Mark Latham Commodity Equity Intelligence Service

Thursday 5th May 2016
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    Mobius says buy commodity stocks as rebound’s just beginning

    Mark Mobius is piling into commodity stocks in China, saying that a rebound in raw-material markets is only getting started after prices sank too far and that gains may be extreme.

    Templeton Emerging Markets Group will add more raw-material stocks from Asia’s top economy, according to Mobius, executive chairman of the group, who’s been investing in emerging markets for more than four decades. Many of them will be good holdings for the long term, he said in an e-mail interview, without identifying particular companies.

    China’s commodity producers, which were the worst mainland equity investments over almost a decade, have led this year’s rebound as China boosted stimulus and local investors swarmed into the nation’s futures markets, with bets on everything from steel bars to cotton. The Bloomberg Commodity Index rallied for a second month in April, and assessments are stacking up that the worst of the rout is now over, including from industry veteran Tom Albanese, a former head of Rio Tinto Group.

    “We have already seen how both commodity prices and the commodity stock prices went down too far, beyond realistic assessments,” Mobius said. “We can now expect movement on the upside to be extreme in percentage terms. If there is a move down, there is a good chance that we would increase.”
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    China stats investigation plunges metal markets into darkness

    In November 2013 bosses from nine of China's largest copper smelters sat down over a weekend to discuss the state of the local market.

    They did so because they had lost faith in the official copper production figures released by the National Bureau of Statistics (NBS).

    The NBS had just reported record output in the month of October, equivalent to an annualised run rate of 6.8 million tonnes.

    The smelters weren't convinced, suspecting the statistical agency was double-counting production at parent and subsidiary companies and incorrectly labeling some intermediate products such as copper blister as refined metal.

    Actually, it was more than mere suspicion. The smelters were themselves supplying the raw data to the agency in the first place, so had a good idea of what the resulting production figures should look like.

    Nor was this a case of statistical nit-picking.

    The smelters were poised to engage with international miners on terms for the supply of copper concentrates the following year and knew that the "official" production figures would be a core discussion point in the negotiations.

    The moral of the story is that it's not just Western analysts who struggle with the reliability of Chinese statistics.

    And it's a timely reminder that inconsistent data can have very real-world effects because right now there is no data at all.

    The NBS has suspended the publication of detailed metals production figures since October last year.

    Which means that everyone is now largely in the dark as to what is happening in the world's largest metallic economy.

    It's not just the monthly base metals production figures that have gone missing.

    Data on oil products such as liquefied petroleum gas, naphtha and fuel oil have been withdrawn. So too have regional figures for coal, steel and electricity output.

    This has little or nothing to do with the sort of inconsistencies in the NBS data picked up by the country's copper smelters.

    Rather, it results from an anti-corruption investigation into the agency by the Central Commission of Discipline Inspection (CCDI).

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    7 Fallow Years.

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    The Lunatics have left the Asylum!

    Robots Replace Labour:Image titleLabour participation USA: upcycles are marked. 

    Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

    1.     Raising taxes (not lowering them, Donald) is one way.

    2.     Issuing more and more debt via the private market is another (not a good idea either in this highly levered economy).

    3.     A third way is to sell debt to central banks and have them finance it perpetually at low interest rates that are then remitted back to their treasuries.

    Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want. What they don’t want is to be messed with and to become a government agency by proxy, but that may just be the price they will pay for a civilized society that is quickly becoming less civilized due to robotization. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.

    Private banks can fail but a central bank that can print money acceptable to global commerce cannot. I have long argued that this is a Ponzi scheme and it is, yet we are approaching a point of no return with negative interest rates and QE purchases of corporate bonds and stock. Still, I believe that for now central banks will print more helicopter money via QE (perhaps even the U.S. in a year or so) and reluctantly accept their increasingly dependent role in fiscal policy. That would allow governments to focus on infrastructure, health care, and introduce Universal Basic Income for displaced workers amongst other increasing needs. It will also lead to a less independent central bank, and a more permanent mingling of fiscal and monetary policy that stealthily has been in effect for over 6 years now. Chair Yellen and others will be disheartened by this change in culture. Too bad. If there is an answer, the answer is that it’s just that way.

    Investment implications: Prepare for renewed QE from the Fed. Interest rates will stay low for longer, asset prices will continue to be artificially high. At some point, monetary policy will create inflation and markets will be at risk. Not yet, but be careful in the interim. Be content with low single digit returns

    ~Bill Gross.


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    EU defines high-frequency trading

    The European Commission has given details of how it will define high-frequency trading (HFT) as part of its new approach financial markets regulation, the revised Markets in Financial Instruments Directive (MiFID II).27 Apr 2016

    A high-frequency trader will be defined as one sending at least two messages per second for a single instrument on any trading venue, or at least four messages per second in respect to all instruments being traded on a venue, the Commission said in proposed regulations published this week.

    Markus Ferber, the rapporteur for the MiFID II legislation in the European Parliament, welcomed the decision, saying that the EU now had a clear and coherent set of rules.

    "The 2010 flash crash in New York has shown what can happen if high frequency trading gets out of control. Such an incident must never happen in Europe. This delegated act is an important step to reign in HFT, but … if the calibration goes wrong, the regime will be undermined. Therefore, we need to get it right the first time," Ferber said, in documents emailed to

    HFT would now be subject to more control and transparency rules, and "the European Parliament will look very closely to check that the rules cannot be circumvented," Ferber said. 

    The European Parliament and Council have three months to study the proposals. 

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    Brazil's Crusading Corruption Investigation Is Winding Down

    The crusading federal judge behind Brazil’s explosive corruption investigation, facing the limits of his mandate and signs of political pushback, sees his role in the case winding down by the end of the year, a turning point in a probe that has helped push the president to the brink of impeachment.

    For more than two years, Judge Sergio Moro and his team of prosecutors and police in the southern town of Curitiba have tracked the $1.8-billion graft scandal across four continents. They uncovered a crime ring so epic that it shattered Brazil’s political and economic leadership and helped tip the nation into its worst recession in a century.

