Mark Latham Commodity Equity Intelligence Service

Friday 17th April 2015
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Brazil Police Arrest Workers’ Party Treasurer Joao Vaccari Neto

Brazil’s federal police arrested João Vaccari Neto, the treasurer of Brazil’s ruling Workers’ Party, or PT, as part of an investigation of alleged corruption involving contracts between state-run oil firm Petroleo Brasileiro SA and construction firms.

Mr. Vaccari is accused of receiving “irregular donations” from companies for the party, according to a federal police spokesman. The spokesman didn’t elaborate on the allegation and said more details would be given at a news conference later Wednesday.

Earlier this month, Mr. Vaccari testified before a congressional committee investigating allegations of kickbacks and bribery at Petrobras and said donations to his party were all legal and approved by the country’s electoral court.
MGL: More arrests. 

Velocity, Inflation, and Gold

The equation for GDP is: GDP = Money Supply  x  Velocity of Money.

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MGL: Thesis: EU central banks buy bonds from banks. Banks take cash, buy dollars and pay depositors out to shrink balance sheet.
Dollar goes up. Banks contract. Velocity plummets. 

This is the latest iteration on falling velocity which has been a huge drag on gold prices since the 1980 peak.

Now the dollar is exploding:
Image titleSome years ago when we realised the significance of the shale, we suggested that it was very bullish for the dollar.

Two impacts:
1> Declining oil imports improved balance of trade. (BIG numbers)
2> Declining dependence on middle east crude gave Obama the policy option of withdrawing US military from the middle east and cutting defence expenditure. (BIG numbers)

But the Saudi's want to end this game. 

Now the dollar is still going up, but this time its a herd of EU banks with dollar liabilities that they are desperate to extinguish. (Dollar goes up, liability VALUE increases, stresses capital ratio!). 

BIS data at the end of Q3:

"The fact of the matter is that there is a parallel dollar-based financial system – call it the "Global Dollar system" – that operates outside the United States.

Using data from the BIS, we can estimate the size of this Global Dollar system. Starting with U.S. dollar liabilities of banks outside the United States, we quickly get around $13 trillion. (If you have a dollar-denominated account in a bank in London, Zurich or Hong Kong, it would be included in this sum.) Now, not all countries report to the BIS, so this subtotal is incomplete. China and Russia are missing, for example. In addition, Ecuador, El Salvador and Panama are dollarized, so their banks are issuing dollar liabilities. Tallying these non-reporting sources may add another $1 trillion. Next come a few trillion dollars more from dollar-denominated securities that are issued outside the United States (mostly in London)."

Here's the ECB balance sheet liabilities of Dollars:
Image titleEach time there's a crisis the ECB is forced to shoulder the Banking system excess liabilities in the many and various rescue packages. As the emergency ends the banking system re-shoulders the liabilities, and the ECB outstanding, contracts. That trade is in the EU area, so has no $ consequences.

With QE occuring, the ECB is a net buyer of EU assets, so its non EU liabilities should be rising. They are not. Ergo the ECB is a massive buyer of dollars. Lets try that again: QE implies the EU is selling Euros to the banks, in order to sell Euros, or print, they are buying dollars. Thats what the chart says! These are really, really big numbers. That last little down tick is $50bn of contraction, or dollar purchases. 

Makes being a gold bull hard work!


China March power output down 3.7 pct, biggest drop since 2008

China produced 451.1 billion kilowatt-hours (kWh) of power in March, down 3.7 percent compared to the previous year, official data showed on Wednesday, a further sign that an economic slowdown is hurting energy-consuming industries.

Excluding holiday months, the year-on-year decline in power output is the biggest since late 2008, when China's economy was hit by the global financial crisis, with analysts saying the slowdown was the major driver.

"Beijing's decision to remove overcapacity from some industrial sectors has shown some effects on power output, but more importantly, electricity demand was capped by sluggish demand," said Zhou Hao, economist at ANZ Bank in Shanghai.

The figures also suggest that China's "war on pollution" is having an impact on coal-fired power generation, with grids taking more power from clean and renewable sources amid slowing demand.

Output from thermal power stations, most of which run on coal, fell 9.4 percent to 349.7 billion kWh in March, amounting to 77.5 percent of the total. Hydropower generation rose 25.3 percent to 67.6 billion kWh, or 15 percent of the total.

The statistics bureau also said in a statement that China's energy intensity - its consumption per unit of economic growth - fell 5.6 percent year-on-year in the first quarter.

"The large energy intensity reduction is not a surprise - when you have all major energy intensive industries slowing so much, this is what happens," said Tao Wang, resident scholar at the energy and climate programme of the Carnegie-Tsinghua Center for Global Policy in Beijing.

Power generation growth fell to 3.2 percent last year, the slowest rate since the Asian financial crisis, hit by the slowing economy, milder weather and government efforts to improve energy efficiency.
MGL: Oops! Its all confirmation, and history now to our regular readers. If you are surprised or shocked by this number, you have not been reading the tealeaves. 

China Q1 GDP growth slows to 7%

China's economy grew at its slowest pace in six years in the first quarter as the latest round of data added to concerns about a loss of momentum.

Official data shows the world’s second largest economy grew at 7 per cent year-on-year, in line with expectations, but slowing from 7.3 per cent in the fourth quarter.

Chinese Premier Li Keqiang announced a growth target of “around 7 per cent” for 2014 last month.

While the GDP figures met expectations, industrial output in March fell well short at 5.6 per cent against a predicted 6.9 per cent.

Retail sales for the month also lagged at 10.2 per cent growth against an expected 10.9 per cent. Similarly, growth in fixed asset investment also underwhelmed at 13.5 per cent against forecasts for 13.9 per cent growth.

On Monday, official data showed a surprise 14.6 per cent collapse in exports in March, adding to worries about the slowing economy.
MGL: Image title
Chinese rail shipments: down 10% yoy.
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China electricity consumption down 6.3% yoy.
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Chinese bank lending +14% yoy.

Here is Premier Li on growth:

"The U.S. cable reported that Li, who is now a vice premier, focused on just three data points to evaluate Liaoning's economy: electricity consumption, rail cargo volume and bank lending.

"By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling," the cable added."

Of course, now he is in charge, he actually has someone to write the fiction for him. More surreal yet, we have an entire bevy of analysts, strategists and market commentators trying to guess what piece of fiction will be written.


Global emissions of carbon dioxide from the energy sector stalled in 2014

Data from the International Energy Agency (IEA) indicate that global emissions of carbon dioxide from the energy sector stalled in 2014, marking the first time in 40 years in which there was a halt or reduction in emissions of the greenhouse gas that was not tied to an economic downturn.

"This gives me even more hope that humankind will be able to work together to combat climate change, the most important threat facing us today," said IEA Chief Economist Fatih Birol, recently named to take over from Maria van der Hoeven as the next IEA Executive Director.

Global emissions of carbon dioxide stood at 32.3 billion tonnes in 2014, unchanged from the preceding year. The preliminary IEA data suggest that efforts to mitigate climate change may be having a more pronounced effect on emissions than had previously been thought.

The IEA attributes the halt in emissions growth to changing patterns of energy consumption in China and OECD countries. In China, 2014 saw greater generation of electricity from renewable sources, such as hydropower, solar and wind, and less burning of coal.
MGL: Chinese coal usage was down last year, that must have a big impact on these numbers.

Zhou Ziyang to be buried?

Mr Zhao was detained after opposing the use of force to end the protests in Beijing's Tiananmen Square in 1989.

The former Communist Party leader was under constant house arrest until his death in 2005, and his name is still rarely mentioned in official circles.

"In the past 25 years, China has pursued a path that [Mr] Zhao and his think tanks opposed at that time, becoming the world's second-largest economy. China is using its actions and achievements to answer questions over the sensitive issues," read the article.

Zhao Ziyang was promoted by China's former supreme leader, Deng Xiaoping, who was looking for someone to reform the economy and open up the country to the outside world.

Mr Zhao's position seemed assured when he was made general secretary of the ruling Communist Party in 1987.

MGL: So why is this story important? How does it make us money?

In the first place this story is important because it is a small declaration of victory by the President . It is worth recalling that Zhao opposed Jiang Zemen in his crackdown of the Tiananmen Square movement. There's a distinct smell here of the "Enemy of my enemy is my friend".  It certainly one of the first symptoms we've seen of a feeling of security by the ruling faction.

So how does it make us money? China's policy dictates 50% of resource demand. Just look at iron ore, had Jiang Zemen's go-go growth faction been in power we would still have $100 iron ore. So I am going to suggest to you that this politburo is actually quite radical in nature. Yes they've swung right,  thats to reap the approval of the military and the core party cadre. Yes, they've hit out at the Jiang Zemen faction-- and hard! That is an endeavour to clear the decks.

Image titleSo what is President Xi's agenda?

Lee Kuan Yew first met President Xi years before he became president. 

Here's an excellent blog from the WSJ on China and Lee Kwan Yew:

"Chinese state media on Monday gave prominent coverage to the death of Singapore’s founding prime minister Lee Kuan Yew, whose brand of paternalistic one-party rule has long been a model for Beijing.

“Mr. Lee Kuan Yew was an old friend of the Chinese people,” Chinese President Xi Jinping wrote to Singapore President Tony Tan in a condolence letter Monday, according to a statement from China’s foreign ministry. “Mr. Lee Kuan Yew and the older generation of Chinese leaders jointly set the course for the development of China-Singapore ties.”

State broadcaster China Central Television devoted nearly half of its midday news bulletin to reports on the former Singaporean leader’s death, while obituaries were splashed across the homepages of websites run by the official Xinhua News Agency and the Communist Party mouthpiece People’s Daily, among others.

“If they change in a pragmatic way, as they have been doing, keeping tight security control and not allowing riots and not allowing rebellions and, at the same time, easing up… it is holdable,” Mr. Lee said, referring to the Communist Party’s ability to keep its grip on political power. “One thing is for sure: the present system will not remain unchanged for the next 50 years.”

Such views have gained credence in Chinese official circles, even if it remains unclear whether they can or will materialize in practice.

While Mr. Lee succeeded arguably because his tiny island state was easier to manage compared to far larger nations like China and India, “many Chinese officials and intellectuals see Singapore as a possible reference point for China,” said Mr. Lam, of the Jamestown Foundation. This, Mr. Lam said, was partly due to the common ethnic roots between China and Mr. Lee’s Singapore, which is dominated by an ethnic Chinese majority while governed under multiracial and secular principles.

In the quarter of a century since Singapore established formal ties with China, thousands of Communist officials and mid-ranking bureaucrats have gone on official business and study tours of the Southeast Asian city-state. Meanwhile, scores of Singaporean businesses – backed by Mr. Lee and his successors – have pushed into China, investing in industrial parks and real-estate among other sectors, albeit with varying degrees of success.

More recently, Singapore’s influence on China has been particularly visible in Beijing’s recent legal reform push, scholars say.

The reforms, outlined by the Communist Party in an ambitious blueprint released last fall, aim to make the country’s courts more independent and credible while ensuring that they continue to cleave to the party’s core interests.

Fu Hualing, a professor of law at the University of Hong Kong, says the likely end-goal is a legal system that is efficient and consistent in settling commercial and personal disputes while bending to Beijing’s whims in politically sensitive cases, such as those dealing with dissidents, corruption or terrorism.

“They might not mention Singapore by name, but in many respects we’re moving in that direction. You’ll have a decent judicial system that’s ultimately under political control,” Mr. Fu says.

Jerome Cohen, a veteran China legal scholar at New York University, said the legal system developed under Mr. Lee might be the best China can hope for under the Communist Party. “An optimum, next-generation goal would be if they could produce a judiciary and government like Singapore’s,” he said. “That would at the very least enhance predictability.”

Such a system could work in China because — as in Singapore — the majority of regular citizens keep themselves distant from politics, legal scholars say. “If there’s a dark and hidden corner, most people choose not to look it,” says Mr. Fu."

MGL: So what did Lee think of President Xi?

I quote: "He is in the Mandela class of statesmen". 

There are all sort of compliments Lee could have chosen, this one is very revealing. Mandela lead South Africa out of Apertheid. Is Lee inferring that he thinks President Lee could lead China away from the Party? This is not the first time we've visited this thought, and several of President Xi's actions are highly suggestive.  I would add, from personal experience, that Chinese investors are fascinated by the history of the UK in the 1980's, and incredibly knowledgeable on the affairs of a small distant country that party orthodoxy and nationalist rhetoric regards as one of the great evil empires of the past. 

High praise indeed.

We would add, that in the present round of SEO privatisations it is the Temesek model, designed by Lee Kuan Yew, that is being implemented.


The Shocker Crushing The US Economy Revealed

We now know that the readings of last month were not a fluke or some temporary aberration that could be marked off as something related to the weather.There is quite obviously some serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward.These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage. The data from the CMI is not the only place where this distress is showing up, but thus far, it may be the most profound.

MGL: Gas?

China set to splurge 800 billion yuan on railways in 2015

China is set to invest over 800 billion yuan in railway infrastructure in 2015 as Beijing moves to further bolster its slowing economy.

According to a report in the 21st Century Business Herald, Vice Premier Ma Kai told a railway conference in Chonqing that investment in rail for 2015 will need to exceed 800 billion yuan in order to reach the 8000 km of track target.

Total railway investments could hit a total of 3 trillion yuan ($482.69 billion) during the 13th five-year plan which will run from 2016-2020, the newspaper calculated.

Investment in rail has grown steadily in recent years with fixed asset investment growing from 580 billion in 2011 to 800 billion yuan in 2014 according to official figures. An extra 800 billion yuan investment is slated for 2015.

Rong Chaohe, a professor at Beijing Jiaotong University, agrees the country’s investment in the infrastructure is likely to surpass 800 billion yuan this year.

“Looking at the trend over the past two years, it looks like investment in 2015 is likely to exceed 800 billion yuan” he told 21st Century Business Herald.
MGL: More stimulus? 

Russia can deliver S-300 missile system to Iran quickly - Interfax

Russia's Defence Ministry will be ready to swiftly deliver the S-300 missile system to Iran if it gets the green light to do so, Interfax news agency quoted an official at the ministry as saying on Monday.

Earlier on Monday Russia lifted a ban on deliveries of the advanced anti-missile system to Tehran, which has reached an interim deal with world powers on curbing its nuclear programme in exchange for the lifting of international sanctions.
MGL: Inflammatory! Iran's re-entry just notched down a touch.

Former senior Chinese energy executive seeks leniency at graft trial

The former head of CNPC, China's top energy group, on Monday admitted his guilt and asked for leniency at the opening of his trial on charges of bribery and abuse of power, the latest in a string of top officials caught in an anti-graft campaign.

Scores of senior figures in the ruling Communist Party, the military and state-owned enterprises have been felled in President Xi Jinping's two-year war on corruption.

State television showed pictures of a grim-faced Jiang Jiemin, who also ran the state asset regulator for five months before being sacked in September 2013, standing in the dock with two policemen at his side.

He was formally charged last month.

Jiang was a close associate of Zhou Yongkang, the once-powerful domestic security chief and member of the elite Politburo Standing Committee, the most senior person to have been charged with corruption.

Zhou had also been at CNPC, the parent company of PetroChina Co. Ltd. , having risen through the ranks to serve as general manager from 1996 to 1998.

"The facts of my crimes are clear, the evidence is true and conclusive," Jiang said, according to a statement by the Hanjiang Intermediate People's Court in the central province of Hubei, which is trying him. "I admit my crimes and am penitent."

Jiang did not defend himself when the evidence was presented, the court said.

He needs to be held accountable under the law for his crimes, which include "bribery, not being able to account for a large number of assets and abuse of power by a staff member at a state-owned company", the court cited the prosecutor as saying.

Jiang is willing to serve his time, and "earnestly requested leniency", the court added, saying the verdict would come at a later, unspecified date.
MGL: Law and Order Chinese style. On state TV. Message received and understood!

Chinese labour agency remarks:

"More than 10,000 civil servants are looking to quit their jobs, according to a report by the local employment website Zhaopin, which found new sign-ups from government employees have spiked since the Lunar New Year in late February.


Those numbers, which rose 30% from a year ago, are startling for a profession once regarded by the Chinese as a highly sought-after lifelong sinecure."


Australian PGA expresses serious concern at reduced demand for gas

The Australian Pipelines and Gas Association (APGA) acknowledges that the Australian Energy Market Operator (AEMO) is no longer forecasting a gas supply shortfall for Australia's eastern markets.

'However, there must be serious concern that this change is caused primarily by a reduction in demand for gas,' APGA Chief Executive, Cheryl Cartwright, said today.

'A reduction in industrial and commercial demand for gas, particularly in New South Wales, must be of real concern to policy makers,' Ms Cartwright said.

'It seems this winding back of the manufacturing sector is the result, in part at least, of higher prices for gas or a tightness in supply. Australia's industrial sector continues to highlight the difficulties in accessing long-term contracts for gas.

'At a recent conference, the aluminium industry said 6,000 jobs depend on gas to fire Australia's Alumina smelters and Manufacturing Australia has highlighted the danger of losing more than 80,000 jobs if there is not sufficient gas brought to the domestic market.'
MGL: This fear of gas shortage in a country richly endowed with the stuff is amazing. 

China trade surplus slumps 62%

Chinese exports collapsed in March according to China's customs administration, adding to worries about the slowing economy.

China's exports fell 14.6 per cent on-year in March to 886.83 billion yuan ($A186.4bn), the government says, an unexpected fall and a further sign of weakness in the world's second-largest economy.

The fall in exports missed expectations by a wide margin. Analysts surveyed by Bloomberg had forecast an 8.2 per cent gain.

Imports also fell, declining 12.3 per cent to 868.67 billion yuan on-year, the General Administration of Customs said, while the monthly trade surplus plummeted 62.6 per cent to 18.16 billion yuan.

The imports also came in below expectations of analysts, who had predicted an 11.3 per cent fall.
MGL: We wonder how much of this is steel related.Image title
Chinese steel exports have fallen 23% since the beginning of the year as the boron export tariff changes force Chinese steelmakers to rethink their export strategy.  We pointed this out last december, and expected to see steel export disruption, which this data seems to be showing. In point of fact we were expecting the numbers to be worse. 

We can only infer that Chinese steelmakers have switched to low ferrochrome steels instead, that is quite positive for ferrochrome demand, thought there's little evidence for that demand in the Ferrochrome chart. 

Brazil police to arrest seven more in Petrobras corruption probe

Brazil's federal police said it had issued seven arrest warrants on Friday in another phase of a corruption probe focused on state-run oil company Petrobras, as the investigation continues to move further into the political realm.

André Vargas, ex-congressman for the ruling Workers' Party and vice-president of the lower house, was among the seven wanted by police according to G1, the news website for media outlet Globo. The site also said a warrant had been issued for the arrest of Luiz Argolo, ex-congressman for the smaller opposition Party of Solidarity.

A multibillion-dollar kickback scheme uncovered at Petroleo Brasileiro SA, as the oilcompany is formally known, has shaken President Dilma Rousseff's government and threatens to further slow a stagnant economy.

The investigation dubbed "Operation Car Wash" has led to the indictment of scores of executives from Brazil's top builders and implicated dozens of politicians, the majority of them from Rousseff's Workers' Party, who allegedly received graft money.
MGL: A mere 543000 people took to the streets Sunday crying "Fora Dilma" (Dilma Out!), this the gov't sniffily noted was a reduction on the previous week.
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Here's all the cities where protests took place.
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The largest was in Sao Paolo, at 100,000.


Oil and Gas

Pacific NorthWest LNG welcomes B.C. gas pipe OK

Regulatory OK of a natural gas pipeline expansion in B.C. improves the likelihood that the Petronas-led Pacific NorthWest LNG project will be built, but a final investment decision still awaits other government approvals, the proponent said Thursday.

On Wednesday, the National Energy Board said it will recommend federal approval of the North Montney Mainline Project proposed by Calgary-based TransCanada Corp.

The $1.7-billion expansion of its Nova Gas Transmission Ltd. (NGTL) system will consist of two 42-inch pipeline sections totalling about 301 kilometres. It will allow transport of gas from northeastern B.C. and other parts of Western Canada through TransCanada’s proposed Prince Rupert Gas Transmission pipeline to provide gas to the liquefied natural gas export facility on Lelu Island, near Prince Rupert.

“This decision is a key component to fulfilling a core requisite that informs our final investment decision,” said Pacific NorthWest president Michael Culbert in a release. “With this decision in hand — and awaiting other regulatory approvals — Petronas and our partners will continue to work cautiously toward a FID on the Pacific NorthWest LNG project.”

TransCanada said in a release construction cannot proceed until after the Pacific NorthWest LNG project has been sanctioned and it is proceeding with the Prince Rupert pipeline project, which has all required approvals.
MGL: Surely the BC based LNG projects have missed their sell by date?


~they are close to Tokyo, much closer than any other project.
~Alberta shale gas is abundant and cheap, so even at 

But with LNG in Tokyo at $7 we simply cannot imagine these projects delivering better than $2 netback, at most, in Alberta.

The LNG port conversions south of the border are much cheaper, by a country mile, and those still look economic. Thats simply a function that conversion is much cheaper than de novo, and that most of the pipelines are already build or in place.

Shale Wells Are Turning Into Cash Gushers - Citi

The profitability of some U.S. shale wells at current prices will almost double as cost cutting and technology turns them into cash gushers despite oil’s crash.

A report by Citigroup Inc. highlights what companies such as EOG Resources Inc. have been saying for months: that belt-tightening across the industry and more strategic drilling in prolific areas would deliver ample profits even at $50 crude.

The improvement is driven by costs that are expected to fall by 20 to 30 percent and techniques that allow rigs to wring 30 percent more oil or natural gas from each well compared with a year ago, according to the Citigroup report on Wednesday. That might bring some surprises when shale producers begin reporting first-quarter financial results over the next two weeks.

