Mark Latham Commodity Equity Intelligence Service

Tuesday 11th April 2017
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    Macro

    Aramco board to meet in Shanghai as it seeks Chinese investors for IPO


    Saudi Aramco's board will meet in China in May for the first time in seven years, industry sources said, as the state-owned energy firm seeks to lure Chinese and Asian investors to its giant share offering.

    The board of directors would gather in Shanghai on May 10 to discuss the firm's business plans, investments and preparations to sell up to 5 percent of Aramco in 2018, the sources said.

    An annual report of the company's activities for the previous year is usually issued after the board meeting.

    The board, which gathers twice a year, often meets abroad but only once before had a meeting in China, in 2010.

    Aramco has appointed international banks with access to Chinese investors to advise on the initial public offering (IPO) .

    The issue of Aramco's IPO and a potential role for Chinese investors was discussed last month during the visit by Saudi Arabia's King Salman to Beijing, sources said.

    The IPO could generate up to $100 billion and give Aramco an overall valuation of $2 trillion, the biggest ever.

    "Chinese participation in Aramco's IPO would be very logical and strategic," said Sadad al-Husseini an energy analyst and former Aramco executive.

    Saudi officials have said Chinese companies were interested in investing in the Aramco IPO as Beijing seeks to secure crude supplies from the world’s biggest oil exporter.

    "There is a serious push from Aramco for Chinese investors to become cornerstone investors in the IPO," an industry source said.

    A second source said talks were at an early stage and any Chinese investment in Aramco would likely be in coordination with the Beijing government.

    Aramco is likely to be listed on the Saudi stock exchange in Riyadh and on one or more international markets. The kingdom is considering exchanges in New York, London, Toronto and Asia.

    Industrial and Commercial Bank of China International Holdings, a unit of Industrial and Commercial Bank of China , and China International Capital Corporation (CICC) are among Chinese banks pitching for a role in the IPO, sources familiar with the matter have told Reuters.

    Chinese participation in the IPO could strengthen Riyadh's hand in other Chinese investment decisions, the sources said.

    Aramco has been in talks for years to invest in refineries in China so it can sell more of its crude to China. Those plans have yet to progress.

    The board, which often tours Aramco's investments where they meet, also comes before the Organization of the Petroleum Exporting Countries gathers in Vienna on May 25 to decide on output policy. An OPEC-led pact to cut supplies ends in June.

    The nine-member board includes Saudi Energy Minister and Aramco Chairman Khalid al-Falih, Minister of State Ibrahim al-Assaf, Aramco CEO Amin Nasser, Public Investment Fund Managing Director Yasir al-Rumayyan and royal court adviser Majid al-Moneef. It also includes former Royal Dutch Shell Chairman Mark Moody-Stuart and former Schlumberger head Andrew Gould.

    http://www.reuters.com/article/saudi-aramco-board-china-idUSL8N1HH085
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    Gestalt, philosophy etc.


    As they plough through their GCSE revision, UK students planning to take politics A-level in the autumn can comfort themselves with this thought: come September, they will be studying one thinker who does not belong in the dusty archives of ancient political theory but is achingly on trend. For the curriculum includes a new addition: the work of Ayn Rand.

    It is a timely decision because Rand, who died in 1982 and was alternately ridiculed and revered throughout her lifetime, is having a moment. Long the poster girl of a particularly hardcore brand of free-market fundamentalism – the advocate of a philosophy she called “the virtue of selfishness” – Rand has always had acolytes in the conservative political classes. The Republican speaker of the US House of Representatives, Paul Ryan, is so committed a Randian, he was famous for giving every new member of his staff a copy of Rand’s gargantuan novel, Atlas Shrugged (along with Freidrich Hayek’s Road to Serfdom). The story, oft-repeated, that his colleague in the US Senate, Rand Paul, owes his first name to his father Ron’s adulation of Ayn (it rhymes with “mine”) turns out to be apocryphal, but Paul describes himself as a fan all the same.

    https://amp.theguardian.com/books/2017/apr/10/new-age-ayn-rand-conquered-trump-white-house-silicon-valley
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    Oil and Gas

    Libya Biggest Oil Field Said to Shut for 2nd Time in Two Weeks


    Libya’s biggest oil field was said to stop producing, just one week after it reopened, the latest in a series of disruptions in the country’s crude output.

    The pipeline carrying crude from Sharara, Libya’s biggest field, to the Zawiya refinery stopped operating on Sunday, according to two people familiar with the matter who asked not to be identified because they’re not authorized to speak to media. It wasn’t clear why the pipeline was shut. The state oil company National Oil Corp. couldn’t be reached immediately for comment.

    Sharara, in western Libya, was pumping 200,000 barrels a day, the NOC said on April 4. The halt is poised to disrupt the country’s production which just returned to its normal levels of about 700,000 barrels a day.

    Clashes among rival armed groups in early March led to the closing of two of the nation’s biggest oil export terminals, forcing a number of other fields to halt production. The ports have since reopened. Libya pumped as much as 1.6 million barrels a day before a 2011 uprising led to the breakdown in central authority and stunted oil production. Libya is one of the smallest members of the Organization of Petroleum Exporting Countries.

    The NOC declared force majeure on loadings of Sharara crude from the Zawiya oil terminal on March 28 when the pipeline was blocked, before it was lifted again a week later. It’s not clear yet whether the NOC will declare it this time. Force majeure is a legal status protecting a party from liability if it can’t fulfill a contract for reasons beyond its control.

    Sharara is operated by a joint venture between NOC and Repsol SA, Total SA, OMV AG and Statoil ASA. The field’s total capacity is 330,000 barrels a day.

    https://www.bloomberg.com/news/articles/2017-04-10/libya-biggest-oil-field-said-to-shut-for-2nd-time-in-two-weeks
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    Oil surplus or scarcity? Shale makes it even harder to predict


    The shale oil boom has transformed the U.S. and global energy sector to such an extent that it has upended traditional supply dynamics and made forecasts far more polarized.

    Investment banks, many of which finance new projects, along with oil majors such as Total and Eni, have warned that huge spending cuts caused by a plunge in oil prices since 2014 would lead to a supply crunch in the next two years.

    Yet Goldman Sachs, the only bank to make more than $1 billion a year from commodities trading, believes a looming recovery in U.S. output on the back of higher oil prices combined with an avalanche of new conventional projects will create a substantial surplus by 2019.

    Prior to the shale revolution, conventional oil was the only game in town. Estimating future supply essentially involved calculating the project pipeline and factoring in the "unknown knowns" such as political risk in oil-producing nations.

    The ability of the shale sector to adapt quickly and nimbly to a lower-price environment means production cycles have shortened as fields can be switched on and off in a matter of weeks.

    Most forecasters including OPEC and the International Energy Agency underestimated shale's decline during the oil price collapse and its production increases as prices recovered.

    Goldman predicts the coming two years will see a huge burst of development, complicating OPEC's efforts to rebalance the market and ease a global glut with the help of output cuts.

