Mark Latham Commodity Equity Intelligence Service

Tuesday 12th January 2016
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    China Warns No "V-Shaped" Recovery Is Coming

    One week ago, many were shocked when an in an exclusive interview with China's official mouthpiece, the People’s Daily, an "authoritative insider" offered his interpretation of the details of China’s supply side structural reform.

    This anonymous person who was important enough to be on the cover page of Xinhua and thus to set the expectations of over 1 billion Chinese citizens accordingly, said that China's proposed "reform was decided on after careful deliberation about China’s economic situation" adding that "new economic risks are emerging from falling economic growth, industrial commodity price, corporate profit and the growth rate of fiscal revenue. In addition,most of these problems are structural rather than cyclical."

    His punchline: "against such a backdrop, China’s economy is unlikely to achieve a V-shape rebound, but instead an L-shape growth."

    But his most dire warning was one which would make an already unhinged Paul Krugman even more unhinged: "To deal with the medium and long-term economic malaise, the traditional Keynesianism methodology does not work. A structural reform is thus needed to address the root cause."

    Needless to say we liked said "authoritative insider" off the bat.

    However, maybe because not enough people caught the dire warning the first time, moments ago Bloomberg reported that Han Jun, the deputy director of China’s office of the central leading group for financial and economic afairs, spoke at an event at the Chinese consulate in New York and practically reiterated the anonymous source's warning practically verbatim. To wit:

    "There won’t be a strong economic stimulus and people shouldn’t expect a V-shape recovery; instead long period of L-shape growth path is likely" said Han, who participated in the drafting of China’s latest five year plan.

    One week ago we were confused just what "L-shaped growth" looks like. Seven days later we are just as confused. After all, there is, well, no growth in an L-shape.

    Confusion aside, whether Han was the "authoritative insider" referenced one week ago is irrelevant, but what is notable is that China is making it very clear that the old way of growing the economy to higher artificial GDP rates is no longer be welcome. It remains to be seen if he is only jawboning, although every passing day in which China does not engage in some massive stimulus is probably a confirmation that China may be serious.

    As if that news was not bad enough, Han also added that China has not manipulated yuan to gain unfair competitive advantage, begging the question just why it has manipulated the yuan in that case.

    He concluded with the usual platitudes uttered by any country undergoing currency war, namely that the "Yuan faces pressure of depreciation, but this is temporary and longer term the currency can depreciate or appreciate as two-way volatility becomes new normal." Finally he noted that "China is not seeking devaluations yuan to stimulate exports but wants to promote basic stability of yuan and opposes currency war."

    Considering the epic damage the recent PBOC actions have done, one can be excused to be a little skeptical.

    Finally, if indeed China is now holding back on "massive stimulus", this will have dramatic implications for social stability as the original Xinhua interview hinted:

    Q. Some people are concerned about the social impact brought by the reform. Can Chinese society sustain it?

    A: During reform, especially when reducing excessive production capacity and shutting down “zombie companies,” it is likely that there could be an impact on society.

    Turbulence cannot be entirely avoided, but it is worthwhile turbulence. If properly handled, the reforms will not cause long-term turmoil in society.

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    "Nothing is moving" Shipping grinds to a halt?????????

    The continued collapse of The Baltic Dry Index remains ignored by most - besides we still have Netflix, right? But, as Dollar Vigilante's Jeff Berwick details, it appears the worldwide 'real' economy has ground to a halt!!

    Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world.  He told me they had no ships at sea right now, because operating them meant running at a loss.

    This weekend, reports are circulating saying much the same thing:The North Atlantic has little or no cargo ships traveling in its waters. Instead, they are anchored. Unmoving. Empty.

    Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.

    This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped.

    We checked and it appears to show no ships in transit anywhere in the world.  We aren’t experts on shipping, however, so if you have a better site or source to track this apparent phenomenon, please let us know.
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    We also checked, and it seemed to show the same thing.  Not a ship in transit…
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    If true, this would be catastrophic for world trade. Even if it’s not true, shipping is still nearly dead in the water according to other indices.  The Baltic Dry Index, an assessment of the price of moving major raw materials by sea, was already at record all-time lows a month ago... and in the last month it has dropped even more, especially in the last week. Today BDIY hit 415...