While investors are braced for widespread losses, the numbers may not be as bad as some expect, said Richard Morse, the lead author of the study. “Shale producers were hit by low prices in 2014, but they’re hitting back,” he said in the report.

Among specific companies, the potential for improvement varies greatly. SM Energy Co., which specializes in Eagle Ford wells, is expected to see costs of $32.52 a barrel. Penn Virginia Corp., which also drills there, still has costs of $135.55 a barrel when debt is factored in. Antero Resources Corp., which drills in Appalachia, has costs of less than $18 a barrel because of the productivity of its wells, according to the report.

The U.S. Energy Information Administration’s most recent report about the per-well output from shale rigs showed continuing productivity gains. Across the seven major shale-producing regions, oil output from new wells is expected to rise 3 percent in May compared with April. In the Permian basin, the largest producing formation in the U.S., the gain was more than 10 percent, the EIA said.

Such improvements make wells more profitable as more oil or gas is sold from every drilling pad. A year ago, Eagle Ford rigs produced a little more than 500 barrels a day from each well. With prices over $100 a barrel, that represents about $50,000 in revenue per well.

Now, the output in the same formation is almost 750 barrels. With oil selling for $56.26, that’s $42,000 in revenue. Throw in a cost reductions and the profitability is comparable to a year ago. Further improvements to both costs and productivity per rig will create the doubling or tripling of profits in some regions, the Citi report says.

Profitability across the Eagle Ford formation, the most prolific shale area that spans South and East Texas, will surge 40 percent this year if productivity increases and cost cuts hold, according to the Citi report. For the richest areas in the basin, profits will go up more than 60 percent. Gains of 20 to 30 percent will take hold in North Dakota, West Texas and other areas.
MGL: Image title
A month ago we said nothing works below $50 in the US. We're going to have to revise that statement.

Approximately 10% of wells work below $50. Quite possibly 30% work below $60.

It is far too early in this new environment to figure out where the landscape settles out.

We have:
~An enormous fracklog that has disrupted the data. Production overstated by 1-2mbpd. Demand similarly overstated by  the agencies like EIA/IEA. 
~Inventory build ongoing despite a real fall in yoy US production.
~Plummeting rig count leading to repricing of capex, that in turn leads to a repricing of well economics.
~Surging productivity cutting costs approx $1 per month. In August we were looking at $70-$80 breakevens for US shale, its now likely we have significant capacity that's economic at $60-$70.

There are so many moving parts right now, it is extremely difficult to posit reasonable scenarios for even 3 months out from here. 

For example: the 'fracklog' is a ticking bomb. Most leases in the US require a refiling to abandoned after 12 months of non production. There is apparently a way of filing for temporary abondonment,  but it is simply not clear what exactly that means. It is plausible we discover that companies are forced to either complete or abandon leases, and the first quarter issue next year will be exactly this problem. So the fracklog may not only be price triggered, it may be time sensitive too.

It is still not clear what happens in the monster known as the Permian. Is it the Marcellus of Oil? Or simply a dud. The best companies on the Permian acreage are being very vague on detail as to prospective economics. Every week, we go through a CXO, PXD, LPI or other Permian producer presentation, and end up little the wiser. 

Its a big mess.

Only certainty: Saudi production rising inexorably, and ARAMCO happy to supply barrels above $60 in quantity.

Market sentiment is bullish, and celebratory. 

Short the oil patch.

I have no names really for you, it's simply a matter of time. Digging through all this state data is a massive pain. 



Santos Nears Start of its $18.5 Billion Gas Export Development

Santos Ltd. expects its $18.5 billion liquefied natural gas project in Australia to start production in about five months, pushing the country closer to becoming the world’s largest supplier of the fuel.

The Gladstone LNG project should begin around the end of the third quarter, the Adelaide-based company said Friday as it posted a 10 percent drop in first-quarter sales. That narrows the forecast start date of the plant from the company’s previous expectation of the second half.

The gas exports to Asian markets will give a boost to Santos, which has been under pressure amid a slide in oil prices. Australia’s third-largest oil and gas producer has cut spending and jobs while flagging the possibility of asset sales as it copes with the oil market downturn.

BG Group Plc’s rival LNG project in the state of Queensland has already begun shipments to Asia, while Origin Energy Ltd. and ConocoPhillips are building a third export development that’s set to start this year.

The plants put Australia on course to surpass Qatar later this decade as the biggest LNG exporter.

Santos’s sales in the quarter fell to A$825 million ($643 million), from A$913 million a year earlier, as the average oil price it received tumbled 44 percent.
MGL: Image title
Santos capex is dropping like a stone. As capex completes, supply increases. Santos is a text  book example of the phenomenon. 

Volumes are now rising. Prices are falling, and net income is going down too. 

The real problem is that we just not seeing demand growth for LNG anymore. There's some opportunistic Chinese and Indian buying, but the the core of Japan, Korea, and Taiwan are stagnant in demand terms.  

Here's the IGU LNG buildout for the next 3 years:

Image title
This remarkable table was published in 2014, and willfully ignores the 285m mt of capacity in the FERC queue. It assumes only 1 LNG export plant in the US.  

Right now we have 4 export plants in construction, with a fifth, the Cheniere expansion, to announce FID next week. 

AMSTERDAM, April 14 (Reuters) - Cheniere aims to take a final investment decision on its planned Corpus Christi liquefied natural gas (LNG) export project in the United States within the next 30 days, undeterred by weak oil and gas prices worldwide.

Ramzi Mroueh, vice-president of origination at Cheniere International, said Cheniere had agreed financing for Corpus Christi and sealed a $9.5 billion engineering, procurement and construction contract with engineering firm Bechtel.

"We expect to sell another 2 million tonnes (of LNG supply from the project) by the end of the year," he said.

Cheniere is already building the United States' first LNG export plant at Sabine Pass, Louisiana, which is due to come on stream towards the end of the year.

A final decision on an additional two production trains at Sabine Pass LNG export project in the United States this year, specifically trains five and six, Mroueh said.

The moves suggest that weak oil and gas prices are failing to dent the boom in U.S. LNG export projects, spurred by massive gas supply growth from shale drilling in recent years.

"There is still strong interest in the market for our product despite slowdown and low oil prices," he said.

"We will be the biggest LNG producer in the Atlantic ... with 40 million tonnes of annual production," once Sabine Pass and Corpus Christi are built, he added.

This will take US export capacity to 80m mt by the end of 2018.

We have a 50% expansion in global LNG capacity hitting markets between now and 2018. Is it any wonder Tokyo Bay LNG prices are $7?

There are still investors in this market who think LNG prices are above $10. 

LNG looks worse than Iron ore, and Shell's bid for BG to gain 15% of a market that is in massive oversupply looks like pure folly.

YPF sees cost of Vaca Muerta drilling falling 10 pct

The cost of drilling in Argentina's vast but barely tapped Vaca Muerta shale formation will fall at least 10 percent by the end of 2016, state energy company YPF said on Thursday, part of an efficiency effort aimed at attracting much-needed investment.

The cost drop is expected to start in August when Argentina starts using its own sand in fracking, the process by which shale oil is extracted, rather than more expensive imported sand, YPF's Chief Executive Officer Miguel Galuccio said.

This may help Latin America's No. 3 economy attract the investment it needs to erase an energy deficit that costs billions of dollars per year in already low cash reserves.

YPF has already cut the cost of drilling a vertical well in Vaca Muerta to $6.9 million from a previous $11 million, Galuccio told reporters gathered on the outskirts of Buenos Aires for a demonstration of how YPF is refining fracking sand.

By the end of 2016, Galuccio said Argentina will produce all sand it needs for shale drilling.

"We are continually looking for ways to reduce well drilling costs. The sand is one form, which in itself will allow us to save 10 percent," Galuccio told Reuters.

"And there are other things we are doing which lead us to think we are going to save not only 10 percent. Our target will be much more than 10 percent."

That would come to a relief to international investors who have so far shied away from Vaca Muerta due to high costs as well as heavy trade and currency controls.

Galuccio said it currently costs $13 million to $14 million to drill horizontal wells in Vaca Muerta, located in Patagonia.

YPF is building a plant near Vaca Muerta that is set to start refining raw yellowish sand mined from the southern province of Chubut into the fine gray sand used in fracking.

YPF says it has about 300 wells producing up to 45,000 barrels per day of oil and gas equivalent, a fraction of Vaca Muerta's potential.
MGL: So who just lost a sand export contract?

This was a very simple cut in well expense for the Vaca Muerta. 

Schlumberger to cut 11,000 more jobs, earnings beat

Schlumberger Ltd said it would cut a further 11,000 jobs and reduced its capital spending plan for this year as the world's No.1 oilfield services provider prepares for an extended period of lower activity and pricing pressure, especially in North America.

The lower activity and pricing pressure led to a 9 percent drop in Schlumberger's first-quarter revenue, but "proactive cost management" helped the company's profit handily beat Wall Street's estimates.

Schlumberger shares were up 2.7 percent at 94.41 in extended trading.

The company said it expects a recovery in U.S. land drilling activity to be delayed and reiterated its March warning that the U.S. shale oil industry may have forever abandoned its heavy-spending ways in the face of sliding crude prices.

"We also anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness," Chief Executive Paal Kibsgaard said in a statement.

"The significant reductions in E&P spend are starting to impact supply in both North America and internationally, and supply is expected to tighten further in the second half of the year."

Schlumberger, which provides drilling technology and equipment to oil and gas companies, said it expects E&P spending to drop more than 30 percent in North America this year and by about 15 percent in international markets.

With the prospect of another plunge in crude prices looming, U.S. shale oil producers could face another round of spending cuts, which would further gut the oilfield services industry, Reuters reported in March.

Schlumberger said on Thursday that it now plans to cut 11,000 more jobs, bringing the total reductions announced this year to 20,000, or about 15 percent of its workforce.

The Houston-based company cut its capital expenditure plan for 2015 to about $2.5 billion from $3 billion.

Schlumberger said revenue fell nearly 9 percent to $10.25 billion in the first quarter ended March 31.

Revenue from its international business, which accounts for two-third of total revenue, fell 8 percent. Revenue from North America fell 12.5 percent.

Net income attributable to Schlumberger fell 38.8 percent to $975 million. The company's adjusted profit of $1.06 per share handily beat analysts' average estimate of 89 cents.

North America pretax operating margin fell to 12.9 percent, but beat UBS analyst Angie Sedita's estimate of 8 percent. International pretax operating margin rose to 24.1 percent from 22.8 percent.
MGL: These really small revenue falls are oddly impressive.  The suspicion remains that this is simply evidence of the sheer inertia of the industry. With Oil prices down 50% did Big Oil really want to spend 9% lass than last year? Or were they locked into contracted capex which forced completion, and payments. 

What we really need to know is how big is Schlumberger's backlog?

We can gain a clue from Shell's contractual obligations:Image title

$420bn of purchase obligations in 2013.Image title
$402bn in 2014. Thats down 5%!

Shell says capex will be down some 15% this year, so those contractual obligations, by end year, should also contract 15%. 

8% is moving in the right direction!


The long-awaited plunge in oil production is here

Here's LaVorgna: "As we can see from the chart below, the plunge in energy production is occurring in lagged response to the aforementioned fall in oil prices. We have found that the year-over-year change in oil prices is most closely correlated with changes in energy production when the former series leads by five months. This means that if it turns out that oil prices bottomed last month, production should begin to stabilize around September. Of course, between now and then, energy production and capital spending (capex) will be extremely weak."

Screen Shot 2015 04 16 at 11.47.30 AM

Read more:
MGL: Bullshit data, but some will be convinced. 

PA Feb Natgas Production Numbers Show Decrease from Jan

Kudos to the Pennsylvania Dept. of Environmental Protection. On April 1 they published the very first monthly production numbers for oil and gas production in the state–for the month of January.

At the time, the DEP said going forward new production numbers would be released 45 days after the end of a calendar month, and that February’s numbers would be released by April 14. Those numbers were released–just before midnight on the 14th! They kept their word and are to be commended for it. MDN has analyzed the numbers from February, comparing them to January. Unfortunately several drillers have failed to file their monthly reports on time–most notable among them is EQT.

Because EQT’s numbers are missing for February (one of the larger drillers in PA), it throws off any kind of meaningful analysis. However, we have enough of the picture from other major drillers who did file on time–drillers like Cabot Oil & Gas, Range Resources and Southwestern Energy–that we can tell you this:Production in PA from January to February went down by an appreciable amount.

Currently, without EQT’s numbers in the mix, February production decreased 17% from January levels. Once missing numbers are added, we expect production to have decreased somewhere around 8-10% overall.
MGL: More state data: PA gas volumes falling. 

Adds to the picture that Oil and Gas volumes have now been falling, and by appreciable amounts for some time.

Meanwhile the front page of the WSJ is suggesting that Oil and Gas production begins to fall in May. 

There is now a huge difference between perception and reality on US oil and gas production.

EIA figures are based on RIGs.
State data is based on production and royalty payments.

State data from Texas, North Dakota, and now Pennsylvania is showing sizeable declines. January data is showing some 700kbp of Oil. We have not calculated the gas impact, but it will be sizeable. Possibly 2bcf per day. Add in this data from the all important Marcellus and we have a picture that shows US oil and gas production crashing.

Despite this US oil and gas inventory has risen in the past few months. This is a big deal. It implies, at least that final demand is nowhere near the levels being implied by the big data agencies. Over the next few months the market will wake up to this impact.

ICE Brent Crude Futures Achieves Open Interest Record

Image titleIntercontinental Exchange, the leading global network of exchanges and clearing houses, today announced that ICE Brent Crude futures achieved an open interest record of 2,006,759 contracts on April 15, 2015. The previous open interest record was set on April 2, 2015, with 1,992,780 contracts at ICE Futures Europe.

As of April 15, average daily volume for ICE Brent Crude Futures was 817,569 contracts year to date, up by 37% compared to the same period last year. Introduced in 1988, the Brent futures contract has continuously evolved to reflect changing market fundamentals and continues to meet the hedging requirements of market participants across the globe.
MGL: Did the bell just ring on this Oil equity rally?

Hedging Helps Canadian Oil & Gas Companies in Low Price Climate

Canadian oil and gas companies that hedged their oil production before the global oil price crash will be very relieved they did so. This CanOils study of 45 TSX-listed companies' Q4 2014 results (see note 1) shows that many Canadian companies made large realized hedging gains as the oil price fell to around $50 by year-end 2014. This study agrees with a recent EIA article, written using Evaluate Energy data, showing the impact of hedging on U.S. companies during the same period.

Whilst hedging may have seemed over-cautious at the start of the year, with oil prices not having wavered from the $90-$100 mark for quite some time, hedging eventually proved to be a prudent strategy given the collapse of commodity prices by almost 50% towards the end of the year.

Hedging contracts (also known as derivative contracts) are a common risk management strategy for oil and gas producers. A producing company will agree with a buyer to sell future production at a certain price, thus potentially limiting revenues if prices climb, but simultaneously shielding the producer from excessive losses should commodity prices suddenly fall.

The chart below shows that the group of 45 TSX-listed companies, as a whole, experienced both sides of the hedging dynamic in 2014.

Whilst high prices were not realized by the 45 companies to their full potential in Q1 and Q2, hedging has clearly helped significantly lessen effects of the commodity price downturn in Canada towards the end of 2014. The graph is almost identical to that reported by the EIA for U.S. companies using Evaluate Energy data. The lines for pre- and post-hedging revenues are almost parallel in Q1 and Q2, begin to converge in Q3 and then switch over dramatically in Q4 as benchmark oil prices began to tumble.
MGL: Hedging by the Oil industry has done its job. It has bought the companies time to adjust to the new reality of $60 Oil. Capex runoff, and project completions lie ahead, and in Canada supply growth will continue for the forseeable future. 

"Western Canadian oil production in 2015 will continue to grow at about 150,000 barrels per day from last year—about 65,000 barrels a day fewer than previously forecast—with a similar gain expected in 2016, the industry lobby said, a result of investment in oil-sands projects that will come online over the next couple of years."

Capex intentions in Canada have fallen some 45%, but we still have a large core of project underway, contracted, and committed to completion.Image title

This is the January CAPP foroecast which incorporates a 33% drop in Capex and a 68000 bpd cut in output growth, primarily from SAGD/shale curtailments.  All of that growth in output will head South and East as exports.

Saudi Oil Production Hits All Time High, Surges By 'Half A Bakken'

As hopeful US investors buy everything oil-related on the back of a lower than expected crude build this week (after the biggest build in 30 years the week before),

The Kingdom has stepped up overnight and ruined the dream of supply-restrained price recovery as it announced a surge in production output in March to yet another record high. The nation boosted crude output by 658,800 barrels a day in March to an average of 10.294 million a day, which as Bloomberg notes, is about half the daily production from the Bakken formation.

WTI Crude prices have slipped by around 2% from yesterday's NYMEX Close ramp highs as it appears Saudi Arabia is not willing to just let this effort to squeeze Shale stall.
MGL: No surprises here! Jodi database updates on Sunday, so we'll know the Feb export data.

Cheaper Russian gas this summer no threat-Statoil

Norwegian gas is likely to be price competitive enough to weather an influx of cheaper Russian gas expected into its European market this summer, a senior Statoil official said.

Europe's biggest gas producer does not expect to see Russia, the continent's biggest supplier, taking away its market share despite increasingly cheap oil-linked gas becoming available from the east, said Rune Bjornson, Statoil's senior vice-president for marketing and trading.

Supplies from Russian pipeline export monopoly Gazprom are estimated by analysts to rise to record levels this summer.

Russian long-term gas supply deals with European utilities are linked to oil prices with a lag of six-to-nine months, meaning that the collapse in oil prices will only start to fully feed into gas contracts this summer, making Russian gas cheaper.

Statoil sells much more of its gas priced against freely traded European gas hubs, raising expectations that Russian volumes could increase penetration into the market.

Bjornson said that spot prices on Europe's freely traded hubs will fall in response to any increase in Russian volumes, potentially lining up with oil-indexed levels and eroding Russia's competitive advantage.

"I don't necessarily think that is going to be the case because the Russian gas will also find its way into the market if there is a margin in there...simply because the oil-linkage takes it down below the (spot) market, the market is likely to follow suit in one way or another," Bjornson said.

"We expect flows to remain stable this summer," he said.

Caps on output from the Dutch Groningen gas field and gas exports from Western Europe to Ukraine left Western Europe's gas storage sites only a quarter full at the end of March, below last year levels, which is expected to keep demand high this summer.

Nor does Bjornson expect Statoil's share to be squeezed by a forecast rise in cheaper liquefied natural gas (LNG) shipments landing at northwest European terminals this summer, as demand in the world's top consuming market Asia slows.

"From a competitive point of view I think we are well placed," he said.
MGL: Gazprom oil linked contracts remain in the system? Most of the big utilities forced Gazprom to spot contracts on the basis of the now infamous exit clause, this article suggests that some remain. We've noted in the past that Gazprom pricing in Europe is all over the shop, with no rhyme or reason, so clearly there are some pure Oil index contracts remaining that are now gradually repricing down to the new Oil price level. It's just more pressure on gas pricing.

Asia's crude oil storage seen sufficient as contango spurs stocking

Asia still has ample room to store crude in the midst of one of the longest sustained periods of contango that oil markets have seen since 2010, with capacity available from South Korea to new facilities near Singapore.

First-month Dubai crude prices have been at a discount to third-month Dubai prices since October 27, 2014, according to Platts data.

It is the most sustained contango since November 2009-November 2010, the data showed.

China would be the mostly likely place to store crude at present as oil demand growth remains strong even as the country's overall economy slows. Commercial storage sites may have at least 10 million barrels of capacity available, according to Platts calculations.

The Dalian West Pacific Petrochemical Corp. or Wepec refinery operated by PetroChina has crude tanks capable of holding 6.3 million barrels, which are less than 40% full as the refinery prepares for maintenance, a refinery source said.

PetroChina's Dalian refinery has commercial crude storage facilities totaling 8.8 million barrels of capacity and the tanks are about 90% full, said a refinery source.

In southern China, Sinopec has gradually filled its 16 million barrel storage base in Hainan province since late 2014 to be 100% full at end March, according to a source at Sinopec's Hainan refinery. However, the refinery still has room at its own storage facilities, which have 6.9 million barrels of capacity.

Sinopec's Maoming refinery in Guangdong province has been keeping its inventory steady at between 5.2 million and 5.8 million barrels, although its total capacity for crude is 9.6 million barrels.

Sinopec subsidiary Sinopec Storage and Transportation has a separate storage site in Maoming, where utilization is now at 87%, from above 50% in the first half of 2014. There are 15 storage tanks totaling 11.8 million barrels of capacity, 13 of which are full, a company source said.

Commercial crude stocks in China totaled around 250 million barrels at end February, according to Platts estimates based on data released by China Petroleum Stockpile Statistics. This equates to about 24 days of apparent oil demand.
MGL: Confirms likely ongoing Chinese inventory build, but this is now almost a constant these last two-three years.

Top India Explorer’s Spending Bucks Big Oil as Crude Dips

Billionaire Mukesh Ambani’s Reliance Industries Ltd., which runs the world’s largest refining complex, overtook ONGC as India’s most profitable company five quarters ago. Photographer: Pankaj Nangia/Bloomberg

India’s Oil & Natural Gas Corp., grappling with aging fields, is prepared to sacrifice profits by retaining a plan to pump 11 trillion rupees ($176 billion) into a search for reserves despite the slump in crude.

The decision sets India’s biggest explorer apart from global producers such as Chevron Corp., which are tightening budgets. Crude’s drop has already taken a toll: ONGC’s profit fell the most in at least nine years in October through December, and the shares are down 5.5 percent in 2015.

“We’ve decided not to cut any capital expenditure,” Chairman Dinesh Kumar Sarraf said in an interview in New Delhi. “Higher spending in a low oil-price scenario will have an impact on our earnings. But we don’t have a choice.”

