Mark Latham Commodity Equity Intelligence Service

Thursday 3rd September 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Just When You Thought It Couldn't Get Worse For Brazil...


    Just when you’re sure - and we mean sure - that it can’t possibly get any worse, or at least not materially worse in the very short-term, something else happens to further underscore the deep, dark economic malaise plaguing one of the world’s most important emerging markets.

    So after last Friday’s GDP print which confirmed that the country slid into recession during Q2 - a quarter in which Brazilians suffered through the worst inflation-growth outcome in at least a decade - and after July’s budget data which confirmed that the country’s fiscal situation is, as Citi put it, “a bloody terror film,” we got a look at industrial production today and boy, oh boy was it bad. So bad in fact, that it missed even the lowest analyst expectations. Goldman:

    IP contracted by a much larger than expected -1.5% mom sa (-8.9% yoy) in July (vs. the -0.1% mom sa market consensus). Furthermore, the June print was revised down to -0.9% mom sa from the original -0.3% mom sa. During the last nine months industrial production declined at an average monthly rate of -0.9% mom sa. Of the 24 main industrial segments, 14 recorded a contraction of output in July.

    IP declined 8.9% yoy in July, with the largest decline recorded in capital goods -27.8%. Overall, IP declined 6.6% yoy during January-July 2015.

    IP has now contracted for eight consecutive quarters and is likely to decline again during 3Q2015.

    In July, IP was 14.1% below the peak level registered in June 2013 and was at the same level as March-April 2006.

    The industrial sector (which has been reducing headcount) contracted 1.1% in 2014 and we expect it to contract at a much higher rate in 2015 as it continues to face strong headwinds from high levels of inventories, record low confidence indicators, a high and rising tax burden, rising energy costs, and weak external demand (particularly from Argentina for durable goods).

    Meanwhile, exports cratered 24% and critically, it wasn't all because of lower commodity prices.

    http://www.zerohedge.com/news/2015-09-02/just-when-you-thought-it-couldnt-get-worse-brazil

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    Why is Germany suddenly protecting Gazprom?

    GERMANS HAVE A PLAN OF PROTECTING GAZPROM’S BUSINESS IN EUROPE

    German Minister of Finance, Wolfgang Schauble, proposed amendments to the European Comission’s prerogatives. Albeit between the lines it can be understood that it is all about preventing an investigation against Gazprom.

    German Ministry of Finance informed on 30 July that the Minister Wolfgang Schäuble would like to deprive the European Commission of part of its powers in two fields, namely antitrust proceedings and, currently particularly important for Germans, enforcing compliance with the budgetary discipline by the member states

    According to Schauble the European Commission is more politicized and its powers to fight against monopolies could be taken over by a new office, similar to the Federal Cartel Office

    If it had a German boss, we could expect other decisions favourable to Russia. The Federal Gas Network Agency did not have a problem with Gazprom’s monopoly on the part of German pipelines, namely OPAL and NEL, which distribute gas from the Nord Stream Pipeline, thanks to which some traditional transit countries, in the first instance Ukraine, but also Poland, can be bypassed. The European Commission agreed that only a part of this system could be exempted from the anti-monopoly rules, and in face of Russian aggression in Ukraine did not allow for further concessions. However, they are demanded from a German regulator. It is all the more important in the context of a new Gazprom’s plan.

    In face of the problems with construction of the Turkish Stream gas pipeline to Turkey as well as no chances of a fast turn of gas export to China, Russians have to expand the Nord Stream Pipeline if the still don’t want to transit through Ukraine, which is hostile towards them. It is the purpose which Nord Stream 2 project is to serve. It has already tempted European companies: Shell, E.on and OMV. They may be followed by the governments in Amsterdam, Germany and Vienna, which are traditionally optimistically predisposed to cooperation with Russians. It would match the Berlin’s plan, assuming that Germany would become a new gas hub, allowing Russians to bypass other transit countries and Germans to earn from transit through their territory. Infrastructure is being gradually prepared for enactment of this scenario. Russians buy out shares in consecutives pipe lines and gas storage facilities in Angela Merkel’s state.


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    Chinese buyers spike Toronto and Vancouver's luxury home market


    The luxury home market in Vancouver doesn’t seem to be affected by the recently announced Canada-wide recession, and RE/MAX largely attributes the hot market to foreign buyers.