    Now, legal challenges are chipping away at Moro’s jurisdiction over executives amid criticism that he’s over-reaching. Brazilian law also bars him from going after sitting politicians accused of graft. So he expects significantly fewer new operations under his watch starting next year, according to three top officials who asked not to be named relaying details from private conversations. The press-shy judge declined to comment.

    That doesn’t mean corruption investigations will end but it probably means a substantial drop in their intensity and speed. The Supreme Court has sole jurisdiction over lawmakers. Its exhaustive caseload, political ties and past aversion to prosecuting legislators are the foundation for a long-held belief that crooked leaders are all but untouchable in Brazil. While that’s beginning tochange, there’s no doubt that the top court -- responsible for ruling on everything from impeachment challenges to state debt relief -- won’t be as steadfast in its pursuit of corruption as the dogged 43-year-old judge with jet black hair.

    “Moro is a judge with a single focus -- extremely capable, very disciplined and efficient,” said Floriano Azevedo Marques, a professor of law at Sao Paulo University. “That’s why he’s been so fast.”

    Publicly, the Federal Police and prosecutors say the investigation known as Carwash will go on come hell, high water, or impeachment. Inside legal circles, however, there’s a sense that when Moro wraps up his investigation into the state-run oil giant Petrobras -- the key case under his purview and the epicenter of Carwash -- it will mark a major slowdown.

    In Brazil’s justice system, a judge is responsible for overseeing Federal Police probes, approving accusations by prosecutors, reviewing the evidence and deciding if a defendant is guilty or innocent. Other elements of the scandal thrown off by Carwash are already being sent to other federal judges.

    Curitiba, about an hour’s flight from the financial hub of Sao Paulo, is called Brazil’s green capital, but these days it’s better known as ground zero for the sprawling corruption scandal. It’s here that police investigators, working in a modern glass-and-concrete building, first connected an infamous money laundererto a Petrobras executive. From there, they pieced together an elaborate bribery scheme involving the nation’s biggest builders, lucrative public works projects and top politicians, tracing alleged million-dollar kickbacks to campaign coffers and Swiss bank accounts.

    While President Dilma Rousseff has not been accused in the scandal, it has undermined her political support and she’s now facing impeachment on allegations that she used accounting to mask the size of a budget deficit.

    Along the way, Moro became a folk hero. Masks of the judge were a favorite in Carnival celebrations; he was named one of Time Magazine’s 100 most influential people. And protesters in March waved balloons of Moro dressed as Superman that stood in stark contrast to the inflatable likeness of Rousseff and her mentor, former President Luiz Inacio Lula da Silva, in striped prison garb.

    But he has picked up detractors, too, especially after releasing transcripts from a taped phone conversation between Lula and Rousseff which suggested that she wanted to name Lula a minister to shield him from investigation.

    Following the transcript’s release, thousands of Brazilians poured into the streets from Sao Paulo to Brasilia to protest. The backlash by some of Brazil’s political and legal elite was just as fierce. Supreme Court Justice Marco Aurelio Mello, in an interview with Folha de S.Paulo newspaper, said Moro’s “show of force” overstepped his limits, and the Rio de Janeiro branch of Brazil’s bar association branded it illegal.

    In Brasilia, meanwhile, the political stand-down that has crippled Rousseff’s government is reaching its culmination, too. A special congressional committee is analyzing the request to oust her. If a simple majority of senators vote as early as next week that she should stand trial, Rousseff would be forced to step aside, at least temporarily. Her successor, Vice President Michel Temer, is already assembling an administration that investors hope will quickly address Brazil’s economic woes.

    Moro’s investigation entering a new phase is “pretty good news for Temer,” said Christopher Garman, who analyzes Brazil for Eurasia Group in Washington. “For a Temer government, the real window of risk is over the next four to five months. There are still shoes to drop in Moro’s investigation. If you get past this phase, then the risk for Temer’s government starts to diminish. The bar to undermine his administration is higher than it was under Rousseff.”
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    Rio's new boss focused on cost savings

    Mining giant Rio Tinto’s incoming CEO Jean-Sébastien Jacques on Thursday told shareholders at the company’s annual general meeting, in Brisbane, that his focus would remain firmly on productivity improvements. 

    Jacques, who was previously employed as Rio’s copper and coal CEO, would succeed Sam Walsh when he retires in July this year. “There is no doubt these are challenging times for the sector, and for your company. The macro-economic environment is tough, and is likely to remain so for the foreseeable future, from whichever way you look at it. 

    I am under no illusions of the task and challenges ahead,” Jacques said. He added that while it would not be an ‘easy ride’ for Rio into the future, the company had significant assets on which to build its foundations. “But these attributes alone will not deliver sector leading performance. We cannot be complacent just because we have Tier 1 assets. We must always challenge ourselves to be more productive, more performance driven and more proactive in our engagement with stakeholders and society,” he said. 

    Walsh on Thursday reiterated that Rio’s cost savings initiatives had delivered more than $6-billion in cost cuts since 2013, with the company releasing some $1.5-billion in working capital in 2015. “We reduced capital expenditure for 2015 to $4.7-billion and we are reducing capital expenditure to $4-billion in 2016 and $5-billion in 2017. We have not done this at the expense of future growth, but by re-assessing projects, lowering costs, and only investing in the highest returning projects,” Walsh said. 

    Over the next two years, Rio was targeting to cut operating costs by a further $2-billion, and would also remove $3-bilion in capital expenditure, compared with its previous guidance, while implementing a new dividend policy. “These actions are designed to ensure we maintain our balance sheet strength and deliver shareholder returns commensurate with the economic environment and supported by the quality of our world-class assets,” Walsh said.
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    Oil and Gas

    Algeria's gas exports to EU set to rise 15 percent in 2016: official

    Algeria expects to increase natural gas exports to Europe by 15 percent to over 50 billion cubic meters this year, more than recovering from the drop since 2013 as output rises from existing and new fields, a top industry official said.

    The North African OPEC member, the fifth-largest supplier of gas to Europe, is due to host talks with European Union officials and oil companies later this month on future gas supplies, as current contracts are due to expire in 2019-2021.

