Mark Latham Commodity Equity Intelligence Service

Thursday 13th October 2016
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More Chinese firms unveil debt swaps as Beijing struggles to reduce leverage

Chinese firms are moving rapidly to announce debt restructuring plans following the release of government guidelines on Monday, as policymakers experiment with ways to rein in the country's ballooning corporate debt.

China Construction Bank Corp (CCB) , the nations' second-largest lender by assets, has been reported in two deals to help big, debt-laden state companies in as many days, and other Big Four banks are expected to follow soon.

Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms.

Construction Bank will conduct a debt-to-equity swap with Yunnan Tin Group, the world's biggest tin producer and exporter, to cut its debt and financing costs, the official Xinhua News Agency reported on Wednesday.

Separately, the bank on Tuesday announced the launch of a 24 billion yuan ($3.60 billion) debt restructuring fund to help struggling Wuhan Iron and Steel Group Corp.

Although the statement from CCB did not specify the planned operations of the fund, official media reported that the debt reduction would be accomplished primarily through debt-to-equity swaps.

CCB will give Yunnan Tin 2.35 billion yuan next week in its first round of investment to swap some high-interest debt, Xinhua reported, without spelling out further details of the deal.

The guidelines for debt-to-equity swaps, mooted as one solution to China's growing corporate debt overhang, have been in development for months.

However, some senior bankers and analysts have been outspoken critics of the idea, saying it risks saddling banks with ownership stakes in weak companies which Beijing sees as too big or too sensitive to fail, rather than addressing the root causes of repayment problems.

In a news briefing on Monday apparently intended to assuage such concerns, a high-level official warned the swaps are not a "free lunch" for troubled companies, adding that loss-making "zombie" firms are strictly forbidden from such exchanges, which will be used mainly to help high-quality firms that face temporary difficulties.

The government will take a multi-pronged approach to cutting company debt, including encouraging mergers and acquisitions, bankruptcies, debt-to-equity swaps and debt securitisation, according to the guidelines issued by the State Council, China's cabinet.

State-owned metals trading giant Sinosteel was the first firm to receive approval for a debt-to-equity swap this year, according to online financial magazine Caixin, later confirmed by one of Sinosteel's subsidiaries.

As China's corporate debt burden reaches levels that International Monetary Fund economists say sharply raises the risk of a financial crisis, top officials have increasingly urged struggling firms to "deleverage" - borrow less and pay off existing debt quicker.

Less leverage almost always means slower economic growth in the short run, however, a prospect China's leaders will be loathe to accept as they spend ever more to hit official targets.


Analysts said the plans announced this week could serve as models for future debt restructurings, but stressed that success would ultimately depend on the ability of the firms themselves to use healthier balance sheets to improve their competitiveness.

"Unlike the previous candidates under a debt-for-equity swap pilot, (Wuhan Iron and Steel) is a company with a relatively secure financial outlook. The firm is in the process of merging with Baosteel and the newly-formed giant will likely become the second-largest steel company globally," wrote analysts at consultancy NSBO Research in a Wednesday note.

"Approximately 17 billion yuan will be used for the debt-equity swap, leaving at least 7 billion yuan in capital to invest in other projects in order to diversify risk. Since both creditor and debtor alike are involved, social investors could have an interest in injecting further capital."

Yunnan Tin controls more than 10 percent of the world's tin resources and accounts for more than 45 percent of China's tin products market. But its debt level is nearly 30 percentage points higher than the industry average, according to Xinhua.

The total scale of CCB and Yunnan Tin's agreement could be worth nearly 10 billion yuan, and it is expected to lower the firm's debt-to-asset ratio by 15 percentage points.

A third refinancing agreement involving China First Heavy Industries has also been approved by regulators, according to a disclosure to the Shanghai Stock Exchange on Wednesday.

China First Heavy said it has received approval to pay off debts through a private 1.55 billion yuan A-share equity placement by its parent China First Heavy Industries (Group) Co Ltd.

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Rising rates are good for resource stocks.

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Caterpillar, GE invest in material-transport robotics company

Clearpath Robotics, a leading provider of self-driving vehicle solutions, announced today the completion of a $30 million (USD) investment led by iNovia Capital with participation from Caterpillar Ventures, GE Ventures, Eclipse Ventures, RRE Ventures and Silicon Valley Bank.

Clearpath will use the funding to grow the company’s industrial division, OTTO Motors. Clearpath launched OTTO Motors in 2015 to focus on self-driving vehicles for material transport inside manufacturing and warehouse operations.

“Factories operate like small indoor cities, complete with roads, traffic, intersections and pedestrians,” said Matt Rendall, CEO and co-founder of Clearpath. “Unlike city streets, a factory floor is a controlled environment, which makes it an ideal place to introduce self-driving vehicles at scale. Companies like Google, Tesla and Uber are still testing, whereas our self-driving vehicles are commercially available today.”

Companies including GE and John Deere have deployed OTTO’s material handling equipment in their facilities.

“The market for self-driving passenger vehicles will be over $80 billion by 2030,” Rendall said. “We believe the market for self-driving materials handling vehicles will be equally significant. Clearpath has a big head start, and this new funding will allow us to further accelerate the development of the best self-driving software in the industry – and bring more OTTOs into the world faster.”

“Software-differentiated hardware will disrupt every major sector over the next decade,” said Karam Nijjar, Partner at iNovia Capital. “Self-driving vehicles are already revolutionizing transportation. Clearpath has built a world-class team, technology and customer base to accelerate that vision. Clearpath isn’t just building the factory of the future; they are laying the foundation for entirely new business models enabled by artificial intelligence, autonomy and automation.”

Manufacturers need flexible and efficient automation more than ever due to rapidly changing market demands. The U.S. alone anticipates a shortage of more than two million skilled manufacturing workers over the next decade. Meanwhile, consumers are increasingly demanding ethically sourced, domestically made products. OTTO Motors’ self-driving indoor vehicles help fill the labor gap while providing manufacturers an affordable way to keep or return operations onshore. Clearpath is helping create a new industry and category of domestic jobs developing, servicing and working with their self-driving vehicles.

“Clearpath is developing exciting self-driving vehicle technology for industrial environments,” says Michael Young, Director at Caterpillar Ventures. “We look forward to collaborating with Clearpath to drive efficiency gains in Caterpillar facilities.”

