Mark Latham Commodity Equity Intelligence Service

Tuesday 13th October 2015
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    China Growth in Focus as Exports and Imports Fall

    China’s exports and imports fell in September as global demand remained weak, signaling that the world’s second-largest economy continues to struggle into the end of the year.

    Exports dropped less than some economists had expected. Still, they said the data offered a further indication that China’s third-quarter growth figures set for release next week will likely fall below Beijing’s target of about 7% for the whole year.

    “Exports in September look a little better than expectations,” said HSBC economist Ma Xiaoping, adding that year-end trade figures tend to pick up due to Christmas shipments. “But if you factor in seasonal factors, I don’t see much improvement in global demand,” she added.

    According to the General Administration of Customs, Chinese exports fell 3.7% in September from a year earlier in U.S. dollar terms following a 5.5% drop in August. Imports in September fell 20.4% from a year earlier, compared with a 13.8% decrease in August, the customs agency said Tuesday.

    The country’s trade surplus increased to $60.3 billion in September from $60.2 billion in August, the agency said.

    China’s exports were significantly better than in neighboring Taiwan and South Korea, both of which weathered a sharp export drop in September, signaling that China is holding its own in a weak market, economists said. “This shows the competitiveness of Chinese exports,” said Mizuho economist Shen Jianguang.

    Huang Songping, a spokesman with the General Administration of Customs, said in a briefing that China’s exports are expected to return to growth in the fourth quarter after falling in the second and third quarters. The decline in Chinese imports is likely to narrow in the final quarter, Mr. Huang added, citing a raft of measures rolled out by Beijing in recent weeks, including easier procedures and reduced taxes aimed at improving trade.

    Chinese exports, once a primary growth engine for the economy, have faced more headwinds from higher labor and land costs and the rise of low-end competitors in Southeast Asia.

    Economists said exports last month would probably have been stronger if it weren’t for an explosion at the northern port of Tianjinin August and the temporary closing of factories ahead of a September military parade in Beijing aimed at reducing air pollution.

    China is likely to miss its 2015 foreign trade target of 6% year-over-year growth, down from the 7.5% growth targets it set in 2014 and 8% in 2013, both of which it failed to reach, economists said.

    Tuesday’s export data are the latest in a parade of weak economic numbers out of China in recent weeks. The nation’s official purchasing managers index contracted in September for the second month in a row, foreign-exchange reserves fell by more than $40 billion last month and the real-estate industry continues to struggle.
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    There is a new indicator for economic activity in China - and it doesn't look good

    The traditional drivers of China's economy are slowing, and it is showing up in the country's employment market.

    Quanton Data, a firm which focuses on structuring big data and identifying data sets that could help investors make money, has put together a database of job postings from over a hundred different job boards serving China.

    The data goes back four years.

    According to a September report, manufacturing job postings in the country are crashing.

    "Our Manufacturing Job Posting Index continues its multi-year decline reaching a new low in August, mainly driven by continued strong downward trends in Energy and Materials postings."

    Consumer staples postings have also dropped, falling in September for the seventh straight month.

    The index echoes evidence elsewhere that the traditional drivers of China's economy - manufacturing and property - are slowing fast.

    Alcoa on Thursday downgraded its expectations for all but one of its major segments in the world's second-largest economy.  Caterpillar, a global bellwether for industrial investment and development, announced layoffs and a reduction in its expectations for equipment sales, citing a "a convergence of challenging marketplace conditions."

    UK-based JCB, which competes with Caterpillar, said it would cut jobs after the market in China had dropped by almost half in the first six months of the year.

    Here are the key findings from Quanton Data's September report.

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    Oil and Gas

    IEA flags oil market oversupply through 2016, less optimistic than OPEC

    A top energy watchdog on Tuesday warned that oil markets would likely remain oversupplied next year, as oil demand growth slows down amid an expected return of Iranian oil.

    The assessment by the International Energy Agency -- which represents some of the world's largest oil consumers -- is somewhat less upbeat than the Organisation of the Petroleum Exporting Countries which Monday said oil markets would start to rebalance themselves next year amid declining US production.

    In its closely-watched monthly oil market report, the IEA cut its forecast for oil demand growth for next year by about 200,000 barrels a day compared to its previous assessment in September. It now sees world oil consumption rising by 1.2 million barrels a day in 2016, compared to a five-year-high growth of 1.8 million barrels a day in 2015.

    "A projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels -- should international sanctions be eased -- are likely to keep the market oversupplied through 2016," the agency said.

    The IEA said Iran's production could ramp up towards 3.6 million barrels a day from 2.9 million barrels a day currently once international sanctions are terminated early next year.

    But the Iranian increase would come as demand for OPEC's overall production would be lower than expected. The IEA said demand for the group's crude -- which make up over a third of global oil consumption -- would grow by 200,000 barrels a day less next year than it forecast in the September report. The October report forecast is for 31.1 million barrels a day.
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    OPEC sees more demand for its crude in 2016 as cheap oil hits rivals

    OPEC forecast on Monday that demand for its oil in 2016 would be much higher than previously thought as its strategy of letting prices fall hits U.S. shale oil and other rival supplies, reducing a global surplus.

