Mark Latham Commodity Equity Intelligence Service

Thursday 30th March 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China's March official PMI posts solid growth as construction booms


    Activity in China's vast manufacturing sector likely grew for an eighth straight month in March as a surprise rebound in the property market added to a construction boom, boosting sales of building materials from steel to cement, Reuters reported on March 29.

    The official manufacturing Purchasing Managers' Index (PMI) is expected to stay at 51.6 in March, the same as in February which was the second-highest reading since July 2014, according to a median forecast of 31 economists in a Reuters poll.

    While that is well above the 50 mark which separates expansion from contraction, over a dozen cities have announced fresh property cooling measures in recent weeks to slow home price rises, raising questions over how long the solid pace of growth can be sustained.

    Home sales rebounded in the first two months of the year with an increase in new starts, defying previous government curbs to contain bubbly prices in big cities such as Beijing. "Many projects started in March as it is usually the peak season," said Shen Jianguang, analyst at Mizuho Securities in Hong Kong.

    Profits of Chinese industrial firms surged almost 32% in the first two months of 2017 -- the fastest pace in nearly six years -- as prices of commodities from coal to iron ore raced higher.

    Some China watchers think the wave of property tightening measures announced since late last year will eventually slow home sales and prices.

    The outlook for China's manufacturing sector is also clouded by U.S. protectionist rhetoric that could hurt exports to its biggest trading destination, although no major U.S. measures have been announced. Tighter monetary policy may also dent investor confidence in the sector.

    The central bank has been cautious, bumping up money market and short- and medium-term interest rates several times this year by only modest amounts. But analysts said its tightening bias will eventually pass through to higher borrowing costs for Chinese companies.

    The official PMI number will be released on March 31, along with the official services PMI. The private Caixin/Markit PMI survey, which focuses more on small and mid-sized firms, will be published on April 1.

    http://www.sxcoal.com/news/4554153/info/en
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    China's GDP likely to grow 6.8% in Q1, think tank


    China's economy is likely to grow by 6.8% year on year in the first quarter of 2017 as production activities and investment picked up, Xinhua reported, quoting a Chinese government think tank.

    The firming trend in the fourth quarter last year has continued into the first quarter of 2017, according to the National Academy of Economic Strategy (NAES), citing a huge rise in factory-gate prices, rebounding corporate profits and increasing imports.

    Consumer prices will rise by 1.4% in the first three months of this year, according to NAES, which is affiliated to the Chinese Academy of Social Sciences.

    "Despite downward pressure, China's economy has been operating in a good state," said Wang Hongju, a researcher with NAES. "The focus of macro-economic policies should be put in supply-side restructural reforms to boost potential output in the long run."

    NAES estimated that China's economy would expand by 6.7% in the first half of the year as industrial production was likely to increase moderately in the second quarter, while investment would see slightly slower growth.

    Consumption will grow steadily in the April-June period, but it will be difficult to find improvement in exports, according to the report.

    The Chinese government trimmed its 2017 growth target to around 6.5%, the lowest in a quarter of a century.

    The report said the Chinese government should guard against risks in the property and financial sectors by properly managing monetary and land supply "floodgates."

    To curb excessive growth in house prices in certain cities, except for purchase restrictions, the government should also work to improve market supply and keep monetary expansion under control, according to the report.

    http://www.sxcoal.com/news/4554155/info/en
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    Huadian Power Int'l 2016 net profit slumps 56.5pct YoY


    Huadian Power International Co., Ltd, a listed subsidiary of China Huadian Corporation, realised net profit of 3.34 billion yuan ($485.3 million) in 2016, slumping 56.53% year on year, said the company in its annual report released on March 28.

    The company's operating revenue stood at 63.35 billion yuan last year, falling 10.8% from the preceding year, the report said, citing reduced on-grid price of coal-fuelled power and higher coal prices as the main reasons.

    Its operating cost was 49.03 billion yuan during the period, increasing 3.86% from the year-ago level.

    Under pressure from rising coal prices, sliding utilisation hours of power units, fiercer competition and environmental constraints, Huadian Power International's electricity generation edged down 0.52% year on year to 190.06 TWh in 2016.

    Huadian Power International Co., Ltd, one of China's largest comprehensive energy enterprises, is mainly engaged in building and operating power plants.

    The number of its controlling power plants that had been put into operation totaled 61, with installed capacity reaching 48.14 GW. Of this, 42.97 GW was natural gas and coal-fired power capacity, while 5.17 GW was renewables power capacity.

    By end-2016, over 90% of the company's coal-fired power each had installed capacity of over 300 MW, of which the electricity units each with installed capacity above 600 MW accounted for 54%.

    http://www.sxcoal.com/news/4554119/info/en
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    Oil and Gas

    Asian crude traders brace for potential Southeast Asia, Oceania supply glut


    Following Vietnam's surprise offer of minimum 2.5 million barrels of light Bach Ho crude in the spot market last week, regional suppliers and end-users are bracing themselves for hefty oversupply conditions in Southeast Asia and Oceania, market participants said Wednesday.

    Very little was heard on first round discussions taking place at Vietnam's latest sell tender for light Bach Ho crude for loading over May-July, though many trade participants were already on their toes, carefully assessing the potential damage the Vietnamese barrels could cause to other rival regional grades.

    "The market is waiting for the bombshell to be deployed ... this could [potentially] be a nuclear bomb for the Far East regional market," said a North Asian sweet crude trader, indicating that various regional crude sellers would have been surprised by the unusually large volume of light Bach Ho crude offered in the spot market.

    Last week, PetroVietnam Oil offered a large volume of light Bach Ho crude for loading over May to July in a tender that closed March 23. Bids into the tender are to remain valid until March 31.

    PV Oil is offering 82,500 b/d of Bach Ho crude, with a gravity of around 39-40 API, for loading over June from the Bach Ho terminal. The tender also offers two additional parcels of 300,000-500,000 barrels each for loading over May 24-31 and July 1-7, to be sold at the seller's discretion.

    Bach Ho, with a gravity of 39-40 API, hardly offered in the spot market in recent months, is being shown on the back of an upcoming turnaround at the country's 130,000 b/d Dung Quat refinery, market sources said.