Clearpath previously raised $11.2 million (USD) in a January 2015 Series A round led by RRE Ventures with participation from iNovia Capital, GE Ventures and Eclipse Ventures to develop their OTTO product line. Officially launched in 2009, Clearpath’s founders established the company by participating in a U.S. Department of Defense-funded robotics competition to design a robot that could detect and remove land mines. With help from a $300,000 angel investment the following year, the team pivoted from mine removal to providing unmanned vehicle development platforms for the global research community. After launching the first OTTO product in September 2015, Clearpath established its OTTO Motors division to focus on self-driving vehicles for materials handling.

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Oil and Gas

OPEC points to larger 2017 oil surplus despite deal to cut

OPEC reported a increase in its oil production in September to the highest in at least eight years and raised its forecast for 2017 non-OPEC supply growth, pointing to a larger surplus next year despite the group's deal to cut output.

The Organization of the Petroleum Exporting Countries pumped 33.39 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 220,000 bpd from August, OPEC said in a monthly report on Wednesday.

The figures underline OPEC's challenge in seeking to restrain supplies for the first time since 2008 to curb a persistent supply glut and prop up prices. Oil is trading near $53 a barrel LCOc1, less than half the price hit in mid-2014.

"Inventories stand near all-time highs worldwide," OPEC said in the report. "Although in recent weeks these high levels have been slightly drawn down."

To speed up a rebalancing of the market, OPEC agreed at a meeting in Algeria on Sept. 28 to cut supply to between 32.50 million bpd and 33.0 million bpd. The group hopes to finalize details, including how much each of the its 14 members can pump, at a meeting in November.

The report showed the supply boost in September mostly came from Libya and Nigeria, which are restoring output after disruptions, and from Iraq, which has questioned the accuracy of OPEC's secondary-source figures.

OPEC uses two sets of figures to monitor its output: figures provided by each country, and secondary sources which include industry media. The reason why two sets of figures are used is because of past disputes over how much countries were really pumping.

Iraq told OPEC it produced 4.775 million bpd in September, while the secondary sources put output at 4.455 million bpd. From Iraq's point of view, joining the OPEC supply cut deal from the higher figure would be more favorable.

Baghdad has taken issue with the gap between the two sets of figures. Iraqi Oil Minister Jabar Ali al-Luaibi called a separate briefing on the day of the Algeria meeting to complain about the gap.

That aside, OPEC's report is the latest to show output is hitting new peaks. The September figure is the highest since at least 2008, according to a Reuters review of past OPEC reports.

In the report, OPEC also raised its forecast of non-OPEC supply next year, saying output from outside the group would rise by 240,000 bpd, up 40,000 bpd from an earlier forecast due to a higher forecast for Russia.

With demand for OPEC crude in 2017 expected to average 32.59 million bpd, the report indicates there will now be an average surplus of 800,000 bpd if OPEC keeps output steady. Last month's report pointed to a 760,000 bpd surplus.

OPEC made no change to the global oil demand outlook, predicting demand growth of 1.15 million bpd in 2017.
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OPEC Raises Doubts Over Cut Timing

Just when everyone thought "oil" was "fixed" the meeting ends and OPEC secretary-general drops this little tape-bomb - BARKINDO: NOT DECIDED WHETHER OPEC WOULD CUT BEFORE NON-OPEC...

We haven’t decided yet whether OPEC and non-OPEC would make cuts at the same time, or OPEC would move first, Secretary-General Mohammed Barkindo tells reporters in Istanbul.
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Friendly ambush in Istanbul

Russian energy minister Alexander Novak and Total chief executive Patrick Pouyanne were chatting and smiling before and after a high-profile session at the World Economic Congress in Istanbul last night.

And it is not surprising, as Total is one of the largest international investors in Russia’s oil and gas industry, including at the 16.5mn t/yr Yamal LNG project in the Arctic.

That is why what happened an hour into this otherwise orderly conference session came as a surprise, caused something of a commotion and provoked whispers and excited smiles in the audience — and on stage.

From the start, the conference had been hijacked by two themes. One was all about geopolitics, given the attendance of the presidents of Turkey and Russia – friends turned foes turned friends again in the space of less than a year. The other theme was the attempt by Opec members to agree on ways to implement their recent oil production cap initiative and secure the participation of non-Opec producers.

Russian president Vladimir Putin’s comment two days ago that Russia stands ready to collaborate with an Opec agreement first pushed the oil price higher, before the market started to doubt whether Russian oil companies would follow the government’s suit.

No surprise then that by yesterday, all eyes were on Novak, who was expected to shed more light on Russia’s intentions. And, one hour into the session, Novak decided to refocus this attention on Pouyanne as the head of a major international oil and gas company.

“I would like to ask my friend Mr Patrick Pouyanne… whenever we talk about co-ordinated actions, for some reason only ministers are asked about it, be it Opec or non-Opec countries… Very often ministers cannot tell private companies what to do in the market… We [ministers] are always asked the same question, and I want to pose it to the head of one of the world’s largest companies — to stabilise the market, are you ready to… decrease or freeze your output? Or is it just for ministers to deal with?” Novak asked with a smile.

Some in the audience started nodding, looking forward to Pouyanne’s answer.

“As a company myself, I am driven by maximising revenues. It is my objective. Then I am also working in producing countries, and if a policy is decided by the president of Russia or by Opec, we will obviously apply this policy,” Pouyanne said.

“Unfortunately, we are quite selfish, I would say. And for the time being, I am very proud to announce every quarter to my investors that my production is growing by 4-5pc [a year]. It is true that I do not participate in the stabilisation of the market. By the way, I am growing [production] more in gas thanks to Russia than in oil. But if Opec decides – I am a big investor in Abu Dhabi, for example – and if some quota is decided, we will apply the quota. I think there is a level of policy makers… and there is a level of entrepreneurs and investors,” he said.

And Pouyanne saved the most pointed reminder for governments for last. The budgets of many oil producing countries depend heavily on oil revenues as a spin through, say, Opec statistical data illustrate.

“We are partners with them, we are working in all these countries and, by the way, we are paying a lot of taxes in all these countries. So, I think we deserve our part of the partnership.”

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OPEC Faces Half-Million-Barrel Dispute With Members on Cuts

The scale of the internal differences OPEC must resolve before securing a deal to cut supply was revealed Wednesday as the group’s latest output estimates showed a half-million-barrel difference of opinion over how much two key members are pumping.

