Mark Latham Commodity Equity Intelligence Service

Wednesday 1st July 2015
Background Stories on www.commodityintelligence.com

News and Views:








Macro

China starts construction on Shanxi-Nanjing UHV project

China kicked off construction on an ultra-high voltage (UHV) power transmission project on June 29 in order to transmit electricity generated in coal-rich Shanxi province to the eastern city of Nanjing, local media reported.

The 1,119 Km 800 KV DC line will start from the Jinbei substation in Shuozhou City of northern Shanxi and reach Nanjing substation in Jiangsu’s Huaian City. Investment in the project is estimated at 16.2 billion yuan ($2.65 billion).

The project gained approval from the National Development and Reform Commission in June this year and is expected to come into operation in 2017.

Upon completion, Shanxi is expected to transmit 45 TW of electricity or equivalent of 20.16 million tonnes of coal per annum to eastern China.

Jiangsu’s power consumption ranked the first in China over January-May. Total outsourced power accounted for 12% of its power consumption during the same period.

Presently, total installed capacity of coal-fired and wind power in Shanxi have reached 55 GW and 5GW, with around 90% wind power at northern and central parts of the province.

It is predicted that northern Shanxi’s newly-added installed capacity of coal-fired and non-coal-fired power would reach 15 GW and 7.8 GW during 2015-2020.

http://en.sxcoal.com/0/122926/DataShow.html
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No Growth? The Entire S&P 500 Free Cash Flow Is Going To Shareholders

In perhaps the best example of just how massive the impact of returns to shareholders have become, Deutsche Bank shows a snapshot the S&P's consolidated income statement as of 1995 and 2015.

While there are some clearly material changes transformations: the rise of financials' revenues above energy companies for one, the drop in net interest expense margin courtesy of ZIRP, the record high net income margin as a result of massive, if double seasonally-adjusted layoffs, one thing stick outs: virtually all of the corporate Free Cash flow in 2015 will go back to shareholders, as dividends and buybacks represent 94% of total S&P FCF uses.

Contrast this with "only" 60% of FCF in 1995 going back to shareholders and one can see why the US economy is caught in secular contraction in which virtually nobody wants to invest for the future and instead is forced to distribute all unretained earnings here and now.

http://www.zerohedge.com/news/2015-06-30/2015-all-sp-500-free-cash-flow-will-go-back-shareholders
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EU to curb pollution from mid-sized power plants

EU member states on Tuesday agreed new rules to limit pollution from hundreds of thousands of medium-sized power plants that had previously escaped regulation.

The compromise deal to curb sulphur dioxide, nitrogen oxide and dust from combustion plants with a thermal input rated between one and 50 megawatts now requires just a formal sign-off from the European Parliament, expected later this year.

Environmental campaigners said the draft rules had been weakened significantly during negotiations so existing plants would get more time to comply than new plants.

But they said the rules were a step in the right direction as, until now, only large plants, such as coal- or gas-fired power stations, oil refineries and steel producers, had been subject to limits.

"This is a key piece that was missing and that will help to significantly reduce the potential risks to human health and the environment," Kaspars Gerhards, environment minister for Latvia, holder of the EU presidency, said in a statement.

According to EU figures, there are 143,000 medium-sized combustion plants, including coal- and biomass-fired facilities and district heating, in the European Union.

Louise Duprez, a senior policy officer at the European Environmental Bureau, called on member states to introduce more stringent limits than those required by the new law.

http://www.reuters.com/article/2015/06/30/eu-industry-pollution-idUSL8N0ZC3ZP20150630
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Oil and Gas

China's apparent oil need up as demand grows

China's apparent oil demand in May rose 8.2 percent from a year earlier to 43.8 million tons on the back of growing market across all oil product categories, according to a latest Platts analysis of Chinese government data.

    "This was the fastest pace of growth since June 2013, when demand grew by 11.53 percent," said Mriganka Jaipuriyar, Platts analyst for Asia oil. "Demand for all key products showed year-on-year increase in the month."

    During the first five months of this year, China's total apparent oil demand averaged 10.45 million barrels per day, up 5.2 percent from the same period of 2014. This marked the fastest pace of year-to-date growth since 2011 and defied a weak macro-economic outlook.

    China's refinery throughput in May averaged 10.38 million barrels per day, up 7.4 percent from 2014, data from the National Bureau of Statistics showed.

    On the other hand, China was a net oil product exporter of 120,000 tons in May, according to latest data from the General Administration of Customs.