    Binh Son Refining and Petrochemical -- operator of the refinery -- plans to shut the entire plant over May-July.

    PV Oil has not offered light Bach Ho crude in the spot market since July. Market participants had been expecting PV Oil to sell some Bach Ho crude in the market with the scheduled turnaround, but the total volume still took many traders by surprise.

    "It's a huge volume and there will be a big impact on the market," said a sweet crude trader based in Singapore. The market "must digest it in one month's time."

    UNSOLD MALAYSIAN, AUSTRALIAN OVERHANG

    Regional traders said the hefty Bach Ho supply could directly put price differentials for various regional sweet crude grades under pressure, with a slew of May-loading Malaysian and Australian crude cargoes struggling to find new homes in recent weeks.

    Very few trade deals were heard in Malaysia so far in the May trading cycle with at least four 600,000-barrel cargoes of light sweet Kimanis crude still available in the spot market, market sources said.

    Sentiment remained downbeat in Oceania as well, with suppliers of Australian heavy sweet crude grades struggling to clear their May-loading cargoes.

    Latest market talk indicated that Mitsui was still offering a 550,000-barrel cargo of Enfield crude for loading in late May, while Woodside Petroleum was said to have been offering a 550,000-barrel cargo of Vincent crude for loading in May, with little success to date.

    Furthermore, trade sources said BHP Billiton has yet to find a buyer for its cargo of heavy sweet Pyrenees crude for loading in the second half of May.

    SOUTH KOREA, JAPAN UNLIKELY OUTLETS

    Market sources discarded South Korea as the possible outlet for the hefty Bach Ho supply as the country's major refinery CDUs have not processed the Vietnamese grade for a prolonged period of time.

    "It has been a very very long time since [South Korean] plants last took light Bach Ho crude as feedstock," said a trader with a South Korean refining company.

    In addition, traders also said chances are slim for the Bach Ho barrels to end up in Japan as the country's utilities prefer to take much heavier and more affordable Southeast Asian grades for direct burning and thermal power generation purposes.

    "Light Bach Ho is too expensive for burning," said another North Asian crude trader.

    Many regional traders, however, pointed at Chinese end-users as the best candidate capable of absorbing the big Vietnamese spot supply.

    "The best scenario would be for [a big state-run] Chinese company to take all the [available Bach Ho] supply ... for big buyers like them, what's another VLCC of crude? It's nothing," the first North Asian trader said.

    "Otherwise, [if the Bach Ho supply falls into the hands of various trading companies,] it will be a bloodbath for regional light and medium sweet grades," the trader said.

    http://www.platts.com/latest-news/oil/singapore/asian-crude-traders-brace-for-potential-southeast-27801688
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    EU offers to negotiate Nord Stream 2 on behalf of members: Politiken


    The European Union has offered to negotiate with Russia on behalf of its member countries about the Nord Stream 2 gas pipeline, which aims to bring Russian gas to Germany under the Baltic Sea, Danish newspaper Politiken reported on Wednesday.

    In a letter to the Danish government seen by the newspaper, the European Commission invites member countries to state their opinions about Nord Stream 2 and clarifies that the pipeline can not be operated in a "legal vacuum".

    The commission will ask member countries for permission to initiate negotiations with Russia in order to reach an agreement that pivotal principles from the union's legal framework will be imposed on projects like Nord Stream 2, commission spokeswoman Anna-Kaisa Itkonen told the newspaper.

    The EU is divided between eastern European and Baltic Sea countries that see a new pipeline carrying Russian gas across the Baltic making the EU a hostage to Moscow - and those in northern Europe, most especially the main beneficiary Germany, for whom the economic benefits take priority.

    http://www.reuters.com/article/us-russia-gazprom-eu-pipeline-idUSKBN17104F
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    Fujairah bunker hub ready to face challenges of IMO 2020 - conference


    Speakers at a bunker conference Tuesday in Fujairah in the UAE, the world's second largest bunkering hub, said it faced challenges from the lower global sulfur cap on marine fuels in 2020, but expressed confidence it could adapt to meet them.

    A live poll conducted at the 10th International Fujairah Bunkering & Fuel Oil Forum (FUJCON 2017) asked delegates what the impact on fuel oil demand in Fujairah would be as a result of the lower sulfur cap in 2020; 53% of respondents said fuel oil demand will fall significantly, 40% said demand would fall marginally, while only 5% said demand for fuel oil would rise, and 3% said there would be no effect.

    However, panelists downplayed the risk to the Fujairah storage and bunkering industry.

    Cockett Marine Oil DMCC CEO Cem Saral said demand for all types of marine fuel oil would not fall in 2020 in Fujairah, even if the share of residual fuel in this mix were reduced.

    More refineries in the region producing lighter ends would have a positive impact on demand for marine fuels in Fujairah, Saral added.

    "There's a lot of talk that as a result of the 2020 sulfur cap, fuel oil tank operators in Fujairah will suffer -- but fuel oil tanks can still handle low sulfur [0.5%] fuel, it's still a class three product. Traders will have to find a source for the low sulfur fuel oil, but then they can carry on bunkering as normal," Fujairah Oil Terminal's commercial director Malek Azizeh said.

    Nevertheless, the International Maritime Organization's 2020 sulfur limit of 0.5% is already slowing investment decisions on dirty storage in Fujairah, speakers said.

    "Demand for clean product storage will continue to grow, but for us, building more fuel oil tanks it's a question mark. The market is already challenging as it is, and with the IMO change coming up in 2020 it gives even more of a hurdle," said Azizeh.

    He added the ratio of "black" (residual) versus "white" (distillate-based) products bunkered in Fujairah has shifted in the last 12 months from a typical previous split of 70% black/30% white, to now around 60% black/40% white. "Going forward, the ratio will change further in this direction."

    CHANGE IN REGIONAL ARBITRAGE FLOWS

    IMO 2020 will likely have a profound impact on arbitrage flows of fuel oil in the Middle East, speakers said.

    Current fuel oil exports from Middle Eastern countries tend to reflect the typically sour crude in the region; the average sulfur content in fuel oil exported from Iraq, Kuwait, Qatar, and Saudi Arabia is all above 3.5% sulfur, Saral said, compared with a global average of 2.6% sulfur (on testing).