    "This long lead-time wave of projects and a short-cycle revival, led by U.S. shales, could create a material oversupply in 2018-19," Goldman's equity research team said last month.

    "As OPEC prepares for its May 25 meeting, it is likely to weigh the relative benefit of stability (extend cut) versus the risk of long-term share loss."

    Goldman estimates that new projects and rising shale output could add 1 million barrels per day (bpd) to global supply by 2018-2019.

    The forecast contrasts with those of consultancy Wood Mackenzie, which foresees a supply gap of 20 million bpd by 2025, and Goldman's rival Morgan Stanley, which believes a surge in U.S. production this year will not derail the rebalancing.

    "OPEC has successfully constrained output, and although drilling activity in U.S. shale is picking up rapidly, this will probably not come quick enough to prevent a period of sizeable inventory draws late this year," Morgan Stanley said.

    "By 2020, we estimate that (around) 1.5 million bpd of demand will need to come from projects that have not been sanctioned yet, but that have break-even oil prices of $70-75 a barrel," the bank said.

    BLACK HOLES

    Goldman advises anyone from institutional investors such as pension funds, to oil producers and it seems the oil market is listening.

    Brent crude futures show prices for oil deliverable up to 2019 trading below those for prompt delivery, before reverting to the contango structure of low prompt prices and higher futures prices that is typical of an oversupplied market.

    Goldman stands by its prediction that supply and demand will fall into line this year, even though global crude inventories in developed economies alone top 3 billion barrels, some 300 million barrels above the five-year average that OPEC is targeting with its supply cuts.

    The Organization of the Petroleum Exporting Countries and some of its biggest rivals including Russia, agreed in late2016 to cut output jointly by 1.8 million bpd for the first half of this year to tackle the overhang.

    UBS, meanwhile, sees a potential 4 million bpd hole by 2020, even though a higher crude price this year has prompted some companies to bring forward their exploration and development plans.

    "Beyond 2017, the impact of a collapse in longer-cycle conventional investment over 2014-16 begins to be felt. 2015 saw just six major upstream projects totaling (some) 0.6 million bpd ... versus the 3-4 million bpd average, and 2016 has seen just one major liquids project sanctioned," UBS strategist Jon Rigby said.

    Bank of America-Merrill Lynch points out that along with the collapse in spending, the global rig count, a measure of production activity, shows no sign of picking up outside the United States.

    According to oil services company Baker Hughes, the number of non-U.S. oil rigs has risen by just 29 since hitting an 11-year low of 666 in November last year, compared with a rise of 346 in U.S. rigs in just 10 months.

    http://www.reuters.com/article/us-oil-forecasting-idUSKBN17C0WO
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    Asia naphtha demand fades as petrochemical firms snap up LPG as feedstock


    Asian petrochemical makers are ramping up purchases of liquefied petroleum gas (LPG) to use as an alternative feedstock to naphtha, looking to snap up cheap cargoes as heating demand for LPG fades in the wake of winter.

    LPG, often referred to as butane or propane, is commonly used in heaters or stoves in some countries, but can also be an ingredient in plastics used to churn out everything from drinks bottles to carrier bags.

    Faltering demand for naphtha could drag on prices that have been in premiums to benchmark Japanese quotes for most of the year compared to discounts in the same period in 2016, while offering support to LPG markets.

    Four traders said that Taiwan's Formosa Petrochemical Corp , Asia's top naphtha importer, last week bought its first spot LPG cargo of the year, with South Korea's LG Chem and Lotte Chemical also taking cargoes.

    Formosa declined to comment, while the South Korean companies did not immediately provide comment.

    "The Koreans and Formosa moved immediately when the value was in switch mode, (showing) impressive quickness," said one of the traders, who closely follows naphtha and LPG markets. He asked not to be identified as he was not authorised to speak with media.

    Petrochemical companies in Asia are typically set up to shift around 5 percent to 15 percent of their feedstock to LPG when prices drop below 93 percent the cost of naphtha.

    Late last week, Asian spot propane price for cargoes to be delivered in the second half of May were less than 86 percent of naphtha's $493.50 a tonne.

    The traders estimate that some 300,000 tonnes of LPG is expected to replace naphtha in May, or around 7 percent of North Asia's naphtha demand. They said that could climb to 400,000 to 450,000 tonnes in subsequent months.

    "LPG prices will likely be weak relative to naphtha in the coming months, incentivizing petrochemical demand," said He Yanyu who leads Asia natural gas liquids market research at IHS Markit.

    However, increased LPG purchases would likely mitigate the impact on naphtha markets from possible naphtha shipment delays from Qatar following a splitter outage.

    And Asia is structurally short of naphtha, with a supply deficit averaging 4 million tonnes a month in 2016, data from IHS consulting firm showed.

    http://www.reuters.com/article/lpg-asia-demand-idUSL3N1HF3EP
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    Iran cuts oil selling price


    IRAN SETS MAY IRANIAN LIGHT CRUDE PRICE TO ASIA AT OMAN/DUBAI MINUS $0.20/BBL, DOWN $0.30 FROM PREV MTH -SOURCE

    @EnergyBasis
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    Eni, Shell deny wrongdoing in Nigeria after allegations of improper payment

    Eni, Shell deny wrongdoing in Nigeria after allegations of improper payment

    Oil majors Royal Dutch Shell and Eni reiterated on Monday that neither they nor their personnel had been involved in any wrongdoing in Nigeria, including improper payments to Nigerian officials.

    The comments follow media reports alleging how hundreds of millions of dollars from the two companies were used for illicit payments.

    A joint investigation by BuzzFeed News and Italian newspaper Il Sole 24 Ore on Sunday claims to show transactions worth $1.3 billion made in 2010-2011 that Shell and Eni paid to acquire an exploration license for an offshore oil block known as OPL 245.

    The money was paid to the Nigerian government, but BuzzFeed and Il Sole said documents showed Shell's top executives at the time knew those sums would go to Malabu Oil and Gas, a front company connected to former Nigerian oil minister Dan Etete.

    Attempts by Reuters to contact Etete have been unsuccessful.

    In emailed comments, an Eni spokesman said the allegations in the reports were not supported by the facts, the underlying agreements or the independent investigations conducted to date.

    "Neither Eni nor Shell paid any monies other than as contemplated and recorded by the Block Resolution Agreement and did not pay to Malabu, to Chief Dan Etete or to any public officer," the spokesman said.

    Shell said that "based on our review of the Prosecutor of Milan's file and all of the information and facts available to Shell, we do not believe that there is a basis to prosecute Shell. Furthermore, we are not aware of any evidence to support a case against any former or current Shell employee".

    In an emailed statement, Shell added that if the evidence proves improper payments were made, "it is Shell's position that none of those payments were made with its knowledge, authorization or on its behalf".

    Courts in Nigeria and Milan are investigating the 2011 purchase of the block, which industry figures suggest could hold more than 9 billion barrels of oil.

    Italian prosecutors are working with an anti-fraud team in the Netherlands that raided Shell's The Hague headquarters in February 2016 in relation to the investigation.