Venezuela and Iraq’s own figures on how much crude they produced in September were 565,000 barrels a day higher than estimates compiled by the Organization of Petroleum Exporting Countries from so-called secondary sources. The two nations are disputing the data, which could determine the production target for each country when caps on members’ output are decided next month.

OPEC reached a preliminary agreement to limit its total oil production to a range of 32.5 million to 33 million barrels a day in Algiers on Sept. 28. Details of how the burden of the cuts will be shared will be discussed by a committee that will meet in Vienna later in October. The credibility of last month’s deal, and the participation of other countries including Russia, rests on OPEC’s ability to resolve these differences by its next formal meeting on Nov. 30.

Venezuela told OPEC it pumped 2.33 million barrels of crude a day in September, 245,000 more than estimated by secondary sources, which include news organizations such as Platts and Argus Media as well as the International Energy Agency. Iraq said it pumped 4.78 million barrels a day, 320,000 more than the secondary-source view. The total discrepancy for both countries equals the daily production of Ecuador.

For an analysis of the hurdles faced by OPEC to implement its cuts, click here.

Of OPEC’s 14 member countries, Iraq and Venezuela are the only two that have publicly criticized the sources’ figures. Yet there are five others whose own estimates are higher than those provided by secondary sources. Three nations -- Angola, Nigeria and Qatar -- provided estimates that are lower.

Following the meeting in the Algerian capital, Iraq’s Oil Minister Jabbar al-Luaibi and its OPEC Governor Falah Al-Amri challenged the secondary-source data at a press briefing, urging representatives of those sources to explain the discrepancy and demanding the figures be “corrected.”

On Tuesday, Venezuela’s Oil Minister Eulogio del Pino said his country disputed the source estimates because they excluded a type of heavy crude it produces in the Orinoco belt. He said the committee set up by OPEC will look into the matter.

The total gap between the estimates of secondary sources and countries’ direct communications to OPEC was 866,000 barrels a day last month. That doesn’t include four nations that failed to submit a production report for the period.

Supply, Demand

OPEC left its estimate for world oil-demand growth unchanged for this year and next at 1.24 million and 1.15 million barrels a day, respectively. Non-OPEC supply will contract by 680,000 barrels a day this year, 70,000 barrels more than the organization forecast in last month’s report. Next year it will grow by 240,000 barrels a day.

Demand for OPEC’s crude next year is seen at 32.6 million barrels a day, 100,000 barrels a day more than the lower end of the target range OPEC set itself in Algiers.

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Libya’s Oil Production Set to Reach Three-Year High by December

Libya’s oil production is set to reach a three-year high by December as fields restart and ports reopen after five years of armed conflict crippled sales.

Output is now 540,000 barrels a day and will reach 900,000 barrels by the end of the year, Libya’s National Oil Corp. Chairman Mustafa Sanalla said Wednesday in Istanbul. That would be the highest production since June 2013, according to data compiled by Bloomberg.

Libya, with Africa’s largest crude reserves, has increased oil output after the NOC reached an agreement last month with Khalifa Haftar, commander of the armed forces controlling key oil ports. Shipments were able to resume from ports including Ras Lanuf, Es Sider and Zueitana, leading Germany’s Wintershall AG to resume output in the As Sarah oil field on Sept. 16.

The country produced about 1.6 million barrels a day of oil before the 2011 uprising that ousted longtime leader Moammar Al Qaddafi, but output has withered as rival militias vied to control energy facilities.

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China's crude imports rise to highest this year

China's crude imports rose to the highest level this year in September, underscoring robust demand from refiners, as many have ended their annual maintenance, and the country's expanded storage capacity.

In September, China imported 33.06 million metric tons of crude oil, or a year-over-year rise of 18%, around 8.08 million barrels a day, preliminary data from the General Administration of Customs showed Thursday. The amount is also the second highest on record after the 33.18 million tons seen in December.

China, the world's second-largest energy consumer, has been a major guzzler of crude at a time of oversupply and rivals the U.S. as the top oil importer.

The bulk of China's imports is attributed to a growing batch of independently owned refineries that the government has recently allowed to directly import crude. In the past, teapot refiners mainly used fuel oil as their main feedstock. Those who used crude oil had to source the barrels from state-owned energy companies.

The elevated imports are also a reflection of China's dwindling crude production. In August, China's crude production fell 10% year over year to 16.54 million tons, or 3.9 million barrels a day. In the first eight months of the year, the country's production was down 5.7% compared with the same period last year.

Stockpiling also drove China to increase its foreign crude buying in September, said Energy Aspects analyst Virendra Chauhan, who noted that a 7.5 million-barrel storage facility in China's northeastern Qingdao Port was recently opened.

An additional 19 million barrels of storage also came online on Aoshan Island, which received two shipments in September, the analyst said.

"Crude buying may slow in October, but overall fourth quarter should stabilized around 7.6 million barrels a day due to declining domestic production and stockpiling," he added.

The jump in crude imports, however, doesn't necessarily reflect a rise in China's domestic oil consumption, said Nelson Wang, a China analyst at investment bank CLSA.

He pointed out that a number of Chinese refineries, such as Sinopec Shanghai Petrochemical Co. SHI, +0.26% are buying crude and processing the feedstock on order on behalf of another oil company. The most recent annual report shows that in the first six months of this year, around 18% of the company's crude processing was on order.

Analysis by S&P Global Platts shows China's apparent oil demand contracted 4.3% year over year in August to 10.76 million barrels a day, mainly because of a contraction in demand for gasoil, fuel, oil and gasoline.

"It is likely that if exports of oil products continue unabated, overall apparent demand for the whole of 2016 could be lower than in 2015," said Song Yen Ling, senior analyst with Platts China Oil Analytics.

"Chinese refiners have typically built product stocks toward the end of the year, but ongoing oversupply in the domestic market could mean that exports will be sustained," she added.

In September, China's refined-oil product imports totaled 1.93 million tons, a decline of 29% year over year, as domestic need for industrial fuels such as diesel continue to fall along with the country's ebbing industrial activities growth. In recent months, China has also been exporting unwanted barrels. China exported 4.3 million tons of oil products in September, a year-over-year rise of 21%.