    Therefore the Middle East will likely have to import greater quantities of fuel oil for bunker use than now, Cockett's Saral said.

    "LSFO production in the region has less availability than what we think demand will be," he said. "There are some slots of availability we can blend, but it will not meet what the market needs. The gap will likely be filled with a middle distillate product."

    http://www.platts.com/latest-news/shipping/fujairah/fujairah-bunker-hub-ready-to-face-challenges-27801263

    Attached Files
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    Withdrawal works at UK's Rough natural gas storage extended to April 25


    Well maintenance affecting withdrawal capacity at the UK's only long- range natural gas storage facility, Rough, has been extended into the second half of April, owner-operator Centrica Storage Ltd. said in an updated REMIT message Tuesday.

    The works, which began in early January, are now due to end at the beginning of the April 25 gas day, extending the works by close to four weeks after the well maintenance had been due to end Friday morning.

    The scope of the works has been reduced to 96 GWh/d (9 million cu m/d) from the 109 GWh/d reported previously -- maximum withdrawal capacity from Rough is listed by CSL at 348 GWh/d.

    Planned annual maintenance that will see withdrawal capacity reduce to zero for most of the Summer 17 delivery period remained unchanged, set to begin May 1 and end September 30.

    Withdrawals from the reservoir remain unavailable until the beginning of Friday's gas day due to essential maintenance on a deluge pump and a firewater pump that began over the weekend.

    Stocks within the Rough reservoir recently fell to their lowest in almost four years, commencing Monday's gas day at 391 million cu m from the 559 million cu m at the same time last year and the 1.02 Bcm five-year average.

    http://www.platts.com/latest-news/natural-gas/london/withdrawal-works-at-uks-rough-natural-gas-storage-26696827
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    Origin, Engie agree to up gas supply to South Australia and Victoria


    Australia’s Origin Energy, a company holding a 37.5 percent stake in the Australia Pacific LNG project, signed agreements with Engie, to deliver more natural gas to South Australia and Victoria.

    Under the first agreement, Origin Energy will supply natural gas to the Pelican Point power station’s second generation unit.

    This will provide Origin with access to 240MW of electricity production, which will be used by Origin to supply customers in South Australia.

    The contract is set to run from July 1, 2017, to June 30, 2020, Origin informed in its statement on Wednesday.

    In addition to the Pelican Point deal, Origin has agreed to sell 8 PJs of natural gas to Engie in Australia in 2018 and 2019 to meet the customer demand.

    Speaking of the two agreements, Origin CEO, Frank Calabria said they are set to address South Australia’s energy security challenges.

    He called for cooperation between the industry and the government to make decisions that will provide energy security for Australia, that is, according to APPEA, facing gas shortages by 2019.

    Despite the availability of resources, the country’s gas exploration has been at its lowest level since 2005.

    The state of Victoria’s government made the decision to ban any conventional and unconventional onshore exploration while the South Australian government recently granted support to exploration companies to enable more natural gas to be supplied to the market.

    Calabria added that to enable energy security it is essential to understand that the Australian “energy market is in transition as are energy markets around the world,” calling for more certainty to investment.

    In the push to mitigate the effects of possible gas shortages, Australia’s prime minister Malcolm Turnbull has also recently secured commitments from two of the three Curtis Island LNG projects to contribute to the domestic gas market.

    http://www.lngworldnews.com/origin-engie-agree-to-up-gas-supply-to-south-australia-and-victoria/
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    Exxon to sell its Norway-operated oilfields


    Exxon Mobil has agreed to sell its operated upstream business in Norway to private equity firm HitecVision and oil company Point Resources for an undisclosed sum, it said on Wednesday.

    The deal involves a transfer of about 300 staff and means that the world's largest listed oil firm will no longer operate producing fields on the Norwegian continental shelf.

    Exxon Mobil retains stakes in more than 20 producing fields operated by Statoil (STL.OL) and Shell (RDSa.L) however, including the Snorre oilfield and the major Ormen Lange gas field.

    The fields sold had daily output of 54,000 barrels of oil equivalents in 2016, while Exxon's remaining Norwegian stakes yielded about 170,000 barrels per day, a company spokesman said.

    Point Resources, which is majority owned by HitecVision, will have output of about 60,000 barrels of oil equivalent following the deal, which could grow to about 80,000 barrels in 2022, the company said in a separate statement.

    http://www.reuters.com/article/us-exxon-mobil-norway-idUSKBN1701GX
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    Summary of Weekly Petroleum Data for the Week Ending March 24, 2017


    U.S. crude oil refinery inputs averaged over 16.2 million barrels per day during the week ending March 24, 2017, 425,000 barrels per day more than the previous week’s average. Refineries operated at 89.3% of their operable capacity last week. Gasoline production increased last week, averaging over 10.0 million barrels per day. Distillate fuel production increased last week, averaging about 4.9 million barrels per day.

    U.S. crude oil imports averaged over 8.2 million barrels per day last week, down by 83,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.0 million barrels per day, 0.7% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 521,000 barrels per day. Distillate fuel imports averaged 115,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.9 million barrels from the previous week. At 534.0 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 3.7 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.5 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 1.5 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 3.9 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.6 million barrels per day, up by 0.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.3 million barrels per day, down by 1.0% from the same period last year. Distillate fuel product supplied averaged 4.2 million barrels per day over the last four weeks, up by 13.1% from the same period last year. Jet fuel product supplied is up 12.1% compared to the same four-week period last year.

    US crude oil exports increased sharply this week by 460K bd to 1.01M bd

    Cushing down 300,000 bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    US Lower 48 oil production increases 25,000 bbls day


                                             Last Week   Week Before  Last Year

    Domestic Production......... 9,147           9,129            9,022
    Alaska .................................... 521              528                 518
    Lower 48 ........................... 8,626           8,601            8,504

    http://ir.eia.gov/wpsr/overview.pdf
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    ConocoPhillips sells oil and gas assets to Cenovus for $13.3 billion


    ConocoPhillips on Wednesday agreed to sell oil sands and western Canadian natural gas assets to Cenovus Energy Inc for C$17.7 billion ($13.3 billion), making it the latest international oil major to pull back from a region where high costs and low crude prices have made it hard for large companies to make an acceptable return.

