Mark Latham Commodity Equity Intelligence Service

Friday 20th January 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Oil Demand.



    Image titleDo you remember in late 2015 we showed you an astonishing lift in Gasoiline sales? Well it's reversed and moved negative:



    US gasoline Demand is now negative year on year. -2% vs miles travelled up 2%. That  is tertiary inventory burn.

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    US Economic Expectations Soar To 15 Year Highs... What Now?


    Bloomberg's survey of economic expectations has soared since Donald Trump was elected and at 56.0 in January, it is the highest since 2002.

    This spike in 'hope' is occurring as the current economic situation is seen as deteriorating and, as the chart below suggests, this might be as good as it gets...

    Image title

    But this time could be different?

    http://www.zerohedge.com/news/2017-01-19/us-economic-expectations-soar-15-year-highs-what-now

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    US Commerce Secretary-nominee Ross says to be proactive against dumping


    President-elect Donald Trump's nominee for commerce secretary, Wilbur Ross, Wednesday said he planned to use the department's ability to self-initiate antidumping and countervailing duty investigations to send a message to foreign manufacturers -- a proactive stance that steel industry executives have long encouraged.

    "I like the idea of occasionally using self-initiation by the Department of Commerce to bring these cases," Ross said at his televised confirmation hearing. "We're not going to self-initiate every case. We don't have the staffing to do it, but I think by picking strategic cases and initiating cases them it will ... send a message to the other side that we're getting more serious about this. Second, it would definitely accelerate the process."

    Ross, 79, is an investor known helping to restructure companies, including steel companies, and has operated businesses in 23 countries.

    At the hearing, Ross called himself "an activist," and said self-initiating antidumping and countervailing duty investigations would help small companies that have a harder time gathering the funding and data to bring forth a case. Self-initiating trade cases would send a message that the US government will more aggressively combat cheaters.

    Antidumping and countervailing duty investigations have been a trade tool frequently utilized by the US steel industry. Senator Gary Peters, Democrat-Michigan, asked Ross about his willingness to self-initiate antidumping and countervailing duty investigations. Peters said the last self-initiated antidumping case may have been in the 1990s. President Reagan in 1985 ordered Commerce to self-initiate an antidumping investigation on Japanese semiconductor imports.

    Typically, US manufacturers petition for antidumping and countervailing duty investigations to Commerce and the International Trade Commission. After the petition filing, the statutory timeline for countervailing duty investigations can last 205-300 days, while antidumping investigations may take 280-420 days, according to the ITC.

    Of the 65 antidumping and countervailing duty investigations Commerce initiated in 2015, 46 or 71% were for steel products, according to analysis of Commerce data. In 2016, Commerce initiated 48 antidumping and countervailing duty investigations, of which 25 or 52% were for steel. Aside from steel products, US companies have petitioned for duties on ferrovanadium, paper products, wood products, chemicals, residential washers and truck and bus tires.

    Ross Wednesday also said Commerce self-initiating trade cases could cut the amount of preparatory time needed to bring forward a trade case, but he would also seek to litigate trade cases faster.

    "Historically, the people who have been the dumpers refuse to not comply on a timely basis with requests for information," he said. "If confirmed, I would not look very kindly on the perpetrators deliberately delaying cases by not providing information."

    Ross said he would welcome additional resources to be able to assign more people to work on trade remedy actions.

    Thomas Sneeringer, president of the Committee to Support US Trade Laws, said that's one reason why trade cases take so long.

    "Some of the delays could be avoided if there were enough people to work on the cases on a real-time basis," Sneeringer told S&P Global Platts. Sneeringer thought US trade law enforcement agencies will gain the budget to support enhanced efforts, he added.

    Steel mills and market sources have been supportive of Ross' nomination.

    "AISI is encouraged by Secretary-designate Ross' clear focus on the challenges that the steel industry is facing, and his intent to use all of the tools at his disposal to ensure a level playing field," Tom Gibson, president and CEO of the American Iron and Steel Institute, said in a statement. "This includes his recognition of the utility of self-initiating cases where appropriate, in addition to his commitment to accelerate all cases. We strongly support his nomination and look forward to his swift confirmation as Secretary."

    http://www.platts.com/latest-news/metals/pittsburgh/us-commerce-secretary-nominee-ross-says-to-be-21639944
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    Profit in China's top five power cos may slump 45pct


    China's top five power generators may see a year-on-year slump of 45% in total profit last year, mainly attributed to surged thermal coal prices, Grate Wall Securities said lately.

    Profit in these generators – State Power Investment Corporation, China Huaneng Group, China Huadian Corporation, China Datang Corporation and China Guodian Corporation – may fall to around 60 billion yuan ($8.7 billion) in 2016, it said.

    China Datang Corporation expected its loss at 2.5-2.8 billion yuan last year; Huaneng Power International, Inc., a subsidiary of China Huaneng Group, saw profit drop 2.13% year on year.

    However, net profit of State Power Investment Corporation ranked first in the five groups, standing at 8.76 billion yuan last year.  

    The surge of China's thermal coal prices since June last year added production cost for utilities, plus power tariffs cuts in 2015, making current coal prices exceed their break-even point.

    By end-December last year, the Fenwei CCI Thermal Index assessed domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port at 617 yuan/t FOB with 17% VAT, surging 68.8% from the start of the year.

    These groups had finished the whole year's output target one month ahead of schedule, thanks to improved demand in the third quarter of the year when high temperature pulled power load and output, said Grate Wall Securities.

    In 2106, China's power consumption rose 5% year on year to 5,919.8 TWh, official data showed.

    http://www.sxcoal.com/news/4551542/info/en
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    European styrene market reaches fresh 17-month high despite slowing Asia


    The European styrene spot price reached a fresh 17-month high on Wednesday despite a slowing Asia market ahead of the Chinese New Year, according to S&P Global Platts data.

    The styrene 5-30 days forward spot price was assessed at $1,299.50/mt FOB ARA Wednesday, the highest level since mid-August 2015. The February price breached the $1,300/mt mark and was assessed at $1,305/mt on Wednesday as high bids pushed up the price.

    Market sources said that buy activity in Asia was cooling off ahead of the Lunar New Year holiday at the end of January, with the January market largely absent in Europe as well.

