Mark Latham Commodity Equity Intelligence Service

Tuesday 5th April 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    KPMG South Africa cuts links with firm owned by Zuma friends


    Global accountancy firm KPMG's South African arm has severed its ties with a company owned by the Guptas, a family of Indian-born businessmen, due to a scandal over their relationship with President Jacob Zuma, according to an internal circular.

    In the email sent to KPMG staff and seen by Reuters, local Chief Executive Trevor Hoole said he had decided to stop auditing Oakbay Resources and Energy, a Gupta mining holding company, after consulting regulators, clients and KPMG's internal risk departments.

    "I can assure you that this decision was not taken lightly but in our view the association risk is too great for us to continue," Hoole said in the email.

    "There will clearly be financial and potentially other consequences to this, but we view them as justifiable."

    Oakbay did not respond to an email request for comment. A KPMG spokesman declined to comment.

    The three Gupta brothers moved to South Africa from India at the end of apartheid in the early 1990s and went on to build a business empire that stretches from technology to the media to mining.

    They have also forged a close personal relationship with Zuma, whose motorcade has been spotted several times pulling into their lavish mansion in suburban Johannesburg.

    Zuma's son, Duduzane, sits on the board of at least six Gupta-owned companies, according to company registration papers.

    Allegations of Gupta meddling in politics burst into the open last month when Deputy Finance Minister Mcebisi Jonas said they offered him the top job at the Treasury before Zuma inexplicably fired Jonas' boss, Nhlanhla Nene, in December.

    Zuma insists his relationship with the family is above board, while the Guptas have said they are pawns in a politically motivated campaign to remove Zuma from office.

    http://www.reuters.com/article/safrica-kpmg-ore-idUSL5N1771UX
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    China sets energy use target for 2016


    China aims to keep total energy consumption at around 4.34 billion tonnes of standard-coal equivalent in 2016, with non-fossil fuel consumption rising to 13 percent, the National Energy Administration said Friday.

    Gas consumption will account for 6.3 percent of total energy consumption this year, and the proportion of coal consumption will fall below 63 percent, according to a guideline issued by the administration.

    On the supply side, the country is expected to produce 3.6 billion tonnes of standard coal equivalent in 2016, with crude output reaching 200 million tonnes and gas output standing at 144 billion cubic meters.

    The country aims to reduce energy consumption per unit of gross domestic product by at least 3.4 percent year on year in 2016, according to the guideline.

    The administration called for efforts to promote clean energy and emission reductions, further optimize the country's energy structure and strengthen international energy cooperation.

    China plans to invest 30 billion yuan ($4.62 billion dollars) in recharging-infrastructure construction in 2016 to promote the use of electric vehicles, the guideline said.

    The country will build 2,000 charging stations, 100,000 public charging posts and 860,000 private charging posts in 2016.

    China will also kick off a new round of rural electric power grid upgrades to improve rural residents' lives and bolster the country's economy, according to the guideline.

    China's energy consumption rose 0.9 percent year on year to 4.3 billion tonnes of standard coal equivalent in 2015.

    http://en.chinamining.com.cn/News/2016-04-05/1459817751d75951.html

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    Oil and Gas

    Saudi bans Iranian shipping.


    At first, when it announced the terms of its "oil freeze" agreement with Russia one month ago, Saudi Arabia seemed willing to grant Iran a temporary exemption from the supply freeze, at least until it recovers its pre-embargo production levels. That however changed on Friday when the country's Deputy Crown Prince Mohammed bin Salman, shocked Saudi Arabia's Arab allies in the Persian Gulf, telling Bloomberg his country would only join the freeze curbe Iran - and all other OPEC member nations - also joined.

    Following the Friday announcement, yesterday Iran's oil minister Zangadeh made it clear that the country rejects Saudi demands, and would continue ramping up production at will, in the process making the April 17 Doha meeting meaningless.

    And then, in a new and unexpected retaliation by Saudi Arabia for Iran's intransigence, moments ago the FT reported that Saudi Arabia has taken steps to slow Iran’s efforts at increasing oil exports, banning vessels that transport Iranian crude from entering their waters, according to traders and shipbrokers.

    More details from FT:

    Iranian vessels carrying the country’s crude are restricted from entering ports in Saudi Arabia and Bahrain, according to a circular sent by a shipping insurance company to its members in February.

    The notice said ships that have called to Iran as one of its last three ports of entry will also require approval from the Saudi and Bahraini authorities before entering their waters. Shipbrokers and traders have relayed the same messages since.

    Iranian oil executives have expressed their concern about the message circulating in the market, saying it is only adding to problems they face in selling their crude.

    Saudi Aramco, the state oil company, and The National Shipping Company of Saudi Arabia (Bahri) did not respond to requests for comment.

    It is not clear just how much of an impact this escalation will have because as shown in the map below, Saudi territorial waters are hardly a major factor in Gulf shipping lanes.

    Image title



    However, considering that Iran already faces insurance, financing and legal obstacles despite the lifting of sanctions linked to its oil industry in January, and considering the amount of clout the Saudis have with financial partners, its attempt to make Iran's oil production more difficult will surely reap at least partial success.

    Indeed, as the FT adds, oil tanker association Intertanko and other industry participants say no formal notice has been given by Saudi Arabia but uncertainty is making some charterers less willing to lift Iranian crude.

    ”It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis.”

    http://www.zerohedge.com/news/2016-04-04/saudis-retaliate-oil-freeze-fallout-ban-transport-iranian-crude-territorial-waters

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    Algeria's energy output slips 1.3 pct in 2015, exports flat


    Algeria's energy exports stagnated in 2015, held back by lower output and a rise in domestic consumption, official data seen by Reuters on Monday showed.

    Total energy sales reached 100 million tonnes of oil equivalent, unchanged from the previous year, while production declined 1.3 percent to 153 million tonnes of oil equivalent.

    The North African OPEC member, a major gas supplier to Europe, is trying to increase oil and gas production, which has stagnated for a decade. But foreign oil companies remain reluctant to invest because of Algeria's contract terms and the drop in world oil prices.

    Energy sales make up 60 percent of the state budget and account for 95 percent of Algeria's total exports despite efforts to diversify the economy away from oil and gas.

    The country relies on earnings from the energy sector to pay for its imports and a wide range of subsidies, from food and fuel to free housing.

    However, public finances have been hit since crude oil prices started falling in June 2014, forcing the government to freeze several economic projects.

    Its foreign exchange reserves, which are usually used to cover deficits, fell $35 billion in 2015 to $143 billion, while its trade deficit reached $13.71 billion in 2015, reversing a $4.306 billion surplus in the previous year.