    For Calgary-based Cenovus, among Canada's largest producers, the deal doubles its production to 588,000 barrels of oil equivalent per day as it takes full ownership of its main oil sands assets in northern Alberta.

    ConocoPhillips will sell its 50 percent interest in the Foster Creek Christina Lake oil sands partnership, which Cenovus already operates, as well as the majority of its western Canada Deep Basin conventional gas assets.

    The U.S. oil major will retain its 50 percent interest in the Surmont oil sands project, a joint venture with Total E&P Canada (TOTF.PA), and its liquids-rich Blueberry-Montney shale assets.

    The divestment, the largest in ConocoPhillips's history, was unexpected on Wall Street but comes as the company has come under pressure to cut its debt. Its shares jumped 6 percent in after-hours trading.

    Shares of Cenovus listed on the New York Stock Exchange tumbled more than 8 percent after hours.

    The deal, the fifth-biggest in the Canadian energy sector according to Thomson Reuters data, comes weeks after Royal Dutch Shell  and Marathon Oil Corp sold off billions of dollars in oil sands assets and adds to uncertainty over future development in the patch.

    Canada's oil sands hold the world's third-largest crude reserves but also carry some of the highest operating costs globally, and are struggling to compete with cheaper U.S. shale plays in a $50-a-barrel oil price environment.

    "Now that you have a prolonged period of low crude prices, the companies are really looking hard on where is the place to invest," Carlos Murillo, economist at the Conference Board of Canada. "Canadian companies ... they're kind of getting bigger in what they know ... whereas other companies are seeing opportunities elsewhere."

    ConocoPhillips Chief Executive Ryan Lance said his company will use the cash portion of the deal to pay down debt and increase share repurchases.

    The company last fall told analysts it would hive off $5 billion to $8 billion in assets this year. The Canadian divestment comes on top of that plan, boosting the planned asset sales for the year to more than $16 billion.

    Calgary-based Cenovus will pay C$14.1 billion in cash and 208 million Cenovus common shares. It launched a bought-deal financing agreement to sell 187.5 million shares at C$16 each for expected gross proceeds of more than C$3 billion.

    CEO Brian Ferguson said the company intends to divest a significant portion of legacy conventional assets to help fund the transaction.

    "In a low oil-price environment, economies of scale are important. This deal about doubles the scale of the company, and this will give us a greater competitive edge," Ferguson said on a public conference call.

    http://www.reuters.com/article/us-cenovus-energy-conocophillips-asset-p-idUSKBN1702ZR
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    Newest Texas Refineries Plan to Turn Shale Into Fuel for Mexico


    The newest oil refineries in Texas are looking to join the hottest two plays in the North American oil industry.

    Raven Petroleum LLC and MMEX Resources Inc. are building refineries in the Eagle Ford and Permian Basin that will process ample local supplies of light crude into gasoline and diesel. The fuel will be shipped on existing rail lines across the border to Mexico, where the government has opened the market to foreign competition, attracting companies including BP Plc and Glencore Plc.

    U.S. shale drillers have doubled the number of rigs seeking oil since May, with most of the gains seen in Texas. Production nationwide is expected to approach the all-time high from 1970. At the same time, Mexico’s gasoline demand is outpacing local supply, forcing the nation to increase imports, which government data show grew 3 percent year-on-year in 2016.

    “It looks like they are a set of entrepreneurs that see opportunities in the refined fuels markets in Mexico as it’s getting deregulated and denationalized,” Neil Earnest, president of industry consultants Muse Stancil, said by phone from Dallas. “If you are sitting in Texas, you are sitting on low cost crude oil.”

    SOUTH TEXAS

    The Woodlands, Texas-based Raven’s proposed 50,000-barrel-a-day refinery, about 70 miles from the border in Duval County, will produce gasoline and low-sulfur diesel starting by early 2019, Christopher Moore, the company’s managing director, said in a phone interview this week. MMEX Resources plans to build a similar-sized refinery in West Texas.

    The refinery’s location about 50 miles east of Laredo is close to its feedstock supply from the Eagle Ford shale, as well as to the market for its products in Mexico, he said.

    The Mexican government has been taking steps to deregulate its fuels market, with the latest measure being phasing out government-set pump prices. Mexico’s fuel prices rose by about 20 percent on average in January as the government raised the maximum pump price. The prices increases were part of reforms to open state-owned Petroleos Mexicanos’s monopoly to foreign competition and lure in private investment.

    “Demand for fuels in Mexico is growing at over 3 percent per year,” Moore said. “A constrained market won’t be resolved internally, so it will have to import as they are doing now.”

    http://boereport.com/2017/03/28/newest-texas-refineries-plan-to-turn-shale-into-fuel-for-mexico/
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    Dow Chemical completes crown jewel of $6B Gulf Coast expansion


    Dow Chemical said Tuesday it completed the massive ethane cracker plant in Freeport that’s the “crown jewel” of its more than $6 billion expansion along the Gulf Coast, primarily just south of Houston.

    The cracker facility will churn out 1.5 million metric tons a year of ethylene, which is derived from natural gas liquids and is used as the primary building block of most plastics. The plant, which is part of Dow’s sprawling complex in Freeport and Lake Jackson, won’t fully commence operations until midyear.

    “The Freeport ethylene unit is the cornerstone of our $6 billion investment in the U.S. Gulf Coast,” said Andrew Liveris, Dow’s chairman and CEO. “Our growth investments leverage the advantaged shale gas supply available in the U.S.”

    Indeed there are a bevy of new ethane crackers in Texas under construction that are all planning to take advantage of Texas’ ample and cheap natural gas supplies unlocked by the shale revolution.

    Dow’s announcement comes just one day after Paris energy giant Total said it will build an ethane cracker with a 1 million ton per year capacity at its Port Arthur facility, as well as a new plastics plant just east of Houston near La Porte.

    Occidental Petroleum, Exxon Mobil and Chevron Phillips Chemical all are completing major ethane cracker and plastics plant projects this year along the Texas Gulf Coast, including the Houston area, for the same purposes. They’re producing chemicals and plastics, much of which will be exported to the developing world with growing middle classes, especially Asia.

    As for Dow, the ethane cracker is expected to come online about the same time Dow completes its $130 billion merger with DuPont. The combination received conditional approval Monday from the European Union, but the U.S. Justice Department review remains pending.