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Kuwait Forms A US$6 Billion National Oil Firm

The Kuwaiti government gave the go-ahead to a request by the Kuwait Petroleum Corporation (KPC) to create what would be the country’s largest oil company, according to on Tuesday.

The new firm – the Kuwait Integrated Petrochemical Industries Company (KIPIC) – will act as a subsidiary of the KPC and, Mina Al-Ahmadi Refinery deputy chief executive officer Ahmed Al-Jeemaz believes it will have the production capacity of approximately 615,000 barrels per day (bpd).

Al-Jeemaz further noted that the KIPIC will play a pivotal role in running the Az-Zour complex, which serves to process petrochemicals and is a liquefied natural gas (LNG) importing facility.

The Kuwaiti News Agency (KUNA) mentioned that the KIPIC will have a capital of US$6 billion, of which one-quarter, or US$1.5 billion, has already been paid.

The KPC, which runs refining and petrochemical projects, as well as Az-Zour, is rumored to have plans to place half of the KIPIC’s new shares on the Kuwait Stock Exchange. This has yet to be confirmed by the Kuwaiti government or KPC officials.

The creation of the KIPIC was announced after Finance Ministry Undersecretary Khalifa Hamada last month said the federal budgetrelies too heavily on oil revenue; thus, hurting the Kuwaiti economy.

The government has attempted to push through a series of financial and economic reforms that have affected the energy sector. One proposal to raise gasoline prices by 83 percent wasdeclared illegal by a Kuwaiti court earlier this month. Authorities and legislators subsequently came to a compromise to give fuel subsidies in order to compensate for a smaller gasoline price increase.

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Bechtel completes construction of Curtis Island LNG program

Bechtel has announced that it has completed the construction of the Curtis Island LNG program, with Australia Pacific LNG (APLNG) starting production from Train 2.

Bechtel has now delivered all six LNG production trains to QGC, Santos GLNG and APLNG on Curtis Island, off the shore of Queensland, Australia. Combined, the facilities are capable of supplying 25 million tpy of LNG.

Alasdair Cathcart, President of Bechtel’s Oil, Gas and Chemicals business unit, said: “Completion of the unprecedented scale of engineering and construction work on Curtis Island in Australia is a historic achievement for Bechtel, the largest greenfield program we delivered since the company was founded in 1898.

"No company has ever attempted to build three simultaneous construction programs in one location. Successful delivery of reliable gas liquefaction facilities along with sustainable local benefits is a testament to the talent and ingenuity of our global team, collaborative relationship with the three customers, the excellence of our extensive global supply chain, and the immense support of the Gladstone community. Thanks and congratulations to the entire team on achieving the extraordinary."
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Glencore shipping arm charters VLCC to ship Asian gasoil

Glencore's shipping unit ST Shipping has chartered a newly built very large crude carrier (VLCC) to ship gasoil from South Korea possibly to Africa in a rare move, shipbrokers and traders said on Wednesday.

Gasoil is usually shipped on medium and long-range sized vessels carrying up to 700,000 barrels. It is unusual for the industrial and motor fuel to be shipped in VLCCs able to carry about 2.2 million barrels of the oil product.

Shipping data in Thomson Reuters Eikon shows that the brand-new, 299,011 deadweight tonne (DWT) Gener8 Oceanus VLCC, now off the southeast coast of Taiwan en route to Singapore, and with a carrying capacity of about 2.2 million barrels, has been chartered to load gasoil.

Several broker and trading sources said the ship, which was delivered to ship owner Gener8 Maritime Inc by South Korean shipbuilder Hyundai Mipo Heavy Industries on Sept. 12., was chartered by Glencore's shipping arm ST Shipping.

One of the brokers said the ship would load more gasoil in Singapore before heading to Africa, though this could not be confirmed with ST Shipping or Glencore.

Neither company would comment on the matter.

VLCCs typically ship crude oil and fuel oil but newly built ships sometimes carry cleaner oil products like gasoil in their maiden voyages out of Asia before doing a return trip with crude oil to offset shipping costs, shipbrokers said.

Separately, Koch Supply and Trading is expected to lease the 320,000 DWT VLCC Eco Seas on a time charter of about three months, although it was not immediately clear if it will load gasoil or crude initially.

The newly built vessel, owned by privately held Norwegian group Awilhelmsen, is currently at South Korea's Okpo port doing sea trials, according to Eikon data.

Koch did not respond to an e-mail for comment, and like Glencore does not typically comment on trading matters.

The cargoes were likely fixed when freight rates for VLCCs were lower, but rates have since soared due to seasonal demand and increased cargoes from West Africa, shipbrokers said.

French oil major Total and oil trader Vitol shipped gasoil in newly built VLCCs earlier this year from Asia to Europe.

Thirty VLCCs were delivered between January and August, while a further 13 were ordered in the first half of this year, according to data from ship broker Banchero Costa
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Chevron said to seek $2bn in sale of Bangladesh gas fields

Chevron Corp., the U.S. oil producer divesting assets to counter an energy-price slump, is seeking about $2 billion from a sale of natural gas assets in Bangladesh, people familiar with the matter said.

The San Ramon, California-based company is in talks to sell its interests in natural gas fields it operates in the South Asian nation, according to the people. The sale has drawn interest from suitors including Indian and Chinese oil producers, the people said, asking not to be identified because the information is private.

Energy companies have announced $41.9 billion of asset sales this year after crude prices fell to the lowest level in more than a decade, according to data compiled by Bloomberg. Chevron, the largest U.S. oil producer after Exxon Mobil Corp., is seeking buyers for Asian geothermal assets that could fetch as much as $3 billion and is also holding talks to sell assets in Indonesia and Thailand, people familiar with the matter said earlier.

The oil producer posted its third straight quarterly loss in July as a collapse in oil prices forced it to write down the value of oil and natural wells. The San Ramon, California-based company reported a loss of $1.47 billion, or 78 cents a share, compared with profit of $571 million, or 30 cents, a year earlier.

Chevron has also invited second-round bids for its Asian geothermal assets from firms including China General Nuclear Power Corp., people familiar with the matter said in September.

Chevron operates the Bibiyana, Jalalabad and Moulavi Bazar fields in Bangladesh and sells all the production to state oil company Petrobangla, according to its website. Its net daily production last year averaged 720 million cubic feet of natural gas and 3,000 barrels of condensate.