    East China inventory levels have been increasing ahead of the holiday and were registered at 64,100 mt on Wednesday, rising 18,400 mt on the week.

    As the European market was "not short" product, an arbitrage was expected to open between Europe and Asia, allowing for any exports to be fixed with Asia for delivery after the New Year break.

    Turnarounds in Asia in February-March were expected to spur buy interest for European product from Asia.

    Instead, the European spot price saw a $20.50/mt daily hike on Wednesday amid minor production issues at LyondellBasell/Covestro's propylene oxide styrene monomer unit in Maasvlakte in the Netherlands.

    A company spokesman from Covestro confirmed that the plant was running despite earlier issues.

    The upstream benzene market also saw a surge in prices Wednesday on the back of production issues and depleted stocks, according to sources. The production issue was reported to be in the Netherlands, although Platts could not obtain confirmation.

    The benzene spot price soared $46/mt on the day to $992/mt CIF ARA, the highest level in 26 months.

    http://www.platts.com/latest-news/petrochemicals/london/european-styrene-market-reaches-fresh-17-month-26643332

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    Oil and Gas

    China’s Cnooc Raising Spending First Time Since Oil’s Plunge


    Cnooc Ltd. plans to raise capital spending for the first time since crude began its crash in 2014 as China’s biggest offshore oil and gas producer prepares for life after the slump and a second year of falling output.

    The Beijing-based explorer will increase expenditure, including in the Gulf of Mexico, to 60 billion to 70 billion yuan ($8.7 billion to $10.2 billion) for 2017 after cuts in the last two years, according to a statement to the Hong Kong stock exchange and a press conference on Thursday. It set its production target to between 450 million to 460 million barrels of oil equivalent after last year posting the first output decline since at least 1999.

    “As a pure upstream player, Cnooc has to invest for the future, especially in exploration as it needs to find new reserves to keep sustainable development,” said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. “Higher capital spending for 2017 is line with improved sentiment on crude prices since late last year.”

    The oil industry is expected to boost spending for the first time in three years after slashing almost half a million jobs globally during crude price’s downturn, according to industry consultant Graves & Co. Brent averaged about $45 a barrel in 2016, more than 50 percent below levels in 2014, and is expected to rise above $55 this year, according to the median of 45 analyst estimates compiled by Bloomberg. Cnooc is more exposed to the price of the commodity compared with its Chinese peers as it earns almost all its income from exploration and production.

    Cnooc said in a separate online presentation that it spent 50.3 billion yuan last year. The company produced an estimated 476 million barrels of oil equivalent during that time, meeting the lower end of its 470 million to 485 million barrel target, it said Thursday.

    The deep-water Gulf of Mexico fields, Appomattox and Stampede, will take a majority of overseas spending this year, Chairman Yang Hua said at a press conference in Hong Kong. The two fields, along with Egina in Nigeria, “meet our principles of investing capital in high-return projects around the world,” Yang said.

    Preferred Play

    The explorer posted its first-ever half-year loss in August as crude oil’s plunge and writedowns on assets including Canadian oil sands crimped earnings. The explorer reported a 15 percent fall in third-quarter sales as output declined with capital spending. Domestic production fell more than 9 percent because of declines from existing fields and weak natural gas demand, the company said in October.

    Still, the explorer is a preferred stock among analysts. Of the 23 analysts tracking the company, 13 rate it a buy, seven as hold and three as sell. Analysts at Nomura Holdings Inc., Morgan Stanley, and Sanford C. Bernstein & Co. had forecast before Thursday’s release that the company will raise spending this year by between 10 percent to as much as 30 percent. Cnooc shares lost 0.4 percent to close at HK$10 before the statement was released.

    China’s crude oil output has fallen 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day as its state-owned producers struggled to support output at the country’s aging fields. Imports last year grew at the fastest pace in six years -- and the nation was the world’s biggest buyer in December -- as the cheapest crude in more than a decade triggered stockpiling and as independent refiners accelerated purchases.

    Cnooc also said Thursday:

    Five new projects are expected to start this year; 20 projects are under construction
    Plans to drill 126 exploration wells this year from 118 last year
    Targets net production of 455 million to 465 million barrels of oil equivalent for 2018; targets 460 million to 470 million barrels for 2019
    Exploration accounts for 18 percent of this year’s spending, while development is 66 percent and production is 15 percent
    China to account for 64 percent of production, 52 percent of spending in 2017; overseas projects to make up 36 percent of production, 48 percent of spending
    2017 total production seen as 83 percent oil, 17 percent gas

    https://www.bloomberg.com/news/articles/2017-01-19/china-s-cnooc-to-raise-spending-first-time-since-oil-s-plunge
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    Indonesia overhauls system for future oil, gas contracts


    Indonesia has adopted a new scheme for future oil and gas production sharing deals so that contractors shoulder the cost of exploration and production, rather than being reimbursed by the government.

    Under the shake-up, flagged late last year, contractors will retain a bigger portion of the oil and gas they recover in return for paying more upfront costs.

    The shift, designed to ease the burden on Jakarta's budget, will only apply to new contracts and will not disrupt existing agreements using the current cost-recovery system.

    Big global firms such as Chevron, Exxon Mobil and Total operate in Indonesia, but the country has struggled to attract fresh investment and to develop new fields.

    Speaking at a press conference late on Wednesday, Energy Minister Ignasius Jonan said the base split for gas production would be 52 percent for the government, with the rest going to a contractor. For oil output, the government will get 57 percent.

    Contractors could be awarded a bigger share of production if conditions make working on a field more difficult and expensive, he added.

    Under the previous system, the government received a share of 70 percent for gas and 85 percent for oil.

    The first contract under the new scheme was signed on Wednesday with PT Pertamina for the Offshore North West Java (ONWJ) block, in which the government gets 37.5 percent of any gas and 42.5 percent of oil.

    "This gross split (mechanism) means all expenses would be the responsibility of the contractor, no longer burdening the state budget," Jonan told reporters.

    Pertamina's chief executive Dwi Soetjipto said the increased split for the ONWJ block would not cover its costs, but that he hoped to retrieve them by "making efforts on efficiency".

