Mark Latham Commodity Equity Intelligence Service

Wednesday 25th January 2017
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    Trump signs executive orders on manufacturing, infrastructure

    U.S. President Donald Trump on Tuesday signed an executive order directing that the permitting process and regulatory burden for domestic manufacturers should be streamlined to reduce what he called "the incredibly cumbersome, long, horrible" process.

    "Sometimes it takes many, many years and we don’t want that to happen. If it's a 'no,' we'll get a quick 'no.' If it's a 'yes,' it's like, let's start building," he said.

    Among a total of five actions signed by Trump in an Oval Office ceremony, he also signed orders to expedite environmental review and approval of high-priority infrastructure projects, to accelerate the Keystone XL and Dakota Access pipeline projects and to decree that any pipelines intended for the United States should be built in the country.

    He said: "We will build our own pipeline. We will build our own pipes, as we used to in the old days."
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    Trump administration tells EPA to cut climate page from website: sources

    U.S. President Donald Trump's administration has instructed the Environmental Protection Agency to remove the climate change page from its website, two agency employees told Reuters, the latest move by the newly minted leadership to erase ex-President Barack Obama's climate change initiatives.

    The employees were notified by EPA officials on Tuesday that the administration had instructed EPA's communications team to remove the website's climate change page, which contains links to scientific global warming research, as well as detailed data on emissions. The page could go down as early as Wednesday, the sources said.

    "If the website goes dark, years of work we have done on climate change will disappear," one of the EPA staffers told Reuters, who added some employees were scrambling to save some of the information housed on the website, or convince the Trump administration to preserve parts of it.

    The sources asked not to be named because they were not authorized to speak to the media.

    A Trump administration official did not immediately respond to a request for comment.

    The order comes as Trump's administration has moved to curb the flow of information from several government agencies who oversee environmental issues since last week, in actions that appeared designed to tighten control and discourage dissenting views.

    The moves have reinforced concerns that Trump, a climate change doubter, could seek to sideline scientific research showing that carbon dioxide emissions from burning fossil fuels contributes to global warming, as well as the career staffers at the agencies that conduct much of this research.

    Myron Ebell, who helped guide the EPA's transition after Trump was elected in November until he was sworn in last week, said the move was not surprising.

    "My guess is the web pages will be taken down, but the links and information will be available," he said.

    The page includes links to the EPA's inventory of greenhouse gas emissions, which contains emissions data from individual industrial facilities as well as the multiagency Climate Change Indicators report, which describes trends related to the causes and effects of climate change.

    The Trump administration's recently appointed team to guide the post-Obama transition has drawn heavily from the energy industry lobby and pro-drilling think tanks, according to a list of the newly introduced 10-member team.

    Trump appointed Oklahoma Attorney General Scott Pruitt, a longtime foe of the EPA who has led 14 lawsuits against it, as the agency's administrator. The Senate environment committee held a tense seven-hour confirmation hearing for Pruitt last week. No vote on his nomination has been scheduled yet.

    Attached Files
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    Senate Democrats Introduce $1 Trillion Infrastructure Plan, Offer Trump Support If He Backs It

    Senate Democrats are set to unveil a $1 trillion infrastructure plan and offer President Donald Trump their support if he backs it, the NYT reports.

    The plan includes $180 billion to rail and bus systems, $65 billion to ports, airports and waterways, $110 billion for water and sewer systems, $100  billion for energy infrastructure, and $20 billion for public and tribal lands.

    Cited by the Times, Chuck Schumer said “our urban and rural communities have their own unique set of infrastructure priorities, and this proposal would provide funding to address those needed upgrades that go beyond the traditional road and bridge repair." The Senate Democrat leader adds that “We’re asking President Trump to work with us to make it a reality/"

    As part of his agenda, Trump has promised to unveil an ambitious infrastructure package during the first 100 days of his presidency. “We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation,” he vowed in his Inaugural Address.

    One of Trump’s top advisers said Monday, however, that the president’s plan may run into roadblocks in the Republican-led Congress.

    “He has to come up with a financing plan, and I think there’s going to be a little bit of a tug of war between the conservatives in the Republican party who are concerned about deficits and the president who’s concerned about jobs,” Richard LeFrak said on CNBC’s "Squawk Box." “I think he will prevail, ultimately, because he wants to put people to work.”

    Republicans resisted President Barack Obama’s push for an infrastructure “surge” for eight years, arguing that the federal government couldn’t afford it and that state and local governments should shoulder more responsibility for improvements. However, now that Trump "has taken up the Democratic cause", they may find it more problematic.
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    EU Winter Package CO2 proposal unacceptable: Poland

    The proposed limit on CO2 emissions in the EU's 'Winter Package' is 'unacceptable' to Poland, which is dependent on coal and lignite for most of its electricity generation, Piotr Naimski, the government's adviser on strategic energy infrastructure said late Friday.

    In November, as part of the 'Winter Package', the European Commission proposed that only generating units that emit up to 550 kg/MWh of CO2 would be eligible for support from a capacity market.

    Poland is currently preparing to introduce a capacity market based on centralized capacity auctions similar to the system currently operated in the UK. The government would like the first auction for capacity to be delivered in 2021 to take place by the end of this year.

    "This is unacceptable for us," Naimski told reporters, when asked about the emission cap proposal. Naimski said hard coal and lignite would remain the basic source of electricity generation in Poland for the next 30 years because they are a relatively cheap source of fuel and they guarantee the country's energy security.

    The Polish Electricity Association (PKEE), which includes the country's four vertically integrated state utilities, has said it opposes the proposal, even taking into account that Polish generators would benefit from a five-year derogation period from the time the restriction comes into force.

    "Nearly 28 GW would be excluded from the future Capacity mechanism; this gap cannot be covered by energy import (the available interconnector's capacity is estimated to reach 3 GW)," the PKEE said in its position paper on the Winter Package in December.

    The installed capacity of the Polish electricity system amounts to roughly 38 GW. The Commission's proposal would apply to new units from the date it takes effect, while existing Polish plants would get a five-year derogation.
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    Most of Europe to be warmer than normal in February, March: forecaster

    Most of Europe is set for warmer-than-normal temperatures in February and March, The Weather Company -- formerly WSI -- said in an update Monday, though the UK and the Iberian Peninsula are likely to see colder weather than usual.

    The closely watched forecasts are a deviation from the group's most recent winter forecast from late December, which suggested a colder-than-usual February for much of Europe.

    The prediction comes after parts of Europe, especially southern and eastern Europe, suffered extreme cold temperatures in recent weeks, triggering price spikes across the region.

    "We expect that the evolving subseasonal signal should allow for warming/drying across southern Europe as we head into early February, with the strong westerly North Atlantic flow shifting the focus of the wet weather to the UK and Scandinavia for at least a couple of weeks," The Weather Company's chief meteorologist Todd Crawford said.

    "The bulk of the cold has been east-focused in January, with southeastern Europe getting the worst of it with extreme cold and very heavy snows," Crawford said.

    The Weather Company said it was expecting warmer-than-normal temperatures in the Nordic region, northern European mainland and the east of the southern mainland in February and March.

    It said the west of the southern mainland -- Spain and Portugal -- would be colder than normal over the next two months.

    The past three winters in Europe have seen warm, wet and windy weather, which were bearish for gas markets traditionally buoyed by increased cold winter demand.
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    Energy Suppliers Hit Pay Dirt in EU’s Surprise Deep Freeze

    It only took a few cold weeks to break Europe free from its three-year-long energy glut.