No final agreement has been reached with any party, the people said. Cam Van Ast, a Perth-based spokesman for Chevron, declined to comment.
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Japan protests over signs of renewed Chinese gas exploration

Japan has protested to China over signs it is pressing ahead with maritime gas exploration in the East China Sea despite Tokyo's repeated requests to stop, Japan's top government spokesman said on Wednesday.

The exploration platforms are on the Chinese side of the median line between the two countries, but Japan accuses China of ignoring a 2008 agreement to maintain cooperation on resources development in an area where no official border has been drawn.

China said in July it had every right to drill in the East China Sea close to waters disputed with Japan, adding that it did not recognize the "unilateral" Japanese median line setting a boundary between the two.

Ties between China and Japan, the world's second- and third-largest economies, have already been strained by their conflicting claims over a group of tiny East China Sea islets and the legacy of Japan's wartime aggression.

"Earlier this month, flares were newly witnessed at two of the gas exploration platforms China had installed in the East China Sea," Chief Cabinet Secretary Yoshihide Suga told reporters.

"It is extremely regrettable that China, despite our multiple representations, is carrying on with unilateral development in an area where no maritime border has been set. We protested to China through diplomatic channels right away."

Japan is also at adds with China's South China Sea claims.

China claims most of the South China Sea, through which more than $5 trillion of trade moves annually. Brunei, Malaysia, the Philippines, Taiwan and Vietnam have rival claims.

Japan has no territorial claims over the waters, but much of the trade is to and from Japanese ports.
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Falcon Oil & Gas’s Aussie shale discovery declared official

Falcon Oil & Gas Ltd's oint-venture partner Origin Energy has officially declared Amungee as a new discovery.

It follows successful drilling. The most recent results, from the Amungee NW-1H well, are encouraging and evaluation work continues.

Origin, the project operator, has submitted a notification of discovery and an initial report on discovery to the Department of Primary Industry and Resources of the Northern Territory, Australia.

This means there’s sufficient data to confirm the discovery of a petroleum accumulation. Specifically, the discovery is confirmed by production testing data, petro-physical logs and core analysis.

Origin noted the gas rates ranging between 0.8 and 1.2 million standard cubic feet per day. The flow-back of hydraulic fracture stimulation fluid of volumes continues, with the recovery of between 100 and 400 barrels per day.

Initial estimates suggest a dry gas composition with less than 4% CO2, it added.

It said the discovery has a thickness of 30 metres. The discovery has porosity between 4.0% and 7.5%; gas saturation is measured between 50% to 75%, and permeability between 50 and 500 nano-Darcy.

Work continues to determine the size of the discovered resource.

Philip O’Quigley, Falcon chief executive, described the filing with the Australian authorities as an “exciting development” and he added that it provides further evidence of the scale of resource potential of the Beetaloo Basin.

“We look forward to updating the market when the evaluation to determine the resource size is concluded,” O’Quigley said.
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U.A.E. Gets Second Deal This Month Securing Natural Gas Supplies

Sharjah National Oil Co. signed the second deal this month aimed at securing natural gas supplies for the United Arab Emirates.

The Persian Gulf emirate’s state oil company signed a memorandum of understanding with Uniper SE, of Germany, to import liquefied natural gas through the Port of Hamriyah, in Sharjah, according to a joint statement Wednesday. Sharjah Electricity & Water Authority will receive set quantities of gas via pipeline from Qatar under an accord signed last week, the utility’s Chairman Rashid Al Leem said in an interview.

Middle East countries are seeking new energy supplies to meet growing demand to power homes and industry. Most of the oil in the U.A.E is in Abu Dhabi. The emirate, holder of about six percent of global oil reserves, neighboring Dubai and Sharjah are developing solar plants to diversify fuel sources. Renewable power is one of the pillars of the U.A.E.’s energy policy, Suhail Al Mazrouei, the oil minister, said Wednesday in a speech in Istanbul.

Dolphin Energy Ltd., majority owned by an Abu Dhabi investment fund, signed a contract for gas from Qatar to supply utilities in the emirates of Sharjah and Ras Al Khaimah, Qatar News Agency reported on Oct. 5. The Sharjah utility previously received fluctuating amounts of gas from Qatar through the Dolphin pipeline, its Chairman Al Leem said.

“It wasn’t a firm quantity,” he said. “Now it’s firm.” He declined to say how much gas the emirate would receive under the arrangement or provide the price.

Uniper plans to start deliveries of gas to Sharjah in 2018, according to the statement. The company is evaluating bringing a vessel, known as a floating storage and regasification unit, to Sharjah to receive the fuel supplies, John Roper, Uniper’s Middle East head, said by e-mail Wednesday.
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API Reports Biggest Crude Inventory Build In Six Months

The American Petroleum Institute report, released Wednesday, which showed a 2.7 million build – the first increase in U.S. supplies in six weeks and the largest single inventory increase in the last six months.

Experts had expected a large build of 2 million in crude oil for this week—but 2.7 million exceeded even this pessimistic figure, and the already unsteady markets appear rattled.

The large build report caused a notable weakness in West Texas Intermediate prices, which were trading down 1.46% at $50.05 after the data was released, with Brent down 1.26% at $51.75.

This build will either be confirmed or denied by the U.S. Energy Information Administration (EIA) report to be released tomorrow—a day later than normally scheduled due to this week’s holiday schedule.

API also reported a gasoline build of 688,000 barrels, in sharp contrast to analyst experts’ anticipated 900,000-barrel draw.

Distillate supplies declined by more than 4.5 million barrels, marking the third straight week of draws in that type of fuel. The distillate withdrawals were particularly high last week – the highest since October 2014 - due to the effects of Hurricane Matthew.

Oil supplies at the Cushing, Oklahoma, facility saw a 1.35 million-barrel dive, as opposed to the 100,000-barrel build that analysts anticipated
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Sapec launches sale of agricultural chemicals business - sources

Belgium-listed chemicals group Sapec has launched the sale of its agricultural chemicals business as it streamlines its portfolio, two people close to the matter said.

The company has asked Lazard to find a buyer for the business and tentative buyers have already been asked to sign non-disclosure agreements, the people said.

Sapec was not available for comment while Lazard declined to comment.