    Last year, oil and gas contractors operating in Indonesia asked for more than $11 billion reimbursement for costs, much bigger than the $8.4 billion initially planned.

    Indonesia's crude oil output peaked at around 1.7 million barrels per day in the mid-1990s. But with few significant oil discoveries in Western Indonesia in the past 10 years, production has fallen to roughly half that as old fields have matured and died.

    The industry is a vital part of the Indonesian economy, but its contribution to state revenue has dropped from around 25 percent in 2006 to an expected 3.4 percent this year, according to data compiled by consulting firm PricewaterhouseCoopers.

    http://www.reuters.com/article/indonesia-energy-idUSL4N1F92DN
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    China buys 70% of Russian ESPO cargoes from Kozmino in 2016


    China became the dominant purchaser of Russian eastern crude grade ESPO in 2016, having bought over two-thirds of all cargoes loaded from the Kozmino port in Russia's Far East last year, and significantly outstripping other buyers, data from national oil pipeline operator Transneft showed Tuesday.

    Russia exported a total of 31.8 million mt (or 636,868 million b/d on average) of ESPO crude from Kozmino in 2016, up 4.6% year on year and estimates the deliveries to remain roughly flat this year as the volumes have been exceeding the port's installed capacity.

    Of the total, China bought 22.2 million mt, up 51% year on year, taking its share of total ESPO cargoes delivered from Kozmino to 69.8% in 2016, compared to just over 48% in 2015, when it was competing with Japan as the biggest purchaser of ESPO cargoes from Kozmino.

    The increase in Chinese imports was due to a significant boost in purchases by independent refineries, which received the right to import crude in 2015.

    In addition to Rosneft's term buyers CNPC and ChemChina, independent refineries, including Luqing Petrochemical, Kenli Petrochemical, and Hongrun Petrochemical, Haiyou Petrochemical, as well as trading companies Kunyang and Yijia, took delivery of the barrels.

    Russia, which also pumped around 23.5 million mt of pipeline crude to China, competing with Saudi Arabia as the main crude supplier to China through the year.

    Apart from China, Malaysia was the other country which significantly increased purchases by ESPO blend, becoming the fourth-biggest buyer of the Russian crude.

    The imports rose eightfold to 1.6 million mt, although from a low basis of just two cargoes, each 100,000 mt, bought in 2015, Transneft data showed.

    Russia was the second-largest supplier to Malaysia in 2016 after Saudi Arabia, even knocking the Saudis off the top spot in some months.

    JAPAN, SOUTH KOREA IMPORTS DOWN

    Other traditional buyers of ESPO blend from Kozmino, including Japan and South Korea, reduced their offtake.

    The two countries were increasingly buying alternative crude blends, primarily from Saudi Arabia and Iran.

    Nonetheless, Japan remained the second biggest buyer of ESPO cargoes in 2016, even though it more than halved its purchases to just 3.9 million mt on the year.

    South Korea also maintained its position as the third-largest ESPO buyer, while its offtakes reduced by 25% year on year to 2.4 million mt.

    Transneft estimates crude deliveries via Kozmino at between 31.3 million and 31.8 million mt in 2017, as the supplies have already reached the port capacity and exceeded it slightly following the dredging of the port.

    Russia's ESPO blend, a medium-sweet crude popular among North Asian refiners, typically loads in 100,000 mt Aframax-sized cargoes.

    In late 2015, larger, Suezmax-sized cargoes started loading at the port for the first time since deliveries from Kozmino began at the end of 2009.

    In 2016, the company completed the dredging work of the port and its two berths are now able to load 140,000 mt tankers, Transneft's first vice-president Maxim Grishanin said Friday.

    Nonetheless, standard cargoes of 100,000 mt enjoy greater interest from buyers, he said.

    Kozmino is the end point of the East Siberia-Pacific Ocean pipeline, which runs across East Siberia, and also sends over 330,000 b/d of crude to China, via a pipeline offshoot from Skovorodino to Mohe.

    http://www.platts.com/latest-news/oil/moscow/analysis-china-buys-70-of-russian-espo-cargoes-27753440
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    Russia’s Gazprom swings to profit in Q3


    Russian energy giant Gazprom posted a net profit of 102 billion roubles ($1.7 billion) in the third quarter of 2016 as it benefited from a stronger rouble.

    Moscow-based Gazprom logged a loss of 2 billion roubles in the same quarter a year ago after a foreign-exchange loss.

    The company said its third-quarter sales were down to 1.26 trillion roubles from 1.29 trillion in the same period in 2015 as its gas sales to Europe dropped to 570 billion roubles.

    In the nine-month period that ended September 30, 2016 net sales of gas to Europe and other countries rose 8 percent to 1.55 trillion roubles.

    This was mainly driven by “the increase in volumes of gas sold by 28 %, or 35.6 bcm, which was partially compensated by the decrease in average Russian Ruble prices,” Gazprom said.

    Gazprom is Europe’s largest supplier of natural gas and generates more than a half of its revenue from selling gas to Europe.

    http://www.lngworldnews.com/russias-gazprom-swings-to-profit-in-q3/
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    Santos hits new production and sales records


    Oil and gasmajor Santos reported record production and sales volumes for 2016, which MD and CEO Kevin Gallagher on Friday described as a “year of significant change” for the Australia-based company.

    The ASX-listed company produced a record 61.6-million barrels of oil equivalent in the year ended December, up 7% on 2015’s production and at the upper-end of its guidance.

    Sales volumes increased by 31% to 84.1-million barrels of oil equivalent, which Santos said was also a new record.

    Fourth quarter production reached 15-million barrels of oil equivalent, up 1% on the previous corresponding period and sales volumes for the December quarter increased to 21.9-million barrels of oil equivalent, up 27% on the previous corresponding period.

    Liquefied natural gas (LNG) sales volumes also reached record highs of 2.8-million tonnes in 2016, up 89% on the previous corresponding period, following the ramp-up of the Gladstone LNG project, in Queensland, and strong performance from the Darwin LNG project, in the Northern Territory, and the Papua New Guinea LNG project.

    Gallagher said Santos should be “proud of what was achieved” in 2016.

    “We restructured the business, removed substantial cost and generated free cash flow for the first time in many years. Our production cost per barrel has reduced, and we are free cash flow positive below $38/bbl, down from $47/bbl at the start of 2016.”

