Mark Latham Commodity Equity Intelligence Service

Monday 5th December 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Italy referendum: Matteo Renzi to resign after defeat as Austria rejects far right


    Italy

    Italian prime minister Matteo Renzi has said he will resign on Monday after voters dismissed his plans for constitutional reform in a crushing referendum that saw close to 60% of voters opt for “no”:

    My experience in government ends here … I did all I could to bring this to victory. If you fight for an idea, you cannot lose.

    Renzi’s departure – and the prospect of politically uncertain months ahead – prompted the euro to fall to a 20-month low against the dollar.
    The referendum on constitutional reform was seized upon by populist groups including the Five Star movement and the anti-immigration Northern League (Lega Nord), which called for snap elections. Matteo Salvini, leader of the Northern League, bracketed the result with Donald Trump’s win in the US, Vladimir Putin, and support for France’s far-right presidential candidate Marine Le Pen:

    Austria

    Far-right Freedom party candidate Norbert Hofer was beaten in the presidential election re-run by Green-turned-independent Alexander Van der Bellen.
    Hofer conceded after early results showed Van der Bellen ahead on 53.3%.
    The new president said the result was a “signal of hope and change to all the capitals in Europe”; with Green politician Werner Kogler hailing it as a small global turning of the tide in these uncertain, not to say hysterical and even stupid times.

    Hofer called the intervention of former Ukip leader Nigel Farage – who had claimed the far-right candidate would call a Brexit-style referendum for Austria to leave the EU – a “crass misjudgment”:

    It doesn’t fill me with joy when someone meddles from outside.

    https://www.theguardian.com/world/live/2016/dec/04/italian-referendum-and-austrian-presidential-election-live
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    EU blames China for WTO environmental trade talks collapse


    Europe's trade negotiator blamed China on Sunday for scuppering a global environmental trade deal by submitting impossible late demands at World Trade Organization talks aimed at scrapping import tariffs on exports worth more than $1 trillion.

    "China came in with their list, bringing in totally new elements of perspective, which was very late in the process," European Trade Commissioner Cecilia Malmstrom told Reuters.

    The change of U.S. president also puts a big question mark over the future prospects for a deal.

    European resistance to Chinese bicycle imports has also been a stumbling block, although Malmstrom said bicycles had become totemic for China and nobody else, and the agreement went far wider, adding that the EU had "quite cheap bicycles already".

    Malmstrom was co-chair of the talks, which aimed to cut costs for environmentally beneficial goods by removing trade tariffs applied to them, with U.S. Trade Representative Michael Froman, who declined to comment as he left.

    "Had that (China's list) come earlier we could have worked on this. But now this made it impossible to find an agreement, we were too far away from each other," Malmstrom said.

    China's Ministry of Commerce said in a statement that China had made great efforts to show the flexibility needed to effectively solve the participants' core concerns, but the meeting failed due to "differences on key issues".

    U.S. Ambassador to the WTO Michael Punke told reporters: “The United States worked hard to find a creative path to a successful EGA agreement. Unfortunately not all participants were ready to contribute to success.”

    WTO spokesman Keith Rockwell said it was disappointing that talks had not succeeded but many delegations were strongly committed to getting a deal and hoped for success in 2017.

    Malmstrom said she had no idea what U.S. President-elect Donald Trump thought about environmental matters, but she hoped the United States would be "on board". Any deal would need the backing of countries responsible for about 90 percent of the trade in the products, so a U.S. absence would kill the talks.

    But the participants, who include Canada, Japan, Israel, South Korea, Taiwan, Australia and New Zealand, have not yet decided which products should be part of the hoped-for Environmental Goods Agreement.

    The discussion included products for clean and renewable energy, energy efficiency, controlling air pollution, managing waste, treating waste water, monitoring the quality of the environment, and combating noise pollution, the WTO said.


    http://www.reuters.com/article/trade-environment-idUSL5N1DZ0KD

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    China Southern Power Grid Jan-Nov power sales up 4.6pct on year


    China Southern Power Grid, a state-owned company that transmits and distributes electricity to China's five southern provinces, reported total power sales of 829.4 TWh over January-November, up 4.6% on year, compared with an increase of 4.3% in the first ten months, showed the latest data from the National Development and Reform Commission (NDRC).

    Of this, power consumption of Hainan and Guangxi rose 6% and 5.8% on year, compared with increases of 7.1% and 4.5% over January-October.

    Guangdong and Guizhou followed with power use climbing 5.5% and 4.3% on year, compared with a rise of 5.5% and 3.6% in the first ten months, the NDRC data showed

    Yunnan posted a decline of 0.3% in its power consumption over January-November, compared with a drop of 0.4% in the first ten months.

    In November, electricity sales of the company stood at 75.9 TWh, up 8.8% from the year-ago level.

    Guizhou, Guangxi, Hainan, Guangdong and Yunnan all saw climbing power use in the month, with year-on-year growth at 14.5%, 20.8%, 2.3%, 6.1% and 6.6%, respectively.

    http://www.sxcoal.com/news/4549908/info/en
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    Oil and Gas

    Ahead of promised cut, Russia's oil output hits record high


    Russia plans to use its post-Soviet era record high November oil production as its baseline when it cuts output under this week's deal with OPEC, Deputy Energy Minister Kirill Molodtsov said on Friday.

    Russia has promised to gradually cut output by up to 300,000 barrels per day (bpd) in the first half of 2017 as part of a deal with other producers aimed at supporting oil prices.

    Its daily oil production rose to an average of 11.21 million bpd in November, a new post-Soviet era high, energy ministry data showed on Friday.

    That was 500,000 bpd higher than in August, the month before Russia and OPEC reached a preliminary agreement in Algiers to cut production.

    Under this week's follow-up agreement, the first between OPEC and Russia since 2001, specific cuts for individual states were set, with almost all OPEC members agreeing to cut from October levels.

    But Russia will use its November-December output levels, Energy Minister Alexander Novak told reporters on Thursday.

    November's production rose only slightly from October, by just 10,000 bpd, ministry data showed.

    "The peak of daily production for November was 11.231 million barrels," Deputy Energy Minister Molodtsov told a conference in Moscow.

    "All our agreements will clearly be formed around this figure, he said.

