not give a figure for the potential loss.

"Hanergy's recent announcements about its contract and profits are akin to rearranging the deck chairs on the Titanic," said Soren Aandahl, director at shortseller Glaucus Research.

"Hanergy has shown little ability to attract customers who were not also named Hanergy," he told Reuters. "I would be surprised if it ever traded again."

HTF did not respond to Reuters requests for comment about its decision to suspend ties with its parent, or to questions about its business outlook.

HTF is controlled by Li Hejun, who at one point this year dethroned Alibaba Group Holding Ltd's Jack Ma as China's richest man. It manufactures solar panel making machines and its main customers have so far been unlisted China-based parent Hanergy Holding and its four affiliates.

Hanergy Holding accounted for 62 percent of HTF's sales in 2014, public filings show. Last week, however, HTF said it was cancelling or suspending these contracts to address concerns by the Securities and Futures Commission about its dependence on its parent, but gave no details.

Reuters had previously reported that HTF was resisting an SFC request to disclose the parent company accounts to the regulator as a condition to resume trading.

Analysts say thin film solar panels are inefficient by industry standards, and that makes it difficult for HTF to find external clients. Thin film panels have an 8-9 percent conversion rate, which measures the efficiency of turning solar energy into power, while the industry average is 11-15 percent.

"Uncertainties related to its thin film technology and market responses to the solar applications are still very high," BNP Paribas, which has a "reduce" recommendation on the stock, said in a March report, its last update on the company.

Some of the contracts HTF has struck with external clients include a $660 million deal in February with Shandong Macrolink New Resources Technology Ltd, an unlisted company which produces thin-film solar collectors. It also agreed to sell a 3.6 percent stake to a core investor of Shandong Macrolink for $700 million, company filings show.

Shandong Macrolink, however, told Reuters last week it had closed that deal, adding that it did not expect future cooperation with HTF due to its uncertain future.

"HTF sold almost all its production to the parent company and if those contracts were cancelled, there is no real market for their equipment," said Hong-Kong based CLSA analyst Charles Yonts.

http://www.reuters.com/article/2015/08/25/hanergy-tfp-outlook-idUSL4N1103UL20150825

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Agriculture

DuSolo launches strategic review following weaker-than-expected fertiliser sales

Brazil-focused DuSolo Fertilizers will implement several sales and production strategies in an attempt to increase revenues from its Bomfim mine after demand for its product failed to meet the company's expectations. "In light of the current market conditions in Brazil and the effect it has had on the company's performance,

DuSolo's new board and management have undertaken a strategic review of all operations," DuSolo CEO Darren Bowden advised in a statement on Tuesday. To combat the demand dearth, DuSolo had drawn down its bridge loan facility as working capital as it started to accept forward sales contracts.

The Bomfim processing plant would also potentially be reconfigured to expand direct application natural fertiliser (DANF) output without installing additional hammer mills, saving the company about C$400 000. After a longer-than-expected rainy season, the TSX-V-listed company had started excavating and processing DANF product at Bomfim in June.

However, DANF sales had been less than estimated, owing to soft fertiliser demand in Brazil. Of the 81 100 t in signed commitments, only about 3 290 t of product had been delivered and a further 3 363 t would be delivered in the short term. All of these contracts were still in good standing, despite buyers being slow to perform as a result of soft market conditions. This was a result of weaker crop prices, the lower purchasing power of the real currency and delayed credit availability from the government to farmers and agribusinesses.

http://www.miningweekly.com/article/dusolo-launches-strategic-review-following-weaker-tan-expected-fertiliser-sales-2015-08-25

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Precious Metals

Russia's Polymetal sees stronger second half

Russian gold and silver miner Polymetal anticipates a stronger financial performance in the second half of the year thanks to weaker local currencies and higher production, it said on Tuesday after first-half net profit fell.

The weaker rouble, caused by lower oil prices and Western sanctions imposed on Russia over the Ukraine crisis, helped Polymetal cut dollar-denominated costs in the first half of 2015 and offset a drop in prices for precious metals.

