Mark Latham Commodity Equity Intelligence Service

Wednesday 6th April 2016
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    Noble Group launches $1-billion loan facility

    Noble Group will have to fork out more than double in interest margin on a $1-billion unsecured loan it is raising with banks, as a fall out of the commodity trader's credit rating downgrades, sources familiar with the matter said.

    The Singapore-listed firm has launched a 364-day revolving credit facility, which will pay an interest margin of 225 basis points over LIBOR, compared with 85 basis points interest margin for last year's one-year $1.1 billion loan, said the sources, who declined to be identified as the information is not public.

    Noble, which previously said the latest loan would come at a higher price, declined to comment on the story on Tuesday.

    A successful raising of Noble's loan, which is not backed by assets, will help it repay part of its debt maturing in May and could reassure investors about its finances following a $1.2-billion writedown on assets and a full-year loss.

    Noble, one of the biggest traders of commodities from coal to iron ore to oil, is battling to boost investor confidence after Standard & Poor's and Moody's cut their investment grade ratings on the company to junk, following a bruising accounting dispute and weak markets.

    Hong Kong-headquartered Noble has said its overall funding costs were decreasing as it was stepping up low-cost secured lending from banks and cutting capital spending.

    Its latest loan comes on top of a $2.5 billion secured financing that it is seeking in the United States from its lenders.

    Noble has launched the $1-billion loan into general syndication and the deadline for responses is May 3, the sources said. Previously, the company was said to be looking to raise $1.5 billion in unsecured loans.

    Loss-making Noble has mandated eight banks including Societe Generale, MUFG, HSBC and DBS as lead arangers, the sources said.

    HSBC and Societe Generale declined to comment. Bank of Tokyo-Mitsubishi UFJ (MUFG) and DBS had no immediate response.

    Shares in Noble, which has been grappling with a rout in commodity prices and an attack on its accounting practices, plumbed 12-year lows in January, but have recovered around 40 percent over the past two months.

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    Another Brazil State-Run Giant Readies Its Own Graft Write-downs

    A year after Brazilian oil giant Petroleo Brasileiro SA took a writedown of $2.1 billion because of the sweeping corruption scandal known as Carwash, another state-run company is getting closer to reporting its own price tag from graft losses.

    The team of lawyers and specialists hired by Centrais Eletricas Brasileiras SA has finished the bulk of its investigation to assess the size of losses from corruption committed by some builders the company contracted, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. Before it can finish its work, the group needs one more piece to the puzzle: testimony given to federal prosecutors last month by executives from Andrade Gutierrez SA, a construction firm that worked on key projects, from the Belo Monte dam deep in the Amazon jungle to the Angra nuclear plant tucked in a Rio de Janeiro bay, said the person.

    That testimony is likely to be made public in coming weeks after prosecutors send it to a Supreme Court judge to sign off on this week, said a second person with direct knowledge of the process. The executives, who admitted to paying bribes to win lucrative contracts at Petrobras, reached plea bargains to testify about other graft losses, including at Eletrobras, as the utility is known, said the two people. Andrade’s press office declined to comment.

    While the kickback scheme at Petrobras has exploded publicly and received almost daily coverage in every major newspaper in Brazil, the saga playing out at its counterpart in the electric sector has unfolded largely out of the international spotlight. The larger investigation has helped tip Brazil into its worst recession in a century and paralyzed its political institutions.

    Eletrobras’s press office in Rio de Janeiro, where the company is based, didn’t respond to requests for comment.

    Almost a dozen Andrade executives testified last month for five days, and at least two of them described an illegal pay-to-play scheme in energy projects like Belo Monte, which is controlled by an Eletrobras unit, said one of the people. According to the testimony, builders agreed to pay kickbacks equal to 1 percent of the 15 billion-real ($4.2 billion) project, which were then allegedly routed to the PT and PMDB political parties as official donations, said the person. The PT and PMDB have repeatedly denied any accusations of wrongdoing.
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    Oil and Gas

    Saudi Aramco Reduces Pricing for Arab Light Crude to Asia Buyers

    Saudi Arabia, the world’s largest crude exporter, cut pricing for May sales of its Arab Light oil grade to Asia as producers get set to meet in Doha to discuss a proposed output freeze.

    State-run Saudi Arabian Oil Co. widened the discount for Arab Light crude to Asia by 10 cents a barrel to 85 cents below the regional benchmark, the company said in an e-mailed statement on Tuesday. That matched the expectation in a Bloomberg survey of six refiners and traders.

    Brent crude has slid about 50 percent since Saudi Arabia led a 2014 decision by the Organization of Petroleum Exporting Countries to maintain production amid a global supply glut to defend market share and drive out higher-cost producers. Saudi Arabia and other OPEC members will meet with Russia on April 17 in Doha to discuss a proposal to freeze oil output to stabilize prices.

    Saudi Arabia will freeze output only if Iran follows suit, Mohammed bin Salman, the Saudi deputy crown prince, said in an interview with Bloomberg. Saudi Arabia’s output rose to 10.21 million barrels a day in February from 10.19 million barrels a day in January, while Iran’s climbed to 3.22 million barrels a day from 3 million barrels, according to International Energy Agency data. Russia’s production was 11.22 million barrels a day in February, the data show.

    Saudi Aramco widened the discount for Arab Heavy crude to Asia by 35 cents a barrel to $3.65 less than the benchmark, according to the statement.

    Middle Eastern producers are competing increasingly with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market. Producers in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia, the benchmark is the average of Oman and Dubai oil grades.

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    Kuwait Says Oil Producers Can Reach Output Freeze at February levels Without Iran

    The Organization of Petroleum Exporting Countries and other major oil producing countries can reach an agreement for a production freeze, even if Iran doesn’t join the action meant to help shore up prices, according to Kuwait’s OPEC governor.

    Oil-producing countries have no option but to reach an agreement to freeze production when they meet on April 17 in Doha, Qatar, because prices are too low, Nawal al-Fezaia said in a telephone interview. The freeze, which may be at February levels, may also help set a floor for oil prices, she said.