    Demand for gasoil, the most widely consumed oil product in China, has been hit in the last three years because of declining economic growth. Yet apparent demand in May grew by a robust 7.4 percent annually to 15.39 million tons.

http://en.chinamining.com.cn/News/2015-07-01/1435718670d72741.html
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Eni inks deal with Pertamina for LNG from Jangkrik field

Eni, together with its partners ENGIE (formerly GDF SUEZ) and Saka Energi Muara Bakau, signed today two agreements with PT Pertamina (PERSERO) for the purchase and sale of liquefied natural gas (LNG) coming from Jangkrik Fields Development Project, offshore Indonesia.

Under such Sale & Purchase Agreements, Pertamina will purchase 1.4 million tonnes per annum of LNG starting from 2017.

“The signing of these agreements represents a key milestone for the Jangkrik Field Development Project. It is one of the first deep-water gas projects in Indonesia being developed under a fast track scheme, and confirms Eni’s commitment in supplying gas for the development of the Indonesian domestic market. I’m very pleased with the strong and fruitful relationship with the Indonesian Authorities, Pertamina and our Joint Ventures Partners in Jangkrik,” Eni’s CEO, Claudio Descalzi, said.

The Jangkrik Fields Development  Project which consists of Jangkrik and Jangkrik North-East fields requires the drilling of production wells to be linked to a Floating Production Unit for gas and condensate treatment, and subsea pipeline laying for transportation to the Bontag Terminal. Production start-up is expected in 2017.

The Jangkrik fields, discovered in the Muara Bakau block in 2009 and 2011, are located at a depth of 400 meters in the Makassar Strait, approximately 100 km east of Balikpapan.

Eni is the operator of the block with 55% of working interest, whereas the other JV partners are GDF Suez Exploration Indonesia, a subsidiary of ENGIE, formerly GDF SUEZ, with 33.334% stake and Saka Energi Muara Bakau with 11.666% stake.

http://www.offshoreenergytoday.com/eni-inks-deal-with-pertamina-for-lng-from-jangkrik-field/
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Israel to let US-led consortium keep control of biggest offshore gas field

 Israel plans to leave its biggest offshore natural gas project, Leviathan, in the hands of a U.S.-Israeli consortium while opening the industry up to more competition, under a proposal announced on Tuesday.

Texas-based Noble Energy and Israel's Delek Group , which own a number of recently discovered gas fields that supply factories and Israel's electric company, will keep control of Leviathan under the plan, Energy Minister Yuval Steinitz told a news conference.

Leviathan, with estimated reserves of 22 trillion cubic feet (tcf), will take about 3 and 1/2 years to develop and is expected to supply billions of dollars of gas to Egypt and Jordan in addition to supplying Israel.

However, Delek - through its units Delek Drilling and Avner Oil Exploration - will have six years to sell its entire 31.3 percent stake in a second large field, Tamar, and Noble will have to trim its stake in Tamar to 25 percent from 36 percent.

The companies will also be forced to sell two smaller fields, Tanin and Karish, within 14 months.

Tamar, with reserves of about 10 tcf, began production in 2013 to supply the domestic market and is due to be expanded for export. Tanin and Karish hold a combined 3 tcf.

The government will also put a cap the price of gas sold in Israel, Steinitz said.

"It is not simple or easy for the energy companies and I'm happy they agreed to accept these not-simple conditions," Steinitz said of the proposals.

Steinitz said he was confident the companies would find buyers much sooner than the time allotted. Steinitz said he expected the government to approve the plan within a month. 

http://finance.yahoo.com/news/israel-let-us-led-consortium-133553104.html
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U.S. walrus protections hit Shell's Arctic drilling plan

The Obama administration dealt a setback to Royal Dutch Shell's Arctic oil exploration plans on Tuesday, saying established walrus and polar bear protections prevent the company from drilling with two rigs simultaneously at close range, as it had planned.

The U.S. Fish and Wildlife Service issued Shell a permit which emphasized that under 2013 federal wildlife protections, companies must maintain a 15-mile (24-km) buffer between two rigs drilling simultaneously.

The rule is meant to protect populations of animals sensitive to sounds and activities of drilling. Walruses have been known to plunge off rocks into the sea during drilling, putting some at risk. The animals are already at risk from reduced habitat due to global warming.

Drilling with only one rig at a time would slow Shell's drilling progress, but by how much was unclear. Shell, which has invested about $7 billion in its Arctic exploration over several years, is evaluating the permit and "will continue to pursue" its drilling plan, spokesman Curtis Smith said. The company hopes to begin producing oil there in 10 or 15 years.

"Our goal is to safely accomplish as much work as we can before the end of open water season." The return of ice in late September ends the drilling season.