    In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) forecast the world would need 30.82 million barrels per day (bpd) from the group next year, up 510,000 bpd from the previous prediction.

    OPEC's forecast, if realised, would be a further indication its strategy is working. The group last year refused to prop up prices and instead raised output, seeking to recover market share taken by higher-cost rival production. Oil is trading just below $53, half its price of June 2014.

    Supply outside OPEC is expected to decline by 130,000 bpd in 2016, the report said, as output falls in the United States, the former Soviet Union, Africa, the Middle East and much of Europe. Last month, OPEC predicted growth of 160,000 bpd.

    "This should reduce the excess supply in the market and lead to higher demand for OPEC crude," OPEC said in the report, "resulting in more balanced oil market fundamentals".

    The higher call on OPEC comes despite weaker global demand growth overall. OPEC trimmed its estimate of 2016 world oil demand growth by 40,000 bpd to 1.25 million bpd, citing slower growth in China.

    Other forecasters also expect less oil from non-OPEC. The International Energy Agency, which advises industrialised countries, sees an even bigger drop in their supply in 2016. The next IEA report is due out on Tuesday.

    Output in the United States - the biggest source of non-OPEC supply growth in recent years - is being hit by reduced drilling activity and tighter credit conditions have reduced companies' access to funds, OPEC said.

    The report said OPEC members continue to boost supplies. According to secondary sources cited by the report, OPEC pumped 31.57 million bpd in September - up 110,000 bpd from August and almost 2 million bpd more than its prediction of the demand for its crude this year.

    With the higher demand it expects for OPEC crude in 2016, the report points to a 750,000 bpd supply surplus in the market next year if the group kept pumping at September's rate, down from 1.23 million bpd indicated in last month's report.

    In the third quarter of 2016, demand for OPEC crude will rise to an average of 31.50 million bpd, OPEC predicted - similar to current output and leaving almost no surplus.

    Saudi Arabia, the driving force behind's OPEC's refusal to cut output, told OPEC it trimmed production to 10.23 million bpd in September, a further decline from June's record rate.

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    China Crude Imports Rebound as Refiners Seek Oil Bargains

    China’s crude imports rose in September from a three-month low as the world’s second-largest consumer sought bargain barrels for its reserves and refiners boosted processing.

    Overseas purchases rose to 27.95 million metric tons last month from 26.59 million in August, according to preliminary data released by the Beijing-based General Administration of Customs on Tuesday. That’s equivalent to 6.83 million barrels a day, up 8.6 percent from the previous month, Bloomberg calculations show.

    China, which was the world’s top oil buyer in June and April this year, has accumulated about 200 million barrels of crude in its reserve so far and plans to have 500 million by the end of the decade, according to the International Energy Agency. Total imports by the Asian country extended the longest losing streak in six years, underscoring the headwinds to global growth from a re-balancing amid falling commodity prices.

    “China may have taken advantage of the decline in crude oil prices” to boost September imports, Jean Zou, an analyst at ICIS China, a Shanghai-based commodity researcher, said by phone from Guangzhou. “The nation’s largest refiner, Sinopec, boosted oil processing by 2.5 percent last month from August.”

    Chinese refiners in September raised processing rates to the highest level in three months, according to Amy Sun, another analyst at ICIS China. Commercial crude inventories dropped at the end of August, creating more space for stockpiling.

    Oil imports from January through September gained 8.8 percent to 249 million tons, compared with the same period a year earlier, the customs data showed. That’s the fastest pace since 2010.

    The government reported 2.7 million tons of oil-product imports and 3.55 million of exports. September coal imports were 17.77 million tons, compared with exports of 730,000 tons. Final trade figures will be released next week.
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    China plans up to 30 pct cut in natural gas prices -Securities Times

    China plans to cut city-gate non-residential natural gas prices by up to 30 per cent in some provinces at the end of October, the Securities Times reported on Tuesday, citing sources.

    Flagging growth in natural gas demand has hurt Beijing's efforts to replace coal, a major source of smog and greenhouse gas emissions. Demand has risen just 3 percent this year versus double-digit increases between 2000-2013, with experts blaming Beijing's inflexible pricing policy.

    The cuts in the non-residential city-gate rate for each province would differ, said the sources, adding that the price setting method will also be reformed in order to become more market-orientated.

    "For provinces which currently have a low city-gate rate the price could fall by 0.4 to 0.5 yuan per cubic metre, for provinces with a higher city-gate rate it could fall by 0.7 to 0.8 yuan per cubic metre," the newspaper quoted the source as saying, meaning cuts of between 20 to 30 percent.