    “Oil producers have no option but to freeze their production as oil prices are low and hurting everyone,” she said. “All early signs before the meeting point to this conclusion.”

    OPEC and other producers are meeting in Doha to finalize the agreement to freeze production in an effort to curb the global glut. Their unity came under immense strain last week as Saudi Arabia’s deputy crown prince said the kingdom’s commitment depends on regional rival Iran. While Iran may attend the talks, it has refused any limits on crude supply as it restores oil exports after international sanctions were lifted in January.

    Rising production from Iran won’t hinder the agreement as the country will find it difficult to sell its crude in an oversupplied market, Kuwait’s al-Fezaia said.

    The oil market is expected to return to balance in the second half of this year, she said. Oil prices may end the year at a level between $45 and $60 a barrel, she said. Brent for June settlement declined 6 cents to $37.63 a barrel on the London-based ICE Futures Europe exchange.
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    Latin American oil producers to meet Friday in Quito - Ecuador president

    Latin American oil producers Colombia, Ecuador, Mexico and Venezuela are to meet on Friday to discuss an output freeze or other methods to bolster crude prices, Ecuador'sPresident Rafael Correa told journalists on Tuesday.

    The gathering was originally expected at the start of March, but was delayed due to scheduling difficulties.

    Correa said Mexico was the toughest to co-ordinate with.

    "The meeting will take place on April 8," said Correa, who has been pushing for the meeting. "It's been most difficult to co-ordinate with Mexico."

    He added that they hoped to have a declaration of support for a forthcoming OPEC, non-OPEC meeting in Doha on April 17.

    This regional meeting is the first significant sign that non-OPEC producers Colombia and Mexico are involved in an effort to bolster prices, in a deep slump due to worries about global oversupply.

    Ecuador and Venezuela have pushed hard for the OPEC, non-OPEC meeting because they have suffered more during the recent price plunge than most producers because their economies rely heavily on oil.

    Oil prices rose on Tuesday after Kuwait insisted major producers will agree to freeze output later this month even as key player Iran continued to balk at the plan.

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    Huge oil tanker traffic jam builds at Iraq's Basra port

    A traffic jam of nearly 30 large oil tankers has built up outside the Iraqi port of Basra due to loading delays, with some waiting up to three weeks and costing ship operators around $75,000 a day per vessel.

    Shippers and port sources said more delays are expected throughout April as the city's facilities struggle to cope with Iraq's soaring crude output.

    The problems at Basra, coupled with continuing storage tank shortages in China, have pushed supertanker rates from the Middle East to Asia to unseasonal highs as the delays disrupt future sailing schedules and charterers cover future tonnage requirements.

    "The VLCC (very large crude carrier) market is being sustained by a whole pattern of delays and congestion, affecting ports in Basra," said Ralph Leszczynski, head of research at ship broker Banchero Costa in Singapore, adding that there were further delays in China and South Korea.

    There are 27 VLCCs and suexmax tankers with a combined capacity of 43 million barrels, waiting off Basra, shipping data on the Reuters Eikon terminal showed, about twice the norm.

    The delays are likely to continue throughout April and could only ease in May, said Omar Al Jarah, a surveyor at maritime consultancy Alwan Marine in Sharjah, as the port struggles with the country's rising crude output.

    Iraq exported an average of 3.26 barrels of oil per day (bpd) through its southern terminals in March, up from 3.22 million bpd the previous month and just 2.5 million bpd in 2010.

    Port officials were not immediately available for comment.


    Some of the tankers, which would stretch more than 8 kms (5 miles) if placed end-to-end, have been waiting three weeks to load crude from Basra Oil Terminal, according to ship tracking data and port agents.

    Sources said the current waiting time to load Basra heavy crude is 18-19 days, compared with an average time of 5-10 days.

    Basra Oil Terminal has seven loading berths but only a single point mooring facility, SPM No. 3, is being used to load Iraqi heavy crude, port agents and brokers said.

    Three of the terminal's berths are closed for maintenance, a Singapore-based tanker broker said.

    Rough weather is making it difficult for pilot boats to operate which is adding to the delays, Al Jarah said.

    As the delays bind tankers outside Basra, rates for very large crude carriers (VLCCs) jumped from around 50 on the Worldscale measure on March 1 to around 90 on April 1, doubling in cost from $37,250 to $74,700 per day, shipping data showed.

    The captain of one ship that has been waiting for two weeks told Reuters by phone he had been given no information when the ship would be allowed to moor and load cargo.

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    U.S. Justice Dept will sue to stop Halliburton, Baker Hughes merger: source

    The U.S. Justice Department will file a lawsuit as soon as this week to stop oilfield services provider Halliburton Co from acquiring smaller rival Baker Hughes Inc, a source familiar with the matter said on Tuesday.

    The antitrust lawsuit could potentially scupper the deal that was first announced in November 2014 to combine the No. 2 and No. 3 oil services companies. Since then, oil prices have fallen by more than 55 percent.

    Faced with opposition from the Justice Department, the companies may either cancel the planned tie-up or fight the government in court. The deal is one of several that antitrust enforcers have rejected as illegal during the recent wave of mergers of large, complex companies.

    Halliburton and Baker Hughes both declined comment.

    The two sides had been discussing asset sales aimed at saving the deal, which was originally valued at $35 billion but is now valued at about $25 billion based on the decline in Halliburton shares.

    If the deal collapses due to antitrust concerns, Halliburton must pay Baker Hughes a $3.5 billion breakup fee, according to regulatory filings.

    The proposed deal also has hit headwinds in Europe, where the European Union's competition authority was concerned that the proposed merger would reduce competition and innovation in more than 30 product markets. Regulators in Australia also flagged concerns about the massive tie-up.

    As far back as July 2015, Reuters reported that there were concerns in the U.S. government that the merger would lead to higher prices and less innovation.

    The Justice Department's worry then focused on two areas. One was that the drilling technology businesses that were divested would go to small companies that could not effectively compete with the two leaders. The other was that the leaders would have less incentive to innovate.

