Mark Latham Commodity Equity Intelligence Service

Monday 16th January 2017
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    Texas GOP blog running Ryan Tax reform


     The Scoop

    Texas Insider Report: WASHINGTON, D.C.– Ways and Means Republicans are committed to making pro-growth tax reform a reality in 2017. Last year, as part of Speaker Ryan’s “Better Way” agenda, we released a detailed Blueprint for bold, pro-growth tax reform. Now we are moving forward aggressively to turn the ideas of our Blueprint into comprehensive tax reform legislation that lowers tax rates, closes special interest loopholes, empowers families and small businesses, and unleashes job creation across the country.

    By focusing on three crucial goals – growth, simplicity, and service – we will deliver the 21st century tax code that Americans deserve. Here’s how our bold plan for tax reform will benefit families and job creators nationwide:

    Our Blueprint takes historic action to deliver a 21st century American tax code that is built for growth – the growth of families’ paychecks, the growth of local businesses, and the growth of our economy as a whole. These innovative reforms include:

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    Roger Bootle says 'Growth'.

    A third major factor making for a stronger world economy is not directly related to the financial crisis. At the beginning of last year the markets and many commentators managed to get themselves extremely worked up over the damage supposedly done to the world economy by low oil prices. By contrast, it seemed to me that low oil prices had to be a good thing. But the losses from low oil prices were highly concentrated and visible in the short term; by contrast, the gains were more widely distributed and might only become evident to the beneficiaries after a period of time. Accordingly, it was likely that there would be a short-term hit to the global economy, offset by a longer-term gain. We are now into that longer term.

    Meanwhile, the recovery from ultra-low oil prices has brought a further benefit, namely the easing of the pressure on hard-pressed companies and countries. Russia, for instance, should emerge from recession this year. Even so, oil consuming companies and individuals are still facing much lower prices than they were two years ago. The result is that the world should now be experiencing a substantial net dividend from lower oil prices.

    The upshot of all of this is that world growth this year is set to be higher than last year. Not only that, but it may well be a good deal stronger than almost anyone expects.  Of course, in the world of forecasting you have to be prepared for surprises. Over the last few years we have all been exceedingly well prepared for downside surprises. What I am about to say is decidedly risky but I will say it nevertheless: I have a hunch that we now need to be prepared for surprises on the upside.

    Roger Bootle is chairman of Capital Economics

    [email protected]

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    Aside for the debt mavens.

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    EDF allowed to delay reactor outages as cold snap looms -regulator

    EDF is allowed to delay planned outages at two nuclear reactors involved in a safety probe to help the French utility meet demand as a cold snap looms next week, nuclear regulator ASN said on Friday.

    EDF had requested delays to outages planned at its Civaux 1 and Tricastin 2 reactors scheduled for this Thursday and Friday, respectively, ASN said.

    "This request was motivated by risks to the electricity grid related to the cold snap expected next week," ASN said. "ASN considered this deferral to be acceptable."

    Civaux 1 will now go off line for safety checks on Jan. 18 followed by Tricastin 2 on Jan. 26, ASN said.

    The agency said it was examining EDF's request to have the Civaux outage delayed until end-March.

    A prolonged cold spell is expected to hit France and most of western Europe next week, pushing average temperatures sharply below normal seasonal levels and increasing demand for electricity for heating.

    France depends on its 58 nuclear reactors for more than 75 percent of its electricity needs.

    ASN said it had authorised EDF to restart nine of 12 reactors whose steam generators were involved in an investigation. The nine represent a capacity of 8.1 gigawatts and seven of them are already back online.

    Two others, Bugey 4 and Tricastin 4, will restart on Jan.13 and Jan. 16, respectively.

    ASN launched the investigation after raising concerns that steel used in steam generator channel heads could contain high concentrations of carbon which could weaken their ability to resist cracking.
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    Renault Shares Tumble After Anti-Fraud Authority Accusations Of "Cheating" On Emissions Tests

    Renault hasn’t been officially notified about the French diesel probe, a spokesman said by phone. Renault isn’t using software to cheat on emissions, the spokesman said

    Yesterday we sarcastically noted "they are all at it" when Fiat Chrysler was slammed by the EPA for emissions cheating, and now get further confirmation of the farce as The FT reports, French authorities have started a preliminary investigation into Renault amid suspicion the company may have “cheated” to conceal abnormal emissions of pollutants from some of its diesel engines.

    The government commission’s report over the summer found that nitrogen oxide emissions for many Renault models went well beyond their official limit under “normal” driving conditions, by a factor of more than 10 in the case of some models.

    As The FT details, the decision, made on Thursday, comes after France’s independent anti-fraud authority referred the carmaker to state prosecutors in November, after completing its own investigation.

    Three judges were appointed to lead the investigation, the Paris prosecutor said in a text message, into whether they "made merchandise dangerous for human health."

    Last year, three Renault sites in France were raided by authorities as part of a sprawling national investigation linked to the Volkswagen emissions scandal, sparking fears that the emission-rigging case was spreading across Europe.

    The French government, which owns 20 per cent of Renault, and the carmaker has denied using software to cheat emission testing, saying its models “conformed to the laws and norms in each market where they are sold.”
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    DUET-Cheung Kong deal to test Australia's foreign investment regime

    DUET Group has agreed to recommend an increased $5.51 billion bid from a consortium led by Cheung Kong Infrastructure Holdings (1038.HK), in a deal that is likely to test Australia's appetite for foreign investment in its key energy assets.

    In what is seen as an increasingly protectionist stance, Australia has been thwarting attempts by foreign investors to buy strategic assets in the country. Recently, it blocked a bid by Hong Kong's Cheung Kong Infrastructure (CKI) to buy state-owned firm Ausgrid on national interest grounds.

    Australia has since imposed limits on foreign ownership in the sales process for a smaller power grid, Endeavour Energy, as sensitive assets such as ports and energy grids come under increased scrutiny.

    CKI's latest bid to buy DUET for A$3.03 a share - up A$0.03 from an earlier offer - remains subject to approval from the Foreign Investment Review Board (FIRB), but the Hong Kong firm said it was confident of obtaining clearance.

    "We are encouraged by many...statements by senior officials in Australia saying Ausgrid situation was unique and did not set any precedent and should not be a consideration in FIRB's future approach to foreign investment," CKI Deputy Managing Director Andrew Hunter told media during a conference call on Monday.

    DUET's board has decided to recommend CKI's A$7.37 billion offer in the absence of a higher bid.