    He noted that in addition to the cost out success, Santos also implemented a new organisation structure, which sought to maximise production, and developed a clear new strategy. The group also enjoyed exploration success in Western Australia and Papua New Guinea.

    Furthermore, the company sold its noncore assets and strengthened its balance sheet for a lower oil price environment through an institutional placement completed in December.

    “We enter 2017 with a clear strategy and a solid platform off which we can build and grow. Our business turnaround will continue as we reshape and focus our organisation to support five core, long-life natural gas assets; Cooper Basin, Gladstone LNG, Papua New Guinea, Northern Australia and Western Australian gas.

    “This singular focus will also allow Santos to become a leaner, lower cost and high performance business with significant upside opportunities across our portfolio.”

    For 2017, Santos expected sales volumes to reach between 73-million and 80-million barrels of oil equivalent, with production expected to reach between 55-million and 60-million barrels of oil equivalent.

    The major is expected to spend between $700-million and $750-million in capital during 2017.

    http://www.miningweekly.com/article/santos-hits-new-production-and-sales-records-2017-01-20
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    Australian heavy sweet crude premiums fade amid uptick in Brazilian supply


    An increase in export volumes for March has weighed on premiums paid for Australian heavy sweet crudes to date this month and the downside correction could continue amid growing competition from Brazilian arbitrage supplies, Asian traders said Thursday. S&P Global Platts assessed Vincent crude at a premium of $2.60/b to Platts Dated Brent crude assessments on an FOB basis Wednesday, the lowest differential since December 15 last year, when it commanded a $2.55/b premium. Trade sources said Quadrant Energy and BHP Billiton could have each sold a 550,000-barrel cargo of Pyrenees crude for loading in March at a premium in the range of $3.10-$3.40/b to Platts Dated Brent crude assessments, weaker than the premium of around $4/b heard paid for a February-loading cargo in the previous trading cycle. "It's double the export volume [for Australian heavy sweet Pyrenees crude in March from February] so it's natural to see the premium slide," said a North Asian sweet crude trader.

    Indications of heavy sweet crudes to be exported from Australia in March reflected a much bigger program, with Pyrenees seeing a 100% increase in exports from the month before.

    There are no Vincent crude cargoes available for loading in February, but Woodside Petroleum holds one 550,000-barrel cargo for loading over March 7-11.

    The March Vincent cargo was recently sold to an Asian customer at about 30 cents/b below the latest March Pyrenees value, a source with direct knowledge of the sales told Platts Thursday.

    "Quite often we achieve numbers pretty similar to Pyrenees," the source added.

    However, some North Asian crude traders said the Vincent cargo was likely sold at around Dated Brent plus $2.50/b, putting it roughly 60-90 cents/b below the premiums heard paid for March Pyrenees cargoes.

    Regional sweet crude traders said price differentials for Australian heavy sweet grades could extend losses in the near to medium term amid growing concern that China's state-run and independent refiners, the major customers of Pyrenees and Vincent, could shift focus elsewhere for cheaper supplies.

    One Singapore-based sweet crude trader said Australian crude producers could surrender some market share in China to South American suppliers, with latest data showing a growing number of Brazilian crude exports to the world's biggest energy consumer.

    "It's not like Australia is the only place for China to acquire heavy low sulfur crudes... of course they can look elsewhere like South America," the Singapore-based trader said.

    COMPETITION FROM BRAZIL

    December 2016 saw a dramatic increase in Brazilian crude imports to 1.05 million mt, more than doubling from 529,000 mt the month before, Platts data showed.

    January shipping fixtures seen by Platts indicated that Petrobras has fixed the New Vanguard, Cosglory Lake, GC Fuzhou and Saham to move a combined 1.06 million mt of crude oil for January loading from Brazil to the Far East and India.

    Petrobras has also fixed the Maran Cassiopeia to move 130,000 mt of crude for February 2 loading from Brazil to the Far East, according to the latest February shipping fixtures.

    "[Brazilian crudes that Chinese have bought for Q1 delivery are also] sweet and heavy [but they are] cheaper than the similar grades produced in the Far East and West Africa," a trader with knowledge of China's recent purchases from South America said.

    The influx of Brazilian crude supplies into Asia is expected to continue throughout the first quarter as WTI continues to weaken relative to Brent and Dubai, making WTI-based crudes more price competitive than those linked to the Middle Eastern and European benchmarks, market participants said.

    The front-month swap spread between Dubai crude and WTI has narrowed significantly over the past month or so, with the February Middle East crude benchmark swap at one stage commanding a premium over its US counterpart early in the month.

    In addition, the front-month Brent-WTI swaps spread in Houston has averaged $2.49/b so far this month, compared with an average of $2.41/b in December and $1.53/b in November.

    The trader with knowledge of the recent Brazilian supply deals declined to confirm the exact crude grades purchased from Petrobras, but market sources said the cargoes could be Marlim, Roncador and Lulu crude.

    Marlim has a gravity of 19.2 API and 0.78% sulfur, while Roncador Heavy has a gravity of 18 API and 0.688% sulfur. Petrobras also exports Lula with 29.3 API and 0.35% sulfur.

    Australia's Vincent is a heavy sweet crude with a gravity of around 17.4 API and sulfur content of 0.37%. Pyrenees has a gravity of 19.3 API with 0.19% sulfur, according to the grade's assay report dated September 16, 2011.

    http://www.platts.com/latest-news/oil/singapore/australian-heavy-sweet-crude-premiums-fade-amid-27754233
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    Explorers in World's Fastest-Growing Oil Market Seek Tax Breaks


    Explorers in the world’s fastest-growing oil market are seeking lower taxes on crude produced domestically to encourage fresh drilling as India tries to reduce its dependence on energy imports.

    State-run Oil & Natural Gas Corp. and the biggest private producer Cairn India Ltd.want Finance Minister Arun Jaitley to at least halve the tax on crude oil production in the federal budget due Feb. 1. India surprised some explorers last year with its 20 percent levy on crude produced locally, moving from a fixed charge. Companies pay more now with crude near $50 a barrel than they did under the old system when it was double the price.