Polymetal owns a gold and copper mine in Kazakhstan, whose volatile tenge currency has been falling due to low oil prices and the weak rouble in its former Soviet master, Russia.

"The rouble and tenge weakening should more than offset the decline in gold and silver prices, that is why we expect the second half of the year to be stronger than the first half," Vitaly Nesis, Polymetal chief executive, told Reuters.

Polymetal's second-half production will be higher than in the first six months of the year thanks to seasonal factors, according to Nesis, and the company is still on track to produce 1.35 million ounces of gold equivalent for the full 2015.

Thanks to the rouble weakening, Polymetal has reduced its full-year cash cost guidance to $525-575 per troy ounce of gold equivalent, a mix of gold and other metals, from a previously expected range of $575-625.

Its first-half net profit fell 2 percent to $98 million and revenue was down 11 percent to $648 million due to lower gold and silver prices, said the London-listed company, which is part-owned by businessman Alexander Nesis, a brother of Chief Executive Vitaly Nesis.

The company has recommended a first-half dividend of $0.08 per share, unchanged from the same period of 2014.

Polymetal added that it maintained its guidance for 2015 capital expenditure at $240 million and that it had secured a four-year, $170-million loan from Russian bank VTB in August.

http://www.reuters.com/article/2015/08/25/polymetal-intl-results-idUSL5N1100QH20150825

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Base Metals

As Trafigura exits metal storage, rivals brace for boom from economic gloom

Swiss commodities merchant Trafigura is ending a five-year foray into the lucrative base metals storage business just as warehousing firms are bracing for sheds to fill up amid concerns a China-led slowdown could stall the global economy.

On Tuesday, its logistics and warehouse unit Impala Terminals scrapped plans for a metals warehousing joint venture in China and said it will exit its refined base metals storage business.

The move followed a strategic review and a steady retreat over the past year from metals storage, where warehousing firms charge rent to keep metal in London Metal Exchange (LME) registered facilities.

Impala has already cut the number of sheds in its LME arsenal to around nine from over 40 at its peak in 2013. The firm will focus on export markets for bulk commodities and on its larger, capital intensive port and terminal developments, Trafigura said.

For most companies that rely on a booming economy for revenue, the timing would be logical. But storage companies operate in a countercyclical market and make money when they're earning rent from sheds bursting with metal.

One executive at a global warehouse firm in the LME's network said it was "strange" for Trafigura to quit completely just as many warehousing firms are hoping for a pickup.

"You'd think metal will soon start flowing into the LME warehouses," he said, referring to fears that China's stock market crash will crimp spending in the world's second-biggest economy, slowing global growth.

Trafigura, however, has many reasons to call it a day, not all of them shared by its rivals. Its storage business is tiny compared with competitors such as Glencore-owned Pacorini and independent Steinweg, which account for more than half of the LME's network of over 600 facilities stretching from Singapore to Antwerp.

The merchant has also been embroiled in a dispute over storage deals in China's Qingdao port. The issue is linked to a financing scandal that hurt confidence in the industry as a whole. Trafigura is not accused of fraud.

One factor common to the industry is a new set of LME rules that will make it harder to capture the fat margins that lured merchants like Trafigura and Glencore and Wall Street banks like Goldman Sachs Group Inc into storage in 2010.

Aiming to placate angry metal users and concerned regulators, the LME has embarked on a years-long effort to overhaul its storage policy, introducing new rules that speed up delivery rates, cap rent and limit wait times in hubs with big backlogs.

The measures are aimed at curbing abuse that consumers have complained led to long wait times and inflated prices.

Trafigura's exit may offer an opportunity for smaller rivals to pick up the slack if the economic gloom spreads and consumers rush for storage like they did during the 2008 economic crash, a source at a larger rival to Trafigura said.

http://www.reuters.com/article/2015/08/26/trafigura-metals-exit-idUSL1N1102QH20150826

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Freeport says Indonesia copper exports dry up on payment impasse

Freeport says Indonesia copper exports dry up on payment impasse

Freeport-McMoran said exports of copper from its giant Indonesian mine have slowed to a trickle over the past month as it faces new rules on how buyers pay for metal, with the government showing no sign of handing it a second waiver.