In the first six months of 2016, sales at Sapec's agricultural chemicals business were roughly flat at 120 million euros ($134 million), while earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by a third to 20 million euros.

The agrichemicals sector has seen a wave of consolidation, including Bayer's acquisition of Monsanto and ChemChina's purchase of Syngenta.

While these deals valued the targets at roughly 17 times expected core earnings, Sapec's agrichemicals unit is unlikely to reach a similar price tag as it is a mixture of higher-margin crop protection and lower-margin fertilizer business.

Potential bidders were expected to value the business at up to 10 times its expected core earnings, or up to 400 million euros, a person familiar with the matter said.
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Base Metals

Prominent Hill resumes full production, Olympic Dam ramping up

Mining companies Oz Minerals and BHP Billiton have resumed operations at their mines in South Australia, after electricity was restored earlier this week.

Oz Minerals’ flagship Prominent Hill copper/gold mine has resumed full production, the company reported on Thursday.

The miner previously warned that it will likely miss its gold production target for the year, owing to the suspension ofoperations, but that its copper production will within guidance.

BHP Billiton said that it was working to ramp-up operations at Olympic Dam mine. While some work continued in the underground operations during the power outage, the miner said the focus was on safely transitioning surface operations from a period of care-and-maintenance back into full production.

BHP is expected to release the production impacts of the power outage in its September quarterly report, but it has been speculated that the miner lost an average of 567 t of copper production, at a cost of A$2.7-million a day, during the power outage, based on the 2015 output of 203 000 t and current metals prices.

South Australia’s power grid suffered a blackout a fortnight ago, following a fierce state-wide storm, which knocked down power lines. The outage has attracted severe criticism from Prime Minister Malcolm Turnbull, who has accused some state governments of putting too much emphasis on generating electricity from wind and solar farms. South Australia uses wind farms and rooftop solar panels for 40% of its power, more than any part of the country.

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China September copper imports drop 26 pct yr-on-yr -customs

China's imports of copper fell by more than a quarter in September to the lowest in more than a year, customs data showed on Thursday, the latest sign of waning appetite in the world's top commodities consumer as local supplies remain plentiful.

Copper imports dropped by 26 percent from a year ago and 2.9 percent from month ago to 340,000 tonnes in September, data from the General Administration of Customs showed. That's the lowest since at least August 2015.

Ore and concentrates shipments totaled 1.39 million tonnes, down 4.1 percent from August and up 14.9 percent from last year.

Copper imports to China, the world's leading copper and aluminium consumer, include anode, refined, alloy and semi-finished copper products.

The country exported 390,000 tonnes of unwrought aluminium and aluminium products, including primary, alloy and semi-finished aluminium products, in September, down from August's 410,000 tonnes, but up 11.4 percent year-on-year.
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Resurgent Iran to impact copper, zinc prices through 2020

While not expecting a boom, BMI Research in a new report is positive about the medium-term growth outlook for Iran’s mining industry following the lifting of decades old Western sanctions at the beginning of the year.

Over the next five years, new investment from Europe and Asia will accelerate the growth of the Middle-Eastern nation’s mining sector, which contains vast underdeveloped reserves but is in dire need of modernization and new technology.

BMI cautions progress will be slow given that the industry remains dominated by state-owned companies despite two rounds of privatization of state-owned copper producer Nicoco (shares were taken up other government enterprises and banks).

According to BMI Iran's copper output will outperform in the coming years, averaging yearly growth rates of 13% through 2020, compared to just 2.1% during the past five years.

Copper production is expected to top 500,000 tonnes by the end of the decade despite Nicoco’s virtual monopoly over the copper supply chain in the country.

Nicoco operates the country's three major copper mines of Sarcheshmeh, Sungun and Miduk which has combined reserves estimated to be 3.4 billion tonnes (bnt) of ore containing an average of 0.6% copper. The Sarcheshmeh copper mine, located in Kerman Province, is the world's second largest.

Copper production is expected to top 500,000 tonnes by the end of the decade despite Nicoco’s virtual monopoly

The mine holds over 826 million tonnes of proven and 1.2 billion tonnes of estimated copper reserves with 0.7% average grade alongside substantial amounts of other minerals including molybdenum, gold, silver and rare metals. The Sungun mine is Iran's second largest copper operation with over 470 million tonnes of proven and 1 billion tonnes of potential reserves grading 0.6%.

The third major copper mine is Miduk, an open pit mine that holds 170 million tonnes of proven copper reserves with an average grade of 0.25%. In 2015, Nicoco added about 300,000 annual capacity to its total copper concentrate production capacity by commissioning two ore beneficiation units at Sarcheshmeh and Sungun.

BMI notes that a year ago Nicoco signed an investment agreement with a consortium of Middle-east companies for the construction of the 100,000 Chah Firouzeh copper concentrate plant in Kerman Province, expected to start operations in 2019.

Iran has the world's largest proven zinc reserves estimated at roughly 300 million tonnes, but the sector is vastly underdeveloped according to BMI with just 0.5% mined so far. Iran sits behind China, Kazakhstan and India as the world's number four producer of zinc ore.

After several years of production decline, Iran's zinc mine output is set to return to positive growth, boosted by stronger international prices and booming demand from domestic construction.

The two largest mines are Mehdiabad with 16.5 million tonnes of zinc ore reserves and the Angouran mine with 9 million tonnes of remaining zinc ore reserves. Lead and zinc production are in the hands of Iran Zinc Mines Development Group, Bama Mining & Industrial, Bafgh Mines and Calcimin.
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Indonesia probably won’t allow nickel-ore exports, Minister says

Indonesia will probably drop a controversial plan to allow exports of low-grade nickel ore and bauxite amid opposition from local smelters and fears that it could upset Chinese investors who’ve poured billions of dollars into the country to build processing plants.

“Most likely there won’t be any relaxation for exports of nickel ore and bauxite,”  Luhut Panjaitan, acting energyand mineral resources minister, told reporters on Wednesday. The country “has attracted investments of about $5 billion, including for stainless steel, so why do we need toexport if we can process domestically?”

The apparent U-turn comes about a week after Panjaitan had raised the possibility of easing the ban. The government had discussed allowing ore exports with 1.8% nickel content or less because the material is hard to process locally and the money would help fund local smelters. Shipments of 15-million metric tons a year were being considered.

