Mark Latham Commodity Equity Intelligence Service

Thursday 10th March 2016
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    Brazil prosecutors charge Lula in money laundering probe

    Former Brazilian President Luiz Inacio Lula da Silva was charged in a money laundering investigation led by Sao Paulo state prosecutors on Wednesday, intensifying scrutiny of the politician questioned in a separate federal graft probe last week.

    A spokesman for the state prosecutors declined to specify the charges, but state investigators have said they suspect Lula's family owned an undeclared beachfront apartment in the city of Guaruja.

    Federal investigators echoed those allegations after they detained Lula for questioning in police custody on Friday, fanning a political crisis that has rattled his successor, President Dilma Rousseff.

    Lula has denied any wrongdoing and rejected the idea that he owned the luxury condo in Guaruja built by engineering group OAS, one of the conglomerates snared in a vast corruption scandal tied to state-run oil company Petrobras.

    Lula's lawyer called the charges an attempt by prosecutor Cassio Roberto Conserino to smear the former president.

    "Conserino turned two visits to an apartment in Guaruja into concealed ownership," defense attorney Cristiano Zanin Martins said in a statement calling on the Supreme Court to decide if state or federal prosecutors had jurisdiction.

    The charges may make it more urgent for Lula to accept, if offered, a post in Rousseff's government.

    Brazilian media reported on Wednesday that Workers Party members were pressuring Rousseff to offer its founder Lula a ministerial portfolio that would shield him from possible detention.

    If appointed, Lula could only be tried in the Supreme Court, placing him out of the reach of the federal judge investigating kickbacks at Petrobras.

    Rousseff's minister in charge of legislative affairs, Ricardo Berzoini, said on Wednesday that Lula could join Brazil's government if he wishes.

    "The ball is in his court," Berzoini told Reuters. "The government is good with it," he said.

    According to two sources close to Lula, he was reluctant to join the government but pressure from his party has had some effect.

    "The best chance that he has is to accept a ministry and for the trial to go to the Supreme Court so he receives a fair hearing," said one of the sources, who requested anonymity to discuss Lula's legal strategy.

    The snowballing scandal puts Rousseff in a tough spot as she promises independence for investigators while trying to contain the political fallout in her Workers' Party.

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    China Feb PPI down 4.9pct on year CPI up 2.3pct

    China’s Producer Price Index (PPI), which measures inflation at wholesale level, dropped 4.9% year on year and down 0.3% month on month in February, showed the latest data released by the National Bureau of Statistics (NBS) on March 10.

    It marked the 48th straight month of decline, said the NBS.

    In the same period, prices of coal mining and washing industry fell 17.6% on year and down 0.8% on month; prices of oil and natural gas mining industry posted a plunge of 36.1% on year and down 13.6% on month.

    Besides, prices of ferrous metal industry dropped 18.4% from the previous year and down 0.9% from January, data said.

    In February, prices of production materials dropped 5.8% on year and 0.5% on month.

    Over January-February, China’s PPI dropped 5.1% on average from the previous year; prices of production materials fell 6.0% on year.

    Of this, the average price of coal mining and washing industry fell 17.7% on year; while the price of oil and natural gas mining industry decreased 37.3% on year; price of ferrous metal industry dropped 18.6% from the previous year, data showed.

    The data came along with the release of the Consumer Price Index (CPI), which rose 2.3% from the year prior and up 1.6% on month in February.
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    China 13th Five-Year Plan endorsed by NPC committee

    The draft outline of the 13th Five-Year Plan on national economy and social development was endorsed by the National People's Congress (NPC) Financial and Economic Committee (FEC) at a meeting on March 9, Xinhua reported.

    The draft has been examined by NPC deputies as well as the FEC and related committees since it was submitted on Saturday to the NPC annual session.

    The draft outline for the years between 2016 and 2020 is well versed and feasible, said the FEC, advising it to be passed.

    The committee's review report will be submitted to the NPC session if the presidium approves the submission.

    The committee also endorsed the reports on the drafts of the 2016 national economy and social development plan and the 2016 central and local budgets.

    The FEC advised the lawmakers to approve the development plan, while asking the State Council to actively push forward supply-side structural reform, substantively increase support for the real economy, accelerate transformation of agricultural development, greatly enhance resources saving and ecological and environmental protection, further improve social welfare and people's livelihood, and effectively prevent risks.

    The committee also supported approval of the NPC deputies for the budgets plan, requiring the State Council to employ an active fiscal policy, vigorously contribute to fiscal and taxation reform and legislation, improve cost benefit of fiscal expenditure, prevent government debt risks, standardize budget management, and tighten audit and supervision.

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    Oil and Gas

    Aramco to double gas production in a decade: CEO

    Saudi Aramco has embarked on a programme to develop gas fields not associated with oil production.

    Saudi Aramco plans to nearly double its gas production to 23bn standard cubic feet (scf) per day in the next decade, its chief executive said on Tuesday.

    "The kingdom has managed to increase gas production from 3.5bn standard cubic feet per day in 1982 to more than 12bn scf now and this figure is expected to double to around 23bn scf during the coming decade," Amin Nasser told an industry conference.