    Lukoil and Surgutneftegas raised output in November while production slipped at fields operated by Rosneft, Gazprom Neft and their joint venture Slavneft, preliminary data showed.

    Rosneft, Gazprom Neft and Lukoil have all launched new fields this year and increased drilling, despite low oil prices.

    Energy Minister Novak said on Thursday that all Russian companies would contribute to Russia's planned output cut.

    Novak also said Azerbaijan, Kazakhstan, Mexico, Oman, Bahrain and other non-OPEC producers could join the deal and that he expected them to jointly match Russia's cut of 300,000 bpd.

    http://www.reuters.com/article/us-opec-meeting-russia-idUSKBN13R1BS
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    OPEC non-OPEC meeting in Moscow


    Meeting between OPEC & non-OPEC to take place in Moscow on Dec 10. sources.

    @Lee_Saks
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    Asia sees OPEC deal could spark arb crude flows from west


    Asian crude importers could see their Middle East term supplies affected by OPEC's agreement to cut production, but tighter sour crude supply may open up arbitrage opportunities for moving more sweet crude from the Atlantic, market sources said Thursday.

    OPEC's plan to hold production at 32.5 million b/d starting January 1, 2017 -- the first coordinated cut since the depths of the global financial crisis in 2008 -- amounts to an approximate 1.2 million b/d cut from the producer group's current output levels. The deal exempts Libya and Nigeria and is contingent on key non-OPEC producers also agreeing to cut 600,000 b/d.

    "This could have a big impact [on Asian refiners] as it's Middle East crude [most affected by the] cuts. So if fulfilled, Middle East crude [supply] gets a lot tighter," a Singapore-based trader said.

    But North Asian refiners said OPEC's announced production cut could be absorbed within the tolerance flexibility clause in their term contracts with Middle East suppliers.

    "We will need to pay attention to whether suppliers will keep their supplies at 100% against contracts," a North Asian refiner source said. "A focal point is whether [OPEC's output deal] will be absorbed within [contractual] tolerance or [results in] deeper cuts."

    Asian crude importers will be able to assess the seriousness of OPEC's intention to cut output by around mid-December when they nominate VLCCs for January crude loadings, a North Asian refiner said, adding that that is when importers will be informed about any cuts in term supply volumes from the Middle East suppliers.

    ARBITRAGE SUPPLIES

    The Middle East sour crude market had been under upwward pressure in the lead up to the OPEC meeting amid expectations that the group would agree to a production cut that will tighten sour crude supply.

    The M1 Brent-Dubai exchange of futures for swaps, or EFS, a key spread watched by the market to evaluate the value of sweet crudes against sour crudes, was at its narrowest in 13 months Monday at $1.79/b, according to S&P Global Platts data.

    The M1 EFS was last narrower on October 29, 2015, at $1.72/b. A narrow Brent-Dubai EFS opens up arbitrage opportunities for Asian importers to bring in sweet crudes from the West instead of Middle East sour grades. The EFS averaged $2.11/b in November, down from $2.64/b in October.

    The OPEC deal, when implemented, could potentially further narrow the spread between sour crudes in the Middle East and sweet crudes in Northwest Europe, making arbitrage barrels from the West attractive to Asian refiners, a trader said.

    REBALANCING OIL MARKETS

    Under the OPEC deal, Saudi Arabia agreed to cut its production by 486,000 b/d from October levels, as estimated by OPEC's secondary sources, to 10.046 million b/d. That would be in line with its typical season decline in production, as its domestic consumption typically shrinks in the winter.

    Iraq, which had agitated in the weeks leading up to the meeting for an exemption, agreed to cut 209,000 b/d from its October levels to 4.351 million b/d.

    Iran, meanwhile, will be allowed to produce 3.797 million b/d, an increase from its October production level of 3.69 million b/d, according to OPEC's secondary source estimates.

    Iran had long insisted on regaining its pre-sanctions output of some 4 million b/d before agreeing any output restraints.

    Despite questioning the compliance and execution of the OPEC and non-OPEC output deal, market sources and analysts said the deal would speed up rebalancing of the oil markets when implemented.

    "There's execution risk," IG Chief Market Strategist Chris Weston said. "Will they stick to their quotas?"

    But Weston said the OPEC deal was "a catalyst for the rebalancing process. It will help address the excess inventories of oil sloshing around."

    Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said the global oil markets could be rebalanced "as early as in the third quarter of 2017" if OPEC implements its agreed production cut and oil production from Libya and Nigeria stays at current levels.

    http://www.platts.com/latest-news/oil/tokyo/analysis-asia-sees-opec-deal-could-spark-arb-27722180?hootpostid=73507bd3dda811154e35fc631face26d
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    OPEC deal pushes Asian LNG prices to $7.40/mmBtu


    OPEC’s recent announcement it would cut crude oil production has boosted Asian spot LNG prices to their highest this year so far.

    Spot prices for Asian LNG increased 30 cents from last week to around $7.40 per million British thermal units (mmBtu), Reuters reported on Friday citing trade sources.

    Driving the price up was the agreement reached between OPEC and Russia to cut the output in order to tackle the oversupply that put pressure on the market for over two years.

    Following the deal, oil prices jumped over 10 percent, reaching $53 per barrel.

    The rise had an effect on Asian spot LNG prices that hit the highest level since November 2015. The report notes that 80 percent of Asian LNG supply contracts are linked to the price of crude and the cost of shipping has also been a contributor to the rise of the spot LNG price.

    However, the cut in crude output could have another effect on the spot market as the price difference between oil linked contracts and spot cargoes could increase significantly.

    Reuters cited Wood Mackenzie’s analyst Chong Zhi Xin as saying that the buyers could start opting for spot cargoes instead of their long-term contracted supplies.

    The cold weather is also playing a significant role in the spot LNG price jump since it is expected that Asian utilities start purchasing cargoes from the spot market in order to meet the winter demand.

    http://www.lngworldnews.com/report-opec-deal-pushes-asian-lng-prices-to-7-40mmbtu/

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    Gas supply issues could force Australia's largest domestic wool producer to close its doors


    Australia's largest domestic wool producer may have to close its doors because it is unable to get a new natural gas deal, potentially putting 40 people out of work.