    Baker Hughes in particular has been aggressive in developing new oilfield technologies, part of its appeal to Halliburton from the beginning. Baker Hughes developed smartphone apps to help customers in the field decide in real time how best to hydraulically fracture new wells.

    Furthermore, uniting Halliburton and Baker Hughes would create a dominant leader in North Dakota with more than half the cementing market and a leading position in fracking.

    Lower oil prices had given investors hope that the companies' best path forward was together, especially as demand for their products and services evaporate as customers slashed budgets.

    The Justice Department and Federal Trade Commission, which enforce antitrust law, have filed lawsuits to stop a surprising number of deals in the past 18 months.

    The FTC stopped food distribution giant Sysco Corp from buying US Foods Inc in 2015, and is currently in court fighting Staples' merger with Office Depot.

    The Justice Department, working with the Federal Communications Commission, stopped Comcast Corp from buying Time Warner Cable in 2015. It also stopped Electrolux from buying GE's appliance business and halted a merger of tuna sellers Bumble Bee and Thai Union, which owns Chicken of the Sea.

    The Justice Department also is reviewing two controversial insurance deals -- Aetna Inc's purchase of Humana and Anthem Inc's decision to buy Cigna Corp -- amid concern they would reduce the number of national insurers from five to three.
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    Airline hedges fuel rally in later dated oil prices

    Big airlines are making waves in the oil market for the first time since prices went into a tailspin nearly two years ago, betting this may be their best chance to lock in cheap jet fuel for years to come, industry and market sources say.

    A number of airlines moved last week to place significant oil price hedges for 2017, 2018 and even 2019, according to three trading sources familiar with money flows. They declined to specify companies, but said it was the largest flurry of such activity in more than a year.

    A fourth trading source indicated that bigger trades occurred in the over the counter market last week. While still small relative to previous years, when some carriers hedged as much as 40 percent of their fuel costs, the recent activity was robust and included larger players, the source added.

    The renewed interest suggests that airlines executives who were stung by billions of dollars in hedging-related losses last year are more confident that they're buying at the bottom, a further sign of shifting sentiment in the oil market after an over 60-percent price slump since mid-2014.

    Big oil consumers are coming around to the idea that "we're not going to see too many more legs down" in prices, said Steve Sinos, vice president at consultancy Mercatus Energy, which advises corporations including airlines on hedging strategies.

    Their clients are "getting comfortable with the idea that this is a good price if not the best price."

    The activity has helped buoy so-called longer-dated oil prices, with December 2017 and 2018 U.S. crude futures enjoying their most sustained rally since prices began tumbling in the second half of 2014. Selling pressure has resumed in recent days amid concerns that a promise among major global oil producers to 'freeze' output was in danger of falling apart.

    The number of clients calling Mercatus for advice has increased lately compared to six months ago, when prices were also in free-fall but companies were less certain that they had seen the end of a historic price rout.

    To be sure, airlines - which typically hedge some volume every quarter - have a mixed record of calling the market's turning points. Consultants say airlines are more cautious now after some past hedges turned out costly because the contracted fuel costs proved higher than market prices.
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    China firm wins Myanmar approval for $3 bln refinery

    Chinese state-controlled commodity trader Guangdong Zhenrong Energy Co has won approval from the Myanmar government to build a long-planned $3 billion refinery in the Southeast Asian nation in partnership with local parties including the energy ministry, company executives said on Tuesday.

    The project, which also includes an oil terminal, storage and distribution facilities, would be one of the largest foreign investments in decades in Myanmar. Myanmar currently imports most of its fuel.

    The Myanmar Investment Committee granted the Chinese firm approval to build a 100,000 barrels-per-day (bpd) refinery in the southeast coastal city of Dawei, Li Hui, a vice president of Guangdong Zhenrong and head of the company's refining business, told Reuters.

    The Chinese firm will hold 70 percent of the project, and the remaining 30 percent shared by three Myanmar firms - military-linked Myanmar Economic Holdings Limited, Myanmar Petrochemical Corp, an entity affiliated with the country's energy ministry and Yangon Engineering Group, controlled by privately-run HTOO Group of Companies, Li said.

    As the approval came before the government led by Aung San Suu Kyi's National League for Democracy was sworn in, Li said his firm was ready to work with the new Myanmar authorities to ensure the project gets off the ground.

    "We are confident (about the project) as it has taken into considerations interests from all parties and the refinery will benefit the local people as well as the economic development of the country," said Li.

    Guangdong Zhenrong, which first announced the project in 2011, won the green light from Beijing in late 2014 to proceed with the plan.

    The firm, which had a turnover of more than 100 billion yuan ($15.45 billion) in 2013, is 44.3 percent owned by Zhuhai Zhenrong Corp, one of China's top four state petroleum traders, which was until the late 1990s an affiliate of the military.

    Xiong Shaohui, the company's chairman, has said the project may attract financing from state policy banks such as China Development Bank and China Export & Import Bank, as the investment fits into Beijing's "marine silk road" policy that aims to connect China to neighbouring economies like Myanmar, India and Sri Lanka.

    It would be the first foray into refining for Guangdong Zhenrong, which is largely a trader of petroleum products and metals, and more recently the operator of oil storage facilities and a shipyard.

    Company executives have also said the firm was open to working on the project with established Chinese energy companies.

    China's largest energy group CNPC is among the largest foreign investors in Myanmar, Asia's second-poorest nation, having built oil and gas pipelines that connect the two countries.
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    Vitol Said to Post Highest Profit Since 2011 as Oil Prices Swing

    Vitol Group BV earned $1.6 billion last year, the most since 2011, as the world’s largest independent oil trader profited from price swings in the energy market, according to a person familiar with the matter.

    As oil-producing companies and energy-rich nations suffered amid the rout in crude and petroleum-product prices, closely held Vitol benefited from a market that Chief Executive Officer Ian Taylor earlier this year said “favors” traders.

    Oil traders such as Vitol, Trafigura Group Pte, Glencore Plc, Gunvor Group Ltd., Mercuria Energy Group Ltd. and Castleton Commodities International LLC are profiting from increased price volatility. They are also filling storage to take advantage of contango -- a situation where future prices are higher than current levels, allowing investors to buy oil cheap, store it in tanks and lock in a profit for a later sale using derivatives.