    From Houston to Oslo and Moscow, companies that sell natural gas have seen sales and exports surge at the start of the year as Europe scrambles to secure enough supplies to manage the harsh weather. After forecasts for a mild winter, January temperatures plunged enough to freeze rivers and cut off supplies for tens of thousands of homes.

    The revenue boost offered a reprieve from a price collapse that’s lingered since 2014, with supply overwhelming demand during the three warmest years on record. While consumers and industry will be hit by higher bills after February power prices in Germany surged to a record and U.K. gas traded near a four-year high, energy companies are enjoying a winter windfall.

    “We have had quite a few hard years in terms of mild winter and this is a big positive deviation,” said Elchin Mammadov, a London-based utilities analyst at Bloomberg Intelligence. “It will have an impact on first-quarter results.”

    Power Grab

    German utilities have run their available plants at full throttle as temperatures plunged to a countrywide average of minus 4 Celsius (25 Fahrenheit) some days last week. Energie Baden-Wuerttemberg AG, Uniper SE and other utilities were also asked to activate some reserve plants, resulting in payments of more than 19 million euros, according to a Bloomberg estimate based on output and a government document on compensation.

    Utilities and German grid companies declined to comment or couldn’t comment on overall costs. Temperatures in the country are seen remaining below zero through the weekend, compared to a 10-year average of about 1 degree Celsius.

    Britain and Scandinavia, which have mostly avoided abnormally low temperatures, have been exporting electricity. The U.K. is generating its highest-ever volume of power from natural gas to send to France where prices have soared, also exacerbated by lower nuclear availability. Exports are at their highest level since at least 2010, even with flows on a cable linking the countries cut 50 percent through February.

    Norwegian power shipments to the Netherlands jumped 14 percent this year through Jan. 24, according to data from the Nord Pool AS exchange. With gas-fired electricity generation reaching new heights in the U.K. last week, shippers of the fuel to both power producers and utilities have also been boosted with higher-than-forecast sales.

    “I can’t remember a start to the gas year that’s been this good,” said Frode Leversund, the chief executive officer of Gassco AS, which sends Norwegian fuel to the continent and the U.K. through its 5,000 miles of pipelines.

    The company set a new daily record on Jan. 12, exporting gas worth as much as 76 million pounds ($95 million) based on U.K. prices that day.

    Russia’s Gazprom PJSC also supplied record levels in the first 15 days of January. The Moscow-based exporter, which meets about a third of European Union’s needs, boosted deliveries to the region and Turkey by 26 percent.

    LNG Cargoes

    With gas being the fastest rising fuel source for the world, sellers of liquefied natural gas have also benefited from a 33 percent increase in European prices since the beginning of December, according to data from World Gas Intelligence.
    Cheniere Energy Inc., the Houston-based exporter of LNG produced from U.S. shale gas formations, shipped two cargoes into the Mediterranean for the first time within the space of a week. One went to Spain and the other to Turkey, as both nations struggle with shortages. The U.S. producer has up until now mainly supplied South America, Middle East and Asia.

    Cheniere spokeswoman Faith Parker didn’t respond to requests for comment.

    With more than two months of winter to go, and European stockpiles of gas at less than half full, further price surges are possible, according to Massimo Di’Odoardo, the London-based research director for European gas at industry consultant Wood Mackenzie Ltd.

    “The weather this year has really surprised people,” he said in an interview in London.
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    Oil and Gas

    PetroChina Warns Profit May Drop to Record Low on Oil Plunge

    PetroChina Co., the country’s biggest listed oil and gas producer, said full-year net income in 2016 fell by as much as 80 percent, putting it on pace to report a record-low profit.

    The slump is due to lower international oil prices and domestic natural gas prices dropping “drastically” compared with the previous year, it said in a filing with the Hong Kong stock exchange on Wednesday. The company reported net income of 35.5 billion yuan ($5.16 billion) in 2015, which means profit last year may have fallen to as low as about 7.1 billion yuan, down for a third year to the least in data going back to 1996.

    “It’s slightly better than what we were expecting, but overall it’s largely in line with guidance,” said Neil Beveridge, a Hong Kong-based analyst Sanford C. Bernstein & Co. “As oil prices recover, we’ll see a strong recovery in earnings in 2017.”

    The warning comes after the company in October said third-quarter profit dropped 77 percent and it barely eked out a half-year profit. The company will continue to improve cost cutting in 2017 and it expects oil prices to rise as the global market rebalances, it said in its statement. The company may report full-year results on March 30, according to Bloomberg estimates.

    Brent crude averaged about $45 a barrel last year, down from almost $54 in 2015. The government cut gas prices in November 2015 in order to spur consumption. The slump in oil prices has punished China’s state-run producers, who were forced to cut production at fields that were too expensive to operate.
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    National Oil Corporation ends foreign investment moratorium

    The chairman of Libya’s National Oil Corporation, Mustafa Sanalla, today announced plans to allow foreign oil companies to invest again in Libyan oil production:

     “We intend in the coming months to lift our self-imposed moratorium since 2011 on foreign investment in new projects to achieve the best national interest for the Libyan oil sector and for Libya as a state.”

     In a keynote address at Chatham House’s Middle East and North African Energy conference,    Mr. Sanalla said NOC-driven projects to expand oil production could create a virtuous circle of domestic economic stimulus and security, while raising Libyan oil production to a forecast 1.25 million bpd by the end of 2017 and 1.6 mln bpd by 2022.

     Sanalla said after three years of blockades by the Petroleum Facilities Guards, all major oil export routes were now open. Investment in oil production capacity was needed to build on the opportunity created after the central Petroleum Facilities Guards under Ibrahim Jadhran were removed from the ports of the Oil Crescent by the Libyan National Army in September, and flows from the Shahara field were unblocked.

     “The LNA has its hands on the taps. And the Government of National Accord (GNA) has [UN Security Council resolutions] 2259 and 2278. Each side has one key to the treasure room, but both keys are needed to open the door. And for the moment the oil is flowing. This can be an important foundation of stability in Libya if we build on it.”

     Saying the oil sector had suffered from chronic under-investment, Sanalla continued:

     “We cannot rely on the international community to save us. We don't know when the transitional period will end. We cannot stand back and do nothing while the state disintegrates. The integrity of NOC is the best guarantee we have that Libya will be preserved as a unitary state.”
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    Germany Interested in Making $12 Billion Investment in Iran’s Oil Industry

    Germany’s major oil and petrochemical companies, including BASF, have expressed their willingness to invest a total of $12 billion in the Iranian oil sector.

    The Chemical company BASF, whose managing director paid an official visit to Iran last year as a member of a delegation accompanying German Economy Minister Sigmar Gabriel, has offered to invest in a six-billion-dollar project to establish petrochemical sites in southern parts of Iran.

    Over the past year, numerous meetings have been held between Iranian oil ministry officials and German companies and if they are finalized and lead to contracts between the two sides, $12bln of investment will be made in Iran by the Western European country.

    Wintershall Holding GmbH, Germany’s largest crude oil and natural gas producer and a wholly owned subsidiary of BASF, is another company that has signed a memorandum of understanding (MoU) with the National Iranian Oil Company (NIOC) to make studies on four oil fields west of Iran.