    Demand for homes priced at $3 million or more has spiked 79 per cent between January and July of this year in Vancouver and 61 per cent in Toronto, both because of foreign investment – in particular from China.

    And according to RE/MAX, these investors are actually living in their homes.

    “While there has been a lot of concern about foreign investors in Canada’s housing market, we’re seeing that the foreign buyers in our major luxury markets are living in their properties,” said Gurinder Sandhu, Executive Vice President, RE/MAX INTEGRA Ontario-Atlantic Canada Region in a statement.

    “These buyers see Canada as a great place to live, invest and raise their families.”

    http://www.vancitybuzz.com/2015/09/chinese-buyers-spike-vancouvers-luxury-home-market/

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    Madagascar considers taking stakes in mining projects, increasing royalty fees

    Madagascar plans to increase royalty fees and claim 10 percent stakes in mining concessions, under proposed changes to its mining code, according to a draft document seen by Reuters on Wednesday.

    One of Africa's poorest countries, Madagascar hopes to accelerate economic growth by developing natural resources but it has struggled to attract foreign investors in recent years due to political instability and falling commodity prices.

    The draft, dated Aug. 27 and which could still be tweaked before parliament debates it in October, suggests the Indian Ocean island could take up to 10 percent stakes in concessions for free, and could acquire further shares at market rates.

    The much-anticipated changes regarding concessions would apply to projects yet to be granted exploitation licences and are unlikely to affect the country's biggest projects, including the $7 billion Ambatovy nickel mine, operated and 40 percent-owned by Canada's Sherritt International, or the $1 billion ilmenite mine run by London-listed Rio Tinto.

    But most smaller mining firms seeking to renew permits or obtain fresh licences could be affected. Only a handful of licences have been granted since 2011, with a backlog of about 4,000 permit requests gathering dust at the mining ministry.

    The draft bill also suggests lifting royalty fees to 4 percent for minerals and 5 percent for precious metals, while the fee for rough stones would be 7.5 percent.

    Rates are now 2 percent of gross exports of raw commodities and 1 percent if minerals are processed locally before export.

    The proposed changes are likely to rattle foreign investors and contradict comments by Mining Minister Joeli Lalaharisaina in July when he told Reuters there would be no substantive changes to the existing code.

    "The mood among mining executives is between curious and despondent," said one Madagascar-based mining expert who has seen the draft bill, adding it would be "almost impossible" to attract foreign investors with terms outlined in the draft.

    Lalaharisaina in July said the new bill was expected to be passed in early October, after consultation with mining companies.

    The draft also suggests the government will create a national mining company and require mining firms to hand over research data to the government.

    Madagascar hosts a global mining conference in the capital Antananarivo on Sept. 23-25, when the draft is likely to be a key topic for discussion.

    http://www.reuters.com/article/2015/09/02/madagascar-mining-idUSL5N1182VD20150902
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    Panama canal repairs to take one month - Officials

    IHS Maritime 360 reported that Panama Canal officials have set aside up to one month to repair leaks discovered in August during the start of testing of the third set of locks.

    Speaking at the Western Dredging Association's first annual meeting of its Mexico chapter in Mexico City on 1 September, Mr Javier Carrillo, international trade specialist for the Panama Canal Authority, said that the needed repairs will not delay the planned April 2016 opening of the new locks.

    Mr Carrillo said that "I saw the cracks and got scared too. But we're actually glad it happened now, because we're in the testing phase - we're testing each and every component. Delaying the time table for the opening will be avoided because potential lock repairs were built into the schedule.”

    He said that Panama Canal engineers, Grupo Unidos por el Canal, the construction firm that built the locks, and two independent consulting firms are in the midst of planning repairs.

    Mr Carrillo added that the weather phenomenon known as El Nino, which triggered a drought in the Canal watershed that's causing water levels to fall substantially below their average, is a bigger concern than the leaking lock chamber.