    The combination of contango and oil price swings allowed Vitol, which handles enough crude and refined products to meet the combined needs of Germany, France, Italy and Spain, to increase net income by 15 percent from $1.39 billion in 2014. The 2015 profit is the company’s fourth highest ever, only trailing earnings posted in 2006, 2009 and 2011.

    Taking Writedowns

    While Vitol only publicly releases its traded volumes and revenue, it does provide financial information to its lenders and some other groups. The person familiar with the accounts asked not to be named, citing confidentiality clauses.

    Andrea Schlaepfer, a Vitol spokeswoman in London, declined to comment.

    In an interview in February, Taylor said that Vitol, which celebrates its 50th anniversary this year, would report net income for 2015 above that earned in 2014. However, he said the company wouldn’t match the record of 2009.

    The company, which is owned by its senior staff, planned to take writedowns in its exploration and production business and make provisions against customers defaulting on contracts, Taylor said. Vitol’s operating profit rose 22 percent to $1.82 billion last year, the person said.

    Vitol said last month its traded volumes of crude and oil products rose 13 percent from a year earlier to a record high of 303 million metric tons, equal to about 6.2 million barrels a day. Revenue, which rises and falls in parallel with commodity prices, plunged 38 percent to $168 billion as crude slumped.

    The trading house, which is formally incorporated in Rotterdam but has its main operations in Geneva, London, Singapore and Houston, has experienced strong growth over the last 20 years on the back of expanding oil trade, large price swings and, more recently, investment in storage and refining. In 1995, Vitol earned just $20 million.
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    Kazakhstan files $1.6 bln claim against BG-Eni venture -Lukoil

    Kazakhstan has filed a $1.6 billion claim against a group led by BG Group Plc and Eni SpA which is developing the Karachaganak gas condensate field, Russia's Lukoil, also a consortium member, said.

    The move is the latest sign of tensions between global energy majors and national companies in resource-rich nations as low oil prices put more strain on state budgets which have ballooned over the past decade.

    The dispute relates to a formula which determines how profit from the development is split between the companies and the government, Lukoil said in its financial report published on Monday, noting the parties were in talks on a possible settlement and it did not believe any settlement would have a material adverse effect on its finances.

    It did not say when Kazakhstan had filed the lawsuit, when it expected a settlement to be reached and what the likely cost implications would be.

    An Eni executive had said in October there were talks on audit and cost recovery with Kazakhstan over the Karachaganak field, describing the discussions as normal in such a development.

    Kazakhstan's Energy Ministry and Karachaganak Petroleum Operating, a joint venture which runs the project, had no immediate comment on Tuesday.

    Eni and BG, recently acquired by Royal Dutch Shell Plc , each own 29.25 percent of the Karachaganak project in northwest Kazakhstan, which they jointly operate. State-owned KazMunayGaz owns 10 percent, Chevron Corp 18 percent and Lukoil 13.5 percent.

    The Kazakh government said this year the consortium would start an expansion project in 2017 that will cost $12 billion. In 2015, the field produced 141.7 million barrels of oil equivalent in the form of gas and liquids.

    Oil is Kazakhstan's main export and a key source of budget revenue. The decline of its price has prompted Kazakhstan to stop pegging its tenge currency to the dollar last August and let it lose almost half of its value against the greenback.

    It has also strained Astana's relations with foreign investors. In another recent case, KazMunayGaz representatives on the board of its listed upstream subsidiary clashed with independent directors over the 2015 dividend. The board voted to pay none, against independent directors' proposals.

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    Total says costs still unacceptably high in oil and gas

    Oil and gas companies must make further serious cost cuts and should work together to generate further savings to weather the current difficult downturn, Total's executive Arnaud Breuillac said on Tuesday.

    Costs are still unacceptably high and cost reduction was necessary to sustain businesses, Breuillac, President for Exploration & Production at the French oil and gas major, told an industry event in Pau, southwest France.

    Oil prices have plunged since 2014 due to global oversupply concerns, hitting profits in the sector and forcing companies to cut costs and find savings.

    Speaking in century-old Palais Beaumont while some 200 environmental activists protested outside, Breuillac said oil and gas was still needed despite progress in renewable energies.

    "To ensure the right level of profitability, oil companies and services companies must work together to find innovative ways to bring cost down," Breuillac told industry experts meeting for 2016 MCE Deepwater Development conference.

    "We need to increase our collaboration, to find better ways to share risks and to collectively find a new balance," Breuillac said.

    He added that oil and gas companies could only to manage the downturn through cost reductions.

    "We cannot control the oil price, so we have to excel in what we can control ... our capacity to deliver projects, operational excellence, new technology innovation and of course to lower opex and capex," he said.

    Breuillac said Total has cut operating costs by 1.5 billion euros in 2015 with an objective to gain 2.4 billion in 2016 and 3 billion more in 2017.

    "These efforts combined with a more efficient exploration and a new production will enable us to maintain the lowest technical cost among our peers below $24 per barrel," he said.

    "This means that above $10 per barrel we can generate positive cash flow from our operations and above $25 per barrel, we generate positive results," he added.

    He said the company was also cutting investments and holding back final investment decisions on some projects until oil prices recover.

    "Let me tell you that we will be patient before sanctioning new projects if costs remain high," Breuillac said, adding that the company was coming out of an intensive investment phase with nine project startups last year and five more this year, but no major project was sanctioned in 2015 and 2016.

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    Freeport-McMoRan says oil & gas unit CEO stepping down

    Energy and mining company Freeport-McMoRan Inc said the chief executive of its oil and gas unit, Jim Flores, is stepping down, as the company restructures its business to cut costs.

    Freeport-McMoRan said on Tuesday it would eliminate all executive management roles at the oil and gas unit and integrate the financial and administrative roles with the company's corporate functions.

    The company, under pressure from largest shareholder Carl Icahn and weak commodity prices, said in October it was looking at a strategic review of its oil and gas business, including spinoff and joint ventures.