In Shell's 2015 Arctic drilling plan, no two of its wells are more than 15 miles apart. Two of the wells it had been planning to drill in the Chukchi Sea off Alaska are about nine miles (14 km) apart.

The move by the federal government came the same day that Shell began to send the Noble Discoverer, the second of two drilling rigs, up to Alaska from the Seattle area, for drilling starting in late July. Shell was hoping to return to Arctic drilling for the first time since its mishap-plagued 2012 season.

Last week, green groups had said the wildlife rules could hamper Shell's drilling season. On Tuesday, an environmentalist blasted the company's blueprint for the Arctic that the Interior Department conditionally approved in May, pending permits including Fish and Wildlife's.

"Shell's whole drilling plan is premised on a plan that is unlawful from the start," said Erik Grafe, a lawyer at Earthjustice in Anchorage.

Shell can still drill with one rig at a time this summer, if it gets a few more permits, the Interior Department said.

http://www.reuters.com/article/2015/06/30/usa-shell-arctic-idUSL1N0ZG2QT20150630
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US LPG exports rise to record high, driven by propane/propylene: EIA

US LPG exports rise to record high, driven by propane/propylene: EIA

US petroleum liquids exports climbed 20.58 million barrels to 148.3 million barrels in April, driven largely by record high exports of liquid petroleum gasses and an increase in distillate exports, Energy Information Administration data showed Tuesday.

US LPG exports climbed 4.07 million barrels to 23.16 million barrels, continuing an upward trend that has been in place for roughly five years. In April 2010, the US exported just 3.65 million barrels of LPGs.

The LPG exports have been driven primarily by propane/propylene, the result of a rapid increase in output stemming from the rise in natural gas production. Combined field and refinery production of propane/propylene was 51.55 million barrels in April, up from 45.84 million barrels in April 2014, with an increase in field production leading the way higher.

The glut of supply has pushed propane prices lower in the US, opening up arbitrage opportunities. The spot price of non-LST Mt. Belvieu propane averaged 54.58 cents/gal in April, roughly 24 cents/gal below the average price of Northwest Europe propane, and 46 cents/gal below the average price of Japan refrigerated propane, Platts data shows.

Those discounts have since widened to average 32 cents/gal and 58 cents/gal so far in June, respectively.

The EIA publishes country of origin data for total LPG exports, although propane/propylene exports at 19.09 million barrels made up the bulk of the total. China was the number one destination of LPGs in April at 3.32 million barrels, with Brazil coming in second at 2.94 million barrels, and Mexico third at 2.89 million barrels.

US refined products exports climbed 9.23 million barrels to 86.18 million barrels in April, driven largely by a 5.39 million barrel rise in distillate exports to 37.05 million barrels, the EIA data showed.

The bulk of US distillate exports continue to head to Latin America and Europe. Exports to Europe averaged roughly 475,000 b/d in April, climbing from 228,000 b/d in March, the EIA data showed, driven by increases to the Netherlands and France.

http://www.platts.com/latest-news/petrochemicals/newyork/us-lpg-exports-rise-to-record-high-driven-by-21714905
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Cenovus to sell royalty business to Ontario Teachers' for C$3.3 bln

Canadian oil producer Cenovus Energy Inc said it would sell its royalty lands business, Heritage Royalty Limited Partnership, to Ontario Teachers' Pension Plan for about C$3.3 billion ($2.66 billion).

The decision to sell the business was made after considering several alternatives including an initial public offering, Cenovus said on Tuesday.

Royalty lands are privately held oil and gas properties that are not subject to the royalties that producers pay to governments for operating on publicly owned lands. For privately held lands, producers pay a mineral tax to governments and royalties to the owners of the properties.

Heritage Royalty owns about 4.8 million acres in Alberta, Saskatchewan and Manitoba, Cenovus said.

The move comes about a year after Encana Corp spun out similar properties in PrairieSky Royalty Ltd, raising over C$4 billion.

Cenovus said its consolidated production would fall by 7,800 barrels of oil equivalent per day of third-party royalty interest volumes.