ONGC by 2030 plans to spend a sum roughly equivalent to the size of Vietnam’s economy to find more oil, as Indian Prime Minister Narendra Modi seeks energy security. While investing as profits drop signals potential stress for the company, longer term ONGC could benefit as its output rises and oil prices recover, according to Emkay Global Financial Services Ltd.

“We just hope crude prices will recover going ahead,” Sarraf said in the April 13 interview. “Our capex now will come to good use when we are back in days of higher prices.”
MGL: "But we dont have a choice"

Strongly implies that ONGC is heavily contracted into this downturn. Company generates cash, and the fall in prices has actually relieved balance sheet stress by drastically reducing the scale of the subsidy receivables.  So there's not much issue at ONGC stock, but it adds to the picture of ongoing supply addition post the collapse in Oil.

Oil historian Yergin sees prices locked in ’W’ formation

Oil historian and economist Daniel Yergin has a forecast for where the price of crude is headed: all over the place.

The much debated shape of the oil-price curve will take the form of a W as crude is whipsawed by mixed signs from a rattled US shale boom, while Saudi Arabia refuses to balance a global supply glut, Yergin said in an interview.

As spending cuts are forecast to begin easing production from shale next month, the fate of world oil markets is largely in the hands of a myriad of US wildcatters, all with different strategies and an unusual ability to respond quickly to changed circumstances.

Ramping down will be quicker and easier than stepping up production as prices recover, said Yergin, vice chairman of IHS Inc. Increased supply will renew downward pressure on prices and volatility will be exacerbated by storage and investment decisions, he said.

“It’s not a light switch,” he said of the producers’ response to an oil price slump, one of the themes to be discussed at next week’s IHS CERAWeek energy conference in Houston. “There isn’t going to be a landing place for oil.”

Oil stored in anticipation of higher prices in the future will also put a ceiling on a near-term rebound, he wrote February 13. Tertzakian has called it a “seesaw recovery.”

Yergin, author of “The Prize,” identified this year as one of the most momentous in the history of the commodity.

Demand growth from China, perhaps the biggest reason for oil’s meteoric rise in the last decade, has slowed. Meanwhile, risk to supply abounds in producing countries, from the proxy war being waged in Yemen by Iran-backed rebels and Saudi forces to ongoing tensions between Russia and Ukraine, he said.

“There is a lot of risk in the world, but there isn’t much of a risk premium in oil, which is unusual,” he said. “There is so much oil, the supply of it is so great that the fear of supply being disrupted in some fashion” is very small.
MGL: All good stuff from Yergin

EIA Predicts Natural Gas Production Starts Declining In May

The report is based on the average rig count for the month of March. The rig count has fallen by more than 10% from the March rig count average.

Based on the recently released EIA Monthly Drilling Productivity Report, the EIA will soon be lowering their forecast for 2015 natural gas production from the lower 48 United States. The report now predicts natural gas production will decline overall by 23 million cubic feet per day in May from the seven shale basins followed in the report.

According to the EIA, all of the growth in natural gas production in the lower 48 has come from the seven shale basins followed in the report. Natural gas production has already been declining from the regions not followed in the report. So, overall natural production in May can be expected to fall by more than 23 million cubic feet per day.
MGL: EAI estimates are RIG based, the state estimates are completion and royalty based. We think the state numbers, which now show DECLINES in production of some 700kbpd on the published data are more accurate. That data is Jan/Feb. March completion activity in the US is being reported at around 30% of rig activity right now. That implies 2mbpd of uncompleted wells.

US E&P Q1 reports are going to be a horror show. 

WTI Spikes Above $55, Crude Inventories Rise At Slowest Pace In 14 Weeks

For the 14th week in a row, US crude inventories rose; but against expectations of a 3.5mm build (and weak API overnight), DOE printed a mere 1.294mm bbl build - the lowest since the build streak began on the first week of January. Crude prices are spiking on the news (though we note last week saw the biggest build in 30 years with the 2 week average above trend). Total crude inventory continues to make new record highs (and pressure Cushing capacity).
MGL: Now the question becomes whether this inventory build represents an improvement in Oil demand/supply fundamentals, or a lack of economic storage available. Given the scale of the fracklog,and the implied fall in US shale production.

Here's North Dakota and Texas data through January/February:
Image titleImage title
Now this is bullish crude, and the market loved it.

I was watching Saudi crude trade this am. At first it rallied strongly above $60, then it was hit by a seller and dropped a $1 in under an hour, so the chart shows Saudi crude dead on the price point where ARAMCO is willing to turn on the export tap:

Image title

There has been no question that our newsflow over the past month has turned distinctly bullish on crude. We've seen the emergence of an enormous Fracklog in the US which must be cutting into US production by some 1mbpd to 2mbpd. In January it was definately more than 750kbpd. By march it could easily have doubled.

Yesterday felt like the final blowoff move, the celebration by the market that its instinct is correct. Implied market expectations are now at the very upper end of the $80-$90 level for Oil equity, firmly cemented by increasing demand, falling supply, and Shell's BG bid, paying 3x NPV.

ARAMCO now aces the market, with the capacity to move an additional 1-1.3mbpd into markets above $60. That capacity increases to 2mbpd by the end of 2017 as they switch Oil for Gas in domestic electricity generation. It is certain Saudi has said $60 on every occasion its officials have made a public utterance.

Shorts gentlemen please.


But almost all the Oil equity we've looked at is overpriced.


South Korea's March LNG imports fall 26% on year to 3.05 million mt

South Korea imported 3.05 million mt of LNG in March, down 25.9% year on year and down 1.2% from February, customs data showed Wednesday, April 15.

The lower imports were a direct result of high inventories caused by weak downstream demand.

It was the third straight year-on-year drop in South Korea's monthly LNG import data.

The country imported 10.18 million mt in the first quarter, down 20.2% from Q1 2014.

State-owned Kogas earlier reported a 7.1% year-on-year drop in January LNG sales, with February LNG sales falling 9.1% year on year to 3.37 million mt.

The company's March sales data is not yet available.

Kogas has been trying to deal with its high inventories by carefully managing deliveries at its terminal operations.
MGL: Ugly.

Rosneft experiences increased gas production

Russian-based gas production firm has experienced increased activity during the first quarter.

Rosneft’s gas production increased by 19.7% compared to the same period last year and amounted to 15.8 BCM.

Factors contributing the growth include an increase of use of produced gas, an organic increase in production from existing production facilities, as well as commissioning of new fields  such as Northern Chayvo at the Sakhalin island.

The company has said it is working to improve the utilization of associated petroleum gas, which reached 87% in the first quarter of 2015 compared with 81% in 2014.

This year it hopes to achieve an APG utilization level of 95%.
MGL: More gas, less flaring.

Petrobras may sell stakes in sub-salt blocks -paper

Brazil's Petrobras may include stakes in some sub-salt oil fields in an asset sale program aimed at reducing capital spending amid a massive corruption scheme, a local newspaper reported on Wednesday.

Petroleo Brasileiro SA, as the state-run oil company is formally known, could include some exploration licenses that are not under production-sharing agreements and a 10 percent stake in the Libra field in the sale plan, newspaper Valor Economico reported. The paper did not specify where it obtained the information.

The asset sales are part of a $13.7 billion divestiture program announced early in March, set to take place this year and next.

Petrobras had said previously that divestitures in exploration and production could account for roughly 30 percent of the total value to be raised.

Subsalt deposits refer to an area in Brazil's Santos and Campos basins where large oil discoveries have been made deep beneath the seafloor under a layer of salt.

According to Valor, Petrobras decided to hire Bank of America Merrill Lynch to find potential buyers or partners in those areas. The mandate included high-quality blocks in the asset sale in order to make it more attractive to investors, the paper added.
MGL: This is exactly what Petrobras needs to do to remediate its enormous contractual liability problem.
Image title
Image title
Total EV is thus $317bn on the most recent audited data we have. In September PBR showed this slide:
Image title
Which strongly suggests contractual commitments were rising strongly into the Oil price collapse.

On this data EV would be $345bn.  On current Oil prices Petrobras likely makes $20-$25bn of EBITDA, depending on how low the Real falls. (Falling Real brings down local pump prices from their present higher than normal levels)

That leaves EV/Ebitda at just north of 15, which is just excessive. This is not Google.

Petrobras reports audited q4 on the 22nd April, and we strongly suspect, given the 'ramp' going on in the stock, and the piles of fiction called analysis landing on my desk, that there's a secondary in the wind. On the corruption numbers:

WSJ: Found so far $700m.
Market consensus: $5bn, (we think this is figure inferred from existing arrests and testimony)
Judges comment: $30bn (this figure seems to be 3% of capex over the last 10-15 years)

Which is all a bit like Oil reserve reporting! 

Mind your eye!

Active accounts could even consider a short into the numbers on the 22nd April.

The Shell/BG deal potentially gives Petrobras a route out of this mess. IF the current ridiculous Brazil sub-salt legislation could be altered, we could infer a value for sub-salt resource of around the $2 a boe level, rather than the pathetic 47c a boe accorded by the M&A markets, and reflecting the appalling record of Petrobras operatorship over the last few years. 

This is not easy.


Lukoil Says Was Asked to Reduce Iraq Output

Russia's Lukoil was asked to sharply reduce output in Iraq this year and earlier after the country's exports were disrupted by bad weather and quality issues.

"We've got the letter to curb our enthusiasm," Ravil Maganov, who is in charge of Lukoil's upstream division, told reporters.

Regarding Lukoil's production at the huge Iraqi West Qurna-2 oilfield, Maganov said: "We were restricted to 250,000 barrels per day (bpd) due to weather and level of sulphur, we are dealing with the problem."

He said Lukoil's current production at West Qurna-2 was 380,000 to 390,000 bpd.

Lukoil is building an oil pipeline with a capacity of 1.6 million bpd to Iraq's southern port of Faw.

The Iraqi government reimburses costs incurred by Lukoil, as well as other producers, with oil.

Oil companies have proposed cuts to development spending in Iraq after Baghdad told them that low oil prices and the fight against Islamic State had made payments difficult.

In a letter sent to the companies last month seen by Reuters, the firms were told such cuts should not reduce current oil production levels.

- See more at:
MGL: West Qurna 2 is supposed to pump 1.2mbpd by 2017, and this update on production numbers confirms industry reports that 120/- bpd facility completed in Q1. That Iraq is asking for a capex slowdown across the board is news, and likely reduces Iraqs growth rate from the current 200/- to 400/- kpd per year down somewhat. 

EOG has lion's share of 900 North Dakota wells awaiting fracking

Oil producer EOG Resources Inc has the lion's share of an estimated 900 North Dakota wells waiting to be fracked, according to state data, showing that even major oil titans are mothballing operations while they hope for a rebound in oil prices.

For months the conventional wisdom in North Dakota's Bakken shale formation had been that smaller producers with weak cash flow comprised the bulk of that estimate.

While the estimate had been published monthly, it was not clear until a Tuesday update from the state's Department of Mineral Resources (DMR) who was dominating the list. Oilfield service companies have aggressively sought the information, hoping to drum upnew business.

By late May, the number of wells waiting to be fracked is expected to breach 1,000, DMR officials said, fueled largely by cheap oil and a $5.3 billion industry tax break expected to hit in June.

Oil producers have up to a year to frack the wells before they must ask state officials to label them "temporarily abandoned."

The fact that industry stalwarts like EOG are having to hold off on fracking new wells shows how much low prices make the remote Bakken far less economical compared to other U.S. shale plays.

EOG has kept three North Dakota drilling rigs operating since January, though it has not fracked any of the wells that it has drilled. Most of the uncompleted wells are in the Bakken's Parshall Field.

"These are tremendously productive wells," said the DMR's Lynn Helms. EOG is "able to drill a lot of wells and maintain production and still bank a lot of wells for future price increases."
MGL: EOG has been most forthright in their refusal to complete wells. In a Q&A session post the Howard Weil conference they intimated that $75 was the kind of price they were looking for to complete what now must be a sizeable fracklog, but thats analysts putting words in EOG's management's mouth, and there was no clear definitive statement that we are aware of.


IEA says oil supply boost may defer market tightening

World oil markets may take longer to tighten than expected due to a surge in OPEC supply and a potential rise in Iranian exports, even as demand shows signs of strength, the International Energy Agency said on Wednesday.

The agency raised its forecast for global oil demand growth in 2015 for a second consecutive month, citing strong pockets of consumption in Europe, India and the United States.

Global oil demand is rising faster than projected, but so is supply, and the IEA, which advises industrialised countries on energy policy, rolled back its prediction of when the market would tighten.

"Recent developments thus may call into question past expectations that supply and demand responses would tighten the market from mid-year on," the IEA said in its monthly report.

OPEC production surged to 31.02 million barrels per day (bpd) in March, almost a two-year high, led by Saudi Arabia.

Saudi oil output rose by 390,000 bpd in March to 10.1 million bpd, its highest since September 2013, confirming industry reports of a surge in production as the kingdom meets domestic demand and bolsters its global market share.

Saudi output is likely to keep rising, analysts say, reducing global spare production capacity. London-based consultancy Energy Aspects said this week Saudi crude production could reach a record 11 million bpd this summer.

Iranian oil production could rise sharply if economic sanctions are removed from the Islamic Republic.

The IEA raised its forecast for growth in world oil use this year by 90,000 bpd to 1.08 million bpd, bringing demand in 2015 to an average of 93.60 million bpd.

It said consumption may falter in some areas but OPEC production was likely to stay high and could even rise further in April.

The agency left its forecast of demand for OPEC crude in 2015 unchanged at 29.50 million bpd, pointing to a rising supply surplus if OPEC keeps the same output.
MGL: How does the EIA know that final Oil demand is rising?

We have good data on storage and inventory fill in North America.  So here's the data:

Image titleThis shows a downtick as inventory effects fade.

The EU has an Energy Portal which gives us stuff like this:

Image titleSo its really cool if I need to know my consumer energy rights, but pretty useless if I want updated final Oil demand. The last comprehensive data I found covered 2012. Thats helpful. Delving into the individual country data produces a real smorgisbord of results.

Consultants like Energy Aspects are suggesting 'light end' product demand globally is 'strong' but are completely in the dark about tertiary inventory effects. 

Real final end demand right now is a mystery. Time will tell, and surely there has been some lift in demand. 

On supply, we really only have good data from the JODI database, and even that data is suspect. 


Hunting's operating profit falls on oil sector slump

Oilfield services company Hunting Plc said its first-quarter operating profit fell about 60 percent, hurt by falling global rig counts and reduced capital expenditure across the sector.

Shares in the company fell 8 percent to 536 pence in early trade on the London Stock Exchange on Wednesday.

Hunting said its subsea, electronics and tubular component machining sectors performed better in the quarter compared with last year, offsetting weakness in its North American drilling tools business. (

"The decline of 60 percent y-o-y headline number looks severe at first glance, but we highlight this was versus a much stronger environment in the first half of 2014," Barclays analyst Mick Pickup said in a note.

The company, which provides services and equipment for drilling, completing and maintaining oil and gas wells, had said in February that it expected the impact of weak oil prices to show up from the second quarter.

The faster- and steeper-than-expected fall in North American rig counts accelerated the impact of the slowdown, specifically the decline in the traditionally sturdy Gulf of Mexicoregion, Finance Director Peter Rose told Reuters on Wednesday.

"That is an environment where we thought we would have some degree of protection... but even there we are all seeing some rig contracts being cancelled and we're seeing some slowdown there."

Hunting said it had cut about 20 percent of its headcount so far this year, more than half of it in the United States, as part of a cost cutting program started in February.
MGL: Hunting rallied to the close, the stock now trades 19x eps, 9.6x ev/ebitda with a 3.4% yield.  Hunting in it's last big presentation had two interesting slides on Oil declines:
Image titleImage titleWe now know, and the market is just waking up to the fact, that US shale output is likely already down 1-2mbpd in March, but thats mainly driven by the fracklog.

Russia says is in "unprecedented" consultations with OPEC

Russia's energy ministry has been holding active consultations with the Organization of Petroleum Exporting Countries and Latin American oil producers which Deputy Prime Minister Arkady Dvorkovich described on Wednesday as "unprecedented".

He did not elaborate on his comments but told a energy ministry panel that such discussions should continue.

Russia has tried to forge closer ties with OPEC after oil prices plunged. Moscow is expected to send a delegation to talks with some OPEC members in June.
MGL: For the first time since the oil price crashed we see a news story that could perhaps stabilise the Oil market.  Before readers open the Champagne,  you have to consider what Saudi intentions are here. It would not surprise me if Saudi is asking OPEC, and Russia to help stabilise the Oil market at around the $60 level.  June is an intriguing date for a meeting, its after the final 'in principle' deal with Iran is supposed to go into action, and that could involve 1-1.5mbpd of additional Iranian crude hitting markets. 

Nevertheless, its yet another excuse for a market that is dying to bull crude.

Oil prices rise after signs of U.S. production dip

Oil prices rose on Wednesday after signs of a dip in U.S. production, but gains were capped by Chinese quarterly growth slowing to a six-year low.

In the United States, North Dakota's February oil production fell 15,000 barrels per day (bpd) versus January, although the number of producing wells hit a record high.

This followed a U.S. Energy Information Administration (EIA) report forecasting U.S. shale production would fall by 45,000 bpd to 4.98 million bpd in May, which would be the first monthly decline in four years.

Analysts said the U.S. figures were pushing prices up. "We expect Brent Jun'15 and WTI Jun'15 to end today breaking resistance of $60.3 and $55.34 (per barrel)," Phillip Futures said.

But the slowing Chinese economy prevented prices from rising further.
MGL: Data catching up with the fracklog. 

Small note: number of completed productive wells was a record in N Dakota, but actual producing wells were 900 below drilled holes. Its the fracklog!

(see our Bakken fracklog story for the grisly details, but this is the headline the traders will read.)

The Bakken Fracklog

Image titleImage title
MGL: We have an estimate now for the Bakken Fracklog via the state data. It looks to be around the 200k bpd mark. So with Texas at 400k bpd (on January data) and the Bakken at 200kbpd (on February data). We can infer the following:

~The Fracklog in January was some 1mbpd across the continental USA.
~The Fracklog appears to have increased dramatically between January and March.
~March estimates for the fracklog suggest 2mbpd.

This all has the Oil bulls frothing at the mouth for a breakout.


Cabot Drills Test Well in WV Rogersville Shale, More on the Way?

A fascinating story in Sunday’s Charleston Gazette shines a light on the Rogersville Shale formation in southwestern West Virginia and eastern Kentucky. Rogersville a shale layer that is older and much deeper than the Marcellus. The Marcellus is about a mile down. The Rogersville is between 9,000-14,000 feet down, or 2-3 times the depth of the Marcellus.

Until now we’ve heard about potential Rogersville activity in Kentucky . Two exploratory wells have already been drilled in the Rogersville in Kentucky. But the new news, the thing that interests us, is that Cabot Oil & Gas has now drilled a test well in the Rogersville in West Virginia.
rogerssvilleCabot's not the only player in town.

Here's the Rodgersville shale map,

A Cimarex well started the excitement:

"Production rumored by some to be slightly over 2000 bod for each of 3 zones which is crazy high and multiple industry estimates come in at slightly over 2100 bod for 2 of 3 zones tested which fits well with observations of two rounds of flare tests conducted over two two week periods with a day or two between the two rounds of flares. Industry estimates on the photos of the flare below were 4-10 mmcfd and daylight observers indicated it was smoky flare indicating wet gas. 

Based on the two large flow tanks and no more than 8-12 frac tanks on the site there would have been no where to store the large oil flows during the tests so that leaves us with the assumption that the rumored flows were estimates based on chokes and some theoretical number of feet of lateral in a horizontal well.


Should these numbers hold up, even If we cut these flow rates in half leaving a net 2000 to 2300 and use BOED in lieu of BOD, this is definitely shaping up to be a world class play.

Regardless of how they are calculating the flows is does seem like the Rogersville Shale will definitely be a game changer for Eastern Kentucky and maybe the whole Country."

Our intrepid blogger trecked to the scene of the Cimerex well and photographed the flare:


Further it looks like this is CLR's new play alluded to in the last quarterly conference call:

"Sources indicate that Continental picked up an 85% interest in the deep rights on 7500 acres from privately held Hay Exploration for an estimated $9.4 million — $1250 per acre — that was being marketed at the NAPE Expo in Houston.

Late last year, Continental completed initial title work to buy the Rogersville Shale rights on an undisclosed amount of acreage from partners Nytis Exploration and Liberty Energy.

Full terms of the deal were not disclosed but Continental is understood to have spent about $20 million on the package.

The Rogersville formation is a Cambrian-aged dark-gray shale member of the Conasauga group that lies at depths ranging from 9000 to 14,000 at the base of the Rome Trough extensional basin."

An old Exxon mud core examined by state geologists last year showed wet gas from the core, and started the play. Continental does not pay $1250 an acre for moose pasture unless Harold Hamm is very excited.


Eclipse Resources announces revised capital budget, production

Eclipse Resources estimates that first quarter 2015 production averaged approximately 160 MMcfe per day, a 316% increase relative to the first quarter of 2014 and a 29% sequential increase over fourth quarter 2014 production
For the full year 2015, Eclipse Resources expects production to be between 180 MMcfe per day and 190 MMcfe per day representing production growth at the midpoint of this range of 154% over 2014 average daily production
Eclipse Resources' Board of Directors has approved a capital budget of $352 million for 2015
Following discussions with various financial partners, Eclipse Resources has made the decision not to pursue a drilling joint venture at this time

Eclipse Resources announced today that its Board of Directors has approved a revised capital budget of $352 million for 2015, representing a 45% reduction from its initial capital budget for the year, and a 57% decrease from 2014. The Company expects to spud approximately 19 net operated wells, and 2 net non-operated wells. The company expects to place 29 net wells (18 net operated wells and 11 net non-operated) wells into sales during the year.
MGL: Eclipse has barely $50m of cashflow to finance $352m of capex.  Enterprise value is $1.7bn, PV10 is $183m. They are only 41% held by production, and only one of their core areas is really making economic returns today.Image title
There are 800 net wells to drill, 150 of which are economic at strip today. So you are paying $1.5bn for the call option on 700 wells becoming economic via price or productivity. ~$200m per tcf of resource, its in the Marcellus, so there's likely upside on the stacked pay.  Range for comparison is ~$135 per tcf, with better cashflow!