    Chief Operating Officer Doss Bourgeois and Chief Financial Officer Winston Talbert of the unit are also leaving as part of the overhaul, the company said on Tuesday.

    The team served as the unit's executive management since Freeport-McMoRan bought Plains Exploration Co in 2013.

    Freeport-McMoRan also said on Tuesday it would look to cut more costs and capital expenditures, and would continue to evaluate options for the sale of certain assets of the oil and gas unit.
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    Alternative Energy

    Fossil fuel electricity with no pollution? This company is building a power plant to prove it.

    I have always been skeptical about carbon capture and sequestration at fossil-fueled power plants. It's not so much the technological barriers — they are serious, though not insurmountable — but the cost.

    Fossil fuel power plants have steadily gotten more efficient, but the problem is, no matter how efficient your plant is, capturing the carbon dioxide emissions involves bolting on a second facility to process and separate the waste gases. That second facility requires power (it's a "parasitic load," cutting into efficiency), and it adds to capital costs.

    Coal and natural gas are already losing out to wind in many areas, withoutsequestration. Once you add sequestration, even as wind and solar are getting cheaper and cheaper, how can fossil fuels with CCS possibly compete?

    (Wikipedia)The Kemper Project, a coal-gasification-with-CCS plant being built in Mississippi by Southern Company. It is behind schedule and over budget, currently clocking in at around $6.5 billion.

    But now a new company claims it can capture the carbon without a separate facility, as part of the combustion process itself, at no extra cost.

    In fact, it says it can generate power more efficiently than conventional power plants, in a smaller physical footprint, with zero air pollution, and capture the carbon — all at a capital cost below traditional power plants.

    That is a heady set of claims. If they prove out in practice, it could be a very big deal. Let's take a closer look.

    Natural gas electricity without the emissions

    Last month, in La Porte, Texas, a North Carolina–based company called Net Power broke ground on a $140 million natural gas power plant. It's small, just 50 MW, meant to demonstrate the viability of a new technology for burning fossil fuels.

    Net Power is working in collaboration with some big names. Exelon Generation will operate the plant. CB&I, an infrastructure firm, will provide "engineering, procurement, and construction services." Net Power's parent company, 8 Rivers Capital, will provide ongoing technology development. And Toshiba will develop the key components (mainly the turbine).

    Together they are in the process of developing a full-size 295 MW plant, scheduled to break ground in 2017; the 50 MW demonstration plant is meant to reassure investors that the technology works.

    Technical details:

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    Huge Uranium Deposits May Soon Be Fair Game In Argentina

    Intriguing news on the world stage this week came from uranium. Where a long-time no-go mining nation looks to be on the verge of signing a major deal to restart production.

    That’s Argentina. A country with substantial uranium deposits, which have been under a mining moratorium since 1997.

    But that could soon change, according to reports from Bloomberg at a nuclear summit being held in Argentina. With the news service citing familiar persons as saying that one of the biggest owners of uranium projects in the country has signed up a deal for development financing and technology.

    The company is UrAmerica. A privately-held uranium developer that has consolidated 61 licenses covering 255,000 hectares of mineral projects in Argentina’s Chubut Province.

    Reports noted that UrAmerica signed a deal at the nuclear summit with an unidentified U.S. listed company. With the incoming partner to provide up to $150 million in production technology to jumpstart output from the UrAmerica deposits.

    UrAmerica’s CEO Omar Adra was quoted as saying that the company will now “be able to produce uranium in Argentina in 2019.”

    The big move is reportedly coming as Argentina is seeking higher levels of uranium supply — to feed a fourth nuclear reactor now in construction, as well as a fifth unit planned for construction using financing from China.

    The current market turmoil has created a once in a generation opportunity for savvy energy investors.
    Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors are setting up their next winning oil plays.

    If such a deal does come to pass, it would be a major signal that Argentina is committed to re-opening uranium mining. With incoming investors unlikely to pony up the reported sums unless they had reasonable certainty that officials will give mining the go-ahead.

    The money involved also suggests that the incoming financier is a major player in uranium. And likely a current producer — given that reports also stated the firm could send its own uranium supply to Argentina.

    The most likely candidate given the description is Cameco. Watch for a final announcement from UrAmerica or perhaps the Argentinean government on the exact identity of the key player in this developing story.
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    Glencore to sell stake in agri business to CPPIB for $2.5 bln

    Miner and commodity trader Glencore said it had agreed to sell a 40 percent stake in its agricultural business to Canada Pension Plan Investment Board (CPPIB) for $2.5 billion and use the proceeds to reduce debt, which is among the highest in the sector.

    Glencore's net debt has increased to about $30 billion as of February as commodities prices hit multi-year lows and markets have been concerned the high debt levels could compromise the Swiss company's ability to run its trading unit effectively.

    Glencore said on Wednesday it expects the deal, which values Glencore Agri at $6.25 billion, to close during the second half of 2016 and eight years after that either CPPIB or Glencore could move to take the business public.

    The Swiss company said Glencore Agri would be run by Chris Mahoney and a board to which CPPIB and Glencore would each appoint two directors.

    Reuters reported in October that Glencore was in talks with a Saudi Arabian sovereign wealth fund, China's state-backed grain trader COFCO and Canadian pension funds to sell a stake in the agricultural business.

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    Base Metals

    Codelco's future copper output to fall as spending is slashed

    Chile's state copper producer Codelco is slashing spending by $6 billion over the next five years in the wake of a steep fall in the price of copper, significantly reducing its targeted output, Chief Executive Nelson Pizarro said on Tuesday.

    The world no.1 copper miner has previously said it would trim some $4 billion of budgeted spending from its key investment plan.

    Added to other cost cuts, that implied around $6 billion spending cuts over the next five years - meaning a loss of 13 percent of planned output over the next 25 years, said Pizarro at the annual Cesco/CRU copper conference in capital Santiago.

    Cooling demand in key buyer China has driven the copper price to over a six-year low in recent months, leading miners globally to reduce production, freeze operations and lay off workers. The cumulative effect of those cuts would likely lead the market to a deficit from 2018, said Pizarro.