    "Work is under way to execute an ambitious plan to implement this during the coming 10 years," he said, without detailing the plan.

    Saudi Aramco, the world's largest oil and gas company, has embarked on a massive programme to boost gas output for electricity and petrochemical production by developing gas fields not associated with oil production.

    For instance, it is exploring and developing unconventional gas in the north of the kingdom.

    Nasser also said Aramco was moving ahead with its strategy ‘to achieve a better balance between the total exploration and production capacity, which stands at 12 million barrels per day of crude oil, and its refining capacity’.

    The state oil giant plans to raise its refining capacity to 8 to 10mn bpd from around 5.4mn bpd now, he added.
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    Iraqi Kurdish oil pipeline could reopen soon: sources

    Turkey has partly completed a military campaign near its southeastern border, raising hopes an idled Iraqi oil pipeline nearby could soon reopen after a three-week outage that has squeezed the already cash-strapped Kurdistan region's finances.

    It could still be up to a week before oil starts flowing through the pipeline that normally carries 600,000 barrels per day (bpd) to Turkey's Mediterranean port of Ceyhan as the military sweep for mines and unrest in the region persists.

    The longer it takes for flows to resume, the deeper the crisis for Kurdistan, an autonomous region within Iraq that is already on the verge of insolvency and depends almost entirely on revenue from its oil exports through the pipeline.

    The outage, one of the longest in the past two years, was caused by a deteriorating security situation in Turkey's southeast where violence has surged after a two-year ceasefire between the state and Kurdish militants broke down last July.

    Turkey's military launched a large scale campaign in a handful towns in the mainly Kurdish southeast after the youth wing of the Kurdistan Workers Party (PKK) sealed off entire districts of some towns and cities and declared autonomy.

    The Turkish army said late on Tuesday operations in Idil, a town in Sirnak province, through which the pipeline passes, on the border with Iraq and Syria, are complete and 114 militants had been killed. A curfew imposed weeks ago is still in effect.

    "The operation in Idil has been completed last night: this is good news for the pipeline as well," a Turkish energy official said. "Turkish security forces are trying to clean the area from PKK; and they did what was targeted. Turkey will raise some security measures for the pipeline."

    Turkey accused the PKK, considered a terrorist group by Turkey, the United States and the European Union, of blowing the pipeline up on Feb. 25 when pumping had already halted. The group denies the accusation.

    "The explosion on the 25th has apparently caused damage in both of the pipelines, meaning by pass is no more an option and at the moment the teams are continuing their repair work, we have been told," a shipping source said.

    "They are saying it would take at least another week as the mine sweeping work is far from being completed," he added.

    The outage left the Kurdistan Regional Government (KRG) with just $233 million in net revenue from its oil exports in February - less than one third of what it needs to cover a bloated public payroll.

    Even before the pipeline was closed, the KRG was running a multi-million dollar monthly deficit as oil prices plummeted while war with Islamic State and an influx of people displaced by violence in the rest of Iraq have increased the strain.

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    Nigerian state oil company workers strike over proposed changes

    Nigerian oil workers are staging a nationwide strike that has led to a walkout of staff from the state oil company, the head of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) said on Wednesday.

    Lumumba Okugbawa said the action was being taken in response to a restructuring of the Nigerian National Petroleum Corporation (NNPC), announced by the minister of state for petroleum, that will see it divided into five divisions.

    An NNPC spokesman could not immediately be reached to confirm the industrial action but a Reuters reporter said gates to the company's head office in the capital, Abuja, were closed as were seven NNPC fuel stations in the city.
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    Parex Resources announces 2015 fourth quarter and full year 2015 results

    2015 Financial and Operational Highlights

    • Achieved annual average oil production in 2015 of 27,434 barrels per day, an increase of 22 percent over 2014;
    • Increased net working capital to $76.7 million at December 31, 2015 compared to a net debt position of $31.7 at December 31, 2014, and exited fourth quarter with no bank debt and available credit facility of $200 million;
    • Released an updated independently evaluated reserves assessment prepared by GLJ Petroleum Consultants Ltd. with proved plus probable ('2P') reserves growth of 19 percent over 2014, increasing to 81.7 million barrels of oil equivalent (98% crude oil) at December 31, 2015 from 68.4 million barrels of oil equivalent (net company working interest) at December 31, 2014;
    • Finding, Development and Acquisition costs ('FD&A') for the year were $2.00/bbl for proved ('1P') reserves and $3.57/bbl for 2P reserves including future development capital;
    • Generated full year 2015 funds flow from continuing operations of $130.3 million ($0.90 (CAD $1.15) per share basic). Funds flow decreased from the comparative period of $293.9 million ($2.44 (CAD $2.69) per share basic) due to lower oil prices partially offset by an increase in sales volumes;
    • Recorded a net loss of $44.6 million ($0.31 per basic share) for the year ended December 31, 2015. The net loss was driven by non-cash impairment charges mainly associated with the decrease in world oil prices and expensed exploration costs;
    • Completed a bought deal financing in April 2015 issuing 14.95 million shares at a price of CAD$9.15 per common share for gross proceeds of CAD $136.8 million;
    • Executed a farm-in agreement with Empresa Colombiana de Petroleos S.A ('Ecopetrol) to operate and earn 50% working interest in the Aguas Blancas light oil field located in the Middle Magdalena Basin of Colombia; and
    • Participated in drilling 12 gross wells in Colombia resulting in 7 oil wells, 2 disposal wells and 3 abandoned wells, for a success rate of 70 percent.