It’ll Take More Than Yemen’s LNG Shutdown to Blunt Supply Boom

There’s so much liquefied natural gas set to hit global markets this year that it’ll take more than the shutdown of Yemen’s only plant to threaten supplies.

As rebels seized army positions outside the nearby city of Balhaf, Yemen LNG Co. halted production and exports at its 6.7 million metric ton-a-year facility because of a “degredation of the security situation,” according to a statement on its website Tuesday. Its customer, Korea Gas Corp., and consultants including EnergyQuest and Manaar Energy Consulting, said that’s unlikely to disrupt the markets. Yemen accounts for about 2.2 percent of the world’s liquefaction capacity, data from the International Group of LNG Importers show.

The cost of LNG for delivery to Northeast Asia has slumped by more than half over the past year amid a collapse in oil prices and as supplies swell. About 12 million tons of the supercooled gas will start this year, the most since 2011, with more to flow in 2016.
MGL: No evidence of any reaction in LNG spot markets to this disruption. Our last report had Kepco oversupplied, and seeking to reduce purchases, so Kepco may simply shrug, and not replace the lost LNG.

Statoil in new round of staff cuts?

Norway’s state-owned oil giant, Statoil, is reportedly cutting stuff in a new round of redundancies.

According to Aftenbladet, Statoil will cut up to 20 percent within its technical sector that employs around 12,000 engineers.

This might mean that up to 2,400 engineers will find themselves without employment, notably those that are drilling and maintaining wells, and administrative staff.

This move is a part of cost cutting measures caused by the drop in global oil prices.

Offshore Energy Today reached out to Statoil seeking confirmation of these reports; however, we are yet to receive a response.
MGL: We've cut the capex, and we've seen a dribble of redundancies so far, but there have to be more to come surely?
The Oil industry is now in project 'runoff' mode. We entered the downturn at peak capex, and with a projects stacked high on Big Oil's decks. The pressure is on to sustain those all important dividends, and only ENI has blinked so far. (No one is entirely sure whether ENI counts, is it really part of Big Oil or not? Small note: ENI has new senior management, so a clearing of the decks was always on the cards!) 

So if you can't cut the dividend, then you have to cut costs really. Thats staff, people and particularly project generation teams. Low oil prices are seeping into the industry's consciousness slowly. 

As an aside I listened to 3-4 hours of Laredo's presentation yesterday, and I simply don't recall anyone on the call mentioning the dreaded $50 number. Its so obvious, so out there, so in your face, it simply can't be true. Make no mistake, everyone is thinking about it, and hoping normal service will resume as soon as possible.

Dutch court orders production cut at part of Groningen field

A Dutch high court on Tuesday ordered a temporary halt to gas production around Loppersum, in the northern province of Groningen, because of safety concerns from earthquakes.

In a preliminary ruling, the Council of State said it would however not order a complete halt to gas production at the Groningen gas field, as complainants had sought.

Loppersum production was previously capped at 3 billion cubic meters (bcm) for 2015, representing roughly 9 percent of overall production from the Groningen field, Europe's largest.

"For the time being, gas may be extracted in and around Loppersum only if extraction from other locations is no longer possible and if necessary for the security of supply," a court statement said.

Judge Thijs Drupsteen said he was ordering the government's approval of the extraction plan submitted by NAM, a joint venture between Royal Dutch Shell and Exxon Mobil Corp. 0 to be "partially suspended". The administrative court has jurisdiction over government decisions.

The ruling on Tuesday was preliminary and based on complaints filed by two out of 40 applicants. The cases will be heard in full in mid-September, it said.

"If production were stopped in full, demand for gas from the Netherlands and neighbouring countries could not be met," the judge said.
MGL: Judge implicitly suggesting here that court will allow some production. Shell and Exxon still loose 90% of production, its approx 1.2bcf pa each. Not huge, but definately a ding.

BP seeks LNG buyers to finance $12 bln Tangguh Train 3 project

 BP said it would be tough to proceed with financing for a planned third LNG train at its Tangguh project in West Papua, Indonesia, without buyers for the remaining 1.3 million tonnes of annual output from the production plant.

Prospects for new liquefied natural gas (LNG) developments globally have been hammered by the fallout from a 50-percent drop in oil prices since last June. The situation in Asia is set to get worse as two LNG projects in Australia come onstream this year, crowding an already amply supplied market.

"There is still 1.3 million tonnes per year (mtpa) that has not yet (been sold)," said Dharmawan Samsu, country head at BP Indonesia, noting that so far the firm had only found buyers for 2.5 million tonnes of expected output from Train 3.

Without buyers for the remainder it would be "difficult to proceed" with financing the third train project, which is currently expected to be completed by 2020, Samsu said on Tuesday.

BP will review its final investment decision for the $12 billion Train 3 project after a so-called Front End Engineering Design has been completed at the end of 2015 or early 2016, Samsu said.

"We're not looking at difficulties in funding, but more at the economics of the project," he said, declining to comment further on pricing.

Earlier, Samsu said Japan's Kansai Electric Power Co. had agreed to purchase 1 mtpa from Train 3, adding to the 1.5 mtpa committed to Indonesia's state electricity utility PLN.

A total of 7.6 mtpa of LNG from the first two Tangguh trains had been fully committed, he said.
MGL: If BP can't finance an LNG train then who can? 

Middle East spot crude premiums surge on Asian demand, ChinaOil

Spot premiums for June-loading Middle East crude oil surged this week as Asian demand was expected to recover after the end of the peak refinery maintenance season and ChinaOil's buying spree for June cargoes was causing a scramble for refiners to secure spot barrels, traders said Monday, April 13.

Abu Dhabi's Murban began trading in the June-loading cycle at a premium of about 70 cents/barrel to the grade's official selling price, up from a premium in the 30s cents/b last month for May cargoes.

Itochu was heard to have sold a June Murban cargo to SK Energy at a 70 cents/b premium to the OSP, traders said.

Earlier, Japan's Mitsui was heard to have sold a similar June cargo of Murban to Cosmo Oil at a premium in the low 50s cents/b last week.

Traders said part of the strength in Murban premiums comes from the cut in the flow of North Sea Forties blend crude to Asia.

BP plans to shut the Hound Point terminal's VLCC jetty for maintenance from May 6 to June 8, a spokesman told Platts Wednesday.

Jetty number 1 is where VLCCs load on the North Sea to Northeast Asia route for Forties crude.

Its closures means Forties cargoes will have to find a home with local refiners during this period, given the higher costs of exporting crude on smaller vessel sizes than a VLCC.

Among medium-sour grades, SK Energy was heard to have bought a June cargo of Qatar Marine from Unipec at a premium of 50 cents/b to the grade's OSP.

The Qatar Marine premium was also up from a deal at about 35 cents/b earlier last week.

Traders said ChinaOil's buying of a number of June-loading medium-sour spot cargoes has increased competition among regional refiners to secure supplies, driving up spot premiums.
MGL: Month long closure at the Forties delivery point cause a rare burst of premiums to appear in Asian crudes.

Oil prices rise on expected dip in U.S. shale output

Crude prices rose on Tuesday on expectations U.S. shale oil output will record its first monthly decline in over four years, but analysts warned that the broader market remained oversupplied.

The U.S. Energy Information Administration expects U.S. shale production to fall by 45,000 barrels to 4.98 million barrels per day in May from April.

That would underscore how record crude output from the U.S. shale boom may be backtracking after global markets saw prices effectively slashed by 60 percent since June on oversupply and lacklustre demand.

While political instability in the Middle East also helped push up prices, analysts said that high global production and stocks were capping gains.

"Geopolitical risk in oil markets remains elevated. From a fundamental perspective however, supply from the Middle East is expected to remain high, with Saudi Arabia and Iraqi production on the rise," JP Morgan said in a note.

"Our base case is for crude stocks to decline through 2015, as U.S. production is expected to turn lower in 2Q2015. If production, however, remains unchanged through the remainder of 2015, U.S. crude stocks will likely increase to above 540 million barrels during the fall refinery maintenance period," it said.
MGL: We think Oil shale output is already down, and by at least 1mbpd, largely due to the Fracklog.

Data is just playing catchup.

Oil ETF investors head for exit, risking new slump

Oil investors who amassed a $6 billion long position in exchange traded funds, occupying as much as a third of the U.S. futures market, are now racing for the exit at a near record pace.

Outflows from four of the largest oil-specific exchange traded funds, including the largest U.S. Oil Fund, reached $338 million in two weeks to April 8, according to data from ThomsonReuters Lipper. That is the first two-week outflow since September and the biggest since early 2014, marking a turnaround from heavy inflows in December and January on bets that oil prices would quickly rebound from six-year lows.

If the exodus gathers pace it could signal new pressure on crude oil prices that had begun to stabilize at around $50 a barrel this year following their 60 percent plunge, says John Kilduff, a partner at energy fund Again Capital LLC in New York.

Retail investors may have been "trying to bottom fish and got washed out with the recent new low," he said.

Global oil ETF holdings were equivalent to 150 to 160 million barrels' worth of crude oilfutures as of last week, according to ETF Securities. That would represent as much as 30 percent of open interest in the most-liquid U.S. oil futures contract, which saw record open interest of 530,000 lots in March, although some of those fund holdings are in other contracts.

It is probably premature to say the two-week outflow marks a sustained sell-off that could trigger another slide in crude prices given the ETFs saw their biggest ever weekly inflow of $818 million just weeks earlier.

In any case, the funds have become an unpredictable irritant for Saudi Arabia and other OPEC producers, first slowing the slide in prices that could force higher-cost producers such as U.S. shale drillers to curb output, and now blurring the outlook.

"Passive investors have become a problem," Philip K. Verleger, a consultant and energy economist, said in a note on Monday. ETF inflows are "denying those in the Middle East the decline in non-OPEC output they hoped to achieve".

Traders say two factors may be behind the recent exodus.

First, there is a growing sense that any rebound in crude prices may be months if not years away. Secondly, there is a growing awareness of the financial penalty of the current "contango" market, in which investors must sell cheaper near-term futures contracts to buy more costly next-month contracts every month.
MGL: This is Oil, not Oil equity.Image title
Its the first evidence we've seen that expectations are degrading.Image title
We're close to the Saudi 'line in the sand'.Image title
Here's floating oil in storage, the last potential source of capacity.

Time to put the shorts back on.


Cash flow break-evens down by $20, deeper cuts needed: Wood Mac

The rapid and aggressive response by oil and gas companies to low oil prices has stabilized the sector. According to Wood Mackenzie, the price required for companies to be cash flow neutral in 2015 has dropped by over $20/bbl to $72/bbl.

The Edinburgh-based consultancy believes further cuts would be required to achieve cash flow neutrality if oil prices remain around current levels. For some companies, this will mean selling assets, others may suspend or limit dividend and buyback programs.

"Capital cost cutting has been both rapid and in some cases dramatic. Individual companies have had one, two and sometimes three bites at the cherry, and industry has for the time being settled on a 24% or $126 billion fall year-on-year. Dividends and share buyback programs have also been targeted, while companies have turned to both the debt and equity markets to boost liquidity,” Tom Ellacott, head of corporate upstream analysis for Wood Mackenzie, said.

"Two peer groups are particularly interesting: for the Majors, cutting or suspending buybacks have been the key levers which have contributed to a 25% reduction in cash flow breakevens. For the smaller North American onshore players, the ability to rapidly dial-back spend has been a key competitive advantage. Some players have cut costs by up to 80%, and these companies join a select group with cash flow breakevens below $60/bbl," Ellacott continued.

While stock market performance indicates that investors believe there will be an oil price recovery, Wood Mackenzie says that a period of sustained prices at $60/bbl will need further measures to conserve cash.

"The Q1 results will underline how much still needs to be done if oil prices do not continue to recover. More cuts to dividends and buybacks are likely if $50-60/bbl prices persist," he said. But Ellacott believes there are opportunities for the financially strong, as evidenced by Shell's $82-billion offer for BG.

Wood Mackenzie's analysis shows that there is a huge inventory of assets on the market, with 340 potential deals worth over $300 billion. But activity has collapsed.

"Buyer and seller expectations remain far apart, and buyers of material size are limited to the most financially secure. But a buyer's market in M&A might emerge as companies are forced to sell assets to balance the books. The $300-billion question is: with Shell having made the first move, who will follow?" Ellacott said.

"Investors will be watching the upcoming first-quarter results season for indications of how effective the reaction to oil prices at below $60/bbl has been. Companies are facing a choice of paring-back investment or maintaining momentum throughout the cycle, depending on their financial position. There is a high degree of optionality regarding planned spend in 2016 and 2017, much of which is discretionary. How companies react to this strategic challenge will affect their production growth and positioning in the future," Ellacott said in closing.
MGL: No argument here. Just a note that major currency moves have also had a big impact: CAD, RBL, AUD, BRL, all big producers have effectively cut breakevens 25-50% via the currency market.  As per usual, all this actually does is extend and deepen the bear market. 

It is now very hard to find a price point above $30 that will balance the market IF, or when storage fill completes. The probability of complete price collapse is increasing here.

Lukoil last to leave Saudi Arabia's search for gas

Lukoil will likely pull out from Saudi Arabia where the economics of its search for gas have been crushed by the collapse of the oil price, three industry sources said.

Lukoil is Russia's largest private oil company. The Russian energy industry's ventures abroad often parallel Kremlin foreign policy, which has turned cooler towards Saudi Arabia. Some in Moscow blame Riyadh for allowing the oil price drop, which has hobbled Russia'seconomy, by not cutting output.

Lukoil was the last company left active in the consortia of international oil firms Saudi Arabia invited in 2003-2004, part of a high profile drive to find gas in its southeast Empty Quarter, the Rub al Khali.

It has a majority stake in Luksar -- a joint venture with state oil company Saudi Aramco -- which was set to drill deep for the unconventional gas, called tight gas, this year after more than a decade-long hunt for conventional deposits that has proved futile.

Luksar was winding down, an industry source said.

It may also leave almost all of its projects in West Africa as it has made no large discoveries there, a company executive said last month.
MGL: Exxon and Phillips amongst others both had a good look at the empty quarter and walked away disappointed. The best oil and gas geology is on the eastern flank, and thats where ARAMCO is developing its gas resource. Lukoil walking away does nothing except tell us that Exxon and Phillips were right.

Laredo Petroleum More Bullish On 2015 Production

Laredo Petroleum was more bullish on its 2015 production forecast Monday, even as it slashes capital spending amid low oil prices.

The independent exploration and production company now sees full-year output of 15.6 million barrels of oil equivalent to 16 million barrels of oil equivalent, up 13% to 16% from 2014.

In December, Laredo predicted production would grow more than 12% from estimated 2014 volumes. On Monday, it also said it produced 4.27 million BOE during Q1, up 47% from a year ago.

Late last year, Laredo Petroleum said it would cut its 2015 capital budget by nearly 50% from 2014 levels, joining its peers Continental Resources (NYSE:CLR), Sanchez Energy (NYSE:SN) and others.

"Although we have reduced our budget in response to lower commodity prices, we continue to generate highly economic production growth and anticipate improvement as service costs adjust appropriately to reflect the recent decline in oil prices," CEO Randy Foutch said in a release at the time.

Read More At Investor's Business Daily:

MGL: Image title
Laredo's only slide in the 168 slide pack that showed returns on current pricing. There's some wells that work, but its not many. 

ISIS: assault on one of Iraq's most important oil refineries

The Islamic State has launched a new assault on the Baiji oil refinery in Iraq’s Salahaddin province. The Iraqi military claimed it has repelled the attack.

In photos released on April 11, the Islamic State showed its forces attacking the refinery and penetrating the perimeter of the complex. Several images detail the use of US-made Humvees and home-made rocket launchers cobbled together from civilian vehicles. Other pictures show the use of camouflaged howitzers and tanks.

Two photos highlight the deployment of a suicide bomber by the name of Abu Ma’awiya al Khorasani; the moniker “Khorasani” implies the bomber was from the Afghanistan-Pakistan region.

Two other photos document Islamic State commanders directing the fight from an “operations command center.” Those commanders appear to be using footage from drones flying overhead to exercise command and control of the fight.

Read more:
MGL: Due north of Baghdad.

Noble announces acreage addition and drilling update

Noble Energy, Inc. today announced that it has acquired a 75 percent interest and operatorship of the PL001 License in the North Falkland Basin from Argos Resources Limited.

The PL001 License covers an area of nearly 285,000 gross acres and is located to the northwest of the PL032 License, which includes the Sea Lion oil discovery. Edison International SpA has obtained the remaining 25 percent interest in the PL001 License. Noble Energy and Edison will provide to Argos a 5 percent royalty override from all hydrocarbon development on the license.

The Company’s initial operated Falkland Islands prospect, Humpback, is now expected to commence drilling by early May 2015. Humpback, located in the South Falkland Basin, is the first of multiple stacked fan prospects clustered together in the Fitzroy sub-basin.
MGL: No price disclosed. Extends NBL's interest to the northern section of licenses.Image title
PL001 is the most NW block on this map, due north of the western island.

Novatek aims for $5 bln from export agencies for Yamal LNG

Russian gas producer Novatek hopes to secure $5 billion from global export credit agencies for its Arctic liquefied natural gas (LNG) project Yamal LNG by mid-year, chief executive Leonid Mikhelson said.

Speaking in a northern port where the facilities for Yamal LNG are being built, Mikhelson and the head of French partner Total were upbeat about financing, which has been complicated by Western sanctions imposed on Russia over Ukraine.

Novatek, the major shareholder in Yamal LNG and co-owned by Gennady Timchenko, an ally of President Vladimir Putin, was placed under U.S. sanctions last year, limiting its access to global financing.

But Moscow has vowed to make sure Yamal LNG goes ahead. The project is key to Putin's drive to maintain Russia's energy dominance and for plans to carve out a greater share of the frozen sea-borne gas market for Russia.

"Today, the intentions expressed by the export agencies are valued at $5 billion," Mikhelson told reporters in the northern port of Sabetta, some 2,120 km (1,325 miles) northeast of Moscow.

Patrick Pouyanne, chief executive of Total which owns a 20 percent stake in Yamal LNG, said they had also been in talks with Chinese institutions to raise between $10 and $15 billion.

"If not for sanctions, the financing for the project would have been done already," Pouyanne said.

Novatek owns 60 percent in the $27 billion Yamal LNG project, alongside Total and China's CNPC.

The first production unit, with annual capacity of 5.5 million tonnes, is due to be launched in 2017. Peak production of 16.5 million tonnes a year is expected to be reached in 2021.

Apart from bank financing, Novatek has secured 150 billion roubles ($2.8 billion) from Russia's rainy day National Wealth Fund. Novatek received the first tranche of 75 billion roubles in February and hopes to get the rest this quarter.

The Russian company has also been in talks to sell 9 percent in Yamal LNG to raise funds.
MGL: The problem with the being the Kremlin's favourite, is you are roped in to build the Kremlin's favourite project. $27bn for 16.5m mt of LNG? Its actually not a bad project on the LNG cost curve, but the 2017 LNG market is pretty much guaranteed to be oversupplied. So we're not optimistic on returns here.Image title

IEA on the Shale

MGL: MGL: IEA says "Oil market has changed forever" Sees the shale as 'swing' producer. Its a natural conclusion to draw, but largely ignores the amazing productivity gains which continue to drive breakevens lower. Also some comments on Russia on Iraq.

PGC Report: U.S. NatGas resources at record level

The American Gas Association (AGA), in coordination with the Potential Gas Committee (PGC), today released the PGC’s year-end 2014 biennial report: Potential Supply of Natural Gas in the United States. The new assessment finds that the United States possesses a technically recoverable natural gas resource potential of 2,515 trillion cubic feet (Tcf). This is the highest resource evaluation in the PGC’s 50 year history— a 5.5 percent increase of 131 Tcf from the previous record-high assessment from year-end 2012.

When the PGC’s results are combined with the U.S. Department of Energy’s latest available determination of proved dry-gas reserves — 338 Tcf as of year-end 2013 — the United States has a total available future supply that now exceeds 2,850 Tcf, an increase of 161 Tcf over the previous evaluation. The nation’s abundance of natural gas supports affordable prices for customers, bolsters U.S. energy security and provides efficiency and environmental solutions.

“These numbers underscore the fact that our nation can rely on domestic natural gas for our energy needs for years to come,” said Dave McCurdy, president and CEO of AGA. “This is great news for natural gas customers, who currently enjoy average savings of $693 per year per household. By investing in our energy future and advancing smart policy, customers can look forward to continued market stability and affordable prices.”

The future supply of domestic natural gas continues to grow due to the emergence and advancement of key technologies that are able to unlock gas production from reservoirs such as shale formations. For the next decade and beyond, natural gas supplies are expected to be high enough to support an increase in demand across all sectors – unlocking the door for expansion in residential, business, transportation and commercial and industrial applications – while providing continued savings.
MGL: Confirmation of what we already should know. There's no shortage of Natural Gas in the USA! Issue now is how much is actually commercial. 

This really has implications for the Shell/BG deal. Shell's assumption of something like $80 plus Oil is really an implicit bet on two market events:

1> Long term oil indexed contracts continuing to hold sway in the Natural Gas market.

Thats a tall order. All the long term contracts in Natural Gas have some kind of implicit exit clause triggered by large volume availability in spot markets. The most recently signed large gas contracts we've seen have some kind of Henry Hub element in pricing.