    “Globally, given the low oil price scenario, governments have provided incentives to stimulate and attract investments,” said Sudhir Mathur, interim chief executive officer at Cairn India. “In India, the cess rate of 20 percent acts as a disincentive to increase production and commit incremental investments.”

    Attracting investments to boost output from local fields is key for Prime Minister Narendra Modi, who has made energy security a priority and set a target of cutting oil imports by 10 percent in the next five years. Reducing the levy will help explorers including ONGC and Cairn India, which Oil Minister Dharmendra Pradhan estimates will spend $25 billion by the end of this decade.

    India’s hydrocarbon resources are highly undeveloped and production has been declining for the past several years, prompting the government to nudge companies to invest in reversing the fall and increase energy supplies.

    New Delhi-based ONGC is spending over $5 billion for its biggest development plan in a deep-sea block in the Bay of Bengal off the country’s east coast. Cairn India also plans to spend as much as $4 billion over the next few years to drill for oil.

    Asia’s third-largest economy meets about 80 percent of its crude oil requirements through imports.

    “We need some money to be left behind so that we are able to flow back into the investment cycle,” said A.K. Srinivasan, finance director at ONGC, the nation’s biggest explorer. “Otherwise there will be cash shortage. Already, we are going to run cash shortages.”

    At a price of $55 a barrel, ONGC may have to pay about $11 as cess, compared with $9 when prices were $100 a barrel and the tax was fixed charge, he said. “With crude prices firming up, the cost impact of this tax is quite high.”

    Brent oil prices have risen about 17 percent since the Organization of Petroleum Exporting Countries’ agreed in November to cut production for six months starting in January. The fuel traded above $100 as recently as September 2014.

    Firming crude prices may also allow the government to reduce the levy on retail prices for gasoline and diesel, according to Dhaval Joshi, an analyst at Emkay Global Financial Services Ltd.

    India didn’t pass on to consumers the entire benefit of crude’s price decline from July 2014, increasing excise duty on the two fuels nine times and mopping up about 960 billion rupees ($14 billion) in the previous two fiscal years.

    The government may now look at easing prices as one way of cushioning the impact of its Nov. 8 ban on high-denomination currency notes, which impactedthe rural population the most, as it prepares for five state elections this quarter.

    The consumer price of diesel, the most-used fuel in the country, is at a record while that of gasoline is at the highest since August 2014, according to state-run fuel retailer Indian Oil Corp.’s website.

    “Yes, taxes have come and we have not hidden it,” Pradhan, the oil minister, said in New Delhi on Jan. 16. “If the prices start pinching the consumers, we’ll see.”

    https://www.bloomberg.com/news/articles/2017-01-19/explorers-in-oil-s-bright-spot-seek-tax-sops-to-lift-india-spend
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    Brazil oil workers' union accepts Petrobras' collective wage deal


    The Brazilian oil workers' union has accepted a proposal from state-controlled Petrobras for a collective wage deal, the union said in a statement on its website on Thursday.

    According to the statement, the union's managing board recommends workers approve the company's offer.

    http://www.reuters.com/article/petrobras-workers-idUSE6N14A043
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    Summary of Weekly Petroleum Data for the Week Ending January 13, 2017


    U.S. crude oil refinery inputs averaged about 16.5 million barrels per day during the week ending January 13, 2017, 639,000 barrels per day less than the previous week’s average. Refineries operated at 90.7% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.0 million barrels per day. Distillate fuel production decreased last week, averaging over 4.7 million barrels per day. 


    U.S. crude oil imports averaged 8.4 million barrels per day last week, down by 674,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 4.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 588,000 barrels per day. Distillate fuel imports averaged 152,000 barrels per day last week. 


    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 485.5 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.0 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.0 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 7.4 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories decreased by 2.0 million barrels last week. 


    Total products supplied over the last four-week period averaged over 19.3 million barrels per day, up by 0.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.6 million barrels per day, down by 2.4% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, up by 6.6% from the same period last year. Jet fuel product supplied is up 8.5% compared to the same four-week period last year.


    Cushing down 1.2 mln bbls


    http://ir.eia.gov/wpsr/wpsrsummary.pdf

    Attached Files
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    US oil production unchanged



                                                           Last Week  Week Before  Last Year


    Domestic Production '000 ............ 8,944            8,946         9,235
    Alaska ................................................... 513              515            532 
    Lower 48 .......................................... 8,431            8,431         8,703



    http://ir.eia.gov/wpsr/overview.pdf
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    Dresser-Rand’s first micro-scale LNG solution starts up


    Dresser-Rand, part of Siemens Power and Gas, has commissioned its first micro-scale natural gas liquefaction system at the Ten Man LNG facility in Pennsylvania, U.S.

    The modular, portable solution, developed by the Dresser-Rand, allows the operator, Frontier Natural Resources, to monetize stranded gas assets at Tenaska Resources’s Mainesburg field, located in the Marcellus shale play.

    The scope of supply included a standardized LNGo solution consisting of four different modules, each handling one step of the liquefaction process, Siemens said in its statement

    The Ten Man facility commenced production in mid-September last year, just four months from contract signing, and has produced approximately half a million liters of LNG since startup.

    Siemens further added that the micro-scale LNGo solution eliminates the need for establishing gas pipeline infrastructure or arranging for long-distance trucking of LNG from centralized plants to point of use.

    http://www.lngworldnews.com/dresser-rands-first-micro-scale-lng-solution-starts-up/

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    Alternative Energy

    German offshore wind capacity up 818 MW in 2016 to 4,108 MW


    German offshore wind developers connected 156 new wind turbines with a capacity of 818 MW to the national grid in 2016, bringing total grid-connected offshore wind capacity to 4,108 MW, German wind power lobby groups said Thursday.

    Last year lags behind 2015 when German offshore wind capacity tripled to 3.3 GW after grid link bottlenecks in the North Sea eased with eight North Sea projects finally coming online.

    For 2017, the lobby groups forecast 1,400 MW of new capacity followed by an average of 1,000 MW for 2018 and 2019 set to bring installed offshore capacity to around 7.5 GW by end-2019, ahead of the government's reduced 6.5 GW target for 2020.

    Germany is moving from set feed-in-tariffs to competitive auctions for all new renewable projects with the first offshore wind auction planned for April this year with some 1,500 MW of new projects tendered for the 2021 to 2025 period.