    Algerian gas exports to the European Union have been increasing since the fourth quarter of 2015, with the pace stepped up this year, said Omar Maaliou, the national oil company Sonatrach's deputy general manager in charge of marketing.

    "We anticipate a 15 percent increase in our exports (to Europe) in 2016 compared to 2015," he told Reuters.

    "We already recorded significant growth in the first four months of 2016 as exports by pipeline and LNG recorded a growth of over 30 percent compared to the same period in 2015."

    Two new liquefied natural gas plants were commissioned in 2013 and 2014 in addition to the existing plants. It also uses three export pipelines, two to Spain and one to Italy.

    Algeria exported over 44 billion cubic meters of gas in 2015 to Italy, Spain, France, Turkey, Portugal and Greece, the official said, down from 48 billion cubic meters in 2013 and 45 billion cubic meters in 2014.

    "The decline in recent years (between 2011 and 2015) is mainly due to the international economic crisis and the overall decline in consumption of natural gas in our core markets in Europe," Maaliou said.

    "In parallel, we recorded an increase in internal consumption."

    He said that 2016 will be a year of growth in hydrocarbon production with the start of production from new fields and increased volumes from existing fields.

    Four fields in the southwest and southeast are expected to come online in 2016.

    Longer term, Algeria, with the world's third-largest potential shale gas reserves, may turn to developing those non-conventional sources to sustain deliveries to the EU market, energy analysts say. But shale remains a politically sensitive subject in Algeria and even exploration is in its infancy.

    Algerian government and industry officials are due to meet with their European counterparts on May 23 and 24 in Algiers to discuss how to continue cooperation on gas, renewable energy and energy efficiency.

    Most of the current long-term gas export contracts between Algeria and European customers are due to start coming to an end in 2019 and 2020.
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    Oil Majors Use Billions to Profit From Contango Before It Fades

    Oil Majors Use Billions to Profit From Contango Before It Fades

    The largest energy companies in Europe bolstered first-quarter earnings by pumping several billion dollars’ worth of oil into storage tanks and holding it there, although the trading opportunity is starting to fade.

    Royal Dutch Shell Plc said on Wednesday it employed about $1 billion of capital between January and March buying oil for storage that would be sold later at a higher price. French oil major Total SA last week said it used $750 million on the strategy -- a so-called contango trade. While BP Plc hasn’t disclosed how much it spent, the company said its working capital increased by $800 million during the quarter.

    The disclosures highlight how the European oil majors’ trading operations benefited as the oil surplus created a contango market structure -- where prices for immediate delivery are lower than future months -- even as their profits from exploration and production plunged. The trio’s sway in commodities trading, largely unknown outside the industry, paid off in 2015, but repeating the strategy as the year progresses will be trickier, according to DNB Bank ASA.

    “The contango structure has been wide enough to pay off for onshore storage,” Torbjoern Kjus, an analyst at DNB Markets, said by phone. “They’re not going to repeat that kind of trading result in the second quarter, even less so in the third quarter,” because the contango is weakening as the surplus is diminished, he said.

    The spread between front-month Brent futures and contracts expiring 12 months later was as wide as $8.35 as of Dec. 11. The gap narrowed to $3.46 at 5:05 p.m. Wednesday on the London-based ICE Futures Europe exchange.

    Although better known for their oil fields, refineries, and fueling stations, BP, Shell and Total are also the world’s biggest oil traders, handling enough crude and refined products every day to meet the combined consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.

    “The trading business is very material for us now,” Simon Henry, the chief financial officer of Shell, said on a call with analysts Wednesday. “The billion dollars is effectively a contango play, holding inventories against future delivery.”

    Total, Shell and BP all posted first-quarter earnings that beat estimates, thanks to their refining, chemicals and also trading activities.
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    Gazprom Said to Seek Exemption From Dividend Rule to Aid VEB

    Gazprom PJSC is asking the Russian government for a waiver from a new rule on dividends because the natural gas supplier may need to preserve cash to help bail out the state development bank, according to an official with knowledge of the matter.

    The energy company has asked the state to allow it to pay out less than 50 percent of its international-standard profit in dividends, two officials said, asking not to be identified as the information isn’t public. The government may support the request, according to one of the people. Gazprom said it may use the savings to buy its own shares back from the state lender, Vnesheconombank, the person said.

    Gazprom shares dropped as much as 6.1 percent to 158.25 rubles on the news, retreating from a more than three-year high.

    “The market is disappointed, though I’m personally not surprised,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. “Dividends under the new rule would be a huge burden for Gazprom amid less than perfect financial prospects.”

    Earnings Decline

    The state has been considering a rescue plan for Vnesheconombank, or VEB, which was hit with U.S. and European Union sanctions following Russia’s annexation of Crimea from Ukraine in 2014. One option is to have Gazprom purchase 2.7 percent of its own shares from VEB, people with knowledge of the matter said last month.

    At the same time, Russia is pushing for more funds from state companies as a collapse in the price of crude oil, the biggest source of budget revenue, deepens the recession and threatens to widen the deficit. While Gazprom faces a drop in its gas-export earnings to the lowest in 12 years, its shares rallied after the government’s April 18 order on boosting dividends at state companies.

    The state may support a proposal to let Gazprom distribute 50 percent of profit under Russian accounting standards instead of under international financial reporting standards, one of the officials said. Gazprom didn’t immediately comment.

    Gazprom’s management recommended an increase in the 2015 dividend by 2.8 percent to 7.4 rubles a share, which is equivalent to 50 percent of adjusted net income based on Russian accounting standards, less than a week before the government announced the new rule. That compares with a possible 16.62 rubles a share based on international-standard profit, which would be a record high.

    VEB’s stake in the gas producer had a value of 108 billion rubles ($1.6 billion), based on the most recent closing price in Moscow. Paying 50 percent of profit under Russian accounting standards, rather than international, may save Gazprom 218 billion rubles, according to Bloomberg calculations. The state should decide on a dividend recommendation before the company’s board meets on May 19.

    VEB bought the Gazprom stake from Germany’s EON SE in 2010, when the gas producer’s market capitalization was about $140 billion. It has since fallen to about $60 billion.