    Several suppliers told Victoria Wool Processors at Laverton North, in Melbourne's western suburbs, they were unable to meet the business's demands for gas next year because of a supply shortage.

    It takes 110,000 gigajoules of gas to heat and treat the 12,000 tonnes of greasy wool the company produces every year.

    David Richie, the company's general manager, said the current contract with Energy Australia expires at the end of the year.

    "It's a scary thought to go into Christmas not knowing that you've secured a vital ingredient," he said. "You can't run these plants without gas."

    The business is not large enough to buy gas wholesale and retailers have offered quotes for double the current price, which Mr Richie says will make the company unviable.

    In a statement, Energy Australia said conditions in the gas market have made it harder to secure supply.

    "Australia depends on reliable and affordable supplies of gas to warm homes, power businesses and to sustain jobs, but today there is less gas available in the market, despite Australia's abundant natural resources," a statement read. 'If you believe in manufacturing, this needs to be sorted out'

    Mr Ritchie called on the Government to limit the amount of gas exported from Victoria.

    "Australia has just become the biggest exporter of gas in the world. If you believe in manufacturing, this needs to be sorted out quickly," he said.

    Victorian Energy Minister Lily D'Ambrosio said there was no shortage of gas in Victoria, but prices were rising.

    "We have more than sufficient gas right now. Victoria will remain a net exporter of gas. And the future is a sure one," she said.

    "We are seeing gas prices that are increasing as a result of the fact that we are having gas from Australia for the first time exported globally from Queensland."

    Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said Australia would run out of gas by the end of the decade unless there was new exploration soon.

    "The East Coast gas market is very tight and is becoming tighter and by 2019 there is expected to be a shortfall of supply on the East Coast and that's going to have an impact on households and industry," he said.

    The Victorian Government introduced legislation banning exploration and development of unconventional gas, including fracking, earlier this year.

    "Gas is obviously widely used in industry and it's critical for the plastics and chemicals industry, the paper industry, fertilisers, the production of a host of products," Mr Roberts said.

    Victorians use about four times the amount of gas of residents in Queensland and New South Wales, he added.

    http://www.abc.net.au/news/2016-12-02/victoria-wool-processors-gas-shortage/8086732
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    UK gas-for-power demand rises above 80 million cu m/d


    The amount of gas used by UK natural gas-fired power plants to generate electricity has risen above 80 million cu m/d in recent days for the first time in at least six years, data from National Grid showed Friday.

    Some 84 million cu m of gas was used to generate electricity in the UK on both Tuesday and Thursday, marking the first time the 80 million cu m/d barrier was breached since at least October 2010.

    Gas-for-power demand in the UK has been significantly higher year on year in 2016 due to the closure of coal-fired power plants and more favorable generation economics in recent years.

    Indeed, the total gas-for-power demand for November breached the 2 Bcm mark for the second successive month, rising 7% month on month and 69% year on year to 2.14 Bcm at an average 71 million cu m/d.

    The last time UK gas-for-power demand was above 2 Bcm for a calendar month was January 2011.

    With gas-fired generation economics more favorable than in recent years - - despite NBP prices having rallied since the beginning of the winter-delivery period -- gas-for-power demand was expected to remain elevated for the remainder of December and into early 2017.

    http://www.platts.com/latest-news/natural-gas/london/uk-gas-for-power-demand-rises-above-80-million-26611420

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    India prioritizing shift to become natural gas-based economy, Modi says


    India is giving priority to moving toward a natural gas-based economy and efforts must be made to raise local production of the fuel while also creating infrastructure to import it, Prime Minister Narendra Modi told an energy conference on Monday.

    "Natural gas is the next-generation fossil fuel, cheaper and less polluting," Modi said in an address at India's flagship energy event, Petrotech.

    "Efforts must be made to increase natural gas production whole also creating import infrastructure to meet the growing domestic demand," Modi said.

    http://www.reuters.com/article/us-india-energy-idUSKBN13U0IU
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    ExxonMobil expects to deliver 7.9 mln tonnes from PNG LNG this year


    ExxonMobil expects to deliver 7.9 million tonnes of liquefied natural gas from Papua New Guinea this year, around 14 percent above nameplate capacity of its PNG LNG plant, the company's PNG head said on Monday.

    The company, which operates PNG LNG and is the biggest owner, said it expects to be able to produce at 16 percent above nameplate capacity of 6.9 million tonnes a year, ExxonMobil's PNG managing director Andrew Barry said at a conference in Sydney.

    http://www.reuters.com/article/papua-lng-exxon-mobil-idUSS9N1DE00X
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    Crippled Latin Oil Giants Get No Miracle Cure in Post-OPEC Rally


    For the three titans of Latin American oil -- Pemex, PDVSA and Petrobras -- last week’s OPEC-driven price rally won’t be enough to halt a slow descent from the ranks of international crude heavyweights.

    Even as news of the cartel’s 1.2 million-barrel-a-day output cut spurred the steepest three-day oil gain in 15 months, the biggest Latin American producers remain hobbled by financial, political, technical and structural problems. Mexico and Brazil have been turning to outside investors to help boost output, with Mexico on Monday offering up stakes for the first time to drill in its deep waters.

    Oil prices are an especially pressing issue for the behemoths responsible for large chunks of their local and national economies, all while supplying one of every 13 barrels of crude produced around the globe every day. Unlike North American explorers who were free to fire workers and abandon costly, high-risk projects as crude collapsed, the Latin companies operate under close bureaucratic controls that hinder their ability to respond to market forces, said Thomas McNulty of Navigant Consulting Inc.

    “Higher prices are always a good thing but these are state-owned quasi-companies that have tremendous social obligations to their countries and little freedom to take rational cost-cutting steps,” said McNulty, director of Navigant’s valuations and financial risk management practice. “U.S. companies have to pay taxes, sure, but they don’t have to build schools.”

    Petroleo Brasileiro SA said it isn’t changing its business plan in response to OPEC’s production agreement. Mexico’s Energy Ministry said it won’t change its auction plans because of OPEC. Petroleos de Venezuela SA, as the Venezuelan state-oil company is formally known, didn’t respond to requests for comment.