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    Offshore Renminbi lending rate soars to record

    Offshore Renminbi lending rate soars to record

    (Thanks to Google for the translation)

    The cost of borrowing RMB in Hong Kong today reached the highest since records began. Investors are transported into the Chinese territory of the yuan, in order to take advantage of onshore, offshore exchange rate difference arbitrage.

    On Monday, Hong Kong overnight bank lending rate (Hibor) shot up 939 basis points on Friday soared from 4% to 13.4%, the highest in June 2013 the highest level since records began. 7 days between Hong Kong banks lending rate also rose sharply from the 7.05% of 11.23% on Friday. Analysts say the recent onshore and offshore renminbi spread widened trigger arbitrage activities, prompting a significant tightening of offshore renminbi liquidity, short-term inter-bank lending and thus will push up interest rates.

    Offshore and onshore exchange rate spreads on the 6th of this month reached an unprecedented 1,600 points. At present the two sides spread about 1200 points. Many investors choose to buy renminbi offshore market sell in Chinese mainland arbitrage.

    In addition, the central bank interventions on the yuan could boost the liquidity squeeze. Standard Chartered Bank (SCB) senior interest-rate strategist in Hong Kong, Liu Jie in an interview with Bloomberg interview, "offshore renminbi liquidity tightened again, primarily due to a suspected offshore RMB spot market interventions influence." Last week, Chinese Bank at the behest of China's central bank intervened in the foreign exchange market, in the capital Dahon choose to hold rather than sell the yuan, to some extent boost the liquidity squeeze.

    Meanwhile, DBS Bank Wealth Management Solutions division in Hong Kong director Tommy Ong pointed out that the funds transferred offshore from the onshore market, many channels are blocked, which to some extent caused by the supply of RMB in Hong Kong market shortage.

    Today, the Hang Seng China Enterprises Index dropped by 5%, in October 2011 fell to the lowest level.

    The 7th Bloomberg citing informed sources, the Chinese central bank to consider additional measures in addition to outside intervention, in order to avoid sharp fluctuations in the yuan exchange rate. Major central bank to consider measures to limit foreign hot money speculation in particular, or the use of offshore onshore exchange differences arbitrage, China will increase efforts to verify the background of false trade transactions.

    On the 8th, and today the central bank for two consecutive days, respectively, the yuan central parity rate expires earlier closing prices sharply up 300 and 250 points.

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    Anglo American set to kick off $1bn sale of Brazilian business in bid to prop up balance sheet

    The mining sector has taken a hit over the last year with commodities prices plummeting (Source: Getty)

    Anglo American is poised to kick off the $1bn (£680m) sale of its Brazilian niobium and phosphate business as the firm attempts to raise cash to prop up its ailing balance sheet.

    Facing a rapid decline in demand for commodities off the back of an economic slowdown in China, Anglo American said in December that it would sell the operation as part of a disposal programme.

    The company said it will reduce the number of mines in its portfolio from 55 to between 20 and 25 as it sharpens its focus on its most lucrative and cost effective operations.

    Chief executive Mark Cutifani last year signalled that 85,000 jobs would be lost in the process.

    The Brazilian operation is the biggest Cutifani has put up for sale.

    Shares in Anglo American have nosedived recently as the price of metals such as iron ore and platinum have plummeted.

    Goldman Sachs and Morgan Stanley have reportedly been mandated to run the auction process with a number of potential suitors circling.
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    Huaneng 2015 power output up 8.9pct on yr

    Huaneng Power International Inc., China’s largest listed power producer, generated 320.53 TWh of electricity within Chinese territory in 2015, up 8.9% year on year, announced the company in its annual report on January 9.

    In the fourth quarter of 2015, Huaneng generated 79.49 TWh of electricity, registering a year-on-year increase of 11.4%.