    On April 1, city-gate prices for new non-residential users were cut by 0.440 yuan ($0.0695) per cubic metre. ($1 = 6.3283 Chinese yuan renminbi)
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    Saudi state claws back unspent money as finances tighten

    Saudi Arabia's finance ministry, seeking to cut waste as state revenues shrink because of low oil prices, is telling government bodies to return unspent money which they were allocated in this year's budget, sources familiar with the policy told Reuters.

    Over the past several years of sky-high oil, government bodies in the world's top oil exporting nation were given considerable freedom to transfer money from one project to another as they wished. That led to a bonanza of ad-hoc spending on bonuses, travel allowances and the like.

    Now, ministries are being told that if money is not fully spent on the projects for which it was originally allocated, the remainder must be sent back to the Treasury, the sources said. The ministry did not respond to a request for comment.

    The tighter policy underlines a sober mood taking hold in Riyadh because of the halving of oil prices since mid-2014. The International Monetary Fund and private analysts calculate Saudi Arabia may run a record budget deficit of $120 billion or more this year; to pay its bills, the government has sold over $80 billion of foreign assets since August last year.

    Around the kingdom, bureaucrats, businessmen and ordinary Saudis are preparing for a period of relative austerity as the finance ministry asserts more control over the purse strings.

    "Saudi Arabia has started to focus on efficient spending, which means tighter financial supervision," said prominent local economist Fadl al-Buainain.

    "Suspending the transfer of financial items...means that if they are not invested in the project for which they were allocated, the surplus can be invested in another, more important project as needed."

    Finance Minister Ibrahim Alassaf said last month that his ministry was "working on cutting unnecessary expenses". He did not elaborate, but his comments were widely seen as pointing to significant spending cuts in some areas of next year's budget.
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    EGAS awards tender for 55 cargoes of LNG

    According to Reuters, seven companies reportedly met with Egyptian Natural Gas Holding Co. (EGAS) to discuss an LNG tender, including: Vitol, Noble Group, Trafigura, EDF Trading, PetroChina, Shell and Gas Natural.

    Reuters now reports that EGAS will buy 55 LNG cargoes through a tender it has agreed to with those seven different companies. Originally, only 45 LNG cargoes were to be delivered.

    EGAS reportedly said in a statement: “Head of EGAS, Khaled Abdel Badie, said that bids from seven companies had been accepted out of a total of 12 for the shipping of 55 cargoes starting this November and through December 2016.”

    The LNG cargoes will be delivered to Egypt’s floating import terminal – the BW Singapore, which has a capacity of 600 – 700 m3/d. The deliveries will begin as of the start of November 2015, and will help solve Egypt’s increasing energy shortage.
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    Oil Traders Targeting Iran for $1 Billion in 2016 Gasoline Sales

    Iran will need to import about 20 percent more gasoline to meet pent-up demand in the first year after economic sanctions are lifted, creating a market for some $1 billion in fuel sales from abroad, according to traders and analysts.

    The nation with the world’s fifth-largest crude reserves may need to buy about 50,000 barrels a day of gasoline if sanctions are removed in early 2016 as expected, say analysts at consultants Facts Global Energy, IHS Inc. and Energy Aspects Ltd. With its refineries running at full capacity and unable to raise output for at least another year, Iran now imports 41,000 barrels a day, or about 9 percent of the gasoline it uses.

    Iran was the Persian Gulf region’s biggest gasoline buyer before world powers imposed sanctions over its nuclear program, and it may need to import even more -- as much as 70,000 barrels a day, according to two traders in the Middle Eastern market who asked not to be identified because they’re not authorized to speak to the media. The traders expressed doubts that Iran would open planned new refineries on schedule and said it will depend on imports for at least two to three more years.

    “Once sanctions are lifted and the domestic economy in Iran improves, demand will likely rise and that’s going to raise imports,” Victor Shum of IHS said by phone from Singapore. “It will be good for existing, export-oriented refineries to see the Iranian market opening up.”
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    WAF-Far East VLCC freight rates rise to fresh 5.5-year high on tight tonnage

    WAF-Far East VLCC freight rates rise to fresh 5.5-year high on tight tonnage

    The cost of sending 260,000 mt crude oil cargoes from West Africa to the Far East has risen to the highest level in over five-and-a-half years due to a shortage of available vessels in the region.

    Market participants have said further rate increases could be on the cards this week due to the large number of cargoes outstanding.

    The West Africa-Far East VLCC route was assessed Worldscale 2.5 higher at w85 Friday. This equates to $33.64/mt, the highest since a $36.48/mt market on January 21, 2010.

    VLCC tonnage lists throughout the world have been squeezed in recent weeks due to ullage problems at a variety of Eastern ports, and the supply of ships has been further reduced by a large number of cargoes to be covered in the Persian Gulf, West Africa, the UK Continent and the Caribbean.

    Most of the Persian Gulf's October cargoes have now been covered, with market participants waiting to see what the release of the November stem lists in that region will bring.