2> With the US in the process of building substantial export capacity of LNG, the influence of spot based Henry Hub continues to increase in global gas markets. Although we should not expect the full bevy of 250m mt of LNG from North America that implicit in plans and presentations, we do have 50m mt in construction, and another 20-50m mt that could make it to construction on present economics.  

      US shale gas is now impacting global LNG markets, and that substantial overhang of cheap conversion capacity at the FERC awaiting export licenses is not going away. Much of it is still economic. De Novo build is not, we readily grant you, but conversions of old import ports still represent the lions share of the FERC queue. 

 This data will surely provoke a further bout of political navel gazing in Washington as to how much gas the US can afford to export. Natural Gas at these prices threatens Alt-energy, so the political pressure remains favourable to a further bout of export approvals. 

European base observers still distrust the shale, and still cannot adsorp the changes it has wrought in the global gas landscape. Shell's bet is based on a view of the global gas market that now looks dated, and out of synch with the real world.


US rig count falls under 1,000 for first time since 2009

US rig count falls under 1,000 for first time since 2009

After noticeably slowed declines over the previous 2 weeks, the US drilling rig count fell 40 units to 988 rigs working during the week ended Apr. 10, settling under 1,000 for the first time since Sept. 11, 2009, according to data from Baker Hughes Inc.

Forty-one units went offline during the previous 2 weeks (OGJ Online, Apr. 2, 2015).

The count has fallen in 18 consecutive weeks, during which time it has plunged 932 units (OGJ Online, Dec. 5, 2014). The total of 988 is the lowest since Aug. 21, 2009, and 843 fewer units compared with this week a year ago.

Rigs engaged in horizontal drilling plunged 29 units to 770. Since Nov. 21, 602 horizontal units have gone offline. Rigs drilling directionally dropped 3 units to 90.

A 29-unit plunge to 427 rigs drilling in Texas led the major oil- and gas-producing states. Texas has now lost more than half of its rigs year-over-year, shedding 457 units.
MGL: Image title
Here's the 25 year chart of oil rigs, we still have some way to go on the downside.Image title
Natural Gas rig activity just made a downside breakdown on the 25 year chart. Now rig productivity has exploded in Natural Gas, so we're not sure yet whether this actually equates to a contraction in supply. But with associated gas from Oil wells now in severe decline (on the state data), and rig activity at these kind of levels, we must start to think about a major low starting to form in North American natural gas. 

Forest Oil Loophole Lures Second Energy Firm to Skip Bond Payout

Murray Energy Corp. is taking advantage of a loophole to avoid cashing out creditors of an acquisition target, the second natural resources company to try that approach within the last year.

Murray will acquire 34 percent of the voting rights in a parent unit of Foresight Energy LP as part of the $1.37 billion takeover, down from 80 percent previously envisaged, while maintaining a 50 percent economic interest in the company, according to an April 7 statement. By altering the deal that way, Murray will no longer take voting control of Foresight and says therefore it won’t trigger a put option that would have required it to buy $600 million of the target’s bonds at 101 cents on the dollar.

The change comes after Murray struggled to raise debt for the purchase and to gain approvals from existing bondholders to sell new securities. The deal echoes the strategy of Sabine Oil & Gas LLC, which revised terms of its acquisition of Forest Oil Corp. in the same way on the day the deal closed in December.

“The more often that this is done and successfully, the greater the likelihood that it will be done in the future,”Ross Hallock, an analyst at researcher Covenant Review, said in a telephone interview. “Even if a company tells them they’re going to get their 101 put, there’s still a chance in the future that they can change the structure to avoid paying.”

Covenant Review said in December that Sabine’s circumvention of the put option was one of just two examples of this tactic in nine years and that it might be “used as precedent for other issuers to think about this structure.”

One key difference between the Murray deal and Sabine’s takeover of Forest is that Foresight bondholders don’t stand to lose much money. Their $600 million of 7.875 percent bonds due August 2021 have been trading near par since late February, even before the Murray deal was announced last month, and have never dipped below 95 cents on the dollar. Forest’s $1.5 billion of bonds lost nearly half their value on Dec. 16 when Sabine said its new deal structure wouldn’t trigger the notes’ change-of-control provisions. Forest’s 7.25 percent bonds due in June 2019 traded at 20.3 cents on the dollar this week.
MGL: With Oil and gas prices this low there's no money for creditors, so this kind of ruse will always find interest.

China Q1 crude oil imports rise 7.5 pct to 80.34 mln tonnes - customs

China imported 80.34 million tonnes of crude oil in the first quarter of 2015, amounting to 6.52 million barrels per day (bpd) and up 7.5 percent compared to the same period of last year, the country's customs authority said on Monday.

It said that iron ore imports over the first three months reached 230 million tonnes, up 2.4 percent year on year, while soybean imports rose 1.9 percent to 15.63 million tonnes.

The figures were released ahead of a press conference. More detailed monthly import and export data will be issued later on Monday.
MGL: Final demand in China for Oil seems resilient. There's is no evidence of any particular change in response to price, but readers should note the rapid increase in Oil retail taxes which have softened the price fall at the pump.

Inventory of uncompleted wells offers opportunities for some operators:

Faced with continued market uncertainty due to falling oil prices in late 2014, U.S. oil producers operating in shale plays, such as the Eagle Ford in south Texas, have built a large inventory of nearly 1,400 drilled but uncompleted wells (DUC) that are now driving the investment focus for many operators. The most promising of these wells belong to just a handful of operators in the play, giving them a likely advantage, according to new analysis from IHS.

The IHS Energy Analysis of Drilled, but Uncompleted Wells in the Eagle Ford Shale indicates DUCs can be converted to producing assets for approximately 65% of the cost of a new drill, significantly lowering the economics when evaluated against remaining costs.

When considering the productivity of the Eagle Ford DUC inventory, nearly 40% of the 1,400 DUCs are considered to have attractive economics (break-even costs below $30/bbl) and belong to a handful of operators, IHS said.

Those operators include BHP Billiton, Chesapeake, Anadarko Petroleum, EOG Resources, ConocoPhillips and Pioneer Resources. Thirty-three other operators account for the remainder.

“In this low oil-price environment, operators in the Eagle Ford and other U.S. shale plays are focused on optimizing the value of their assets and managing their costs, and these drilled, but uncompleted wells enable them to do that more effectively for several reasons,” said Raoul LeBlanc, senior director of research at IHS Energy, and the lead author of the DUC analysis.

“First, the drilling costs of these wells were already incurred by operators prior to 2015, and the completion costs—which comprise the majority of well costs—can be negotiated at a cheaper rate since completion crews are now both available and available at cheaper rates. Second, if completion costs are fairly consistent in the play, then it stands to reason that wells with higher production will yield better returns on capital.”

The DUC inventory is driven by the drilling sector outpacing the completion industry, the IHS analysis noted. As the rate of new wells drilled in the play falls, completion crews will be able to convert more wells to alleviate the DUC backlog.

Due to the shortened lead time of converting these drilled but uncompleted wells, and the lower incremental costs of generating production from a DUC well, operators are likely to be incentivized to work through DUC well inventories, IHS said.

Said LeBlanc, “Using a proprietary IHS ‘neighbor’ algorithm, which takes into account certain performance metrics of nearby wells, IHS found that the DUC inventory quality closely aligns with historical operator performance, so these companies have performed well in the past. However, in terms of future performance in the Eagle Ford, IHS estimates that BHP, ConocoPhillips and Pioneer Resources have higher-quality DUC wells than their current producing well portfolios, providing them the greatest available options going forward of any operators in the play.”  

To estimate the implication of these wells on 2015 production rates, IHS ran different conversion scenarios to assess the outcomes of bringing onstream 50, 100 and 150 DUC wells every month. Considering the need for a steady-state inventory of approximately 300 DUC’s at all times, the study found that roughly 1,100 DUC wells studied should be available for conversion. If the low-case conversion rate of 50 wells per month is achieved, IHS estimates that the DUC wedge (incremental) production would be 123,000 bopd at the end of a year, while a high-case conversion rate of 150 would result in a DUC wedge production of 269,000 bopd after 12 months.
MGL: This is just for the Eagle Ford. Grossing up that DUC number to US Oil shales gives a total of 5400 wells uncompleted, and using the EIA average of 400bpd per well suggests the Fracklog is now 2mbpd.  That in turn suggests that Oil shale production in the US may finally be in negative territory year on year.

If you take the EIA numbers of global oversupply at 1.7mbpd then it is likely that right now the Fracklog is sufficient to balance demand and supply:

Quick and dirty oil balance: (y0y, estimated)

Saudi +1
Russia +0.7
Iraq +0.3
Canada +0.6

US -2
Libya -0.5

The one obvious conclusion of the size of this Fracklog is that Q1 US E&P numbers look dire. (production down, price down).

It does suggest that the newsflow on Oil remains quite bullish as EIA numbers rattle down to reality. Their rig based estimates are too high, and the first revision of, perhaps, ,many was a negative -480bpd for January.


Latest China plan for emergency oil will hold 37 days of imports

China is seeking to hoard crude supplies equivalent to about 37 days of imports in its latest plan to build emergency stockpiles amid a collapse in prices.

The nation is planning facilities with capacity to store 232 MMbbl of crude in the third phase of its strategic petroleum reserve program, according to a deputy director at the National Development Reform and Commission’s energy research institute. The proposal is yet to receive government approval, Gao Shixian said in Shanghai on Friday.

The world’s second-biggest oil consumer stepped up purchases to fill its emergency supplies last year as benchmark prices plunged almost 50% amid a global supply glut. It currently holds reserves equivalent to about 30 days of imports, with the government seeking to boost that level to 100 days by 2020, according to state-run refiner China Petrochemical Corp.

The government has filled four sites that make up the first phase of its program with 91 MMbbl of crude, the National Bureau of Statistics said on Nov. 20. China finished building the facilities, which have a capacity of about 103 MMbbl, in 2009.

The second phase is designed to have capacity of 168 MMbbl, Shixian said. China imported an average 6.19 MMbpd of crude in 2014, customs data show.

Two of seven sites in the second phase were completed as of 2013, according to data from China National Petroleum Corp., the nation’s top energy producer. Four facilities with capacity of about 72.5 MMbbl may come online this year, Barclays Plc said in a report last week.

The nation’s crude demand may be boosted by 140,000 to 170,000 bpd day in 2015 and by as much as 190,000 bpd next year because of the need to fill strategic reserves, Barclays predicted.
MGL: Image title
China's Oil imports show a steady rise, and this ongoing strategic inventory build is near continuous. 

Middle East state spending throws lifeline to oilfield services

Oil majors may have slashed capital spending but national oil companies (NOCs) in the Middle East and North Africa show no sign of cutting investment, buoying oilfield services that the stock market has beaten down.

But while offshore drillers and seismic companies continue to suffer, oil services stocks with chunky exposures to Middle East spending, such as Petrofac, have bounced back.

Petrofac's order backlog was up 26 percent at the end of 2014, and its share price has risen by almost 27 percent since it reported full year earnings on Feb. 25. Recent wins include a contract for the first phase of Kuwait Oil Company's Lower Fars heavy oil development programme and two strategic contract agreements with Algeria's Sonatrach.

"There is a building differentiation in the backlog profiles of those companies exposed to onshore construction in the Middle East and those not," said Mick Pickup, managing director at Barclays Capital. "While some of this is gas related, it signals a continued robust construction market in the region."

"The international oil company (IOC) has to make good returns for its shareholders, whereas the NOC has to keep the lights on for its domestic population," said Stewart Williams, vice president, Middle East research at Wood Mackenzie.

As well as needing energy for domestic desalination and air conditioning, the big Middle Eastern and North African producers require oil and gas for export. "Hydrocarbons might be the only way they can generate revenues," Williams said. "Even at these low oil prices they have no choice but to keep exporting and reinvesting in their own oil and gas industries."

Data from Rystad Energy show that while global investments are expected to fall by around 20 percent in 2015 versus 2014, in Gulf countries the reduction is likely to be just 5 percent. Saudi Arabia, where investment in oil projects is expected to grow by 5-10 percent, is thought to have ramped up the number of rigs it employs.

"You could speculate that the country is now building capacity," said Espen Erlingsen, an analyst at Rystad Energy.

Lamprell has a solid order backlog of $1.2 billion, with about 80 percent of revenues for 2015 already covered. Its shares are up almost 14 percent since it announced its full year earnings.

Moffat cited opportunities in the UAE, Qatar and Kuwait, with the drilling utilisation in the Middle East seen as pretty constant in 2015 compared with 2014.

"The NOCs are far less affected than the IOCs appear to be," he said, adding that the Middle East benefited from a relatively low lift cost. "If you're in a harsh, deepwater environment with a high lift cost of $70-$80 a barrel, nobody will proceed with that project in a $50 environment. But in the Middle East a lot of projects have $10 lift costs, and people can still make very healthy margins on them."
MGL: How much of this is inertia? More to the point:- how much is Saudi's race for gas?  There's also a bevy of Iraqi contracts moving into full swing, and Petrofac, for example, is working on the Badra field which announced a phase completion last week. Image title
Iraq is, once again, becoming a major factor in global Oil supply. Its partly Kurdistan exports returning at a decent clip, and its partly the much ballyhooed, but very long delayed, renaissance of its southern fields. The official target is 7mbpd. 

Image title
The fixed fee nature of these contracts makes them comparatively immune to the fall in prices.  The West Qurna field alone adds in excess of 700,000bpd when current phases of construction complete.  There are the normal disputes ongoing between license holders and the Iraqi's on timing, payments, and details, but nothing seems likely to derail this progress right now, even ISIS has been stopped well to the north of the current major developments.

Jodi database shows Iraqi output at 3.2mbpd, growing just shy of 10% PA.


Alternative Energy

Major rare earth group founded in central China

China Southern Rare Earth Group was officially launched on Thursday in Jiangxi province as part of the country's efforts to push industry integration.

The corporation based in Ganzhou City has registered capital of 100 million yuan (16.3 million U.S. dollars) with joint investment by three local companies.

Ganzhou Rare Earth Group Co., Ltd., Jiangxi Copper Corporation, and Jiangxi Rare Earth and Rare Metals Tungsten Group Corporation hold 60-percent, 35-percent and 5-percent stakes in the new group, respectively.

The three shareholders will complete injecting their related assets to the new corporation by the end of this year. The new group will continue to integrate other local rare earth firms.

To restructure and consolidate its rare earth market, China integrated big firms with dozens of small miners in late 2014 and established six major rare earth groups.
MGL: Ganzhou Rare Earth Group is now the only owner of rare earth mining rights, controlling all of the 43 rare earth mining rights licenses in Ganzhou. The group plans to continue to merge rare earth smelting separation producers, as it aims to become a fully integrated large-scale heavy rare earth group. 

Seems to be privately run and maybe entirely owned by the CEO Bin Gong.


Solar power picks up steam in more Indian States

Though Gujarat and Rajasthan are at the forefront of solar power development in the country, other states are also making rapid progress in harnessing energy from sun.

Presently, Gujarat and Rajasthan account for over 50 per cent of India’s grid-connected solar energy capacity additions. However, states such as Madhya Pradesh and Maharashtra are also catching up fast, supported by their solar programmes.

As of February this year, total installed capacity of solar power was 3,383 MW, constituting 10 per cent of total installed renewable power capacity in the country.

Gujarat contributed 949 MW and Rajasthan’s installed capacity was 902 MW. Madhya Pradesh has added 500 MW, while Maharashtra’s commissioned solar power capacity was 334 MW. Other states, that have added more than 100 MW in solar, include Andhra Pradesh (237 MW), Punjab (120) and Tamil Nadu (112 MW).

The country has achieved more than its targets in grid solar and off-grid solar under the Phase-1 (2010-2013) of Solar Mission. Against the target of 1100 MW of grid solar power, 1686 MW of projects (including large plants, rooftops and distribution grid plants) were commissioned.

The Indian government has set an ambitious target of adding 100,000 MW by 2022.

The plan would include large scale deployment of rooftop projects under both net metering and feed in metering to achieve 40,000 MW of capacity till 2022.

Secondly, the Government would lay emphasis on grid connected projects to achieve 40,000 MW by 2022. For this, Solar parks have been set up in Gujarat and Rajasthan, and others have been planned in over 15 states.

Thirdly, the Centre would focus on large scale projects (100 MW minimum.) to generate the remaining 20,000 MW capacity.
MGL: Indian solar on target! It's unusual for anything in India to be on target.  The plan is to grow Indian solar 100x in 7 years. No where else in our coverage do we have anything like this demand growth. 

Few of you own the Solars. 

This striking chart shows why solar power will take over the world

Solar energy cost and installed capacity chart

Over the past few years, many graphs have been worth thousands of words on the rise of solar power. It's almost impossible to overstate how important the revolution that is happening right now is, and like most transitions, most people will only realize what's going on after it's mostly over. But not you guys and gals, you are ahead of the curve, and you're grasping the importance of all this. In fact, I'm sure that many of you are driving this progress forward and helping it happen!
MGL: We like the North American names:


We note we first wrote this up as a buy in q1 last year. Very few, if any of you have any exposure to the alt-energy space.

It is very notable from the recent round of client presentations that index hugging is in fashion.

No questions on:

~Alt Energy
~Small cap.

Large amount of whinging because I refused to provide an big index Oil name that was a decent source of return.  

Europe Finally Decides to Stunt Growth of Destructive Biofuels

Today the European Parliament's Environment Committee approved a deal with EU governments to cap the amount of harmful biofuels used to meet renewable energy targets.

Marc-Olivier Herman, Oxfam's EU biofuels expert, said: "The European Parliament and governments have finally decided to tone down a harmful biofuels policy that has only contributed to deprive poor people of food and accelerate the climate change it claims to fight."

"However, this new 7% cap on crop-based biofuels can only be a first step. Europe must phase out these fuels completely so they can no longer jeopardize food security and contribute to climate change."

A 7% cap on biofuels from agricultural crops (in comparison to 8.6% business as usual scenario) - with an option for Member states to go lower.

Indirect emissions will be reported on every year by the European Commission and by fuel suppliers by taking into account 'ILUC factors'. This will increase the transparency of the impacts of this policy for European citizens.
MGL: Biofuel state fiddling goes into reverse. With Oil prices at $50 it makes little economic sense. Enough said. 

Rare earth price rally evaporates

China produces nearly 90% of the world's rare earths and its downstream industry consumes 70% of the 17 elements used in a variety of hi-tech industries including renewable energy, medical devices and defence.

Following a World Trade Organization ruling, China is abolishing its decade-old export quota system for rare earths and is due to lift export tariffs of 20%-plus in May.

Beijing is also consolidating the industry under six large organizations led by the newly-named China North Rare Earth Group.

The Inner Mongolia-based company operates the Bayan Obo iron ore mine and before the 2010 price surge after Beijing reduced export quotes, produced more than half the world's REEs as a by-product.

Apart from combining mine output China North Rare Earth and the five groups are being vertically integrated to help modernize the country's mostly low-tech rare earth separation and refining businesses.

Over the weekend the country's Ministry of Industry & Information Technology released rare earth production quotas for 2015.

Rare earth oxide (REO) mining quotas were set at 52,500 tonnes while smelting and separating limits came in at 50,050 tonnes.

Productions quotas were up 12% from those set last year, while refining can expand by 10.6%. 60% of the mining quota were allocated to China North Rare Earth Group.

Statistics from China's Rare Earth Industry Association shows that after a slump in January ahead of the country's new year holidays, export of REEs recovered in February, jumping 24.7% to 2,052 tonnes year on year.

After rallying at the beginning of the year the price index (a rolling 20-day average of REE prices across the industry) has now turned down again.

Rare earth price rally evaporates
MGL: Following Aluminium, the REE rally dissapates when faced with weak demand. Plat/Gold continues to give recession readings.

Clean energy investment hits lowest level for two years in first quarter

Global clean energy investment in the first quarter of this year fell to its lowest quarterly level for two years, as large deals slowed in China, Europe and Brazil, research showed on Friday.

Investment in renewable energy such as wind and solar power and biomass fell to $50.5 billion in January to March compared with $59.3 billion in same quarter last year, Bloomberg New Energy Finance (BNEF) said in a report.

The last quarter to show weaker investment was the first quarter of 2013 at $43.1 billion.

The first quarter tends to be the weakest in terms of clean energy investment as banks and equity investors pause after a busy year-end and as project developers digest any changes in renewable energy support mechanisms.

But this year the strengthening of the U.S. dollar against many currencies also impacted financing and there were fewer large-scale wind investments compared with the first quarter of 2014.

Asset finance of utility-scale renewable projects fell 19 percent in the first quarter from a year earlier to $27.9 billion, while venture capital and private equity investment in clean energy fell by 21 percent to $1 billion, the report showed.

"There's a lot of ground still to cover this year. No one knows whether the oil price is going to bounce back or collapse further. There is good momentum towards some sort of climate deal in Paris in December," said Michael Liebreich, chairman of the advisory board at BNEF.

Geographically, clean energy investment in Brazil slumped by 62 percent to $1.1 billion compared with the first quarter of last year, while investment in Europe fell by 30 percent to $9.7 billion and China investment was down 24 percent to $11 billion.

On the other hand, clean energy investment in South Africa surged to $3.1 billion from almost nothing in the first quarter last year, and investment in India rose by 59 percent to $1.6 billion.
MGL: Reflex reaction here is that the Oil price , or rather its electricity generating brother - Natural Gas, collapse is having an impact on marginal economics.  Reality is likely more confused. We've largely lost Japan to grid mayhem, Brazil is as likely a cost of credit issue, China is the normal policy implementation mess as the faction fight intensified. EU subsidies are being continously pared back,  and in the EU we're likely at the point where all the obvious good alternative energy sites have gone.

The stocks, meanwhile, rallied hard on the creation of yield co's to monetise on balance sheet utility projects.