Freeport, which is one of Indonesia's biggest tax payers, won a six-month exemption from new rules introduced this year making it compulsory for exports of coal, palm oil, oil and gas and minerals to be transacted through letters of credit issued by domestic banks.

The U.S. miner said almost all exports of copper concentrate from its Grasberg mine had been halted since the exemption expired on July 25 and it was currently in talks with both its buyers and the Indonesian government.

"We are gradually working with our buyers to change their method of payment," Freeport Indonesia spokesman Riza Pratama told Reuters on Tuesday. "Hopefully we will get this matter resolved very soon. We are talking with the government so we can continue our exports."

International buyers and traders often pay Freeport directly or in advance, without going through the Indonesian banking system.

The dispute is the longest disruption to shipments since a seven-month stoppage last year when Indonesia imposed an escalating tax on metal concentrates.

Freeport exports about 60 percent of the estimated 2 million tonnes of concentrate produced each year at Grasberg, one of the world's biggest mines, while the rest is smelted locally into metal.

Mines Ministry Coal and Minerals Director General Bambang Gatot said any fresh exemption for Freeport would be decided by the trade ministry.

"Every company is supposed to comply with this regulation," he said, adding that Newmont Mining Corp, Indonesia's second largest copper miner, seemed to be complying with the new rules without problems.

Karyanto Suprih, acting director general for foreign trade at the trade ministry, told Reuters: "So far, there is no instruction to give an exemption on this LC obligation for mineral or coal exports."

Operations at Freeport's mine in remote Papua were running normally, Albar Sabang, a senior official at a Freeport union said late last week.

Under normal conditions, Grasberg produces about 220,000 tonnes of copper ore per day, which is converted to copper concentrate.

Freeport's Pratama said the miner would need more space for stockpiling "very soon" but could not give a timeframe.

Rio Tinto has a joint venture with Freeport for a 40 per cent share of Grasberg's production above specific levels until 2021, and 40 per cent of all production after 2021.

http://www.reuters.com/article/2015/08/25/indonesia-freeport-idUSL3N10V2BI20150825

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Pan Pacific mine woes dull shine of Chile copper sector

The slow ramp up of an ambitious waste disposal system and an inexperienced workforce have been key factors curbing output at a remote Chilean mine built by Japan's top copper smelter Pan Pacific Copper to bolster its supply of concentrate.

Those are among the main conclusions of a consultant's report commissioned by the company and seen by Reuters, which details troubles at the Caserones plant, one of only a handful in the world's top copper producer churning out high-quality concentrate.

Output on the project has been behind schedule since it started producing in May last year in the arid mountains of northern Chile, and its problems highlight the challenges facing miners in the country as they scrabble through far-flung locations after more accessible deposits have largely been tapped out.

Faltering Chilean output of the metal, used in everything from wiring to air conditioners, could help support international prices languishing near six-year lows.

But the head of Pan Pacific, owned by JX Holdings and Mitsui Mining & Smelting, played down the problems contained in the report and said the mine remained on track to reach full capacity next month, even as some industry analysts said that could be tricky.

"The Caserones concentrator is going through a severe crisis in the operation of its facilities," Canadian mining consultant Hatch said in the report, dated April but updated in May, referring to critical equipment used to process crushed ore that has not been running as expected due to the waste problems.

The consultancy did not respond to requests for comment on the report, a summary of a so-called technical assessment conducted around March. Reuters was shown the report by somebody with direct knowledge of Caserones' operations.

"The conclusion of the Hatch report was that there were no major problems (at Caserones)," Pan Pacific President Yoshihiro Nishiyama told Reuters.

"The report suggested there were various reasons why the (plant's) utilisation rate has not risen, but those issues were solvable."