    Brent Surge

    Brent crude, the international benchmark, surged as much as 15 percent in the three trading sessions following a Nov. 30 meeting at which the Organization of Petroleum Exporting Countries agreed to individual production cuts for the first time in eight years. The three-day rally was the largest since August 2015. Brent dipped to a 12-year low around $27 a barrel as recently as January; since then, the price has doubled to more than $54.

    “Higher prices are positive for these companies to varying degrees,” said Lucas Aristizabal, a senior director at credit-rating company Fitch Inc. For Petroleos Mexicanos and PDVSA, the benefits are diminished by staggering debt loads that eat up cash that could otherwise go toward drilling to sustain production and replenish spent reserves, he said.

    “Pemex needs much higher prices than this under the current taxation scheme to become cash-flow neutral while investing enough to replenish reserves,” Aristizabal said.

    Mexican Oil

    Once the world’s third-largest oil producer, Mexico now pumps less than the U.S. state of Texas, thanks to dwindling output from the once-gargantuan Cantarell field and lack of investment in new drilling technology. Aristizabal estimated the Mexican company, whose nearly $100 billion in debt is more than twice that of Exxon Mobil Corp., needs crude to fetch $80 a barrel to $100 a barrel to escape it downward spiral.

    Mexico’s deep-water oil auction is designed to attract international oil giants to develop offshore production. It’s a crucial test of foreign investment, with Mexican oil output forecast to fall below 2 million barrels a day next year, the lowest level since 1980.

    To read more on Mexico’s oil auction, click here

    Pemex CEO Jose Antonio Gonzalez Anaya praised the OPEC agreement and price rise as “a breath of fresh air.

    “It’s a good development for the energy market and for Pemex,” he said in a Dec. 1 interview on Bloomberg Television.

    PDVSA Payments

    PDVSA, facing $6.4 billion in debts coming due next year, won’t get much relief from its liquidity crisis, despite the nascent crude rally, Aristizabal said. Company Chairman Eulogio Del Pino said the cut may push oil prices to $70 in six months. Added cash is important as the producer uses a 30-day grace period to pay interest due on a 2035 bond. Venezuelan President Nicolas Maduro has blamed the U.S. Treasury and Citigroup Inc. for the delayed payment.

    Venezuela is one of only two cartel members in the Western Hemisphere, and PDVSA will be required to cut some output. That means abandoning some of the potential upside from the price increase, Aristizabal said.

    Petrobras, which has been enmeshed in Brazil’s biggest corruption scandal, is in a better position to take advantage of rising prices than it was in 2011 when crude surged past $100 a barrel. The previous Brazilian administration of Dilma Rousseff pressured the state-controlled company to keep domestic gasoline and diesel prices below international levels in an effort to contain inflation, costing an estimated $35 billion in fuel subsidies in the middle of a commodities boom.

    Fuel Sales

    The Rio de Janeiro-based producer has been selling fuel at a premium for the past two years, partially recovering the losses from import subsidies. In October, the company set a policy of monthly revisions to guarantee prices remain above import costs. Petrobras reiterated its commitment to keep fuel prices above international parity in an e-mailed response to questions.

    Rising prices will also guarantee the viability of deep-water fields that are estimated to hold billions of barrels of oil. Chief Executive Officer Pedro Parente has said the company’s break-even cost is around $40 a barrel. Petrobras has been in talks with potential bidders, including Total SA, for joint ventures to get oil from the so-called pre-salt areas offshore.

    Brazil’s energy ministry has said it has no authority to set production limits for Petrobras and other companies producing in Latin America’s largest economy, offering the potential for it to capitalize with more output as OPEC members scale back.

    https://www.bloomberg.com/news/articles/2016-12-05/crippled-latin-oil-giants-get-no-miracle-cure-in-post-opec-rally

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    Argentina oil workers to strike next week after YPF suspends rigs


    Oil workers in one of Argentina's most productive basins will go on strike for 48 hours next week to protest a decision by state-run YPF to not return 33 rigs to the field, which could cost 1,700 jobs, union leaders said Friday.

    Guillermo Pereyra, a national senator who doubles as the secretary general of the Union of Private Oil Workers in Neuquen, Rio Negro and La Pampa, said the strike is to start Monday at 8 am local time.

    "The strike will affect all activities" in the Neuquen Basin, he said in a televised news conference.

    The southwestern basin produces 40% of the country's 513,000 b/d of crude and 57% of its 124 million cu m/d of gas, according to data from the Argentine Oil and Gas Institute, an industry group.

    Pereyra said the action is the start of a campaign to resolve worker complaints of layoffs, poor work conditions, an increase in the number of accidents in the fields and inadequate responses from YPF.

    If things do not improve, 'we will deepen this measure and it will be for 72 hours," Pereyra said, suggesting that it could even be extended for longer.

    Separately, Manuel Arevalo, secretary general of a union for field managers that will also participate in the strike, said YPF's decision to not bring back the rigs has made it harder to negotiate with the company.

    "You cannot negotiate when there is a threat of layoffs," he said on LU5, a radio station in Neuquen.

    The decisions to walk off the job comes a day after YPF, the country's biggest oil and gas producer, said it would not bring 33 rigs back into the field after sidelining them in February. The company had been paying the 1,700 rig workers since.

    YPF said it could no longer afford to pay the suspended workers, which totalled an annualized amount of $100 million, and would instead focus its drilling on fields with the best potential for production.

    The 33 rigs had been working in maturing conventional fields, and the company has said it will focus on assets with the greatest growth prospects, such as in the Vaca Muerta shale play and the Lajas and Mulichinco tight plays.

    "We have to concentrate on investments where it pays and pays quick," YPF CEO Ricardo Darre said in August.

    YPF has slashed its capital-expenditures plan by 20%-25% for this year, leading it to forecast flat production for 2016 on the year.

    It has since said the outlook for no growth in its overall hydrocarbon output could continue through 2017, as a decline in international oil prices for much of this year has brought down local crude prices, cutting profit margins. At the same time, a recession in the nation has left little margin to raise diesel and gasoline pump prices to finance exploration and production. There also is little margin for YPF the take on more debt, according to the company.