    "It wasn't as busy as previous weeks in the Persian Gulf but a more active WAF market has kept owner sentiment at a high level," a shipowner said. "The charterers will need at least one week of inactivity to take control of the rates. There will be a big volume of cargoes to come though, November is usually the busiest month of the year for VLCCs."

    Sources said there were still three or four October cargoes left to be covered in the Persian Gulf for October, along with six West Africa cargoes to come for the first half of November.
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    Nigeria State Oil Company Reports Loss in Transparency Report

    Nigeria’s state oil company recorded a loss of 378 billion naira ($1.9 billion) in the first eight months of this year mainly because of fuel subsidy spending, it said in a publication that seeks to bring transparency to the organization.

    At least 73 percent of the loss was due to deficit spending by its Pipelines and Products Marketing Co. unit comprising “claimable subsidy” payments, repairs, as well as product losses from ruptured and sabotaged pipelines, the Nigerian National Petroleum Corp. said in a monthly report for August on its website.

    The publication of the report is one of the initiatives of Group Managing Director Emmanuel Kachikwu to ensure accountable conduct of its business. Kachikwu was appointed in August by President Muhammadu Buhari, who won elections in March after campaigning on a pledge to end corruption in the management of the country’s oil accounts.

    The NNPC has been dogged by allegations of losing billions of dollars of revenue since the 1970s and had the worst disclosure record of 44 energy companies analyzed in a 2011 report by anti-corruption nonprofit organizations Transparency International and the Revenue Watch Institute.

    Nigeria, Africa’s biggest oil producer, pumped 445 million barrels of crude and condensate from January to July, an average of 2.009 million barrels daily, according to the report.

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    Ukraine has been granted loans totalling $520 million to buy gas for the winter.

    The European Investment Bank (EIB) and the World Bank signed an agreement under EU guarantee to help the nation’s gas firm Naftogaz.

    It is part of the support by the European Union and international financial institutions, under which the EIB guarantees World Bank investment development projects in Ukraine.

    The news comes after Russia agreed to resume gas suppliesto Ukraine this winter under a deal set with the European Commission.

    EIB President Werner Hoyer said: “European and global institutions are committed to helping Ukraine avert a potentially severe energy crisis as winter approaches. The guarantee agreement we signed today will facilitate Ukraine’s purchase of gas at a critical time.

    “The deal reflects the EIB’s enduring support for Ukraine as part of EU cooperation with the country and the Union’s Eastern Neighbourhood region.”

    The European Bank for Reconstruction and Development (EBRD) is also lending $300 million (£198m).

    Ukrainian state energy firm Naftogaz and Russia's Gazprom have signed a deal on Russian gas supplies to Ukraine for the winter period and Kiev has already started gas imports, Ukraine's energy minister said in Monday.

    Volodymyr Demchyshyn said Ukraine planned to increase gas in underground storage to up to 18 billion cubic metres (bcm) in the coming weeks from the current level of 15.8 bcm.

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    Argentina's YPF targets unconventional gas, petrochemicals for growth

    Argentina's state-run energy company YPF plans to ramp up unconventional natural gas production to help close the nation's supply deficit and expand petrochemical output.

    "Fifteen percent of our gas production comes from tight and shale," CEO Miguel Galuccio said late Thursday at the Argentina Oil & Gas Expo in Buenos Aires. "We have a goal of getting 50% of our gas production from these formations by 2020."

    YPF is producing gas from tight plays like Lajas and Mulichinco, as well as from Vaca Muerta, one of the world's most promising shale plays that has attracted the attention of majors like Chevron, ExxonMobil and Shell.

    At El Orejano, a block it is developing in partnership with Dow Chemical, horizontal wells are "showing better-than-expected results," Galuccio said.

    There is room to meet domestic demand, given that the country is running a deficit in gas, which meets 50% of national energy demand.

    Gas production has dropped by about 20% to 118 million cu m/d over the past decade, led by maturing output from conventional reserves.

    This has left slack capacity on pipelines that can be filled without much infrastructure investment.

    Galuccio said another incentive is that the government is subsidizing gas prices from new developments to encourage exploration and production. Producers get $7.50/MMBtu at the wellhead for such new output, more than a $4/MMBtu average for conventional production.

    As the country pays about $7.50/MMBtu or more for imported gas in its liquefied form, there is an incentive to close the deficit with local production, he said, more so if global gas prices rise in the future.

    With more gas supplies, YPF wants to expand its petrochemical production.

    "There is an important opportunity to create a regional hub for petrochemical production in Argentina," led by polyethylene, polypropylene and other polyolefins and derivatives, Galuccio said.

    "This will make it possible to replace imports and become a net exporter of petrochemicals," he said.

    In August, YPF announced plans to buy stakes in two polymer producers in Argentina for $122 million by the end of 2015. The assets include an 180,000 mt/year polypropylene plant and another with 130,000 mt/year of capacity.

    Galuccio said the petrochemical output will add between $1/MMBtu and $2/MMBtu to the revenue the company makes on its gas production.