    John Pearce, the chief investment officer of DUET's largest shareholder, UniSuper, which has a 15.6 percent stake, said in a statement that he was "comfortable" with the board's decision.

    Shares in the Australian energy firm rose more than 5 percent to just below CKI's per-share offer price on Monday.

    "It is a very high valuation for DUET," RBC Capital Markets analyst Paul Johnston said, adding it equated to 1.6 times DUET's regulated asset base. "The market is now focused on FIRB. The assets of DUET are less sensitive (than Ausgrid) I think from a national security point of view."

    DUET's assets include a gas pipeline in Western Australia as well as suburban power grids that are smaller than Ausgrid's, the network for Australia's largest city, Sydney.

    CKI said the DUET deal would be done through a consortium that also included related companies Cheung Kong Property Holdings (1113.HK), CK Hutchison Holdings (0001.HK) and Power Asset Holdings (0006.HK).

    DUET Chairman Doug Halley said the company believed the offer fully recognized the value and future growth platform the management team had created as well as the operating and financing cost savings available to the CKI-led consortium.

    In a report issued on Dec. 5, Morningstar analyst Jennifer Song said the value accretion available to CKI from its bid was poised to come primarily from lower debt costs.
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    China FX regulator denies reports of forex controls

    China's foreign exchange regulator said on Friday that recent media reports about forex controls are untrue and disturb normal market operations.

    The State Administration of Foreign Exchange would continue to crack down on illegal activity in the forex market, a notice posted on its microblog account said.

    The Chinese government has been intensifying a campaign to put the brakes on the depreciation of the yuan, including tightening controls on capital outflows. The yuan fell more than 6.5 percent against the dollar last year.

    Earlier on Friday, Bloomberg reported that the central bank had asked some banks to stop processing cross-border yuan payments until they balance inflows and outflows.

    Citing unidentified people familiar with the matter, it said the directions, issued verbally on Wednesday, required lenders to show at the end of every month that the amount of outgoing yuan matches the sum that comes in, it reported.

    The PBOC has yet to respond to a faxed request from Reuters for a comment. (Reporting by Zhang Lusha and Ryan Woo;

    Attached Files
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    China’s CEFC has big ambitions, but little known about ownership, funding

    Inside four years, CEFC China Energy has emerged from relative obscurity as a niche fuel trader to become a rapidly growing oil and finance conglomerate with assets across the world and an ambition to become one of China's energy giants.

    It has a rare contract to store part of the nation's strategic oil reserve, gained financing from the state-owned China Development Bank (CDB) and has hired a number of former top officials from state-owned energy companies, CEFC officials said. It also has layers of Communist Party committees across its subsidiaries – more than at many private Chinese companies.

    Its influence goes well beyond Beijing. Czech President Milos Zeman has appointed CEFC’s founder and Chairman Ye Jianming as an advisor on economic policies, and the company has become one of China’s biggest investors in central Europe.

    Still, the privately-owned company’s opacity could become hurdles to its expansion as regulators reviewing deals around the world increasingly seek to understand how companies are controlled and financed. Little is known about how Ye raised the money to build the company or about its ownership structure.

    A deal to take a 50 percent stake in a Czech-Slovak bank that was announced in March is taking a long time to approve. One condition that needs to be satisfied under Czech law is whether the origin of funds for the acquisition is transparent. European Central Bank rules have some related requirements.

    A CEFC executive said it expected clearance for the acquisition by the middle of this year.

    A spokesman for the company said it has no special connections with the Chinese government, adding that its “rapid growth in recent years was because its corporate strategy fits well with China’a macro-development strategy and policy.”


    The Shanghai-based company – which was set up in 2002 in Ye’s home town in Fujian province - had 263 billion yuan ($38 billion) in revenue in 2015 and 30,000 employees at the end of that year.

    Ye told a board meeting in July he wants it to become a second Sinopec, China's second-largest energy giant and Asia's top oil refiner.

    He plans to build a retail fuel network in Europe through acquisitions and supply it with gasoline from refineries in Romania and China, the latter after consolidating some independent Chinese refineries known as "teapots", according to a script of his presentation reviewed by Reuters.

    Ye, 40, declined to comment for this story but three current and former company executives and two CEFC press officers all told Reuters CEFC wants to become an integrated oil company that also owns banks, insurers and brokerages.

    "The big plan is to acquire over the next four to five years upstream and refining assets with a combined size of one million barrels per day," said a senior director of CEFC.


    CEFC's oil ambitions started to take shape when it built a 3.05-billion yuan oil storage facility on Hainan island in southern China. It began operating in June last year and is one of the few privately owned facilities used to store the national petroleum reserve.

    Company officials have also said it has a 30 billion yuan trade financing line of credit with CDB, which funds infrastructure projects.

    In the past year, CEFC has done a series of deals.

    A year ago, it agreed to acquire KMGI, the international business of Kazakh's state oil and gas firm KazMunaGaz for $680 million.

    Then in March during President Xi's first visit to the Czech Republic, CEFC announced it was raising its stake in the J&T Finance Group to 50 percent from 9.9 percent for 980 million euros ($1.04 bln).

    J&T has banks operating in the Czech Republic, Russia, Croatia, Barbados and euro zone member Slovakia, and a larger stake in the group should help CEFC gain better access to the euro zone.

    The firm was already a shareholder in Czech brewery group Lobkowicz PLG.PR, publishing house Empresa Media, and the nation’s top football club Slavia Praha. For factbox of major assets.

    The European Central Bank and the Czech central bank are yet to clear the J&T deal. The Czech and Slovakia central banks declined to comment. An ECB spokesman said it doesn’t comment on individual banks.

    CEFC's wide range of investments in the central European nation and its hiring of politically-connected figures there has led to questions in the Czech media about whether CEFC is purely commercially driven or is operating under the influence of the Chinese government.

    Also Czech Finance Minister Andrej Babis, whose party rules in a coalition with the Social Democrats, told reporters in October that CEFC’s focus on private companies “brings no yield to the Czech Republic.”


    There is little public information about Ye, who company officials said loves reading works about Confucianism and Daoism, and rarely attends business dinners. Unlike many other Chinese entrepreneurs, Ye also strictly bans relatives from working at CEFC, officials said.

    CEFC describes itself on its website as having a "unique, innovative management model…that combines merchant economy, Confucianism and military-style management".

    A CEFC spokesman said Ye’s ownership of the group is held through stakes at subsidiaries not the holding company, though he did not provide a full explanation of the ownership structure.

    Company officials said Ye, who once worked in the forest police force in his home province in Fujian, made his first 10 million yuan in his early 20s’ from a property deal there. He moved into the oil business after buying his first oil assets in an auction.