    The company mainly attributed the rise in power generation to the output from newly-acquired and newly-operated generating units last year.

    Total electricity sales during the year amounted to 301.98 TWh, rising 8.8% from the year prior, with September-December sales up 12.3% on year to 74.89 TWh.

    Huaneng said its on-grid electricity price last year averaged at 443.26 yuan/MWh, dropping 2.57% year on year.

    By December 31, 2015, Huaneng’s installed power generating capacity has reached 82.33 GW, said the company.
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    Oil and Gas

    OPEC president sees emergency meeting in March

    OPEC president Emmanuel Ibe Kachikwu said on Tuesday that he expects an extraordinary meeting of the oil cartel in "early March" to address nosediving crude prices.

    "We did say that if it (the price) hits the 35 (dollar per barrel), we will begin to look (at)... an extraordinary meeting," said Kachikwu, who is Nigerian minister for petroleum resources.

    The prices have hit levels that necessitate a meeting, he told an energy forum in Abu Dhabi, but added that he not yet confirmed with fellow OPEC ministers if they would be willing to attend.

    The US crude oil price tumbled below 31 a barrel Tuesday, extending a sell-off that has pushed it to more than 12-year lows amid a global supply glut, a strong dollar and tepid demand.

    Saudi-led Gulf exporters within OPEC have so far refused to cut production to curb sliding prices, seeking to protect their market share despite a heavy blow to their revenues.

    Kachikwu said that member states differ on the issue of intervention.

    "One group feels there is a need to intervene. The other group feels even if we did, we are only 30 to 35 percent of the producers really," as 65 percent of supply comes from non-OPEC countries, he said at the Gulf Intelligence UAE Energy Forum.

    "Unless you have this 65 percent (of) producers coming back to the table you really won't make any dramatic difference," he added.
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    China's Demand for Crude is Showing Signs of Cracking

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    When looking for the prime culprit behind widespread weakness in commodity prices, fingers often point squarely at China.

    On the supply side, especially in select metals, the world's second-largest economy deserves a hefty portion of the blame for the rout.

    But in the case of crude, China has responded to lower prices with a jump in demand, says Barclays' Commodities Analyst Miswin Mahesh. Although, as he notes, there are signs that this increased appetite may soon wane.

    Getting a handle on China's true oil demand is notoriously difficult, and estimates will vary widely depending on which analyst you ask. While Mahesh projects that the demand for oil in the world's second-largest economy grew by 5 percent in 2015, he cautions that: "Chinese oil data are finally starting to reflect weak economic activity."

    In November, implied oil demand contracted by 2 percent relative to the same period in the previous year, the first such decline since July 2014.

    Demand for gasoline remains solid, the analyst notes, but the moderation in the 'old' industrial segments of the economy has dampened the use of diesel.

    The moderation in China's economic expansion entails a decrease in the rate of—and sheer size of—demand growth this year, according to Barclays.

    "In 2016, we expect Chinese oil demand to grow at a slower pace, of 300,000 barrels per day (3 percent) versus the estimated 510,000 barrels per day in 2015, reflecting the country’s economic slowdown," he concludes.

    From 2011 through 2014, implied year-over-year oil demand growth averaged 361,000 barrels per day, according to Mahesh.

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    Shell-BG merger hits shareholders bump

    Shell’s proposed combination with BG Group came across a first obstacle on the road towards the shareholder vote on January 27 as Standard Life Investment opted to vote against the merger.

    Reuters reported David Cumming, head of equities at Standard Life Investments, saying that the proposed terms of Shell’s acquisition of BG are value destructive for Shell shareholders.

    Cumming noted that SLI’s conclusion is based on the downside risk to Shell’s oil price assumptions and risks carried by BG’s Brazilian assets. As a consequence of such conclusion, Standard Life Investments intends to vote against the deal.

    However, Shell is still expected to have the backing of its investors as the company’s CFO Simon Henry and CEO Ben van Beurden hold talks with leading investors in order to gather information prior to the January 27 vote.