    It has failed to reverse a decline in oil and gas output due to a lack of foreign investment in recent years.

    Crude oil and condensate production fell 2.8 percent to 58.9 million tonnes of oil equivalent in 2015, while natural gas output dropped 1 percent to 82.5 billion cubic metres, according to the data.

    Liquefied natural gas (LNG) production declined 7.6 percent to 27 million cubic metres. Oil refined products output dropped 4.6 percent to 29.3 million tonnes.

    Petroleum liquefied gas output rose 2 percent to 9.6 million tonnes in 2015, the data showed.

    Algeria has launched a campaign to reduce domestic energy consumption but demand is still on the rise.

    Demand for oil refined products, mainly gasoline and diesel oil, rose 5.5 percent to 18.3 million tonnes, while natural gas consumption increased by 5 percent to 39.5 billion cubic metres.

    Demand for electricity rose 8 percent last year.

    http://www.reuters.com/article/algeria-energy-idUSL5N177296

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    Maersk puts pressure on Danish govt with threat to shut gas field


    A.P. Moller-Maersk's oil subsidiary said on Monday it will shut Denmark's largest gas field in 2018 if it cannot find an economically viable solution for the ageing site by the end of this year.

    Its threat adds pressure on the Danish government from energy companies to adjust taxes on oil and gas production. They say the slump in oil prices means investing to extract the remainder of the country's declining reserves is no longer economically viable.

    The Tyra complex produces around two thirds of Denmark's gas, according to Maersk. But the company said the field was approaching the end of its operational life after more than 30 years of production and due to subsidence of the underground chalk reservoir, and it would close the field in October 2018 if it became uneconomic to continue.

    "We're closing down for safety reasons and not due to the oil and gas prices. But of course we look at the prices when looking at this large, long-term investment," the head of Maersk Oil Denmark, Martin Rune Pedersen, told Reuters.

    Energy minister Lars Christian Lilleholt told Reuters in October that the government would look at introducing tax credits for investments in North Sea oil and gas production, but said he was awaiting recommendations from a group of experts looking at the issue.

    "It seems pretty obvious that if the taxes are not adjusted, then we will see a scale down," Sydbank analyst Jacob Pedersen said.

    Denmark's tax proceeds from the North Sea have fallen gradually from 36 billion Danish crowns ($5.5 billion) in 2008.

    In December the government said it expected tax revenues from oil and gas of just 4 billion crowns this year, but that was based on an oil price of almost $50 per barrel -- far above the current $38 level for Brent.

    The former centre-left government increased taxes on oil and gas in 2013 so that the state now gets around 65 percent of the profit from the production.

    The Tyra complex is a hub for a number of smaller facilities and more than 90 percent of Denmark's gas -- 60,000 barrels of oil equivalents last year -- is processed through the field.

    Last week Danish majority state-owned utility DONG Energy (IPO-DONG.CO) said it had terminated a contract to build an oil and gas platform for its Hejre field, postponing indefinitely the major development offshore Denmark.

    Maersk Oil has been mentioned in Danish media as a possible buyer of DONG's 60 percent stake in the Hejre project.

    "It makes good sense to see how one can take advantage of existing activities and installations in the area. But we must see what the Herje consortium decides on," Maersk Oil's Pedersen said.

    Maersk Oil operates Tyra on behalf of the Danish Underground Consortium (DUC) partnership, owned 31.2 percent by Maersk, 36.8 percent by Shell, 20 percent by Danish state-owned Nordsofonden and 12 percent by Chevron.

    http://www.reuters.com/article/maersk-gas-idUSL3N1772E5

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    Petrobras Chairman, Management Said Split on Gasoline Price Cuts


    Petrobras Chairman Nelson Carvalho has opposed a management proposal to reduce the price of gasoline in a bid to boost sales, said a person familiar with the discussions.

    Jorge Celestino, the head of refining, proposed a price cut at a time Petrobras is losing market share, said the person, who asked to remain anonymous because the discussions aren’t public. Chief Executive Officer Aldemir Bendine wrote a letter to the board Monday saying no decision has been made and the company will continue to debate which is the most favorable price level for the company, said the person. Globo newspaper previously reported the fuel price discussions.

    A price cut at the world’s most indebted oil producer would come as President Dilma Rousseff is facing an impeachment battle in Congress. In his letter to the board, Bendine rejected any speculation that the price debate was driven by political considerations, said the person. While the company can reduce prices without board approval, historically the board has weighed in on any adjustments. The stock fell 9.3 percent to 7.58 reais at close in Sao Paulo on Monday.

    While the company is always assessing the competitiveness of its commercial policies, there are no plans in place to cut fuel prices, Petrobras said in a regulatory filing.

    Carvalho’s position marks a shift at the oil producer’s board, which consistently opposed price increases when it was led by former finance minister Guido Mantega during the commodities boom. Petroleo Brasileiro SA, as it is formally known, lost tens of billions from 2011 through 2014 when it was selling imported gasoline and diesel at a loss to help Rousseff’s administration contain price growth.

    "Fuel prices are always a sensitive topic given Petrobras’s history on fuel subsidies," Edmar Almeida, an energy specialist at the Rio de Janeiro Federal University, said by phone. "There is no doubt that cheaper gasoline would be good news for the government. But it could also be an honest move to recover market share from ethanol."

    Expensive gasoline has made ethanol more competitive in a country where a majority of vehicles run on both fuels. Petrobras last adjusted fuel prices in September, increasing gasoline by 6 percent and diesel by 4 percent.

    Gasoline and diesel currently sell at premiums of 32 percent and 67 percent, respectively, compared to international reference prices, Bank of America Corp. said in a note to clients Monday.

    http://www.bloomberg.com/news/articles/2016-04-04/petrobras-chairman-and-management-split-on-gasoline-price-cuts

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    Eni to See `Negligible' Impact From Halt of Italian Oil Field


    The shutdown of Europe’s largest onshore oil field over alleged illicit waste disposal at a nearby treatment plant will probably only have a “negligible” effect on Eni SpA’s earnings because Italy often allows operations to resume during probes, said Giuseppe Rebuzzini, an analyst at Fidentiis Equities SV SA.

    “I would assume in a matter of days or a few weeks, Eni might restart using the oil treatment plant and consequently might restart production in the Val d’Agri field,” said Rebuzzini, highlighting the economic importance of the operation in Italy’s southern region of Basilicata.