    A Nigerian court ordered the asset temporarily seized in January at the request of Nigeria's Economic and Financial Crimes Commission, but the seizure was later overturned.

    http://www.reuters.com/article/us-eni-nigeria-idUSKBN17C12L
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    Petronas seeks buyers for $1 bln offshore gas project stake: sources


    Malaysia's Petronas has pitched an estimated $1 billion stake in a prized upstream local gas project to potential bidders including Royal Dutch Shell, ExxonMobil Corp, Thailand's PTT Exploration and Production and Japanese firms, sources familiar with the matter said.

    If successful, the deal could mark Petronas' biggest upstream stake sale since oil prices started declining more than two years ago. Petronas is targeting lowering operating expenses, job cuts and project rollbacks to help it navigate through the low oil price environment.

    Citing sources, Reuters reported in February that Petronas was considering selling a stake of as much as 49 percent in the SK316 offshore gas block in Malaysia's Sarawak state.

    The state-owned oil and gas company has approached about a dozen prospective buyers including global oil majors and Asian firms focused on Southeast Asia, said the sources, who declined to be identified as the talks are private.

    They said Petronas has begun providing financial and operational data to the companies and expects to receive bids over the next few weeks.

    "It's just what the environment is. Nobody wants to keep all the risk on their books," said Vikas Halan, senior credit officer, corporate finance group at Moody's, adding he viewed the move as a rebalancing of Petronas' portfolio.

    "Petronas is the leader in the oil and gas space, especially on the gas side. The experience of getting or producing LNG and marketing LNG is quite an interesting one and Petronas becomes a logical choice for players," he said.

    In a statement to Reuters, Petronas said that through its subsidiary, Petronas Carigali Sdn Bhd, it is looking for partners who can bring the technology and capabilities to explore, develop and efficiently operate the various fields and opportunities in the SK316 offshore gas block.

    "We are confident that we will attract the right partners to maximize the potential value of these opportunities to help meet the world's growing oil and gas demand," Petronas said.

    It was not immediately known what the individual companies' response to Petronas' approach was.

    One financial source said a minority stake might not appeal to non-Asian oil majors but a decision to bid would depend on details of the stake being offered, valuations and the potential for long term partnerships with Petronas.

    ExxonMobil declined to comment, while Shell referred the query to Petronas. A spokeswoman for PTTEP declined to comment on the deal but said the company was keen to invest in Southeast Asia because it had expertise in the region where costs and risks were low.

    Gas from the NC3 field in the SK316 block feeds Malaysia's LNG export project, known as LNG 9, Petronas' joint venture with JX Nippon Oil & Energy Corp that began commercial production in January.

    Petronas could use the funds from the stake sale to develop the Kasawari field in the same block. The field is one of the largest non-associated gas fields in Malaysia and has an estimated recoverable hydrocarbon resource of about three trillion standard cubic feet.

    "Kasawari will require a significant capital investment to develop due to the high CO2 content," said Prasanth Kakaraparthi, senior upstream research analyst at consultancy Wood Mackenzie.

    "In a lower-for-longer oil price world, it makes commercial sense for Petronas to farm down its interest and partner with companies that have innovative CO2 handling technology," he said.

    Petronas put on hold plans to develop the field in 2015 after oil and gas prices fell, according to media reports.

    http://www.reuters.com/article/us-petronas-m-a-idUSKBN17C14A
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    China state refiners given 1.3 mln T of general trade fuel quotas


    China's state oil refiners have been granted a combined 1.315 million tonnes of quotas to export refined fuel under so-called general trade terms, three sources familiar with the matter said on Monday.

    These permits, mostly for diesel and gasoline, were in addition to the 3.335 million tonnes of quotas allotted to the refiners under a separate, so-called processing trade category, after Beijing agreed to grant tax incentives to exports under general trade terms.

    The general-trade quotas were issued in early March with PetroChina receiving 1 million tonnes and Sinopec Corp 300,000 tonnes, said two of the three sources familiar with the companies' quotas.

    CNOOC, which holds less refining capacity, won a quota for 15,000 tonnes as an "experiment", said the third source, who has direct knowledge of CNOOC's trade operations.

    These were the second batch of general trade quotas for 2017. In early 2017, PetroChina was the only refiner granted a quota for 600,000 tonnes, said one of the sources.

    At the end of March, China also issued its second batch of quotas for 2017 under the prevailing processing, or tolling, rules, lowering the volumes by 73 percent compared to the first round.

    State refiners applied for the general trade quotas after the government agreed in late 2016 to grant tax incentives on fuel exports making the terms more attractive since it offers refiners greater flexibility in the volumes and time frames for exporting fuel, said the three sources who are familiar with the rules.

    Top Asian refiner Sinopec said on Friday it exported a diesel cargo to Singapore under the general trade rules for the first time in 13 years.

    PetroChina did not win any quotas under the recent round of processing trade quotas, Reuters has reported.

    The sources said PetroChina, which imports less crude than rival Sinopec, did not apply for the processing trade quotas but only asked for general trade ones since it see those terms as more attractive.

    State oil firms normally do not comment on operational matters.

    Under the processing rules, refiners are exempted from import taxes on crude oil and export taxes for oil products, but have a fixed volume and time slots to export, both under the tight scrutiny of Chinese customs, Beijing-based oil traders have said.

    Under the general trade category, refiners get tax refunds after exports are completed or get a tax waiver on fuel exports, a policy that Beijing granted in 2016, the three sources said.

    http://www.reuters.com/article/china-oil-quotas-idUSL3N1HI36V
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    NEB grants 40-year export license to Woodfibre LNG


    Canada’s National Energy Board (NEB) has granted a 40-year export license for the Woodfibre LNG project, in Squamish, British Columbia.

    According to Woodfibre LNG’s statement, the export license is subject to Governor in Council approval.

    In its decision, the NEB found that the quantity of natural gas proposed to be exported by the Woodfibre LNG project, for a term of 40 years, is surplus to Canadian needs, and can accommodate a plausible increase.

    The project initially received a 25-year license to export approximately 2.1 million tons of LNG per year in December 2013, however, amendments to NEB regulations in 2015 increased the maximum term to 40 years.

    Woodfibre LNG filed an application for a 40-year export license at the beginning of February.

    All of the commitments Woodfibre LNG made in its environmental assessment certificate application, and the regulatory conditions, plans and permits required for construction and operation of the Woodfibre LNG project will remain in effect for the life of the project.

    The Woodfibre LNG project is located approximately 7 km west-southwest of Squamish, British Columbia.

    Pacific Oil & Gas Limited, part of the Singapore-based RGE group of companies, the parent company of Woodfibre LNG reached the final investment decision for the project in November 2016.

    The project involves construction and operation of an LNG export facility on the previous Woodfibre pulp mill site, which would have a storage capacity of 250,000-cbm.

    http://www.lngworldnews.com/neb-grants-40-year-export-license-to-woodfibre-lng/
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    Old Guard Calls Foul on Sweeter LNG Deals Luring New Buyers


    New importers in the Middle East and South Asia could be getting cheaper LNG than established users in North Asia, according to a senior executive vice president with Jera Co., one of the world's biggest buyers of the super-chilled gas.
     