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    Oil and Gas

    As OPEC Acts on New Year’s Resolution, U.S. Shale Pumps Away

    U.S. shale is getting in the way of a New Year’s resolution by OPEC to cut production and boost the market.

    Producers and merchants increased their bets on lower West Texas Intermediate crude prices to the highest level since 2007 as futures held above $50 a barrel. The increase in hedging against a price drop signals a comeback in U.S. shale output, just as OPEC members and other producers seek to reduce supply.

    The Organization of Petroleum Exporting Countries reached an agreement in November to cut production by 1.2 million barrels a day for six months starting in January, and were joined by 11 non-OPEC nations in an effort to reduce a global glut. The Energy Information Administration last week raised its forecast for 2017 U.S. crude production. A Barclays Plc survey showed North American oil and gas explorers will spend 27 percent more this year.

    “It may not all be physical above-the-ground inventory that is being hedged, but it may be a portion of 2017 and 2018 planned production,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said Friday. “Certainly, if there was strong conviction that oil prices are heading for $70, then producers would be less inclined to sell at current levels.”

    Producers and merchants increased their short positions, or bets on lower prices, to 675,968 futures and options in the week ended Jan. 10, U.S. Commodity Futures Trading Commission data show. WTI fell 2.9 percent to $50.82 a barrel during the report week, and added 0.4 percent to $52.56 at 12:29 p.m. Singapore time on Monday.

    Making a Comeback

    The U.S. oil rig count increased 10 out of the past 11 weeks, according to Baker Hughes Inc. data. The EIA also reported that U.S. crude output rose to the highest level since April in the week ended January 6, while crude stockpiles surged by the most since November.

    Saudi Arabia, the world’s biggest oil exporter, cut output to less than 10 million barrels a day, below its targeted level, Energy Minister Khalid al-Falih, said Thursday. Algeria will cut its oil output by more than it agreed, while Iraq hopes to meet its full cut by the end of the month.

    Hedge funds held mostly steady during the period, CFTC data show. Money managers’ net-long position rose 0.5 percent to 305,909 while long and short positions both fell.

    In fuel markets, net-bullish bets on gasoline rose 3.3 percent to 63,443 contracts, the highest since July 2014, as futures fell 4.6 percent. Money managers cut net-bullish wagers on ultra low sulfur diesel by 17 percent to 32,481 contracts, as futures slipped 3.9 percent.

    Deal Compliance

    The group will adopt compliance mechanisms at a meeting in Vienna on Jan. 22, OPEC Secretary-General Mohammad Barkindo said in a Bloomberg Television interview Friday. Members of OPEC will meet in May in Vienna to assess the market and decide whether the group, as well as non-OPEC producers, need to extend the agreement to curb production, Barkindo said.

    Investors are looking at “compliance and the response of what shale is going to be,” Michael D. Cohen, the head of energy commodities research at Barclays Capital in New York, said Friday.

    Higher production elsewhere will complicate OPEC’s task. U.S. oil output will grow by 110,000 barrels a day this year and will be higher on an annual basis by April, the EIA said in its Short-Term Energy Outlook Jan. 10. One producer exempt from the deal, Libya, increased output to 700,000 barrels a day, a National Oil Corp. official said earlier this month.

    Producers are “protecting themselves,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said Friday. “The production increase from the U.S. coupled with Libya’s increases are really going to hit the market going forward.”
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    India's 2016 Iran oil imports hit record high - trade

    India's annual oil imports from Iran surged to a record high in 2016 as some refiners resumed purchases after the lifting of sanctions against Tehran, according to ship tracking data and a report compiled by Thomson Reuters Oil Research and Forecasts.

    The sharp increase propelled Iran into fourth place among India's suppliers in 2016, up from seventh position in 2015. It used to be India's second-biggest supplier before sanctions.

    For the year, the world's third biggest oil consumer bought about 473,000 barrels per day (bpd) of oil from Iran to feed expanding refining capacity, up from 208,300 bpd in 2015, the data showed.

    In December, imports from Iran trebled from a year earlier to about 546,600 bpd.

    In 2015 refiners slowed purchases due to sanctions which choked payment routes, insurance and halved Iran's exports.

    Indian refiners Reliance Industries, Hindustan Petroleum, Bharat Petroleum and HPCL-Mittal Energy Ltd (HMEL) last year resumed imports from Tehran, attracted by the discount offered by Iran.

    "In most of 2016 there was a fight among Gulf producers to increase their market share and lifting of sanctions against Iran has intensified that fight," said Ehsan ul Haq, senior analyst at London-based consultancy KBC Energy Economics.

    In April-December, the first nine months of this fiscal year, Iranian supplies to India averaged a record 530,300 bpd, up from about 400,000 bpd before sanctions tightened against Tehran.

    India's 2016 Iranian oil imports were the highest in at least six years, according to the Reuters data.

    Government data going back over a longer period shows the average was the highest since the 2001-02 fiscal year.

    Overall, India imported 4.3 million bpd oil in 2016, up 7.4 percent from the previous year.


    Rising imports from Iran and Iraq lifted the Middle Eastern share in India's crude diet to 64 percent in 2016, reversing a declines in recent years, partly due to rising prices for Atlantic Basin oil tied to Brent.

    The average premium for Brent jumped against Dubai crude DUB-EFS-1M to more than $3 a barrel in 2016 from around $1.80 in 2015.

    "In 2016 Iran ramped up its output to regain market share while Iraq segregated its production into Basra Light and Heavy to attract customers. Basra Heavy was sold at a discount, making it more attractive than rival grades," said Haq.

    Iran's share of Indian oil imports surged to 11 percent in 2016 from 5 percent in 2015.

    Saudi Arabia remained the top supplier to India last year followed by Iraq and Venezuela.

    Imports from Latin America declined for a second year, with its share of imports shrinking to about 16 percent from 18 percent, while Africa's share fell to about 15 percent from a fifth.

    "Low oil prices brought down production in Latin America while Nigerian barrels were impacted by violence in the Niger Delta. Also falling U.S. oil output impacted trade flows, with some Latin American and African oil finding a place in the U.S.," Haq said.
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    UK's Rough gas storage withdrawal works impact reduced: CSL

    The volume impact of well maintenance at the UK's only long-range natural gas storage facility, Rough, has been reduced to allow for higher withdrawal volumes for the rest of the month, owner and operator Centrica Storage Ltd said in an updated REMIT message Friday.