China Sends Nuclear-Industry Message With New Reactor Approval

A file picture taken on December 8, 2013 shows the joint Sino-French Taishan Nuclear Power Station outside Taishan City in Guandong province. Agence France-Presse/Getty Images

When China approved construction of the country’s first homegrown nuclear reactor, it was also sending a message to foreign companies whose Chinese projects are plagued by delays and cost overruns.

The State Council, China’s top government body, approved construction of its first indigenous nuclear reactor at a meeting on Wednesday. In doing so, it opened the door to intensified competition over who will provide the technology for the world’sbiggest nuclear growth market.

The reactor, called the Hualong-1, has been jointly developed by two state-owned companies. In essence, China National Nuclear Corp. and China General Nuclear Power Group are taking aim at reactors designed by U.S. nuclear giant Westinghouse Electric Co. and French rival Areva . Both have faced problems and delays in rolling out new reactors.

As part of a 2007 deal, Westinghouse agreed to help a Chinese technology company, State Nuclear Power Technology Corp., develop its own version of Westinghouse’s most-advanced commercially available reactor, called the AP1000. Under that deal, Westinghouse would work with China to build pilot AP1000 reactors before a local version was built by Chinese companies across the country.

But the first Westinghouse AP1000 unit is running far behind schedule, as component quality problems and other issues delayed construction. Chinese leaders have griped openly about the U.S. reactor’s delays.
MGL: China nuclear program starts delivering the goods.  The invidious Westinghouse/Areva comparison may tell us more about health and safety issues in the Nuclear paranoid OECD than anything useful about the technologies. 

Here's China's current Nuclear program:
Image title

Of course, this Nuclear program directly impacts coal's share of the Chinese electric market.

Canada and India sign historic uranium supply deal

Canada and India have inked a $350 million uranium supply deal that will see Saskatchewan-based Cameco Corp., the world's largest publicly traded uranium miner, provide fuel for Indian reactors.

The deal formally ends a long-dragged dispute that began after New Delhi used Canadian technology to develop a nuclear bomb in the 1970s.

Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years.

As part of the agreement, Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years. The deal is the Canadian miner’s first with India, which the firm called the second fastest growing market for nuclear fuel.
MGL: Good news for uranium!


Massive Nuclear Build-out Here Will Require A Lot More Uranium

Indian Prime Minister Narendra Modi arrived in Canada yesterday. With his arrival representing the first India-Canada governmental visit in 42 years -- and a chance to discuss securing uranium supply for India's growing nuclear sector.

Prior to departing for the trip, Modi made it clear that uranium was a key issue in talks with Canada. Noting that "sourcing uranium fuel for our nuclear power plants" was one of his biggest goals for the current visit.

Sources told local press that talks are already well advanced between Indian interests and Canadian uranium producers. With mining giant Cameco being mentioned as the most likely supplier.

A look at the numbers makes it clear why uranium is such a big priority for India. Because the country's nuclear program is in the middle of a massive build-out.

India's current installed nuclear capacity stands at 5,780 megawatts. But according to reports released by the government last month, that is expected to jump to 10,080 megawatts by 2019.

That represents a 74% increase in nuclear generation. All of it coming in the next few years.

India does have some domestic production of uranium to support its reactors. But not nearly enough to be completely supplied.

Uranium imports are thus going to be a big issue for the government over the coming months and years. Watch for details on supply deals being completed in Canada -- and for investigations into production from other parts of the world.

Canada and India have inked a $350 million uranium supply deal that will see Saskatchewan-based Cameco Corp., the world's largest publicly traded uranium miner, provide fuel for Indian reactors.

The deal formally ends a long-dragged dispute that began after New Delhi used Canadian technology to develop a nuclear bomb in the 1970s.

Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years.

As part of the agreement, Cameco will supply 7.1 million pounds (3.22 million kilos) of uranium concentrate to India over the next five years. The deal is the Canadian miner’s first with India, which the firm called the second fastest growing market for nuclear fuel.
MGL: Uranium markets caught between the Japan Nuclear court decision and Modi in Canada decided to trade sideways. Cameco and Denison finally woke and expoded upwards on high volume. Uranium is one of the few commodities where the bear seems exhausted. Its going to be a slow grind out of the hole, but core demand is,perhaps,  back on the uptick

Japan court halts restart of two reactors in blow to nuclear sector

A Japanese court on Tuesday issued an injunction to prevent the restart of two reactors citing safety concerns, in a blow to Prime Minister Shinzo Abe's push to return to atomic energy four years after the Fukushima crisis.

It is the second court ruling in less than a year against reactors operated by KansaiElectric Power, the country's most nuclear reliant utility before Fukushima.

The ruling is a snub to Japan's beefed up nuclear safety after Fukushima and threatens to set back government plans to restart reactors deemed safe by the atomic regulator.

Kansai's reactors, located on the coast of Fukui prefecture in western Japan, have met basic safety regulations set by Japan's Nuclear Regulatory Agency (NRA) and were expected to be restarted some time this year.

"The fact that the court ruled in favour of the injunction after regulators had already given the go-ahead carries weight and will have an impact," said Hiroshi Segi, a former judge who is now critical of the judicial system because he feels it is often reluctant to challenge government policy.

Local residents had sought an injunction against the No. 3 and 4 reactors at Takahama, arguing that restart plans underestimated earthquake risks, failed to meet tougher safety standards and lacked credible evacuation measures.

Safety at the Takahama plant west of Tokyo cannot be assured and the regulator's standards "lack rationality," according to a copy of the ruling obtained by Reuters.

"This is a decision that has a decisive impact on nuclear restarts," Yuichi Kaido, a lawyer for the plaintiffs told a group of supporters outside the court, who cheered and waved banners including one saying "The judiciary is still alive".
MGL: Same Judge who we reported blocked last years restarts, and for the same reasons.

Kansai Electric machinated to have him sacked last week, the the upper court threw the application out. 

There are two further court cases next week in Sendai and Kyushu province. 


China farm pollution worsens

Farm pollution in China is worsening, despite moves to reduce excessive use of fertilisers and pesticides, said the agricultural ministry, urging farmers to switch to organic alternatives to tackle severe soil and water pollution.

But experts say achieving the ministry's goal will be difficult without sacrificing food output, a top priority in the world's most populous country.

China consumes around a third of global fertilisers, with rapid growth in use in recent years driven largely by higher fruit and vegetable production. China is the world's biggest grower of apples, strawberries, watermelons and a range of vegetables.

Excessive use of chemical fertilises and pesticides has led to polluted water sources, contamination of soil with heavy metals and high pesticide residues on food, threatening both public health and agricultural productivity.

"Agricultural non-point source pollution is worsening, exacerbating the risk of soil and water pollution," said the agriculture ministry in a statement.

Growers apply 550 kgs of fertiliser to a hectare of fruit trees and 365 kgs of fertiliser to a hectare of vegetables, vice agriculture minister Zhang Taolin told reporters on Tuesday.

World Bank data showed China used 647.6 kgs of fertilizer per hectare of arable land in 2012, compared with 131 kgs in the United States and 124.3 kgs in Spain.

Pesticide consumption should be cut to 300,000 tonnes, down from the current 320,000 tonnes, said Zhang.

China's use of chemical fertilizer grew by an average 5.2 percent a year over the past three decades, reaching 59 million tonnes in 2013, Xinhua said last month.

"There is large space to reduce this growth," Zhang said, reiterating a target announced late last year to halt growth in fertiliser use nationwide by 2020.

"I believe it is absolutely possible to guarantee our food security strategy," added Zhang, while proposing farmers use more organic fertilisers.
MGL: Beijing turning on Fertilize inspired pollution now, a reduction in Chinese usage would force Urea makers into the export markets, so this is worth watching.

India’s potash imports forecast to rise

Indian potash imports will likely increase to a four-year high of about five-million tonnes in the 2015 financial year, which started on April 1. This will be the highest level of imports since 2011, when India went into a self-imposed “potash import holiday”. 

With the Indian rupee stabilising and the rise in domestic potash prices checked, farmers’ consumption of the nutrient was seen to be on an upward curve, resulting in the likelihood of higher imports during the current year, an official in the Department of Fertilisers said. 

However, importers are expected to conclude transactions at a maximum of $322/t on a cost-and-freight basis. Government-owned trading houses MMTC Limited, STC Limited, and India Potash Limited were designated authorised potash importers. 

The government subsidised the retail price of potash through part reimbursements to potassic fertiliser manufacturers. However, for 2014/15 the government cut the subsidy by 20% to a maximum of $151/t resulting in a rise in retail price and a drop in consumption during the year. 

The issue at hand for importers was the differing trends in offers, which saw potash exporters in Russia and North America seeking an increase over previous average offers, whereas exporters like Belarusian Potash Company Limited (BPC) were willing to keep offers in check, the official added.
MGL: India returns to the market in small quantity, and finds ample potash at spot. 

Precious Metals

The worth of rubies

Ian Harebottle, who’s made his career from mining colored gemstones, has an emerald the size of a pineapple locked away in a safe. He’s not sold the unique bright-green rock because it’s so rare nobody really knows what it’s worth.

Welcome to the topsy-turvy world of colored gems, where abundance can mean higher prices and scarcity makes spectacular stones untradable. It’s a very different business from diamonds, the world’s most popular precious stone, traded in a liquid global market that makes pricing relatively transparent.

For colored stones, prices often increase with supply as jewelers acquire enough stock to justify marketing the gems to customers. Take regular emeralds: their value has appreciated 1,000 percent in five years as Harebottle’s Gemfields Plc and peers expanded mines, while marketing campaigns fronted by Hollywood star Mila Kunis gave demand a boost.

Now Harebottle wants to bring the same game to rubies. Gemfields’ Montepuez in Mozambique, estimated to contain as much as 40 percent of the world’s known supply of the deep-red stones, could triple output from the 8 million carats targeted for this year, according to the executive.

The potential rewards are compelling. At its first Singapore auction last December, Gemfields sold high-quality rubies for an average $689 a carat, dwarfing the $66 a carat for comparable emeralds. Production growth is underpinned by rising demand in China, where the color red symbolizes prosperity, health and wealth, making rubies an auspicious investment.

Double Prices

“With rubies there is a fairly healthy uplift potential,” said Harebottle, who has been chief executive officer of London-based Gemfields since 2009 and presided over an 11-fold jump in its shares in the period. “Over the next couple of years we should be able to double” prices.

His company, which has amassed 20 percent of the emerald market to become the biggest producer, plans to replicate that share in rubies. The December auction generated revenue of $43.3 million after Gemfields’ rubies fetched the highest price at any of its sales. That boost for the fragmented industry, still largely supplied by individual miners from Colombia to Burma, shows the impact of increasing output.

“We expect Gemfields to repeat with rubies the success it achieved by imposing order on emerald prices,” Investec Plc said. “The Montepuez ruby mine will rank among the best discoveries in Africa in decades.”
MGL: Rubies and Emeralds are actually much rarer than diamond. 

Gemfields plc is a rocket ship on this Ruby and Emerald mining venture. 

Its a $551m mcap, $588m ev. 31x eps, 7x ev/ebitda, and almost unique. We know no other quoted emerald and ruby producers.

Suits the ultra-rich zeitgeist of wanting something no one else has. 


Alamos Gold, AuRico Gold to merge in $1.5 bln deal

Canadian gold miners Alamos Gold Inc and AuRico Gold Inc said they would merge in a deal valued at about $1.5 billion, combining high-yield assets such as the Mulatos mine in Mexico and the Young-Davidson mine in Ontario, Canada.

Gold producers have been cutting costs, shedding assets or consolidating amid a slide in gold prices, which had fallen 8.4 percent in the past 12 months.

The deal is one of the biggest since Osisko Mining Corp sold most of its assets for C$3.9 billion to Yamana Gold Inc and Agnico Eagle Mines Ltd in April last year to thwart a hostile takeover bid from Goldcorp Inc .

Alamos and AuRico expect the combined company, Alamos Gold Inc, to produce 375,000-425,000 ounces of gold in 2015 in Mexico and Canada.

While Alamos produced 140,500 ounces of gold in 2014, AuRico produced 224,032 ounces.

Shareholders of Alamos and AuRico will each own half of the combined company, the companies said on Monday.

Alamos shareholders will receive one share of the combined company and $0.0001 in cash, for each share held.

AuRico shareholders will receive 0.5046 of the combined company's shares, for each share held.

Alamos also said it would buy about 27.9 million AuRico shares, or 9.9 percent of the company, in a private placement at $2.99 per share for gross proceeds of about $83.3 million.

The merger is expected to close in the second quarter.

The companies also said a new company, AuRico Metals Inc, will be formed and capitalized with $20 million to hold interests in certain AuRico mines, including Kemess project in British Columbia.
MGL: Two sub $1bn gold miners merge to form one bigger gold miner. 

This slide in the presentation caught my eye:Image title
Most of the intermediate gold miners are trading below NPV on consensus. We've been researching gold miners for 30 years, and most if not all the time we've been assaulted by valuations that assume high and rising gold prices, and an enormous premium to NPV. 

So if you a a bull on gold, mine equity is cheap.

Having said all that, the gold miners have not covered themselves with glory. Very few quoted miners managed decent returns on equity during the last big bull market.  

Here's the classic Gann Fann on gold drawn from the 2001 lows:

Image title
Support is never support until tested, but its worth a sidebar.


Polyus Gold to pay 30% of net income in dividends

Russia’s biggest gold producer, Polyus Gold, said on Friday it planned to pay 30 percent of adjusted net income in dividends according to its new dividend policy.

The company also said its board had proposed a final dividend of 6.08 U.S. cents per ordinary share, or a total of $184.5 million for 2014.

Polyus will also consider paying a special dividend, subject to the group’s financial position, free cash flow, leverage and outlook, it said in a statement.

Under its previous dividend policy, the payout ratio stood at a minimum of 20 percent of annual net profit.
MGL: Its worth noting that in an almost directly opposite to Putin's diplomatic attempts to make Russia uninvestable,  Russia's corporates are moving in an equal and opposite direction to improve shareholder friendliness.  We've had a rash of dividends, and a level of exemplary Russian corporate behaviour which we just have never experienced. Now ok, lets ignore the Rosnefts and Gasprom's from this observation, but the steels, golds and other 'mid cap' resource counters in Russia seem to be all on best behaviour. 

NUM and Gold Fields agree 21% wage increase

South Africa’s National Union of Mineworkers (NUM) signed an agreement on Friday with Gold Fields for a wage increase of 21% over three years, it said on Friday.

The wage increase impacts entry level workers and will come into effect on April 1, NUM general secretary Frans Baleni told reporters. The lowest paid workers will receive 7,000 rand ($583) per month in the first year.

Gold Fields CEO Nick Holland said the wage increases reflected the need to retain and attract skilled workers at its South Deep mine, the only fully mechanized underground gold operation in South Africa.

South Africa’s Solidarity union, which mostly represents skilled workers in the mining sector, demanded a 12% increase from the Chamber of Mines on Friday.

The NUM, which represents 57% of the workforce in the gold sector, said in March it would ask for increases of up to 100% for its lowest paid members in the gold, coal and diamond sectors at wage talks due mid this year.
MGL: This surely has to ripple through to the Platinum sector. We're sneaking a glance or two at Umicore in Belgium, which is the third largest PGM producer quoted via its recycling business. 

Base Metals

China's production of base metals mostly rose in 1Q

Production of refined copper rose 9.7 percent from a year ago in March as smelters expanded capacity amid an increase in supply of raw material.

The bureau last month said January-February production was 1.2 million tonnes, but did not give monthly breakdowns. In the first quarter, output increased 14.3 percent year-on-year to 1.85 million tonnes.

March output was likely higher than February when the Lunar New Year holidays slowed operations at smelters, said Yang Changhua, senior analyst at state-backed research firm Antaike.

"March output was higher mainly because of expanded capacity. We expect output to rise in April from March," Yang said.

Industry sources have estimated at least 300,000 tonnes of annual capacity would start production this year.

Meanwhile, production of primary aluminium reached a record 2.56 million tonnes in March, up from the previous high of 2.18 million tonnes hit in December 2014. Output rose 8 percent year-on-year.

In the first quarter, aluminium production climbed 7.5 percent on-year to 7.51 million tonnes.

China Merchants Futures has estimated China will add 4.3 million tonnes of annual aluminium capacity this year, with the bulk in the first and fourth quarters.

Production of refined nickel climbed 18.4 percent on-year to 28,320 tonnes in March. Output in the first quarter surged 27 percent from the year before to 81,870 tonnes.

Some nickel producers face output cuts in the near term due to low prices and weak domestic demand.

Refined tin output fell 10.6 percent from the year before to 13,250 tonnes in March due to weak prices. In the first quarter, production dropped 2.9 percent on-year to 39,297 tonnes, despite strong imports of tin ores and concentrates.

Chinese tin prices SN-1-CCNMM dropped nearly 5 percent in March. The price stood at 113,000 yuan ($18,240) on Friday, the weakest since mid-2009.

Tin output may slow in April after a large producer started some maintenance in mid-April that will last a month, traders said.

Multi-year lows in prices PB-1-CCNMM also weighed on refined lead production, pushing it down 7.9 percent on-year to 340,202 tonnes in March. Output dropped 6.6 percent to 987,868 tonnes in the first quarter.

Refined zinc production climbed 10.4 percent on-year to 491,042 tonnes in March, and was up 14.6 percent to 1.46 million tonnes in January-March.
MGL: Look at those Nickel numbers. Its abundantly clear FerroNickel laterites are freely flowing into China from Indonesia.

Peru okays Southern Copper's $1.2bn Toquepala mine expansion

Peru approved Southern Copper's planned $1.2-billion expansion of its Toquepala mine, in southern Peru, putting it on track to double the operation's concentrating capacity, the company said on Wednesday.

Southern Copper, controlled by Grupo Mexico, said in a regulatory filing that the expansion aims to boost the capacity of the mine's copper concentrator to 120 000 t/d from 60 000. 

The company said Tuesday that it also expects the government to issue a construction permit for its stalled $1.4-billion Tia Maria project in coming months, despite ongoing protests by farmers.
MGL: Southern Peru, or GMexico, still has the best metrics of any of the quoted coppers.Image title
Its expanding primarily low cost copper oxide leach operations gradually over the next three years:
Image title
These copper oxide leach operation are notably low in Capex intensity, which leaves capex falling.

This leaves SPCC/Gmexico with simply the best global profile of any of the large cap miners. Gmexico looks the cheaper, and better entry point here.

Copper is...difficult!


Iluka revenues collapse in March quarter

Mineral sands miner Iluka has reported a 50% slump in revenue for the quarter ended March, compared with the previous quarter, owing to lower production and the deferral of sales. Revenue for the quarter reached A$115.2-million, compared with the A$233.9-million reported in the previous quarter. 

Iluka said on Thursday that the company had deferred some 11 000 t of zircon sales and 12 000 t of synthetic rutile sales until after the end of the quarter, in line with shipping schedules, while also scheduling bulk synthetic rutile shipments to align with the restart of synthetic rutile kiln 2 production. 

Sales were also affected by a hiatus in zircon orders and deliveries during March, while the company engaged with customers regarding new pricing and payment frameworks, as well as lower ilmenite and by-product revenues associated with the lower Murray Basin ilmenite sales. 

Furthermore, revenue was also impacted by lower production levels, with Iluka producing only 167 200 t of mineral sands during the quarter, compared with the 207 000 t produced in the previous quarter. Zircon production declined from 84 200 t reported in the December quarter to 65 700 t, while rutile production was down from 58 000 t to 20 300 t. The lower zircon and rutile production reflected the idling of the Hamilton mineral separation plant, in the Murray Basin of Victoria, during January and February this year. Processing was restarted in March. 

Meanwhile, mining at the Tutunup South mine, in Western Australia, restarted in February this year, with full capacity reached within 12 hours. Production rates have been as planned, and ilmenite from the mine was used as feed source for synthetic rutile kiln 2, which was reactivated during March. The re-commissioning of the kiln was progressing smoothly, Iluka said, and first product was planned to be shipped in April. Yearly production capacity would be around 200 000 t, and some 140 000 to of product would be produced in 2015.
MGL: Ilmenite makes white paint which goes on Chinese houses, which haven't been built.


China nickel prices get boost on worries over exchange-approved supply

The six Chinese producers approved to supply nickel against the Shanghai Futures Exchange's new contract for the metal may not be able to provide sufficient output to fill July deliveries, yielding a bump in prices in the near term in China.

Insufficient supply from these producers - plus their unwillingness to sell at current low futures prices - have helped widen the premiums of spot prices for locally produced refined nickel to as much as 1,400-1,500 yuan ($230-$240) per tonne over imported metal this week, according to data provider SMM. That's at least twice as much as premiums were before the Shanghai nickel contract started trading on March 27.

The most-active Shanghai nickel contract for July has lost 7 percent since then, as high Chinese prices prompted arbitrage selling in Shanghai and buying on the London Metal Exchange, as well as short-selling as prices dropped.

Some of the producers are now cutting spot sales due to lowprices, raising fears that the shorts may be forced to covertheir positions or be squeezed, pointing to higher prices tocome, said industry and market sources.

"Prices are too low and we have no profits anymore. Webasically do not sell spot nickel currently," said an executiveat one of the six producers, whose production are registered forthe delivery to the Shanghai nickel contract <0#SNI:>.

The producers whose output is deliverable to the Shanghai futures contract include the Jinchuan Group, Xinjiang Xinxin Mining and Shanxi Huaze Nickel & Cobalt.

Still, delivery volumes needed for July are likely to shrink as some investors exit their shorts. Relief could also come ifthe Shanghai exchange approves imported nickel from producers such as Russia's Norilsk Nickel for delivery against the futures contracts, the sources said.

The Shanghai exchange and Norilsk have been discussing delivery of Russian metal against the nickel contracts for thepast two months, although no timing of an approval has been indicated so far, one of the Chinese producer sources and a source at a metals broker said.