    Contrary to Standard Life Investment, Institutional Shareholder Services, advisor of around 5 percent of Shell’s small and medium shareholders supports the deal due to the positive economics to be realized within a short time frame.
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    Ardian targets energy shake-out with infrastructure fund

    Ardian targets energy shake-out with infrastructure fund

    French private equity firm Ardian is seeking to profit from a shake-up of the oil industry after raising a record 2.65 billion euros ($2.89 billion) infrastructure fund.

    Half of the new fund is targeted at the transport sector and half on energy as it anticipates low oil prices will trigger dramatic changes in the oil industry, Ardian head of infrastructure Mathias Burghardt told Reuters on Monday.

    "Oil groups are divesting mid- and downstream assets and we are ready to invest in some of these, having done two such deals already," Burghardt said.

    "As an indication of the change, Saudi Aramco has announced (plans) to divest stakes of some oil-related assets and we will look at them," he said, adding the new fund could invest 20 percent of its money outside Europe.

    He said Ardian also had a keen interest in northern Europe, although it had not yet decided whether to invest in German gas network operator Thyssengas.

    Ardian, which manages or advises on the management of $50 billion in assets, was the private equity investing arm of French insurer AXA until it was spun off in 2013 in an employee buyout. It said that the new fund was the biggest ever raised to invest in European infrastructure and that it brought its assets under management targeting the sector to $7 billion.

    The fund, its fourth focused on infrastructure, attracted institutional investors from pension funds, insurers and sovereign wealth funds with locations ranging from Europe to North America and Asia, Ardian said.

    Ultra-low government bond yields mean institutional investors are being tempted into Europe's infrastructure market in search of higher and stable long-term returns.

    One billion euros of the new Ardian fund have already been committed, with investments in Italian airport firm 2i Aeroporti, Repsol's CLH oil transport and storage subsidiary, Portuguese toll-road operator Ascendi and French oil transport and storage firm Geosol.
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    IHS to buy oil pricing data provider OPIS for $650 mln

    IHS Inc said it agreed to buy U.S.-based Oil Price Information Service (OPIS) for $650 million to add real-time pricing information to its energy analytics business.

    OPIS, which provides information used for commercial contracts and to settle trades, has presence in 30 countries, IHS said.

    The acquisition is IHS's second in a less than a month. The company agreed in December to buy Canada-based vehicle data provider Carproof Corp for $460 million to boost its automotive research business.

    OPIS provides real-time and historical spot, wholesale/rack and retail fuel prices for refined products, renewable fuels, and natural gas and gas liquids industries.

    The acquisition "gives IHS visibility across the entire petroleum value chain, from wellhead to consumer," Chief Executive Jerre Stead said on Monday.

    Stead had said earlier that IHS could pursue some "larger acquisitions" of at least $500 million in the industrial and energy research sectors.
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    Norwegian oil minister steers clear of Statoil dividend debate

    Norway's oil minister refused to be drawn into public debate over whether state-controlled Statoil should cut its dividend because of the fall in oil prices, saying on Monday that such matters are discussed privately with the company's top executives.

    The government owns 67 percent of Statoil -- which bowed to investor pressure for increased shareholder payouts by introducing quarterly dividends in 2014 -- but takes an arms's-length approach that gives the board the freedom to make commercial decisions.

    Two members of parliament for Norway's ruling Conservatives argued in financial daily Dagens Naeringsliv on Monday that Statoil should reduce the dividend sharply and save the cash for investments.

    "I note that Statoil's dividend is being questioned from several sides. As the person responsible for the state's ownership in the firm, I discuss such matters with the leading organs in Statoil, not in public debate," Energy Minister Tord Lien, who represent the populist Progress Party, said in a statement. Progress and the Conservatives have held power in a coalition government since 2013.

    Labour unions have protested that Statoil is laying off staff and cutting investment while increasing its debt to pay dividends, but the company has repeatedly said that it has room to raise its leverage.