    The well maintenance will now have an impact of 92 GWh/d (8.7 million cu m/d) compared to the 108 GWh/d volume impact estimated. The duration of the works was unchanged, due to end at the beginning of the February 1 gas day.

    This puts the maximum withdrawal capacity from the Rough reservoir under current operational conditions at 256 GWh/d. Withdrawals Friday morning were close to maximum capacity at 23 million cu m/d.

    Rough stocks began Wednesday's gas day at 1.11 Bcm, sharply down from the 2.64 Bcm at the same point last year and the 2.90 Bcm five-year average, National Grid data showed.

    Attached Files
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    Oil’s Painful Cost-Squeeze Generates Output Dividend for Norway

    Cost cuts are painful, but for Norway’s oil industry making every penny count has also yielded a surprising production windfall.

    Thanks to improvements from cheaper, faster drilling to greater regularity in the operation of production platforms, producers pumped 85,000 barrels a day more crude than expected during the past two years, or 6 percent above forecast, according to industry regulator, the Norwegian Petroleum Directorate. And it gets better: this week the NPD raised its output forecast for the 2017 to 2020 period by 8 percent, an average of 110,000 barrels a day.

    That’s the same as 2015 production from the country’s third-biggest field -- the Snorre deposit in the North Sea -- and almost as much as the iconic Ekofisk field, the discovery that kicked off Norway’s oil age.

    “It’s impressive,” Nordea AB’s Oslo-based oil analyst Thina Saltvedt said in a phone interview Friday. “When the crisis came, Norway was efficient in doing something about it.”

    As investment in Norway’s oil industry continues to decline over the next two years, lower costs and greater efficiency are providing the silver lining in a downturn that’s been more painful for western Europe’s biggest producer than the financial crisis. While cost estimates for seven large projects have been cut in half over the past two years and it’s been clear that efficiency gains were helping producers beat output forecasts, the NPD’s annual five-year prognosis released on Thursday was the first to show the impact on current and medium-term production.

    “We’re starting to have faith that this is possible,” the NPD’s Director General Bente Nyland said in an interview in Stavanger following the presentation of the report. “The drilling campaigns on producing fields show that there’s a great focus among the companies to maintain production, and it’s paying off. It’s all about costs.”

    Statoil ASA, the state-controlled producer that operates about 70 percent of Norway’s oil and gas output, has reduced the time it spends on one production well by 40 percent, cutting the cost by 30 percent, spokesman Ola Anders Skauby said. Last year, the company drilled 119 wells after planning for 113, and in 2015, 117 wells after planning for 95, he said.

    “The improvement measures we’ve set in motion have yielded results,” Skauby said in an e-mail. “We’re planning better, working more efficiently and we’ve simplified the well designs.”
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    Drilling rig count falls for first time since September

    Activity in the oil patch took its biggest step backward since June with seven drilling rigs removed from oil fields throughout the U.S.

    The overall rig count fell this past week for the first time since September, although the resilient Permian Basin in West Texas still saw one rig added. The Permian now accounts for more than 51 percent of all the nation’s active rigs drilling for oil, according to weekly data collected by the Baker Hughes oilfield services firm.

    The rare recent fall in the rig count could partly prove seasonal with the end of the holidays and a recent freeze that swept across most of the country, including much of Texas.

    The overall rig count saw a net loss of six rigs, because the number of rigs pursuing natural gas jumped by one.

    Texas saw a net loss of two rigs with one each lost in the East Texas’ Barnett Shale and in the Panhandle’s Granite Wash Basin. The only shale area to lose more than one rigs was Colorado’s DJ-Niobrara basin, which fell by two rigs.

    The total rig count is now at 659 rigs, up from an all-time low of 404 rigs in May, according to Baker Hughes. Of the total tally, 522 of them are primarily drilling for oil.

    After the Permian, the next most active area is Texas’ Eagle Ford shale with just 47 rigs.

    The oil rig count is down 68 percent from its peak of 1,609 in October 2014, before oil prices began plummeting. The price of U.S. oil hit a low $26.21 on Feb. 11 before beginning to rebound. The U.S. benchmark for oil prices was hovering below $53 a barrel early Friday afternoon.

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    LNG Limited says it can’t explain rise in its share price

    LNG export terminal developer, LNG Limited on Monday issued a comment after it had been asked by the Australian Stock Exchange on the reasons behind a 23 percent rise in the company’s share price.

    LNG Limited securities rose from a closing price of A$0.70 on January 10 to a high of $0.86 on January 13.

    There was also a significant increase in the volume of the company’s securities traded in the past few trading days, the ASX noted in a letter dated January 13 asking LNG Limited whether the company is aware of any information that had not been announced to the market.

    “The company is not aware of any information concerning it that has not been announced to the market which, if known, could explain the recent trading in its securities,” LNG Limited said in its response.

    This is not the first time that the ASX is asking LNG Limited to explain reasons behind the rise in the company’s shares price.

    Back in June 2016, LNG Limited declined media reports of a possible takeover of the company, that was reported as a reason for a surge in the company’s shares price. The rumors came following more than a 50 percent rise in company’s shares.

    LNG Limited’s shares dropped 5 percent from Friday, closing at $o.81 on Monday.

    Perth-based LNG export player has three LNG terminal projects under development in the United States, Canada, and Australia with a combined production capacity of nearly 20 mtpa, according to its website.

    LNG Limited’s portfolio includes the Magnolia LNG export terminal in Louisiana, U.S., Bear Head LNG in Nova Scotia, Canada, and Fisherman’s Landing project in Gladstone, Australia.
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    Tanker backlog offshore Houston



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    US Gulf Coast refiners look to Algeria to feed FCCs: trade

    Sluggish trade in Houston vacuum gasoil barges this week turned attention of market players to substitute feedstock from Algeria, market sources said Thursday.

    Low-sulfur straight-run fuel oil at maximum 0.30% sulfur can be substituted for VGO in the gasoline-making fluid catalytic cracker at a refinery.

    The 335,000 b/d refinery complex at Skikda, Algeria, has been a major source of the low-sulfur feedstock for US use. Much US-produced straight run fuel oil reflects higher sulfur levels up to 3.00%, with that product used as coker feed. A small fraction of US-produced straight run fuel oil tests beneath 0.3% sulfur, market sources have said.

    "The Skikda is basically the poor man's VGO," a US feedstocks source said. "That should make further moves up in VGO less likely."

    The differential for straight run fuel oil at 0.30% sulfur ("low-sulfur straight run") rose 25 cents Thursday to cash February WTI plus $5.5/b. Low-sulfur VGO fell 25 cents to $8.25/b.