    With this additional revenue, YPF could widen its exploration and production to riskier locations that it can't develop now because gas prices are not high enough, he said.

    YPF produces 45 million cu m/d of gas, more than a third of national output.

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    Phillips 66 Announces 2016 Capital Budget and Increases Share Repurchase Program

    Phillips 66 announces its 2016 capital budget of $3.6 billion, compared with $4.6 billion in 2015 excluding Phillips 66 Partners’ capital program. The board of directors of Phillips 66 also approved a $2.0 billion increase to the company’s share repurchase program.

    “Cash from operating activities, our MLP and a strong balance sheet allow us to fund business growth while returning capital to shareholders.”

    “The 2016 capital budget will fund Midstream growth and enhance returns in Refining,” said chairman and CEO Greg Garland. “Cash from operating activities, our MLP and a strong balance sheet allow us to fund business growth while returning capital to shareholders.”

    Excluding Phillips 66 Partners’ capital spending, Phillips 66 plans to invest $2.0 billion in its Midstream business lines. In Natural Gas Liquids (NGL), the company continues construction of the 4.4 million-barrel-per-month Freeport LPG Export Terminal on the U.S. Gulf Coast, with completion expected in the second half of 2016. In addition, the budget includes spending associated with expansion of the Sweeny NGL midstream hub.

    In Transportation, the company is investing in the new DAPL and ETCOP pipeline projects to move crude oil from the Bakken production area of North Dakota to market centers throughout the United States. Storage capacity is being added at the Beaumont Terminal in Nederland, Texas, and the company is investing in the Bayou Bridge pipeline project to move crude oil from Texas to Louisiana markets.

    Phillips 66 plans $1.2 billion of capital expenditures in Refining, with approximately 70 percent to be invested in reliability, safety and environmental projects, including compliance with the new Tier 3 gasoline specifications. Discretionary Refining capital of about $400 million will improve product yields and lower feedstock costs. These investments include a modernization of the FCC at Bayway, and an upgrade of the vacuum tower at Billings.

    In Marketing and Specialties, the company plans to invest about $135 million of growth and sustaining capital. This furthers Phillips 66’s plans to expand and enhance its fuel marketing business, including new retail sites in Europe.

    Capital spending plans for 2016 for Phillips 66 Partners and for self-funded joint ventures DCP Midstream, Chevron Phillips Chemical Company, and WRB Refining will be announced later this year.

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    EOG Resources Inc. Has Done an Amazing Job of Finding Oil in Its Own Backyard

    Through a combination of downspacing, exploring new zones and improved technology EOG Resources Inc. is discovering more oil on its current average position.

    Earlier this year, EOG Resources Inc. (NYSE:EOG) announced that it had increased its Bakken and Three Forks reserve potential by 600 million barrels of oil equivalent, or BOE. That's not a trivial amount of oil and gas by any means as it's equivalent to about 8.6% of America's annual oil consumption. Furthermore, it's far from the first time the company has increased its reserve estimates as it continues to find more oil under its feet as these discoveries are being made within the company's current acreage positions.

    Exploring in its own backyard
    As the slide below shows, EOG Resources has increased its estimate for oil and gas reserve potential from its acreage in the Bakken-Three Forks play from 400 million BOE to 1 billion BOE over the past five years.

     Image title

    The company has largely done so without acquiring a lot of additional acreage, but instead by exploring the acreage potion it already had. That meant testing the limits of how closely wells could be drilled together -- testing additional zones, such as the Three Forks formation, while also improving upon its well and completion design so that it could get more oil out of those tight rocks.

    This focus on organically exploring within its current acreage position has paid off in other plays as well. As this next slide shows, the company has increased its reserve potential in the Eagle Ford by 250% since 2010.
    Image title

    Meanwhile, the company has uncovered over a billion barrels of oil equivalent reserve potential in the Delaware Basin of West Texas as it explored its acreage in that region over the past few years. There's the potential for a lot more oil in that play, too, as EOG Resources explores additional zones, including tests in the Second Bone Spring Sandstone that have already yielded positive results. It's still evaluating its potential in that one play, but given its acreage position, it could be sitting on substantially more recoverable oil than first thought.

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    Magnum Hunter: Preparing to Sell, or Filing for Bankruptcy?

    Sure looks to us like time has finally run out for Marcellus/Utica driller Magnum Hunter Resources (MHR). The company is now either shopping itself looking for a buyer, or preparing to file for bankruptcy.

    Our evidence? On Friday, MHR suspended monthly dividend payments on their stock and hired financial advisory firm PJT Partners and law firm Kirkland & Ellis to advise MHR’s board of directors “regarding potential strategic alternatives to enhance liquidity and address the Company’s current capital structure.”

    According to one analyst we’ve read, addressing a company’s capital structure is coded language for “we’re about to file for bankruptcy protection.”
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    China aims to become world's top nuclear power producer by 2030

    The Chinese government aimed to make China the world's top generator in terms of both capacity and number of reactors by 2030, state reported on October 12.