    Although the price slide had hit some small mining operations in Chile, the larger outfits could easily survive at the current market level, said Diego Hernandez, chief executive of London-listed copper miner Antofagasta, on the sidelines of the conference.

    "There are no signs that the price will change this year...and we have to adapt ourselves to this reality," he said. Antofagasta had cash positive operations and "most large mining operations in Chile can resist current prices," he said.

    But for Codelco, the copper price fall has come just as it was seeking to implement an ambitious investment plan to open new mine projects and revamp older ones.

    Its spending cuts would mean 70,000 fewer tonnes of refined copper between 2015 and 2019, rising to 600,000 tonnes less in the next five years, Pizarro said.

    Over 25 years, that would add up to 4 million tonnes, about 13 percent of the 44 million tonnes it had planned. Last year Chile overall produced around 5.76 million tonnes of copper.

    Codelco returns its profits to the state and is funded by a combination of government financing and debt issuance. Pizarro said that 2016 was already financed and no more funds were needed, but that there remained a gap for 2017.

    "Next year we have an investment plan of around $3 billion and probably we will need an additional loan injection," he said. When asked if the shortfall would be made up with a debt issue, he replied "yes"

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    Copper miners' game of chicken continues

    The latest edition of the closely followed GFMS Annual Copper Survey forecasts primary production to continue to grow over next three years, albeit at a slower pace than in the recent past, as miners deliver on investments made during the boom years.

    World mine production was up 3.5% or 652,000 tonnes in 2015 to just over 19 million tonnes, compared with a 2.1% increase in 2014, but down substantially from 2013's 8.2% clip. Peru led the pack with a 28% rise in production which saw it surpass the US in the global rankings to take third place behind Chile and China.

    Given the well-publicized trend of falling grades and increasinglycontaminated concentrate at the world's biggest mines it's interesting to note that a full 722,000 tonnes of increased production came from higher yields, more than the additional supply from expansions, new mines and restarts combined.

    According the Thomson Reuters GFMS study copper miners had a hard time driving costs down amid the falling price environment. Net cash costs for full year 2015 stood at an estimated $3,586 a tonne ($1.62 per pound), a modest 4% or $160 tonne decline year-on-year. However, total costs (a better proxy for sustaining production levels at mines) for the sector at $4,626 a tonne ($2.10 per pound) were only lower by a paltry 2% from levels in 2014.

    The cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision

    While costs proved difficult to curb revenues declined steeply with the average copper price achieved in 2015 at $5,503 or $2.50 a pound. Average total costs at the world's copper mines are also painfully close to the ruling price which on Tuesday was $2.14 or $4,718 a tonne.

    Despite these pressures, GFMS calculates that only 200,000 tonnes of production were cut back on an annualized basis last year with the bulk coming from Glencore suspensions of production the Katanga mine in the DRC and Mopani operations in Zambia. (GFMS also points out that these mines are due to come back on line next year following expansions and upgrades).

    GFMS says one explanation for the muted impact of paper thin margins is that it was only in the third quarter of last year that the average copper price dipped below the 90th percentile.

    The study points to further closures in coming years but the authors warn that "the scale of any new mine closures should not be overstated":

    First, disinflationary pressures from a weak crude price, weak inflation expectations and a strong dollar could potentially shift the cost curve lower in the next three years. Furthermore, the cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision of shutting a mine.

    Source: Thomson Reuters GFMS

    Primary supply growth will filter through to higher refined output, which was estimated to grow by an average of 2.1% in the next three years. With an estimated 400 000 t/y of copper smelting capacity ramped up towards the end of last year, GFMS expected a further addition of smelting capacity to enter the markets this year.

    The copper world remains all about China, with the country's forecast global share to increase to 46% in 2018, a touch higher than 45.5% in 2015 according to the authors. China’s copper consumption growth however, was expected to slow down to an average of 3.2% per year.

    "Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely"

    Moderating demand growth and the robust supply picture will see surpluses through the end of the decade according to the study. Following last year's 363,000 tonnes surplus – the largest in several years – for 2016, GFMS expects the copper market to experiences a surplus of at least 150 000 tonnes, with the same again expected for 2017, as improving demand growth offset rising mine and refined production.

    Given the unbalanced picture GFMS predicts the copper price would suffer its fifth year of declines in 2016.  The authors forecast prices to improve from 2017 onwards as the global economy picks up some momentum, to gain by 5% year-on-year to reach $5,100 a tonne ($2.31 per pound). Coupled with shrinking surpluses, GFMS expects prices to see a much stronger upswing of 12.5% in 2018 to reach $5,738 a tonne ($2.44).  In real terms (2015 prices) however, GFMS expects the price to remain below $5,000 a tonne in 2016, and will only see a positive turn by 2018 according to the study.

    “Bearing in mind demand growth consistently below 3% compared with circa 4% as recently as 2014, the transition to a sustained deficit market will now extend beyond our three-year forecast horizon to around the turn of the decade. “Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely.

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    In mining slump, used equipment dealers stockpile in rebound bet

    Dealers of used mining equipment, from the United States to Chile and Australia, are making a risky bet that an end to the industry's four-year slump may be in sight, stocking up on a glut of crushers and conveyors.

    Inventory is piling up as mines close or production slows. Buyers are especially scarce for highly specialized mineral-processing equipment, dealers say.

    "We're being flooded with machinery," said Eduardo Bennett, business manager for Chilean used equipment seller Copal.

    The equipment glut is depressing prices as much as 20 percent, Bennett said.

    A used 20-ton Komatsu Ltd bulldozer that sold for nearly $130,000 a few years back, now leaves the lot for $100,000, for example.

    Executives from across the global copper industry are meeting in Chilean capital Santiago this week for the annual Cesco/CRU conference, where concerns about China's slowing growth and subdued global metal demand are prevalent.

    But some veterans of the used equipment industry, who have survived decades of commodity booms and busts, note that such deep pessimism tends to mark the bottom of the cycle. They expect the closing of high-cost mines and cuts to exploration budgets to tighten supply and reverse falling metals prices.