    Market players offered different ideas Thursday on the fuel oil-VGO breakdown this month at the maw of Gulf Coast FCCs. Brokers said the balance was tipping to fuel oil, and a trader at one US refiner said the balance was in favor of VGO. Another market source had the split as level among the feedstocks.

    But nearly all market sources agreed that US VGO trade has slowed. Only a handful of barge trades have been heard since last Friday.

    Phillips 66, Valero and BP were seeking transit Thursday for a combined 165,000 mt of low-sulfur straight run fuel oil from Algeria to Gulf Coast ports. Phillips 66 and Valero were understood by market sources to be acquiring feedstock for use at their Gulf Coast refineries, with BP expected to deliver on a supply contract.

    "Valero brings in the majority," a shipping source said.

    Separately, Litasco was seeking transit for 70,000 mt of VGO at an unspecified sulfur level from the Bahamas to the Gulf Coast aboard the British Merlin starting Thursday.

    A refinery restart confirmed Thursday should lend support to straight run fuel oil and VGO markets in the coming days. Exxon Mobil said it was restarting unspecified units at its plant in Beaumont, Texas. The FCC and diesel-focused hydrocracker went offline there earlier this week.

    The market for lower-sulfur feedstocks also found support in rising gasoline profits. The unleaded-87 crack against Gulf Coast-dominant Louisiana Light Sweet crude has risen three consecutive trading days and was up 3 cents/b Thursday to $13.77/b. It has topped $13.00/b for 15 consecutive trading days, something that has not happened since August 2015.
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    Alternative Energy

    China eyes ocean renewable energy development

    China's maritime authority has issued a five-year plan on developing ocean renewable energy, stipulating measures to develop relevant technology and utilize island renewable energy, state media reported.

    The plan, issued by the State Oceanic Administration, said efforts will be made to promote the application of marine renewable energy and make better use of island renewable energy by carrying out evaluations and developing technology and equipment.

    The plan also said basic research and innovations in key technology related to marine renewable energy will be encouraged.

    The foundation for ocean energy development will be reinforced, and resource assessment and building of public service platforms in the South China Sea and island regions will be the focus, according to the plan.

    The plan also mentioned opening-up and international cooperation measures in relevant fields.

    According to the plan, ocean renewable energy includes energy generated from sea tides, waves, temperature differences and biomass.
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    Solar can provide key grid services: California ISO report

    In a finding that could affect the outlook for renewables integration, solar facilities with smart inverter technology can provide key grid services at levels that are similar to, and in some cases better than, conventional power plants, according to a study by California's grid operator, the Department of Energy's National Renewable Energy Laboratory and First Solar.

    "These findings mean renewable energy in the [California Independent System Operator] footprint -- and beyond -- could be integrated into power grids at a much higher level and faster pace than once believed," Clyde Loutan, ISO's senior adviser for renewable energy integration, said Wednesday.

    The study comes amid concerns about how growing amounts of renewable generation will affect grid operations. The US has 25,000 MW of utility-scale photovoltaic capacity, plus 1,800 MW of concentrating solar, according to the report, titled "Using Renewables to Operate a Low-carbon Grid."

    California is at the forefront in the shifting generation mix, with renewable requirements that climb to 50% by 2030. The ISO has more than 9,000 MW of grid-connected solar and expects rooftop solar to grow from about 5,000 MW to 9,000 MW by 2020. Also, the grid operator estimates an extra 20,000 MW of renewables may be needed to meet the state's renewable portfolio standard.

    The ISO is being forced to curtail renewables during periods of growing oversupply, according to the report. The grid operator curtailed 2,000 MW of renewables on one day in April, it said.

    "With increased frequency of curtailment, more opportunity is created if the industry can tap into the controllability of the renewable resources, and thus expand the carbon-free resources for such services," the report said.

    Currently, utility-scale PV plants are typically not used by utilities or grid operators for electrical grid services, according to the report.

    In August, the ISO and NREL tested a 300-MW solar plant in California owned by First Solar. The test aimed to show the plant's ability to follow signals from the ISO at sunrise, midday and sunset and how it performed in three key areas: frequency control voltage control and ramping capacity.

    The data from the test show how with advanced power controls a photovoltaic plant can morph from being simply an intermittent energy resource to one also providing grid services ranging from spinning reserves, load following, voltage support, ramping, frequency response, variability smoothing and frequency regulation to power quality, the report said.

    The ISO said the most unexpected and significant benefit from the tests was the "agile" voltage support the solar plant offered when it produced power during the day and at night when it could absorb a small amount of power from the grid.

    The ISO, NREL and First Solar intend to explore economic and contractual incentives that could be used to encourage solar facilities to provide reliability services.

    The ISO and NREL are also considering conducting simultaneous tests of ancillary service controls by solar PV and wind generation to understand how working in tandem they can provide various combinations of ancillary services.
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    Precious Metals

    Acacia confirms merger talks with Endeavour Mining

    Gold miner Acacia Mining said on Friday it was in early talks about a possible merger with Canadian gold miner Endeavour Mining.

    Acacia, which operates mines and exploration projects in Tanzania, Kenya, Burkina Faso and Mali, was responding to media reports.

    The company added that there was no certainty of a deal.

    Endeavour also confirmed preliminary discussions had taken place with Acacia.

    Acacia had a market value of £1.72-billion pounds ($2.1-billion) as of January 12, while Endeavour had a market value of C$2.18-billion ($1.66-billion).

    Endeavour bought True Gold Mining for about C$240-million in March, giving it access to a low-cost gold mine in Burkina Faso.

    Gold prices are expected to rise in 2017 as geopolitics, deflationary pressure, more quantitative easing, negative interest rates, Brexit drive demand for the precious metal, which is seen as a safe haven.
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    Base Metals

    Freeport can export!

    Copper-mining giant PT Freeport Indonesia has, in principle, agreed to change the company'€™s contract of work (CoW) into a special mining license (IUPK) as required by the government, a deal that will enable it to renew its concession rights earlier than expected, a senior official at the Energy and Mineral Resources Ministry has said.

    '€œThis is an important milestone that will give a way out to accelerate decisions regarding Freeport Indonesia'€™s operational continuity,'€ the ministry'€™s spokesman Dadan Kusdiana said in a press briefing after the ministry'€™s meeting with the company'€™s executives.

    Freeport Indonesia'€™s future operations have long been an issue partly because the company is seeking certainty for its massive investment in underground mining as well as in developing a copper smelter.