    Buyers in the world’s largest liquefied natural gas markets are concerned upstarts are winning better deals than traditional customers who helped underwrite the industry.

    New importers in the Middle East and South Asia could be getting cheaper LNG than established users in North Asia, according to Hiroki Sato, a senior executive vice president with Jera Co., one of the world’s biggest buyers of the super-chilled gas. Sellers may be sweetening deals to lock up fresh customers as new projects, made possible partly by long-term commitments from buyers in countries including Japan and South Korea, flood the market, he said.

    To raise the tens of billions of dollars needed to build an LNG project, developers have traditionally needed to find both large natural gas resources as well buyers willing to commit to purchase contracts that can last more than 20 years. Jera’s wariness over how new importers are being courted highlights the growing pressure on sellers trying to manage old relationships while winning new customers amid the oversupply of capacity that’s tilted the seaborne gas market in favor of buyers.

    “Japan and some other Asian countries are traditional foundation buyers for many LNG projects, but substantial demand is now coming from emerging markets” Sato said in an email Friday. “I am afraid their price may be cheaper than ours. Who supported the greenfield projects? We traditional buyers have a right to the cheapest price.”

    Many Japanese customers and other big buyers signed supply deals between 2012 and 2014 when prices were at their peak, according to Kerry Anne Shanks, an analyst at Wood Mackenzie Ltd. in Singapore. Those contracts require them to buy gas at a higher percentage of the price of crude -- known as oil indexation -- than newer agreements, she said.

    Last year, Pakistan State Oil Co. agreed to import LNG from Qatar at 13.4 percent of the price of oil, while Japan’s Chubu Electric Power Co., Kansai Electric Power Co. and Tokyo Electric Power Co. Holdings Inc. all reached deals in 2012 with the country at a price 14.9 percent of oil, according to Bloomberg New Energy Finance. Chubu has another contract from 2007 at 17 percent.

    “Clearly these foundation buyers are annoyed that low-credit buyers in emerging markets are getting better deals than them,” said Shanks. “But it is a function of when the deals were signed.”

    Spot LNG in Northeast Asia has fallen from nearly $20 per million British thermal units in early 2014 to $5.65 as of last week, according to World Gas Intelligence.

    As demand in a traditional buyer like Japan is seen falling as more renewable power comes online and nuclear plants restart, gas producers are focusing on emerging markets and new importers to soak up a coming flood of supply. Beyond offering cheap prices to new LNG entrants, sellers are also seeking ways to create even more customers by encouraging projects that spur the fuel’s use.

    While Japan is the world’s biggest importer of the fuel, its future growth is unclear, according to Alexander Medvedev, deputy head of Russia’s Gazprom PJSC. The world’s largest gas exporter is setting its sights instead on China and developing countries including India, Pakistan, Bangladesh and Vietnam, he said in an interview last week.

    Royal Dutch Shell Plc sees investing in gas pipelines as one way to unlock demand in countries with rudimentary infrastructure, Maarten Wetselaar, director for integrated gas and new energies, told reporters last week at the Gastech conference outside Tokyo. Floating storage and regasification units -- the term for import facilities that are cheaper and faster to build than traditional terminals -- are key to capturing new demand, along with using LNG as fuel for ships, Engie Global LNG Chief Executive Officer Philip Olivier said at the event.

    Even smaller customers are in focus. Power plants that don’t burn enough gas to justify a land-based import terminal or an ocean-going FSRU can utilize “tiny FSRU” barges, according to Kees van Seventer, a division president at Koninklijke Vopak NV. Their 25,000 cubic meters of capacity can be a better fit than the 130,000 to 170,000 cubic meters for an FSRU, which cost about $40 million annually to lease.

    Due in part to new technology, 45 nations may be capable of importing LNG by 2020, up from 33 today, according to ConocoPhillips Chief Executive Officer Ryan Lance.

    “Our world is changing and demand has changed location,” Engie’s Olivier said. “It is only a matter of seizing the opportunities. No need to wait for the demand -- track it, create it.”

    http://www.downstreamtoday.com/news/article.aspx?a_id=56001&utm_source=GLOBAL_ENG&utm_medium=SM_TW&utm_campaign=FANS
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    Japan To Conduct Second Test To Produce Gas From Methane Hydrate


    Japan begins preparations for a second production test to extract methane gas from methane hydrate deposits offshore Japan's central coast.

    TOKYO, April 10 (Reuters) - Japan's trade ministry said on Monday it has begun preparations for a second production test to extract methane gas from methane hydrate deposits offshore Japan's central coast.

    The test is the first since Japan achieved the world's first extraction of gas in 2013 from offshore deposits of methane hydrate, a frozen gas known as "flammable ice".

    Japan, which imports nearly all of its energy sources, has been aiming to launch private sector commercial production of methane hydrates by between 2023 to 2027, but the goal will still be a challenge as many obstacles remain to be solved, officials at the Ministry of Economy, Trade and Industry (METI) said.

    Japan's government has budgeted around 20 billion yen ($180 million) for offshore production experiments, said Yuki Sadamitsu, Director of the Oil and Gas Division at the trade ministry's Agency for Natural Resources and Energy.

    Japan is the world's top importer of liquefied natural gas (LNG) and the need for domestic gas resources has become greater since the Fukushima nuclear crisis two years ago shut down most of its nuclear power generation and sharply raised fossil fuel imports such as LNG and coal.

    METI said the production tests will be carried out by two wells and will continue for a combined four to five weeks. The first production well in 2013 ended abruptly in less than a week due to problems with sand flowing into the well.

    Methane hydrate is formed from a mixture of methane and water under certain pressure and conditions. Governments including India, Canada, the United States and China are also looking at exploiting hydrate deposits as an alternative source of energy, Sadamitsu said.

    In 2008, Japan Oil, Gas and Metals National Corp (JOGMEC) successfully demonstrated a nearly six-day continuous period of onshore production of methane gas from hydrate reserves held deep in the permafrost in Canada.

    A Japanese study has estimated the existence of at least 40 trillion cubic feet (1.1 trillion cubic meters) of methane hydrates in the eastern Nankai Trough off the country's Pacific coast, equal to about 11 years of Japanese gas consumption.

    http://www.rigzone.com/news/article.asp?hpf=1&a_id=149145&utm_source=GLOBAL_ENG&utm_medium=SM_TW&utm_campaign=FANS
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    Precious Metals

    GoldQuest’s Dominican ‘string of pearls’ attracts major endorsement by Agnico Eagle


    Exploration success by TSX-V-listed GoldQuest Mining at its flagship Romero project and key regional exploration targets – likened to a “string of pearls” by executive chairperson Bill Fisher along the Tireo land position, in the western Dominican Republic – has attracted the attention of senior Canadian goldminer Agnico Eagle Mines.

    Agnico has recently made a C$22.9-million investment in GoldQuest, serving as a significant endorsement for the GoldQuest exploration team, Fisher tells Mining Weekly Online in an interview.