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    Shell's Q1 2016 gas realizations slump 36% on year, LNG volumes rise

    Shell, which in mid-February became a much bigger player in global gas markets with the closure of its $54 billion deal to buy BG Group, saw its realized gas prices slump in the first quarter of 2016, while its LNG sales received a boost from the BG consolidation.

    CEO Ben van Beurden also said Shell would continue to reduce spending, capture cost opportunities and manage the company's financial framework in light of the continued lower price environment.

    In an earnings statement Wednesday, Shell said its Q1 gas price realizations globally fell 36% year on year to an average of $3.58/Mcf ($3.47/MMBtu) from $5.62/Mcf in Q1 2015.

    In Europe, price realizations fell below $5/Mcf for the first time in at least five years, averaging just $4.89/Mcf in Q1, down 29% year on year.

    But it was in the US where the slump continued to be keenly felt, with Shell's average gas price realizations falling to just $1.69/Mcf in Q1, compared with $2.83/Mcf in the same quarter of 2015.

    And Shell's Asian gas price realizations in Q1 fell to $4.23/Mcf from $5.75/Mcf the previous year.

    "There was a sharp decline in prices compared with a year ago -- the realized gas price was 36% lower with a strong decline in gas prices seen in all markets," Shell CFO Simon Henry said on a quarterly conference call.

    Henry said there had been a recovery in oil and gas prices recently, "but it is far too soon to be calling a break in the weaker environment."

    While Shell's sales prices slumped, LNG sales rose in Q1 on the back of its BG acquisition, reaching 12.29 million mt -- 25% higher than in the same quarter last year.

    LNG liquefaction volumes of 7.04 million mt in Q1 were 14% higher than for the same quarter a year ago, of which BG contributed some 1.58 million mt.

    Total gas production soared in the quarter to 10.905 Bcf/d compared with 9.421 Bcf/d in the same period of 2015, again boosted by BG.

    European gas output represented around 30% of the total at 3.28 Bcf/d, while North American production was 1.59 Bcf/d, or 15% of the total.

    The remainder was produced in Asia (3.54 Bcf/d), Oceania (1.25 Bcf/d), Africa (855 MMcf/d) and South America (386 MMcf/d).
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    Ecopetrol Group Announces Its Results for the First Quarter of 2016

    - Amid the lowest Brent price of the last 12 years, in the first quarter of 2016 the Group achieved a net income attributable to shareholders of Ecopetrol of COP$363 billion.
    - Net income attributable to shareholders of Ecopetrol, increased 127% as compared to the first quarter of 2015.
    - Solid cash flow generation with an Ebitda margin of 39.5%, resulting in an Ebitda of COP$4.1 trillion for the first quarter of 2016.
    - Group's savings amounted COP$421 billion during the first quarter of 2016. The Company continues to demonstrate its capacity to adapt under an adverse price scenario.

    "The price environment in the first quarter of 2016 continued to defy the oil industry, which saw the value of crude reach US$28/barrel, a 12 year record low. Ecopetrol, however, managed to generate profits amid this challenging environment, focusing its efforts on reducing costs, increasing efficiency, producing profitable barrels and prioritizing cash generation.

    During the first quarter of 2016 the price of Ecopetrol´s crude basket fell 43% and its refining margin fell 24% in comparison to those of the same period of 2015. The actions undertaken to operate more efficiently and with lower costs, coupled with the positive impact of the devaluation of the exchange rate over our revenues and the recording of a lower financial net loss allowed to register a growth of 127% in net profit attributable to shareholders and to improve the EBITDA margin compared to those of the first quarter of 2015. Additionally, the Company maintained its operating margins and EBITDA at approximately COP$4,000 billion compared to the same quarter.

    Savings in costs and expenses contributed to the obtained results, these amounted to COP$421 billion in the first quarter of the year, against a target of COP$1,600 billion for all 2016. The efficiencies are mainly due to the optimization of purchasing and contracting plans, better procurement strategies and renegotiation of contracts.

    The reduction of the lifting cost, cash cost of refining and transportation costs, reported in the first quarter of 2016, compared to the same period last year, are a result of the progress made by the company pursuant to the Transformation Plan, the devaluation of the COP/USD exchange rate and austerity and activity reduction measures implemented in all business segments. Ecopetrol is working so that the obtained efficiencies become structural even in an environment of increasing prices in order to ensure profitable operations and financial sustainability.

    The adjustments in CAPEX and OPEX implemented since 2015, in line with lower oil prices and the strategic prioritization of value over volume led to programmed lower activity and lower production in the first quarter of 2016, which came to 737 thousand barrels equivalent per day, compared to 773 thousand in the first quarter of 2015. This fall also reflects the natural decline and the temporary closure of some fields caused by low profitability or judicial decisions. Once market conditions and cash availability improve, the Company expects to increase levels of investment in exploration and production and give way to investments that have been postponed in this low crude oil price environment.

    In exploration, the deep water appraisal well Leon 2 in the Gulf of Mexico of the United States was completed. This one is operated by Repsol, which holds a 60% stake. The remaining 40% belongs to Ecopetrol America Inc. The Company is awaiting the results of the evaluation of the information provided by the well, located in one of the regions with the greatest potential for hydrocarbons in deep waters in the world.

    Between the first quarter of 2015 and 2016 the gross margin of the refining segment decreased by US$4.5per barrel mainly as a result of market conditions marked by lower spreads between prices of middle distillates and the price of oil.

    The Cartagena refinery continued its boot and stabilization process, obtaining a regular operation of the delayed coking, catalytic cracking and diesel hydro-treaters units. As of March 31, 28 units of a total of 34 were operational. It is expected that all units in the complex will be in full operation by the second half of 2016. Additionally, loads of crude up to 140 thousand barrels of oil a day have been achieved.

    Test of high viscosity crude transportation were started in February 2016. Satisfactory results were obtained moving oil with a viscosity of 405 centistokes (cSt). This project, along with the expansion of capacity in Ocensa (P-135) will reduce the cost of dilution which is key to the production of heavy crudes, which today represent about 58% of the total production of the Group.