Forecast to produce 150,000 tonnes of concentrate a year at full operation, Pan Pacific developed Caserones to cut its dependency on major miners for supply.

It is also partly owned by Mitsui & Co, a trading house in the world's No.2 concentrate importing nation, making it the first major Japan-owned copper mine.

But costs on the project have already doubled to over $4 billion since construction began in 2010.

Hatch blamed the under-utilisation of the concentrator on issues such as problems with the mine's "bold and aggressive" tailings dam system, where waste is stored after concentrate is extracted.

The plant's topography means it has two tailings dams - one for sand and one for mud - as the typical single, larger dam would be difficult to accommodate.

Hatch said some sand had been deposited in the dam that would usually only be used for mud, risking spillage and potential "environmental type sanctions" from the government.

The company said that was a temporary measure while adjustments to the operations of the sand tailings dam were finalised. Nishiyama said work would be finished this month and that there was "no environmental problem".

http://www.reuters.com/article/2015/08/26/japan-copper-caserones-idUSL3N10I1WR20150826

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Century Aluminium issues WARN Notice at Hawesville KY Smelter

Image Source: Century AluminiumCentury Aluminum of Kentucky, a wholly-owned subsidiary of Century Aluminum Company, has issued a notice to employees at its Hawesville, Kentucky aluminum smelter of its intent to curtail its plant operations beginning on October 24, 2015 unless the current pricing environment substantially changes. The announcement was made pursuant to the federal Working Adjustment and Retraining Notification Act (WARN).

http://steelguru.com/metal/century-aluminium-issues-warn-notice-at-hawesville-ky-smelter/432953#tag

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Vedanta to close down aluminium refinery unit at Lanjigarh in Odisha

PTI reported that Vedanta on Tuesday said it will initiate steps for gradual closure of its alumina refinery at Lanjigarh in Odisha mainly due to shortage of raw material and absence of bauxite linkage within state.

A company statement said “The company is forced to initiate the process of gradual closure of the facility.”

It added that Vedanta is taking steps to formally communicate to the concerned state government departments about the development

Mr Abhijit Pati, CEO Aluminium, Vedanta Limited, said in a statement "In the absence of bauxite supply from Odisha, the current market dynamic has threatened our very survival. With a heavy heart, we are bound to take some steps which are going to be painful.”

Plant's chief operating officer Mr KK Dave said "With the current market turmoil, which is unlikely to improve soon and in the absence of access to bauxite from within the state, the Lanjgarh refinery is facing a daily loss of INR 3 crore. Hence, we are forced to initiate the process of gradual closure.”

Vedanta ran the plant with commitment for nearly a decade despite heavy odds, he said and added its closure would impact nearly 10,000 people directly and the region at large.

http://steelguru.com/metal/vedanta-to-close-down-aluminium-refinery-unit-at-lanjigarh-in-odisha/432951#tag

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Steel, Iron Ore and Coal

Thermal coal imports at Indian 12 major ports rose 24pct

Imports of thermal coal jumped 24% at the India’s top 12 major ports to 32.54 million tonnes during the April-July this year even as the government continues to announce its commitment to boost domestic output.

These 12 ports had handled 26.29 million tonnes of coal during the same period of the last fiscal, according to the data released by the Indian Ports Authority.

Thermal coal is the mainstay of India's energy programme as 70% of power generation is dependent on the dry fuel, while Coal Minister Piyush Goyal has been emphasizing the need to increase the production by state-run Coal India.

Handling of coking coal, which is used mainly for steel-making, however remained flat at 10.56 million tonnes during the same period, compared with 10.74 million tonnes in April-July of 2013-14.

Together, they handled 43.10 million tonnes coal during the April-July period of the current fiscal as against 37.03 million tonnes in the same period of the previous fiscal.

India is the third-largest producer of coal, after China and the US, and has 299 billion tonnes of resources and 123 billion tonnes of proven reserves, which may last for over 100 years.