    Liveris has emphasized that Dow’s Texas operations will see little effect from the merger, with the exception of the divestment of one local facility. After the merger, DowDuPont will be splintered into three separate companies, including one named Dow that would continue to own and run the Freeport complex.

    The materials science business would operate under the Dow name, the agribusiness under DuPont and specialty products under a yet-to-be-determined brand.

    http://fuelfix.com/blog/2017/03/28/dow-chemical-completes-crown-jewel-of-6b-gulf-coast-expansion/
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    AFPM 2017: US chemical producers encouraged by new administration, future growth


    US chemical producers expressed optimism regarding the future growth of petrochemicals in the US and were hopeful that decreased regulatory measures associated with the Trump administration would help facilitate growth.

    Speaking on a panel at the American Fuel & Petrochemical Manufacturers' International Petrochemical Conference in San Antonio, executives from Air Liquide, Chevron Phillips Chemical and ExxonMobil addressed regulatory concerns, tax reform, export opportunities and difficulties finding skilled labor.

    Peter Cella, president and CEO of Chevron Phillips, and Neil Chapman, president of ExxonMobil, both emphasized the importance of the petrochemical industry's engagement in terms of regulatory change. "We want regulation, we just don't want overreach," Chapman said. "Industry engagement is more important now to put in the right kind of regulation."

    The panel also touched on tax reform, with Chapman noting that while tax reform proposals may seem drastic, they are necessary. In reference to the notion of a border tax, Chapman said reform was necessary given that exports are a $200 billion business, and that of the 800,000 jobs in the industry, one-third were dependent on exports.

    "Comprehensive tax reform is in the best interest of industry in this country," said John Buckley, CEO of Air Liquide.

    Exports were a central part of the discussion, and Cella noted that exports played a significant role in growth. Cella estimated that more than 60% of new capacities were slated for export and that this was good for the industry as it created jobs and investment in railroads, trucking and ports. "We are buying 3,000 railcars and 85% of the material is coming from domestic sources. The entire country is benefiting from growth," Cella said.

    The panel went on to discuss a dearth of skilled labor, with the industry facing a shortage of 37,000 skilled workers. To combat this shortage, investment in education is necessary, Buckley said.

    http://www.platts.com/latest-news/petrochemicals/houston/afpm-2017-us-chemical-producers-encouraged-by-21287045

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    Uranium

    Rio Tinto may take over Pistol Bay’s uranium assets sooner than expected


    Rio Tinto  may become the sole owner of Pistol Bay Mining’s. uranium assets in the Athabasca Basin of Saskatchewan, Canada, sooner than originally planned, as it has decided to pay the junior miner $750,000 before April 17.

    Rio will effectively hold a 100% stake in the uranium properties once it pays either $1.5 million by the end of this year; $2 million by Dec. 2018 or $2.25 million by the end of 2019.

    The move by the world's second largest miner amends a January agreement and means that once it gives Pistol Bay the remaining sum, Rio will own three key assets, located close to Cameco’s McArthur River mine — the world’s largest producing uranium mine.

    Pistol Bay said Rio will effectively hold a 100% stake in the C 4, 5 and 6 uranium properties once it pays either $1.5 million by the end of this year; $2 million by Dec. 2018 or $2.25 million by the end of 2019.

    In 2014, the Vancouver-based junior optioned the C5 Property, along with the C4 and C6 claims to Rio Tinto, which already has a 75% interest in the assets. Last year, Rio announced its intention to exercise its option to increase its stake in the assets to 100% by paying Pistol Cdn$5 million by December 2019.

    So far, the mining giant has drilled 12 holes for a total of 6,104 m on the C5 Property, and completed gravity and DC resistivity surveys.

    Meanwhile, Pistol Bay will focus its efforts in advancing its Dixie zinc-copper-gold properties in Ontario, Canada, which it bought in October last year.

    The acquisition, combined with the already optioned Dixie and Dixie 3 Properties, made the Canadian junior the dominant landholder in the Confederation Lake Greenstone Belt, a 7,050 hectares-area in the area southeast of Red Lake.

    http://www.mining.com/rio-tinto-may-take-over-pistol-bays-uranium-assets-sooner-than-expected/
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    Agriculture

    Indian regulator says Agrium-Potash merger likely to hurt competition


    India's competition regulator said the proposed merger of fertilizer producers Agrium Inc and Potash Corp of Saskatchewan Inc is likely to hurt competition, but the comments were not expected to prevent the merger.

    Potash Corp and Agrium agreed to merge last September to navigate a severe industry slump by boosting efficiency and cutting costs.

    Neither Canadian company has a physical presence in India, but they supply potash to India through Canpotex Ltd, which they own with Mosaic Co.

    "The commission is of the (initial) opinion that the proposed combination is likely to have an appreciable adverse effect on competition," the Competition Commission of India said, according to a government statement on Wednesday.

    The commission made similar comments a week ago about the proposed combination of chemical producers Dow Chemical Co and DuPont.

    The Indian commission has now begun the second phase of its review process, similar to the process under way in the United States, Canada and China, said Potash spokesman Randy Burton.

    "It is premature and inappropriate to speculate on whether any reviewing agency will object to the transaction or seek to impose conditions," he said.

    The commission's comments are of little consequence to the Potash-Agrium merger because the companies do not own assets in India, said Bernstein analyst Jonas Oxgaard.

    "The only regulators that really matter in this (are) Canada and the U.S., and neither of them have objections as near as we can tell," he said.

    The Indian regulator has sought public opinion on the deal and has directed the two firms to publish details of the proposed merger, the government statement said. The companies complied last week, Burton said.

    http://www.reuters.com/article/us-agrium-m-a-potashcorp-idUSKBN1701R7
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    Base Metals

    Copper capped by hidden supply surge


    Has the copper price rally which started so spectacularly late last year run out of momentum?

    The London Metal Exchange (LME) price, basis three-month delivery, hit a nine-month high of $6,204 per tonne last month, since when it has churned in a broadly directionless range below the $6,000 level.

    This is all the more surprising given the severity of the supply-side hits that have been grabbing the headlines.