    YPF produces 45% of the country's oil and 31% of its gas, according to industry data.

    http://www.platts.com/latest-news/oil/buenosaires/argentina-oil-workers-to-strike-next-week-after-21238106

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    Permian leads latest increase in oil rigs, Baker Hughes says


    West Texas’ active Permian Basin added seven rigs actively drilling for oil this week.

    While the Permian begins to boom, the net rig count in the rest of the country declined. The U.S. rig count grew by just four overall this week, including three drilling for oil and one seeking natural gas, according to Baker Hughes.

    The Williston Basin, which is mostly in North Dakota, lost two rigs, while two rigs were removed from Colorado’s DJ-Niobrara basins. Louisiana lost four.

    South Texas’ Eagle Ford shale, however, tacked on two.

    The total count is 587 rigs, up from a low of 404 in May, according to Baker Hughes. Of the total, 477 are primarily drilling for oil.

    The Permian now accounts for 235 rigs, almost half of the nation’s oil rigs. The next most active area is Texas’ Eagle Ford shale with 40 rigs, according to the Baker Hughes data.

    Despite this week’s increase, the oil rig count is down 70 percent from its peak of 1,609 in October 2014, before oil prices began plummeting. But U.S. oil prices have risen above $51 a barrel after OPEC agreed Wednesday to curb oil production.

    http://fuelfix.com/blog/2016/12/02/the-permian-leads-another-oil-rig-count-jump/

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    Western Canada added 26 rigs to its weekly count according to Baker Hughes. It’s the biggest weekly gain since January this year.


    20 gas rigs were added along with 6 oil rigs. The number of rigs drilling is up 13% year over year as prices begin to improve for both crude oil and natural gas. Alberta saw the biggest gain, adding 20 drilling rigs to a total active fleet of 128.

    http://boereport.com/2016/12/02/western-canada-adds-26-rigs-to-its-weekly-count/
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    With Dakota denial, outlook for U.S. pipelines turns murky


    The U.S. Army's denial of an easement for the Dakota Access Pipeline, after permitting and legal obligations were followed, sets an uncertain precedent for new projects despite President-elect Donald Trump's promise to support energy infrastructure.

    The decision came after months of protests by the Standing Rock Sioux tribe and others who said the line could desecrate tribal grounds, or a spill could contaminate drinking water.

    While most of the 1,172-mile (1,885-km) pipeline is complete, Energy Transfer Partners, the line's owner, needed an easement from the U.S. Army Corps of Engineers (USACE) to drill under Lake Oahe. The lake, a water source formed by a dam on the Missouri River, has been the focus of protesters.

    The Army's intervention sets an unsettling precedent, analysts and industry groups told Reuters, because Energy Transfer had undergone the necessary environmental reviews and permitting processes to move ahead with construction.

    "I think it sends a horrible signal to anyone wanting to invest in a project and I strongly suspect those policies will be discontinued on Jan. 20th," said Brigham McCown, the former head of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) under George W. Bush, referring to the inauguration of President-elect Donald Trump.

    Still, the decision to deny the easement tempers some of the optimism pipeline companies assumed following the election of Trump, who is seen as more supportive of oil and gas projects.

    Energy Transfer Partners said in a statement the decision was politically motivated and it did not intend to reroute the line.

    DELAYS & RISING COSTS

    Beyond the federal approval issues, state and local governments have also mobilized against pipelines. Earlier this year, Georgia's state legislature passed a bill to restrict pipeline developments, stopping a gasoline line from Florida to South Carolina from being built.

    Energy Transfer chief executive Kelcy Warren, a donor to Trump's campaign, said his election was a positive. Last week Trump for the first time voiced support for the Dakota Access project.

    Trump has also said he would support TransCanada Corp's Keystone XL, which the Obama Administration rejected last year.

    Denying permits for an already-approved pipeline adds a new level of uncertainty to projects. Oil companies have already been facing growing resistance from environmental groups that have resulted in delays or unanticipated costs.

    Equipment used for the Dakota Access line has been set on fire, and in October, a group of protesters turned off valves on pipelines transporting oil from Canada to the United States. Together, those lines had capacity to move some 2.8 million barrels per day of oil.

    "Until you see that Trump has a track record of approving things and showing that things can get built in time, it's tough to say it's not a murky environment for pipelines," said Sarp Ozkan, manager of energy analytics for Drillinginfo.

    That means pipelines could face higher risk premiums and have a harder time getting volume commitments from shippers that underpin such projects, Ozkan said.

    Energy Transfer has said it expects to lose almost $84 million each month the Dakota Access pipeline is delayed, and that losing shippers could result in its cancellation, according to a court filing.

    "I think midstream companies will hope that each project can be decided based on necessary permitting approvals, but there will be increased risk where agencies like USACE are involved," said Sandy Fielden, director of research in commodities and energy at Morningstar.

    While the Standing Rock Sioux have said they would support a rerouting of the line, others, such as the Indigenous Environmental Network (IEN), want it canceled.

    "Given Trump's support of the Dakota Access, and the Keystone XL, we remain cautious," said Dallas Goldtooth, a spokesman for IEN.

    http://www.reuters.com/article/northdakota-pipeline-future-idUSL1N1E002Y
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    Precious Metals

    Lukoil sells Russian diamond mine for $1.45bn


    Lukoil has sold its 100% stake in a joint stock company (JSC) that controls a diamond mine in the north of Russia for $1.45billion.

    The sale of Arkhangelskgeoldobycha to the holding company behind Otkritie Financial Corporation Bank is expected to go through early next year.

    The JSC is developing the VP Grib diamond mine in the Arkhangelsk region, which was discovered in 1995.

    Alexander Matytsyn, senior vice president for finance at Lukoil, said: “We successfully developed a major diamond project from its very early stage and brought the Grib diamond mine to almost full capacity on time and within budget.

    “Spinning-off of this non-core asset allows us to effectively monetize the significant shareholder value that we have created over the past five years.”

    Dmitry Romaev, a board member at Otkritie Holding, said: “The acquisition of a 100% stake in Arkhangelskgeoldobycha is a strategic investment in an attractive asset with potential for further development.