    In December 2015 the Company imposed a significant cut on its 2016 investments compared to the levels of previous years with the approval of a budget of US$4,800 million. The need to preserve the financial sustainability of the Company with the low oil prices environment prompted a further cut in the investment plan for 2016, which now will range between US$3,000 and US$3,400 million. The expected production was adjusted to this new reality from 755 thousand barrels per day to approximately 715 thousand barrels of oil equivalent per day.
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    Austria's OMV signs MoU to revive activities in Iran

    Austria's OMV signed a memorandum of understanding (MoU) with the National Iranian Oil Company (NIOC) on Wednesday as it looks to revive its activities in Iran.

    OMV Chief Executive Rainer Seele, who took the helm at Austria's biggest company last July, has singled out Iran, Russia and the United Arab Emirates in a push away from expensive North Sea field exploration.

    Wednesday's deal signed in Tehran covers several areas from oil and gas field evaluation to crude oil and petroleum product swaps.

    Most sanctions on Iran were lifted in January after Tehran reached a deal with world powers under which it agreed to shrink its nuclear programme.

    OMV's envisaged projects are located in the Zagros area in western Iran, including the Cheshmeh Khosh and Band-E-Karkheh fields where OMV had started operations in 2001, and the Fars field in the south, OMV said.

    "This Memorandum of Understanding is an important first step in resuming OMV's activities in Iran and in the long-term cooperation with the NIOC," Seele, who is also pushing for closer ties with Russia's Gazprom, said in a statement.

    "We look forward to evaluating the opportunities of OMV in Iran and the cooperation with NIOC to evaluate whether there are areas of potential cooperation in the exploration and development of oil and gas," Seele said.

    Last November, Seele said OMV was not interested in gas projects in Iran, citing high costs.
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    Repsol Profit Beats Analyst Estimates on Chemicals, Refining

    Repsol SA, the worst-performing major European oil stock over the past year, beat analysts’ estimates as the performance at the refining and chemicals division compensated for low oil prices.

    First-quarter adjusted net income dropped to 572 million euros ($657 million) from 928 million euros a year earlier, the Madrid-based producer said Thursday in a statement. That beat the average 261 million-euro estimate of 11 analysts surveyed by Bloomberg. The exploration and production division, which pumped 714,000 barrels of oil equivalent per day in the quarter, posted a 17 million-euro profit, up from a 190 million-euro loss a year earlier.

    Like most of the oil industry, Repsol is slashing costs, cutting staff and seeking to divest assets to weather the slump in crude to a 12-year low. Things have been made worse by the $13 billion acquisition last May of Talisman Energy, which burdened it with debt and extra assets to offload. To cut costs further, Repsol in February announced it will cut its dividend.

    Since oil began its slide in 2014, Repsol has leaned on downstream operations, including refining and petrochemicals, to boost its results, a strategy that also helped Total SA, BP Plc and Royal Dutch Shell Plc beat quarterly estimates. Last year, the division posted the best refining margins, a measure of profitability, among European competitors.

    On the production side, the company has become more reliant on natural gas over the past decade but gets paid less for it than most of its peers, with the second-lowest realized gas price among 12 companies tracked by Bloomberg Intelligence. Gas accounted for 59 percent of Repsol’s output last year, up from 50 percent a year earlier and more than any other European integrated oil company tracked by BI.
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    Maersk says risks losing Qatar field, its largest oil asset

    Maersk says risks losing Qatar field, its largest oil asset

    Denmark's A.P. Moller-Maersk said for the first time on Wednesday there was a risk it could lose its largest oil producer, a 300,000 barrel per day Qatari field, and may not replace the production by buying other assets.

    Chief Executive Nils Smedegaard Andersen's comments give some insight into Maersk's view of how the oil industry will evolve, after oil prices more than halved in the past two years.

    The recently-streamlined conglomerate still considers Maersk Oil as core to its business and for years the expectation was that the Qatar field would be part of this as Maersk would renew a 25-year production agreement when its licence ran out in 2017.

    But the Gulf state surprised the company last year by putting out a tender for the Al Shaheen field, which Maersk Oil has been operating since 1992.

    "On Qatar, yes, we are in a tender process. That means, that there is a risk that we will lose Qatar but we don't feel that that should induce us to go out and do something dramatic on the M&A activity to replace volumes," Andersen told investors.

    Last year, Andersen was more upbeat about the tender process, saying Maersk had a good chance of winning it. He has also said Maersk would be interested in buying other oil assets because they have become so cheap due to falling crude prices.

    His latest comments came after the company said its Maersk Line shipping unit had returned to profit in the first quarter, surprising most analysts who had expected a loss.

    Andersen has overseen a streamlining of the sprawling conglomerate and has said Maersk would focus on shipping, port operations and oil and oil services.

    Maersk Oil's entitlement production from the Al Shaheen field was 164,000 bpd in the first quarter of this year, almost half of the company's total entitlement production of 350,000 bpd and by far the largest contributor to its portfolio.

    Maersk last year scrapped a target for the oil unit to increase entitlement production to 400,000 bpd in the coming years and slashed exploration spending due to low oil prices.

    In some years, Maersk Oil has contributed a third to half of group profits, though that dropped when oil prices fell.

    A Qatari oil source told Reuters the Gulf state had invited international majors to the tender because it wanted to raise production at the field to 500,000 bpd. The source said Exxon Mobil and Royal Dutch Shell were already long-standing partners. Total has also been invited to tender.

    Maersk Oil had originally planned for Al Shaheen's production to reach 525,000 bpd by 2010, after a 2005 field development plan was approved, but output remained at about 300,000 bpd. The oil reservoirs are notoriously thin and spread out across a vast area, making production difficult.
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    Dana Gas Profit Falls 50% as Output in Egypt to Iraq Declines

    Dana Gas PJSC, which produces natural gas in Egypt and Iraq, reported a 50 percent decline in first-quarter profit as sales slumped due to lower hydrocarbon prices and reduced output.

    Net income dropped to 22 million dirhams ($6 million) in the three months ended March 31 from 44 million dirhams in the same period a year earlier, Dana Gas said in an e-mailed statement on Wednesday. Sales dropped 29 percent to 301 million dirhams.