    Fourth Quarter Financial and Operational Highlights

    • Achieved a record quarterly oil production of 28,588 barrels per day, an increase of 8% over the prior year comparative period and 4% greater than the 2015 average oil production;
    • Generated funds flow from continuing operations of $33.6 million ($0.22 per share basic) or $12.16/bbl;
    • Reduced production and transportation costs on a combined basis by 33% to $19.03/bbl from $28.23/bbl in the comparative period; and
    • Generated free funds flow of $10.0 million as a result of funds flow from operations being in excess of fourth quarter capital expenditures.
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    YPF boss Galuccio 'quits'

    Miguel Galuccio, chief executive of Argentina's YPF, has quit after the government asked him to resign, according to a report.

    Galuccio has handed in his resignation, which will take effect at the end of the month, Reuters quoted a company spokesman as saying in Wednesday.

    The decision to step aside comes after President Mauricio Macri replaced Cristina Fernandez de Kirchner last year.

    It was Fernandez who had installed Galuccio, a former Schlumberger executive, to the position in 2012, after the company's majority stake was expropriated from Spanish major Repsol the same year.

    Galuccio's position had looked under pressure in late 2013 and early 2014, when the company was forced to deny rumours that his exit was imminent.

    Former Buenos Aires mayor Macri swept to power on a more pro-business ticket, vowing to correct the economic mistakes of his predecessor.

    Before officially taking office he dismissed suggestions that he would reverse the 2012 expropriation of Repsol’s controlling stake in YPF, but did not then state if he would retain Galuccio as chief executive.

    Macri also named Juan Jose Aranguren — a former Shell executive and outspoken critic of Kirchner’s interventionist policies — as energy adviser. He also signaled that steering the country toward self-sufficiency in hydrocarbons, especially gas, would be a priority.

    Argentina relies on gas to satisfy 53% of its energy demand, but output has fallen by about 20% over the past decade, despite bountiful unconventional resources.
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    US oil production little changed last week

                                                 Last Week   Week Before     Last Year

    Domestic Production.....'0000. 9,078            9,077               9,366
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    Summary of Weekly Petroleum Data for the Week Ending March 4, 2016

    U.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending March 4, 2016, 59,000 barrels per day more than the previous week’s average. Refineries operated at 89.1% of their operable capacity last week. Gasoline production increased last week, averaging 9.6 million barrels per day. Distillate fuel production decreased last week, averaging over 4.7 million barrels per day.

    U.S. crude oil imports averaged over 8.0 million barrels per day last week, down by 244,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.0 million barrels per day, 12.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 565,000 barrels per day. Distillate fuel imports averaged 133,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.9 million barrels from the previous week. At 521.9 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 4.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.1 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.7 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 0.7 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.9 million barrels per day, up by 1.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.3 million barrels per day, up by 7.0% from the same period last year. Distillate fuel product supplied averaged about 3.6 million barrels per day over the last four weeks, down by 12.8% from the same period last year. Jet fuel product supplied is up 3.5% compared to the same four-week period last year.

    Cushing inventories rose 690,000 bbl rising for the 17th time in 18 weeks

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    Oil prices edge closer to hedging territory

    Three weeks ago, the CEO of a major domestic oil producer lamented the U.S. oil industry has been “disproportionately” slammed by the oil-market crash.

    North America has sustained the bulk of the energy world’s job cuts, investment reductions, bankruptcies and rig closures since late 2014, and the United States is expected to bear most of the oil-production decline needed to correct the oil-market oversupply. In a year and a half, 70,000 U.S. oil and gas jobs have been lost and 1,400 drilling rigs have been sidelined.

    “Our activity level is bare minimum,” Hess CEO John Hess had said at the IHS CERAWeek energy industry conference in downtown Houston.

    Still, if not for the U.S. shale oil industry’s ability to act quickly, the oil glut might not have been corrected for years, energy research firm Wood Mackenzie says in a new report comparing the ongoing downturn to the mid-1980s oil bust.

    Some analysts believe U.S. crude production will drop this year by 600,000 barrels a day or more, which may be enough to realign supply and demand late this year or early next year.

    In the 1980s, crude production outpaced supply for four years in a row, and the market was still oversupplied by nearly 3 million barrels a day in 1988, long after crude prices were in free fall in 1986, according to Wood Mackenzie.

    “This time, it should be different because by 2017, the projected decline in non-OPEC supplies will occur more quickly than in the 1980s,” Wood Mackenzie said.

    That’s because U.S. shale oil production, which didn’t exist in the 1980s, can theoretically respond much more quickly to a lower price signal than conventional oil production.