    China is poised to greatly expand the country's nuclear power generation, with plans to build six to eight new reactors a year over the next five years.

    Under its 13th Five-Year Plan, which starts in 2016, China's nuclear power capacity is to triple by 2020, compared with the end of 2014, reaching 58 GW. By 2030, China is expected to have more than 110 nuclear reactors in operation, exceeding the number in the U.S.

    According to the European Nuclear Society, China is now the world's fifth-largest nuclear power producer in terms of capacity, after the U.S., France, Japan and Russia.

    China will invest 500 billion yuan ($78.7 billion) to introduce domestically developed reactors in the next five years. The government plans to make nuclear power a pillar of its economic policy and increase support for related government organizations and industries.

    According to the China Nuclear Energy Association, there are 25 nuclear reactors operating in the country and a further 26 under construction. Under previous five-year plans, Chinese authorities approved construction of three to five reactors a year.

    In addition to unfreezing new projects, China will lift a ban on nuclear projects in inland areas and promote the introduction of domestically developed reactors under its next five-year plan. China hopes to make nuclear reactors a major infrastructure export in the future, along with high-speed trains.

    The new Five-Year Plan is to be formally adopted at next spring's annual session of the National People's Congress, China's parliament.
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    Precious Metals

    Mitsui to shut precious metals business in London, New York-sources

    Mitsui will close its precious metals businesses in London and New York at the end of this year, two sources familiar with the situation said, due to sliding commodity prices and more stringent regulation.

    "Mitsui is shutting down precious in London and New York in December," one source said.

    Mitsui, which started trading precious metals in 1970, is the latest to join a retreat by banks and brokers from some commodity markets as profits and prices tumble on concern about slowing Chinese economic growth.

    Mitsui & Co. Precious Metals Inc, a wholly-owned subsidiary of Mitsui & Co incorporated in the United States, has a team of approximately 50 trading gold, silver, platinum, palladium, rhodium, ruthenium and iridium from offices in Hong Kong, London and New York.

    The sources did not know how many jobs would be affected across trading, sales and research.

    Mitsui trades precious metals on the Tokyo Commodity Exchange (TOCOM) in Japan and also has offices in Hong Kong.

    "The decision will affect global operations, as it will reduce volumes," the second source said.

    The trading house also participates in the twice-daily auction setting the London silver benchmark run by the Chicago Mercantile Exchange and Thomson Reuters. Its withdrawal would leave five banks to set the price.

    Last month, Mitsui was included by Switzerland's competition authority WEKO on a list of banks being investigated for possible collusion over the pricing of precious metals.
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    Base Metals

    China copper imports surge a third in September

    China's monthly copper imports surged a third in September, hitting a 20-month high after staying flat in the previous three months, as price differentials favoured spot purchases and some shipments arrived ahead of the week-long Oct. 1 holiday.

    Imports of anode, refined copper, copper alloys and semi-finished copper products stood at 460,000 tonnes in September, the highest since January 2014 and compared to 350,000 tonnes in August, July and June 2015, data from the General Administration of Customs showed on Tuesday.

    Arrivals increased 17.9 percent from a year ago. In the first three quarters, imports dropped 5.5 percent from a year ago to 3.39 million tonnes.

    "High arrivals in September were linked to good arbitrage ratios. Some shipments also arrived earlier ahead of the week-long Oct. 1 holiday," said Yao Yao, analyst at Maike Futures Brokerage.

    But Yao said the growing imports did not reflect a strong boost in domestic consumption. She expected monthly imports in the fourth quarter to be slow due to the weaker economic growth.

    Spot copper prices in China CU-1-CCNMM reached a 2-month high of about 41,200 yuan in September, supported by some production cuts by smelters and expectations that a weaker yuan would increase import costs.

    Stronger demand for spot refined copper imports had pushed up premiums for bonded stocks to a one-year high of about $130 a tonne, traders said. Some importers had also bought spot shipments from Asia and Chile.

    Bonded stocks in Shanghai, imported metal that has not been assessed for China's 17-percent value-added tax, were estimated by traders at about 400,000 tonnes currently, compared to about 570,000 tonnes in early August.

    Imports of raw material copper concentrate rose 5.2 percent to 1.21 million tonnes in September, compared to 1.15 million tonnes in the previous month, the data showed.

    Concentrate imports in September was down 6.2 percent from a year ago. In the first three quarters, imports rose 9.3 percent on-year to 9.33 million tonnes.

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    Hedge funds playing dangerous game with copper - Rio Tinto

    Image Source: Business WireAccording to the head of copper at Rio Tinto Group, hedge funds betting that copper will drop further are playing a dangerous game with prices.

    Rio Copper & Coal Chief Executive Officer Mr Jean-Sébastien Jacques said in an interview in London The metal is not trading on fundamentals. There is lots of short-selling in copper and we've seen the pick up in terms of short-selling in copper on the back of what happened in China a few months ago."