    Dana Gas sold condensate for an average $30 a barrel in the quarter, down 41 percent from a year earlier, and got an average $29 per barrel of oil equivalent for liquid petroleum gas, down 29 percent, according to the company. Production fell 12 percent in Egypt and 16 percent in the semi-autonomous Kurdish region in northern Iraq.

    The company and partners are discussing with the Kurdish Regional Government how it will get a $1.96 billion payment awarded to them in a November arbitration ruling,
    Chief Executive Officer Patrick Allman-Ward said on a conference call. A separate arbitration involving work in Iran on a gas import contract will begin Sept. 1 and last for two weeks, he said.

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    Summary of Weekly Petroleum Data for the Week Ending April 29, 2016

    U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending April 29, 2016, 139,000 barrels per day more than the previous week’s average. Refineries operated at 89.7% of their operable capacity last week. Gasoline production increased last week, averaging over 9.8 million barrels per day. Distillate fuel production decreased last week, averaging 4.6 million barrels per day.

    U.S. crude oil imports averaged about 7.7 million barrels per day last week, up by 110,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 8.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 946,000 barrels per day. Distillate fuel imports averaged 126,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 543.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 0.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.3 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.7 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.

    Total products supplied over the last four-week period averaged 20.1 million barrels per day, up by 5.8% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.5 million barrels per day, up by 5.8% from the same period last year. Distillate fuel product supplied averaged over 4.0 million barrels per day over the last four weeks, up by 4.3% from the same period last year. Jet fuel product supplied is up 4.8% compared to the same four-week period last year.

    Weekly avg crude imports from Saudi Arabia rise 105% to 1.55m b/d, highest since May 2014
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    Big weekly drop in US oil production

                                                 Last Week    Week Before     Last Year

    Domestic Production '000........ 8,825             8,938              9,369
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    Wildfire Cuts Canadian Oil Output as 80,000 Flee Expanding Blaze

    A fire fueled by shifting winds that forced more than 80,000 people to flee their homes and disrupted oil-sands operations in Western Canada is poised to expand.

    The fire will probably grow to about 100 square kilometers (40 square miles), from around 80 now, Chad Morrison, a wildfire official, said Wednesday. Suncor Energy Inc., Cnooc Ltd.’s Nexen, Royal Dutch Shell Plc and Husky Energy Inc. are among companies reducing production and opening work camps to residents fleeing blazes in Alberta’s biggest-ever evacuation caused by a fire. Inter Pipeline Ltd. shut part of its system in the province. No deaths or injuries have been reported although 1,600 buildings have been damaged.

    Reduced output from the world’s fourth-biggest crude producer helped lift benchmark oil prices, with West Texas Intermediate gaining as much as 2.3 percent in New York and Brent advancing 1.9 percent in London on Thursday.

    Many residents of oil-sands hub Fort McMurray fled north to nearby sites where companies are flying out workers and making room for evacuees. Shell has shut its 255,000 barrel-a-day Albian Sands mine and Suncor, Syncrude Canada Ltd. and Connacher Oil & Gas Ltd. have also reduced output from the region. More than 1 million barrels a day of oil sands production capacity may be affected by the blaze, according to company statements and data published in Alberta’s Spring Oil Sands Quarterly.

    “My house and everything I own is gone,” Mike Marchand, a crane operator for Suncor, said in a phone interview from Edmonton, where he evacuated with his family after the trailer park where he lives in Fort McMurray went up in flames. “I’ve never had anything like this happen.”

    Suncor said it brought down its base plant while cutting output from its Firebag and MacKay River oil sands operations. Nexen shut its Long Lake facility, the company said on its website. The facility had already shut its 72,000 barrel-a-day upgrader and had reduced bitumen extraction after a Jan. 15 explosion.

    Husky cut production at its Sunrise facility to 10,000 barrels a day from 30,000 after Inter Pipeline shut a diluent line to the plant, company Spokesman Mel Duvall said. Connacher cut about 4,000 barrels a day of output at its Great Divide project. Inter Pipeline said it shut part of its Corridor and Polaris systems.
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    Devon Energy reports first quarter 2016 results

    'In spite of the challenging industry conditions, Devon achieved another high-quality operating performance in the first quarter as we continued to take the appropriate steps to deliver significant cost reductions and accelerate efficiency gains across our portfolio,' said Dave Hager, president and CEO. 'These successful efforts resulted in production exceeding the midpoint of guidance for all products and operating costs declining by more than 20 percent year over year. Additionally, G&A costs savings remain on track to reduce overhead by up to $500 million on an annual basis.'

    'Looking ahead, our top priority is to maintain a strong balance sheet,' said Hager. 'We are balancing capital requirements with cash flow and enhancing our financial strength by utilizing asset sale proceeds to reduce debt. This disciplined financial strategy positions us to take advantage of our world-class resource plays when prices incentivize higher activity levels.'

    Raising 2016 Production Guidance

    Devon's reported oil production averaged 285,000 barrels per day in the first quarter of 2016. Of this amount, 255,000 barrels per day were from the Company's core assets, where investment will be focused going forward. Oil production from these assets increased 10 percent year over year, exceeding the midpoint of guidance by 5,000 barrels per day.

    Overall, net production from Devon's core assets averaged 581,000 oil-equivalent barrels (Boe) per day during the first quarter, surpassing the midpoint of guidance by 6,000 Boe per day. With the strong growth in higher-margin production, oil is now the largest component of Devon's product mix at 44 percent of total production.Given the strong year-to-date production performance, Devon has raised the midpoint of its 2016 guidance by 15,000 Boe per day, or 3 percent. This incremental production is expected to be delivered without additional capital spending.

    Strong Operating Costs Performance in Q1; Additional Savings Expected

    The Company has several cost-reduction initiatives underway that positively impacted first-quarter results. The most significant operating cost savings came from lease operating expenses (LOE), which is Devon's largest field-level cost. LOE declined 21 percent compared to the first quarter of 2015 to $7.13 per Boe, and LOE was $6 million below the bottom-end of guidance. The decrease in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

    With these outstanding results in the first quarter and additional cost savings expected throughout 2016, the Company is lowering its full-year LOE outlook by $50 million to a range of $1.75 billion to $1.85 billion. Due to these additional savings, the Company expects field-level costs, which include both LOE and production taxes, to decline by up to $400 million for the full-year 2016.