A final decision has yet to be made and the government aims to complete discussion on the mineral export policy next week, Panjaitan said in Jakarta. The proposal has met resistance from top domestic nickel producers Tsingshan Bintangdelapan Group, partly owned by China’s Tsingshan Holding Group, and  PT Vale Indonesia, a unit of Brazil’s Vale SA. State-owned PT Aneka Tambang supported the move.


The government is still reviewing its policy on copperconcentrates exports, Panjaitan said. The current legislation stipulates that shipments must end from January 2017 as part of a drive to get more value from sales by encouraging miners to invest in domestic processing capacity.

Southeast Asia’s biggest economy banned raw ore exports in 2014 to stop mineral wealth disappearing overseas. The country was the top supplier of nickel ore to China for use instainless steel before the moratorium.

The Philippines ramped up production to fill the gap, but the country’s mining industry is now facing a raft of closures forenvironmental reasons. Indonesian sales of 15-million tons would have been almost half the 32.3-million tons shipped by the Philippines last year.
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Steel, Iron Ore and Coal

China September coal imports surge again as domestic cuts bite

A worker speaks as he loads coal on a truck at a depot near a coal mine from the state-owned Longmay Group on the outskirts of Jixi, in Heilongjiang province, China, October 24, 2015. 

China imported 24.26 million tonnes of coal in September, up more than a third from a year ago, customs data showed on Thursday, as government-enforced mine closures forced utilities and steel mills to buy more foreign raw material.

For the year to date, imports increased 15.2 percent to 180 million tonnes.

The monthly total was up from 17.7 million tonnes last year but down from August's total of more than 26 million tonnes, which was the highest in nearly two years.

The pace of buying may not continue into October after Beijing allowed domestic mines to ramp up output after inventories fell to critically low levels and prices spiked.

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China key power plants coal stocks surge to 60 mln T

Coal stocks at key power plants across the country surged to 60 million tonnes by October 10 this year, compared with 51.22 million tonnes a month ago, as supply continued to exceed consumption at utilities, official data showed.

That could help sustain power plants to run for 17-18 days on average, up from 14 days at the end of August, when their coal stocks dropped to 51.22 million tonnes.

Key utilities have been seeing their coal stocks rising in the past month, reaching 53.1 million tonnes on September 20 and further to 56.06 million tonnes on September 30.

That was mainly attributed to the drop in power demand for air-conditioning purpose as the hot summer ended, in addition to continuous restocking efforts by utilities.

Analyst predicted that coal stocks at China's key power plants will continue to rise in the remaining days of the year, hovering above 60 million tonnes.

Meanwhile, coal stocks at power plants under the six coastal utilities stood at 13.25 million tonnes on October 10, up 8.5% from the end of September. That could last 23.7 days of consumption, as daily coal burns dropped 5.9% from late September to 0.56 million tonnes.

Coal supply from main production areas are expected to increase, as the government allowed more mines to operate within 276-330 days to ensure supply for the winter heating season, following extreme tightness in recent summer months that lifted up the fossil fuel from multi-year lows.  

Prices of thermal coal, used mainly for power generation, have climbed 63.9% from the start of the year, with 5,500 Kcal/kg NAR material traded at benchmark Qinhuangdao port hitting 599 yuan/t on October 11, up 70.7% from the lowest recorded in November last year.
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Xinjiang Jan-Aug raw coal output reaches 101 mln T

Northwestern China's Xinjiang Uygur autonomous region produced 100.87 million tonnes of raw coal in the first eight months, coming up to the fifth biggest coal producer after Inner Mongolia, Shanxi, Shaanxi and Guizhou, according to the Xinjing government website.

The autonomous region has seen its coal industry moving ahead in recent years, with an array of modern coal mines established and put into operation, greatly boosting coal-based power generation and chemical projects.

In 2015, raw coal output of Xinjiang stood at 140 million tonnes, ranking sixth across the country.
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New Hope warns Queensland enviro Bill risks A$900m coal mine expansion

Coal miner New Hope has warned that it will likely start redundancies as its Acland mine, in Queensland, if the state Parliament passes new environmental legislation that risks a A$900-million expansion of the mine.

In a letter to members of the Queensland Parliament, New Hope MD Shane Stephan said that the Environmental Protection (Underground Water Management) and Other Legislation Amendment Bill, in its current form, posed a risk to the expansion of the Acland mine.

The New Acland Stage 3 project will expand the mine’s yearly output from 4.8-million tonnes to 7.5-million tonnes and will extend the mine life beyond the current end-date of 2017/18.

The expanded operation will see a further 260 people employed at the mine, and could inject some A$12-billion in local, state and federal revenues over the life of the project.

However, Stephan noted in his letter that despite the project having been subject to an environmental impact statement (EIS), a public consultation, and the issue of a draft environmental approval by the Department of Environment and Heritage Protection in August last year, the new Bill could stall the expansion by as much as two years, as New Hope would have to apply for an associated water license, which would require a mining lease approval and a baseline assessment.

The baseline assessment could take between 6 to 12 months to complete, Stephan pointed out, noting that the application process for an associated water license could take an additional 6 to 12 months.

“As resource within our current mining lease will be declining in 2018, it has always been New Hope’s case, and in fact the subject of our application for urgency in the current Land Court hearings, that without approval of a further mining lease in a timely manner, by the first quarter of 2017, redundancies would commence as early as April next year,” Stephan said.

Stephan has called on the members of Parliament to support better transitional arrangements within the Bill for projects that were in the latter stages of the approvals process.

In its submissions to the Parliamentary Committee, mining giant Rio Tinto has also warned that the Bill could delay its own Kestrel Extension 4 project and its Hail Creek transition projects, which have already successfully completed various public submissions and third party challenge process as part of their statutory approvals pathways.

The Bill was referred to a Parliamentary Committee in September, with the Agriculture and Environment Committee expected to report back to Parliament by October 25.

The Bill aims strengthen the effectiveness of the environmental assessment of underground water extraction by resource projects, allow the ongoing scrutiny of the environmental impacts of underground water extraction during the operational phase of a resource project, and ensure the administering authority for the Environmental Protection Act was the decision-maker for specific applications relating to environmental authorities.