    There has been a new wave of interest in ties with Iran since Tehran and the Group 5+1 (Russia, China, the US, Britain, France and Germany) on July 14, 2015 reached a conclusion over the text of a comprehensive 159-page deal on Tehran’s nuclear program and started implementing it in January 2016.

    The comprehensive nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), terminated all nuclear-related sanctions imposed on Iran.

    The promising prospect of trade with Iran has prompted major European countries to explore the market potential in the populous Middle East nation.
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    Gazprom's Medvedev dismisses role of US LNG in European natural gas market

    Russia is the gas supplier of choice for European markets and will remain the most cost-effective and reliable source of gas in Europe, Alexander Medvedev, Gazprom's deputy CEO, said Tuesday.

    Speaking at the European Gas Conference in Vienna, Medvedev said US LNG had been a "big hope" for Europe, but that the record flows of Russian gas to Europe in 2016 -- almost 180 Bcm -- were evidence of Russia's position as the leading gas supplier to its European partners.

    "Russia is the only gas supplier that can reliably and flexibly supply gas in any amount. We can supply whatever Europe wants -- we have the capacity to supply an additional 150 Bcm/year," he said.

    In an apparent reference to US LNG exports starting up in February last year, Medvedev said Europe had chosen Russian gas despite there being newer supply options.

    "Our clients have a variety of diversification options, but they still buy Gazprom gas," he said. "This is a good indicator that -- in the face of new alternative gas resources -- our gas is and will be the most competitive in Europe."

    He added that LNG supplies were dependent on "volatile" prices, whereas pipeline supplies under long-term contracts were more reliable.

    Gazprom chairman Viktor Zubkov, also speaking at the Vienna conference, said the company was "not afraid of commercial competitors or other energy resources."

    European demand for Russian gas was buoyed last year by relatively low prices.

    Russian flows last year to Europe and Turkey -- but not including the countries of the former Soviet Union -- were up by 20 Bcm compared with 2015.

    Asked if Gazprom also looked to boost supplies to European hubs in a bid to raise market share, Medvedev said its supplies to its trading subsidiaries in Europe -- Gazprom Marketing & Trading in the UK and Wingas in Germany -- under their long-term contracts were reflected in the sales figures, as were the volumes sold in its 2016 gas auction for delivery into Germany.

    This suggests Gazprom could have sent maximum possible volumes to its own subsidiary companies in Europe last year, which would have boosted its market share.


    Medvedev again highlighted Gazprom's ability to react to customer demands for more gas.

    "We have very flexible contracts and very good prices, and this means we can react on a daily basis to requests from our European partners," he said.

    Asked if the long-term gas supply contract model was under any threat, Medvedev replied that the system still worked.

    "We feel comfortable -- we are delivering as much gas as needed under our long-term contracts," he said.

    He added that Gazprom had 4 Tcm of gas contracted under long-term agreements out to 2035, giving it security of demand for the next two decades and certainty for investing in new infrastructure -- especially its planned pipeline projects to Europe.

    "There is no better way to finance projects than long-term contracts -- we are ready to sign new long-term contracts to finance new infrastructure," he said.

    There has been some shift in Gazprom behavior in the past few years, including auctions and agreeing shorter term contracts.

    For 2017, Gazprom signed a one-year supply deal with Lithuania, but Medvedev said talks were ongoing about returning to a longer-term export deal.

    "Now we see a strong desire from Lithuania to sign a five- or 10-year contract. We have a one-year deal now, but we are in talks with them to go back to long-term contract," he said.


    Medvedev also urged European policymakers to encourage more gas consumption against the background of climate change policy and to allow Gazprom to build new pipeline routes to Europe.

    "Europe needs a consistent energy policy that is compliant with COP21," he said.

    He also said that reliable gas supply was a "huge political question" that needs a political answer "now".

    "Despite price volatility, Gazprom is still moving forward with its capital investments in Europe," he said.

    Medvedev's views were echoed Tuesday by Zubkov, who said Gazprom's policy was directed toward long-term reliability of supply to Europe.

    But, he said, the company could only supply gas via pipelines European politicians would allow.

    This is a reference to political opposition to Gazprom's planned Nord Stream 2 and TurkStream pipelines.

    "This is a very challenging situation for our company," Zubkov said. "It would be a pity if we would be politically forced to use routes that are not so favorable to us," he said.

    Manfred Leitner, head of downstream at Austria's OMV, also said Europe needed to shift its political attitude toward Russia.

    "Political Europe needs to urgently reconsider its neighborhood approach to Russia," he said.
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    Gas usage hits record highs in Tokyo, Osaka as cold bites Japan

    Gas usage in Japan, the world's biggest importer of the fuel in liquid form, this week hit daily records in the cities of Tokyo and Osaka, with residents cranking up heating as a cold snap grips the country.

    Japan's biggest city gas supplier, Tokyo Gas, on Wednesday said gas usage in the capital reached just over 60 million cubic metres (2.1 billion cubic feet) the day before as average temperatures there fell as low as 2.5 degrees Celsius (36.5 degrees Fahrenheit). That eclipsed Friday's record of 59.5 million cubic metres.

    Osaka Gas, which serves Japan's second-biggest metropolitan area, said gas usage marked a record 36.8 million cubic metres on Monday in the face of similar temperatures.

    Gas, along with electricity, is typically used for heating in Japan's main cities as they have pipe networks.

    In more rural and other urban areas, kerosene is often used to warm buildings, with sales also climbing as temperatures drop and heavy snow falls in many places.

    Kerosene sales rose nearly 6 percent to 550,000 barrels per day in the week to Jan 21 from a week earlier, Japan's petroleum association said on Wednesday.

    Temperatures fell to below -30 degrees Celsius on the northern island of Hokkaido, national broadcaster NHK said on Tuesday.

    Japan's liquefied natural gas (LNG) imports dropped for a second year in a row to 83.34 million tonnes, the government said on Wednesday.

    Prices for LNG spot cargoes for Japan rose for a third month to a 16-month high in December, gains that are attracting increasing supplies to Asia from as far away as the U.S. Gulf Coast.

    Attached Files
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    Papua New Guinea's PNG LNG well positioned for capacity upgrade: Oil Search

    The PNG LNG terminal project in Papua New Guinea has ample supply options to facilitate a capacity upgrade and has operated well above its nameplate capacity over October-December 2016, Australia-listed project participant Oil Search said in its quarterly report released Tuesday.

    "A likely upgrade in the PNG LNG project reserves, together with resources in Elk-Antelope, P'nyang and the new Muruk discovery, support Oil Search's view that there is more-than-sufficient discovered gas resources in PNG to supply not only to the proven expanded capacity of PNG LNG trains 1 and 2, but also to at least two, and possibly three, expansion trains," the company said in the report.

    The PNG LNG project is a two-train 6.9 million mt/year nameplate capacity integrated LNG project operated by ExxonMobil PNG Ltd., which has a 33.2% interest in the project. Oil Search has 29% stake.

    The discovery of gas by the Muruk 1 exploration well was a key hightlight during the December quarter, Oil Search's quarterly report said.

    "Given that Muruk is only 21 kilometres northwest of the nearest Hides well, it is a prime candidate to be tied into the PNG LNG project infrastructure, to support potential LNG expansion, if appraisal activities are successful," it said.

    Formal talks on an expansion are expected early this year, RBC Capital Markets analyst Ben Wilson said Tuesday.

    "One of the key upcoming catalysts we are looking for is forming commercial arrangements with ExxonMobil, Total, and Santos around expansion plans for two trains at the PNG LNG site," he said.