    Devon also realized significant general and administrative (G&A) cost savings in the first quarter. G&A expenses totaled $194 million, a 23 percent improvement compared to the first quarter of 2015. This decrease was driven by lower employee-related costs.

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    Carrizo Oil & Gas announces first quarter 2016 results

    Carrizo reported a first quarter of 2016 loss from continuing operations of $311.4 million, or $5.34 per basic and diluted share compared to a loss from continuing operations of $21.5 million, or $0.46 per basic and diluted share in the first quarter of 2015. The loss from continuing operations for the first quarter of 2016 includes certain items typically excluded from published estimates by the investment community, including the full cost ceiling test impairment recognized this quarter. Adjusted net income, which excludes the impact of these items as described in the statements of operations included below, for the first quarter of 2016 was $9.2 million, or $0.16 per basic and diluted share compared to $6.4 million, or $0.14 per basic and diluted share in the first quarter of 2015.

    For the first quarter of 2016, adjusted earnings before interest, income taxes, depreciation, depletion, and amortization, as described in the statements of operations included below ('Adjusted EBITDA'), was $92.5 million, a decrease of 9% from the prior year quarter as the impact of lower commodity prices more than offset the impact of higher production volumes.

    Production volumes during the first quarter of 2016 were 3,824 MBoe, or 42,025 Boe/d, an increase of 21% versus the first quarter of 2015. The year-over-year production growth was driven by strong results from the Company's Eagle Ford assets. Oil production during the first quarter of 2016 averaged 25,806 Bbls/d, an increase of 21% versus the first quarter of 2015 and 3% versus the prior quarter; natural gas and NGL production averaged 70,033 Mcf/d and 4,547 Bbls/d, respectively, during the first quarter of 2016. First quarter of 2016 production exceeded the high end of Company guidance due primarily to stronger-than-expected performance from the Company's Eagle Ford Shale assets as well as higher-than-expected non-operated production.Drilling and completion capital expenditures for the first quarter of 2016 were $84.8 million. More than 85% of the first quarter drilling and completion spending was in the Eagle Ford Shale, with the balance weighted towards the Delaware Basin. Land and seismic expenditures during the quarter were $5.9 million. For the year, Carrizo is maintaining its drilling and completion capital expenditure guidance of $270-$290 million. However, given additional efficiencies and cost reductions realized during the first quarter, the Company has been able to increase its planned drilling activity in the Eagle Ford Shale and Delaware Basin during the year. As the Company does not currently plan to increase completion activity in 2016, the additional activity is not expected to have a material impact on 2016 production. The Company is increasing its land and seismic capital expenditure guidance to $20 million from $15 million for the year based on its outlook for continued bolt-on acquisitions. Additionally, the Company recently acquired approximately 4,000 net bolt-on acres in the Eagle Ford Shale, which was funded by the simultaneous sale of undeveloped acreage in a non-core exploration play.

    Carrizo is increasing its 2016 oil production guidance to 24,800-25,300 Bbls/d from 24,700-25,300 Bbls/d previously. Using the midpoint of this range, the Company's 2016 oil production growth guidance is 9%. For natural gas and NGLs, Carrizo is increasing its 2016 guidance to 54-60 MMcf/d and 4,000-4,200 Bbls/d, respectively, from 45-60 MMcf/d and 3,700-4,000 Bbls/d. For the second quarter of 2016, Carrizo expects oil production to be 23,600-24,000 Bbls/d, and natural gas and NGL production to be 56-60 MMcf/d and 3,700-3,900 Bbls/d, respectively. The forecast sequential decline in production during the second quarter results from the planned shut-in of a significant number of wells in the Eagle Ford Shale due to offsetting completion activity coupled with a limited number of wells brought online in the prior quarter.

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    HollyFrontier's quarterly profit plunges 91 pct

    May 4 U.S. refiner HollyFrontier Corp reported a 91 percent fall in quarterly profit hurt by a steep fall in refining margins and lower refinery utilization rate.

    The net profit attributable to the company's shareholders fell to $21.3 million, or 12 cents per share, in the first quarter ended March 31, from $226.9 million, or $1.16 per share, a year earlier.

    Sales and other revenue fell 33 percent to $2.02 billion.
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    Marathon Oil announces first quarter 2016 results; reported net loss $407 million

    Marathon Oil Corporation today reported a first quarter 2016 adjusted net loss of $317 million, or $0.43 per diluted share, excluding the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. The reported net loss was $407 million, or $0.56 per diluted share.


    First quarter total Company net production averaged 388,000 net boed at the upper end of guidance; U.S. resource play production averaged 204,000 net boed
    Reduced North America E&P production costs to $6.17 per boe, or 22% below year-ago quarter
    New Eagle Ford high-GOR oil wells with tighter stage spacing continue to perform approximately 20% above offset wells; high-GOR oil wells represent approximately 60% of Eagle Ford future well inventory
    Announced $950 million in sales of non-core assets in April, bringing total to approximately $1.3 billion since August 2015, exceeding high end of targeted range
    Quarter-end liquidity of $5.4 billion comprised of $2.1 billion in cash and undrawn $3.3 billion revolving credit facility

    'Since the beginning of the year, we've made significant additional progress strengthening our balance sheet. This provides us substantial flexibility in this period of market uncertainty and prepares us to respond to more constructive and sustainable pricing,' said Marathon Oil President and CEO Lee Tillman. 'With the backdrop of crude and condensate realizations falling more than 20 percent in the first quarter, we remained focused on lowering costs, reducing our capital program consistent with our plan, and delivering production at the upper end of guidance. Additionally, we maintained our commitment to portfolio management with the recently announced $950 million of non-core asset sale transactions, exceeding our target for 2016. With these actions, we're on track to achieve our objective of living within our means in 2016.'North America E&P

    North America Exploration and Production (E&P) production available for sale averaged 239,000 net barrels of oil equivalent per day (boed) for first quarter 2016. On a divestiture-adjusted basis, it was down 5 percent from the prior quarter and down 10 percent from the year-ago period due to reduced drilling and completion activities. First quarter North America production costs were 18 percent lower than the previous quarter. On a per barrel basis, unit production costs were $6.17 per barrel of oil equivalent (boe), 11 percent lower than fourth quarter 2015 and down 22 percent from the year-ago period.