    Used mining machinery dealers tend to be small and privately held, and some also deal equipment for construction and agriculture. Much of the equipment goes straight to auction, where it is sold to the highest bidder by companies including Ritchie Bros Auctioneers Inc and Iron Planet.

    At half a dozen abandoned mines and several warehouses, California-based Machinery & Equipment Company Inc, established in 1938, owns more mining equipment than at any time in the last seven years.

    While the company's results are private, the last such boom generated record sales for the company in 2007-09, said president Mike Ebert, who predicted another rebound may only be a year away.

    "I wish we had unlimited capital to invest in this equipment - everything we did have in stock (those years) was sold at full price," Ebert said. "It is starting to feel better out there with an increase in inquiries."

    Evans Equipment, a Missouri-based reseller of Caterpillar Inc equipment, is carrying twice its normal inventory.

    Co-owner Bryce Evans, who is banking on a mining rebound in 2018, said the fact that many struggling miners have delayed replacing equipment as commodity prices fell will also help.

    "There is pent-up demand worldwide," he said.


    For now though, the glut of used mining machinery, an approximately $23 billion sector according to Ritchie Bros Auctioneers, has made for bargain shopping.

    While cheaply bought used equipment offers potential profit for re-sellers, it limits future sales upside for manufacturers like Joy Global Inc and Caterpillar. They are part of a $70 billion to $75 billion global new mining equipment industry, according to S&P Global Market Intelligence.

    "Their customers don't have nearly as much money as they used to and so I think customers will be fairly cost-conscious for the next several years," said Morningstar analyst Kwame Webb of the new equipment makers, which have already cut staff and curtailed operations.

    Marcello Marchese, chief executive of Finning-CAT's South America unit said Chile's mining industry used to buy 280 to 300 units of large-scale equipment each year.

    "Last year there were 90 total sold," he said.

    The soft used equipment market is also bad for miners hoping to recover some costs from failed projects. Barrick Gold Corp , which suspended its Pascua-Lama gold and silver project in 2013, is trying to unload equipment originally earmarked for the mine.

    Supplies are likely to expand in coming months as some of Australia's biggest projects reach completion, said Frank Lee, general manager of Ross's Auctioneers and Valuers, in Western Australia.

    "Exploration and drilling has pretty much dried up, but the big thing has been the wind-down in expansions," Lee said, citing iron ore projects owned by Rio Tinto , BHP Billiton and Fortescue Metals Group .

    The longer the mining slump drags on, the more likely that equipment available today will fail to meet future specifications on mine sites, Lee warned.

    "Some of this stuff will just be scrapped."

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    Steel, Iron Ore and Coal

    Physical coal prices drop as northern hemisphere enters spring

    Physical coal prices have fallen since the beginning of April as key consumer regions in the northern hemisphere move out of the peak-demand winter heating season and into spring. 

    Benchmarks serving the Asia/Pacific region, where demand in some emerging markets remains strong, continue to outperform those into Europe, where strong renewable output has been eating into fossil-fuel consumption already falling due to improved energy efficiency and low population and economic growth. 

    Prices for coal cargoes out of South Africa's Richards Bay and Australia's Newcastle terminals , which are the main benchmarks for the Asia-Pacific region, have both fallen around 5%, to $54.10 and $51 per tonne respectively, since the beginning of April as the key winter heating season ends in China, Japan and South Korea. 

    Similarly, coal imports into Europe's main ports of Amsterdam, Rotterdam or Antwerp (ARA) have become almost 7% cheaper since late March, when the first mild spring-time weather started to emerge, last settling at $43.30 a tonne. All three benchmarks started the year around $50 per tonne. The steep discount of up to $10.80 a tonne for ARA coal - which is bigger still when considering that cargoes into Europe include the price of freight while those from South Africa and Australia don't - is largely a result of strong renewable output, traders said. 

    Prices serving Asia were in part supported by strong demand from emerging markets. "Ongoing strong renewable output from wind and solar, although mostly not above the seasonal norm recently, has been added to by rising hydro power availability in northern Europe and the Alps, which can be fed into the continental interlinked power grid, reducing the need for fossil-fueled power generation," said one European utility trader. 

    In Asia, by contrast, there were signs of strengthening demand in some emerging markets. Vietnam imported about 2.8 million tonnes of coal between Jan. 1 and March 15, a surge of 300% from a year earlier, while it bought nearly 7 million tonnes from abroad in the whole of 2015, Vietnam Customs data showed on Wednesday. 

    In South Africa, output could be hit by a wave of mining strikes that have turned violent in parts and resulted in the arrest of over 50 miners at a coal mine owned by Glencore.

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    Coal enterprises told to reduce production days

    The Chinese authorities' latest order to coal enterprises to reduce production can help cut supply in the industry, experts said Tuesday, but they noted that the weak economy and grim industry situation will make it hard for China's coal enterprises to get out of the red in the next several years.

    Four ministries, including the National Energy Administration, have recently released a document ordering all coal mines to cut their production days, the Shanghai Securities News reported on Tuesday.

    All coal mines, except those that produce specific types of coal or have specific safety requirements, can only produce at most 276 days a year, the document said. Previously, mines could produce 330 days a year.

    Also, North China's Shanxi Province ordered all integrated coal mines under the five large provincial coal enterprise groups to stop output and construction to rectify safety risks, the newspaper said.

    "Apart from preventing hidden safety troubles, the main purpose of these policies is to reduce supply in China's coal sector, which is seriously oversupplied," Xing Lei, a veteran industry expert and a professor at the Central University of Finance and Economics, told the Global Times on Tuesday.

    On February 5, the central government said in a document that China will cut 500 million tons of coal production capacity in the next three to five years.

    Amid the tough industry conditions, about 90 percent of coal enterprises in China recorded losses in 2015, China Business News reported in January.

    Xing said the latest move to cut production won't immediately have an effect. "Industry-wide losses won't vanish in the next several years," he said.

    He cited the weak economy and China's economic transition, which have put heavy pressure on the coal industry.

    The current market demand is also sluggish. In most time of the first three months, China's six major power generation groups consumed less coal than in the corresponding period of 2015, Xu Gao, chief economist of China Everbright Securities Co, was quoted as saying in a note sent to the Global Times on Tuesday.