    The strike at the world's largest mine, Escondida in Chile, has ended. But at 43 days it was longer than expected and, factoring in a gradual ramp-up to full production, is going to translate into some 230,000-240,000 tonnes of lost output, analysts reckon.

    The world's second largest mine, Grasberg in Indonesia, is operating at only 40 percent of capacity due to an increasingly acrimonious dispute between operator Freeport McMoRan and the Indonesian government.

    Cerro Verde, another huge copper mine in Peru also operated by Freeport, is also seeing protracted strike action, albeit with uncertain impact on output levels.

    And yet the copper price seems uninterested.

    This is, simply put, because there is a lot of the stuff around.

    Global exchange stocks of copper have surged by around 167,000 tonnes so far this month to 750,000 tonnes, the highest level since mid-2013.

    Physical premiums everywhere are bombed out at extremely low levels.

    It all seems confusingly counter-intuitive until you factor in a hidden supply surge in the form of scrap metal.

    OUT OF THE SHADOWS

    Scrap plays an important role in all industrial metal markets but it is a notoriously opaque part of the supply chain.

    Although it ends up being refined into new metal by big operators such as Germany's Aurubis, its collection and storage is handled by a host of much smaller entities, many of them still family-operated even in the developed world.

    That means there is much statistical darkness as to what is actually happening in this part of the market.

    But the surest signal is price.

    Scrap copper is priced as a discount to the primary copper price, whether that be the one traded on the LME or the CME in the U.S.

    And those discounts flexed sharply wider when the copper price rallied over the course of October and November last year.

    According to assessments by S&P Global Platts, No.1 bare bright, the highest-purity form of copper scrap, traded at flat to the CME price in the second quarter of last year but flexed out to a discount of nine cents per lb ($198 per tonne) in November.

    The discount for No.2 scrap, typically containing 94-96 percent copper, followed the same pattern, widening from 20-21 cents per lb in the middle of 2016 to 40 cents at the start of 2017.

    The price patterns imply a surge in supply, triggered by the improvement in outright pricing.

    Further evidence comes from China, the world's largest buyer of copper scrap, just as it is the world's largest buyer of mine concentrates and refined metal.

    Scrap import volumes rose by 24 percent to 549,000 tonnes (bulk weight, not contained copper) in January-February, a noteworthy break of a long-running trend of falling imports.

    And Aurubis itself, which is one of Europe's biggest copper scrap processors, told analysts on its Q4 2016 conference call that it is filled up with scrap until the end of the second quarter of this year.

    HOW SCRAP BALANCES THE MARKET

    Everything points to a wall of copper scrap hitting the market over the last few months.

    And this is typical of how scrap supply behaves.

    The small and fractured nature of the scrap supply chain mitigates against sophisticated price hedging.

    Rather, when the price falls, scrap dealers simply stop selling, releasing accumulated stocks only when the price recovers and they can sell at a profit again.

    This collective behaviour means scrap supply dwindles in a falling price environment and surges in a higher one, effectively acting as a balancing mechanism on rapid price moves in either direction.

    It also directly impacts both copper production and consumption.

    With better availability, copper refiners such as Aurubis can lift the amount of refined metal they produce from scrap.

    But many fabricators, such as brass and rod mills, also have the ability to feed scrap directly into their product mix, displacing some of their requirement for refined copper cathode.

    They will only do so if the price is right. And with those wide discounts still holding in the United States, the price is currently right.

    HIDDEN SURGE

    Unlike the wall of mine supply that washed over the copper market last year, this wall of scrap is much harder to track and quantify.

    But one analyst, David Wilson at Citi, suggests that scrap supply feeding into both the production and consumption sides of the copper market balance ledger may increase by as much as a million tonnes this year relative to last.

    That eclipses Citi's calculation of 375,000 tonnes of mine copper supply lost to disruption so far this year.

    And even though Citi and other analysts are collectively raising their "disruption allowance" calculations for global copper mine supply this year, the impact would still be largely mitigated by scrap if Wilson's estimate is anywhere near correct.

    But there is a sting in this scrap tale.

    The current wave of scrap permeating the copper supply chain is by its very nature a one-off phenomenon.

    Once stocks of material accumulated during the weak price environment of 2015-2016 are released, that will be it.

    Until the effects are fully played out, however, scrap is going to remain an important market balancing mechanism, smoothing the anticipated transition from supply surplus to supply deficit in the copper market.

    http://www.reuters.com/article/copper-supply-idUSL5N1H62G6

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    Escondida names new mine head following failure of wage talks


    Chile's Escondida named a new president to run the BHP Billiton-operated mine on Thursday, days after the company failed to clinch a wage deal with workers after an historically long strike.

    Mauro Neves, a Brazilian who has worked in Vale and Australian logistics firm Aurizon, will take over the role from April 17, the company said in a statement. It praised Neves for his knowledge of "how to mobilize teams with strategic reasoning and operational agility".

    The job had been occupied since August on an interim basis by Marcelo Castillo, who will now become responsible for integrated operations at Escondida.

    The outcome of the Escondida wage dispute was seen as heavily negative for BHP, which has been left with an estimated $1 billion loss, will need months to ramp up to full output again, and will have to return to talks in a year or so in a likely weaker position.

    BHP has a controlling interest in Escondida, the world's biggest copper mine. Rio Tinto and Japanese companies hold smaller stakes.

    http://www.reuters.com/article/us-chile-copper-escondida-idUSKBN17032S
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    Jiangxi Copper's annual net profit rises for first time in 5 years

    Jiangxi Copper's annual net profit rises for first time in 5 years

    Jiangxi Copper Co Ltd , China's biggest integrated copper producer, posted on Wednesday its first rise in annual net profit in five years, helped by cost controls and higher metal prices.

    Jiangxi Copper's net profit rose 23.6 percent to 787.5 million yuan ($114.34 million) in 2016, it said in a filing to the Shanghai stock exchange. The last time the producer recorded a net profit rise was in 2011, according to company data on Eikon.

    "Even though non-ferrous metal prices were increasing steadily, there were still challenges in the market," Jiangxi Copper said. "However, we implemented a series of effective measures to resolve the issues to achieve our operational targets."

    China's non-ferrous metals producers have been reporting better financial results in 2016, helped by recovering global prices, which rose by around 18 percent during the year, and the country's increase in infrastructure building.