    Wood Mackenzie believes crude prices could begin recovering in 2017 after the market rebalances and starts working through high oil-inventory levels, though it noted China’s oil demand and Iran’s return to the market are “key risks” to that forecast.

    The recent oil rally, analysts say, could prevent that U.S. oil-production decline from happening. On Wednesday, U.S. crude edged higher to more than $38 a barrel, creeping closer to levels that could prompt oil drillers to hedge their future production, which could cut into the expected output decline this year.

    “There is no hard and fast rule for industry hedging policy,” analysts at Tudor, Pickering, Holt & Co. wrote in a recent client note. “But recent conversations with management teams suggest that operators would consider hedging out part of their production stream in 2017 above $45 a barrel in order to protect downside risk from a cash flow perspective.”

    Oil futures contracts for February 2017, for instance, are priced at $44.14 a barrel. Tudor Pickering analysts say oil companies will be more aggressive in locking-in future prices when crude prices reach $50 to $60 a barrel, a level drillers could “actually hold production flat with internally generated cash flow.”

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    Energy XXI says may file for bankruptcy if oil prices stay low

    U.S. oil and gas producer Energy XXI Ltd may seek Chapter 11 bankruptcy protection as soon as next week if oil prices remain low and it fails to refinance its debt, the company said in a regulatory filing.

    Brent crude has rallied in recent weeks to above $40 a barrel, but prices are still far below the $60 per barrel break-even level for the Houston-based company.

    With some $4 billion in liabilities as of Dec. 31, a bankruptcy filing by Energy XXI would be the second biggest energy-related failure since a prolonged slump in oil prices has put a slew of oil and gas producers at risk of default.

    Energy XXI missed an $8.8 million interest payment on senior notes on Feb. 16 and has been trying to reach a deal with debt holders to restructure its balance sheet before a 30-day grace period ends on March 17.

    "Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection to continue our efforts to restructure our business and capital structure," Energy XXI said in the U.S. Securities and Exchange Commission filing on Monday.

    The company, with oilfields in South Louisiana and the Gulf of Mexico, also said in the filing that it may have to liquidate assets for less than their value on its balance sheet. It had a $1.3 billion loss in the second quarter ended Dec. 31.

    Energy XXI has been working with PJT Partners LP and Vinson & Elkins LLP on restructuring options, according to the filing.

    The biggest energy producer to go bankrupt over the past year has been Tulsa, Oklahoma-based Samson Resources Corp, which filed Chapter 11 in Delaware in September with $4.3 billion of debt.
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    Crescent Point posts surprise profit as operating costs fall

    Canadian oil and gas producer Crescent Point Energy Corp posted a surprise quarterly profit, helped by lower operating costs, but the company slashed its dividend as it looks to conserve cash after a steep drop in oil prices.

    Crescent Point also said on Wednesday that it expected its capital expenditure and production in 2016 to be at the lower end of its forecasts.

    The company had earlier forecast capital expenditure of C$950 million-C$1.3 billion and production of 165,000-172,000 barrels of oil equivalent per day for 2016.

    Other Canadian oil and gas producers including Encana Corp and Husky Energy Inc have also cut or suspended their dividends and lowered their capital budget.

    Crescent Point slashed its monthly dividend to 3 Canadian cents per share from 10 Canadian cents, which it said was expected to save about C$430 million ($321 million) annually.

    As of March 4, about 39 percent of the company's oil production was hedged for the rest of 2016 at an average price of C$80 per barrel, it said.

    Crescent Point posted a net loss of C$382.4 million, or 76 Canadian cents per share, for the fourth quarter. The Calgary-based company had a profit of C$121.3 million, or 27 Canadian cents per share, a year earlier.

    Excluding an impairment charge of C$829.6 million, the company earned 41 Canadian cents per share.

    Analysts on average had expected a loss of 2 Canadian cents per share, according to Thomson Reuters I/B/E/S.
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    Court orders shutdown of Japanese nuclear reactor

    Otsu District Court said the emergency response plans and equipment designs at the two reactors have not been sufficiently upgraded despite the 2011 Fukushima crisis.

    The order requires Kansai Electric Power Co to shut down the No 3 reactor immediately and keep No 4 offline at the Takahama plant in Fukui prefecture, home to about a dozen reactors.

    The two reactors restarted this year after a high court in December reversed an earlier injunction by another court.

    The decision reflects Japan’s divided views on nuclear safety and leaves only two of the country’s 43 reactors in operation.

    The No 3 reactor, which uses a riskier plutonium-based MOX fuel, resumed operation in late January, while No 4 had to be shut down late last month after operating for just three days because of a series of technical problems.

    Judge Yoshihiko Yamamoto said the operator has not fully explained how it upgraded safety features at the two Takahama reactors under post-Fukushima safety standards. The utility has not fully explained its design philosophy or its measures to mitigate power loss and its evacuation plans in case of a severe accident and a massive tsunami.

    Kansai Electric said the decision was “disappointing” and planned to appeal.