    Production at Val d’Agri was halted on March 31 after Italian authorities seized part of a nearby oil-treatment facility amid a waste-disposal investigation. Eni, which has said it’s cooperating with the authorities, has asked prosecutors to restart production after suspending staff as part of the probe. The company declined to comment on the impact of the halt at the field in which Royal Dutch Shell Plc also holds a stake.

    Last year, a shipyard owned by Fincantieri SpA at Monfalcone near Trieste was allowed to resume production within a week after authorities started an investigation into waste disposal. That pattern was also repeated at a plant owned by steelmaker Ilva SpA in Taranto.

    “My take is this is probably going to happen” at Val d’Agri, Rebuzzini said.

    The Val d’Agri field produces about 75,000 barrels of oil a day and accounted for about 40 percent of Eni’s total Italian oil and gas production in 2014, according to the latest public data released by the company. Eni, operator of the Val d’Agri field, had a daily global output of 1.6 million barrels in 2014.

    Investors are currently more focused on Eni’s strategy in relation to gas discoveries in Egypt and Mozambique, according to Natixis SA.

    “In terms of news flow, it would be certainly more meaningful compared to Val d’Agri oil production,” Baptiste Lebacq, analyst at Natixis, said by phone.

    La Repubblica reported last week that Eni is in talks with Russia’s Lukoil PJSC to sell a 20 percent stake in its Zohr gas discovery off Egypt while the Wall Street Journal reported on March 24 that Exxon Mobil Corp. was in discussions to acquire a stake in Eni’s Mozambique project. Eni declined to comment.

    http://www.bloomberg.com/news/articles/2016-04-04/eni-to-see-negligible-impact-from-halt-of-italian-oil-field

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    Lukoil Full-Year Profit Declines 26% After Crude-Oil Prices Drop


    Lukoil PJSC, Russia’s second-largest oil producer, said profit fell 26 percent last year following a slump in crude prices and a change in accounting.

    Net income dropped to 291 billion rubles ($4.3 billion) from 396 billion rubles a year earlier, the Moscow-based company said Monday in a statement. Sales rose 4.4 percent to 5.75 trillion rubles.

    Oil prices have tumbled following a 2014 decision by the Organization of Petroleum Exporting Countries to defend market share amid a worldwide glut. Other Russian oil producers have also been hurt by crude’s collapse, with Rosneft OJSC, the largest, reporting lower quarterly profit last week. Gazprom Neft PJSC posted a quarterly loss in March.

    Lukoil’s earnings statement is its first to conform to International Financial Reporting Standards as the oil producer brings its reporting into line with a 2012 law for publicly traded companies. Lukoil previously published results according to Generally Accepted Accounting Principles. Following the switch, Lukoil will continue to report in rubles.

    The company’s oil and natural-gas output rose 2.8 percent to 2.38 million barrels a day last year. Crude production increased to 2.05 million barrels a day. Gas volumes expanded to 327 billion cubic meters.

    Lukoil reported free cash flow of 248 billion rubles for the year following 607 billion rubles of capital spending, according to the statement. Adjusted earnings before interest, taxes, depreciation and amortization advanced to 946 billion rubles from 890 billion rubles.

    http://www.bloomberg.com/news/articles/2016-04-04/lukoil-full-year-profit-declines-26-after-crude-oil-prices-drop

    “Free cash flow was very impressive,” Nazarov said by e-mail. “Lukoil seems to be in a position to increase final dividends.”

    The cash pile is a boon to a company that’s seen profit dragged lower by sliding oil prices. Moscow-based Lukoil, which said in November it expected to pay a bigger dividend on 2015 profit than a year earlier, is among Russian oil producers prioritizing shareholder payouts after benefiting from declines in the ruble that reduced costs.

    http://www.bloomberg.com/news/articles/2016-04-04/lukoil-full-year-profit-declines-26-after-crude-oil-prices-drop

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    U.S. oil January demand drops by 1 percent year-on-year - EIA


    U.S. oil demand dropped in January from a year earlier, as demand for gasoline and distillates products weakened, according to data released on Monday by the U.S. Energy Information Administration.

    Total U.S. oil demand fell 194,000 barrels per day, or 1 percent from the same month last year, to 19.05 million bpd, EIA data showed.

    U.S. distillate demand, which was pummeled by a historically mild winter, fell 9.9 percent from January last year, as warmer weather cut demand for heating oil.

    U.S. gasoline demand, which has seen sustained strength amid lower pump prices, fell in January by 0.6 percent, or 48,000 bpd, year-on-year.

    The January drop in overall oil demand comes on the heels of a strong December. At 19.5 million bpd, December demand rose 0.4 percent, the first year-on-year rise in four months.

    http://www.reuters.com/article/eia-oil-demand-idUSL2N1770Z7

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    How Cushing copes with full crude tanks


    From the air above this small Oklahoma town, the 300 steel oil storage tanks that dot the landscape appear filled to the brim, their floating lids bobbing atop more than 65 millions of barrels of oil.

    There may be no better place to witness what a world awash in crude looks like, and the 9 square-mile (23.3 square km)complex seems to bear out oil traders' fears that the industry is running out of space to contain a historic supply glut that has hammered prices.

    Such worries make weekly estimates of Cushing stockpiles from the Energy Information Administration one of the hottest market indicators. These inventories peaked in mid-March and have edged lower since then. Some traders reckon they are unlikely to exceed those records for years as refiners rumble back from seasonal maintenance and demand rises. Others warn the stockpile could rise again.

    Up close, from a 24-hour bunker that controls a quarter of tank space here, the 'pipeline crossroads of the world', reveals its secret - there is some spare room left.

    On March 24, the day after U.S. government data showed Cushing's tanks held a near-record 66.23 million barrels of crude, Mike Moeller, manager at Enbridge, explained how the largest Cushing operator uses every last inch of usable space.

    Operators and technicians make it possible by moving a half-million barrels per day in internal pipelines that link the major pipelines and tanks of its 20 million barrel terminal.

    Enbridge's capacity has risen about a third over the past five years, but the volume of oil coursing through the jungle of pipes, valves and tanks that connects suppliers from as far away as Alberta's oil sands to the Gulf of Mexico refiners has quadrupled.

    "We are fuller than we have ever been," Moeller told Reuters. Customers tell Enbridge every month how much crude is coming, but Moeller and his team leave some space at the top of each tank that might be needed in an emergency.

    Every day, up to 6 million barrels of oil flows through Cushing's 13 major pipelines in or out of steel tanks - some the size of a football field - towering above the prairie otherwise studded with ranches and nondescript residential neighborhoods.