    "Formal talks are now expected in early-2017, contingent on ExxonMobil's acquisition of Interoil. This would put the JV partners in a good position to begin negotiations with the PNG government, following the mid-year elections," Ben said.

    PNG LNG produced at an annualised rate of approximately 8.3 million mt/year during October-December 2016, up from 8.1 million mt/year in July-September and 20% higher than the nameplate capacity of 6.9 million mt/year, Oil Search's quarterly report said.

    LNG production from PNG LNG net to Oil Search during the October-December 2016 quarter was 26,560 mmscf, compared with 24,805 mmscf a year earlier and 25,864 mmscf in the July-September 2016 quarter, the report said.

    The full-year net production from the terminal for Oil Search was 101,827 mmscf, up from 96,646 mmscf in 2015, it said. For 2017, it is expecting 101 bcf-104 bcf, Oil Search said in its guidance Tuesday.

    Other stakeholders in the PNG LNG project are: Santos (13.5%), National Petroleum Co. of PNG (16.8%), JX Nippon Oil and Gas Exporation Co. (4.7%) and Mineral Resources Development Co. (2.8%).

    Attached Files
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    OPEC Clears Way for Cheap U.S. Oil to Sail to Biggest Market

    Add Southern Green Canyon and Mars Blend to the growing list of American crude that’s challenging OPEC’s dominance in the world’s biggest oil market.

    Cargoes of the two varieties produced in the Gulf of Mexico, which are heavier and more sulfurous than supply from U.S. shale fields, are poised to flow into Asia as they turn cheaper relative to similar-quality crudes from nations such as Saudi Arabia and Oman.

    The deal between producers worldwide to cut output and ease a glut is boosting the cost of Middle East supplies, priced against the Dubai benchmark, because most of the reductions are coming from the region. Meanwhile, U.S. marker West Texas Intermediate is turning relatively weaker as a rebound in global crude prices from the worst crash in a generation is spurring more American rigs into action. Shale oil that was already cheap enough to sail to Asia is now being joined by cargoes from more traditional fields.

    “Flows of Mars and Southern Green Canyon to Asia are extremely rare,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. But “the move is currently viable as Dubai has strengthened against other benchmarks such as WTI, following the Saudi-led output cut,” he said.

    Asia is buying oil from as far away as the U.S. because of a shortage of supplies of medium-heavy crudes, according to Nah. Refinery shutdowns for maintenance work on the U.S. Gulf Coast mean that grades such as Southern Green Canyon are available and cheap enough to be shipped to other regions, he said.

    WTI’s cost fell below Dubai in December for the first time in at least three months. The U.S. benchmark was at a discount of $1.08 a barrel to Dubai on Tuesday. Mars and Southern Green Canyon are even cheaper than WTI because they are more difficult to refine.

    Oil explorers last week put the most rigs back to work in U.S. oil fields in almost four years, according to data from Baker Hughes Inc. Oil output in the nation rose to the highest level since April in the week ended Jan. 6, while crude stockpiles surged by the most since November during the same week.

    Japanese refiner TonenGeneral Sekiyu K.K. bought Southern Green Canyon from BP, while Mars Blend is being offered to Asian customers. The tanker Manifa is sailing to Singapore after loading Southern Green Canyon, Eagle Ford shale crude and fuel oil via a series of ship-to-ship transfers, according to Matthew Smith, director of commodity research at ClipperData LLC, a firm that analyzes and tracks oil flows globally.

    Such arbitrage trades became viable as cargoes turned relatively cheaper compared with similar-quality Oman crude, a Bloomberg survey showed last week. Additionally, the premium for Brent crude, the benchmark for more than half the world’s oil, against Dubai narrowed to a 16-month low of $1.46 a barrel this month, providing an incentive for Brent-linked grades to flow from the Atlantic Basin to the Asian market.

    Market Competition

    Such shipments from the Americas as well as Europe and Africa are making oil sales to Asia more competitive. It’s also influencing the strategy of traditional dominant suppliers such as Saudi Arabia. In January, the largest oil exporter was focusing its output curbs on its Arab Medium and Arab Heavy grades while continuing to pump lighter crudes to compete better with U.S. shale and African supply.

    But that’s in turn boosted the cost of more sulfurous heavy crudes in Asia, creating an opportunity for relatively cheaper and similar quality U.S. supply to flow east.

    “Newer and complex refineries in Asia have no problem refining heavier crudes from the U.S. Gulf Coast, as long as the economics make sense after factoring freight and market structure,” said Tushar Tarun Bansal, director at industry consultant Ivy Global Energy in Singapore. “Arbitrage flows of heavier crudes from U.S. Gulf Coast to Asia will remain an opportunistic trade.”
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    EIA Says NatGas Prices Heading Higher This Year & Next

    Good news for natural gas drillers in general, and Marcellus/Utica drillers in particular:

    Our favourite government agency, the U.S. Energy Information Administration (EIA) predicts the average price for natural gas in the U.S. will rise in both 2017 and 2018.

    EIA expects the Henry Hub natural gas spot price to average $3.55 per million British thermal units (MMBtu) in 2017 and $3.73/MMBtu in 2018, both higher than the 2016 average of $2.51/MMBtu.

    Higher prices in 2017 and 2018 reflect natural gas consumption and exports exceeding supply and imports, leading to lower average inventory levels…
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    Trump Signs Executive Orders Renegotiating Keystone XL, Dakota Access Pipelines

    Update: it's official, Trump has signed an executive order which will renegotiate the terms of the Keystone XL and Dakota Access pipelines:



    It is just day two of his presidency, and already Trump is taking a sledgehammer to the Obama legacy: in his latest move reported moments ago by Bloomberg, president Trump intends to sign two executive actions today that would advance construction of the controversial Keystone XL and Dakota Access pipelines, putting a spoke, so to say, in the train wheels of Warren Buffett's train-based oil transportation quasi-monopoly.

    Requiring Keystone XL (and Others) To Use Domestic Steel

    President Trump today signed executive actions to accelerate the Keystone XL and Dakota Access pipeline projects and to decree that American steel should be used for pipelines built in the United States.

    I want to see the precise language of the requirement (should be available later today), but this looks like a probable violation of international trade agreements. I wrote about this issue a while back, when Congress considered a similar requirement
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    Playing games with maps.

    Image titleFifteen years ago the first shale, the Barnett was discovered, closely followed by the Fayetteville. They were big enough to be interesting, but not large enough to impact gas price.

    Then came the Marcellus. On the map above I've replaced the Marcellus with the Barnett and Fayetteville.  You can put both inside the Marcellus, worse, the Marcellus rock was simply better. 

    Natural Gas production soared, prices crashed, E&P execs and analysts were shocked, surprised and mostly went bankrupt.

    Eight years ago Oilmen made the Bakken flow, then the Eagle Ford. US production started rising. Saudi was annoyed, and crashed prices. E&P execs and analysts were shocked, surprised and mostly went bankrupt. 

    This last year, Oilmen have been transferring their skillset into the Permian. On the map I've replaced the Permian with the Bakken and Eagle Ford. You can put both inside the Permian, worse the Permian rock is simply better. 

    Now the Oil market is much bigger than the Natural Gas market, but you can see where this story ends. 