Ziad Hindo, senior vice president at Ontario Teachers' Pension Plan, said the deal was in line with the fund's shift in investment approach to "more direct and diversified energy sector holdings."

http://www.reuters.com/article/2015/06/30/cenovus-energy-sale-idUSL3N0ZG3IM20150630
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Gastar Exploration: Strong Production on Second Utica/Point Pleasant Well

Gastar Exploration reported today initial and 30-day average production on its second Utica Point/Pleasant well.  The Blake U-7H well located in Marshall County, West Virginia produced at a peak 48-hour gross sales rate of 36.8 MMcf/d of natural gas on a 32/64ths choke with approximately 6,235 psi of flowing casing pressure.  On a restricted flow basis, the well's post peak rate 30-day production averaged 20.2 MMcf/d on a 26/64ths choke with approximately 5,312 psi of flowing casing pressure.  The most recent 5-day average rate is 14.8 MMcf/d at approximately 5,008 psi of flowing casing pressure.  The Blake U-7H well was drilled with a lateral length of 6,617 feet and was completed with 34 hydraulic fracturing stages that used approximately 14.8 million pounds of proppant.  Gastar has a 50% working interest in the Blake U-7H well and 41.1% net revenue interest in the well.

J. Russell Porter, Gastar's President and Chief Executive Officer, commented, "We are very pleased with the results of our second dry gas Utica well as it demonstrates the consistency of the prolific production from the Utica/Point Pleasant play across our leasehold.  Currently, we have no plans to drill another Utica/Point Pleasant well on our acreage until regional natural gas prices improve and returns on investment become competitive relative to our other internal investment opportunities."

http://www.prnewswire.com/news-releases/gastar-exploration-announces-production-on-second-uticapoint-pleasant-well-300106545.html
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Oklahoma court rules earthquake victim can sue oil companies

An Oklahoma woman who was injured when an earthquake rocked her home in 2011 can sue oil companies for damages, the state's highest court ruled on Tuesday, opening the door to other potential lawsuits against the state's energy companies.

Oklahoma has experienced a dramatic spike in earthquakes in the last five years, and researchers have blamed the oil and gas industry's practice of injecting massive volumes of saltwater left over from oil and gas drilling.

The state saw nearly 600 quakes of magnitude 3.0 or greater in 2014, compared to just one or two per year prior to 2009, according to the Oklahoma Geological Survey.

Oil production in Oklahoma has doubled in the last seven years, in part because drillers can dispose of vast amounts of saltwater found in oil and gas formations relatively cheaply by injecting it back into the ground.

That practice is separate from hydraulic fracturing or "fracking," which has been linked to some smaller quakes but is not believed to be causing Oklahoma's tremors.

Oklahoma, home to major energy companies including Chesapeake Energy Corp., Devon Energy Corp., and Sandridge Energy Inc., has already tightened regulations on injection wells. The state is considering tougher rules , and lawsuits would further boost costs for energy companies.

Falling rocks injured Sandra Ladra's legs when a 5.0-magnitude quake toppled her chimney in 2011. She has sued two Oklahoma oil companies, New Dominion LLC and Spess Oil Company, which operate injection wells near her home in Prague, Oklahoma.

A lower court ruled that the case had to go before the Oklahoma Corporation Commission, the regulator overseeing oil and gas, and dismissed Ladra's case in 2014.

On Tuesday, the Oklahoma Supreme Court reversed that decision, ruling that the commission's authority does not extend to the power to "afford a remedy" to those harmed by the violation of its regulations. The case will return to district court to decide whether Ladra should be granted any damages.

Ladra's lawyer, Arkansas-based Scott Poynter, told Reuters he can now move forward on several other potential suits from Oklahoma residents seeking compensation from energy companies for damages resulting from earthquakes.

Industry advocates on Tuesday downplayed the significance of the court's ruling, and cast doubt on whether Ladra and her attorneys could prove specific wells were responsible for the earthquake that caused her injuries.

http://www.reuters.com/article/2015/06/30/oil-oklahoma-quakes-idUSL1N0ZG2HF20150630
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Alternative Energy

U.S., Brazil pledge to up renewable energy in power production

The United States and Brazil pledged on Tuesday to increase their share of renewable energy in electricity generation from sources other than hydro-power to 20 percent by 2030 in an effort to show commitment to fighting climate change.

The two countries made the announcement in a joint statement issued while U.S. President Barack Obama and Brazilian President Dilma Rousseff met at the White House.

Brazil also committed to reforest 12 million hectares of forests by 2030 and agreed to put forward a broader climate change plan that is "fair and ambitious" and that "represents its highest possible effort beyond its current actions," the statement said.

http://www.reuters.com/article/2015/06/30/usa-brazil-climatechange-idUSL1N0ZG0WY20150630
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South Korea to cut emissions by 37% by 2030′

South Korea has planned to cut emissions by 37% by 2030. That’s an increase from the 15% to 30% reduction it initially proposed.

The target is set to be submitted to the UN today confirming the country’s Intended Nationally Determined Contribution (INDC).

That’s part of a new global emissions reduction deal which will be agreed at the Paris conference in December.

South Korea’s emissions are set to reach 850.6 million tonnes of CO2 equivalent by 2030 based on business-as-usual levels, according to the government.