    According to the lobby groups, cost reductions for new offshore projects will also come to Germany after the latest tendering results in Denmark and the Netherlands have shown a remarkable drop in costs even if conditions in Germany are not exactly as in Denmark or the Netherlands.

    Expected grid bottlenecks, especially in the North Sea, will limit new capacity auctions for 2021/22 with the government's new long-term target set at 15 GW by 2030.

    Offshore wind turbines in German waters generated some 13 TWh of electricity in 2016, up 57% on year with TSOs estimating around 20 TWh of offshore wind this year based on average wind conditions, it said.

    http://www.platts.com/latest-news/electric-power/london/german-offshore-wind-capacity-up-818-mw-in-2016-26643324
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    Canada's Strongbow's UK partner to explore for lithium in Cornwall


    British company Cornish Lithium said on Thursday it had reached a mineral rights agreement with Canada's Strongbow Exploration to explore for lithium in Cornwall, southwest England, stoking hopes for a British mining revival.

    Cornwall historically was a mining hub for metals such as tin and copper and the British government is keen to resurrect the industry as it seeks to bolster the economy against the shock of leaving the European Union.

    Cornish Lithium said new technology offered the potential to extract lithium from underground hot springs and to supply products to the rapidly growing battery market for electric cars and for power storage.

    "We believe the potential benefits of developing a lithium industry in Cornwall will be significant for the county and for the UK as a whole," Cornish Lithium CEO Jeremy Wrathall, a mining engineer who graduated from Camborne School of Mines in Cornwall. He also works at Investec bank.

    "It will be the largest exploration programme ever carried out in Cornwall's history," he told Reuters by telephone.

    Wrathall said it would be at least five years before lithium could be produced and he could not yet predict volumes.

    Cornish Lithium's next step is to secure funding. It foresees spending 5 million pounds ($6.16 million) in the exploration phase.

    The British government, which is also anxious to maintain a car industry in Britain, has defined lithium, most of which comes from South America, Australia and China, as a metal of strategic importance.

    Cornish Lithium's partner Strongbow Exploration last year bought South Crofty, which in 1998 was the last tin mine to close in Cornwall. Strongbow Exploration is seeking to bring back tin production there.

    Under Thursday's deal, Strongbow would get royalties from any lithium extracted by Cornish Lithium from brine springs in the area.

    Previous attempts to revive the South Crofty tin mine faltered because of challenging economics.

    But Strongbow CEO Richard Williams said the political and economic climate was very different and tin prices have risen to above $20,000 a tonne on the London Metal Exchange (LME).

    They are still below the peak of $33,600 recorded in 2011.

    "In a post-Brexit environment people and certainly the authorities are looking to generate new jobs," Williams said, adding that previous local opposition to a mining revival had disappeared.

    Crucially, the firm already has a mining licence and planning permission for a new processing facility, meaning that if all goes well with removing water from South Crofty, mining could resume around the end of the decade.

    When South Crofty was operating, it employed around 200 people and every mining job would be expected to create three to four indirect jobs, Williams said.

    http://www.reuters.com/article/strongbow-lithium-idUSL5N1F91ES
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    Uranium

    China sets goals for nuclear energy development in next five years


    The National Development and Reform Commission (NDRC) and the National Energy Administration have officially issued the 13th Five-Year Plan for energy development, according to a statement on the NDRC website.

    Throughout the next five years, over 30 million kilowatts of nuclear energy facilities will be under construction in China. By 2020, China will have 58 million kW of installed nuclear power.

    The country will continue developing nuclear power safely and efficiently while also speeding up the construction of nuclear projects in coastal regions, according to the development plan.

    The country will develop some major nuclear technology projects, start the construction of CAP1400 demonstration project and create a high temperature gas-cooled reactor demonstration project.

    The country will also launch some independent innovation projects, including smart small-and-medium sized reactors, commercial fast reactors and 600,000 kW high temperature gas-cooled reactors.

    Compared with other types of energy, safety is the top priority for nuclear energy, including the safety of equipment, management and the site of a plant.

    According to the plan, the share of non-fossil fuels will rise to more than 15% and the share of natural gas should reach 10% by 2020.

    China's total energy consumption will be capped at 5 billion tonnes of coal equivalent by 2020, representing an annual uptick of about 2.5% between 2016 and 2020.

    http://www.sxcoal.com/news/4551505/info/en
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    Precious Metals

    De Beers pilots fixed-price contracts for auction sales


    Diamond company De Beers will start piloting fixed-price forward contracts in its auction sales, providing customers the opportunity to guarantee access to future supply with certainty over the price to be paid when the contract reaches maturity.

    The first event to feature the fixed-price forward contracts will take place on February 16, for the grainers, smalls and near-gem categories of rough diamonds.

    The pilot has been developed in response to customer feedback on the previously used forward contract sales, which offered the guarantee of future supply but with a ‘floating’ price based on the spot price at the point when the forward contract matured.

    Fixed-price forward contracts are expected to provide a highly effective supply sourcing option for small and medium-sized enterprises, which are seeking access to regular rough diamond supply at a predictable price.

    “Extensive customer dialogue has highlighted potential to further develop the forward market for our rough diamonds. Our customers have told us they see value in securing short-term supply contracts but would prefer to do so on a fixed-price basis, avoiding potential challenges when securing contracts on a floating price basis that references the underlying spot price at contract maturity.

    “We are, therefore, piloting three-month forward contracts on a fixed-price basis to complement our spot sales channel and the term supply contracts offered by global sightholder sales, while further testing stated customer demand for regular, guaranteed short-term supply at a fixed price,” De Beers auction sales executive VP Neil Ventura said.

    Since launching forward contract sales on a floating price basis in December 2013, auction sales has steadily developed its forward sales channel, selling more than 350 bespoke supply contracts over the period.

    The pilot for fixed-price contracts follows other auction sales pilots, including those enabling third parties to use its auction platform for rough and polished diamond sales.

    http://www.miningweekly.com/article/de-beers-pilots-fixed-price-contracts-for-auction-sales-2017-01-19
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    Base Metals

    Freeport seeks guarantees from Indonesia amid mining shake-up


    The Indonesian unit of Freeport-Mcmoran Inc is seeking fiscal and legal guarantees from the government over mining rules issued last week, a spokesman for the copper mining giant said late on Thursday.