    Freeport Indonesia'€™s current CoW will expire in 2021 and under current regulations any request for an extension can only be made two years prior to expiry. 

    However, with the immediate change from CoW to IUPK, the contract term will no longer be valid as Freeport Indonesia will operate under a new licensing regime. 
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    Codelco chairman treated for minor injuries after package explodes

    The chairman of Codelco, Chile's state-run copper miner, was being treated in the hospital for minor injuries after receiving a package that exploded at his home on Friday.

    Oscar Landerretche "is in a good state of health after being a victim today of the explosion of an artifact that he received at his home," said Codelco, the world's largest copper miner.

    Chilean President Michelle Bachelet said in comments to journalists that Landerretche had received some injuries on his arms and abdomen, and that his family had been unhurt.

    "This was unacceptable and of course specialist police forces are investigating," she said.

    It was not immediately clear who was behind the attack. Chile, which returned to democracy in 1990 after a 17-year dictatorship, is normally one of Latin America's most stable countries.

    However, there have been a number of low-level attacks by anarchist groups in recent years. In September 2014 several people were injured after a device exploded next to a metro station.

    Landerretche is a 44-year-old economist who has led Codelco's board, a government-appointed position, for the last two years. The miner is part-way through an ambitious investment program but has struggled to turn a profit against a backdrop of low global copper prices.

    Copper industry workers said he was well respected and they were baffled as to the reason behind the attack.

    "We copper workers reject this kind of act," said Codelco union leader Raimundo Espinoza.

    "I don't think Oscar is the kind of person who has enemies," said copper mining veteran and ex-Codelco chief executive Diego Hernandez to CNN Chile.
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    Indonesia won't flood nickel market: minister

    Indonesia's abrupt easing of a three-year ban on nickel ore exports will not flood the global market but instead is aimed at balancing the country's smelters and creating job opportunities at mines, top mining officials said on Saturday.

    Indonesian mines may export up to 5.2 million tonnes of nickel ore a year under the country's new rules, the mining minister said, only a fraction of its shipments when it was once a top global supplier of the stainless steel material.

    Energy and Mineral Resources Minister Ignasius Jonan's comment came after an industry backlash over the government's decision on Thursday to lift a ban on the export of nickel ore and bauxite under certain conditions.

    Nickel prices and the shares of companies that had heavily invested in smelters tumbled after the news, as analysts said the resumption of nickel ore exports from Indonesia could wreck the global prices of the commodity.

    Senior mining officials defended the new rules, saying that the amount of nickel ore that can be exported must correspond to the miners' smelter capacity and that it will be "comparable".

    "It's not like they build small smelters and export as much as they can. No, we are going to regulate that," the deputy mining minister, Arcandra Tahar, told reporters.

    The government banned the export of nickel ore and bauxite in 2014 in order to spur higher-value processing of mineral ores. A year before the ban kicked in, Indonesia exported around 60 million tonnes of nickel ore.

    The ban cost Southeast Asia's biggest economy billions of dollars in lost revenue and led to job losses, as many mines laid off their workers.

    The Philippines took Indonesia's crown as the world's top nickel ore exporter, accounting for around one-quarter of the world's mined nickel supply, although its government has since restricted output due to environmental concerns.


    Under Indonesia's new rules announced on Thursday, nickel miners must dedicate at least 30 percent of their smelter capacity to process low-grade ore, defined as having a nickel content of less than 1.7 percent.

    Low-grade ore is harder to process and smelters have been reluctant to take it. But in order for miners to get high-grade ore, they have to dig through low-grade ore first, which then gets thrown out.

    "If local smelters cannot absorb the low-grade nickel, why are they not happy that we allow the nickel miners to export some of it?" Jonan said.

    "The goal of the government is for all the raw materials to be smelted here, but it will take time," he said, noting that the policy shift would protect jobs and increase export duties.

    Indonesia produces 17 million tonnes of nickel ore per year, of which 10 million is low-grade, according to Jonan. The country's nickel smelting capacity is currently 16 million tonnes and may reach 18 million this year, he added.

    Miners will be able to export ore over the next five years only if they show progress toward building smelters either individually or with partners, among other conditions.

    Last year, Tedy Badrujaman, the chief executive of PT Aneka Tambang Tbk (Antam), said the state-controlled miner hoped to export 20 million tonnes of low-grade nickel ore.

    Antam's shares jumped 6.4 percent on Friday as analysts said the company's expected increase in sales could make up for a fall in nickel prices. Asked when Antam will start shipping out nickel ore, the company's corporate secretary said it was still making calculations.


    In 2014, Indonesia banned mineral ore exports while allowing the shipments of concentrates to continue for three more years. The full ban on concentrate exports was supposed to have kicked in on Jan. 12, but the government also relented on that deadline.

    Under the new regulation, companies, including U.S. mining giant Freeport-McMoRan Inc, can continue exporting copper concentrate if they meet certain conditions.

    Jonan said the ministry received a letter from Freeport on Friday stating its commitment to convert to the new special mining permit. The government will grant an export recommendation for Freeport "soon", Jonan said.

    However, Freeport has to divest a stake of up to 51 percent, from 30 percent previously, at fair market value and an initial public offering is being considered, Jonan said. Freeport has only divested 9.36 percent so far.

    Jonan had met Freeport CEO Richard Adkerson and Chappy Hakim, the CEO of the U.S. company's Indonesian unit, in Jakarta on Friday, a person with direct knowledge of the matter said.

    A Freeport Indonesia spokesman said that he had no knowledge of the meeting and that the company is still studying the impact of the special mining permit on its operations.
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    India considering minimum import price on aluminium - govt official

    India is considering imposing a minimum import price on aluminium, the top bureaucrat in the ministry of mines said on Friday.

    "MIP (Minimum Import Price) on aluminium is under consideration. We will take a week to send our recommendation forward," the mines secretary Balvinder Kumar told Reuters.

    Last month, an Indian government body decided against imposing safeguards on some aluminium products citing lack of evidence over imports hurting profitability of domestic industry.
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    Steel, Iron Ore and Coal

    Coal’s recovery too good to resist for world’s biggest exporter

    Indonesia will exceed its coal production target for another year as miners cash in after prices recovered from a five-year collapse.

    The world’s biggest exporter will produce about 489-million metric tons this year, 18% above the government-mandated target, according to energy ministry forecasts. That’s up from last year’s output estimated at 434-million tons and would be at least the third year in a row that the nation has produced more than it planned.