    Faced with these difficult conditions, coal companies have taken different strategies.

    One of the largest coal enterprise in the country, Beijing-based China Coal Energy Co, has cut its production target for 2016.

    Meanwhile, Shandong Province-based Yankuang Group decided to increase production in 2016, reported on Sunday.

    "Small coal enterprises don't have the resources to cope with long-term losses," Xing noted.

    As for the advice that coal enterprises should transform themselves, Xing said, "It's not that easy."

    "There are no promising coal-related industries in today's sluggish economy," he said.

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    China’s top ten coal producers see coal output at 220 mln T over Jan-Feb

    The top ten large coal producers in China saw raw coal output combined at 220 million tonnes over January-February, accounting for 60.4% of the ninety large coal enterprises’ total, which was reported at 370 million tonnes during the same period, dipping 5.3% on year, showed the latest data from the China National Coal Association (CNCA).

    Of this, Shenhua, Datong Coal, Shaanxi Coal & Chemical, Shandong Energy, China Coal produced 65.8 million, 24.86 million, 19.96 million, 19.26 million and 16.85 million tonnes of raw coal.

    Yankuang Group, Shanxi Coking Coal, Jizhong Energy, Kailuan Group and Yangquan Coal followed with coal output standing at 16.53 million, 16.15 million, 15.07 million, 14.97 million and 12.92 million tonnes.

    Data from National Bureau of Statistics (NBS) showed that China produced a total 513.5 million tonnes of raw coal in the first two months, around 43% of which was contributed by the top ten coal miners, signaling an enhanced concentration of domestic coal production.

    While the low degree of concentration of coal industry, according to the relevant standards by American economist Bain, should also be the one factor to blame for China’s severe coal supply glut, as it led to coal producers’ price war and production expansion amid falling prices for maintaining their market shares, yet only to intensify oversupply in turn.

    Therefore, more concentrated layout of some large coal producers is conducive to exerting reasonable influences on market supply and stabilizing coal prices.
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    China's Hebei bids 46 mln euros for Serbian steel plant

    China's Hebei Iron & Steel Group bid 46 million euros ($52.2 million) for a loss-making Serbian steel mill and pledged to invest $300 million in expanding production, Serbia's Economy Ministry said on Tuesday.

    Hebei Iron & Steel Group submitted the only valid bid for the state-run Zelezara Smederevo steel plant, which posted a net loss of $113 million last year, and the Serbian government said the bid met all its conditions.

    Hebei will not cut any of the plant's 5,050 staff, the ministry said. It plans to raise production, which was 875,000 tonnes last year, to a maximum of 2.1 million tonnes a year, the Economy Ministry said, without say how long this would take.

    The potential deal could boost Prime Minister Aleksandar Vucic who is seeking re-election on April 24. The deal would be the first major privatisation since he took office in 2014, allowing him to fulfil a central economic reform pledge.

    Europe's steel industry is suffering from over-capacity, which European steelmakers blame partly on a glut of cheap Chinese steel exports. Britain is battling to save its steel industry after India's Tata Steel put its British operations up for sale.

    The contract with the Chinese company will be signed after the state commission against money laundering gives the green light, the Economy Ministry said.

    The Chinese company pledged to invest in expanding the production line into galvanisation and to improve the plant's environmental performance, the ministry said.

    "They (Hebei Iron & Steel) plan to offer employment to all those who are currently working in the plant (5,050 people)," the ministry said.

    Any deal would need the approval of the European Commission, as Serbia is seeking to wrap up membership talks with the EU in 2019.

    The Serbian firm's chief executive Bojan Bojkovic told Reuters that the $300 million promised by Hebei was a "minimum investment over the next two years."

    Hebei province, where Hebei Iron & Steel is based, produces a quarter of China's steel but its mills are struggling with a huge price-sapping capacity surplus.

    The province has repeatedly urged its steel firms to shut capacity at home and replace it with projects overseas.

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    Outokumpu announces job cuts and bold profit targets

    The new chief executive of Europe's largest stainless steel marker Outokumpu announced job cuts and ambitious profit targets on Tuesday in a bid to turn the loss-making Finnish company around.

    Outokumpu, which is 26 percent state owned, has struggled since the financial crisis and an unsuccessful acquisition of Thyssenkrupp's Inoxum unit in 2012, failing to make annual underlying operating profit since 2008.

    Roeland Baan, a former executive at aluminium firm Aleris who took over in January, said Outokumpu was planning to cut up to 600 jobs worldwide, save 100 million euros ($114 million), and outsource operations that would affect 100 employees.

    Outokumpu also said it was aiming to reach an operating profit of 500 million euros by the end of 2020 at the latest, a far more ambitious target than expected by market analysts.

    "The true profitability potential of the company is far higher than the current financial performance shows. To bridge that gap, we must significantly improve our competitiveness," Baan said in a statement.

    The stock, which set a high 76 euros in 2008, rose 6.8 percent after the announcements to hit 3.6 euros by 1029 GMT.

    A glut of cheap Chinese steel exports combined with global overcapacity have hurt steel makers in Europe, the United States and elsewhere in Asia, leading to tit for tat import tariffs on steel products and job losses.

    According to Thomson Reuters estimates, analysts on average are forecasting annual operating profit of about 270 million euros by 2017.

    "The cost cuts came as no surprise. But the targets are very challenging and clearly above market expectations," said Evli brokerage analyst Antti Kansanen, who has a buy rating on the shares.

    Outokumpu's acquisition of Inoxum was supposed to offer the Finnish company a route to recovery, but the deal was partially reversed after the European Union demanded a significant mill in Italy be excluded.

    Since then, the company has been hit by a string of internal and external problems. Lately, it has suffered as a steep drop in the price of nickel, an ingredient in stainless steel, has led to distributors holding back orders, while production problems have also harmed the business.

    Baan also said he would take on the operational lead of the company's Europe business, on top of his CEO duties.

    "I have a positive impression from him, he has significant experience from the sector and a hands-on approach," analyst Kansanen said.

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