    The U.S. government estimates their operational limits at around 83 percent of their 'shell,' or design, capacity.

    In reality, the limit may be somewhat higher. Moeller says Enbridge can fill its storage space up to 85 percent capacity thanks to maneuvers orchestrated from its control room.

    One is shifting crude into and out of "condos" - tanks where capacity is leased out to multiple companies and crude mixed together, leaving the operator to track the exact volumes each has on hand.

    While all storage space is rented out, its actual use can vary in a 12-hour period, Moeller explains.

    Enbridge has also increased the number of connections to the other 13 Cushing terminals, circumventing valves that can curtail how much crude can be moved to large pipelines.

    With oil-flow acrobatics getting exceedingly complex, workers can ill-afford any lapse in concentration.

    The lights in the control room building get dimmer or brighter as the day or night progresses to keep workers alert through their shifts. An exercise bike is on hand if their energy starts to wane.

    To get timely estimates of Cushing's storage levels, energy information provider Genscape flies twice a week a helicopter over the tanks with an infrared camera onboard.

    It has registered some decreases in recent weeks, but Brian Busch, Genscape's director of oil markets and former oil trader, calls it an operational variance.

    "There's no reason to unwind a hedge yet," said Busch, adding the observations do not support yet some traders' view that crude prices should start recovering soon.

    http://www.reuters.com/article/usa-energy-cushing-idUSL2N17418Y

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    TransCanada shuts Keystone pipeline after leak in South Dakota


    TransCanada, the company behind the controversial Keystone XL pipeline proposal blocked by the Obama administration, has shut down its pipeline in South Dakota indefinitely following the detection of a possible leak Saturday afternoon.

    The Calgary-based firm said it is investigating the incident near its Freeman pump station, in a remote area of Hutchinson County, Reuters reports.

    It is not clear how much oil was spilled, but clean-up is underway, the article adds.

    TransCanada has advised affected shippers the line will remain closed until at least Friday.

    The Keystone pipeline carries oil south from Canada through eastern North Dakota, South Dakota and Nebraska. The pipeline is not the same as the proposed Keystone XL project.

    http://www.mining.com/transcanada-shuts-keystone-pipeline-after-leak-in-south-dakota/
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    U.S. judge approves BP settlement for 2010 Gulf of Mexico oil spill


    U.S. Judge Carl Barbier granted final approval on Monday to BP Plc's civil settlement over its 2010 Gulf of Mexico oil spill after it reached a deal in July 2015 to pay up to $18.7 billion in penalties to the U.S. government and five states.

    "Today's action holds BP accountable with the largest environmental penalty of all time while launching one of the most extensive environmental restoration efforts ever undertaken," U.S. Attorney General Loretta Lynch said in a statement.

    The company at the time said its total pre-tax charges from the spill set aside for criminal and civil penalties and cleanup costs were around $53.8 billion. (link.reuters.com/duz94w)

    Under the terms of the original agreement with the U.S. Department of Justice and the Gulf Coast states, BP will pay at least $12.8 billion for Clean Water Act fines and natural resource damages, plus $4.9 billion to states. The payouts will be staggered over as many as 18 years.

    The rig explosion on April 20, 2010, the worst offshore oil disaster in U.S. history, killed 11 workers and spewed millions of barrels of oil onto the shorelines of several states for nearly three months.

    http://www.reuters.com/article/us-bp-spill-idUSKCN0X1274
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    Alternative Energy

    France to launch third offshore wind tender


    France plans to launch a tender to build turbines for the country's third offshore wind farm, Energy Minister Segolene Royal said in a statement on Monday.

    The wind farm is to be off the northern harbour town of Dunkerque, Royal said without specifying the size of the tender nor when bidding would close.

    France, unlike Britain, Germany and Denmark, does not yet have any offshore wind turbines installed. But it has already awarded two other tenders for offshore wind farms.

    Royal said the new tender would include a new procedure of "competitive dialogue" with the bidders to fine tune bidding requirements and to give bidders the chance to improve their bids during the process.

    She also said that studies of wind, wave and soil conditions would be done by public authorities before bidders have to make final bids. The government will also simplifyprocedures for building permits for the tender.

    France awarded a first offshore wind tender for 2,000 megawatts of capacity in 2012, representing investment of about 7 billion euros ($8 billion).

    A consortium of EDF and Alstom won three of the four sites, at Fecamp, Courseulles-sur-Mer (Normandy) and Saint-Nazaire (Loire). Spain's Iberdrola, in partnership with nuclear group Areva, won the fourth site at Saint-Brieuc (Brittany).

    A second tender awarded 1,000 MW, for investment of 4 billion euros to a consortium led by French gas and power group Engie in 2014.

    The Engie consortium included Portugal's EDP Renovaveis, France's Neoen Marine and Areva and will build 500 MW off the town of Le Treport in northern Normandy and 500 MW off the islands of Noirmoutier and Yeu on the Vendee coast.

    http://www.reuters.com/article/france-wind-idUSL5N1771SG
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    TerraForm Global gets more time to file annual report


    TerraForm Global Inc, a unit of troubled U.S. solar energy company SunEdison Inc, said its lenders had agreed to give the company another month to file its annual report, after it missed the March 30 deadline.

    TerraForm Global, one of two SunEdison "yieldcos", said last week in a regulatory filing that it would join its parent and fellow yieldco TerraForm Power Inc in delaying its annual report for the year ended Dec. 31. (1.usa.gov/22X8xDu)

    In the filing, TerraForm Global had also warned of "substantial risk" of bankruptcy at SunEdison.

    TerraForm Global also said in the filing that it may not complete certain deals if its parentcompany goes into bankruptcy.

    The company disclosed on Monday it had ended a deal for a hydro-electric power plant last week and had paid $10 million as termination fees.

    TerraForm Global had agreed in July to buy two wind power plants and one hydro-electric power plant in Brazil from renewable energy company Renova Energia SA.

    TerraForm Global closed the acquisition of the two wind power plants in September.

    http://www.reuters.com/article/terraform-global-lenders-idUSL3N1772LU
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    Major European wind power players merge


    Two global wind power players are set to merge after approval by Europe’s competition authority.  

    German wind OEM Nordex and Spanish project developer Acciona Windpower announced this week that they have completed the contract that will see them join forces.

    The companies said they aim to establish a wind energy firm with “a global market presence and a comprehensive product range”.

    Plans for the merger were first announced in October.

    Under the terms of the contract, Nordex will buy Acciona Windpower in return for new Nordex shares and a cash payment, the sum of which has not been disclosed. In addition, Acciona agreed to buy additional Nordex shares, making it the largest shareholder in Nordex, with a total stake of 29.9 per cent.