    “We have reconstituted the former GlobeStar team, a team that has done it before in the Dominican Republic with the still-producing Cerro de Maimón mine. While we are making progress on several fronts regarding permitting the Romero project, and delivering exploration success in the surrounding Tireo land package, we are expecting accelerating news flow this year as we gather momentum,” Fisher states.

    Agnico Eagle has recently acquired 38.1-million GoldQuestshares at C$0.60 apiece, giving it a 15% stake in issued and outstanding stock of the junior explorer.

    “The approximately C$23-million investment by Agnico places us in a strong financial position to advance both our exploration programme and the development of our Romero project,” Fisher states, noting that the proceeds from the private placement will be mainly used for exploration and development at the company's Dominican portfolio and for general corporate and working capital purposes.

    Agnico has adopted a policy of positioning itself in early staged opportunities in districts with long-term geological potential.

    ‘STRING OF PEARLS’

    According to Fisher, it was GoldQuest’s early-January announcement that its ongoing 40 hole, 10 000 m 2016/17 drill programme on its 100% owned Tireo concessions has made a polymetallic discovery named Cachimbo, which returned high grades of gold and zinc on three horizons, that piqued Agnico’s interest.

    This new discovery is located 20.5 km south of GoldQuest's multi-million ounce Romero gold/copper project, which is currently in the permitting phase. Hole TIR-16-09 at Cachimbo returned a 4.9 m interval grading 14 g/t gold, 74 g/t silver, 12 % zinc, 1% copper and 0.7% lead, within a wider horizon of 15 m grading 5 g/t gold, 31 g/t silver, 4 % zinc, 0.4% copper and 0.3% lead from 70 m depth.

    GoldQuest made the Cachimbo discovery while drilling the third of 20 targets on the Tireo concessions, attesting to the regional prospectiveness.

    “The discovery of high-grade zinc is especially fortuitous since zinc prices have risen 75% during the last year. With this discovery on merely the 3rd target of 20 such targets, we are optimistic as to the potential of the district, as VMSmineralisation often occurs in clusters. Along with the Romero project in full permitting mode, GoldQuest is well-funded and positioned to be one of the most active mineral exploration and development companies of 2017 as we explore the emerging Tireo Belt, which has the potential to become a mining district,” Fisher says.

    The Tireo project consists of a 100%-owned, 50-km-long land position overlying the highly prospective Tireo Formation rocks, consisting of Upper Cretaceous volcanic sequences, and surrounding GoldQuest’s Romero project. Fisher explains that the targets were identified following one of the world’s largest helicopter borne Z-Axis Tipper Electromagnetic and magnetic surveys conducted ever over the entire Tireo project. The survey covered the discoveries at Romero and Romero South, as well as a previously identified mineralisation including La Guama, Jengibre and Loma Viejo Pedro.

    Late last month, GoldQuest announced the discovery of two new gold systems in the Tireo Belt, called Vaca Valley and Mineros Ridge, which are located 5 km and 10 km north of the Cachimbo discovery, respectively. In both cases, goldbearing sulphides were intersected with similar grades and thicknesses to intersections bordering the Romero deposit and the Cachimbo discovery, Fisher notes.

    Highlights of the new drilling include hole TIR-17-16 at Mineros Ridge, which intersected 15 m grading 0.4 g/t goldand 25.4 g/t silver. Hole TIR-16-12 at Vaca Valley intersected 56.8 m grading 0.3 g/t gold.

    Further, the team has encountered wide intersections of anomalous gold-in-pyrite on the edge of the Romero deposits and all of discoveries in the belt and may be indicative of proximity to higher-grade mineralisation, Fisher stresses. Results from hole TIR-17-16 show higher silver values and similar gold to silver ratios as intersected at the Cachimbo discovery.

    "Finding new gold bearing hydrothermal systems is the objective of this first pass drilling programme. Subsequent follow-up drilling programmes will vector toward potentially higher-grade mineralisation of such systems. Finding sulphides coinciding with anomalous gold and other metals, we are optimistic as to the potential of the district as volcanogenic massive sulphide (VMS) mineralisation often occurs in clusters,” Fisher states.

    Fisher explains that the 2016 exploration programme focuses on the southern half of the 50 km Tireo project. The focus area is on a window of favourable altered volcanic rocks within the Tireo Formation land package and is along trend of GoldQuest’s Romero gold/copper discovery 20 km north. This window trends towards and is directly next to Precipitate Gold’s Ginger Ridge discovery, which highlights the potential for the Tireo to host more gold deposits.  

    GoldQuest has been using a systematic explorationprogramme which includes mapping, surface sampling, ground induced polarisation (IP), and will include 10 000 m of drilling. Since drilling on IP changeability high anomalies led to the discovery of the Romero deposit, it has been a key exploration tool in this region.

    PROJECT PERMITTING

    Meanwhile, GoldQuest is grinding through the permitting process for its Romero project, which it discovered by similar means in 2012.

    A November prefeasibility study (PFS) has calculated an after-tax net present value, at a 5% discount rate, of $203-million, and an internal rate of return of 28%. All-in sustaining costs came in at $595/oz of gold equivalent.

    The PFS, completed by JDS Energy & Mining, envisions a planned 2 800 t/d underground mine focused on the high-grade gold and copper ‘core’ of the Romero deposit to produce a saleable copper concentrate for shipment to offshore refineries. Over half of Romero’s mineral resourcesare not included in the mine plan, as well as the entirety of Romero South. The unmined portion of the resources leaves significant room for potential expansion, Fisher states.

    The project will cost about $251-million to build, including a $32-million contingency, which can be paid back in 2.5 years. The operation will on average produce 109 000 oz of goldequivalent over the 7.3-year mine life

    The Romero and Romero South deposits, located in the central part of GoldQuest’s Tireo property, are about 1 km apart.

    The Romero deposits host a probable reserve of 7.03-million tonnes containing 840 000 oz of gold; 980 000 oz of silver, and 136-million pounds of copper, or 1.12-million gold-equivalent ounces. The indicated resource statement comprises 20.23-million tonnes grading 2.67 g/t gold, 0.61% copper, 0.3 % zinc, 4 g/t silver, for 1.74-million ounces of gold, or 2.27-million ounces of gold equivalent.

    Fisher says the brownfields exploration potential in the Romero concession, both near and in between the two deposits, is substantial, and will be tested once a miningpermit is obtained.

    GoldQuest plans to complete a feasibility study on Romero by year-end, with mine permits expected in the third quarter. Construction has been pencilled in to start, on an optimistic time line, during the first quarter of 2018.

    http://www.miningweekly.com/article/goldquests-dominican-string-of-pearls-attracts-major-endorsement-by-agnico-eagle-2017-04-07
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    Ruthenium prices hit 2.5-year high on Asian industrial buying


    Continued industrial buying and a lack of offers pushed the bid/ask spread for ruthenium to the highest level in two and a half years this week, market sources said.

    The Platts New York Dealer ruthenium price range rose to $50-$65/oz from $40-$50/oz last week. Some market sources reported bids as low as $43 and sales as high as $68, although for small volumes.