The South Korean government has been reported as saying: “We decided to raise the target from the reduction scenarios, considering our leadership in climate changes such as inviting GCF (Green Climate Fund), our global responsibility and opportunity to develop new energy business and innovate manufacturing sectors.”

The country has been working to tackle emissions, launching the world’s second largest carbon trading scheme and pioneering a major green stimulus package in the wake of the 2008 financial crisis.

So far, 11 countries and the EU have formally submitted climate action plans to the UN under the INDC regime including Switzerland, Norway and Mexico.

http://www.energylivenews.com/2015/06/30/south-korea-to-cut-emissions-by-37-by-2030/
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Shanghai CO2 market flounders as supply glut hits prices, trading

Shanghai's carbon market ended its compliance year on a subdued note on Tuesday, with not a single transaction on the last day and permit prices near record lows after shuttered firms covered by the scheme dumped their permits onto the market.

The firesale of permits by several firms in economic distress over the last two weeks removed the need for any last-day transactions, and also allowed firms to meet their carbon mitigation obligations cheaply.

But it also further eroded investor confidence in China's nascent CO2 markets, which have been damaged by regulatory uncertainties and a huge supply surplus.

Permits in Shanghai's pilot market were quoted at 15.5 yuan on Tuesday, 61 percent lower than at the end of the last compliance year in June 2014.

Before the deadline, companies are obliged to surrender permits to cover their total emissions for the whole of the compliance year.

China's economic slowdown has slashed emissions from industrial sectors, leaving many companies with a surplus of permits and little incentive to trade.

Carbon prices in Shanghai fell to a record low of 12.5 yuan in mid-June, hitting the downside limit. The rapid drop forced the local exchange to narrow the daily fluctuation range from 30 percent to 10 percent in order to curb panic selling.

"The price plummeted because some bankrupt companies were dumping permits at all costs. Their remaining permits are useless because they have closed down," said a trader in Shanghai.

Shanghai requires the withdrawal of only half of the permits allocated to companies that have ceased operating for more than half of a year, making it even harder for the supply surplus to be eased, said a staff member at the Shanghai Environment and Energy Exchange.

Shanghai has traded 2.6 million permits in the second trading year ending on Tuesday. Under the scheme, companies aiming to cover their emissions targets can either buy permits or offset credits from eligible mitigation projects.

Shanghai has been struggling to improve liquidity in the market, and said last week that it would allow speculative traders to borrow permits and trade them on the exchange, but with demand weak, few have taken advantage so far.

http://www.reuters.com/article/2015/06/30/china-carbon-shanghai-idUSL3N0ZB1VQ20150630
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Europes largest solar farm to connect to grid in October

The solar farm, located near Bordeaux in south-west France, will generate more than 350GWh a year with a peak capacity of 300MW. Eiffage Energie operates on behalf of Clemessy, which pilots a consortium of several investors, including Neoen, formed to build, operate and maintain the farm.

Approximately one million solar panels will cover 250ha of land divided into 25 solar plants. The farm will be connected to the grid in October 2015.

Nexans' Energyflex cables will provide durable, high-performance in-field connections between the PV panels and the inverters that will transform the solar energy into usable AC electricity. Energyflex cables were developed by Nexans to meet the increasing demand for reliable, efficient cables in the specialised photovoltaic market.

http://www.offshore-technology.com/contractors/cables/nexans/presseuropes-largest-solar-farm.html
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Amyris Surges After Total Raises Stake in Biofuel Venture

Amyris Inc., a U.S. developer of biofuels, jumped the most in four months after the French oil company Total SA boosted its stake in their joint venture to spur commercial production of jet fuel made from plants.

The two companies formed a 50-50 joint venture in December 2013 to produce renewable fuels. The French oil producer will now own 75 percent after a restructuring agreement announced Tuesday by Emeryville, California-based Amyris. Total is also Amyris’s largest shareholder with a 20 percent stake as of January, according to data compiled by Bloomberg.

Under the restructuring, Total and Temasek Holdings, the second-largest Amyris shareholder, are converting about $138 million in debt into common shares priced at $2.30 each. That’s a 37 percent premium over Monday’s closing price.

Amyris plans to restructure an additional $37 million in convertible debt. The moves will shore up its balance sheet and “open the way for proceeding with commercialization of its jet fuel technology over the coming years,” according to the statement.

Amyris uses genetically modified microorganisms to convert plant sugars into fuels and specialty chemicals.

http://www.bloomberg.com/news/articles/2015-06-30/amyris-surges-after-total-raises-stake-in-biofuel-joint-venture
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United Airlines investing $30 million in biofuels producer

United Airlines is investing $30 million in a company that makes biofuels for airplanes.