The exchange and Norilsk declined to comment on any talks on deliveries.

Open positions in July nickel on Wednesday require about 66,000 tonnes of the metal for deliveries by the settlement date of July 15, an amount nearly double China's refined nickel production in December 2014.

Russia provided more than half of China's imports of 130,617tonnes of refined nickel and alloy in 2014.
MGL: Image title
Here's Nickel. Its a picture dominated in the last year by the Indonesian nickel ban, and the sneaky underhand issue of export licenses that the market missed.Image title

Here's inventory. All that sneaky Nickel from the Indonesians passes straight through to the stainless steel makers via FerroNickel, and the traders never see it.

But finally, it looks like we might be killing some Chinese producers!


Codelco: copper production flat through 2020 despite $25 billion spend

Chilean state copper giant Codelco expects no significant gain in production through 2020 despite plans to invest $25 billion in its mines over the next five years, CEO Nelson Pizarro said Tuesday.

Speaking at the CRU World Copper Conference in Santiago, Pizarro said Codelco will invest around $5 billion annually through 2019 largely to replace exhausted mine capacity.

These investments will maintain production from Codelco's mines at around 1.7 million mt/year, Pizarro said.

Codelco also plans to begin construction of a new 100,000 mt/d concentrator plant to process sulfide resources from its Radomiro Tomic mine by year-end once it obtains environmental permits, with ramp-up beginning in 2019, the executive said.

Codelco data, however, shows that in 2018 output will fall below 1.6 million mt, compared to 1.672 million mt last year.

The development of a new mine level at the century-old El Teniente mine is running 38 months behind schedule Pizarro said.
MGL: $25bn simply sustains production. This is a massive change of tenor from Codelco. For years their projections have been rosy and ever upwards, their reality, volatile and slightly declining. If the best they can forecast is flat, then all the risk is on the downside.

Thats cements Copper price prospects for a decade. This is really important, there's an entire phalanx of metal analysts out there with rising Codelco production in their spreadsheets.

S.Korea PPS pays sharply lower aluminium premiums

South Korea's Public Procurement Service (PPS) paid a premium of $223 per tonne in its latest aluminium tender, almost a third less than a month ago, highlighting an accelerating collapse in global premiums as supply swells.

PPS's purchase of 2,000 tonnes of Australian aluminium for shipment by July 20 marked a sharp drop from its last purchase at a $315 per tonne premium for the origin in March.

The state-run procurement agency also said on its website on Wednesday ( that it had bought another 2,000 tonnes of Indian aluminium for the same shipment at a $209 per tonne premium via tender, also down from its last purchase at a $308 per tonne premium. Both tenders closed on Tuesday.

The two tenders come amid a flood of supply in Asia, which is likely to speed a downturn in global premiums, a delivery surcharge paid on top of London Metal Exchange prices to obtain metal.

Asia has seen a particularly steep drop from record highs, due to its proximity to China, which has stepped up exports of semi-manufactured products, although exports dipped last month.

A searing record run for premiums over the past two years has helped many producers stay afloat during years of low aluminium prices. The steep drop will ramp pressure on producers to cut capacity.

Aluminium maker Alcoa Inc said last month it would shut its only remaining smelter inBrazil, as part of a wider move to curtail expensive capacity.

Surplus stock has also been seen in Japan where aluminium stocks held at three major ports climbed for a 12th month to hit a record peak at the end of March due to a high level of imports and slow housing sector demand.

Faced with high stocks and a supply surplus, aluminium prices have lost about 17 percent since their high in August 2014.
MGL: Weak demand -again.

Its the bane of the resource sector.

PanAust rejects $844 mln bid from China's Guangdong

Australian copper and gold miner PanAust Ltd rejected on Wednesday an $844 million bid from its top shareholder, China's Guangdong Rising Assets Management (GRAM), but said it would be open to discussing a better offer.

GRAM offered A$1.71 a share, valuing PanAust at A$1.1 billion ($844 million), well below an offer of A$2.30 a share it made last year that PanAust also rebuffed.

"The PanAust Board believes there are compelling reasons why GRAM should pay more if it wishes to acquire increased ownership of PanAust," the company said in a statement, as expected.

PanAust mines copper in Laos and paid $125 million in late 2013 for the rights to the huge Frieda River copper project in Papua New Guinea.

It said the offer was well below analysts' average valuation of A$2.03 and failed to recognise that it expects to boost annual copper output by 25 percent by 2018 with no need for further capital.

It also said the bid did not appear to take into account a strong medium to long-term outlook for copper as global supplies grow tighter, with the company's Frieda River project well placed to benefit from rising prices.

PanAust further justified the rejection by saying that its shares, at A$1.74, last traded above GRAM's offer, indicating the market agreed that the offer was too low.

"While we believe the current offer is inadequate, we are open to engagement and to considering all proposals which we believe are in the best interests of our shareholders," PanAust Chairman Garry Hounsell said in a statement.

Guangdong, which owns 24 percent of PanAust, has urged shareholders to accept the all-cash offer, warning that PanAust may need to raise additional capital to get the Frieda River project into production, potentially sending its shares lower.

PanAust, which dumped former CEO and co-founder Garry Stafford late last year, plans to send shareholders its formal recommendation around April 30.
MGL: Market seems happy with around the A$1.80 mark. 

Zambia dumps mining royalty hike, settles at 9%

Zambia has approved a proposal to drop a recent hike in mining royalties as Africa’s second top copper producer seeks to resolve a six-month standoff with miners over the controversial tax increase.

The government intends to set its mining royalties at 9% for both open-pit and underground mines.

According to Reuters, the government intends to set its mining royalties at 9% for both open-pit and underground mines. In January, the country increased taxes for open pit mines from 6% to 20% and those for underground mines from 6% to 8%, as part of major overhaul to the industry's tax system announced last year.

The mover prompted warnings of closures and thousands of job losses, underscoring a growing trend across the continent, where governments from Tanzania to Guinea are changing tax regimes and adjusting ownership structures to get a larger share of natural resources.

From 1997 to 2013, mining attracted $12.6bn in foreign investment to Zambia, according to industry figures. The capital injection helped the southern African nation become one of the continent’s star economic performers, with average annual GDP growth of 6.4% over the last decade.

Today, mining employs 90,000 people and contributes about three-quarters of the country’s foreign exchange earnings and 25-30 % of government revenue.
MGL: Zambia backs off the killer 20% tax, and settles on a 9% tax on all mines, so thats a 50% increase in royalties and an approximate cut of 10% on pre tax income for all miners in Zambia.

Investors breathe a sigh of relief that its not worse.


Antofagasta sees forecast global copper surplus disappearing in 2015

London-listed Antofagasta Minerals' newly installed chief executive sees the global copper market surplus practically disappearing this year due to kinks in output.

Analysts had anticipated seeing the first surplus in years in 2015, to the tune of 500,000 to 600,000 tonnes copper, but production stoppages, such as those caused by recent heavy rains and mudslides in northern Chile, have curtailed those estimates.

"What we've seen is that the surplus has been disappearing and we're probably talking about a market that is virtually in balance," Ivan Arriagada told Reuters in one of his first media interviews since assuming as CEO in February.

Antofagasta's flagship Los Pelambres mine in central Chile lost 8,500 tonnes of refined copper production earlier this year after protests by local villagers blocked access to the mining complex.

In light of the production loss, Antofagasta is in the process of refining its initial guidance of 710,000 tonnes of copper production for 2015 "depending on how much of that can be recovered," he said.

Arriagada sees the global copper market in a slight surplus of 100,000 to 150,000 tonnes this year, and remaining balanced in 2016 before returning to a deficit in 2017, "at which time there will be upward pressure on prices."

For this year, copper prices should fluctuate between $2.70 and $3.00 per pound, in line with market expectations, according to Arriagada.

Prices, a sticking point at the CRU Copper conference in Santiago this week, have been recovering from a five-year low in late January, but have lost momentum as sluggish demand during a normally strong seasonal period offsets an erosion of mine supply.

Asked if the lull in copper prices had created merger and acquisition opportunities, Arriagada said "there could be attractive opportunities ... there could be space in this context for new opportunities."

"We want to develop and grow ... so in that sense obviously we're always monitoring the market and eventual opportunities that may arise."

However, Arriagada denied that Antofagasta had ever been in talks with Vancouver-based Teck Resources Ltd about a business tie-up.
MGL: We'll take that Teck denial at face value. 

Copper disruption bringing market back to balance, should be no surprise, but senior industry CEO saying it will give it some credibility.

Ivanhoe Assay results confirm high-grade zinc discovery at depth

Robert Friedland, Executive Chairman of Ivanhoe Mines , and Lars-Eric Johansson, Chief Executive Officer, announced today that additional, exceptionally high-grade zinc, copper and silver drill intercepts have been reported in the fifth batch of assay results from the company's underground diamond-drilling program at the historic, high-grade Kipushi copper-zinc-germanium-lead and precious-metals mine.

Assay results received for drill hole KPU072 have confirmed a high-grade zone of zinc mineralization exists at depth to the south of the historically defined Big Zinc zone. Follow-up drilling by Ivanhoe confirms the initial massive sphalerite discovery and suggests a geometry and orientation similar to the Big Zinc zone.

Highlights of the new assay results on the Big Zinc results include:

KPU067 drilled on section line 3: 18.9 metres, drilled length, grading 38.5% zinc, 0.2% copper, 7 grams per tonne (g/t) silver and 44 g/t germanium, plus a second intercept of 39.7 metres grading 23.0% zinc, 0.2% copper, 4 g/t silver and 34 g/t germanium.
KPU068 drilled on section line 15: 79.8 metres, drilled length, grading 28.3% zinc, 0.3% copper, 31 g/t silver and 31 g/t germanium, including an intercept of 23.8 metres grading 41.8% zinc, 0.1% copper, 28 g/t silver and 40 g/t germanium.
KPU069 drilled on section line 17: 40.2 metres, drilled length, grading 37.5% zinc, 0.1% copper, 57 g/t silver and 45 g/t germanium.
KPU070 drilled on section line 17: 6.7 metres true thickness grading 7.9% copper, 0.2% zinc, 55 g/t silver and 0.52% cobalt.
KPU071 drilled on section line 9: 85.0 metres, drilled length, grading 49.0% zinc, 0.3% copper, 12 g/t silver and 61 g/t germanium.

The new assay results were also returned for the Nord Riche area of the Kipushi fault zone,

KPU073: 7.9 metres true thickness grading 8.2% copper, 1.9 % zinc and 17.0 g/t silver and 0.26% cobalt.

KPU072: 57.7 metres, drilled length, grading 37.0% zinc, 0.6% copper and 6 g/t silver and 54 g/t germanium including an interval of 50.8 metres grading 40.7% zinc, 0.6% copper, 6 g/t silver and 54 g/t germanium.
MGL: Here's the PEA's on Ivanhoe's projects:
Image title
14% IRR with Platinum at $1700 does nothing for me.Image title
This is better, but no cigar!Image title
Deep, high grade.

Image title
New discovery is on trend, to the south and also deep.

Ivanhoe is $320m mcap, stock it trying to convince us that we have a base in place.  Unfortunately there's really not enough excitement in this project portfolio so far.


Mick Davis first deal to land in Canada: report

Former Xstrata boss Mick Davis is said to be finalizing talks with a Toronto-listed miner, in a deal that could kick-off a long awaited buying spree by his $5.6 billion X2 Resources fund.

Davis, a driving force in the deal making that transformed the mining sector during a decade-long commodities boom, is also said to be mulling a bid for South32, BHP Billiton’s spin-off to be officially launched next month, Bloomberg reports.

“A deal in Canada could be a prelude to the bigger acquisition he’s been seeking for some time,” two people familiar with Davis’ plans told Bloomberg.

Sources added the most likely targets were Hudbay Minerals (TSE:HBM), Capstone Mining (TSE:CS) and Imperial Metals (TSE:III)

The sources added the most likely targets were Hudbay Minerals (TSE:HBM), Capstone Mining (TSE:CS) and Imperial Metals (TSE:III), all of which were trading higher Friday morning after the news.

Over the weekend, it transpired that the mining veteran might have approached Barrick Gold (TSE:ABX) for either acquiring some of the gold giant assets currently up for sale or a potential partnership, reported.

Earlier this year market rumours pointed to Davis considering Vale’s nickel business, which it is valued at between $5bn and $7bn.

Last year the 56-year-old South African allegedly tried (and failed) to pick up BHP’s unloved assets. He is also said to have approached Anglo American in November, trying to grab some of the company’s assets including copper mines in Chile, Brazilian nickel mines and a few coal operations.

The team behind London-based X2, which also involves former Xstrata finance director Trevor Reid, has stated it believes the firm could profit from picking up assets other companies, under financial strain of getting funds for ongoing projects, are forced to sell at very low price.

Davis’ war chest includes $4bn in committed equity that can immediately be drawn down and $1.6bn in conditional capital.
MGL: Who knows? We would just note that every rumour we have so far heard seems to involve either Chilean or Peruvian  mining assets. 

As rivers dry up, Chile copper mines fight for water

Alvaro Badillo remembers a time when his dad would take him fishing in the stream just a stone's throw away from the dusty streets of their small hometown of Caimanes in central Chile.

Now, like countless communities that dot the arid valleys north of the capital, Santiago, Caimanes is left with a dry riverbed.

For many in the town of 1,200 people, the answer lies just a few miles upstream: a 470 foot tall wall that stretches nearly a half-mile straight across the valley. It is the tailings dam for Los Pelambres, Chilean miner Antofagasta Plc's flagship copper mine, which holds enough leftover processed rock to fill some 140,000 Olympic swimming pools.

For its part, Antofagasta blames an eight-year drought in Chile for the evaporation of already slim water resources, and says the canals it built to redirect rain water have minimized the impact on the stream.

Both sides have findings that support their arguments and are thrashing them out in a court battle that could stop work at one of the world's biggest copper mines.

The clash illustrates the challenges facing leading copper producer Chile as communities and water-intensive industries such as mining try to coexist and vie for shrinking water resources.

"I believe Pelambres is one of the best examples, if we look at everything that has happened, to figure out the weak points in (our) legislation and the way to do things differently," Antofagasta chief executive Diego Hernandez told Reuters.

Accounting for about a third of the world's copper supply, with output this year expected to reach 5.94 million tonnes, Chile's domestic conflicts reverberate through the global market. Any prolonged disruption at Los Pelambres could tip a finely balanced copper market into deficit, boosting prices, analysts said.

The issue of water shortages and strained relations with communities is sure to be a topic of heated discussion among the world's biggest copper miners attending the CRU Copper conference in Santiago this week.
MGL: This Los Pelambres court case is critical to Antofagasta. We cannot entirely dismiss the thought that the court will go against Antofagasta and demand some kind of remediation. The Chilean courts over the last few years have not been frightened of delivering big judgments against the miners. Pascua Lima immediately comes to mind. 

China's first quarter Copper imports drop

In the first quarter of 2015, copper imports dropped 17.1 percent to 1.1 million tonnes from the same period last year, the data showed.

Many Chinese importers have reduced term shipments of refined copper for 2015 as they were uncertain whether they would receive credit for such purchases, traders said.

One trader at an international company said his firm's 2015 term shipments of refined copper to China would halve from last year.

Another trader at a Western supplier said his Chinese clients had scheduled more term shipments in the second half than the first half because of worries over weak domestic demand.

Many Chinese banks have cut credit for metals imports since the second half of last year after authorities investigated an alleged metals scam at Qingdao port in Shandong province. That has already forced many small trading firms that imported copper as a financing tool in previous years to close.
MGL: With electricity consumption down 6% year on year, a horrible copper import figure was always on the cards. We've seen a notable change in the mood music from Beijing in the last two weeks, with more supply side tax cuts and deregulation announced. So we think there's something of a cyclical lift in China demand going forward, but we still have a welter of rubbish data to wade through from the 'faction war' dominated quarter 1.

Steel, Iron Ore and Coal

China March rail coal transport down 11.5 pct on yr

China’s rail coal transport stood at 175.12 million tonnes in March, down 11.5% year on year but up 47.0% month on month, showed data from the China Coal Transport and Distribution Association on April 17.

In the first quarter, China transported a total 536.21 million tonnes of coal through railways, down 9.3% year on year, data showed.

Of this, 355.8 million tonnes or 66.35% of the total was railed to power plants, down 12.7% from a year ago, with March haulage sliding 14% year on year to 117.61 million tonnes.

Coal-dedicated Daqin line transported 35.81 million tonnes of coal in March, down 9.1% on year but up 11.91% on month. Total haulage between January and March dropped 6.3% year on year to 105.99 million tonnes.
MGL: More bad March data for the market to chew on. Finally, we are hearing some real surrender by the China-holics. 

Investment sentiment on Chinese growth is about as low as we can recall, for decades. 

Yet Beijing is quietly swinging from the the 'clean' to the 'growth' in policy direction. 

We're still not sure how to play this, because, simply put, it may not be about resource demand at all.


Rio Tinto to slash costs further to endure bumpy ride in iron ore

Rio Tinto, the world's second largest mining company, warned of "continued bumps" in its key iron ore market and vowed to stay focused on slashing costs to be the last man standing at a tough time for the sector.

The London-listed company and its rivals BHP Billiton and Vale are trying to cut production costs to the bone to remain competitive after a tumble in the price of iron ore in the last couple of years.

After losing almost three quarters of its value from a peak of about $190 per tonne in 2011, the outlook for the steel ingredient remains dire, due to a wave of new supply, mostly from the large producers themselves, smothering weaker demand growth.

"The reality is tough out there and as an organization all that we can do is to respond as best as we can in a tough environment," said Rio Tinto's Chairman Jan du Plessis at the company's annual general meeting.

Anglo-Australian Rio is the world's lowest-cost iron ore supplier and makes most if its profit from the steelmaking ingredient.

Its cost to produce each tonne of iron ore has fallen from an average of $19.50 a tonne in 2014 to around $17 this year thanks to a cheaper Australian dollar, which benefited Rio's giant iron ore mines in Australia, and weaker oil price.

"With iron ore now trading around $50 we have more to do to ensure that we maintain the margin between ourselves and the high-cost producers," Chief Executive Mark Cutifani said.

"Being the lowest-cost producer is not about a competition, or a bid to secure bragging rights. Rather, it's fundamental to the health of our business.
MGL: Iron ore used to be the most boring commodity. Prices were set each year. The big three made a nice gross margin thank you, the business gushed cash, but never grew. In a sense we're back to those days, the only problem we have is that we simply supply too much ore for a saturated market, and worse a market that shows little or no inclination to grow. 

The big three want their market back, and everyone else is a target. The most pesky and obdurate is Fortescue, whose economics resemble their own, but whose ores are not as high in quality.  We've done the price damage, we just wonder we move into the next phase of the market share war, which will focus on quality. 

With the Chinese steel mills under the gun to reduce pollutants they will want clean, dry ore.  Earlier this year we watched Exxon adroitly switch its capex commitments from upstream to downstream. They clearly went to major capex vendors and said"Look we don't need rigs and tube anymore, but our refineries and chemical complexes need all this funky engineered steels and valves, so instead of spending $XY billion on oilfield goods we'll spend the same on refinery and chemical equipement." 

So which of the Iron ore boys are going to pull the same trick? They need to dry the ore (drying sheds instead of bulldozers), they need to beneficiate higher purity ore, can we lower the Silicates? Aluminium? and other nastys? My bet is there is some hard thinking at the big miners on how to narrow the 15% discount applied to most new production. 

Vale is already talking about this in presentations:Image titleImage titleImage title
Image titleImage title
Vale is gearing up to complete a bunch of mines over the next 18 months.

These mines bring:

~High grade (68% vs 55% for the Pilbara)
~Low impurity (Al/Si/Ph all lower by miles than Pilbara grades)
~Large consistent volume ore (critical for BF operators who dont want to have incessantly fiddle with their equipment)

Now we're not suggesting Vale reaps price reward for this material, but they will win market share amongst the pollution sensitive Chinese.

The Australian iron ore miners cannot sit suppine and hope, they have to raise grade and purity. That likely implies that volume growth goes, and mines start being re-examined for grade and purity. 


Tata Steel says no deal with UK unions; strike ballot to go ahead

India's Tata Steel has failed to reach a deal with UK unions about its proposal to change the British pension scheme, it told India's National Stock Exchange on Thursday.

UK unions Community, GMB, UCATT and Unite will start balloting some 17,000 members over strike action from May 6, one day before the country's general election, they said in a joint statement earlier this week.

Should the strike go ahead, it would be one of the biggest industrial actions in the country in some 30 years.

"The negotiations ... have concluded without support from the trade unions on proposed modifications to the (pension) Scheme," Tata Steel said in response to a query from the Indian exchange.

The unions accuse Tata of not taking up their offer to re-enter discussions about the pension scheme.

"Our members are determined to stand up for their pension and therefore we have no option but to proceed to an industrial action ballot in May," said Roy Rickhuss, general secretary of Community, a major British trade union.
MGL: Image title
Thirty years ago this would have been a political issue. Today? 

Steel employment has collapsed in all the grandees of the 1970's steel industry. China's 800m mt capacity just overhangs the market like a cancer. 

Steel stocks will only ever be a trade. 

Tata won't buckle, and it looks like we should think strike.


China's Shenhua, Datong Group aim to reverse slide in coal exports

Two of China's largest coal producers -- Shenhua Group and Datong Coal Mining Group -- plan to revive their thermal coal exports to overseas customers, senior managers of the two companies said Thursday at the 13th Coaltrans China conference in Beijing.

China's thermal coal exports to neighboring countries in Asia have progressively declined over the past decade to 2.59 million mt in 2014.

But slowing growth in China's economy is creating a growing surplus for the domestic thermal coal market.

"We are trying to build our overseas customer base, and [our] exports are due to increase," Shenhua Group Vice General Manager Wang Xiaolin told the conference.