    But most sources agreed that industrial consumers, especially those in East Asia, had been in the market buying.

    "It jumped a little bit in the Far East last night," one refiner/recycler said Thursday, putting this week's range of physical deals at $50-$60/oz.

    "I heard $65 overnight, but I didn't see it. There's not a lot being offered yet at these levels, so people are accumulating [ruthenium] apparently," he added.

    Ruthenium buying appeared to pick up in overnight Asian trading April 5, one day after the Ching Ming Festival in China.

    Base prices of major European refiners Johnson Matthey of the UK and Engelhard Materials Services (BASF) of Germany jumped to $52/oz and $50/oz, respectively, the morning of April 5 from $47 the previous evening.

    JM ended the week at $52/oz, while Engelhard closed the week at $55. Both refiners finished last week at $45/oz.

    One European dealer who put this week's range at $55-$72/oz said he had been able to make multiple sales in Asia as prices were rising.

    "I was talking to my Chinese colleagues who are in the market all the time, and they were saying that in the Asian market, $80/oz isn't far off," he said.

    One US dealer said industrial consumers may have been lulled into a sense of complacency as ruthenium prices stayed low for so long.

    "This is a market that was dead for two years, and a lot of the industrials were playing a waiting game," one US physical dealer said, putting the range at $50-$68/oz.

    "They were working down inventory, and maybe now we've hit an inflexion point where inventories got so low, people started hoarding and the prices started gaining momentum, and that created a $18/oz spread for the week," he said.

    Some PGM miners in South Africa claimed to be sold out of ruthenium for a couple of months, the dealer noted.

    "Once people started catching wind of that, along with consistent bidding from Asian industrials and a couple of traders hoarding and lifting offers, that increased confusion," he said.

    "So it doesn't surprise me that we have a really wide range this week, because that's exactly what's been going on."

    Ruthenium is used in computer hard-disk sensors, and in electrical contacts and film chip resistors. But speculation has risen that a new application has surfaced.

    A scientific paper released in February suggested ruthenium could be used as a chemical catalyst, similar to platinum, palladium and rhodium.

    But market sources have noted that higher ruthenium prices would make such an application impractical on widespread scale.

    http://www.platts.com/latest-news/metals/washington/ruthenium-prices-hit-25-year-high-on-asian-industrial-21396057
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    Base Metals

    Weiqiao plants

    Weiqiao plants

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    Mining suspended in cyclone-hit New Caledonia as people seek shelter


    Cyclonic winds and heavy rain buffeted New Caledonia on Monday, prompting residents of the French South Pacific territory to seek shelter and halt mining of nickel, its most important export.

    Cyclone Cook hit the main island at almost the same time as high tide, packing winds of up to 200 kph (124 mph), bringing down coconut trees to block roads and forcing residents to seek shelter indoors.

    "Right now we are in the eye of the storm, it is calm, but before the wind was strong and the rain was heavy," David Sigal told Reuters as he sheltered in the town hall of Poindimie, about 50 km (31 miles) north of where the storm hit land.

    Floods, and waves as tall as 10 meters (33 feet), were also forecast by weather authorities.

    "The threat to New Caledonia is very serious," the meteorological service said in a cyclone alert.

    The storm hit land late on Monday afternoon as a Category Three storm, said Virgil Cavarero, a forecaster at Meteo New Caledonia, below the destructive Category 4 predicted earlier, which would have been a level off the most dangerous wind speed.

    Authorities widened their cyclone alert on Monday, however, warning residents nearly everywhere in the archipelago to seek shelter before evening.

    Nickel group Societe Le Nickel, a subsidiary of French conglomerate Eramet, has suspended mining at its five locations in New Caledonia, though smelting operations continue at a reduced level in the capital, Noumea, the firm said in a statement emailed to Reuters.

    New Caledonia is one of the world’s largest sources of nickel, and mining and metals processing plays a major role in its economy. Its two other main nickel producers, Glencore Plc and Vale, were not immediately available for comment, however.

    Cyclone Cook, tracking southward, is predicted to pass within 50 km (31 miles) of Noumea during the night. Strong winds, heavy rain and rain are forecast to batter the 400-km (250 mile) length of the main island and smaller islands nearby.

    As a precautionary measure against the cyclone, none of the roughly 100 guests staying at the packed hotel Le Lagon, in south Noumea, will be allowed to leave in the evening, said manager Emilie Coste.

    After passing through New Caledonia, Cyclone Cook is forecast to gather strength and hit flood-soaked New Zealand, as the threat from recent Cyclone Debbie dissipates.

    http://www.reuters.com/article/pacific-cyclone-idUSL3N1HI1ST
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    Australian bauxite output, exports expected to rise in fiscal 2016-17


    Australia is expected to produce 82.7 million mt of bauxite in fiscal 2016-2017 (July-June), up 1.22% year on year, the Department of Industry, Innovation and Science said Friday.

    From fiscal 2017-2018, growth in Australia's bauxite production is projected to pick up as new projects in the state of Queensland come online, it said.

    The new projects include Metro Mining's Bauxite Hills project (5 million mt/year at full production) in the last quarter of fiscal 2017-2018, and Rio Tinto's Amrun project (23 million mt/year) in the third quarter of fiscal 2018-2019.

    Australia's bauxite production is projected to grow at an average annual rate of 6% for the next three financial years to 98 million mt in fiscal 2019-2020, and remain at the level until fiscal 2021-2022, it added.

    EXPORTS ESTIMATED AT 25 MILLION MT IN 2016-17

    The country's bauxite exports for fiscal 2016-2017 are estimated to rise 19% year on year to 25 million mt due to lower domestic consumption and higher overseas demand, the DIIS said.

    The volume is projected to increase at an average annual rate of 3.4% from fiscal 2017-2018 to 29 million mt in fiscal 2021-2022.

    Despite increased production from the Bauxite Hills and Amrun projects in Queensland, exports are expected to grow at a relatively slow pace in the medium term.

    The DIIS attributed this to higher production in Guinea, the easing of the ban on bauxite exports in Indonesia in January, and the likelihood of lifting the mining ban in Malaysia in the September quarter of 2017. In 2015, Malaysia exported 24 million mt of bauxite to China, replacing Indonesia as the principal supplier.

    The resumption of Malaysian production is likely to increase the supply available to China and put further pressure on Australian exporters, the DIIS said.

    http://www.platts.com/latest-news/metals/sydney/australian-bauxite-output-exports-expected-to-27810486
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    Steel, Iron Ore and Coal

    Coking coal posts record surge to over $300 on supply disruptions


    The market for coking coal took another leap on Monday with the steelmaking raw material surging more than 6% to $300.30 (Australia free-on-board premium hard coking coal tracked by the Steel Index), a 19-week high.

    Coking coal has doubled in two weeks on the back of  disruption to Australia’s coal exports associated with Cyclone Debbie which caused serious damage to  key rail lines serving mines in the state of Queensland.

    Three lines are set to re-open by the end of the week according to operator Aurizon but large sections of the Goonyella railroad in the centre of the network could be out for a further four weeks.