    He said that “Recent rainfall postponed a draught restriction that had been scheduled to go into effect on 8 September. However, if the effects of El Nino continue, we're going have to announce new draft restrictions through the canal. The rain is something we have no control over. The locks we can fix."

    http://steelguru.com/logistic/panama-canal-repairs-to-take-one-month-officials/433546#tag

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    Oil and Gas

    AlphaValue's Gauthier: Why Oil at $40 a Barrel Is a Buy


    AlphaValue's Pierre-Yves Gauthier explains why oil at $40 a barrel is a buy. He speaks with Bloomberg's Alix Steel and Scarlet Fu on "Bloomberg Markets." See video at:

    http://www.bloomberg.com/news/videos/2015-09-02/alphavalue-s-gauthier-why-oil-at-40-a-barrel-is-a-buy

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    Obama secures votes needed to approve Iran nuclear deal


    The US president has secured the votes he needed for the passage of a historic nuclear accord with the Islamic Republic of Iran.

    Barbara Mikulski, a Democratic Senator for the state of Maryland, will give her backing to the agreement brokered by US Secretary of State John Kerry and the other representatives of the so-called P5+1 nations, the Wall Street Journal reports.

    Mikulski´s support means there are now 34 Democrats in the upper house of the US Congress, the Senate, who back the executive branch´s offer to lift sanctions on Iran in exchange for putting in place measures which are meant to curb the country´s nuclear ambitions.

    That will allow Obama to veto any attempt by Congress to block an agreement.

    Nonetheless, Obama will have to approve the deal despite the bipartisan majority which opposes it.

    "No deal is perfect, especially one negitiated with the Iranian regime, [but it is] the best option available to block Iran from having a nuclear bomb," Mikulski reportedly said.

    "The choice we face is ultimately between diplomacy or some form of War," the US president said in a 5 August speech.

    - See more at: http://www.digitallook.com/news/international-economic/obama-secures-votes-needed-to-approve-iran-nuclear-deal--851481.html#sthash.BWUrw7Dq.GQ38BaLB.dpuf
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    China oil product exports could see big jump as quotas surge

    China's state-owned refiners could export up to 16.9 million mt (869,000 b/d) of refined products over August-December -- 44% more than the volume exported in the first seven months of the year, an analysis of latest information from industry sources and official data showed.

    The Ministry of Commerce last week issued the fourth batch of export quotas for 2015 totaling 9.9 million mt of oil products -- triple the volume approved in the third batch and taking the total volume allocated so far for 2015 to 28.65 million mt, up 47% year on year, an industry source said.

    The products covered under the export quota includes gasoil, gasoline, jet/kerosene and naphtha.

    Chinese state-owned refiners need quotas or licenses from the government before they can export refined products.

    In the first three batches, the ministry allocated 18.75 million mt, which when compared to the 11.75 million mt exported in the first seven months of the year -- based on data from the General Administration of Customs -- implies that the three state-owned refiners have 7 million mt of unused quotas still left.

    Taking into account the unused and new quotas, Platts calculations show that the state-owned refiners can export up to 16.9 million mt of oil products for the rest of the year, 44% more than the volumes exported in the first seven months of the year.

    Chinese refiners have been boosting oil product exports this year due to slowing domestic demand.

    http://www.platts.com/latest-news/oil/singapore/china-oil-product-exports-could-see-big-jump-27763739

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    BG says European Commission signs off on Shell bid


    BG Group Plc said the European Union's antitrust regulators had approved Royal Dutch Shell Plc's $70 billion takeover bid for the oil and gas producer.

    The deal, which will help Shell compete better with world No. 1 oil major ExxonMobil, has already received the green light from regulators in the United States, Brazil and South Korea.

    BG and Shell still require approvals from Australia's anti-trust and foreign investment bodies and clearance from the anti-trust authority in China.

    Regulatory filings have been submitted for each of these approvals, BG said on Wednesday.

    Shell agreed in April to takeover smaller rival BG at a hefty premium, as commodity companies react to a plunge in crude prices.

    http://www.reuters.com/article/2015/09/02/bg-group-ma-shell-eu-idUSL4N1183T020150902
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    Schlumberger acquires synthetic diamond specialist Novatek


    Schlumberger announced Wednesday that it has acquired Novatek Inc. and Novatek IP, LLC, U.S.-based companies that specialize in synthetic diamond technology primarily for the oil and gas industry.

    The existing relationship between Schlumberger and Novatek has delivered leading technologies, such as the Schlumberger StingBlade conical diamond element bit, and has been an incubator of novel ideas that are being incorporated into Schlumberger’s newestdrilling technology offerings. Building on this collaboration, the acquisition provides a new platform for Schlumberger to pursue its vision of continuously improving drillingperformance for customers.  