    Southeast Asia’s largest economy has been trying to cap its coal output in an attempt to preserve resources for future generations of Indonesians. That’s proving a challenge as resurgent prices tempt producers to maximise output from new and existing mines to meet demand at home and abroad.

    “Actual annual production will generally be higher than targeted because prices are now higher,” Bambang Gatot Ariyono, the director-general of coal and mineral resourcesat the energy and mineral resources ministry, said January 5. “It compensates for previous losses.”

    Coal more than doubled in 2016 after tumbling to the lowest in almost a decade as efforts by China to reduce excess supply pushed prices higher and faster than anyone anticipated. The recovery is breathing new life into an industry hammered by overcapacity and shrinking demand, reviving share prices of miners around the world, from Indonesia’s PT Bumi Resources to Australia’s Whitehaven Coal.

    A gauge of Indonesian mining companies surged more than 70% in 2016, dwarfing the 15% advance in the JakartaComposite index. The gauge slumped 41% in 2015, its worst year since 2008.

    Bumi Resources, Indonesia’s biggest coal producer, expects to mine more than 90-million tons this year, compared with 86-million tons in 2016, corporate secretary Dileep Srivastava said in an e-mail. PT Adaro Energy, operator of the country’s largest mine, didn’t provide estimates for 2017 but the company said in e-mail that it “will continue to maintain production discipline and improve efficiency to grow the company sustainably in the long term.”

    The government isn’t willing to force companies to curtail output from newly constructed mines after granting them production licences, according Ariyono from the EnergyMinistry. “We can’t tell them to stop,” he said.

    A growing share of Indonesia’s output is remaining in the country, with 25% of supply this year forecast to be consumed domestically, up from 21% in 2016 and 19% in 2015, according to Energy Ministry estimates. The government sees local demand at 121-million tons this year, up from an estimated 91-million tons in 2016, according to the data.

    Still, Indonesia exports most of what it mines, with China, India, South Korea, and Japan among its biggest customers. With international prices now showing signs of peaking, Indonesia isn’t being complacent about the longevity of the rally, according to the country’s coal mining association.

    “Producers view that current high prices can’t be used as future reference,” said Hendra Sinadia, deputy executive director of the Indonesian Coal Mining Association.

    Thermal coal in Indonesia climbed for a seventh month to $101.69 a metric ton in December, the highest since 2012 and the longest run of gains in data compiled by Bloomberg since 2009. Australia’s Newcastle coal more than doubled last year to almost $110 a ton in November, before slipping to about $84 this month.

    China, which produces and consumes more than any other country on the planet, has worked overtime to cool the market, reversing some output restrictions and encouraging more production before winter. The nation’s output rose in November to the highest level in a year, according to the National Bureau of Statistics.

    “China will re-balance between cutting production and meeting domestic demand,” Sinadia said. “They are doing this right now.”

    Indonesia’s miners are also trying to wean themselves off China, with exports shrinking over the past three years. The nation accounted for almost 20% of Indonesia’s total overseas shipments in 2015, down from almost 31% in 2013, according to data from the state statistics agency. Over the same period, India’s coal purchases rose to 34% of Indonesia’s exports, from 28% in 2013, the data show.

    “When Bumi realised that China growth was showing signs of a slow down three to four years ago we proactively diversified into other markets such as India and developed a few new ones like Philippines,” Bumi Resources’s Srivastava said. “We prefer not to be overly exposed in any single market but to have a diversified market exposure.”

    Indonesia’s exports to China may fall again in 2017 as rising domestic output erodes its appetite for imports, according to Michelle Leung, a Hong Kong-based analyst at Bloomberg Intelligence.

    “Exports will depend on the level of demand in the seaborne market,” said  Rory Simington, principal coal analyst at Wood Mackenzie. “Indonesian producers have the flexibility to satisfy demand from China, India and rest of the seaborne market, provided the price is right.”

    Attached Files
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    Hubei to shut all coal mines in next two years

    Hubei province in central China planned to shut all of its coal mines in the next two years, responding to the nation's supply-side structural reform, said Acting Governor Wang Xiaodong at a meeting held on January 15.

    In 2016, the province slashed 10.11 million tonnes per annum (Mtpa) of coal capacity, outstripping the 8 Mtpa target set for 2016-2018.

    Meanwhile, 3.38 Mtpa of steel capacity was cut during the year.

    A total of 15,429 layoffs will be resettled over 2016-2018.

    Attached Files
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    China's top coal province to cut 20 mln T of capacity in 2017 - Xinhua

    China's top coal-producing province Shanxi will cut 20 million tonnes of output capacity this year, state news agency Xinhua reported.

    Tackling excess coal production capacity will remain the provincial government's priority in 2017, Xinhua quoted Shanxi Governor Lou Yangsheng as saying on Saturday.

    The reduction cuts should be achieved through market and law-based means, Lou said, while mergers and acquisitions in the sector would also be encouraged.

    Shanxi, in the country's north, accounts for about a quarter of coal production in China, which has been working to curb excess capacity and a supply glut of the fossil fuel. The province shed 23.25 million tonnes of coal production capacity and shut down 25 coal mines last year, Xinhua said.

    The province plans to cap output and consolidate the industry around big producers over the next four years in a bid to boost efficiency, according to a blueprint by the provincial government. The province's annual coal output would be capped by 2020 at 1 billion tonnes and capacity at 1.2 billion tonnes annually by 2020.
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    India Dec coal imports down 25pct on year

    Coal imports by India fell 25% on the year to 14.31 million tonnes in December, due to higher availability of domestic fuel, mjunction, an online procurement and sales platform floated jointly by state-run SAIL and Tata Steel said.

    "The year-on-year imports were lower because public sector power generation companies have virtually stopped buying imported coal as they are getting almost sufficient supplies of domestic coal," mjunction CEO Vinaya Varma said.

    Further, Varma said, there was sharp increase in non-coking coal imports in December as compared to November last year as non-power sector consumers started stocking up the material in the aftermath of softness in international prices towards end of November.

    "International coal prices softened by 15% in the first week of December 2016 compared with the prices prevailing in the third week of November and this prompted price-sensitive Indian consumers to bring in higher quantities of imported coal that has consistency in quality," Verma added.

    Expressing concern over import of coal despite being surplus in the dry fuel, Coal and Power Minister Piyush Goyal had earlier said that Coal India has set a target to replace about 15 million tonnes of imported coal with indigenous fuel in the next few months.