    "Our dividend policy is based on a long-term perspective and our long-term earnings, and is not tied to the current oil price," Chief Executive Eldar Saetre told Reuters on Jan. 7.

    However, Statoil's dividends have also been questioned by analysts.

    "Overall, we see dividend risk at Statoil higher than most peers," RBC Caital Markets analysts wrote in a research note last week.

    Statoil is due to announce fourth-quarter earnings and its quarterly dividend on Feb. 4, when it will also provide a strategy update. The company, which paid a third-quarter dividend of 22.01 cents a share, declined to comment on Monday.

    North Sea crude oil currently trades at about $33 a barrel, down by around 70 percent since mid-2014.

    Brokerage Swedbank estimates that oil at that level means that Statoil will have negative cashflow of 19 Norwegian crowns per share after 2016 dividend payments if it cuts capital expenditure by 15 percent from 2015 levels.

    "In good times, generous dividends should be paid to owners. In bad times, owners should settle for lower dividends," Rune Selmar, head of asset manager and Statoil shareholder Odin Forvaltning, wrote in Dagens Naeringsliv on Monday.
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    Dangote Plants Seen Selling $6 Billion Yearly to Nigeria by 2018

    Nigerian billionaire Aliko Dangote’s industrial complex in the commercial capital Lagos will sell as much as $6 billion a year of foreign exchange to the West African nation’s central bank by 2018, according to Governor Godwin Emefiele.

    Dangote’s fertilizer plant, which will be operational next year, and the petrochemical plant and refinery, expected to be completed by 2018, will meet local consumption of petroleum and chemical products that currently make up 35 to 40 percent of Nigeria’s import needs, Emefiele told journalists at the construction site Sunday. The complex will also produce for export, he said.

    “We expect that by the time these projects are completed, it will not only meet the needs of our domestic requirement,” Emefiele said. “By the time it is completed, he will be exporting these products to the point where he will be selling foreign exchange to Nigeria, to Nigerians and to the Central Bank of Nigeria to the tune of almost about $6 billion a year.”

    Africa’s top oil producer relies on fuel imports to meet domestic needs since its four state-owned refineries produce a fraction of their 445,000 barrels-per-day capacity after decades of poor maintenance, corruption and mismanagement. Nigeria is also struggling to cope with crude prices that have fallen more than 70 percent since their June 2014 peak to below $40 a barrel.

    The Abuja-based central bank has resorted to holding the naira at 197 to 199 per dollar since March by introducing trading curbs to conserve reserves and stem a rout after it fell to a record 206.32 in February. While Nigerian President Muhammadu Buhari has supported the governor’s measures, International Monetary Fund Managing Director Christine Lagarde last week called for more flexibility in the monetary policy.

    “You can imagine what will happen to the savings in foreign exchange” by the time the refinery, petrochemical and fertilizer plants are completed, Emefiele said. “We can’t wait, we need him to do this very fast so we can begin to save foreign exchange,” he said, referring to Dangote, Africa’s richest man.
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    Suncor Seen Needing to Raise Canadian Oil Sands Bid After Rebuff

    Suncor Energy Inc. will probably need to sweeten its bid for Canadian Oil Sands Ltd. after failing to convince enough shareholders to accept a C$4.03 billion ($2.84 billion) offer that management repeatedly rejected for undervaluing the company.

    Based on early returns, shareholders believed to represent less than half of the shares outstanding voted to accept the offer of 0.25 Suncor shares for each of Canadian Oil Sands’, a person familiar with the matter said Friday, who asked not to be named because the matter is private. That’s short of the two-thirds of the shares Suncor was looking for.

    "They will have to search out any larger shareholders that might have voted against the deal and see what it takes to get it over the hump," Rafi Tahmazian, a Calgary-based fund manager at Canoe Financial LP, said in an e-mail. Tahmazian had owned shares of Canadian Oil Sands and sold his position shortly after the Suncor bid. "I suspect it could be a better ratio" of shares, meaning a higher offer, he said.