    “Novatek’s synthetic diamond manufacturing technology is already a key component of our drillbit offering,” said Khaled Al Mogharbel, president, Schlumberger Drilling Group. “With the addition of Novatek, we will enhance our research, engineering and manufacturing capabilities and continue to work with our customers to accelerate field adoption of these innovative drilling technologies.”  

    Novatek boasts a 60-year history of product development with a portfolio of more than 600 patents. Core development of synthetic diamond technology and other technologies will continue at the company’s lab in Provo, Utah, where most of the employees are based.

    http://www.worldoil.com/news/2015/9/02/schlumberger-acquires-synthetic-diamond-specialist-novatek
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    Russia's Surgut to launch Shpilman oil field on Thursday


    Russia's Surgut will launch its Shpilman oil field in Siberia on Thursday, the Russian government said on its website, in the latest sign the weak rouble is helping the country offset the impact of low global oil prices.

    Russia, one of the world's largest crude producers, has been pumping oil at a post-Soviet record of around 10.7 million barrels per day this year, thanks to new oil fields coming on stream and the use of modern technologies at existing fields.

    Low oil prices have not yet hit Russian oil production hard because the weak rouble offsets losses and makes Russian energy firms among the most profitable globally.

    In a statement, the government said that Prime Minister Dmitry Medvedev plans to hold a video conference later on Thursday during which Shpilman oil field will be officially launched.

    In June, Russian news agencies quoted Surgut's CEO Vladimir Bogdanov as saying that Shpilman was expected to produce about 50,000 tonnes of oil in 2015.

    Shpilman is expected to produce 2.5 million-3 million tonnes of oil per year at its full capacity, compared with Surgut's total extraction of 61 million to 62 million tonnes.

    http://www.reuters.com/article/2015/09/03/russia-surgut-shpilman-idUSL5N1184AM20150903
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    Dutch Court Says Gas Producer Must Compensate Homeowners in Quake Zone


    A court in the Netherlands ruled on Wednesday that a natural gas company, a joint venture by Royal Dutch Shell and Exxon Mobil, must compensate homeowners for declines in the value of their properties because of earthquakes linked to production at the Groningen field.

    The ruling by the court in Assen could result in billions of euros of claims against the venture, known as NAM. Hundreds of thousands of homes and buildings lie in the affected area, which covers wide parts of the northern Netherlands.

    The Netherlands has twice this year reduced production from the Groningen field, Europe’s largest, after the Dutch Safety Board, a government-financed but independent organization, said gas companies and regulators had failed to take the danger from gas production-linked earthquakes seriously enough.

    “NAM is responsible for declines in the value of real estate that lies in the area where earthquakes are caused by gas production, and that damage is eligible for compensation,” said the judge, Ger Vermeulen, reading a summary of the ruling.

    The judge added that homeowners must claim their losses on a case-by-case basis, and that the average decline in home values attributable to their location in the earthquake zone alone appeared to be no more than “several” percentage points, with some suffering a bigger drop and others none at all.

    NAM has so far set aside 1.2 billion euros, or about $1.35 billion, to compensate for damage to buildings. But estimates of the cost of compensating homeowners for lost value and strengthening buildings in the affected region are far higher.

    “We are going to study the considerations carefully and consider potential further steps,” Martijn Verwoerd, a NAM spokesman, said in a statement.

    “We recognize the concern of inhabitants,” he said, adding that the company agreed that in some cases, earthquakes may reduce the value of homes.

    The company has acknowledged responsibility for the damage caused by the quakes, but has maintained that it should compensate homeowners only if they sell their houses at a loss.

    The court ruling specified that homeowners need not show that their property had suffered any physical damage, only that its value had been affected by its location in the quake area. It also found that homeowners could request compensation immediately, rather than waiting for a sale.

    The case against NAM was brought by a group of 900 homeowners and 12 housing cooperatives.

    http://www.nytimes.com/2015/09/03/business/international/dutch-court-says-gas-producer-must-compensate-ho
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    US crude oil production down


                                        Last Week     Week Before   Last Year

    Domestic Production ......9,218             9,337             8,630

    http://ir.eia.gov/wpsr/overview.pdf
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    Summary of Weekly Petroleum Data for the Week Ending August 28, 2015


    U.S. crude oil refinery inputs averaged 16.4 million barrels per day during the week ending August 28, 2015, 269,000 barrels per day less than the previous week’s average. Refineries operated at 92.8% of their operable capacity last week. Gasoline production increased last week, averaging 9.8 million barrels per day. Distillate fuel production increased last week, averaging over 4.9 million barrels per day.