    Roughly 12–13 million tonnes of Australian met coal cargoes destined for China, India and Japan could be delayed according to a Mining Weekly report.

    The global met coal market is around 300 million tonnes per year with premium hard coking coal or PHCC constituting more than a third of the total market. More than half of PHCC seaborne coal come from Australian producers according to TSI data.

    A reduction in allowable work days at China's coal mines last year sparked a massive rally in coal prices, lifting met coal prices to multi-year high of $308.80 per tonne by November from $75 a tonne earlier in 2016.

    But the speculative rally fizzled soon fizzled out with the commodity hitting a 2017 low of $150.10 a tonne last month.  The record spot price for met coal was set in 2011, also after flooding in Australia.

    http://www.mining.com/coking-coal-price-soars-past-300/
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    Anglo American to sell Eskom-tied coal operations in South Africa


    Miner Anglo American said on Monday it would sell its Eskom-tied domestic thermal coal operations in South Africa to a unit of Seriti Resources Holdings for 2.3 billion rand ($166.43 million).

    The thermal coal operations that mainly supply coal to Eskom consist of the New Vaal, New Denmark and Kriel collieries, as well as four closed collieries , Anglo American said.

    http://www.reuters.com/article/anglo-american-divestiture-safrica-idUSL8N1HI0OR
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    China's coal imports from Newcastle terminals surge in March


    Australian coal exports from the Port Waratah Coal Services (PWCS) terminals (Carrington and Kooragang) at Newcastle to China increased 31.98% from February and up 21.84% from a year ago to 1.14 million tonnes in March, PWCS said in the latest performance report.

    The coal terminals exported a total 9.34 million tonnes of coal in March, increasing 22.24% from February but down 0.46% from a year earlier.

    Of the total shipments in March, 84% or 7.84 million tonnes were thermal coal, up 23.7% month on month but down 1.63% year on year; 16% or 1.49 million tonnes were coking coal, up 15.05% on the month and 6.17% on the year, PWCS said.

    Of this, 4.87 million tonnes of coal were shipped to Japan, rising 12.53% from February and up 16.24 from a year ago.

    Exports to Taiwan surged 97.04% month on month but slid 2.09% year on year to 1.24 million tonnes in March, data showed.

    South Korea received 981,400 tonnes of coal in March, gaining 14.9% from the month before but down 21.58% year on year.

    Over January-March, PWCS exported a total 25.88 million tonnes of coal, down 2.46% from the previous year, the operator said.

    By end-March, the PWCS terminals had 9 vessels waiting to load coal, four less than the start of the month.

    Coal stockpiles at these two terminals stood at 1.94 million tonnes at the end of March, up 67.2% from February, of which 1.69 million tonnes were at Kooragang and 257,500 tonnes were at Carrington.

    http://www.sxcoal.com/news/4554511/info/en

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    China steel outlook drags on raw materials futures


    Concerns that China is producing too much steel put pressure on industrial raw materials markets on Monday, with key futures indicators, iron ore, coke and rebar all trading lower.

    "We saw steel output up 6 percent in January and February already, and the expectation is that demand will not be able to absorb all that," Commonwealth Bank of Australia analyst Vivek Dhar said.

    "There is simply too much steel out there, we're seeing iron ore fall as a result of that," Dhar said.

    The most-active rebar on the Shanghai Futures Exchange was down 1.47 percent at 3,013 yuan ($436) a tonne by midday.

    Rebar's retreat swept iron ore lower, with the contract for September delivery on the Dalian Commodity Exchange down 2.7 percent to 520 yuan a tonne.

    Stocks of imported iron ore at China's port stood at 131.2 million tonnes as of Friday, according to SteelHome. SH-TOT-IRONINV That is more than one-tenth of China's estimated imports of iron ore this year, according to Australia's Department of Industry, Innovation and Science.

    "The market sees china needing less iron ore. This combined with increasing domestic production is putting pressure on the price," Dhar said.

    Dalian coking coal was also weaker, down 1.8 percent to 1,274 yuan, while coke - made from coking coal - slid 1.5 percent to 1,818 yuan.

    http://in.reuters.com/article/asia-ironore-idINL3N1HI21E
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    Chinese traders ordered to return North Korean coal - source


    China's customs department has issued an official order telling trading companies to return their North Korean coal cargoes, said a trading source at Dandong Chengtai Trade Co., the biggest buyer of coal from the isolated country.

    Following repeated missile tests that drew international criticism, China banned all imports of North Korean coal on Feb. 26, cutting off the country's most important export product.

    The source at Dandong Chengtai said the company had 600,000 tonnes of North Korean coal sitting at various ports, and a total of 2 million tonnes was stranded at various Chinese ports, waiting to be returned.

    The source spoke on condition of anonymity due to the sensitivity of the subject.

    Neither Dandong Chengtai (former Dandong Zhicheng Metallic Material Co., Ltd) nor Chinese authorities were available for official comment.

    Shipping data on Thomson Reuters Eikon, a financial markets information and analytics platform, shows at least half a dozen general cargo vessels have recently taken coal out of China, mostly from the ports of Weihai and Peng Lai, and returned fully laden to North Korea.

    Last month, Reuters reported that Malaysia briefly prevented a North Korean ship carrying coal from China from entering its port in Pengang because of a suspected breach in sanctions. The ship was eventually allowed to unload its 6,300 metric tonnes of anthracite coal.

    http://www.reuters.com/article/china-north-korea-coal-idUSL3N1HI2PB
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    Australia's thermal coal exports to rise 0.7%/year through fiscal 2021-2022


    Australia's thermal coal exports are forecast to grow 0.7%/year through to fiscal 2021-2022 (July-June)on demand from India and the ASEAN towards the end of the period, according to the government's Resources and Energy Quarterly released late Friday.

    Exports totaled 201.3 million mt in fiscal 2015-2016, and are estimated at 202.2 million mt for fiscal 2016-2017. They are forecast to gradually increase to 209.4 million mt by fiscal 2021-2022.

    India's imports of Australian thermal coal are expected to fall from an estimated 166 million mt in calendar 2016 to 161 million mt in 2017, and to 157 million mt in 2019 before rising to 175 million mt by 2022.

    Increased production by state-owned Coal India Ltd. is a reason for the decline in imports, the report said. But that is expected to grow later due to new advanced coal-fired power plants that will require higher calorific material, which isn't available domestically.

    Indonesian exports and Chinese imports, meanwhile, each saw growth in 2016, but are both forecast to fall through to 2022, the report said.

    Indonesia's exports rose in 2016 because previously unprofitable mines due to lower thermal coal prices hiked their output and exports to take advantage of rising prices.

    But, the country's thermal coal exports are forecast to decline at an average rate of 1% per year from 379 million mt in 2016 to 357 million mt in 2022, which would be similar to its 2011 export levels.

    Exports are expected to remain steady over the first half of the outlook period as Indonesia's key customers India and South Korea still use lower calorific content coal.

    China's domestic production cutbacks last year boosted its imports but the move to a less restrictive supply policy is likely to see a decline in imports, the report said.