    He said “A glut of copper has exacerbated short-selling by hedge funds and China's move in August to restrict such sales in equities has prompted funds to redirect bearish bets on the nation's economy to copper.”

    His view echoes Glencore Plc CEO Ivan Glasenberg's comments last week that the market was being distorted but that supply and demand would eventually prevail. The metal has slumped about 16 percent this year amid a slowdown in China, the biggest user.

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    No more funds for Chile copper producer Codelco for now - minister

    Chile's government is not planning for now to give more funds to state-run copper producer Codelco, the world's No.1 supplier of the metal, having already pledged $4 billion until 2020, its mining minister told Reuters on Monday.

    Codelco, though, has said it needs to invest $25 billion over five years to dig deeper at new and existing sites and keep production flowing.

    "At the moment what is important is that Codelco is sufficiently capitalised from year to year," Mining Minister Aurora Williams said on the sidelines of LME Week in London.

    "Over the five years the amount cannot exceed $4 billion, since this is what is established in a law passed by the Chilean congress."

    Codelco hands it profits to the state, and is funded in part by the return of some profit and in part by issuing debt. But with copper prices at a six-year-low, the cash-strapped government has so far promised just $4 billion in returned profits between 2015 and 2020.

    The government has pledged billions of dollars for an overhaul of the education system and other social initiatives and is reluctant to promise more funds to Codelco at a time when the economy is struggling.

    Williams said the only condition for Codelco to receive the funds from the government was that its mining projects "keep advancing". She added it was too early to say how the government plans to help Codelco beyond the five-year period.

    Mining firms globally have been hit hard by a slump in metal prices, mostly due to an economic slowdown in China, which accounts for half of the world's copper demand.

    Copper makes up over half of Chile's exports, leaving it more exposed than other Latin American economies to China.

    Williams said she expected some producers to exit the market, which would help lift prices that have roughly halved from a 2011 high.

    "We are not going to return to prices seen during the super cycle, the recovery will be slow," she said. "We hope that by the first quarter of 2017 the copper price will rebound to an average of $2.5 (a pound)."

    Benchmark copper on the London Metal Exchange was up a percent at $5,323 per tonne at 1230 GMT on Monday. It hit a record high above $10,000 per tonne in 2011.

    Williams said Chile's copper output was expected to be steady at 5.8 million tonnes this year, with production seen rising by 3.8 percent in 2016.
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    In metals shake-up, Noble has been selling aluminium stockpiles – sources

    In metals shake-up, Noble has been selling aluminium stockpiles – sources 

    Noble Group Ltd's efforts to free up capital by reducing stockpiles of base metals include selling off some of its large holdings of aluminium, historically one of its biggest businesses, sources said. 

    As part of a strategy to shrink its metals franchise, the second-biggest division by revenue after energy, Noble has been quietly selling copper, zinc and lead since July, two sources familiar with the matter said. 

    The company has not publicly commented on the changes or on a series of high-profile departures from the metals group. Still, company officials have privately portrayed them as a shift away from noncore, capital-intensive areas as the company focuses on its legacy strengths, which include alumina and aluminium trading. Yet the inventory reduction has also occurred in aluminium, the sources said, suggesting that the metals division shake-up may be deeper than widely known. 

    "Inventories across all commodities have been ordered down to free up cash since Q2," said a source familiar with the matter. He said sales of copper, lead and zinc will likely continue as the company cuts its exposure to capital-intensive markets like copper and following the departure of the traders. But the aluminium business has been hit by the "meltdown" earlier this year in premiums, which are surcharges paid on top of the benchmark London Metal Exchange for physical delivery of metal, he said.

    In August, Noble blamed the second-quarter loss at its metal and mining division, the first in at least five years, on the unprecedented plunge in premiums. The metals and mining business accounted for about 20% of group's $18-billion quarterly revenue. 

    Noble's rival Glencore is also offloading excess stock to help pay off debt. Glencore has said it would cut its "readily marketable inventories" by $1.5-billion and would reduce working capital by an additional $1.5-billion, partly from liquidating more inventories. 

    It was not clear how much metal Noble has sold, but one of the sources said it has sold less than Glencore has. Noble's aluminium book is considered one of the largest in the industry, competing with Glencore and Trafigura. Traders said they have not seen much evidence of Noble's sales in the market. 

    Still, the release of unwanted stock on the market already awash with metal has likely kept premiums under pressure. US surcharges have steadied near two-year lows of 8.50c/lb in recent months after plunging by more than 60% since March amid concerns about waning demand from China, the world's top consumer.
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    Scrap Metal prices tell a different story to the LME

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    Records tumble at the LME but China expansion on hold

    The London Metal Exchange saw record electronic trading volumes after Glencore's decision to cut a third of its annual zinc production on Friday. The exchange is also planning to launch mini-futures contracts in nickel, tin and lead in Hong Kong but has abandoned plans to set up a warehousing network in China for the time being, according to Charles Li, the head of Hong Kong Exchange, the parent company of the LME.