    Prime minister Shinzo Abe’s government wants to restart as many reactors as possible. It says nuclear energy should remain a key power source for Japan, which has few natural resources to fuel its economy.
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    K+S flags earnings drop in 2016 due to crimped output

    Salt and fertiliser supplier K+S warned of a significant drop in operating profit this year, citing lower potash prices and output restrictions at its German mines due to stricter regulation of waste water discharge.

    "A significant drop in average prices in the Potash and Magnesium Products business unit, as well as sales volumes slightly below those of the previous year is anticipated," the German company said in a statement on Thursday.

    K+S in December was granted only provisional approval for further discharge of saline waste water in the German state of Hesse and warned that the limits imposed by the regulator could crimp output over the next few months.

    Fourth-quarter earnings before interest and tax, adjusted for currency hedging effects, rose 18 percent to 154 million euros ($169 million), helped by a strong dollar, which was slightly above the average analyst forecast of 147 million euros in a Reuters poll.

    K+S, which fended off a takeover approach by Potash Corp of Saskatchewan last year, stood by plans to bring a new Canadian potash mine known as Legacy on stream by end-2016.

    This will help it reach its goal of 1.6 billion euros in 2020 earnings before interest, taxes, depreciation and amortisation (EBITDA), up from 1.1 billion last year.

    Legacy would be the first new mine in the potash industry in four decades and undermines efforts by potash industry leader Potash Corp and North American export cartel Canpotex to cut output to shore up prices.

    Earlier this year, Potash Corp decided to close its newest potash mine in New Brunswick and to curtail production at two other Canadian mines for four weeks.
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    Precious Metals

    Rout in global steel prices puts brakes on platinum recycling

    Recycling rates for autocatalyst metals platinum and palladium, have been driven lower in the past year not only by a price slide in the metals themselves, but also by a crash in the value of another raw material - steel.

    With steel prices forecast to remain under heavy pressure this year in the face of over-supply and tepid demand, that could limit an expected rebound in the rate at which platinum group metals are recovered from catalysts.

    Recycling slowed last year as more scrapped cars were stockpiled by recyclers awaiting better prices, and as fewer cars, which use platinum in their autocatalysts, were scrapped.

    "The low steel price has stopped cars from entering the scrap profile in the first place, so there is a direct link between the low price and the amount of PGMs recycling," Johnson Matthey's general manager for market research Peter Duncan said.

    Analysts predict a recovery in platinum recycling volumes this year after they fell as much as 20 percent in some areas in 2015, but that will be tempered by steel's decline.

    A major driver of the drop was a 26 percent fall in platinum prices, partly in response to an uncertain global economic outlook and expectations of plentiful supplies.

    But the overall rate at which cars were scrapped was also depressed by falling prices of steel ST-CRU-IDX, the primary recyclable material in cars, which slid by a third.

    "At the end of the day, processors look at the total package of metal and what value they can derive from that," GFMS analyst Johann Wiebe said.

    The World Platinum Investment Council estimated in a report last month that platinum recycling dropped 15 percent last year. In addition to losses in platinum prices, the lower steel price also negatively affected auto scrappage rates, it said.

    A recovery in autocatalyst recycling this year, which usually accounts for around 15 percent of global platinum supply, is expected to help to offset a drop in output from platinum mines, according to the WPIC's research.

    Processors can only hold on to material for so long before they are forced to get the recycling chain moving again, and this year's more than 10 percent rebound in platinum prices gives them an opportunity to do that.

    "This year we're probably going to see some increase in the first quarter, given platinum is at $1,000. These guys can only hold off from the market for so long," a spokesman for one major U.S. recycler said. "I'd imagine they'll be taking advantage of these prices, and we should see a good bit of material coming out in the second quarter."

    But continued weakness in steel, which remains under heavy pressure despite creeping off its lows, could limit the scope of that recovery.

    "We would expect recycling to pick up a little bit this year, but that's very price dependent," Johnson Matthey's Duncan said. "Platinum group metals prices are more of a determinant of levels of PGM recycling than steel prices, but I do think it's relevant."
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    Base Metals

    Copper demand to overtake supply in 2017, Freeport official says

    Copper demand won’t catch up with supply until 2017, according to a senior official at Freeport-McMoRan, the largest publicly traded copper producer.

    Demand will increase slightly more than 2% a year on average through 2020, Javier Targhetta, a senior vice president of marketing and sales at the Phoenix-based company, said on Tuesday in an interview. The deficit will widen after 2017 because no new mines will be coming on stream, Targhetta said, and he wouldn’t be surprised to see a 500 000-metric ton deficit by 2020.

    Copper prices fell in the last three years as China, the world’s biggest consumer, headed for the slowest growth in a generation, boosting a supply glut of the metal. Production outpaced demand by about 147 000 tons in 2015, the biggest surplus since 2009, according to the World Bureau of Metal Statistics.

    “This year there is a new wave of copper expansion being started,” but demand will catch up with production in 2017, Targhetta said at Metal Bulletin’s International Copper Conference in Lisbon. “Long term, I am very positive,” he said, because he doesn’t see any new projects after that.