    The Southeast Asian nation has been pushing miners to build smelters to process ore locally, with concentrate shipments stopped since Jan. 12 under laws introduced in 2014.

    But new regulations announced last week mean that Freeport and some other miners could be allowed to keep exporting ore if they meet conditions including shifting from their current 'contracts of work' to so-called 'special mining permits', a move that could leave them liable to paying more in taxes.

    The latest rules also require foreign mining companies to divest at least 51 percent of their holdings in Indonesia.

    Freeport spokesman Riza Pratama said in a statement that the company had told the government it would shift away from a contract of work and develop an additional smelter within five years as long as it obtains "a stability agreement providing the same rights and the same level of legal and fiscal certainty provided under its contract of work".

    He said Freeport expects to be allowed to resume concentrate exports while the new licence and requested guarantees were finalised.

    "There is no requirement to pay export duties on concentrates or to conduct further divestments (under the company's existing contract)," Pratama added.

    As of Friday, the mining ministry had not issued a recommendation for Freeport to obtain an export permit. According to Coal and Minerals Director General Bambang Gatot, Freeport will have to receive its new mining licence before the government will issue an export permit.

    Energy and Mineral Resources Minister Ignasius Jonan said it would take a "maximum of 14 days" for Freeport to obtain its new mining licence, once all necessary documents were submitted.

    The head of the finance ministry fiscal policy office said on Wednesday that he expected Freeport to pay "slightly" more in taxes once it obtains the new mining permit.

    http://www.reuters.com/article/indonesia-mining-freeport-mcmoran-repeat-idUSL4N1FA2CO
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    Rio starts on new bauxite mine


    Diversified giant Rio Tinto has awarded a A$70-million bulk earthworks contract to Queensland-based civil engineering firm QBrit for work at it’s A$2.6-billion Amrun bauxite project, in Cape York.

    The project will produce at an initial rate of 22.8-million tonnes a year, with the option to expand to up to 50-million tonnes a year, with first output targeted for 2019.

    Production from the Amrun project will replace the depleted East Weipa mine, and will increase the overall bauxite exports from Weipa by around 10-million tonnes.

    “Since being declared a prescribed project, Queensland’s independent Coordinator-General has been monitoring all approvals the proponent requires and facilitating the timely delivery of approval processes,” acting Minister for State Development, Bill Byrne said on Thursday.

    “The Coordinator-General also approved a number of key change requests from the proponent.

    “This project builds on Rio Tinto’s long-standing existing operations in Gladstone and Weipa which have supplied the raw product used to produce 10 per cent of the world’s aluminium,” he said.

    Once operational, the Amrun project will support the continued employment of the current 1 400 strong workforce based in Weipa, as well as more than 2 000 employees based at the Yarwun and Queensland Aluminium refineries in Gladstone that are fed with bauxite from Cape York.

    http://www.miningweekly.com/article/rio-starts-on-new-bauxite-mine-2017-01-19
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    Steel, Iron Ore and Coal

    Beijing orders dragnet to uncover illicit steel, coal company expansions


    As part of an ongoing campaign to rein in illegal Chinese steel and coal expansions, Beijing has ordered provincial authorities to conduct a "dragnet" and submit a list of offenders to central government agencies by January 20.

    Provincial governments must conduct inspections to uncover companies that have unlawfully set up new capacity, produced and sold induction furnace billet, or restarted closed capacity, according to a statement Thursday on the website of the National Development and Reform Commission, jointly issued with five other agencies.

    Local authorities will also have to lay out how and under what timeframe they intend to deal with offending companies.

    Steel company cases are to be reported to the NDRC, the Ministry of Industry and Information Technology and the General Administration of Quality Supervision, Inspection and Quarantine.

    Coal cases are to be referred to the NDRC, the State Administration of Work Safety, the National Energy Administration and the State Administration of Coal Mine Safety.

    http://www.platts.com/latest-news/metals/singapore/beijing-orders-dragnet-to-uncover-illicit-steel-26643333

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    China Dec coal output hits 1-year high on winter demand


    China's December coal output rose 1 percent from November to hit its highest level in a year, as miners cranked out more product to meet government orders amid increased demand from utilities during the cold winter months, data showed on Friday.

    Notching up a third straight monthly increase, miners produced 311 million tonnes of coal, the National Bureau of Statistics said. That was down 3 percent year on year.

    For the full year, coal production fell 9 percent from a year ago to 3.64 billion tonnes, the third annual drop as Beijing shifts away from the polluting fuel.

    http://www.reuters.com/article/china-economy-output-coal-idUSB9N1DC00N
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    Russia 2016 coal production rises 3.27pct on year


    Coal-rich Russia produced 384 million tonnes of coal in 2016, a year-on-year rise of 3.27%, showed data from the Energy Ministry of Russian Federation.

    The country's coal output in December climbed 3.8% from November to 35.15 million tonnes. But the volume was 0.91% lower than 35.48 million tonnes produced in 2015, data showed.

    In 2016, the country exported 164 million tonnes of coal, increasing 8.03% from the year prior.

    Its coal exports stood at 14.24 million tonnes in December, rising 11.34% from the year-ago level and edging up 0.78% from November

    Coal output and exports of Russia in 2015 totaled 371.67 million and 151.42 million tonnes, respectively.

    http://www.sxcoal.com/news/4551511/info/en
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    Anglo shortlists bidders for some South African coal mines


    Anglo American Plc has shortlisted groups led by some of South Africa's most prominent black businessmen as bidders for several of its South African coal mines as it focuses on diamonds, platinum and copper, Bloomberg reported on January 18, citing two people familiar with the discussions.

    Groups selected by Anglo include companies led by Mike Teke, president of South Africa's Chamber of Mines; Phuthuma Nhleko, chairman of the Phembani Group and head of Africa's biggest mobile phone company MTN Group Ltd.; and Sandile Zungu, executive chairman of Zungu Investments, according to the people who asked not to be identified because the information is not public. Rand Merchant Bank is involved in the process, they said.