    Lots more detail:
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    Alternative Energy

    China solar equipment firm warns may miss bond payment

    A Chinese solar equipment firm, Baoding Tianwei Yingli New Energy Resources Co Ltd, said it may be miss payment on a 1.4 billion yuan ($215.2 million) five-year note maturing on May 12.

    The unlisted firm, a subsidiary of New York-listed Yingli Green Energy Holdings Co Ltd, cited consecutive losses as the reason for the potential default. It issued the warning in a statement posted on China's interbank bond market operator's website late on Wednesday.

    Prices for solar power equipment have fallen rapidly in recent years, causing financial problems for several manufacturers. China's first public bond default in 2014 was by Chaori Solar.

    Bond defaults have been accelerating in China over the past year and a half, with around 20 firms running into repayment trouble in 2016. Defaults have been concentrated in industries with overcapacity such as steel and cement, but firms in a wide range of sectors have now defaulted as the economy has slowed.

    Onshore bond yields rose rapidly in April as investors eyed mounting defaults amid less aggressive moves by the central bank to stimulate the economy following better than expected economic data. Chinese firms delayed or cancelled more than $15 billion of new bond issuance in April.

    Nonetheless, bond and money market yields have retreated somewhat in recent days following large cash injections by the central bank.

    Last week, the People's Bank of China injected 267 billion yuan into 18 financial institutions through three- and six-month medium-term lending facility (MLF) loans. The MLF is a supplementary policy tool the central bank uses to direct liquidity conditions and medium-term interest rates in the banking system and money markets.

    Tianwei Yingli New Energy has been in financial trouble for some time and the note in question was rated C as of October 2015 by Shanghai Brilliance Long-term Issue Credit Rating.
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    Fertiliser company Mosaic's sales beat estimates

    US fertiliser company Mosaic Co forecast higher phosphate and potash sales for the current quarter after it reported higher-than-expected first quarter sales. The company's net sales fell 21.7% in the first quarter to $1.67-billion, but beat the average analyst estimate of $1.56-billion. 

    Mosaic's Brazil unit said in March that the country's fertiliser sales had doubled in the first ten weeks, compared with the volume seen in a similar period in 2015, with sales reaching 7.5-million tonnes considering deals from all suppliers. 

    Plymouth, Minnesota-based Mosaic forecast current-quarter phosphate sales of 2.3-million to 2.6-million tonnes, higher than the 2.2-million tonnes it sold in the first quarter. The company said it expected potash sales of 1.9-million to 2.2-million tonnes in the current quarter, higher than the 1.5-million tonnes it sold in the first quarter. 

    Larger rival Potash Corp of Saskatchewan last month reported an 80% drop in profit and cut its full-year profit forecast on weak demand and lower prices. 

    Mosaic, which cut 8% of its workforce at a Canadian mine in October, on Wednesday lowered its 2016 capital expenditures to the range of $800-million to $900-million from its previous estimate of $900-million to $1.1-billion. Net profit attributable to the world's largest producer of finished phosphate products fell nearly 13% to $256.8-million, or $0.73 a share, in the first quarter ended March 31 from a year earlier. Excluding items, it earned $0.14 a share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.
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    Steel, Iron Ore and Coal

    Regional de-capacity standards rolled out to tackle capacity glut

    Relevant authorities of China’s major coal production bases released new capacity standard for local coal mines in succession, in response to the national de-capacity polity to tackle the woes of domestic coal market troubled by surplus capacity.

    Shandong province pledged to cut annual coal capacity of 143 local mines from the previous 170.32 million tonnes to 141.95 million tonnes, a decline of 16.7%.

    Of this, key provincial-owned mines will see annual capacity reduced to 95.35 million tonnes from previous 114.43 million tonnes; capacity of municipal and prefecture-owned coal mines is expected to drop to 47.16 million tonnes per year, compared with the previous 50.13 million tonnes.

    Also, annual capacity of eight mines under construction in the province will be cut to 6.44 million tonnes from previous 7.65 million tonnes.

    Meanwhile, Inner Mongolia Autonomous Region authorities rolled out new coal capacity standard based on the newly-implemented 276-workday regulation for coal miners, asking those production coal mines not owned by central government to cut capacity by 16.05% to 325.15 million tonnes per year.

    The Energy Administration of Guizhou province in southwestern China also required a total 709 production miners to eliminate combined coal capacity by 15.63% to 151.59 million tonnes per year, yet the coal mines owned by central government are not included.
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    Hebei steel industry Q1 profit triples on year

    Hebei province, a major steel production base in China, posted a year-on-year increase of 215.8% in profit of its steel industry to 4.07 billion yuan ($626.4 million) in the first quarter, thanks to rising steel prices at domestic market, showed data from the provincial Metallurgical Industry Association.

    The revenue of core businesses of the province’s steel industry stood at 233.6 billion yuan during the same period, sliding 3.15% from a year ago.

    The steel market gained upward strength mainly from the eased oversupply as well as the national favorable policies, analysts said.

    In the first quarter, the province’s output of iron pig and crude steel amounted to 45.71 million and 48.89 million tonnes, falling 0.67% and 0.84% on year, respectively; that of steel products climbed 4.87% on year to 61.91 million tonnes.

    At present, a total of over 60 blast furnaces have resumed production, mainly spurred by tempting profit, contributing to a 5% monthly rise in China’s daily output of crude steel to 2.16 million tonnes since mid-March.

    Production recovery, however, may intensify price competition among steel mills, bringing the steel market back into the previously bad situation.

    The province has cut iron and steel capacity of 33.91 million and 41.06 million tonnes, respectively, during 2010-2015 period. The de-capacity target for 2016 is set at 10 million and 8 million tonnes for iron and steel, respectively, and the province’s steel capacity is expected to be within 200 million tonnes during the 13th "Five-Year Plan".

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