    Copper for delivery in three months slid 2.6% to settle at $4 868 a ton on the London Metal Exchange on Tuesday. The metal, which is up 3.5% this year, last week capped its biggest weekly gain since December 2011 after touching a six-year low in January.

    The metal’s earlier slump wasn’t justified by the fundamentals and was exacerbated by falling oil prices and investors pulling out from investment baskets of commodities, Targhetta said.
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    Russia's Rusal to start Boguchansk aluminium smelter in H1

    Russia's Rusal Plc plans to start its new Boguchansk aluminium smelter in the first half of 2016, the company said on Wednesday, after reporting a 53 percent slide in its fourth-quarter core profit.

    Rusal, the world's largest aluminium producer, has been hit by weak metal prices and the start of its Boguchansk smelter in Russia's Krasnoyarsk region has been repeatedly postponed.

    "Everything is ready from the technical point of view, and the first stage is running in a test mode," said Oleg Mukhamedshin, deputy chief executive. The smelter's first stage has a capacity of 147,000 tonnes of aluminium per year.

    The company will announce the start of the smelter's production as soon as it receives approval from Russian authorities, he told reporters.

    Rusal, controlled by Oleg Deripaska and part-owned by Glencore, is also still considering a plan to reduce the company's total output capacity by 200,000 tonnes, excluding the new Boguchansk smelter, Mukhamedshin added.

    Rusal also said it expected global aluminium demand to rise 5.7 percent in 2016 to 59.6 million tonnes as Chinese appetite for the metal expands 7 percent to 31 million tonnes.

    Its fourth-quarter adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 27 percent quarter-on-quarter to $306 million, slightly missing an analysts' forecast of $312 million.

    Rusal has been supported by the weak rouble and dividends from Norilsk Nickel, in which it has stake, but these factors have not fully offset a lower aluminium price.

    Its full-year EBITDA totalled $2.0 billion. Sberbank CIB said in a note, with a rouble rate of 73 per dollar and all-in aluminium prices of $1,700 per tonne, it could generate EBITDA of around $1.4-1.5 billion in 2016.

    Rusal's shares fell 2.5 percent in Hong Kong on Wednesday.

    The company also said that its year-end net debt rose 6 percent from the end of September to $8.4 billion, and that it was in talks with Russian and Western banks to raise loans. Talks with the latter are expected to be completed by end-March.

    These loans, if secured, will be used to finance some of Rusal's debt repayments due in 2016, Mukhamedshin said. Rusal should repay $1 billion of its debt in total in 2016.
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    First Quantum Announces the Sale of Its Kevitsa Mine for US$712 Million to Boliden

    First Quantum Minerals Ltd. today announced that it has entered into a Sale and Purchase Agreement with Boliden AB  to sell its Kevitsa nickel-copper-platinum group elements mine in Finland.

    Under the terms of the Sale, Boliden will acquire Kevitsa for a cash consideration of US$712 million subject to customary adjustments. The Sale is subject to requisite competition approvals and other typical closing conditions and is expected to close during May 2016.

    Philip Pascall, Chairman and CEO noted: "This transaction is one of the initiatives within our plan, announced in October 2015, aimed at strengthening the Company's balance sheet and improving its capital structure to better suit the development and start-up timetable of the Cobre Panama project. We are continuing to advance other strategic initiatives, which are expected to be finalized at various times over the next several months, to meet those objectives."
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    Steel, Iron Ore and Coal

    ArcelorMittal to sell 3 more US steel making facilities - Report

    Scrap Monster reported that ArcelorMittal has decided to sell three of its US steel facilities. The company noted that it is in discussions regarding sale of certain long product mills. It intends to sell LaPlace, Steelton and Vinton facilities. In addition, the company has also decided to permanently shut the Luxembourg Schifflange long products plant.

    According to the company, the US operations have already implemented several cost-cutting measures including restricted purchases and revised health care plan for employees. The company is also in efforts to boost performance improvement and implement asset optimization at its steel making facilities. In March last year, it had idled its Indiana Harbor long carbon facility. Also, it had closed its Georgia wire rod facility in August. The company had reported had reported loss of $8 billion during 2015.

    The company website states that the Steelton facility has an annual production capability of 1 million mt. The mill operates an electric arc furnace, a three-strand continuous bloom caster and an ingot-teeming facility. It also operates a ladle furnace, a vacuum degasser, a 44-inch breakdown mill, 35-inch/28-inch rail mill and a 20-inch bar mill.

    The LaPlace mill has an annual steelmaking capacity of 620,000 mt and annual rolling capacity of 480,000 mt. It produces angles, beams, channel, flats and rebar for light structural shapes and merchant and rebar markets. The facility includes an electric arc furnace, ladle metallurgy station, two four-strand continuous billet casters and a 15-strand Danieli medium section mill.

    The Vinton mini-mill has an annual raw steelmaking capability of 320,000 mt. It produces rebar for the commercial and industrial construction industry, grinding balls for the mining industry, and smooth rounds. The facility includes an electric arc furnace, billet caster, rolling mill and bar mill.
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    Indonesia could deplete coal reserves by 2033, PwC

    Indonesia could exhaust its economically retrievable coal reserves by 2033, a study by Price Waterhouse Coopers released on March 7 showed.