United said Tuesday that the investment in Fulcrum BioEnergy Inc. could provide it with up to 180 million gallons of fuel per year.

That’s just a drop in United’s fuel consumption — the Chicago airline burned 3.9 billion gallons last year — and the investment is a tiny fraction of United’s $1.1 billion profit last year.

Still, United Continental Holdings Inc. says it’s the biggest single investment in biofuels by a U.S. airline.

Pressure is building on airlines to reduce carbon emissions from burning oil-based jet fuel. The Obama administration has taken early steps toward limiting emissions, following the lead of an international aviation authority.

http://fuelfix.com/blog/2015/06/30/united-airlines-investing-30-million-in-biofuels-producer/
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Agriculture

Sirius Minerals shares soar after green-light for York Potash

Sirius Minerals shares soared over 70% opening deals on Wednesday after it received the go-ahead to build the proposed York Potash project.

It was announced locally last night that a special planning committee of the North York Moors National Park Authority approved planning permission. A narrow vote, eight for and seven against, favoured the proposed development.

"The case for the Project has always been compelling because it will not only generate so many jobs and economic benefits, but also because it is accompanied by such extensive mitigations, safeguards and environmentally sensitive design.

The company said it will update investors next week on the next steps for York Potash and the milestones on the path to first production.

The project is forecast to add over £1bn to the UK’s GDP, but, as the mineral deposit is based within a national Park the plans had been scrutinised very carefully.

York Potash would be a huge undertaking with an estimated pre-production capital cost of US$1.7bn. It will be 13mln tonne per annum operation and the development will involve two phases of construction.

To minimise the impact on the national Park, an underground conveyor-based system will be built to transport the fertiliser from the mine-site to port via five 7.5km tunnels.

http://www.proactiveinvestors.co.uk/companies/news/108567/update-sirius-minerals-given-green-light-for-york-potash-108567.html?utm_source=twitterfeed&utm_medium=twitter
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Precious Metals

China targets counterweight in gold trade with yuan fix

A decade after China kicked off a series of gold market reforms, plans to establish a yuan price fix mark one of Beijing's biggest step so far to capitalise on the country's position as the world's top producer and a leading consumer.

While no immediate threat to the gold pricing dominance of London and New York, the benchmark could ultimately give Asia more power over bullion trade, particularly if the yuan becomes fully convertible, industry sources say.

The yuan fix is due to launch by the end of 2015 via the Shanghai Gold Exchange (SGE), which last year allowed foreign players to trade gold using offshore yuan.

"Across the commodity markets as a whole, we're seeing some very significant initiatives by the Chinese authorities," said Nic Brown, head of commodities research at Natixis.

"For the gold market, it's an attempt to provide a Chinese counterweight that offers liquidity, offers physical metals, offers futures trading for the markets in the Asian time zone," he said.

Asia is the top buyer of gold, with China and India alone accounting for about half of global consumption, but London and New York are regarded as price benchmarks for spot and futures trading respectively.

In the last year, other attempts have been made to create a regional benchmark, including by Singapore, but China is being the most aggressive.

"The SGE and China wants to become the premier marketplace for gold trading and set the reference price as their view is this is where most of the gold is held and produced," said a long-time bullion trader in Asia.

At a gold conference in Shanghai last week, SGE's vice president, Shen Gang, said efforts towards internationalisation of the China market and building the exchange into an influential one globally would continue.

http://www.reuters.com/article/2015/06/30/china-gold-fix-idUSL3N0ZC1UN20150630
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Base Metals

New report outlines value of copper exploration

When looking at global exploration budgets for copper, which reached $11-billion in 2010, it is evident that the nonferrous metal carries perennial importance, mining analysis company SNL Metals & Mining says in its 'Copper Discoveries 1990-2014' report, released on Monday. 

“After almost doubling by 2012, the total nonferrous metals exploration budget returned to 2010 levels again in 2014. Over those five years, the copper budget increased more or decreased less as a percentage year-on-year than the total budget; and more remarkably, copper's share of the total budget increased in each of the five years, even as budgets were shrinking. 

“In 2014, copper accounted for fully a quarter of the [nonferrous] industry's total budget, a 15-year high for the red metal,” the group reported on Monday. Further, SNL Metals & Mining noted that it was “no surprise” that acquiring companies paid more for copper in mineable reserves than they paid for resources, since reserves could either immediately increase a company's production, or add to its pipeline of potential production, without the expenditure and time otherwise required to prove up reserves. 