    Suncor chief executive officer Steve Williams said in a statement Monday he strongly believed in the value of the offer for Canadian Oil Sands, and that he was encouraged by the number of shares tendered. He did not disclose what percentage of shares were tendered by the deadline Friday evening. "We have decided to extend the offer in order to allow shareholders to continue to tender to the offer," he said.

    Suncor declined to improve the offer earlier this month even as Canadian Oil Sands’ shareholders including resource investor Seymour Schulich, Burgundy Asset Management and Value Financial, spoke out against the merger. Those who opposed the deal were either looking for a higher offer price or were not interested in selling at all.

    Schulich, who currently holds about 5 percent of Canadian Oil Sands’ shares, has floated the idea of a warrant being issued alongside the offer that would protect shareholders if the price of oil rises.

    Suncor extended its offer Friday of 0.25 share for each of Canadian Oil Sands to Jan. 27.
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    Marcellus Ethane Sets Sail for Europe Next Month W

    e’re almost there! INEOS, one of Europe’s largest petrochemical companies, had commissioned and purchased two tankers to ferry Marcellus/Utica ethane from the Marcus Hook refinery near Philadelphia to Norway and Scotland.

    The final leg of the Mariner East Pipeline is ready to go online, and the twin tankers are ready to be loaded. In February, the first shipment of Marcellus ethane will set sail from Philadelphia bound for Norway…
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    Baker Hughes makes leap in artificial lift delivery

    Baker Hughes is field trialling a new adaptive production system which the global services firm delivers 300% greater oil production and 200% higher natural gas production compared with its previous artificial lift offering for unconventional plays.

    The firm installed its Leap system last month at a depth of 5,200ft in the Mississippi Lime play in Woods County, Oklahoma, for SandRidge Energy.

    In continuous operation since its installation, the system was deployed through the deviated section of the wellbore and started on its first attempt with no issues.

    Baker Hughes describes Leap as an entirely new approach to artificial lift, designed to adapt to dynamic production profiles typical in most unconventional oil wells.

    Artificial lift is used on oil wells to increase pressure within the reservoir and encourage oil to the surface.

    Baker Hughes opened its own $60 artificial lift research and technology centre in 2014 in Oklahoma to research and and develop new artificial lift technology after the company recognised that traditional production technologies were not meeting the demands of unconventional oil plays.

    It established a team to research innovative artificial lift solutions to address the challenges.

    “Until now, operators have had to use 100-year-old technology that was never intended to operate in deep, horizontal wells or to handle the rapidly declining production rates and high gas volumes typical of unconventional reservoirs,” said Wade Welborn, vice president, Artificial Lift Systems at Baker Hughes.

    “Leap is the first artificial lift technology designed specifically for these unique production challenges,” added Welborn

    Unlike any other positive displacement pumping technology currently available, proprietary software built into the Leap system surface variable speed drive (VSD) integrates with downhole electronics to allow remote adjustments to the pumping system speed and stroke length as production rates change.

    The downhole system consists of a positive displacement pump, which can be installed to sit deeper in a well than traditional rod pumps, a submersible linear electromagnetically actuated motor, which drives the pump and eliminates the need for the long rod string (a primary source of failure in rod lift systems) and a sensor, which provides pressure and temperature data to help ensure the highest level of production optimisation and system longevity.

    Welborn said: “Leap dramatically reduces the large surface footprint required for traditional rod systems, mitigates potential emission and leak paths and eliminates the safety hazards to wellsite personnel that are inherent with large pump jacks.”

    The SandRidge field trial comes only 18 months after approval of the initial system design.
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    Alternative Energy

    UPS Signs Deal to Fuel Fleet with Renewable Fuels

    UPS, a major global logistics provider, has put steps in place to supply its fleet for Memphis, Tennessee and Jackson, Mississippi, with an estimated 15 million diesel gallon gas equivalents of renewable natural gas (RNG) as part of a multi-year agreement with Memphis Light, Gas and Water and Atmos Energy Marketing, LLC. The deal is part of an initiative announced in 2015 by UPS to significantly expand its use of renewable natural gas fuel for transportation.