    China is estimated to have imported 180 million mt of thermal coal in 2016.

    This is forecast to fall to 171 million mt in 2017, 157 million mt in 2018 and 2019, and then recover slightly to 162 million mt by 2022, it added.

    http://www.platts.com/latest-news/coal/sydney/australias-thermal-coal-exports-to-rise-07year-27810513
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    First coking coal train since Cyclone Debbie reaches Queensland port - shipping agent


    The first coal train from Australia's cyclone-hit Bowen Basin reached Gladstone Port on Tuesday with seaborne exports planned to resume this week, a shipping agent told Reuters.

    Just before 8 a.m. local time (2200 GMT) the first coal train arrived at Gladstone port, said John Parks, shipping agent for Aqua Bonanza, the first vessel scheduled to load there.

    "She'll start to load tonight and sail at 8 o'clock on the 14th," he said.

    Track operator Aurizon was not immediately available for comment, but had previously said its line to Gladstone was scheduled to reopen on Monday. Port of Gladstone's operator was not immediately available for comment.

    http://www.reuters.com/article/australia-cyclone-coal-idUSS9N19Y01Q
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    Iron slumps into bear market as Barclays sees further losses


    Iron-ore’s descent into bear-market territory may herald further weakness, with Barclays pinning the blame for the slide on lower steel demand in Chinadriving a shift from mills toward lower-quality ore and raising the prospect of a drop into the $50s.

    Ore with 62% content in Qingdao fell 1% to $74.71 a dry ton on Monday, according to Metal Bulletin, following a 6.8% drop on Friday that pushed the commodity into a bear market from a February peak. Earlier in Asia, futures in Dalian sank to the lowest since November, and those in Singapore traded below $72.

    Iron-ore is in retreat after a procession of negative outlooks, with Barclays among banks saying that gains were unsustainable, along with Australia’s central bank and even some mining companies. There’s concern that curbs in Chinamay hurt steel consumption in the top user, as well as forecasts that a further expansion in mine supplies from Brazil, Australia and China will undermine prices. Steel in China has also sagged.

    “The weakness in prices was driven by a slackening in end-use steel demand,” Barclays analyst Dane Davis told Bloomberg in an email. “When that occurred, steel producers switched to lower-quality iron ores, which were in abundance,” said Davis, who’s been bearish on the outlook for months.

    Miners’ climbed in London even as the SGX AsiaClear contract fell for a third day. BHP Billiton – targeted for an overhaul by Paul Elliott Singer’s Elliott Management Corp– rose 4.6%, while Rio Tinto Group added 1.1%. In Sydney, Fortescue Metals Group pared losses to trade little changed. BHP has cautioned in recent weeks that prices may retrace.

    Axiom Capital Management, a consistent bear on iron-ore, said in a report on Monday that “the timing is ripe” for bets on lower prices, citing prospects for increased mine supplies and tentative signs that record stockpiles at China’s portsmay be starting to be sold off. After peaking at 132.5-million tons on March 24, the holdings have posted the first back-to-back drop since September, according to Shanghai Steelhome E-Commerce Co.

    Australia’s government preceded the latest steep drop with its own warning. “Growing supply, primarily from Australia and Brazil, is expected to steadily outpace demand growth over the rest of 2017,” the Department of Industry, Innovation and Science said in a quarterly report released on Friday. Ore may slump to $55 in the final quarter, it said.

    China has been tightening restrictions on its real-estate market in recent months after prices soared, clouding the outlook for construction steel, including reinforcement bar. Last month, the central bank asked banks in Beijing to scrutinize home loans to newly divorced couples and funding sources for borrowers, adding to other curbs.

    'BEGUN TO TIGHTEN'

    Still, while prices have dropped, they remain well above levels seen 12 months ago. Iron ore surged more than 80% last year -- in a rally that caught out many bears -- as steel production and demand in China proved more resilient that expected.

    “While some may label this a bear market, the reality is that prices are still 33% higher than they were this time last year and well above any levels seen since 2014,” Australia & New Zealand Banking Group said in a note on Monday. “The macro backdrop for iron ore is that after maintaining very loose monetary policy through 2014 and 2015, China has begun to tighten.”

    Iron ore’s losses have also come as investors reassessed the ability of President Donald Trump’s administration to deliver on plans to overhaul US infrastructure. Initial enthusiasm about the drive in the top economy had helped iron ore to gain between November and February.

    Among recent bearish forecasts, Reserve Bank of AustraliaGovernor Philip Lowe said in February commodity prices were going to fall again, including iron ore. Capital Economics said in March there’s some doubt about China’s demand, and predicted a retreat to $45 by year-end.

    Barclays’s Davis told Bloomberg in an interview in January that prices weren’t sustainable given the outlook for a rising supply and plateauing or weaker demand. At the weekend, he said of the recent losses: “Please note, we have been calling for this for a while.”

    http://www.miningweekly.com/article/iron-slumps-into-bear-market-as-barclays-sees-further-losses-2017-04-10
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    New fund to help recast China steel sector


    Four entities signed a framework agreement on April 7 to establish China's first steel industry restructuring fund, China Daily reported.

    The fund, which may be launched in June, will seek to push forward the steel industry's restructuring and upgradation. It is expected to have 40 billion yuan ($5.88 billion) to 80 billion yuan in corpus initially.

    China Baowu Steel Group's Hwabao Investment Co Ltd and US-China Green Fund will hold 25% each, WL Ross & Co 26% and China Merchants Finance Holdings Co Ltd 24%.

    Baowu Steel is China's largest steel-maker and the world's second-largest by crude steel output.

    According to Ma Guoqiang, Baowu Steel's chairman, the fund is tasked to help the Chinese steel industry to eliminate excess capacity, speed up restructuring, raise industry concentration and promote international cooperation.

    Ma Weihua, former president and CEO of China Merchants Bank, is tipped to chair the joint venture that will run the fund.

    "The restructuring of the steel sector will be of great aid to the Chinese economy. It is a great mission containing huge business opportunities. I know the journey to success will be full of obstacles, but along with the four great partners, I will pour all my energy into the new career," Ma said at a media conference.

    "Each of the four partners is irreplaceable. Each will play a unique role by combining both domestic and international resources," said Zhou Zhuping, chairman of Hwabao Investment Co Ltd.

    According to Zhou, the industrial concentration rate of China is much lower than that of South Korea, Japan and Russia. China's steel industry cut its capacity by 65 million tonnes last year, and needs to cut 50 million tonnes more this year.

    Last October, a report by the Ministry of Industry and Information Technology outlined the steel industry's restructuring and upgrading tasks for the next five years.

    It requires steel-makers to cut their crude steel capacity by 100 million tonnes to 150 million tonnes.

    According to the MIIT plan, during the 13th Five-Year Plan period (2016-20), the country's top 10 steel enterprises should raise their output from 34% of the nation's total to 60%.

    Later in December, the Central Economic Work Conference called for mergers and restructuring across the steel industry.

    http://www.sxcoal.com/news/4554516/info/en
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