    “This acquisition diversifies Otkritie’s range of business interests as the largest privately-owned financial company in Russia.”

    https://www.energyvoice.com/other-news/125864/lukoil-sells-russian-diamond-mine-1-45bn/
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    Base Metals

    Chile's Codelco plans investments of $3.8 billion in 2017 – CEO


    Chile's state-owned Codelco, the world's largest copper producer, plans investments of about $3.8-billion in 2017 and more cost cutting, CEO Nelson Pizarro said in an interview published on Sunday.

    "Of that, $3.143-billion is in projects, and $651-million is in mine development, which compares to almost $3-billion in 2016," Pizarro told Chile's El Mercurio newspaper.

    Codelco would prioritize an expansion at its massive Chuquicamata mine, he said, while plans to expand its Andina and Radomiro Tomic mines would be delayed. Projects deemed most profitable would take priority, he said.

    Pizarro also said that he hoped for savings from cost cuts of around $400 million in 2016.

    "In the year 2015 ... we saved between $500 and $600 million," he said.

    "This year we hope that there's another $400 million, and in 2017 we hope to reach savings of $200 million as a first phase. We have a goal of structural savings of $2 billion by 2020."

    http://www.miningweekly.com/article/chiles-codelco-plans-investments-of-38-billion-in-2017-ceo-2016-12-05
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    Turquoise Hill stops shipments from Mongolian mine to China


    Canadian copper miner Turquoise Hill Resources Ltd said on Friday it had suspended shipments from its Oyu Tolgoi mine in Mongolia across the Chinese border, a day after the imposition of new fees on commodity shipments between the two countries.

    The fee was imposed following a diplomatic row sparked by last week's visit of Tibetan spiritual leader, the Dalai Lama, to Ulaanbaatar.

    The Dalai Lama is cherished as a spiritual leader in predominantly Buddhist Mongolia, but China regards him as a dangerous separatist and warned the visit could damage bilateral relations.

    Turquoise Hill said on Friday that a new requirement at the Chinese-Mongolian border to use one joint coal-and-concentrate crossing route had led to safety and securityconcerns as well as long waiting times.

    The company said it was not clear for how long it would suspend shipments and that it was seeking to clarify the situation with authorities in Mongolia and China.

    Rio Tinto Plc operates the copper-gold Oyu Tolgoi mine, which is 66 percent owned by its Turquoise Hill arm and 34 percent owned by the Mongolian government.

    http://www.miningweekly.com/article/turquoise-hill-stops-shipments-from-mongolian-mine-to-china-2016-12-02
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    Glencore sees nickel shortage as electric vehicle demand burgeons

    Glencore sees nickel shortage as electric vehicle demand burgeons

    Diversified mining and marketing company Glencore sees a shortage in nickel arising as a result of burgeoning demand from electric vehicle (EV) production.

    Batteries used in EVs are consuming about 100 000 t of nickel demand and if 10% of the world’s vehicle fleet transitions to electric power, 400 000 t of nickel would be required on current yearly production of 1.95-million tonnes.

    “We see a shortage in nickel,” Glencore CEO Ivan Glasenberg said in response to BNP Paribas analyst Sylvain Brunet during a conference call in which Creamer Media’s Mining Weekly Online took part.

    Analysis by Fitch Group research arm BMI anticipates nickel prices averaging $10 500/t in 2017, moving up to $13 000/t by 2020.

    “The market does look tight,” said Glasenberg.

    Nickel ore exports are not occurring from Indonesia, where it is taking time for the nickel pig iron plants to be built.

    Also, the Philippines is cutting back on the amount of nickel ore being exported, which has resulted in China producing far less nickel pig iron at a time when demand is increasing considerably and global nickel supply is down year-on-year on price-induced closures.

    By the time Glencore’s Koniambo nickel project in New Caledonia gets into full production of 55 000 t/y in 2020, Glasenberg believes the world will definitely be needing that quantity of nickel.

    In the year to date, the performance at Koniambo’s redesigned Line 1 has demonstrated operational integrity, providing confidence for the go-ahead next month of the construction of Line 2. The full 55 000 t/y capacity will be at an estimated cash cost of $3.75/lb to $4.10/lb.

    A year ago, French President François Hollande officially opened Koniambo, as New Caledonia – located 1 210 km east of Australia, in the south-west Pacific Ocean – is a territory of France. According to Radio France, the power plant for the Koniambo smelter will benefit from concessions worth more than $200-million.

    BMI reports that nickel-cobalt-aluminium and nickel-cobalt-manganese lithium-ion technologies are establishing themselves as the battery chemistry of choice for EVs.

    Its analysts foresee battery demand potentially creating 300 000 t worth of nickel demand in the next five years.

    http://www.miningweekly.com/article/glencore-sees-nickel-shortage-as-electric-vehicle-demand-burgeons-2016-12-02
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    Steel, Iron Ore and Coal

    No proposal to split CIL, Indian gov't


    Putting to rest speculations that Coal India Ltd may be broken up, Indian government on December 1 said there is no such proposal for the state-run behemoth, local media reported.

    There is neither any such proposal to break CIL nor is the government contemplating it, Coal Secretary Susheel Kumar told Press Trust Of India when asked whether the government is planning to split the world's largest coal miner.

    Reuters reported earlier on the same day that senior Indian government officials tasked by Prime Minister Narendra Modi with reviewing energy security are recommending the break up of CIL within a year.

    According to the report, Indian government officials recommend that CIL - with a stock market valuation of $28 billion - should be broken up into seven companies, which they say would make it more competitive and efficient.

    In June 2014, Coal Minister Piyush Goyal too had said that the government will not split the coal miner but will work to smoothen the edges and improve its performance.

    CIL is a holding company with seven producing units and a planning and consultancy firm. The producing units have their own administrative set-up led by a chairman, so breaking them up to run as individual companies may not be difficult, analysts said.

    The company, which accounts for over 80% of the domestic coal production, is eyeing 598 million tonne production in the fiscal year of 2016-17 (April-March) and targets to produce a billion tonnes of the fossil fuel by 2020.

    CIL is the country's second-biggest employer, but critics say it is bloated and inefficient. Its output-per-man shift is estimated at one-eighth of Peabody Energy, the world's largest private coal producer, filed for bankruptcy protection this year.

    http://www.sxcoal.com/news/4549835/info/en
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    China to phase out coal imports


    our new study, An Analysis of Coal Price Trends in China, shows that the rapid increase in China’s coal prices since June 2016 was mainly driven by shrinking domestic supply due to China’s effort to cut overcapacity in the coal industry.