    “UPS operates one of the most diversified fleets in private industry today, and renewable natural gas is a critical part of our strategy to expand our fuel sources and minimize the environmental impact associated with growing customer demand,” said Mark Wallace, UPS senior vice president global engineering and sustainability. “We are using methane that otherwise would be released into the atmosphere as a greenhouse gas emission and converting it to power our trucks while helping to promote the use of this renewable fuel in transportation.”

    The company has a goal of driving one billion miles with its alternative fuels fleet, known as the Rolling Laboratory by the end of 2017, an effort that is reducing environmental impact and helping to advance new sustainability solutions and markets.

    The RNG will fuel more than 140 heavy duty trucks in Memphis and Jackson, part of UPS’s natural gas fleet, which includes more than 3,800 medium and heavy duty vehicles worldwide. RNG, also known as biomethane, can be derived from many abundant and renewable sources, including decomposing organic waste in landfills, wastewater treatment and agriculture. It is then distributed through the natural gas pipeline system, making it available for use as liquefied natural gas (LNG) or compressed natural gas (CNG).

    Memphis Light, Gas and Water president and CEO Jerry Collins described the deal as “impressive”. “Kudos to UPS for not only talking the talk but walking the walk.”
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    Base Metals

    Alcoa posts 4th qtr loss due to charges from shuttering capacity

    Metals company Alcoa Inc on Monday reported a quarterly net loss after charges related to shuttering parts of its traditional smelting business.

    The New York-based company has been curtailing smelting capacity as the industry endures tumbling prices amid rising trade tensions with China. Alcoa said last week it would close a plant in Evansville, Indiana, which would bring U.S. aluminium output to its lowest level in more than 65 years.

    London Metal Exchange aluminium prices,  which fell 18.6 percent in 2015, are hovering near 6-1/2 year lows as demand wanes in top-consumer China. The Midwest premium AL-PREM paid to producers on top of the LME price has fallen more than 60 percent to about 8.9 cents a pound from record highs last year.

    In September, Alcoa announced it would split in two, spinning off its value-added aerospace and car parts business from its traditional aluminium smelting business that includes bauxite and alumina. The split will take place in the second half of this year and questions remain on how the company will divide up debt and pension liabilities between the two new entities.

    Earlier on Monday, in good news for the added-value portion of Alcoa's business, the company announced a $1.5 billion long-term contract with General Electric Co's aviation unit to supply components used in aircraft engines.

    That follows several other major contracts in the aerospace industry the company announced during the last quarter.

    "These contracts demonstrate that the push toward value-added business continues to show good results," Chief Executive Klaus Kleinfeld told Reuters in an interview after the results were announced.

    But Kleinfeld said Alcoa's traditional business still faced "massive headwinds" from falling aluminium prices.

    Alcoa on Monday posted a fourth-quarter loss of $500 million or 39 cents per share, compared with a net profit of $159 million or 11 cents a share a year earlier.

    Excluding charges for shuttering capacity and income tax charges, Alcoa would have posted a profit of $65 million or 4 cents a share, above analyst expectations of 2 cents per share.

    Alcoa said it expected global aluminium demand to rise 6 percent in 2016 versus 2015. The company said global aerospace sales should increase between 8 percent and 9 percent this year, while global automotive production should rise between 1 percent and 4 percent.

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    Steel, Iron Ore and Coal

    China 2015 coal output down 4pct on year

    China’s coal output fell 4% year on year to 3.7 billion tonnes in 2015, showed the latest data from the China Coal Transport & Distribution Association.
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    Demand concerns drag iron ore to a 2-week low

    Iron ore futures in China fell to a two-week low on Monday, under pressure from expectations of further output cuts by steel producers reeling from weak demand and tighter environmental controls.

    The steelmaking commodity fell 40 percent last year, marking its third annual decline, as a global glut overwhelmed a market hit by an economic slowdown in top consumer China.