    Helped by a record coal production by the world's largest coal miner Coal India, India reduced its import bill of the dry fuel by more than Rs 28,000 crore in the last fiscal.
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    Shining iron-ore future for Sierra Leone possible as Chinese investors commit

    The $700-million planned injection by Chinese State-owned mining company Shandong Iron and Steel into an iron-ore processing plant at the Tonkolili mine, in Sierra Leone, has further cemented the West African region’s strong mining outlook, BMI Research said on Friday.

    The new investment, which was described as the largest industrial investment in the country's history, followed Shandong’s acquisition of the remaining 75% stake it did not own from African Minerals in 2015 after the Ebola crisis halted operations and left the former owner in debt.

    “This follows a growing trend of Western miners pulling out of the region owing to rising costs and debt loads [and] being replaced by risk-tolerant, government-backed Chinese investors,” BMI said in its latest industry trend analysis.

    The emerging trend seemingly bodes well in certain respects for Sierra Leone, with BMI’s view that China’s provision of additional domestic infrastructure stimulus measures have propped up prices, contributing to a “very positive” past year for iron-ore.

    “We believe Sierra Leone's iron-ore production will remain on an uptrend in the coming years and the country will outpace Mauritania as the second-largest producer in Africaby 2019.”

    The Tonkolili mine is considered to have access to some of the largest iron-ore resources in Africa.

    “The mine's current production capacity is 20-million tonnes a year and it was initially planned that the mine would eventually produce up to 35-million tonnes of iron-ore a year. All of the iron-ore mined at Tonkolili will be shipped to China, according to Shandong Iron And Steel,” BMI Research explained.

    However, despite this, BMI Research maintained its forecast of a slowdown in iron-ore production growth in Sierra Leonefrom 15% in 2017 to 4.2% in 2021, as the Chinese-backed investment project was focused on the processing of iron-oreand was unlikely to impact its output significantly.

    While the processing of the ore domestically could boost the labour market, it is still unclear whether local workers will be selected for the value-addition process.

    “Further, the total contribution of Sierra Leone's miningindustry as a percentage of gross domestic product (GDP) is no longer as significant as it once was and will continue to decrease in the coming years, even as GDP growth increases,” the firm added.

    GDP growth is expected to average less than 7% over the next ten years.

    “Our view for iron-ore prices to moderate towards the end of 2017 and in 2018 could even put the whole investment at risk, which would be a big blow to an economy that has only recently started recovering from the Ebola crisis,” BMI Research concluded.
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    Tokyo Steel raises product prices for 3rd straight month; cites China pickup, Olympics

    Jan 16 Tokyo Steel Manufacturing Co Ltd , Japan's top electric-arc furnace steelmaker, will raise product prices for a third straight month, citing firmer international prices and domestic building projects getting under way for the 2020 Olympics.

    Tokyo Steel, which makes beams and bars used for in the construction industry, said on Monday product prices will climb by about 2-4 percent for February delivery, marking the first time in nearly six years that it has raised prices for three consecutive months.

    Managing director Kiyoshi Imamura said at a news conference there is room for the company's prices to move even higher later this year. Tokyo Steel's pricing strategy is closely watched by Asian rivals such as South Korea's Posco and Hyundai Steel Co, as well as China's Baoshan Iron & Steel Co (Baosteel).

    "The steel market has been under pressure due to massive China production and exports in the past two years," Imamura said, "but things look different now as China's demand has recovered while its exports have declined."

    Among Olympic construction projects under way in Tokyo, Imamura cited the building of the main stadium to host the games, with work on the Olympic village for athletes due to start this month.

    The latest move would translate to price rises of 1,000-3,000 yen ($8.80-26.30) a tonne, Imamura said. ($1 = 114.0500 yen)
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    China's key steel mills daily output edges up in late Dec

    Daily crude steel output of China's key steel mills edged up 0.49% from ten days ago to 1.66 million tonnes over December 21-31, according to data released by the China Iron and Steel Association (CISA).

    The country's total crude steel output was estimated at 2.18 million tonnes each day on average during the same period, edging up 0.46% from ten days ago, the CISA said.

    China's daily crude steel output averaged 2.20 million tonnes during 2016, and that during December was 1.71 million tonnes.

    By December 31, stocks of steel products at key steel mills stood at 12.31 million tonnes, down 3.31% from ten days ago, the CISA data showed.

    In late December, the average price of crude steel dropped 242 yuan/t from ten days ago to 2,720 yuan/t, while that of steel products rose 7 yuan/t from ten days ago to 3,667 yuan/t.
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    Brazil's Usiminas unit saw no risk from capital reduction -source

    Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais SA's plan to tap excess cash from a mining subsidiary that was rejected this week was found not to pose any potential financial risk for the unit, a person briefed on the matter said.

    In recent months, Usiminas sought tapping excess cash at the Musa Mineração Usiminas SA through a capital reduction, to comply with terms of a 6 billion-real debt refinancing accord with banks. The initiative was rejected earlier this week by Musa shareholder Sumitomo Corp.

    According to the person, executives at Musa ran simulations under which the 1 billion-real ($315 million) capital reduction would take place, with none of them pointing to any cash strain.

    The simulations were run late last year at the behest of Sumitomo, the person said. Musa offered to formally present results to the management and board of Usiminas so they were aware of the implications of the plan ahead of the Jan. 10 vote, the person said.

    Sumitomo vetoed the plan that day, claiming it could put at risk Musa's financial position for the years to come. Belo Horizonte, Brazil-based Usiminas declined to comment, as did Musa and Sumitomo. The person requested anonymity due to the sensitivity of the issue.

    Usiminas has vowed to legally challenge the veto through any "valid legal means." The veto bars the debt-laden steelmaker from tapping cash from Musa, in which Sumitomo has a 30 percent stake. Analysts have said that Musa is not in urgent need to deploy cash because it is not currently undertaking significant investment plans.

    The situation is another chapter in a 2 1/2-year rift between the steelmaker's two top shareholders - Nippon Steel & Sumitomo Metal Corp and Techint Group's Ternium SA . Ternium and Nippon Steel have been battling over control of Usiminas, which is suffering with Brazil's worst recession ever and high debt.

    This week, Ternium called on Usiminas Chief Executive Officer Rômel de Souza to accelerate the tapping of Musa's cash before the debt refinancing accord's June 2017 deadline.

    This week, Reuters reported, citing documents, that Souza and Musa President Wilfred Brujin had unilaterally agreed to the use of Musa's excess capital without the acquiescence of Usiminas' board. Souza is also the chairman of Musa.

    The document from November showed that two Nippon Steel-appointed members of the Usiminas board suggested Musa could extend a loan to Usiminas to meet the refinancing deadline of June 2017.
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