    In order to stabilize coal prices, the Chinese government is taking measures to increase supply and is encouraging coal and power companies to sign long-term supply contracts.

    In the long term, China’s coal demand will stabilize at around 4 billion tonnes, which can be fully met by domestic supply. As China reaches a balance in domestic coal demand and supply, the coal price and coal imports will decline.

    Driving factors behind China’s recent coal price surge

    There was no obvious growth in demand or production costs to support the recent price increase. The main cause was government policies designed to combat overcapacity that eliminated more than 200 million tonnes of supply and cut annual work days for coal companies from 330 to 276. As a result, coal output dropped by over 10%, creating a 222 million tonne gap between production and consumption in the first three quarters of 2016.
    High temperatures across China since July 2016 caused an increase in domestic power consumption which further contributed to the price increase.
    Transportation issues caused by heavy rainfall and strict rules on road overloading limited transportation of coal.

    Analysis of future coal consumption in China

    China’s coal consumption has been steadily declining in the past few years with the first decline of 2.9% in 2014 followed by 3.7% in 2015. In the first three quarters of 2016, this trend continued and coal consumption decreased by 68 million tonnes or 2.4%. China’s energy consumption per unit GDP has also been declining. China will gradually shift away from high energy consumption and increase the proportion of non-fossil fuels in its energy mix.

    China has increased regulation in the thermal power sector, which accounts for around half of China’s coal consumption. The approval of planned thermal power projects and projects that have not yet started construction will be suspended.
    In 2015, the steel sector accounted for 15.8% of total coal consumption. Crude steel capacity will be cut by 12% to 19% in the next five years, which means coal demand will decline as well.
    Coal demand in the construction materials sector, which accounted for 13.2% China’s total coal consumption in 2015, has already begun to peak and will gradually decline.

    Forecast of China’s coal import demand

    In the long run, China’s coal demand will stabilize, and domestic coal supply will meet the country’s demand. This analysis shows that China’s demand for imported coal will decline in the years to come. China’s coal capacity is currently around 5.7 billion tonnes, of which 800 million tonnes are illegal projects. About 310 million tonnes have been closed, leaving 4.6 billion tonnes of compliance capacity in 2015, which can fully meet China’s projected 4 billion tonnes of consumption demand.

    As the policy on capping total coal consumption in southeastern coastal areas is implemented and coal consumption shifts west towards China’s coal production sites, the market for imported coal will decrease.
    China has introduced several measures to control sulphur and heavy metal content in commercial coal. These measures extend to customs clearance and increases operational risk for countries exporting coal to China. Furthermore, Tariff rates implemented in 2014 and RMB devaluation have weakened the price advantage of imported coal.

    http://reneweconomy.com.au/china-to-phase-out-coal-imports-78992/
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    China asks for immediate halt at coal mines earmarked for closure


    China ordered all the coal mines earmarked for closure to suspend production immediately, as safety watchdog put safety on the top agenda following recent high accident frequency.

    The latest mining accident occurring at a mine in Chifeng of Inner Mongolia on December 3 caused 32 deaths.

    At an emergency meeting on December 4, the State Administration of Work Safety (SAWS) said serious violation of production rules found in recent three fatal accidents, all of which were caused by gas explosion, heighted the safety issue at coal mines.

    All these mines are outdated mines that have been blacklisted for shutdown, said Yang Huanning, head of the SAWS.

    He promised to take effective measures to immediately halt coal mines listed for closure this year or in the next two years.

    Mines without all required licenses or certificates must stop production immediately, Yang said.

    Those mines with annual production capacity below 90,000 tonnes but don't meet safe production rules should apply to local governments voluntarily for inclusion into the closure list, he added.

    China had ordered coal mines to conduct safety overhaul to prevent major accidents on December 2, when 21 people died after a mine blast in the northeastern province of Heilongjiang.

    On October 31, a gas explosion at a mine in the southwestern city of Chongqing caused 33 deaths.

    Early this year, China issued a list of coal mines for closure amid a national move to cut overcapacity. But, a shortage of supply has prompted the government to relax production restrictions since late September.

    http://www.sxcoal.com/news/4549899/info/en
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    Shenhua further cuts spot coal price for Dec, sources


    China's coal giant Shenhua Group has announced further cut in spot price of thermal coal for sales in December, in a bid to help avoid big fluctuation in the market, sources said.

    The company would offer 5,500 Kcal/kg NAR coal at 675 yuan/t FOB with VAT in the spot market, down 5 yuan/t from late November.

    It would cut December contract price by 5 yuan/t to 580 yuan/t FOB for 5,500 Kcal NAR coal sold to key customers except for the nation's top five utilities.

    But, the volume of contract coal supplied to such key customers should not exceed 40% of the January-July average or 40% of the monthly contract volume. While, the rest 60% would be priced at spot price of 675 yuan/t.

    For the top five utilities, as agreed in term contracts signed in early November, the price would be adjusted with market changes from a base price of 535 yuan/t.

    Trade customers could only gain access to spot coal this month, without limitation on volumes.

    If long-term customers fail to fulfill 90% of this month's contract volumes, they would need to pay 10% penalty for breach of contract.

    http://www.sxcoal.com/news/info?lang=en&id=4549852
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    China orders coal mine safety overhaul


    China's coal mines have been ordered to conduct a safety overhaul to prevent major accidents as their frequency has surged in the past month, the official Xinhua News Agency reported on December 2, citing a senior official of the country's work safety watchdog.

    Mines should not be operating over capacity and miners should not be asked to work overtime as mines pushed to the limits are prone to accidents, Song Yuanming, deputy director of the State Administration of Coal Mine Safety, said at an annual coal trade summit in Hebei province, Xinhua reported.

    Song said there were on average two colliery accidents a month this year, but the rate peaked in November with five cases, which have alarmed regulators over the past month as China ramps up coal production to meet winter demand.

    In one serious case, 33 people died in a gas explosion at a coal mine in the southwestern city of Chongqing on October 31.