    U.S. crude oil imports averaged about 7.9 million barrels per day last week, up by 656,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.7 million barrels per day, 0.2% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 835,000 barrels per day. Distillate fuel imports averaged 77,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.7 million barrels from the previous week. At 455.4 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 0.3 million barrels last week, and are in the middle of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.1 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 0.6 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 5.7 million barrels last week.

    Total products supplied over the last four-week period averaged 20.3 million barrels per day, up by 2.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.5 million barrels per day, up by 4.8% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, down by 5.3% from the same period last year. Jet fuel product supplied is up 2.3% compared to the same four-week period last year.

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

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    The Utica: Another Monster.


    Columbus Business First reports that Chesapeake Energy Corp. is leading the way in Ohio in terms of natural gas production.

    In Ohio’s Utica Shale, Chesapeake produced 83.2 billion cubic feet of the state’s total 222 billion cubic feet of natural gas during the second quarter. The company’s biggest well is located in Carroll County and produced 824.3 million cubic feet of natural gas during the second quarter.

    During the second quarter, Chesapeake operated 491 of 978 total producing Utica wells in Ohio. However, Chesapeake is poised to sell some of its holdings, so its not clear how much longer the company will have the largest output of all of the Utica’s production companies.

    http://shalegasreporter.com/news/chesapeake-producing-37-percent-ohios-utica-output/57347.html

    Ohio’s Utica Shale wells continue to break all previous production for the last 100 years.

    The state’s 978 horizontal wells produced 5.5 million barrels of oil and 221 billion cubic feet of natural gas in the second quarter of this year, the Ohio Department of Natural Resources reported Thursday.

    Ohio’s oil volume grew by 20 percent from the first quarter, when wells statewide produced 4.4 million barrels.

    The state’s natural gas climbed nearly 21 percent, increasing from 183 billion cubic feet.



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    FERC Approves Important Utica-to-Gulf Coast Pipeline Reversal


    Last October MDN told you about an exciting project from Boardwalk Pipeline Partners’ Texas Gas Transmission pipeline that will reverse the flow from the Louisiana Gulf Coast all the way to Ohio.

    The $110 million project, called the Ohio-Louisiana Access Project, would turn Texas Gas Transmission’s pipeline bidirectional and will not involve any new pipeline construction. It will provide an important new way for Utica and Marcellus drillers to get their gas to markets in the Midwest, South, and even to other countries via exports of LNG.

    As is typical, anti-fossil fuelers flooded the Federal Energy Regulatory Commission (FERC) with negative comments about the project because it will encouraging more fracking. Undeterred, FERC approved the project last week, responding to antis (as they have before) by telling them FERC’s charter does not allow it to consider the source of gas or “climate change” or any of the other cockamamie things antis are worry about. FERC decides on projects based on how a project will affect the people and environment where the project gets built…

    http://marcellusdrilling.com/2015/09/ferc-approves-important-utica-to-gulf-coast-pipeline-reversal/?utm_source=dlvr.it&utm_medium=twitter
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    Alternative Energy

    Southern Power buys biggest solar project to date


    Southern Power bought controlling interest in the 300-megawatt Desert Stateline Facility in California from First Solar Inc.(NASDAQ: FSLR) for an undisclosed amount.

    The project become the Atlanta-based Southern Co. unit’s largest solar asset and follows Tuesday’s news Southern Power bought a controlling interest in Recurrent Energy’s 200-megawatt Tranquillity Solar Facility in California.

    Southern Power’s seventh solar acquisition in California, the Desert Stateline Facility, will be on 1,685 acres of federally managed public land in San Bernardino County and is expected to have 3.2 million of First Solar’s thin-film photovoltaic solar modules mounted on fixed-tilt tables. Once operational in the third quarter of 2016, the Desert Stateline Facility is expected to generate enough electricity to help meet the energy needs of nearly 100,000 average homes.