    Attached Files
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    Canadian Drillers Brave Deep Freeze as Oil Patch Revives Growth

    In the snowy prairies of Western Canada, not even temperatures below -40 degrees have stopped Stampede Drilling Ltd.’s 60 recently rehired workers from manning the oil-service provider’s rigs after a nine-month dry spell for the business.

    “Once oil hit $50, everybody started phoning again,” Bill Devins, the drilling company’s 57-year-old owner, said in a phone interview from his office in Estevan, Saskatchewan, a town bordering North Dakota right at the heart of the Bakken shale formation. “We started to have some activity come our way.”

    From the tight-oil plays of Saskatchewan to the oil sands of northern Alberta, Canada’s energy producers are returning to growth mode after more than two years enduring the worst market rout in decades. They are leaner and more efficient after cutting staff, shelving projects and reducing costs since the downturn. Cheaper crude doesn’t feel so painful any longer.

    Companies such as MEG Energy Corp., Canadian Natural Resource Ltd., Cenovus Energy Inc., Encana Corp. and Seven Generations Energy Ltd. have all announced plans to expand production. Calgary-based Precision Drilling Corp.hired and recalled about 1,000 field workers to reactivate rigs in Canada and the U.S.

    The renewed focus on expansion happens as the Organization of Petroleum Exporting Countries cuts output and after the Canadian government in November approved construction of two expanded oil pipelines that will add almost a million barrels a day of export capacity to Western Canada.

    ‘More Comfortable’

    “A lot of companies have started increasing capital budgets,” Amir Arif, a Calgary-based analyst at Cormark Securities Inc., said by phone. “They are getting more comfortable in the $45 to $60 oil world. The stability in the oil price is a key factor.”

    Crude has rallied on the back of the OPEC-led supply cuts, trading mostly above $50 a barrel in New York since a Nov. 30 agreement. While that’s nothing like the industry’s heyday years of about $100 before the crash, it’s a big improvement from the near-$25 doldrums of a year ago.

    MEG plans to spend C$590 million ($446 million) in operations this year, almost five times more than in 2016, as it expands production at the Christina Lakes oil-sands site by about 25 percent. Cenovus will proceed with a 50,000-barrel-a-day expansion of its own Christina Lake project and Canadian Natural is moving ahead with its 40,000-barrel-a-day Kirby North project. The three ventures represent the first oil-sands expansions to be announced since the downturn began.

    Economic Rebound

    The rosier outlook is filtering into Western Canada. Alberta’s economy will grow 2.1 percent this year, tying with British Columbia for second-fastest among Canadian provinces behind Ontario’s 2.3 percent, according to the median of forecasts compiled by Bloomberg. The growth follows two straight years of economic contraction in the oil-rich province and will be largely due to the rebuilding of Fort McMurray, the gateway to the oil sands that was devastated by wildfires last year. Saskatchewan, the country’s second-largest oil producing province, will also emerge from a two-year recession to grow 1.7 percent.

    Oil companies that form the backbone of the Western Canadian economy cut capital spending 50 percent in the past two years to C$17 billion in 2016, according to the Canadian Association of Petroleum Producers projections. About 110,000 jobs were lost between late 2014 and April of last year, CAPP said. The number of rigs drilling for oil and natural gas in Canada has jumped almost 40 percent from a year ago, after falling to the lowest since the early 1990s last year, according to data from Baker Hughes Inc.

    To be sure, the economy is only beginning to recover. In Alberta, holder of the world’s third-largest crude reserves, the unemployment rate dropped to 8.5 percent last month from 9 percent in November, the highest in more than 20 years.

    Empty Offices

    In Calgary, the province’s biggest city and the headquarters for most Canadian energy companies, almost 25 percent of office space was vacant in the third quarter, according to New York-based Cushman & Wakefield, a real estate service company. Vacancies are going to rise to as high as 30 percent by 2018 as downtown office buildings such as Brookfield Place and Teles Sky open their doors, Stuart Barron, the company’s Toronto-based national director of research, said by phone.

    “There is more optimism but the market is not going to turn around on a dime,” he said. “Its going to take another year or two to see strengthening.”

    For oil companies, a return to the days when 200,000-barrel-a-day new oil-sands projects were routine is unlikely, Stephen Kallir, Canada upstream research analyst at Wood Mackenzie Ltd., said by phone. Most oil-sands expansions announced in recent months were projects that had already had capital invested in them, he said. Energy companies in Canada may also focus more on shale plays, where investment returns are realized more quickly than in the oil sands.

    ‘Prudent Approach’

    “The aftershock and, for lack of a better word, hangover of the past two years is going to linger for quite a while in terms of how capital spending decisions are made,” he said. “There is going to be a lot more prudent approach.”

    Much of the growth will be concentrated in Saskatchewan, where a less challenging geology means more wells will be tapped this year than in Alberta, according to the Canadian Association of Oilwell Drilling Contractors and Petroleum Services Association of Canada. That’s good news for Stampede’s Devins, who’s watched people move away and local businesses close up including a Staples and a motel. The new year has started out good.

    “It’s probably as active as we’ve seen in two years for sure,” he said.
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    Shell, Phillips 66 buy 6.4 million barrels of oil from U.S. emergency reserve

    Oil companies Shell and Phillips 66 together bought 6.4 million barrels of oil last week from the Strategic Petroleum Reserve (SPR), according to a Department of Energy document released on Tuesday.

    Shell bought 6.2 million barrels of oil and Phillips 66 bought 200,000 barrels on Jan. 18, according to the department document, seen by Reuters.

    The federal government held the sale to fund a revamp of the emergency oil stash, which is stored in salt caverns in Louisiana and Texas along the Gulf Coast. The Department of Energy had said it would sell up to 8 million barrels as part of its modernization program.

    Shell will take delivery of 1.7 million barrels of oil to a vessel, the documents said, while the remainder of the barrels are slated for pipeline delivery.

    The U.S. lifted its decades-long ban on exporting U.S. crude in December 2015, giving buyers of the oil the opportunity to export oil purchased from the reserves.

    A spokesman for Shell declined to comment on whether the company planned to export the crude.

    Phillips offered a price of $53.8985 a barrel for the oil, and Shell offered between $53.668 and $54.338 a barrel, the documents said.

    On Jan. 18, benchmark West Texas Intermediate crude futures settled at $51.08 a barrel.

    Shell and Phillips 66 both operate oil refineries along the U.S. Gulf Coast near sites of the strategic reserves.
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    Alternative Energy

    UK offshore wind costs fall nearly a third in four years - report

    The cost of producing electricity from wind farms off the coast of Britain has fallen 32 percent in the past four years, meeting a government target four years early, an industry report released on Tuesday said.

    Britain plans to increase its offshore wind capacity to help bridge a looming electricity supply gap as old nuclear plants and coal-fired power stations close.

    Offshore wind farm costs fell to an average of 97 pounds ($120.82) per megawatt-hour (MWh) in the 2015-2016 financial year, from 142 pounds/MWh four years earlier, the report commissioned by the Offshore Wind Programme Board said.

    This means the industry has met ahead of schedule a government target to cut costs to below 100 pounds/MWh by 2020.

    It also puts the cost of offshore wind close to that of new nuclear plants, with the government contract awarded to France's EDF for its Hinkley C reactor project in southwest England at 92.50 pounds/MWh.

    "Thanks to the efforts of developers, the UK's vigorous supply chain and support from government, renewables costs are continuing to fall," Britain's energy minister Jesse Norman said in a statement with the report.