    Indonesia is among the world's top exporters of thermal coal, but its output has slipped in recent years as plummeting prices of the power station fuel have forced miners to cut costs.

    The PwC study is based on information from 25 coal mining companies representing around 80% of Indonesia's output, and looked into the availability of domestic coal for the 35 GW of power stations Indonesia hopes to build by 2019.

    Cost cuts by miners have included reducing exploration and stripping ratios - the amount of dirt removed to expose mineable coal, PwC Indonesian advisory chief Mirza Diran told reporters.

    "Exploration to find new coal reserves has pretty well stopped," Diran said, adding that these two factors had reduced the lifespan of the country's coal mines.

    Based on government data, Indonesia had around 32.3 billion tonnes of coal reserves in 2014. However, declining stripping ratios and profitability have led to a drop in coal reserves of 30 to 40%, Diran said, noting that the survey found coal reserves of between 7.3 billion and 8.3 billion tonnes.

    In these circumstances, Indonesia's coal reserves could be depleted between 2033 and 2036, he said.

    "There is a possibility that national coal reserves ... will not be enough to supply 20 GW of power stations for 25-35 years," Diran said, referring to the portion of the 35-GW program that is expected to be coal-fueled.

    Coal miners' profitability - as reflected in earnings before interest, taxes, depreciation and amortization (EBITDA) - declined by 60% to $2.5 billion in 2014 from $6.5 billion 2011 among the group of miners studied, Diran said.

    As a result, in 2015 the companies' spending had fallen by around 80% to $400 million from the $1.9 billion spent in 2012.

    "Our survey indicates this decline will continue with a further 10 to 20% decline in 2016."

    Responding to the findings, the Indonesian Coal Mining Association urged the government to lock in measures to set coal prices based on miners' costs.

    Association chairman Pandu Sjahrir said he hoped such a pricing policy would help stimulate investment in exploration and stabilize the economy, as well as secure coal reserves for the country's power stations.

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    Inner Mongolia to cut 100 mln T coal capacity over 2016-20

    Coal-rich Inner Mongolia in northern China has pledged to close 280 coal mines with combined capacity at some 100 million tonnes a year in the 13th Five-Year Plan period (2016-20), said Bater, chairman of the autonomous region, at the fourth session of the 12th National People’s Congress on March 7.

    Most of the mines to be closed have a yearly capacity of below 0.6 million tonnes.

    It is in line with the government-led supply-side structural reform this year, analysts said.

    The autonomous region has been working to lower the share of coal in contribution to the GDP, down to 11% last year, said Wang Jun, secretary of CPC (Communist Party of China) committee of the region.

    "In 2015, Inner Mongolia’s GDP rose 7.7% on year to 1.8 trillion yuan ($276.4 million), ranking 16th across the country," Wang said.

    The mechanization rate in the coal industry of the autonomous region reached as high as 95%, 20 percentage points higher than the country’s average level.

    Meanwhile, the average capacity of a coal mine reached 1.96 million tonnes per year, fivefold of the national average level.
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    Iron ore drops back after ‘surprising blip’ that notched record

    Iron ore dropped on Wednesday, eroding Monday’s record surge, amid a revival in concern that global supply is outpacing demand.

    Ore with 62% content delivered to Qingdao fell 8.8% to $58.02 a dry metric ton, according to e-mailed data from Metal Bulletin. The price dipped 0.2% on Tuesday after Monday’s 19% rally to the highest since June. The retreat was preceded by losses on futures in Singapore and China.

    Iron ore powered higher on Monday after China’s government talked up its commitment to sustaining growth, bolstering the outlook for demand and spurring speculation that the advance had been reinforced as some investors rushed to close out bets on losses. The rally prompted banks from Goldman Sachs Group to Citigroup to say that the gains wouldn’t last, citing slowing steel demand in China and rising mine supply. The raw material has slumped for the past three years amid a worldwide surplus.

    “We have seen this surprising blip on Monday into the $60s, we don’t think it will stay there and it will come back,” Morgan Ball, managing director of Australian junior producer BC Iron, told reporters at an industry conference in Perth, Western Australia, on Wednesday. “You may see it settle in that $45-to-$55 range, which is a number that is potentially interesting to us.”

    The global iron ore market remains grossly oversupplied, demand in China is faltering and there’s a severe glut of steel, according to Li Xinchuang, deputy secretary-general of the China Iron & Steel Association. Li, whose group represents the top mills in the country that makes half of the world’s steel, said that the recent gains probably won’t last.

    This week’s gyrations had been driven by shifts in futures in China, according to  Lourenco Goncalves, chief executive officer of Cliffs Natural Resources, the largest US producer. The price is controlled by the futures market and by speculation on the Dalian exchange, Goncalves said in an interview.