    He also reiterated that no mines should operate without a license.

    http://www.sxcoal.com/news/4549853/info/en
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    Coal exports from Australia's NSW drop for 1st time in 15 years in FY 2015-2016


    Coal exports from the Australian state of New South Wales fell for the first time in 15 years in fiscal 2015-16 (July-June), industry-owned organisation Coal Services said Thursday.

    The exports were down 3.4 million mt, or 1.9%, year on year at 169.6 million mt, from record exports in fiscal 2014-15 of 172.9 million mt, it added.

    The drop was driven by lower volumes of thermal coal exports, which fell 3.3% year on year in fiscal 2015-16 to 144 million mt, accounting for 84.9% of all NSW coal shipments during the year, Coal Services said.

    On the other hand, metallurgical coal exports -- which cover hard coking coal, semi-soft coking and non-coking metallurgical PCI -- increased, rising 6.2% year on year, or 1.5 million mt, to 25.6 million mt for fiscal 2015-16.

    "Hard coking coal exports, which had increased to a record 8.2 million mt in fiscal year 2014-15, fell by 9% to 7.5 million mt in fiscal 2015-16, while other coking coal shipments rose 14% to 18.1 million mt," it said.

    NSW coal was shipped to 24 countries during the year, with the top four markets -- Japan, South Korea, China and Taiwan -- accounting for 84.5% of the total tonnage, it said.

    Japan remained the largest buyer of NSW coal with 74.8 million mt shipped to the country in fiscal 2015-16, up 4.6 million mt from the previous year. South Korea was the second largest market for NSW coal exports, relegating China to third place after four successive years as the second largest destination, it said.

    South Korea was sent 28.4 million mt during the fiscal year, down 1.1 million mt year on year, while shipments to China slipped 9.9 million mt to 20.5 million mt after peaking at 37.8 million mt in fiscal 2013-14, it added.

    Domestic sales of NSW coal, meanwhile, rose after years of falls.

    "Deliveries of NSW coal within Australia had been decreasing steadily since 2007-08 with coal-powered electricity generation becoming more efficient or replaced by natural gas and renewable energy sources. However, to meet market demand, 2015-16 saw sales to domestic markets rise by 2.7% or 0.7 million mt to 26.5 million mt," Coal Services said.

    The coal was produced by 42 coal mines across the state in fiscal 2015-16, down from 44 the previous year, and from a peak of 62 in fiscal 2009-10, it said. Raw coal production totalled 246.8 million mt, down from 253.2 million mt a year earlier and from a peak of 261 million mt in fiscal 2013-14.

    Saleable coal production had also peaked in fiscal 2013-14 at 196.6 million mt, before falling to 196.4 million mt in fiscal 2014-15 and then 191 million mt in fiscal 2015-16, it said.

    http://www.platts.com/latest-news/coal/sydney/coal-exports-from-australias-nsw-drop-for-1st-27722304
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    Coking coal surge may extend if China cracks down on North Korea


    The already elevated price of coking coal could be boosted further if China decides to crack down on coal imports from its nuclear-armed neighbour North Korea.

    The United Nations Security Council last week imposed fresh sanctions on North Korea, limiting its annual coal exports to 7.5 million tonnes, or a value of $400.9 million, after the isolated communist regime conducted a fifth nuclear weapons test.

    This is significant for China's imports of high-quality coal used to make steel, as North Korea is one of its top suppliers.

    Chinese customs data show that China imported 18.517 million tonnes of North Korean coal in the first 10 months of the year, a gain of 12.8 percent on the same period last year.

    The jump in imports from North Korea this year came in spite of earlier Chinese commitments to ban the coal trade with Pyongyang.

    So far, the official line from Beijing is that China will meet its obligations under the U.N. Security Council sanctions, but as was the case earlier this year, it appears the commitment may not be absolute.

    Earlier sanctions banning coal purchases from North Korea were not enforced by China due to an exemption allowing imports for what was translated as "the people's well-being," or "livelihood purposes."

    With coking coal in strong demand in China, the potential loss of as much as 12 million tonnes of North Korean coal in 2017 would be a very bullish signal for prices.

    It's possible that Beijing will force domestic coking coal miners to ramp up output, and it's also possible that imports from North Korean won't be cut by as much as implied by the new U.N. sanctions.

    But for now, coking coal's extraordinary rally this year has just been given another reason to continue.

    http://www.reuters.com/article/column-russell-coal-northkorea-idUSL4N1E0258
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    Hebei coal industry turns profitable after two-yr loss


    The coal industry of North China's Hebei province returned to profit for the first time since 2014, Xinhua reported, citing provincial authorities.

    From January to October, Hebei's major coal mining and washing industry registered a profit of 140 million yuan ($20 million), reversing the 4.5 billion yuan loss over the same period in 2015, according to the Hebei Provincial Bureau of Statistics.

    It is the first time that the heavy-industry province has seen profits in its coal sector since early 2014 when the whole industry plunged into loss due to declining prices, structural adjustment of energy supply, and pressure in cutting redundant production capacity for environmental protection.

    Experts said Hebei's coal industry has turned profitable, after ending a two-year-plus loss, responsible for a 2.7 percentage-point growth in the provincial economy in 2016.

    China is the world's largest consumer of coal. The industry has long been plagued by overcapacity and has felt the pinch over the past two years as the economy cooled and demand fell.

    In the first ten months of 2016, Hebei closed a total of 54 coal mines, cutting coal production capacity by 14 million tons. As of late November, China's coal production capacity had been reduced by about 250 million tonnes.

    http://www.sxcoal.com/news/4549887/info/en

    Attached Files
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    US mills raise rebar prices $25/st


    US mills are raising transaction prices for rebar $25/st, effective with new orders Friday.

    Nucor, Gerdau Long Steel America, Steel Dynamics Inc. and Commercial Metals Co. independently announced higher pricing in letters sent to customers Thursday and Friday.

    If absorbed into the market, the increase would mark the third price hike in as many months. US producers previously raised rebar prices $30/st in November and $20/st in October.

    Buy-side sources said they had been expecting rebar prices to rise in December, as raw material costs continue to climb. US scrap dealers on Thursday resisted mill bids of up $30/lt for December scrap commitments.

    http://www.platts.com/latest-news/metals/pittsburgh/us-mills-raise-rebar-prices-25st-21238107
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