    Lars Bondo Krogsgaard, Nordex CEO, said, “We are now taking the first steps towards establishing our company as a truly global player in the wind turbine industry”.

    Together, the new company operates 18 GW of installed wind power capacity in 25 global markets, with a focus on onshore turbines from 1.5 MW to 3 MW. Its production network features plants in Germany, Spain, Brazil and the US, with a new factory planned for India.

    http://www.powerengineeringint.com/articles/2016/04/major-european-wind-power-players-merge.html

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    Uranium

    EU struggles with clean-up costs of ageing nuclear plants


    European nations have set aside just over half of the 253 billion euros needed to dismantle old nuclear plants and manage waste, although the shortfall could shrink as the lifetime of some reactors is extended, EU regulators said on Monday.

    Green campaigners disagreed saying the data was optimistic and the funding shortfall would get bigger not smaller unless power market prices skyrocketed.

    The numbers are part of a periodic EU report on the state of the nuclear industry, which has not been updated since before the Fukushima nuclear crisis five years ago.

    Reuters saw a draft of the survey in February whose official publication was delayed because of the migrant crisis, EU officials said.

    They also said the numbers were preliminary and a fuller assessment of decommissioning costs was expected by the end of the year.

    So far, numbers submitted by European states show 52 percent of the 252.9 billion euros ($288 billion) needed for decommissioning and waste management has been set aside.

    The EU officials, speaking on condition of anonymity, said the gap should be smaller than 48 percent as more money can stem from interest earned from funding pots and as nuclear plants carry on earning from generation - in many cases for longer than originally intended.

    The report says 129 nuclear reactors operate across half of the EU's 28 member states, providing more than a quarter of the bloc's electricity.

    Their average age is close to 30 years, but many operators are seeking to extend their lifetime by 10 to 20 years, which Monday's report finds would require investment of an estimated 45 billion to 50 billion euros.

    Following the Fukushima crisis, Germany announced it would shut its nuclear reactors, meaning decommissioning is a particularly urgent issue in Berlin.

    German utilities, such as E.ON and RWE, could have to make additional provisions, a commission responsible for safeguarding the decommissioning funds has said.

    Agora Energiewende, a thinktank that researches the implementation of Germany's shift from nuclear and fossil fuel to renewable power, said atomic generation needed state support and therefore questioned whether it made money.

    "I don't see any chance that that (funding) gap is closing," Agora Energiewende Executive Director Patrick Graichen said.

    The Greens in the European Parliament, meanwhile, said the report bore no relationship to reality.

    http://www.reuters.com/article/europe-nuclear-idUSL5N1772UO

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    Agriculture

    Farmer belt-tightening threatens U.S. ag companies' profits


    North Dakota farmer Randy Thompson plans to apply 30 percent less nitrogen fertilizer to his corn this year to save money in the face of crashing crop prices.

    In Minnesota, Andy Pulk is trucking crop nutrients to his farm from 350 miles (563.3 km) away because he found a better price than his local cooperative could offer. He has also halted purchases of machinery.

    "We're on a complete spending hold across the farm," Pulk said.

    With more acres than ever before likely to be planted with soybeans and corn in the U.S. Midwest this year, companies including seed maker Monsanto Co and fertilizer seller CF Industries Holdings might have expected a windfall for earnings.

    But with grain prices near five-year lows and farm incomes at their lowest levels since 2002, growers are tightening their belts by reducing spending on everything from fertilizer to seeds to chemicals.

    Monsanto, the biggest U.S. seed maker, will give investors a glimpse into the impact of the cost cutting on Wednesday, when the agribusiness sector kicks off quarterly earnings reports.

    Last month, the company cut its full-year earnings forecast, citing pricing pressure in seeds and farm chemicals, and lowered its guidance for second-quarter earnings from ongoing operations to $2.35 to $2.45 per share. That was down from $2.90 in the same quarter in 2015.

    Analysts, on average, expect Monsanto to report an 8.5 percent drop in revenue to $4.756 billion and a 16 percent decline in per-share profit to $2.436, according to Thomson Reuters Starmine.

    Earnings potential has suffered as farmers have become less willing to pay up for seeds and chemicals, Goldman Sachs said in a note last month.

    SEED PRICING WAR

    Seed discounts by Monsanto and its rivals, including DuPont Pioneer, have been the steepest in at least six years, Monsanto executives have said.

    Monsanto cut prices to preserve its customer base after Pioneer, in particular, "came out with offers like free seed and other pretty significant discounts," Michael Frank, Monsanto's chief commercial officer, said in a telephone interview last month.

    Together, the companies' products blanket some 70 percent of all corn and soybean acres in the United States.

    DuPont, in a statement, said it prices its products competitively. It is due to report earnings on April 26.

    Some seed dealers said more and more farmers were foregoing new varieties to save money.

    Nathan Kizer, seed manager at South Dakota Wheat Growers, a 5,000 member cooperative with locations in North and South Dakota, said farmers have been moving away from costlier seeds that are "stacked" with three or more biotech traits. Instead, they have been buying varieties that have been on the market three to five years.

    "We're not planting a bunch of the old dogs but we are using a lot of the middle-of-the-pack stuff," Kizer said.

    Some farmers said they were giving up the practice of applying excess fertilizer to their fields to boost yields.

    Yet, Bert Frost, senior vice president of sales, distribution and market development for CF Industries, said farmers will not reduce nitrogen use because that could hurt yields. CF Industries is set to report quarterly earnings in early May.

    "The one variable that you can count on to pick up maximum yield is nitrogen," Frost said.

    Savings are crucial for farmers as the U.S. Department of Agriculture forecasts net incomes will fall 3 percent this year after a 38 percent slump in 2015 and a 27 percent drop in 2014.

    "You've got to be really efficient to make money now," said Thompson, the North Dakota farmer who plans to use less fertilizer.

    "Unless the markets come back, it's going to be really ugly for a lot of guys."

    http://www.reuters.com/article/us-usa-grain-companies-idUSKCN0X12IE

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    Base Metals

    Copper firm Aurubis to shun Africa in hunt for acquisitions


    Aurubis, Europe's biggest copper smelter, is looking for potential acquisitions in emerging markets, but prefers those with less political risk, its chief financial officer said on Monday.

    "So that means Africa may not be at the top of our list, we are also a little shy of Chinese opportunities," Aurubis CFO Erwin Faust told Reuters on the sidelines of a copper industry conference in Santiago.