    This week, Yunnan Copper Co Ltd posted a 683.8 percent rise in 2016 net profit, mainly helped by cost cuts and increasing output.

    http://www.reuters.com/article/jiangxi-copper-results-idUSL3N1H64K0
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    Antam gets initial clearance for Indonesia nickel ore exports -Official


    Indonesia's state-owned miner Aneka Tambang (Antam) has been granted an initial approval to export up to 2.7 million tonnes of nickel ore over the next 12 months, a mining ministry official said on Wednesday.

    Indonesia was the world's top nickel ore exporter before it imposed a ban on unprocessed nickel ore exports in 2014 in a bid to encourage miners and customers to invest in a domestic processing industry.

    This year, however, the country relaxed the ban to allow companies that had built or were planning to build smelters to export low-grade nickel ore under certain conditions.

    Indonesia's ore export ban has supported nickel prices and a resumption of its shipments could hurt prices of the metal.

    "In terms of administration it's OK. Now all that's left is for it to be signed by the director general," Mineral Enterprise Director Bambang Susigit said.

    Earlier, Susigit told domestic media that the amount was less than the 6 million tonnes of nickel ore exports that Antam had requested, in accordance with the company's existing capacity to process low-grade nickel ore at its smelters. He also said that feasibility studies for the company's smelter developments needed to be independently verified.

    A spokesman for Antam said the company was still waiting for the recommendation to be officially issued by the mining ministry, and declined to comment further.

    Antam said in February it had stockpiles of an estimated 5 million wet metric tonnes of low-grade nickel ore that was ready to ship.

    Antam shares gained around 3.5 percent on Wednesday, while the broader Jakarta Composite Index that closed up 0.93 percent.

    Benchmark three-month nickel futures on the London Metals Exchange were down around 0.25 percent to $9,970 per tonne at 10.35 GMT.

    http://www.reuters.com/article/indonesia-antam-nickel-idUSL3N1H63O2
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    Steel, Iron Ore and Coal

    Tangshan to advance de-capacity in coal, steel industries


    Tangshan city in northern China's Hebei province will advance de-capacity in coal and steel industries this year, as part of its efforts to promote transformation and upgrading of its highly-polluting industries.

    The city plans to slash 1.5 million tonnes per annum (Mtpa) of coal mining capacity by end-September this year. It will also shed 10.06 Mtpa of steel-making capacity and 5.7 Mtpa of iron-making capacity by then.

    By end-October, Tangshan plans to cut 3.6 Mtpa of coke production capacity, and meanwhile close two coal-fired power generation units each with capacity of 12 MW.

    Hebei province has pledged to cap its total crude steel capacity at 200 Mtpa by the end of the decade, down from 286 Mtpa in 2013.

    http://www.sxcoal.com/news/4554102/info/en
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    Ganqimaodu coal imports surge 300.09pct on year Ceke up 99.5pct


    As of March 14, coal imports at Ganqimaodu border crossing in northern China's Inner Mongolia autonomous region, soared 300.09% year on year to 4 million tonnes over January-March, according to Inner Mongolia Morning Post.

    Daily coal imports averaged 55,600 tonnes during the same period, surging 299.87% from the preceding year, data showed.

    Washed coking coal price maintained at 900 yuan/t with Nation's de-capacity policy and the supply-side structural reform.

    The effective and consecutive customs clearance made it convenient for coal imports from Mongolia.

    http://www.sxcoal.com/news/4554128/info/en

    Ceke border crossing, a major international hub in northern China's Inner Mongolia autonomous region, saw coal imports surge 99.5% from the previous year to 1.75 million tonnes, official data showed.  

    Total value of the imports stood at $59 million, a year-on-year increase of 177%, data showed.

    In 2016, 12.02 million tonnes of coal were imported via Ceke, up 57.9% from the year before.

    http://www.sxcoal.com/news/4554146/info/en
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    India to offer free pricing, revenue sharing model to open up commercial coal mining


    Returning to commercial coal mining for the first time since 1973, India will offer free pricing and a revenue sharing contracts to investor securing coal blocks through the reverse auction route.

    In a working paper outlining the plans for launch of commercial mining, the Coal Ministry proposed that such would be kick-started by putting up aggregate reserves of 30-million tonnes on offer to miners through the reverse auction route.

    The working paper was being circulated among various stakeholders for comment, based on which the final rules of opening-up of coal mining to private investors would be framed, a Ministry official said.

    The government has proposed that private miners would be allowed full freedom on pricing of their production, a key concern when opening up of the sector was first announced last month.

    The miners would have to sign up for a revenue sharing contract after a successful reverse auction. The contract for revenue sharing proposes that the government’ share of revenue would be calculated on basis of actual revenue or actual production multiplied by 1.2 times of Coal IndiaLimited’s run-of-mine price for average grade of coal, whichever was higher.

    A Coal Ministry official pointed out that the revenue sharing model was premised to factor in any ‘windfall gain’ that private miners might get and the calculation would ensure that the government got its share of such windfall gains too.

    Laying out the eligibility parameters of prospective bidders, the working paper said that each bidder should have a minimum net worth of $230-million and experience of excavating at least 25-million cubic meters per year.

    Simultaneously, the government proposed to lie down on production quantities. The private miner would have freedom to optimise production up to the maximum laid out in the sanctioned mining plan. But in case of adverse economic conditions, the miner would not be able to reduce production from the mine to less than half of the maximum sanctioned in the mining plan.

    The successful bidder would be required to make an upfront payment of 10% of the annual turnover value of coal in three installments, 50% on execution of the mining plan, 25% on execution of mining license and the balance on grant of mine opening permission from the government.

    However, a section of private miners were seen to be expressing reservation on the revenue sharing formula.

    According to one private mine developer, who spoke on condition of anonymity as his company proposed to participate in the auction, several mining companies were expected to submit their concerns over revenue sharing to the government.

    It would be pointed out that adhering to a revenue sharing based on a fixed formula would be impractical, since geological parameters of the coal blocks were unknown and margins from merchant sale of coal would differ from block to block as cost of production varied depending on difficulty of mining in respective blocks, the private miner said.

    http://www.miningweekly.com/article/india-to-offer-free-pricing-revenue-sharing-model-to-open-up-commercial-coal-mining-2017-03-29
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    BHP mulling Yandi options


    Diversified miner BHP Billiton is considering the development of its South Flank iron-oredeposit, in the Pilbara, which could result in the development of the world’s largest iron-ore miningand processing centre.