    "Offshore wind will continue to help the UK to meet its climate change commitments, as well as delivering jobs and growth across the country," he said.

    Britain has a legally binding target to cut emissions of harmful greenhouse gases, such as those produced by fossil-fuel-based power plants, by 80 percent from 1990 levels by 2050.

    Developers of offshore wind projects, such as DONG Energy , have driven down costs rapidly over the past few years by increasing the size of turbines.

    However, critics say that even with recent cost reductions, offshore wind remains much more expensive than traditional fossil-fuel electricity generation, while some environmental groups say the huge structures could harm marine life.

    Norman said offshore wind would be an important part of the government's new industrial strategy, which was unveiled on Monday and includes delivering affordable, low-carbon energy growth.

    More than 9.5 billion pounds ($11.8 billion) has been invested in offshore wind in the United Kingdom since 2010, the report said, with another 18 billion pounds due by 2021.
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    Xinjiang 2016 power output rises 7.6pct, wind power surges 48.9pct

    Northwestern China's Xinjiang Uygur autonomous region generated 227.37 TWh of on-grid electricity in 2016, a rise of 7.6% from a year ago, said the provincial Development and Reform Commission.

    Of this, thermal power output edged up 3% to 175.4 TWh, or 77.2% of the total.

    This was followed by wind power output at 22 TWh, surging 48.9% on the year; hydropower at 21 TWh, rising 5.6% from the previous year; solar power at 6.66 TWh, a jump of 53% year on year; and electricity generated by other power resources at 2.31 TWh, up 10.6% on the year.

    The December power output increased 18.2% compared to the same month of 2015 to 20.74 TWh.

    In 2016, power consumption of Xinjiang reached 179.38 TWh, 12% higher than the previous year.

    Of this, 7.47 TWh was consumed by the residential segment, gaining 5.1% from the year prior.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 12.31 TWh last year, sliding 3.7% from the previous year.

    The secondary industries – mainly the industrial sector, consumed 148.92 TWh, increasing 14.4% on the year.

    Power consumption by tertiary industries – mainly the service sector – increased 5.7% year on year to 10.68 TWh.
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    Lynas exceeds production guidance

    Rare earths miner Lynas Corporation on Tuesday reported that it exceeded its production guidance of neodymium-praseodymium (NdPr) during the three months ended December 31, delivering 1 331 t.

    This was also an increase from the 1 176 t it produced in the previous quarter, with total rare-earth oxides increasing to 3 913 t, from the 3 665 t in the September quarter.

    “These production increases highlight a continuation of solid production and operational performance. We expect these improvements in production to be sustainable,” the company said in a statement, noting that the improved production further underpinned better financial outcomes.

    Invoiced sales reached a new high of A$65-million, up from A$53.8-million in the previous three months, reflecting record sales of NdPr and good volume of other products. Cash receipts also reached a new high at A$58.3-million for the quarter.

    Further, the company noted that despite continued low prices for rare earth products, its operating cash flow improves significantly on a quarter-on-quarter comparison, rising from A$1.7-million to A$5-million.

    Cash flow after investing activities, primarily capital expenditure, was A$4.4-million.

    Lynas also achieved record sales during the quarter, with A$65-million in invoiced sales, up from A$53.8-million in the September quarter.

    During the December quarter, planning was also finalised for its first mining campaign at Mount Weld, in Western Australia, since 2008, which was now set to start this month.

    The total cost of the mining campaign, which should provide one-year of mill feed, is expected to be about A$3-million, with costs incurred in the March quarter and the June quarter.

    “We expect demand to remain strong over the coming period and are hopeful the recent firming in price for lanthanum and cerium may also be reflected for other rare earth products,” Lynas stated.
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    DuPont sees Dow merger closing in first half of 2017

    Chemicals and seeds producer DuPont  said on Tuesday it expected its merger with Dow Chemical Co to close in the first half of the year, suggesting it will take longer than previously estimated to win approvals for the $130 billion deal.

    Previously, the companies said they hoped to wrap up the transaction in the first quarter of 2017.

    DuPont, which also reported a better-than-expected profit for the sixth straight quarter, said it continued to have constructive discussions with regulators in key jurisdictions.

    This is at least the second time the two companies, which have been in talks with EU antitrust regulators to save their merger, have had to push back the expected completion period.

    DuPont also said it expected its profit in the current quarter to fall 18 percent from a year earlier due to a charge of 15 cents per share related to the Dow deal.

    Operating profit, which excludes one-time charges, is expected to rise about 8 percent, helped by cost cutting and increased seed deliveries.

    Net income attributable to the company was $265 million, or 30 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $253 million, or 29 cents per share, in the same quarter of 2015.

    Excluding items, the company earned 51 cents per share, beating analysts' average estimate of 42 cents, according to Thomson Reuters I/B/E/S.

    Net sales fell 1.7 percent to $5.21 billion, missing analysts' average estimate of $5.29 billion.
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    Precious Metals

    De Beers rakes in sparkling $720m in year’s first sales cycle

    Diversified mining company Anglo American on Tuesday announced $720-million as the value of rough diamond sales at De Beers’ first sales cycle of 2017, compared with $470-million and $494-million in the last two sales cycles of 2016, helped by a longer period between the final sight of 2016 and the first sight of 2017.

    De Beers reported good demand as the industry entered the period when rough diamond demand is traditionally strongest.

    “While the reopening of some diamond polishing operationsin India saw something of an increase in demand for smaller, lower quality rough diamonds, we maintain a cautious outlook for these categories as the Indian industry continues to adjust to the post-demonetisation environment,” CEO Bruce Cleaver said in a release to Creamer Media’s MiningWeekly Online.

    Last week De Beers announced that it would begin piloting fixed-price forward contracts in its auction sales, the first of which is scheduled to take place on February 16, for the grainers, smalls and near-gem categories of rough diamonds.

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

    Meanwhile, diamond mining company Petra Diamonds, which operates mines formerly owned by De Beers, said on Monday that it expected stronger sales in the second half of the year. Petra's production rose 24% to 2.01-million carats in the six months to December 31.
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    Base Metals

    Copper price jumps to highest since June 2015

    On Tuesday copper for delivery in March closed more than 2% higher in New York at $2.7085 per pound or just under $6,000 a tonne. It was the highest close since June 2015 and in after hours trade the metal added to gains, last trading at $2.72.

    Copper has advanced 40% since hitting near-six year lows this time last year, with most of those gains coming in the last four months.

    Copper's latest leg up was spurred by worries over a possible production outage at the Escondida mine in Chile. Majority owner and operator BHP Billiton expects full-year production at Escondida of 1.07 million tonnes, which gives the mine a nearly 5% shares of global mine production.

    The current collective agreement with the main union at the mine expires at the end of January and according to a Reuters report workers have rejected BHP's latest revised offer and union leaders have told members "to vote for a strike and prepare for an extended conflict."

    The previous labour deal was signed four years ago when copper was trading around $3.40 a pound. Given Escondida's size a prolonged outage could have a meaningful impact on the price.

    BHP's copper production for the half year to end December fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP also cut full year guidance by 40,000 tonnes to 1.62m tonnes.

    Chile produces 28% of the world's copper and the country's output dropped by 3.9% in 2016, mainly due to lower production at Escondida and Anglo American Sur.