    Faust added that German-based Aurubis was open to opportunities elsewhere in Asia and in the Americas, but said there was nothing on the table at the moment. "There are not too many opportunities."

    Aurubis' last acquisition was in 2011, when it bought the rolled copper operations of the Luvata group.

    Faust also said spot treatment and refining charges (TC/RCs), the cost of processing ore, were rising.

    "We see them in the high $80s (a tonne) now. We expect them to go further because the Peruvian mines coming on stream have good quality concentrate."

    More concentrate on the market may mean miners have to pay higher treatment and refining charges.

    Peru's output of copper surged 43.8 percent in January on a year-on-year basis and is expected to rise further this year as a large project ramps up production.

    Faust said it was difficult to work out what was going on with copper demand in China, which accounts for nearly half of global copper consumption, but that physical demand in Europe was "okay."

    "Opinion (on China) changes very quickly, sometimes week to week, definitely month to month," Faust said. "Demand for wire rod, where we are the dominant player in Europe, has been good."

    Some 70 percent to 75 percent of global copper supply is used by the wire and cable industries.

    Faust also said Aurubis was a net beneficiary of the stronger dollar and weaker euro, but not because of the resulting boost to the company's exports.

    "We have a structural long position in dollar," Faust said. "We have more dollar earnings than costs, that is mainly due to TC/RCs and other things paid in dollars."

    http://www.reuters.com/article/chile-copper-aurubis-idUSL2N1770RC

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    Norilsk to link dividends to net debt to earnings ratio


    Russia's Norilsk Nickel will approve a new dividend policy at a board meeting on April 11 linking payments to the ratio of its net debt to core annual earnings, the company said on Monday.

    Norilsk, the world's second-largest nickel producer, has been hit by weakening metal prices although the rouble's fall against the dollar has partially offset this negative impact.

    The decision to review the dividend targets was taken amid "probably the most challenging market conditions in a decade", Pavel Fedorov, Norilsk's first vice-president, said in a statement.

    Norilsk's new dividend policy will mean a payout of 60 percent of earnings before interest, tax, depreciation and amortisation (EBITDA) if the company's net debt to EBITDA ratio is below 1.8.

    The payout will decline on a sliding scale if the ratio is 1.8 or above, falling to 30 percent of EBITDA if the ratio, a measurement which shows how many years it could take a company to pay back its debt, is above 2.2.

    The minimum dividend payment for 2016 results will be $1.3 billion, plus proceeds from the sale of Norilsk's stake in the Nkomati nickel mine in South Africa, the company said.

    The minimum payment for annual results in the five years starting in 2017 will be $1 billion per year. Norilsk's current dividend policy entails a minimum annual payment of $2 billion.

    Norilsk, part-owned by Russian tycoon Vladimir Potanin and aluminium producer Rusal, said its final 2015 dividend would be calculated in line with the existing policy: half of 2015 EBITDA, minus the two interim dividends already paid.

    Norilsk's net debt to EBITDA ratio was 1.0 at the end of 2015.

    Norilsk trails Brazilian miner Vale SA in nickel production and is the world's largest palladium producer. Its dividend payments have been supporting Rusal in recent years amid weak metal prices.

    Norilsk also said its cumulative capital expenditure would come to $4.4 billion in 2016-2018, excluding the Bystrinsky copper project in Russia's Transbaikal region and a sulphur project in its Polar division.

    http://www.reuters.com/article/russia-norilsk-dividends-idUSL5N1774R9

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    Steel, Iron Ore and Coal

    China’s 2016 coal output targeted at 3.65 bln T, NEA


    China was expected to produce 3.65 billion tonnes of coal in 2016, down 0.82% from 3.68 billion produced last year, said the National Energy Administration (NEA) in a guideline.

    http://en.sxcoal.com/0/143823/DataShow.html
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    Coal India FY 2015-16 coal production up 8.5pct


    India's state-run coal producer Coal India Limited (CIL) produced 536.51 million tonnes of coal in fiscal year 2015-2016 ended March 31, up 8.5% on year, the company said in a regulatory filing late April 1.

    Coal ministry officials attributed this to the clearing of 4,179 hectares of forested land.

    CIL missed its production target for the fiscal year by 13.49 million tonnes, the company said in the filing to the Bombay Stock Exchange.

    Sales for the year stood at 532.26 million tonnes, up nearly 9% year on year but below targeted 550 million tonnes, it said.

    CIL accounts for around 80% of India's domestic coal production, and has an ambitious target to double its output to 1 billion tonnes by 2020.

    http://en.sxcoal.com/0/143822/DataShow.html

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    SA coal exports heading off a cliff?


    A decline in South Africa’s coal exports has continued but the country’s relatively strong position on the cost curve is expected to give coal producers some breathing room.

    Thermal coal exports fell 19.7% year-on-year to 4.82 million tonnes (Mt) in February, following a 7.2% decrease in annual exports in January.

    “Comparatively strong Richards Bay Free-On-Board spot prices have been hindering buying interest for South African thermal coal this year, with low dry bulk freight rates also allowing for competition from lower priced material from other origins into large market India, as well as Europe and Turkey,” said Platts in a note.

    According to the data provider, South Africa’s coal exports to India fell 12% month-on-month in February to 2.66Mt – the lowest monthly volume since September 2015. The Indian government’s attempts to stimulate its domestic output may further impact exports to the world’s second largest coal buyer.

    Although analysts say India is unlikely to meet its target to cease thermal coal imports by 2017, barring imports at some coastal power stations, the Modi Administration’s attempts to double Coal India’s production to 1 billion tonnes by 2020 are progressing relatively well.

    The state-owned company, which produces 80% of the country’s domestic thermal coal, increased output by 8.5% to a record 536Mt during the financial year ended March 31  2016.  According to a recent Bloomberg New Energy Finance report, Coal India achieved production growth of 2.7% year-on-year between its 2010 and 2015 financial years. “We believe that these higher growth rates are the ‘new norm’ as some of the production issues which have plagued their output historically are being overcome,” it said in reference to issues around permits, land acquisition and railway capacity.

    Dave Collins, an associate director at MAC Consulting, warned miners at a local conference against relying on the Indian market. “Whoever is thinking that India is going to save them, needs to investigate that very carefully,” he said citing the data from Bloomberg New Energy Finance, which deduces that Indian coal imports would only increase at a compound annual growth rate of 0.9% from 2020 to 2030 “in an excessively pessimistic” domestic production scenario.