    “It has no correlation at this point with the physical market,” said Goncalves, whose company also has mines in Australia that ship output to customers in Asia. On Monday, “money poured into the market and that was it” as investors reacted to the comments from Premier Li Keqiang at the weekend, Goncalves said.
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    Flower Show in Tangshan driving Iron ore?

    A dramatic surge in iron ore prices has been blamed on an upcoming flower show that is designed to showcase green-living in one of China’s most smog-choked industrial cities.

    Steel mills in Tangshan – a city of about 7 million inhabitants in China’s steel-producing heartlands – reportedly sent prices rocketing by nearly 20% on Monday, after going on an unexpected shopping spree for the commodity ahead of an enforced shutdown later this year.

    The partial shutdown is intended to reduce smog during the 2016 World Horticultural Exposition, which the city will host from April until October .

    Speaking at China’s annual rubber-stamp parliament on Tuesday, Jiao Yanlong, Tangshan’s Communist party secretary, told the Financial Times (£) that temporary air quality control measures would see production at the city’s steel mills cut in half until the end of September.

    In an interview with the state-run China News Service the Communist party chief of Tangshan, which produced more steel in 2014 than the US, said the flower show highlighted his city’s determination to pioneer the “green development of this resource-based city”.

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    Domestic steel price surges on uptick in demand, speculation

    A short-term rebound in demand and market speculation have led to a price surge in the domestic steel market, but the gains will be transitory because overall demand and overcapacity issues persist, analysts said on Wednesday.

    Steel prices in China surged in recent days, despite overcapacity in the industry that the government has vowed to tackle. The price for steel billets in Tangshan, a major city for steel production, in North China's Hebei Province, increased more than 20 percent, or 360 yuan ($55.3) per ton, in the past five days to 2,140 yuan per ton, the Beijing News reported on Wednesday.

    Since the Spring Festival holidays in mid-February, the price of steel billets has risen by 37 percent, or 580 yuan per ton, according to the Beijing News report.

    "This is crazy and unprecedented," said Wang Guoqing, research director at the Beijing Lange Steel Information Research Center.

    "There might be a short-term rebound in steel demand, but this is unusual," Wang told the Global Times on Wednesday.

    "Demand for steel has rebounded in recent days as a traditional peak season for construction during the spring and summer is approaching," said Wu Wenzhang, general manager of Beijing-based industry consulting firm Steelhome.

    The temporary rise in demand partly reflected persistent declines in steel inventories in recent months, which prompted traders to replenish supplies to prepare for the peak season, Wu told the Global Times on Wednesday.

    However, the price surge has mostly been driven by speculators, not fundamental demand, according to Wang.

    "As the country is determined to cut overcapacity in the steel industry by 150 million tons in the next five years, some traders are betting on a decline in steel supply," Wang told the Global Times Wednesday.

    In addition, an international horticultural exhibition in Tangshan, which is scheduled to run from May to October, might be sparking market speculation that steel mills around the city will be closed to ensure better air quality during the event and steel production will decline as a result, Wang noted.

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    China is becoming a nation of iron ore traders

    China is becoming a nation of iron ore traders

    With the stock market in a funk and property prices rising so fast that some investors are losing sleep, it appears that an increasing number of Chinese are turning to iron ore futures trading to make their next fortune.

    The chart below, from Westpac’s head of market strategy, Robert Rennie, shows the daily traded volume of Chinese iron ore futures on the Dalian Commodities Exchange going back to late 2013.

    It’s even more amazing than the record-breaking surge in the spot price earlier this week.

    Image title
    Dalian iron ore futures WBC March 10 2016Westpac

    According to Rennie, the equivalent of 977 million tonnes were traded on the Dalian exchange on Wednesday. Not only was it the highest daily turnover on record, it exceeded the entire amount of physical iron ore imported by China over the past year.

    According to Rennie, the equivalent of 977 million tonnes were traded on the Dalian exchange on Wednesday. Not only was it the highest daily turnover on record, it exceeded the entire amount of physical iron ore imported by China over the past year.

    In the 12 months to February, China imported a total of 962.6 million tonnes of ore, the largest year-on-year total on record.

    If the level of turnover recorded in Dalian futures on Wednesday was to be replicated over the course of any one typical trading year, it would equate to around 240 billion tonnes of ore.

    That’s a lot of ore!

    The surge led Sean Callow, currency strategist at Westpac, to muse earlier today whether iron ore futures are the next “new new thing” for Shanghai cab drivers having dabbled in the stock market beforehand.

    Certainly the swings in iron ore futures have been wild of late, suggesting that speculative forces may be building, as was case in the stock market back in late 2014.

    Whoever is responsible, be it taxi drivers or other investors, let’s hope that they’re aware thatiron ore futures are a physically delivered contract, meaning when it expires those who are holding will take physical delivery of the ore.

    That could be an awkward situation to explain to your next door neighbour.

    Midway through Thursday’s trading session the most actively traded May 2016 contract in Dalian is currently up by 4.04%.

    Whether that’s a sign of strong underlying demand, or simply speculation that the gains in the spot price earlier in the week will continue in the days ahead, won’t be truly known until daily spot price data is released at 9.30pm AEDT tonight.

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