    “The acquisition of our system’s largest solar facility builds on our proven reputation as a national renewable energy leader,” said Southern Co. Chairman, President and CEO Thomas A. Fanning, in a statement. “By continuing to leverage Southern Co.’s and First Solar’s complementary strengths, we are accelerating the development of solar as an important component of a diverse fuel mix now and in the future.”

    Southern Power has announced, acquired or is building more than 1,450 megawatts of renewable ownership with 20 solar, wind and biomass projects.

    http://www.bizjournals.com/atlanta/news/2015/09/02/southern-power-buys-biggest-solar-project-to-date.html
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    Tesla Signature series Model X to begin delivery Sept 29


    Tesla Motors Inc said on Wednesday it would begin delivering its first luxury electric crossovers, the Model X Signature series, on Sept. 29 to customers who have already reserved the sport utility vehicles.

    The premium-priced special version of the Model X, eagerly awaited since it was announced in early 2012, will be priced between $132,000 and $144,000, a Tesla spokeswoman said.

    Chief Executive Officer Elon Musk tweeted that the first production cars would be handed over Sept. 29 at the company's factory in Fremont, California.

    It is customary for automakers to debut higher-priced versions of their cars before introducing standard models.

    Tesla has been spending heavily ahead of the launch of the Model X, its first battery-powered SUV to follow the Model S sedan to market, even as it develops a cheaper, mass-market vehicle starting at $35,000, the Model 3.

    Musk tweeted that the Model 3 would begin production in "about two years."

    The limited-edition Signature series cars, which will be available in a unique red color not offered for the standard Model X, include such features as self-parking and enhanced sound. Optional add-ons include packages for subzero weather or towing.

    http://www.reuters.com/article/2015/09/02/tesla-motors-autos-modelx-idUSL1N1182K920150902
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    Base Metals

    Freeport McMoRan goes ahead and lays off 650 at Chile's El Abra copper mine


    Reuters reported that Arizona-based mining company Freeport-McMoRan Inc said on Wednesday that it is dismissing some 650 workers at its El Abra copper mine in Chile and partially suspending operations at the complex until mid-September as it cuts mining rates in half.

    The company said it suspended mining, crushing and stacking operations at El Abra on Tuesday and expects to resume them in mid-September. Operations at the mine's solvent extraction and electrowinning (SXEW) plants will not be affected during the transition period

    Freeport said in a statement “Implementing this reduction in the operating rate at El Abra reduces operating costs and near-term capital requirements, and provides a longer mine life for its existing Sulfolix ore reserves with a better opportunity to sell its copper production into an anticipated improved copper market in the future.”

    Last week, Freeport, which owns a 51 percent stake in the mine in northern Chile, became one of the first big global miners to announce it was slashing production because of slumping copper prices.

    http://steelguru.com/mining/freeport-mcmoran-lays-off-650-at-chile-s-el-abra-copper-mine/433604#tag
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    Steel, Iron Ore and Coal

    Rio Tinto Sees Solid Demand for Iron Ore and Steel


    Rio Tinto PLC told investors it expects world-wide demand for iron ore to keep growing despite China’s economic slowdown, as the company projected a rising appetite for steel in the years to come.

    On Thursday, Rio Tinto forecast 2.5% average annual growth in global steel demand for the next 15 years. Emerging-markets are expected to take on an expanded role, with the miner predicting non-Chinese steel demand will rise 65% by 2030.

    While Chinese steel output has waned recently, Rio Tinto said it remained confident in the country’s steel market. It stuck with an earlier projection that Chinese crude steel production will reach about 1 billion metric tons by the end of next decade. China produces roughly half the world’s steel, and its annual production is currently at about 800 million tons.

    A global glut of steel and concerns over China’s economic prospects, have hurt prices for iron ore, the biggest ingredient in steelmaking. Last month, BHP Billiton lowered its long-run forecast for peak China steel demand to between 935 million and 985 million tons, from 1 billion to 1.1 billion tons. “We have taken a realistic view,” Chief Executive Andrew Mackenzie said at the time.

    BHP is the world’s third-largest exporter of iron ore, behind Rio Tinto and Brazil’s Vale SA, the top supplier.

    Rio Tinto argues that although there is a steel glut now, China will need more of the material in the future, as old homes are demolished and replaced with buildings that are taller and more steel intensive. The miner—which outlined its forecasts at a Sydney investor presentation—said it also projects higher exports of steel products and machinery from China to underpin that country’s output of the alloy.