    BHP asset president Western Australia iron-ore Edgar Basto on Wednesday said the Yandi mine, located in the central Pilbara, was currently operating at 80-million tonnes a year, but would be depleted over the next five to ten years.

    “We are looking at options to sustain this production,” he said, pointing out that the South Flank deposit was currently the preferred long-term solution, and that the investment case for using this deposit for replacement tonnes was strong, given the ability to leverage aspects of the existing infrastructure at the Mining Area C operation and the ore quality.

    “While this project is still in study phase, if approved by the board, it will result in the development of the world’s largest iron-ore mining and processing centre located next to billions of tonnes of high-grade resources.

    “This operation would continue our path to reducing operating costs by generating favourable economies of scale and synergies,” Basto said.

    Meanwhile, BHP’s re-rail programme was running six months ahead of schedule, and would be completed in the June quarter of this year, he noted.

    The programme replaces the existing rail to allow for heavier axles, improved reliability and higher speeds, which will help to deliver on BHP’s long-term supply chain reliability to support its 290-million-tonne-a-year capacity by the end of 2019.

    http://www.miningweekly.com/article/bhp-mulling-yandi-options-2017-03-29
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    Rio's autonomous haul service to be fully integrated by 2018


    iversified major Rio Tinto will progressively expand the use of its AutoHaul system this year, with full implementation to be achieved by the end of 2018, Rio iron-ore-division planning, integration and assets MD Kellie Parker says.

    Once fully operational, AutoHaul will be the world’s first fully autonomous heavy-haul, long-distance railway system.

    Parker said on Wednesday that, in 2016, on average, each of Rio’s autonomous haul trucks at its Pilbara iron-oreoperations operated an additional 1 000 hours and at 15% lower cost than conventional haul trucks.

    “Working in an autonomous pit is all about improvements. Not only is safety improved, but the AutoHaul system enables accurate reporting of near miss information and has rich information for incident investigations, which enables continuous improvement and releases leadership time to manage the operation.

    “We are also seeing improvements in maintenance from a reduction in property damage events and an ability to move to more condition-based maintenance for the trucks,” Parker said.

    “We are continuing to make very good progress with the automation of our trains. This will deliver a step change in the safety controls and productivity of rail operations. We are already seeing the AutoHaul system deliver improvements to average train speeds,” Parker added.

    Meanwhile, autonomous drills at West Angelas operated for an average 1 000 more hours per drill compared with conventional drills, and autonomous drills are now being deployed at Yandicoogina, with Parker saying that Rio had completed three-million metres with the autonomous drills.

    She noted that, as automated systems became more common across mining and other industries, this would create different jobs such as specialists in computing systems and diagnosis but also field technicians to monitor and replace the communications systems.

    “We will also need to upskill our maintenance people to service and maintain this new technology,” she said.

    Parker said Rio’s ongoing investment in innovation and technology was assisting the company in delivering "superior performance", pointing out that the mining major had reduced its Pilbara cash unit costs to $13.70/t during 2016, with the iron-ore business delivering cumulative savings of $1.4-billion when compared with the 2012 base.

    http://www.miningweekly.com/article/rios-autonomous-haul-service-to-be-fully-integrated-by-2018-2017-03-29
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    Iran to inaugurate new iron ore processing plants


    Iran will inaugurate pelletizing and concentrate plants in Sangan iron mine, located in eastern province of Khorasan Razavi.

    The two privately-funded projects ‎are still in progress and will come on stream in April, the Islamic Republic’s Mines and Mining Industries Development and Renovation Organization (IMIDRO) reported.

    The iron ore pellet-making plant has a production capacity of 5 million tons per year, meanwhile the output capacity of the concentrate plant is projected to reach 2.5 million tons per year.

    Other projects funded by private sector are underway in Sangan, namely the construction of concentrate and pelletizing plants, are designed to produce 17.5 million tons of concentrates and 15 million tons of pellets per year.

    Sangan mine’s iron ore reserves are estimated at 1.2 billion tons.

    http://tehrantelegram.com/story-z18563244
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    Talk of iron ore ramp-up in China is spooking market, conference hears


    The specter of Chinese domestic iron ore output ramping up this year in response to higher prices, and subsequently putting downward pressure on seaborne prices, was a major talking point at Australia's flagship iron ore conference Wednesday.

    Rio Tinto managing director, planning integration and assets, Kellie Parker, said the prospect of China "rebooting" its iron ore production was one of the "biggest market uncertainties."

    Citigroup Asia Commodities strategist Tracy Liao said supply tightness in high grade material, along with higher import prices, could incentivize an additional 20 million-25 million mt of domestic China production back into the market this year.

    This would take total production on a 62% Fe basis to 270 million-280 million mt in 2017, compared with 245 million mt in 2016 and 260 million mt in 2015, she said. China generally produces concentrate grading 66% Fe and it costs around $6-$8/mt to turn concentrate into pellets.

    "We think iron ore prices of above $70/mt are attractive enough for mines to restart or consider restarting," Liao told the Global Iron Ore & Steel Forecast conference in Perth.

    But Liao and other speakers believed Chinese iron ore supply was not as reactive to market prices as in previous years. She said Chinese companies might take 3-6 months to decide whether to restart production, and once operating again would only stop if prices plunged to low levels for a sustained period.

    AME Group chief economist Mark Pervan said Chinese iron ore supply was "very price sensitive," and not as flexible as before, after the government closed down a number of outmoded operations.

    Pervan's views on likely Chinese iron ore production this year were similar to those of Citigroup's Liao.

    However, SKR Consulting principal consultant Paul Araujo believed production was currently less than 200 million mt/year. He said there were a lot of stockpiles of domestic ore in China held at mines or by traders, which were skewing the output numbers.

    "Some domestic production is coming back because they are smaller producers, or located next door to their customers and have the flexibility to reopen," Araujo said.

    http://www.platts.com/latest-news/metals/perth/talk-of-iron-ore-ramp-up-in-china-is-spooking-27801684
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