India has 12 major ports - Kandla, Mumbai, JNPT, Marmugao, New Mangalore, Cochin, Chennai, Ennore, V O Chidambarnar, Visakhapatnam, Paradip and Kolkata (including Haldia) - which handle approximately 61% of the country's total cargo traffic.

Thermal coal is used in power generation and with the world's largest miner Coal India, which accounts for over 80% of the domestic requirement consistently failing to meet its target as well as demand of the firms, the power plants resort to imports.

Less production coupled with increased demand from power firms is further widening the demand-supply gap in the country, which is likely to widen to 185.5 million tonnes in 2016-17.

http://en.sxcoal.com/0/130363/DataShow.html

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China begins construction of coastal steel project

China has begun construction of a large 9.4 million tonne a year steel project in northern Hebei province, pushing on with plans to build newer, more efficient plants in coastal regions despite a supply glut and shrinking demand.

The project, the second phase of the Shougang Jingtang steel complex at Caofeidian, one of China's largest ports, is one of several integrated steel projects planned by top steel mills that were approved during the commodity boom.

The plant, which will help cut shipping costs for imported iron ore and coal, will involve a total investment of 43.55 billion yuan ($6.79 billion), the National Development and Reform Commission (NDRC) said on Tuesday.

The project start comes as the steel sector struggles with weak demand and chronic overcapacity that has pushed prices to more than 20 year lows, plunging many small mills into the red.

Total investment in the steel and processing sector fell 12.3 percent in the seven months to end-July from a year ago, the NDRC said.

However, big state owned firms suffer fewer restrictions on credit than their smaller rivals, while lower shipping costs will also help them gain competitiveness.

China aims to build three to five giant steel mills and boost the crude steel output of its top 10 steelmakers to more than 60 percent of the country's total by 2025.

Baoshan Iron & Steel and Wuhan Iron & Steel plan about 10 million tonnes a year of new steel capacity in coastal areas in order to take advantage of their proximity to southeastern Asian buyers and ore importers.

Baosteel will launch first phase operations at the 10-million tonne per annum Zhanjiang project in Guangdong province in September, while Wuhan has already commissined part of its project at Fangchenggang port in the southwestern region of Guangxi in June.

China's total steel production capacity stood at 1.16 billion tonnes by the end of 2014, according to official industry ministry figures. Output last year reached 822 million tonnes.

http://www.reuters.com/article/2015/08/25/shougang-steel-output-idUSL4N1102X820150825

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China steel firms slip into red as glut persists

Most of the steel companies listed on the A-share market have seen a sharp erosion in profits during the first six months of the year, due to the glut in domestic production.

Hongxing Co Ltd, a company whose main shareholder is Jiuquan Iron & Steel (Group) Co Ltd, was the worst-performing listed steel company as of Aug 19 with losses of 1.55 billion yuan ($242 million) in the first six months. Hongxing said the losses were mainly due to production overcapacity, a slowing economy and the significant fall in steel prices.

Beijing Shougang Co Ltd, another major producer, has forecast losses of about 200 million yuan to 300 million yuan for the first half of the year.

According to data provided by the National Development and Reform Commission, large and medium-sized steel companies earned revenue of about 1.5 trillion yuan in the first six months of the year, down 17.9 percent from the same period a year earlier. However, the steel-making business of these firms ran up losses of about 21.7 billion yuan during the period, up 16.8 billion yuan from the same period in 2014.

About 43 steel companies registered losses during the period, while only three reported growth in profits. Fushun Special Steel Shares Co Ltd saw its net profit surge to 131 million yuan, an 803 percent year-on-year growth.

Daye Special Steel Co Ltd reported net profit of 139 million yuan by the end of June this year, up 5.42 percent from the same period in 2014. According to the company, the domestic steel market is still bogged down by production overcapacity and the lack of new growth drivers. Daye attributed its profit growth to measures taken to reduce output costs.

http://en.chinamining.com.cn/News/2015-08-26/1440557674d73488.html

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Mark Latham Commodity Equity Intelligence Service

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