    Anglo, founded in Johannesburg in 1917, announced plans in February last year to sell more than half of its mines to focus on a smaller group of commodities. The mines under discussion are those that sell coal locally in South Africa, mainly to state power company Eskom Holdings SOC Ltd. Together the assets -- the New Vaal, Kriel and New Denmark mines - account for about half of the company's South African coal production.

    The three mines combined produced almost 7 million tonnes of coal in the third quarter of last year, according to Anglo. While the value of the coal contracts with Eskom varies, they usually average around 500 rand ($37.07) per tonne, said Khulu Phasiwe, a spokesman at the utility. That would equate to about $1 billion worth of coal annually from the Anglo assets.

    South Africa's government is pushing companies to boost black involvement in the economy to make up for discrimination during apartheid. Eskom says it wants suppliers to be black controlled.

    Anglo won't comment on potential bidders due to confidentiality agreements, said Moeketsi Mofokeng, spokesman of the company. "We continue to engage Eskom and the government about the process that we've embarked on." Teke, Zungu and RMB also declined to comment. Phembani didn't immediately reply to e-mails.

    http://www.sxcoal.com/news/4551539/info/en
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    Union Pacific reports Q4 drop in coal volumes, revenues

    Union Pacific reports Q4 drop in coal volumes, revenues

    Union Pacific's coal carloads in the fourth quarter fell 9.3% on a year-over-year basis, while coal revenues dipped 6.2%, the railroad said Thursday.

    The Omaha, Nebraska-based railroad, the second biggest transporter of coal in the US behind rival BNSF Railway, said coal carloads totaled 320,000 compared with 353,000 in the year-ago quarter.

    Beth Whited, the railroad's new vice president of marketing, said coal stockpiles at the utilities in its service territory stood at roughly 93 days of burn in Q4, roughly 18 days higher than historic levels but below the roughly 100 days of burn in the year-ago quarter.

    "We have seen what I call a very modest fall off in inventory levels ... so it's still kind of a challenging stockpile environment," Whited said. "We are though in a little different situation then most of 2016, in that we have natural gas prices considerably higher ... so that gives us some potential for our served plants to be more in the money and able to burn coal."

    Powder River Basin volumes dipped 16% from the year-ago quarter, while volumes from other regions, such as Colorado and Utah, increased 24% due to higher export demand, Whited said.

    Coal revenues totaled $699 million in the fourth quarter, and made up 13.5% of the railroad's total quarterly revenue. In the year-ago quarter, coal revenues totaled $745 million and made up 14.3% percent of total revenue.

    By comparison, coal revenues in Q4 2014 totaled $1.1 billion, but have largely declined due a drop in coal demand from low natural gas prices.

    Average revenue per coal unit totaled $2,183 in the quarter, up 3.6% from the year-ago quarter.

    For 2017, the railroad expects a modest increase in coal volumes due to higher natural gas prices and increased export demand.

    http://www.platts.com/latest-news/coal/houston/union-pacific-reports-q4-drop-in-coal-volumes-21653880
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    China's small and mid-sized coal mines halt production for holidays


    China's small and mid-sized coal mines at producing bases like Shaanxi, Shanxi and Inner Mongolia provinces halt production recently in succession, as the Spring Festival holidays approach late this month.

    Yuyang district in Yulin city of Shaanxi ordered all local coal mines to suspend production from January 10 until the end of Spring Festival holidays on February 2, said the local coal bureau, citing the recent coal mine accidents as the main reason for the suspension.

    Shenmu district of Yulin followed on January 15, leaving a few state-run coal mines and mines supplying coal-fired plants under operation.

    Coal mines adopting blasting method in Shenfu Coalfield of the city were also shut down for holidays, and may resume production from March 4-11.

    Meanwhile, all the coal mines had suspended production in Hengshan district of Yulin since January 19, with some miners destocking. The resumption date is uncertain for now.

    In northern China's coal-rich Shanxi province, Jincheng city ordered all local coal mines to suspend production on January 20 for the Spring Festival, said the municipal government on January 16. Production resumption inspection will be started from February 3, after the end of Spring Festival holidays.

    Coal mines in northern China's Inner Mongolia are expected to suspend production from January 20, with stocks at some opencast mines sold out.

    An insider pointed out that the suspension of small and mid-sized coal mines made sense, given safety concerns prior to the Lunar New Year.

    The impact of production halts at mines could be limited and coal prices may be firm, despite constrained supply, as demand from downstream sectors is also on the drop, said insiders.

    http://www.sxcoal.com/news/4551562/info/en
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    China 2016 coke output edging up 0.6pct


    China produced 449.11 million tonnes of coke in 2016, edging up 0.6% from a year ago, showed data from the National Bureau of Statistics (NBS) on January 20.

    This was the first time since 2015 the country's year-to-date coke output rose on a year-on-year basis.

    In December, China produced 38.06 million tonnes of coke, rising 8% on the year but falling for the second straight month by 1.83% from November.

    China's coke market may stay weak before the Spring Festival, as steel mills maintain demand-based purchase and cut operation of blast furnaces.

    http://www.sxcoal.com/news/4551589/info/en
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    China's current steel capacity cut goal for 2017 exceeds 30 Mtpa


    China's state-owned steel makers and some provinces have released their 2017 goals of cutting surplus crude steel capacity, which exceed 30 million tonnes per annum (Mtpa) in total.

    The move is in line with the national supply-side structural reform which has been implemented since last year and aimed at improving bloated steel industry.

    As a major steel producing province, Hebei takes the lead to slash 19.86 Mtpa of steel capacity and 17.14 Mtpa of iron making capacity this year, with Tangshan reducing steel and iron capacity of 8.61 Mtpa and 9.33 Mtpa, respectively.

    Jiangsu province planned to eliminate 11.7 Mtpa of crude steel capacity over 2007-2018, following capacity elimination of 5.8 Mtpa achieved last year. The province also targeted to raise its capacity utilization of steel industry to a reasonable level and basically phase out "zombie enterprises" by 2020.

    The state-run steel enterprises will shut 5.95 Mtpa of steel capacity in 2017, and meanwhile accelerate elimination of "zombie companies". Efforts will be made to reform the steel producers stuck in deficits and reduce their losses by 20% this year.

    http://www.sxcoal.com/news/4551538/info/en
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