    Rio Tinto has been aggressively expanding its iron-ore production in Australia’s Pilbara mining region, drawing ire from smaller rivals and politicians who say the miner and some of its peers are hurting the industry by flooding the market.

    The price of iron ore fell to a decade low in July of about $44 a ton, compared with a peak above $190 in 2011, and some analysts think it will tumble to a fresh nadir as Australian shipments of the commodity continue to rise. Goldman Sachs forecast prices to fall a further 30% over the coming 18 months.

    Rio Tinto said that despite “ongoing volatility in global commodity markets,” it expects “growing global demand for high-quality iron ore.” On Thursday, the miner forecast world iron-ore demand to rise to 3 billion tons in 2030, an average 2% annual rise between now and then.

    Rio should produce roughly 335 million tons of ore from its Pilbara operations next year, and roughly 350 million tons in 2017, it said.

    The miner also said it would ramp up its cost-cutting efforts and expects to reduce maintenance costs by about $200 million a year over the next three years.

    http://www.wsj.com/articles/rio-tinto-sees-solid-demand-for-iron-ore-and-steel-1441264212

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    Shanxi coal mines in illegal construction with capacity at 77 Mtpa


    Coal mines under construction but lack of official approval in coal-rich Shanxi province have a combined capacity of 77 million tonnes per annum, according to a document released by provincial Development and Reform Commission on August 31.

    A total of 14 unapproved coal mines, owned by major producers including Datong Coal Mine and Shanxi Coking Coal Group, were found in construction during a province-wide inspection, the commission said.

    The move was carried out in response to twelve ministries’ call for joint crackdown on coal mines in illegal construction and production.

    To regulate mines construction and ease oversupply, China’s National Development and Reform Commission and another 11 ministries jointly released a circular on July 27, asking local authorities to punish those mines under construction or expansion without official approval, or in production beyond approved capacity or with serious safety issues.

    Of these mines unapproved, three belonged to Datong Coal Mine Group with combined capacity at 20 million tonnes per annum, and four owned by Shanxi Coking Coal Group, with annual capacity of 22 million tonnes.

    Four illegal coal mines under Jincheng Coal Group, with combined capacity at 19 million tonnes per annum, and three under Yangquan Coal Group, with annual capacity at 16 million tonnes.

    http://en.sxcoal.com/0/130803/DataShow.html

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    Iron ore mining in Goa not viable


    LiveMint reported that miners in Goa, where mining activities have begun after a gap of nearly three years, are set to incur losses as higher taxes and poor infrastructure have made mining operations in the state uncompetitive. According to officials at mining companies, every tonne of iron ore mined in Goa now costs a total of USD 40-45 per tonne, inclusive of taxes. This is nearly double the USD 20 per tonne cost incurred by global miners.

    Mr Kishore Kumar, head of iron ore, Vedanta Ltd said “While global companies selling in China have a cost structure of about USD 18 per tonne, we are in the third quartile of the cost curve. Unless the cost structure is brought down to below USD 25 per tonne range through streamlining of logistics, selling the un auctioned stocks and a reduction of taxes, mining in Goa will not be viable for the industry.”

    While Kumar did not give details about the company’s cost of production, analysts say it ranges between USD 40 and USD 45 per tonne.

    A large part of this is because of the taxes imposed on ore mined in Goa, along with the high cost of logistics and transportation. According to data shared by the Goa Mineral Ore Exporters’ Association “Mining in Goa attracts a 30% export duty on 58% Fe grade iron ore (the grade refers to the quality of iron ore; anything below 60% is low grade), a 15% royalty paid to the state, a 5-15% levy in the form of a district mineral foundation tax and a 10% levy on the export price of iron ore which goes to the Goa Mineral Ore Permanent Fund Scheme.”

    Mining in Goa stalled in September 2012 when the state government imposed a ban on all mining activities in response to a report by the Justice MB Shah commission, which found rampant illegal mining in the state. In October 2012, the Supreme Court upheld the ban imposed by the state. In April 2014, the Supreme Court lifted the ban on the condition that all mining leases have to be renewed and fresh approvals have to be sought from the ministry of environment and forest and the state pollution control board. However, final permissions to mine came through only in July 2015.

    http://steelguru.com/mining/iron-ore-mining-in-goa-unviable-report/433608#tag

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