The Bill further aims to ensure that the impacts of mining projects that are advanced in their environmental and mining tenure approvals are “appropriately assessed” for their impact on the environment and underground water users, and that opportunities for public submissions and third-party appeals are provided before underground water is taken.
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China iron ore imports hit 2nd highest on record in Sept-customs

China's iron ore imports surged to the second highest on record in September, customs data showed on Thursday, as mills in the world's top steel producer ramped up production amid healthy profits.

Firm domestic prices also helped curb China's steel exports to the lowest since February, offering a reprieve for overseas rivals that had been angered by a flood of cheap Chinese products.

"Despite a modest fall in steel prices, steel mills were still making a profit in September and thus lifted steel production," said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.

"Actually this year's steel production stood at very high levels, boosting appetite for imported iron ore."

China imported 92.99 million tonnes of iron ore in September, up 6.0 percent from the previous month, data from the General Administration of Customs showed. That was the highest since the all-time high of 96.27 million tonnes in December 2015.

Imports of the steelmaking raw material for January to September reached 763 million tonnes, up 9.1 percent from a year ago.

The country's steel exports fell 2.3 percent from August to 8.80 million tonnes last month, the data showed. Shipments for the first nine months of the year were up 2.4 percent at 85.12 million tonnes.

Chinese prices for rebar steel, a construction product, fell 6.5 percent in September, but are still up 39 percent since the beginning of this year.

However, prices may came under under pressure from Beijing's efforts to restrict home purchases to cool its property market.
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China's key steel mills daily output slides 3pct in late Sep

Daily crude steel output of China's key steel mills dropped 3% from ten days ago to 1.72 million tonnes over September 20-30, according to data released by the China Iron and Steel Association (CISA).

Chinese steel makers slowed production amid narrowing profit as steel prices fall and key raw materials prices climbed. The government's efforts to reduce surplus capacity in the sector also contributed to the drop.

Daily crude steel output across the country was estimated at 2.28 million tonnes during the same period, falling 1.89% from ten days ago, the CISA said.

By September 30, stocks of steel products at key steel mills stood at 13.15 million tonnes, down 7.33% from ten days ago, the CISA data showed.

By October 8, total stocks of major steel products in China increased 5.21% on week to 9.95 million tonnes, the tenth consecutive rise on weekly basis.

The daily output of China's key steel mills is expected to further slide in October, as steel makers may tend to make furnace maintenance frequently amid a greater risk of loss coming with rising costs.

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China's CISA hopes for stable steel prices in Q4

The China Iron & Steel Association (CISA) hopes prices will remain stable in the fourth quarter, secretary general Liu Zhen Jiang said on the sidelines of Worldsteel-50 in Dubai on October 11.

"We will try to avoid a big drop in steel prices because if we see a new price drop the economic efficiency we see at the moment will be badly impacted," Liu said.

Chinese steel demand is seasonally weaker in the fourth quarter, Liu said, suggesting CISA will remind its members "to pay more attention to balancing supply and demand".

The correlation between iron ore and steel is currently more manageable than before, he said.

"We are happy to see the mills and miners wiser and more rational and we hope this stability and correlation between steel and iron ore remains in the coming months."

The rise of coking coal and coke costs poses a real challenge for mills, but this pressure should support steel prices.

China is on target to reduce capacity by 45 Mtpa this year, and could possibly surpass this.

Next year's reduction target is likely to be no less than this year, Liu said, adding that there will be more mergers like Baosteel and Wuhan Iron and Steel Group going forward in the continuing restructuring of the industry.

"They have reasons to join hands, they have similar product portfolios, the merger will help to optimize the product mix while in the meantime reducing overcapacity," Liu said.
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Merafe ferrochrome output rising in higher price environment

The attributable ferrochrome production ofMerafe is on the rise, with the black-controlled JSE-listed company reporting upped output primarily on additional production from the low-energy Project Lion II furnaces of theGlencore Merafe Chrome Venture.

South Africa’s 300 000-member Bafokeng community has the influential shareholding in Merafe, participating in the venture as a pooling and sharing partner.

The company said on Wednesday that furnace refurbishments had been timed to optimise stock levels and manage production volumes, which rose 8 000 t to 285 000 t from January to September, 3% higher than for the same period last year, and 8.5% up in the third quarter to 89 000 t.

Headed by CEO Zanele Matlala, Merafe reported earlier this year that it expects to benefit from renewed positive ferrochrome demand trends, as well as from only four of seven South African ferrochrome producers currently being in production.

The fourth-quarter European benchmark ferrochrome price has been settled at a 12.2%-higher 110c a pound, well up on the 98c-a-pound price of the third quarter.

Ferrochrome-using global stainless steel production is expected to rise by 2.6% this year and by 3.1% next year.

Merafe’s main focus is on its 20.5% participation in the earnings before taxes, depreciation and amortisation of theGlencore Merafe Chrome Venture, in which the London-, Hong Kong- and Johannesburg-listed Glencore holds 79.5%.

As reported earlier by Creamer Media’s Mining Weekly Online, the Lion ferrochrome smelter, owned and operated by the venture, uses 37% less electricity than conventional ferrochrome processes to produce the equivalent volume of ferrochrome.

In addition, the smelter needs far less coke than conventional smelters and uses significant amounts of locally produced, lower-cost anthracite and char.

Had the Lion operation not installed the Premus technology, it would have needed an additional 1 776 MWh to produce the same volume of ferrochrome.

Instead, all four furnaces collectively use some 4 800 MWh/d.

The efficient use of energy – enhanced by pelletising to cope with increasing volumes of fine chrome ore, the proximity of the Port of Maputo, the use of more cost-effective uppergroup two (UG2) chromite ore recovered from platinumtailings – places Lion in a favourable cost position.

The UG2 ore is sourced from the nearby Mototolo mine, aplatinum joint venture between Glencore, black economic-empowerment partner Kagiso Tiso and Anglo AmericanPlatinum.

The bulk of the smelter’s ore arrives by road from theGlencore Merafe Chrome Venture’s Thorncliffe and Magareng mines, which are some 25 km away, and the final ferrochrome product leaves by road in an area not served byrail.

The pelletised material is put through prereduction kilns, which radically reduce furnace time and, thus, electricityconsumption.

Lion II, which was commissioned more than two years ago, doubled the 360 000 t capacity of Lion I to give the Lion smelter a combined capacity of 720 000 t/y of ferrochrome.

Lion II was built at a capital cost of R4.9-billion and includes the Magareng mine.
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