Xiaolin said Shenhua, China's largest producer of thermal coal, used to export large volumes of coal in the recent past but, "due to strong domestic demand, exports have come down."

Shenhua is also following a central government instruction to reduce its domestic coal production, Xiaolin said.

"We will reduce our output by 50 million to 60 million mt [in 2015]," Xiaolin said. "The [government] policy applies to all coal mines, and Shenhua is no exception."

Datong Coal Mining Group, another of China's larger coal producers, said it too is looking to re-engage with the seaborne market for thermal coal.
MGL: About a year ago we began to fret about China resuming coal exports. This is the first confirmation we've seen that this is plausible, it is worth recalling that Chinese coal is much closer to three big markets:- Korea, Japan and Taiwan that either Indonesian or Australian export coals. Image title
China exported 12m mt of coal a month as recently as 2001. Domestic demand in the go-go decade reduced these exports to zero, but today, coal is moving into structural surplus in China, that suggests exports.

Lower oil price, weaker Aussie dollar cut Rio's iron ore costs

Rio Tinto's iron ore cost of production has fallen from an average of $19.50 a tonne in 2014 to around $17 so far this year, the head of the world's second-largest mining company said on Thursday.

The reduction was thanks to a cheaper Australian dollar, which benefited Rio's giant iron ore mines in Australia, and a weaker oil price, Chief Executive Sam Walsh said during thecompany's annual general meeting.

Rio Tinto, the world's cheapest supplier of iron ore to China, as well as rivals BHP Billiton and Vale , are trying to cut production costs to the bone to remain competitive after a tumble in the price of iron ore in the last couple of years.
MGL: The radical shifts in the Oil price, Aus and Real exchange rates are making a nonsense of nearly all attempts at estimating cost curves right now.  Its fair to say the entire cost curve of iron ore at the big 3 (4..) is falling, and its extremely difficult for outside observers to separate these macro effects from managements actions. 

BHP's productivity initiative is noteworthy, as is Vale fall in costs as new high grade resource mines complete over the next 2 years. We've noted in the past that the big commodity declines tend to lose 60% in the first year, then suppurate at depressed levels for a number of years as new commodity on commodity competition sorts out the excess supply.  We've seen this in coal, which most closely matches iron ore for its properties (high resource abundance, logistics dependence, low price point at customer)

Its a measure of our crazy world that Iron ore and Coal are now cheaper than horse manure. (~$100 delivered per tonne)

China Coal Energy Q1 coal output down 31.5 pct on yr

Total coal sales of China coal energy Co., Ltd., the country’s second largest coal producer, slumped 31.5% on year to 20.53 million tonnes in the first quarter, it said in a statement late April 15.

In March, China coal produced 7.64 million tonnes of coal, down 26.5% year on year, the ninth consecutive year-on-year drop.

However, it represented a 30.8% rebound from February, when the miner cut production amid weak demand during the Lunar New Year holidays.

Total coal sales in the first quarter reached 24.22 million tonnes, down 27.3% on year.

In March, China Coal sold 9.15 million tonnes of coal, plummeting 30.4% on year, the second straight month for year-on-year drop staying above 30%.

Yet, it was a 22.2% leap from a month ago, ending a five-month month-on-month slide, as demand increased following further price discount.

The March sales of self-produced coal stood at 5.66 million tonnes or 61.9% of the total, dropping 45.2% year on year but up 2.4% month on month.
MGL: Image title

These Chinese punters are buying the HK line of this stock because it is at a discount to Shenzen.

They think Beijing will ride to the rescue of China Coal, its an SEO, its a big employer.

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Here's EBITDA to Interest coverage. 26 to 3 in three years. A 31% fall in sales this year won't improve that number!

Coal demand in China is shrinking. Beijing has dethroned Coal because of pollution. 

But the punters are winning in the stockmarket, for now.

Image title
We stopped out our shorts, and will watch from the sidelines-- for now!


Cost cuts keep Fortescue in black despite iron ore plunge

Australia's Fortescue Metals Group Ltd slashed costs more than expected to stay in the black last quarter, as it scrambles to avoid the fate of smaller rivals in the beaten down iron ore market.

The attack on costs sent the miner's stock up as much as 9 percent on Thursday, although the shares have still halved in value over the past seven months in line with plummeting prices for the steelmaking raw material.

Two small iron ore companies have shut mines in the past week, while Goldman Sachs says half the world's so-called "tier two" miners - which includes Fortescue - are at risk of closure as mega miners boost supply.

"The current state of the industry has been a disaster for everyone. It's ripped the heart out of the industry," Fortescue chief executive Nev Power said, adding that the miner aimed to cement its place in the business, irrespective of any further price falls.

"Absolutely there's a Plan B, C, and D, and whatever the market price is, we'll respond to that and make sure that we can maintain a positive cash margin," he told reporters on a conference call.

In its third-quarter production report, the miner said it had improved its total delivered cost by 17 percent on the prior quarter, and was now targetting a breakeven price of $39 a tonne.

This compares with a current price for delivery to China - Fortescue's main market - of $49.70 a tonne, down about 60 percent from a year ago .IO62-CNI=SI.

Fortescue also said its lower operating costs should allow it to keep its cash at or above $1.5 billion this quarter, reassuring investors who had feared the company was burning through its cash pile at current ore prices.

Power said Fortescue had no plans to increase production further and was assessing options to raise extra capital. The company has previously canvassed selling a stake in its infrastructure, but he said it was not considering an equity raising.

17% q on q...what were they doing before?
MGL: Here's Fortescue's cost history as they have ramped up production:

Image title

So first lets look at the impressive data:Image title

Some points:

1> Fortescue isn't lying down and surrendering. These are really good numbers!!
2> Target C1 is on a par with the big three, so don't write these boys off!Image title

Now here's the catch: Fortescue shipped from stocks, and reduced overburden removal by 28%. Thats not sustainable. 
(But you can keep it up long enough to upset your competitors!)

Iron ore bear is not over, but right now we have a bounce as Chinese economic activity picks up somewhat.


Fortescue under pressure as iron ore crashes

Australia's Fortescue Metals Group has two stark choices to deal with a crash in the iron ore market and cut its $9 billion debt pile - sell off stakes in its mines or transport infrastructure, or sell new shares.

Investors say the quickest capital-raising option for the world's No. 4 iron ore miner would be a rights issue, although that could lead to the dilution of the one-third stake held by Chairman Andrew "Twiggy" Forrest.

"There's no question, all of those things, in a challenging environment, get a run," said a person close to the company who asked not to be identified. "You've always got them on the agenda."

Fortescue, which has been ramping up output and cutting costs, updates its quarterly production and costs on Thursday, with investors anxious to see if it is burning through its $1.6 billion in cash as iron ore prices hover around $50 a tonne.

With valuable infrastructure and long-life mining assets, analysts say Fortescue is in better shape than smaller rivals like Atlas Iron, which last week moved to shut all its mines to stem losses.

But its debt load makes it more vulnerable than its much bigger rivals Rio Tinto and BHP Billiton, after it scrapped a $2.5 billion bond sale last month.

It could sell stakes in its mines, which are all 100 percent owned, unlike those of its rivals who already have partners. Or it could again try to sell a stake in its port and rail unit which it put up for sale in 2012 during a brief dip in iron ore prices.

"While the company's under duress, we believe it's unlikely to go bust, simply because there is strategic value in that infrastructure," said Ric Ronge, a portfolio manager at Pengana Capital.

In 2012, analysts estimated Fortescue could have raised up to A$4 billion by selling a minority stake in the port and rail, but such a price is unlikely now even if a buyer can be found.
MGL: That Fortescue moves under the spotlight should come as no surprise.

There is, however, an interesting wrinkle in the tale: if Fortescue sells its railroad, and thats the valuable asset here, the economics of an entire group of deposits suddenly wildy improve on open access. That means more supply!

China Steel Output Slides to Worst First Quarter in 20 Years

China’s crude steel output fell in the first three months of the year, the first decline over that period in 20 years, as the country grew at the slowest pace since the global recession.

Crude steel production from January to March slid 1.7 percent from a year earlier to 200.1 million metric tons, according to National Bureau of Statistics data released Wednesday in Beijing. First quarter output hasn’t contracted since 1995.

Falling production in the world’s largest steelmaker reflects the country’s slowing pace of construction and sliding exports. Output is poised to fall further as the government tries to trim overcapacity and cut pollution in its drive to shift the world’s second-biggest economy toward consumption and services.

“Given that China has been closing down some of the steel mills, the drop is less than we expected,” said Helen Lau, a metals and mining analyst at Argonaut Securities Ltd. in Hong Kong. “The less profitable and higher polluting ones are shutting, but the larger ones are taking their market share.”

The country’s gross domestic product in the three months through March rose 7 percent from a year earlier, the weakest pace since 2009, the statistics bureau said. That matches the median forecast in a Bloomberg survey, as well as the leadership’s full-year target.
MGL: So now that we've seen this nasty q1 figure we have to look forward:

1> Is the faction fight that completely stopped the economy in its tracks over?
2> Does Beijings change of music in the last two weeks signal something more -ahem- 'normal'?

Read our background piece on the burial of Zhou Ziyang. 


Usiminas' main shareholders ordered to extend tender offer

Brazil's Usiminas said its two main shareholders have been ordered by the country's securities regulator to extend a partial tender offer to other minority shareholders - the latest twist in their heated battle for control of the steelmaker.

Usiminas is controlled through a shareholder pact between Luxembourg-based Ternium SA and Japan's Nippon Steel & Sumitomo Metal Corp but the two have been at loggerheads for six months over the departure of Usiminas' former CEO, leading to a number of court cases and appeals to the regulator.

Last October, Ternium increased its stake with a 616.7 million reais ($200 million) deal to buy shares owned by the pension fund of state-run Banco do Brasil SA, known as Previ. At the time, Ternium stated the deal would not automatically trigger a tender offer to other minority shareholders.

The decision by Brazilian securities regulator CVM, which was asked to review the deal by Nippon Steel, overturns that and says the offer must be extended by both Ternium and Nippon Steel, according to the Usiminas statement.

It is not immediately clear how the regulator's ruling would affect the battle for control. Ternium offered 12 reais per share in its offer, an 82 percent premium to the closing price on the day before the deal was announced, but since then the shares have rallied, closing at 16.80 reais on Tuesday.

According to Thomson Reuters data based on filings from November 2014, Ternium has a 26.9 percent stake in Usiminas while Nippon Steel holds 29.1 percent through two units. Rival steelmaker Companhia Siderurgica Nacional S.A. (CSN) owns 11.7 percent.

Ternium and Nippon Steel have been at odds since former Usiminas CEO Julian Eguren, who previously worked at Ternium, was dismissed over allegations of misuse of funds in September. Eguren denies wrongdoing and Ternium has demanded his reinstatement while Nippon Steel has refused.
MGL: Nippon Steel derailed a similiar bid by CSN some years ago. This is all happening in the voting class, the more liquid non voters trade at a paltry BRL$4.80.  Nippon Steel wants to use Usiminas as a strategic vehicle to access Latin America, and other export markets. 

Gerdau, controlled by Techint, wants to take full operational control. Meanwhile Banco Pactual has stepped into the fight with a 2% stake.  Interesting spectacle, but we cant see any money being made by long suffering minority non voting shareholders. 

China Q1 coal output down 3.5pct on yr

China produced 850 million tonnes of coal in the first quarter of the year, down 3.5% year on year, the China National Coal Association (CNCA) said during a meeting on April 10.

The CNCA didn’t give the March figures, which was calculated at 320 million tonnes, up 33.3% from February, as more mines resumed production after Lunar New Year holidays.

Total sales during the first three months reached 800 million tonnes, down 4.7% from the year before, said the CNCA.

By the end of March, stocks in coal enterprises stood at 90 million tonnes, up 4% from the beginning of the year, with stocks in key power plants at 62.81 million tonnes, down 9.6% on year. Total social coal inventories have surpassed 300 million tonnes for 39 consecutive months.

In the first quarter of 2015, coal rail transport in China reached 536 million tonnes, down 9.2% year on year, according to the CNCA.

Weak demand and falling prices continued to impact the sector’s performance. The CNCA data showed that the country’s 90 large coal producers suffered a total loss of 13.1 billion yuan ($2.11 billion), compared with 11.2 billion yuan of profit a year ago, with only 19 producers in profit.

Total loss of coal enterprises with annual core business revenue over 20 million yuan increased 32.4% from the year before to 16.55 billion yuan during the same period, it said.

China’s coal market has further worsened since April, with prices falling to new lows over the past eight and a half years.

The Fenwei/Platts CCI1 Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was assessed at 416 yuan/t on April 13, inclusive of VAT, FOB basis, down 90 yuan/t or 17.8% from the beginning of the year.
MGL: Sales less than production. Production down. Inventory up. 

This is a very ugly piece of data.

Surrender on Iron Ore?

Image title
In a note released this week, Citi has slashed its iron ore forecast to $US37 a tonne in the second half of this year and a mere $US40 a tonne until the end of 2018.

Standard and Poor's now believes iron ore will remain at $US45 a tonne for the rest of this year, a significant discount to its previous optimistic forecast of $US65 a tonne.

UBS analysts estimate all Australian iron ore miners other than the majors would be underwater at a price of $US35 a tonne. BHP Billiton and Rio Tinto would be cash breakeven at $US34 a tonne.

Credit Suisse analysts wrote in a note on Thursday that "high cost production must be forced out" of the market to allow the price to recover. The investment bank expects prices to average $US45 a tonne in the second half of 2015 and the first two quarters of 2016.

Image title

MGL: Here's the seasonals on Chinese demand:

Image titleImage title(Australian sourced iron ore production costs, we're sceptical on the Brazilian numbers in this chart)

Its now April, and the analysts are throwing in the towel because the Chinese faction fight between the politburo and Jiang Zemen placemen has crippled the March economy and numbers. So we know that the March Iorn ore demand numbers are going to be weak.

However in the last 2 weeks we've seen an interesting change in Beijing's mood music:

~tax cuts
~deregulation of property ownership
~talk aimed at addressing the plight of workers in distressed industries.

Beijing wants clean growth, and yes all the accent has been on the 'clean' word, but we're now detecting a nuanced bias towards the 'growth' word.

Most readers will be aware that it's now a year since we put out the 'perfect storm' presentation on iron ore. Its almost four years since we abandoned our buy recommendation on Vale.

So we feel justified in cashing in our bear chips on the sector. Make, no mistake we're not bulls, nor do we particularly disagree strongly with any of the points made by the disgruntled analysts. 

Here's our observation:

Shell 6% yield NOT covered by cashflow, enormous capex liability, overpaid for BG. Implied expectations too high.
BHP 6% yield covered-just- by cash flow. Negligible capex liability, ($4.8bn). Implied expectations on the mark.


Australia's Fortescue tells miners to work more

Australia's Fortescue Metals Group Ltd, the world's fourth-largest iron ore producer, said on Tuesday it was changing its roster to get more work out of its miners as it seeks to slash costs to cope with plunging prices.

Fortescue said it was changing to a two-week on, one-week off roster from a current schedule of eight days on, six days off in its remote mines in Western Australia's Pilbara region following a "thorough organisational review".

"While we would prefer not to have to change what has been a successful and differentiating roster for Fortescue, we are taking steps in response to the threat of oversupply in the market over the medium term," the company's chief executive, Nev Power, said in a statement.

"In this environment, bringing our costs down rapidly and sustainably is critical and will place our company in the strongest possible position for the future."

The move would bring Fortescue into line with standard rosters worked in the industry, the company said, without providing an estimate of the savings.

Benchmark 62-percent grade iron ore for immediate delivery to China .IO62-CNI=SI was trading at $48.80 a tonne on Monday, according to The Steel Index, down about 60 percent on last year.

Standard & Poor's warned on Monday it may soon downgrade Fortescue and other big miners as it lowered its iron ore price forecasts for the next couple of years.
MGL: Fortescue is fighting for survival. They need a good 10% plus cut in costs to restore even a vestige of profitability.

Sinosteel second in Australia to shut iron ore mine

China's Sinosteel Midwest Corp said on Tuesday it will suspend iron ore production at its Blue Hills project in Australia - the second mining company to fall victim to low prices in less than a week.

The Blue Hills mine was opened in August 2013 and was originally scheduled to operate for five years, yielding a little over 3 million tonnes of ore, according to the company, known as SMC.

SMC said delays in gaining regulatory clearance to extend the life of its mine for another two years had also contributed to the suspension, which will take effect in mid-May.

"Tough economic conditions and lengthy delays in obtaining environmental approvals for extensions to the Blue Hills operation, had left no alternatives available," it said in a statement emailed to Reuters.

Atlas Iron said on Friday it was suspending mining rather than operate at a loss after exhausting all avenues to reduce costs.

SMC was formed in 2008 after Chinese state-owned metals group Sinosteel Corp acquired the assets of Australian iron ore miner Midwest Corp.

SMC and Atlas are among a handful of lower production miners in Australia locked in a fight for survival as iron ore prices sink.

Others under threat because their costs may exceed selling prices include BC Iron Ltd, Fortescue Metals Group , Arrium Ltd and Grange Resources Ltd, according to cost calculations by UBS.
MGL: Small beer, but everything helps.

Australian Budget to suffer from iron-ore collapse

Australian Federal Treasurer Joe Hockey on Monday said he could have been “more prudent” with an iron-ore price forecast when announcing the mid-year Budget update, in December, and that he was factoring in a price as low as $35/t for next month’s Budget announcement. 

Speaking to the ABC TV from New York on Monday, Hockey said that there was no doubt that the falling iron-ore price would have an impact of Australia’s Budget, given that the commodity was the country’s largest export. “When we came to government it was hovering around $100/t. Now, it's close to $40/t. Everyone said that I was being way too conservative writing down the prices. I'm glad I was prudent, with the benefit of hindsight I could have been even more prudent.” 

In the December mid-year Budget update, the Treasury used a $60/t estimate for iron-ore prices. Hockey also told The Australian Financial Review that the government was contemplating an iron-ore price as low as $35/t, which meant that $25-billion in revenue could be lost over the next four years.
MGL: Australia is managing its descent from the boom with unexpected equanimity. Its not just the currency that is responding, capex is collapsing and mines are closing.  This is a proper market orientated economy, compare and contrast with many emergers who seem to be rushing out state life rafts to prop up capacity which by all rights should close.

New owners halt coal output in India pending new mine permits

Mining at some coal blocks auctioned in India last month has been halted as the new owners including Hindalco Industries Ltd., Sesa Sterlite Ltd. and Monnet Ispat & Energy Ltd. await permits from regional governments.

Output is expected to remain shut for about four months, said Amitabh Mudgal, president at steelmaker Monnet Ispat, which won a mine in the central state of Chhattisgarh. Billionaire Kumar Mangalam Birla-owned Hindalco, another winner, stopped mining from April 1 pending permits and issues with the previous owners over transfer of assets, said two company officials familiar with the development, who asked not to be identified because they aren’t authorized to speak to the media.

“The auctions have led to a change of owners, which means a possible disruption in coal output for at least three to six months,” Neelkanth Mishra, managing director for equity research at Credit Suisse Securities (India) Pvt., said in an e- mail on April 10. “If there are evacuation problems from the block, then disruption could be for about two years. A few million tons of output could be impacted.”

In September, the nation’s top court canceled most of the 218 coal mines given away to companies for their own use since 1993, terming the allocations illegal and arbitrary. The stoppage belies the government’s commitment to ensure coal production isn’t disrupted as it adds power plants, roads, bridges and other infrastructure.

Prime Minister Narendra Modi, who swept to power in May last year, aims to boost growth to as much as 8.5 percent from 7.4 percent and attract foreign investments to Asia’s third- biggest economy.

“Mines where there are new owners are closed as they sort out issues on transfer of assets with the previous owners,” said Anthony Desa, chief secretary of the government of Madhya Pradesh, a central Indian state where some of the coal blocks are located. “There’s no difficulty from our side in giving approvals provided they meet all the norms.”

Producers of power, metals and cement won rights to 16 coal blocks that were offered in the nation’s first auction of coal blocks. With at least seven of these mines, having a combined annual production of about 8 million metric tons, coming to a halt.
MGL: India manages another own goal! We  dont recall any other example of a mine closure following change of control. Bullish for imports, and somewhat offsets the collapse in Chinese coal imports.

China's Q1 coal imports fall 42 pct year on year

China's coal imports in the first quarter fell 42 percent on a year earlier amid tepid demand and tighter quality checks, customs data showed on Monday.

Imports by the world's biggest coal consumer reached 49.07 million tonnes in the first three months of the year, according to data from the General Administration of Customs. The preliminary import figure includes lower-grade lignite.

Imports for March came in at 17.03 million tonnes, up 11.6 percent on the previous month, but analysts said underlying demand eased after taking into account the shorter month and week-long Lunar New year holiday in February.

"We have seen an even weaker coal demand in March," said Zhang Xiaojin, an analyst at Everbright Futures in Zhengzhou.

Along with subdued demand, China's coal needs have been curbed by tougher environmental checks from Beijing to tackle air pollution.

China will boost efforts this year to reduce pollution and cut the energy intensity of itseconomy, which is expected to grow at its lowest rate in 25 years.

The National Development and Reform Commission (NDRC) said in its annual report in March that it would implement policies aimed at reducing coal consumption and controlling the number of energy-intensive projects in polluted regions.

"The rigid demand for coal is no longer there despite collapsing prices. Power plants no longer purchase extra coal, and traditional heavy consumers from the industrial sector are buying less amid economic slowdown," Zhang said.
MGL: Chinese coal imports represent the difference between two very large numbers. So the volatility of this series is intense, but the background music remains inimical to coal demand. Weak economy, strong alt-energy supply, leave coal demand at power stations feeble.Image title
10 year coal imports to China, descent from Heaven?
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