“The prices paid per pound for copper in reserves and copper in total reserves and resources generally moved in tandem from 2005 to 2009,” it noted. However, these prices diverged sharply after the 2008/9 financial crisis, with the reserves price soaring close to 50c/lb by 2011 – the highest price paid in the ten-year period – while the price paid for combined reserves and resources increased much more slowly. “The divergence partly reflects most major producers' then strategy of increasing production. 

With recovering copper prices seemingly headed for the stratosphere, adding mineable reserves seemed like a good investment at the time,” SNL Metals & Mining highlighted. However, the copper price started declining in 2012, and “angry investors” started forcing the major companies to curb spending and focus on increasing value. 

As a result, mergers and acquisitions (M&A) spending in 2013 dropped by three-quarters from a record $30-billion in 2012, and the price paid for copper reserves fell to 30c/lb in 2013 – on par with the ten-year average through 2014. M&A activity revived somewhat in 2014, with the price paid for copper reserves perking up slightly and the total price paid in copper acquisitions jumping 45% from the 2013 price. 

The report outlined 201 copper discoveries over the past 25 years, each containing at least 500 000 t of copper, and included the relationship between corporate exploration budgets and discovered copper, and separate sections for discoveries by year, by location, by company type and by classification as greenfield or brownfield.

http://www.miningweekly.com/article/new-report-outlines-value-of-copper-exploration-2015-06-29
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Indophil expects mid-July deal with Glencore on $5.9 bln Philippine mine

Indophil Resources said a final agreement may be signed in the middle of July allowing it to take control of the long-delayed $5.9 billion Tampakan copper-gold project in the Philippines from Glencore Plc .

Indophil, previously listed in Australia until its takeover this year by the Philippines' Alsons Group, would be able to start planning its next steps for the project once the agreement was signed, spokesman Gavan Collery said.

"There are a number of conditions, notifications and actions that must take place before the anticipated mid-July formal signing of the agreement," he said in an email.

Commodity trader Glencore announced the sale of its 62.5 percent interest in Tampakan operator Sagittarius Mines Inc last week without providing details.

Glencore had previously flagged it was reviewing the Tampakan project along with other greenfield projects elsewhere.

Tampakan, one of the biggest undeveloped copper-gold mines in Southeast Asia and previously touted as the largest foreign direct investment in the Philippines, has been stalled by a provincial ban on open-pit mining in place since 2010.

Leo Jasareno, director of the Mines and Geoscience Bureau (MGB), said the government welcomed Indophil's interest "to move the project forward" and said Glencore's exit had nothing to do with domestic policy issues.

The MGB's support for the project, at the same time as a local mining ban is in place, highlights conflicting policies that have hampered development and foreign investment in the country's untapped mineral resources worth $1.4 trillion based on recent industry estimates.

There are also pending bills in Congress seeking to hike mining taxes and royalties that are already among the highest in the world.

http://www.reuters.com/article/2015/07/01/glencore-philippines-tampakan-idUSL3N0ZB1BF20150701
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Rio Tinto aluminium smelter in New Zealand faces possible power crunch

Rio Tinto's aluminium smelter in New Zealand, which has suffered losses in two of the last three years, faces a July 1 deadline to decide whether to extend its power supply contract with utility Meridian Energy .

The decision could determine the future of the 350,000-tonne-per-year smelter, which is the country's single biggest energy consumer, beyond 2017 following a battle by the plant's owners to slash its power costs.

The smelter has struggled with weak aluminium prices and a high New Zealand dollar for several years, and has been seeking cheaper power, even though it returned to an underlying profit of NZ$56 million in 2014 after two years of losses.

The plant was given a NZ$30 million subsidy in 2013 by the government to bridge the price gap between Meridian and the plant's owners, New Zealand Aluminium Smelters (NZAS), which is a joint venture between Rio Tinto and Sumitomo Chemicals.

NZAS also has an option later in the year to reduce the amount of power it buys from Meridian by about 30 percent.

The two sides have been holding talks on the issues, but NZAS declined to comment, while a Meridian spokesman said it did not know what the decision would be.

In April, NZAS Chief Executive Gretta Stephens said in a statement the plant faced "an extremely tough operating environment here in New Zealand."

Some analysts said that the likelihood of the smelter remaining open had increased after the local dollar had fallen 12.6 percent so far this year, improving the smelter's export returns and helping to offset a renewed weakness in aluminium prices which are hovering around one year lows.

"With the lower New Zealand dollar, most expect NZAS will seek to maintain power contracts, with some potential to gain some supply from another generator," said analyst Craig Stent at Harbour Asset Management.