    At the same time, China’s plans to cut domestic coal output don’t necessarily bode well for South African coal exports. In an effort to reduce industrial overcapacity, the world’s largest coal consumer aims to eliminate 60Mt of domestic coal output in 2016 and a total of 500Mt in three to five years. The country’s National Energy Administration has also ordered 13 provincial governments to suspend approvals for new coal-fired power plants until the end of 2017. A Greenpeace report on the global coal plant pipeline shows that the “aggressive” construction of new coal-fired power stations saw the country’s plant utilisation rate fall to 49.4% – the lowest level since 1969.

    China’s coal consumption fell by 3.7% while imports fell 30% to 204.1 million tonnes in 2015, partly due to the effects of the country’s economic rebalancing. “We haven’t seen coal shipments from Richards Bay to China since the middle of 2014. Several shipments have been diverted to India and China has been taking more coal from Australia and Indonesia,” Peter Sand, chief shipping analyst at BIMCO told Mineweb recently.

    Shoaib Vayej, a portfolio manager at Afena Capital, expects South African coal exports to hold up amid the challenging conditions. “South African producers are well positioned on the cost curve and the weakness in the rand is solidifying this position. From a volume perspective, I don’t see much of a change but prices will be affected and this will affect earnings,” he said.

    While coal prices haven’t topped $50/tonne, he said prices have remained resilient and has dismissed the futures market suggestion that prices should be closer to $40/tonne. “About 40% of the market is underwater. If we take away China and say India doesn’t grow, that’s still not enough to justify such prices. Unless half the market goes away $40/tonne isn’t warranted,” he said. According to Vayej, South African producers are still likely to break even at prices of $40/tonne, “Given the serious pain around the world right now, breaking even wouldn’t be too bad”.

    http://www.mineweb.com/news/coal/sa-coal-exports-heading-off-a-cliff/

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    Iron ore miner Fortescue drops Downer EDI in costs drive


    Australia's Fortescue Metals Group on Monday continued its drive to reduce overhead amid a wary outlook for iron ore, saying it won't renew a contract with Downer EDI Ltd.

    Mining services companies in Australia such as Downer have been hard hit by a sharp drop in the prices of iron ore, which sells for roughly a quarter of its near-$200 a tonne peak of 2011, leading more producers to self-operate.

    Miners typically seek to cut costs by removing fees incurred by outsourcing. Companies also believe they are more in control by managing their own mines.

    Fortescue said it would take over operations at its Christmas Creek mine in Western Australia once its outsourcing contract with Downer expires in September.

    "Adoption of an owner-operator model will further reduce Fortescue's costs through ongoing improvement of the efficiency and productivity of our Christmas Creek mining operations," Fortescue Chief Executive Officer Nev Power said in a statement.

    The market capitalisation of Australian mining services companies in a Deloitte index of stocks fell by $5.56 billion in the second half of 2015 versus the first half.

    Australia is home to the world's single-biggest biggest iron ore deposits. Fortescue, along Rio Tinto and BHP Billiton , controls more than half the 1 billion-tonne-per-year global seaborne trade in the steel-making ingredient.

    The Christmas Creek mine is located in the Chichester ranges in the Pilbara iron belt and, along with another mine called Cloudbreak, can produce up to 90 million tonnes of ore a year. Fortescue is forecasting overall production this year of 165 million tonnes.

    Fortescue, controlled by founder Andrew "Twiggy" Forrest, announced in February its had cut its production costs by 47 percent from the prior year and forecast it would drop to $13 a tonne by the end of 2016.

    "The industry has been extremely clever about reducing costs and increasing competitiveness in a really tough market," said Simon Bennison, chief executive of the Association of Mining and Exploration Companies in Australia.

    Downer confirmed that it was handing over operations at Christmas Creek, but said it did not expect the change to affect its 2016 financial results.

    BHP initiated a move away from contract mining in 2011 by acquiring HWE Mining, which was operating some of its Pilbara iron ore mines.

    Rio Tinto, which runs it own mines, has said it reduced working capital by 83 percent in 2015 and saw a 20 percent productivity improvement.

    http://www.reuters.com/article/fortescue-downer-edi-idUSL3N17725M
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    Iron ore shipments to China rise 12 pct in March -Pilbara Ports


    Iron ore shipments to China from Australia's Port Hedland, used by miners such as BHP Billiton , rose nearly 12 percent in March, data showed on Tuesday.

    Exports to China from the port - the world's largest of its kind - reached 32.59 million tonnes in March, up from the 29.14 million tonnes in February, Pilbara Port authority figures showed.

    Stronger Australian iron ore exports helped underpin an upturn in prices for the steelmaking raw material. Iron ore .IO62-CNI=SI ended January-March with a 24-percent gain after pushing above $50 a tonne.

    It is still the top performing commodity this year despite falling 16 percent from last month's peak, but the wild swings have kept miners wary about the longevity of the price recovery.

    BHP has set a production target of 237 million tonnes and Fortescue Metals Group 165 million tonnes in fiscal 2016, ending June 30.

    http://www.reuters.com/article/australia-hedland-iron-idUSL3N14O0OO
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    Arrium lenders shoot down $927m bailout


    The federal government has come out in support of struggling steel and iron-ore company Arrium after lenders rejected a recapitalisation plan for the company. 

    Arrium in February secured $927-million in funding from GSO Capital Partners as part of attempts to restructure and level its debt in a low iron-ore price environment. The funding was to comprise a six-year senior secured term loan of about $665-million and a fully underwritten renounceable prorata rights issue to Arrium shareholders aimed at raising about $262-million. 

    As part of the recapitalisation, Arrium would have also sought to obtain secured working capital facilities of about A$500-million. Reducing  its debt of about $2-billion would allow Arrium to retain its mining consumables business, while allowing for the restructure of the steel and mining business units to make them more sustainable. 

    Local newspapers report that the lenders have been angered by a lack of consultation from Arrium ahead of the announcement of the GSO offer in February. The proposed package would have given lenders about 55c in the dollar owed. With the lenders voting against the recapitalisation plan, Arrium has gone into a trading halt while it considers its options. 

    In the meantime, Industry, Innovation and Science Minister Christopher Pyne said on Tuesday that the government would continue its work on policy levers to give Arrium “every opportunity to transition in this difficult global market”. Pyne pointed out that the government had already reformed anti-dumping laws to address the issue of foreign competition, while bringing forward the purchase of 72 000 t of steel for the Adelaide-Tarcoola rail line. 

    Further, the government has also repealed the carbon tax and provided a 100% exemption for emissions intensive, trade exposed industries from the Renewable Energy Target, and has secured an agreement from the state Ministers on the Council of Australian Governments Industry and Skills council to examine the opportunities and challenges of government procurement policies. 