    Production in the South American nation is expected to grow by 4.3% according to the Chilean government forecaster adding that Escondida would account for almost all of the expected increased output.
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    Workers at Chile's Escondida reject wage offer, strike looms

    Unionized workers at BHP Billiton-run Escondida, the world's biggest copper mine, said on Tuesday they rejected the company's latest wage offer and asked workers to vote for a strike and prepare for an extended conflict.

    The Escondida workers' union, which represents about 2,500 laborers at the Chilean mine, has been in collective wage talks with the company since December to replace the current contract which expires at the end of January.

    The tough bargaining at Escondida, seen as a benchmark for the copper industry, follows a more than 25 percent drop in copper prices since the last wage deal was reached four years ago. At the same time costs have risen as more rock has to be dug up to maintain copper yields, with the grade declining.

    Talks four years ago ended with Escondida offering each worker a bonus worth some $49,000, the highest offered in Chile's mining industry. The company is now offering much lower bonuses of around $12,000 per worker.

    The union has warned that if talks with the company are unsuccessful they could go on strike.

    "The company has presented its last offer today, which eliminates or modifies a series of benefits our union has fought for and won over the years," the union said in a statement.

    "Considering this, the union's board has asked all of its members to vote en masse for a legal strike and to prepare themselves for an extended conflict," it said.

    "The offer is absurd," union president Patricio Tapia told Reuters.

    Workers will have between Jan. 27 and Jan. 31 to vote on the company's wage and benefits proposal.

    "We reiterate the company's willingness to undertake a process that places emphasis on understanding and consensus, as the mission of both parties is to ensure that we maintain instances in which respect, calm and good faith prevail at all times," BHP said in a statement emailed to Reuters.

    Under Chilean labor law, if direct talks between the company and workers fail, both sides can then request government mediation.

    Escondida is controlled by BHP Billiton with a 57.5 percent stake, while Rio Tinto owns 30 percent. The rest is owned by Japan's JECO.

    The mine's output for the half year ending Dec. 31 stood at 452,0000 tonnes, unchanged from the same period a year earlier, BHP said in its latest operational review. It still expects Escondida to produce 1.07 million tonnes for the year to June.
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    US demand growth to push copper market into deficit

    The surge in the copper price to near 18-month highs following Donald Trump's win in the US presidential election came as a surprise to an industry under pressure since 2011 over growing supply.

    Bullishness about the impact of Trump's $500 billion infrastructure plans has cooled down considerably since then, but at $2.6430 per pound ($5,872 a tonne) in New York on Monday the bellwether metal is up by more than a third in value since hitting near-six year lows this time last year.

    The Chilean Copper Commission upped its price estimates for this year and 2018 from its previous forecast in a report released on Monday, but the government forecaster for the world's top exporting country, still sees copper averaging below today's ruling price.

    After contracting in 2016, US copper demand will grow 2.5% this year, offsetting slower growth in China

    Cochilco said it projected average copper prices of $2.40 per pound in 2017, up from its prior estimate of $2.20, citing expectations that proposed increased fiscal spending in the US will boost demand for the metal widely used in construction and manufacturing. Prices should improve further to average $2.50 per pound in 2018. The copper price averaged $2.21 in 2016.

    Cochilco's prediction for global refined copper demand growth in 2017 is adjusted upward from 1.9% to 2.6% to a total of 24.3 million tonnes  of refined copper globally. After contracting by an estimated 1.9% last year, US demand will grow 2.5% this year, offsetting slower growth in China which is still to expected to consumer 3% or 356kt more copper in 2017 compared to last year.

    At the same time the government forecaster expects supply growth to moderate to 2.9% or 583kt this year to 20.76m tonnes as Chile which produces nearly 30% of the world's copper increases output by 4.3% or 306kt and Peruvian output continues to grow.

    Last year the organization estimated growth in supply was a significant 4.7% or more than 900kt, mainly on the back of a 42% surge in production from Peru and huge jumps in Mexico and Iran which offset declines in the DRC and Chile.

    Cochilco revised downwards its 2016 market surplus to 60,000 tonnes compared with the 128,000 tonnes it forecast in September. The organization now sees a market deficit in 2017 compared to a forecast oversupply of 114,000 tonnes it predicted previously. The market will stay in a slight deficit in 2018 of 34,000 tonnes.
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    Asia alumina: Australia static as participants stay on sidelines ahead of holidays

    There were few bids and offers Monday. With the Lunar New Year just days away, market participants in Asia were already in holiday mode.

    India's Nalco is slated to close on January 24 a sell tender for a 30,000-mt shipment between February 16-20, FOB Visakhapatnam basis. Bids will be required to be valid until January 27. The sale price has the potential to be a key indicator for global market participants, should it become public information promptly upon settlement.

    In the meantime, two Chinese producer and trader sources said they would consider $339.50/mt FOB Australia a reasonable price for shipment in the second half of February.

    In recent weeks, participants have said they didn't expect the price of alumina to tumble in the immediate term despite lackluster trade, because while tons were available, the global market did not appear to be excessively long.

    An alumina spot trade was done on January 13 between a trader and smelter, at $339.50/mt FOB Western Australia with 30 days credit, for a 30,000-mt cargo, shipment in late-February.

    S&P Global Platts assessed the Handysize freight rate at $14.25/mt on Monday for moving a 30,000-mt shipment in the second half of February from Western Australia to Lianyungang.


    The Platts ex-works Shanxi daily spot alumina assessment softened Monday to Yuan 2,960/mt ($432/mt) full cash terms, down Yuan 10/mt from Friday, as demand slowed further, ahead of the Lunar New Year holidays from January 27 through February 2.

    The assessment was down Yuan 10/mt week on week, and Yuan 20/mt from the month before.

    A Southwest China smelter source said he bought 20,000-30,000 mt of Shanxi spot alumina late last week at around Yuan 2,950/mt cash, and had no plans to buy more until after the holidays.

    A Shanxi refiner put current tradeable spot prices at Yuan 2,950-2,970/mt cash, with traders likely willing to sell at the lower end, while refiners stayed closer to the higher level.

    "Demand is very weak now, so prices are softening ... most people will stop trading now until after the break," the Shanxi refiner said.

    A Henan refiner agreed, saying that he had also heard Shanxi prices had slipped Monday to around Yuan 2,950-2,970/mt cash.

    "We have heard even lower discussion levels, that prices can soon reach around Yuan 2,900/mt cash and below, in Shanxi and Guangxi regions, but these are all not confirmed," a western refiner/trader source said.

    Multiple participants have been saying since last week that they will not be trading spot alumina till after the Lunar New Year holidays, and trade is expected to come to a standstill this week.

    The market is eyeing clearer direction after the holidays, as there is too many uncertainties at the moment -- particularly how the environmental impact will pan out, and if the current rebound on the domestic aluminum prices will sustain, sources said.

    On Monday, the front-month aluminum contract on the Shanghai Futures Exchange closed at Yuan 13,620/mt ($1,986), up from Yuan 13,215/mt a week ago, and also from Yuan 12,700/mt a month before.

    Attached Files
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    Steel, Iron Ore and Coal

    Rio Tinto announces sale of Coal & Allied

    Rio Tinto has reached a binding agreement for the sale of its wholly-owned Australian subsidiary Coal & Allied Industries Limited to Yancoal Australia Limited for up to US$2.45 billion including:

    An initial US$1.95 billion cash payment, payable at completion; and US$500 million in aggregate deferred cash payments, payable as annual of US$100 million over five years following completion.

    Before 24 February 2017, Yancoal Australia is entitled to elect an alternative purchase price structure of a single cash payment at completion of US$2.35 billion.