The smelter is one a few worldwide making high-quality aluminium used in plane construction and electronics, and the costs of closing the plant and cleaning up the site has been estimated at hundreds of millions of dollars.

Longer term, the New Zealand power sector regulator is looking at reforms to setting transmission charges which might deliver savings of as much as NZ$50 million a year.

The smelter, close to the southern city of Invercargill, consumes about 13 percent of New Zealand's power output and a decision to close would cause a glut, sending prices lower in a market which has seen scant growth.

http://www.reuters.com/article/2015/06/30/new-zealand-rio-tinto-smelter-idUSL3N0Z90ZC20150630
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Steel, Iron Ore and Coal

Iron ore tumbles below $US60

The price of iron ore has slipped below $US60 a tonne in overnight trade .

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US59.30 a tonne, down 2 per cent on its prior close of $US60.50 a tonne.

The second half of June has proven to be a challenging period for the commodity, with prices slipping 10 per cent through a losing run that has seen just one positive session in 13. It has left iron ore at its lowest mark in five weeks.

Continued softness this week has come despite fresh stimulus from the People’s Bank of China, with traders shrugging off the potential impact of the weekend’s rate cut.

Instead, they have focussed on rising supply as well as concerns about demand in China.

The worries have led analysts at Capital Economics and ANZ to issue warnings about the potential for heavy falls in the second half of the year.

Capital Economics analyst Caroline Bain said prices could retreat below $US40 before the end of 2015, while ANZ recommended shorting the commodity due to its $US53 a tonne forecast for the third quarter.

Similar bearish sentiment was echoed by the federal government on Tuesday, with the Federal Department of Industry and Science trimming its 2015 forecast by 10 per cent to $US54.40.

The production lift is slated to come from Brazil and Australia, with the report tipping a 10 per cent jump in local iron ore exports in 2016 after a projected 4 per cent lift in 2015.

The 2016 mining output gain is seen driven by Gina Rinehart’s new Roy Hill mine as well as expansions from Rio Tinto and BHP Billiton.

http://www.businessspectator.com.au/news/2015/7/1/commodities/iron-ore-tumbles-below-us60
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Activity in China's steel industry is collapsing

While activity in China’s manufacturing sector recorded tepid growth in June, the same cannot be said for the nation’s steel producers. Activity collapsed last month.

As this table shows, posted on Twitter by Luke Kawa, the separate steel industry PMI slumped to 37.4 from 42.4 in May.

it’s a terrible result.

Aside from an increase in new export orders, which rose to 50.7 from 43.7 in May, the rest of the report is dire. Output slumped to 34.2 from 40.7 while new orders, a gauge on domestic demand, slumped to 27.9. Indicative of building inventory levels, the gauge on finished goods jumped to 55.1 from 50.3.

This means despite a slump in output, inventory levels are continuing to expand. Not a very encouraging result, either for the month or period ahead.

http://www.businessinsider.com.au/the-outlook-for-iron-ore-could-be-extremely-bleak-2015-7
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Cheap imported cargoes of plates hitting Indian steel mills below the belt

The outlook for steel plates products in Indian domestic market is looking quite bleak for the month of July as low prices imports cargoes are landing all over Indian shores and it is expected that Indian steel mills would be forced to reduce their prices substantially in coming days to keep their market share.

http://steelguru.com/steel/cheap-imported-cargoes-of-plates-hitting-indian-steel-mills-below-the-belt/428450#tag
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Malaysia to impose final safeguard duty on steel plate imports

Bernama reported that Malaysia will impose a final safeguard duty on Hot Rolled Steel Plate (HRP) imports with effect from July 2nd 2015, for a period of three years to protect the local industry.

This safeguard duty is imposed to prevent and remedy the effects of serious injury to the domestic industry caused by the surge in imports of HRP, the Ministry of International Trade and Industry said in a statement.

The implementation of the measure, shall by way of progressive liberalisation for the period of three years, starting from July 2,2015 - July, 1, 2016 (17.40 per cent), July 2, 2016 - July 1, 2017 (13.90 per cent), and July 2, 2017 - July 1, 2018 (10.40 per cent).

The provisional safeguards duty would replace the provisional duty of 23.93 per cent on Dec 14, 2014.

The government had initiated the safeguard investigation on Aug 18, 2014 based on a petition filed by Ji Kang Dimensi Sdn Bhd on behalf of domestic HRP producers. The petitioner alleged that the increase in the import of HRP from 2011 to 2013 have caused serious injury to the domestic industry.

http://steelguru.com/steel/malaysia-to-impose-final-safeguard-duty-on-steel-plate-imports/428443#tag
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