    This is an uncertain time for steelworkers in Whyalla and the Australian government stands ready to assist,” Pyne said. South Australian Treasurer Tom Koutsantonis said the state’s Steel Task Force has been speaking to all of the parties involved in the negotiations about Arrium’s future to ensure that Whyalla continues to operate as a steel producer. 

    “The workforce at Arrium and their well-being is our number-one priority,” Koutsantonis said. “Both the state and federal governments are working diligently to resolve the current situation so that the steel works at Whyalla and the associated mines can continue to operate.” Koutsantonis noted that the company employed about 7 000 people across Australia and 22 000 around the world, and was a vital national asset.

    http://www.miningweekly.com/article/arrium-lenders-shoot-down-927m-bailout-2016-04-05

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    Brazil's Vale says it will sell CSA steel plant stake to ThyssenKrupp


    Brazilian miner Vale SA said on Monday it will sell its entire 26.87 percent stake in the struggling CSA steel plant to Germany's ThyssenKrupp for a token value, in a bid to focus on core mining businesses with commodity prices at historic lows.

    Vale's announcement confirmed a Reuters report on Friday which said the world's largest iron ore producer was planning to exit the steel venture.

    By selling the plant for a purely symbolic amount, Vale will be free of the heavy debts linked to the mill. It will also be entitled to a slice of earnings from any future sale by ThyssenKrupp over a certain period of time, though Vale did not say how long.

    The CSA plant cost $10 billion to build and was Brazil's most expensive ever foreign investment project. It reported 2.6 billion euros in total liabilities at the end of the 2015 fiscal year.

    Once considered a showpiece for Brazil's steel industry, the mill saw production costs soar amid high inflation, currency volatility and a deep recession.

    The plant, which has total production capacity of 5 million tonnes a year, exports slabs that are further processed at ThyssenKrupp's sister plant in Alabama.

    The exit from CSA comes as Vale wrestles with the impact of slumping iron ore prices. Chief Executive Officer Murilo Ferreira said in February the firm is looking to sell about $10 billion of assets as it battles to reduce debt.

    http://www.reuters.com/article/us-vale-sa-steel-thyssenrupp-idUSKCN0X12B8

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    China March steel sector PMI rises to 23-mth high


    The Purchasing Managers Index (PMI) for China’s steel industry rebounded to 49.7 in March from 49 from February, posting a 23-month high since May 2014, the fourth consecutive monthly increase, showed data from the China Federation of Logistics and Purchasing (CFLP) on April 1.

    While indicating an apparent upturn in China’s steel industry, it was still the 23rd straight month below the 50 threshold, signaling the whole industry was still trapped in the woes.

    China’s domestic steel prices climbed in March, driven by low stocks at traders and end users before the Chinese Lunar New Year holidays, and intensive restocking activities and slow production recovery after the holidays.

    The output sub-index increased to 49.8 in March from 49.5 in February, the highest in recent 19 months, yet still below the 50 mark for 19 straight months.

    The new order sub-index also experienced a four-month rise, hitting 53.3 in March from February’s 509, the highest level since May 2014, indicating continuous rebound of steel demand at domestic market.

    While the new export order index decreased 9.3 on month to 36.9, the lowest in recent 14 months, mainly attributed to the narrowing price gap between domestic and overseas products amid weak demand and intensified international anti-dumping activities.

    This means that, as the release of production capacity accelerates at steel mills, increased domestic supply and low exports may curb the upward strength of steel prices.

    The sub-index for steel products stocks stood at 37.7 in March, down from 44.8 last month. It remained below the 50-point threshold for eight straight months, a result of the nationwide destocking in the steel sector.

    Daily crude steel output of key steel mills averaged 1.66 million tonnes in mid-March, up 4.71% from ten days ago, the highest since 2016, according to China Iron and Steel Association (CISA).

    The rising crude steel output, mainly due to the expanded production recovery spurred by the rebound of steel prices, may exert pressure on further price increase, analysts said.

    Steel products stocks in key steel mills stood at 13.76 million tonnes on March 20, a decline of 5.94% from ten days ago and 20.72% lower than the same period last year, showed the CISA data.

    Domestic steel prices are expected to gain further upward strength in April, given the rising demand and low inventories lately observed at domestic market. Yet, the room of growth may be limited due to the potential increase of operation rate at steel mills, constrained exports and stricter macro-control of housing sector at China’s big cities.

    http://en.sxcoal.com/0/143845/DataShow.html

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    Japan sees April-June crude steel output sinking to 7-yr low


    Japan's crude steel output for April-June will fall 2.4 percent from a year earlier to the lowest for the quarter in seven years, the government said on Tuesday.

    That would come as the latest in a series of signals of economic slowdown, clouding the outlook for Prime Minister Shinzo Abe's drive to reflate the economy and spurring calls for more monetary stimulus.

    The Ministry of Economy, Trade and Industry (METI) estimated crude steel output would sink to 25.24 million tonnes in April-June, the lowest output for the quarter since 2009 when steel demand was hit hard by the global financial crisis. Against the previous quarter, output is seen falling 3.1 percent, it said, citing an industry survey.

    Demand for steel from the construction sector is forecast to slide 3.1 percent from a year earlier, while demand from manufacturing is seen dropping 1.7 percent for the quarter.

    "Construction demand for distribution warehouses is fairly solid, but demand for civil engineering and new shops is sluggish," Takanari Yamashita, director of METI's iron and steel division, told a news conference.

    "Automobile and electronics segments are likely to see a pick up in demand, but industrial machinery is expected to stay under pressure," he said.

    Slack steel demand elsewhere in Asia and anti-dumping steps taken by many countries will drag on exports, while slow demand for energy-related steel products such as drilling pipes in the wake of plunging oil prices will add to pressure, he said.

    Demand for steel products, including those for export, is forecast to sink 3.8 percent to 22.91 million tonnes in April-June compared with a year earlier. Steel product exports are expected to decline 6.3 percent.

    Asked when the ministry sees a recovery in demand, Yamashita said construction appetite would likely pick up from summer given an expected increase in the number of projects related to the Tokyo Olympics in 2020.

    "Although it's not definitive, we expect and hope to see a gradual recovery in demand in and after summer," he said, also citing higher capital expenditure that could bolster industrial machinery demand.

    Crude steel output for the financial year ended March 31 is estimated at 104.44 million tonnes, marking the lowest since the 2009 year, according to the ministry.

    http://www.reuters.com/article/japan-steel-forecast-idUSL3N1781D3

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