    After the sale is completed, Rio Tinto will also be entitled to potential royalties.

    Rio Tinto Executive J-S Jacques said:

    “This sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of our capital.”

    Meanwhile, Yancoal Chairman Xiyoung Li said:

    “This is a transformative and exciting acquisition for Yancoal shareholders and will form the basis for the future growth and success as Australia’s largest pure-play coal company.

    “Via the acquisition of Coal & Allied’s high-quality asset portfolio, we will be delivering substantial cash flow to the company, quality coal products and long-term relationships with end-uses in key global markets.

    In addition to the sale consideration and potential royalties linked to the coal price, Rio Tinto will continue to benefit from earnings and cashflow generated by Coal& Allied until completion of the transaction. The Coal & Allied operations will also continue to use Rio Tinto freight survives following completion of the transaction.

    Subject to all approvals and other conditions precedent being satisfied, it is expected that the transaction will complete in the second half of 2017.
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    Shanxi Coking 2016 net profit estimated at 40-60 mln yuan

    Shanxi Coking Group Co., Ltd., Shanxi's leading coke producer, predicted its net profit to be 40-60 million yuan ($5.8-8.7 million) in 2016, reserving a loss of 830.21 million yuan in the year prior, it announced in a statement on January 24.

    The increase was mainly impacted by the government's de-capacity directive and the company's cost cut measures.

    The company mainly produces coke and methanol, with revenue from these products accounting for 60% and 20% of the total revenue.

    The group has coke production capacity of 3.6 Mtpa. It produced 1.55 million tonnes of coke in the first half of 2016, up 5.8% year on year.

    Shanxi Coking Group would buy stake of ChinaCoal Huajin Energy Co., Ltd. from its parent Shanxi Coking Coal Group – China's top producer of the material -- with 4.892 billion yuan, it said in early December.

    After the transaction, Shanxi Coking will get considerable investment income from ChinaCoal Huajin Energy.
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    BHP iron ore output breaks records

    The world's number one mining company BHP Billiton reported record half-year production at its Western Australia iron ore division on Tuesday.

    The Melbourne-based giant said thanks to the continued ramp up of additional capacity at its Jimblebar operations in Western Australia production at its iron ore unit rose 4% year-on-year to 117.6m tonnes for the six months to end-December.

    For the quarter output was 60m tonnes, ahead of market expectations and BHP is sticking to its full-year production guidance of 265m–275m tonnes.

    Coking coal production improved to 21m tonnes for the six-month period on the back of a strong performance at the company's four Queensland mines which more than offset the closure of its Crinum operations. For the year BHP expects to produce 44m tonnes of met coal.

    Copper production for the half year fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP cut full year guidance by 40,000 tonnes to 1.62m tonnes, but maintained its guidance for its majority-owned Escondida mine.

    Escondida is the world's largest copper mine by a large margin and BHP expects the pits to producer 1.07m tonnes during its 2017 financial year. Production increased 8% quarter on quarter and BHP said mechanical completion was achieved at the Escondida Water Supply project with first water expected in the March 2017 quarter.
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    China steel mills resist Rio's demand for 'ridiculous' iron-ore premium

    Chinese steel mills have balked at global miner Rio Tinto's plan to charge a premium in long-term contracts for its highest grade of iron-ore, rekindling the conflicts that caused the collapse of an annual pricing system seven years ago.

    The world's second-biggest iron-ore miner is seeking a premium of at least 15c/t above the index price for its flagship Pilbara Blend iron-ore product, or PB fines, for all new long-term contracts, according to sources at two Chinese steelmills with knowledge of the talks.

    Rio sells about 85% of its iron ore to China through contracts that can run up to five years, so a premium for its top productwould boost earnings as the market builds on last year's unexpected price revival.

    But Rio risks a backlash from its Chinese customers, who provide nearly half of its revenue. Those mills are just recovering from years of losses.

    "As far as we know, none of the steel mills have accepted this," said a source from a Chinese mill that produces 10-million tonnes of steel a year and has a long-term contract with Rio.

    "I think it's not fair to add some premium, it's not reasonable, it's ridiculous."

    This is the first time Rio has sought a premium on its long-term contracts with Chinese mills since the industry ditched a four-decade system of pricing contracts annually in 2010. Since then, the contracts use indexes derived from spot market deals published by agencies including Platts and Metal Bulletin.

    With iron ore prices tumbling to below $40 a tonne in 2015 from almost $200 four years earlier, miners have sought new ways to boost revenue.

    Rivals BHP Billiton and Vale SA have in the past secured premiums for their high-grade products, the source said. But unlike Rio, which is seeking the premium from all Chineseclients, BHP and Vale only asked certain customers, the source added.

    "It couldn't be accepted by the market," said the head of iron ore purchasing at one of China's biggest steel producers, of Rio's demand.

    Top iron ore miner Vale said premiums for its high-grade iron ore such as Carajas fines are determined by the market.

    "It is the market who decides the premium daily and the premium is also published in indexes," Vale said in response to Reuters' query.

    Officials at Rio and BHP did not respond to requests for comment.

    PB fines is popular in China for its low impurity levels as the country has stepped up anti-pollution efforts in the steelindustry. Amid strong demand, it sold between $1/t and $3/t above the index price last year in the spot market, and the current premium is $2, two traders said.

    Rio earlier sought a premium of up to $1/t from Chinese mills renewing contracts.

    Rio secured a record $2.50/t premium for PB fines for January to April 2017 from trading firms, up from $1.50 in September to December 2016, two trading sources said.


    Chinese mills contend the issue is not about the premium being big or small. "It's about whether it's reasonable," said the first source at a mill, adding that accepting a premium now means it can be negotiated higher in future."They can't ask for a special premium because we don't have a special discount when the market is bad," he said.

    "Before this, pricing is negotiated every year. If the iron oresupplier now asks for a premium then we go back to the previous pricing system. So both iron ore suppliers and steelmills face a difficult situation."

    Because of oversupply, it is difficult for foreign miners to fix a premium for iron ore, said Li Xinchuang, vice-secretary general of the China Iron and Steel Association. Scrap steel supply is also rising as China tackles a glut.

    "All outdated facilities will be closed very quickly. Then there will be a lot of scrap and this will reduce iron ore demand," Li told Reuters by phone.
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    Australia's BlueScope Steel raises earnings guidance

    Australia's BlueScope Steel said on Tuesday it expected to report first-half earnings higher than previously forecast due to a combination of stronger steel prices, higher iron ore export prices and cost reductions.

    The company said earnings before interest and tax for the six months ended Dec. 31 would be around A$600 million ($455.22 million), up from previous guidance of at least A$510 million, representing a 160 percent increase from the same period the prior year.

    BlueScope also said it would recognise a A$65 million impairment charge alongside its first-half results on Feb. 20 after reviewing the carrying value of its businesses.

    The company cited stronger steel prices that in particular benefited its Australian Steel Products and New Zealand and Pacific Steel divisions.

    The positive impact of stronger than expected iron ore prices on export iron sands exports also boosted profitability, according to the company.

    International spot iron ore prices rose by more than 80 percent in 2016, mostly on the back of stronger-than-expected steel production in China.

    The impairment charge relates to the company's China buildings business, where manufacturing sites are being reconfigured or closed, coupled with capital expenditure in iron sands and restructuring of the India engineered buildings business, Bluescope said.
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