    There is unlikely to be a lot of restocking among Chinese mills ahead of the new year.

    "We don't see iron ore demand picking up before the holidays. It may only improve by the end of February or beginning of March," said a Shanghai-based trader.

    North China's Hebei Province, which makes a quarter of the country's steel, has pledged to cut steel output by 8 million tons this year to address overcapacity and air pollution, the Xinhua News Agency reported on Friday.

    "People expect some small and medium-sized mills that are not environmentally qualified to be forced to stop production for a long period of time," the Shanghai trader said.

    To tackle overcapacity, Chinese Premier Li Keqiang said the government "will let businesses compete against each other and let those unable to compete die out."

    That could further curb demand for iron ore, with stocks of imported material at China's ports near their highest level since May 2015, based on data from industry consultancy SteelHome.    

    "Rising iron ore exports from key suppliers and declining demand is expected to weigh on prices in the coming months," ANZ said in a note.
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    China’s Hebei to cut iron, steel production in 2016

    The northern province of Hebei, which produces one-fourth of China’s steel, on Friday pledged to slash iron and steel production to tackle problems like over-capacity and air pollution.

    Production of iron will be reduced by 10 million tonnes and that of steel by eight million tonnes in 2016, Xinhua reported.

    Production of steel and cement will be capped each at 200 million tonnes, and flat glass at 200 million weight cases by the end of 2020 to alleviate over-capacity, Hebei governor Zhang Qingwei said.

    The central government has made tackling over-capacity one of its top priorities in the next five years.

    An over-reliance on heavy industry for local growth has left Hebei vulnerable to sustained weakness in demand for capital goods both at home and abroad. Some steelmakers were operating at thin margins and more were operating at a loss.

    Production of steel, cement and glass have also been widely blamed for the worsening air pollution in the region.

    The province has previously said it will cut a combined 160 million tonnes in steel, cement and coal, and another 36 million weight cases in glass by 2017 compared with 2013 levels.

    Cutting overcapacity weighs on Hebei’s economic growth, which came in at 6.5 percent during the first nine months of 2015, making it increasingly challenging for the province to meet the seven percent target set for the whole year.
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    China's Ansteel weighs future of $2 billion Australian iron ore mine

    China's Angang Steel Co Ltd is reviewing the future of the A$3 billion ($2 billion) Karara iron ore mine, which could become the latest victim of a global slump in iron ore prices.

    Ansteel's minority partner Gindalbie Metals Ltd said on Tuesday the Chinese firm had hired a third party to look at the viability of the struggling project. Gindalbie warned it may go under if Ansteel decided not to inject more funds.

    The mine is one of five magnetite projects that Chinese firms poured billions into at the height of the resources boom as China's steel makers sought to ease their dependence on global iron ore giants, Brazil's Vale and Australia's Rio Tinto and BHP Billiton.

    Iron ore prices have plunged nearly 80 percent from their peak in 2011 as Chinese demand has slowed while major producers have expanded output creating a surplus, driving all but the lowest cost producers into the red.

    Magnetite is particularly costly to produce as the ore has to be heavily processed to produce high quality concentrate.

    Doubts arose last week about the future of the mine after the chief executive of Karara wrote a memo to staff saying Ansteel was unable to continue to provide funding support to Karara Mining Ltd (KML) due to the economic and industry downturn.

    "As part of efficiency and cost reduction measures, Ansteel has engaged a third party to review the viability of operations as well as potential options for KML," Gindalbie said in a statement to the Australian stock exchange on Tuesday.

    Gindalbie said it has asked Ansteel to notify it about its decision on funding Karara and has yet to receive a response.

    "A decision by Ansteel to withdraw funding support could lead to claims under various operating and financing guarantees against Gindalbie, which if successful could cast doubt on Gindalbie's ability to continue as a going concern," Gindalbie said.

    Gindalbie's shares slumped 62 percent to 0.8 Australian cents, valuing the company at just A$12 million ($8 million), after the announcement.
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