    Everyone is pessimistic on base metals.

    At the LME Seminar in Westminster there was hardly a positive word from its panellists on aluminium, copper, nickel, lead or zinc.

    There would need to be "deep pain" and production cuts in the market outside China before stockpiles of aluminium fall said one consultant, while copper could take another lurch lower because of weak demand in China and emerging markets. As for zinc the positive impact from Glencore's big production cut could be offset by increased Chinese production. Electric vehicles were seen threatening the future of lead while large warehouse stocks will continue to weigh on the price of nickel.

    Who is next (for production cuts)?

    First it was thermal coal, then copper and most recently zinc. Delegates at the LME Seminar said nickel could be the next base metal where the pain of lower prices forces mines to close or be put under care and maintenance. Alternatively, attendees speculated one option might be for Glencore to look to merge its Canadian nickel operations with neighbouring assets controlled by Vale and lower output that way along with significant cost savings.

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    Steel, Iron Ore and Coal

    Henan Jan-Sep coal output down 10.5pct on year

    Henan province, one major coal producer in central China, produced 92.76 million tonnes of raw coal over January-September this year, down 10.5% year on year, showed data from the Henan Administration of Coal Mine Safety on October 13.

    During the same period, key mines – owned by the provincial government or branches of central government-owned companies – produced 87.63 million tonnes of raw coal, a drop of 10.8% from the year prior.

    The output from local mines – owned by governments at the prefecture and lower levels and private operators – down 5.6% on year to 5.13 million tonnes.

    The administration didn’t publish the output figures for September.

    Calculations showed output in September stood at 10.24 million tonnes, falling 3.03% on month and down 0.1% on year.

    Output from key mines stood at 9.54 million tonnes or 93.2% of the total in September, down 3.34% from August and down 0.63% year on year; while output from local mines rose 4.55% on year to 690,000 tonnes, unchanged from August.
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    Xinjiang gains permits for a mega coal mine project

    Northwest China’s Xinjiang Uygur Autonomous Region has gained approval from the National Development and Reform Commission (NDRC) on September 21 to kick off the Dananhu coal mine and washing plant project, the provincial NDRC said on its website on October 9.

    The project, operated by Hami Coal & Electricity Co., Ltd., has designed capacity of 10 million tonnes per year. It’s the second above-10-million-tonne coal mine project approved by the government during the 12th Five-Year period in the region.

    Dananhu coal mine -- with recoverable coal reserves at 2.94 billion tonnes -- serves as the supporting coal source of the ±800 KV UHV DC power transmission line that starts from Hami to Zhengzhou, Henan. It could serve for 195 years.

    Xinjiang, endowed with abundant coal resources, sees its coal total 1.82 trillion tonnes or 42% of the national volume, ranking the first across the country.

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    China Buys More Iron Ore From Abroad as Steel Exports at Record

    Iron ore imports by China increased to the highest level this year in September to near a record as purchases picked up before a holiday and the biggest miners in Australia and Brazil boosted shipments. Steel exports from the top producer hit an all-time high.

    Inbound iron ore cargoes were 86.12 million tons in September, the highest since December, from 74.1 million tons a month earlier and 84.7 million tons in September 2014, according to customs figures on Tuesday. Purchases totaled 699 million tons in the first nine months, little changed from a year earlier, the data showed. The record for imports was set in December at 86.85 million tons.

    "There was a little bit more activity before the ports shut down for a week or more in October," said Ralph Leszczynski, head of research in Singapore at Banchero Costa & Co., a Genoa-based shipbroker, referring to China's week-long Oct. 1-7 shutdown. "Both in Australia and Brazil, producers have really ramped up their export capacities."

    Steel shipments from China climbed to a record 11.25 million tons in September, 16 percent higher than August, the data showed. Since the start of the year, exports expanded 27 percent to 83.1 million tons compared with the same period in 2014.

    "The steel industry in China is way oversupplied because they built steel-mill capacity like crazy, " Leszczynski said. "They don't know what to do with the steel. They're lucky to find enough demand for this steel."
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    US steel production in Week 41 dips 7.3% YoY - AISI

    US steel production in Week 41 dips 7.3% YoY - AISI

    n the week ending October 10, 2015, domestic raw steel production was 1,705,000 net tons while the capability utilization rate was 71.3 percent. Production was 1,840,000 net tons in the week ending October 10, 2014 while the capability utilization then was 76.5 percent. The current week production represents a 7.3 percent decrease from the same period in the previous year. 

    Production for the week ending October 10, 2015 is down 1.3 percent from the previous week ending October 3, 2015 when production was 1,727,000 net tons and the rate of capability utilization was 72.2 percent.

    Adjusted year-to-date production through October 10, 2015 was 69,524,000 net tons, at a capability utilization rate of 72.5 percent. That is down 8.0 percent from the 75,566,000 net tons during the same period last year, when the capability utilization rate was 77.8 percent.
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