Mark Latham Commodity Equity Intelligence Service

Monday 27th February 2017
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    China steps up air pollution inspections

    China's environmental inspectors named and shamed more cities for poor air quality control as the fight against smog continues, Xinhua reported.

    Inspections of 18 cities in north China's Beijing-Tianjin-Hebei region and nearby areas used unannounced checks at night and undercover methods, the Ministry of Environmental Protection (MEP) said.

    Handan city of Hebei Province continues to illegally operate coal-fired boilers though officials had ordered them closed. After the inspections, the boilers were dismantled.

    A cement producer in Beijing used more electricity than usual in December, when it should have suspended production. Two other cement firms were wrongly exempted from production suspensions.

    The MEP criticized several cities in Hebei, Shanxi and Henan for not doing enough in curbing the use of "scattered coal" -- coal burned by households or small factories for heating and is much dirtier than that used by thermal plants, which have the equipment to reduce emissions.

    China is intensifying efforts to fight pollution and environmental degradation after decades of growth left the country saddled with problems such as smog and contaminated soil.
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    China group to curb private bond sales by developers, steelmakers

    China's securities industry association plans to revise rules on private bond sales to restrict issuance of them by property developers, steelmakers and coal producers, two sources with direct knowledge of the plan told Reuters on Friday.

    Under the revised rules, getting drafted by the Securities Association of China, property developers who speculate on land prices, hoard land or properties, or drive up home prices will be banned from issuing bonds via private placement, the sources said.

    In addition, steelmakers and coal producers who defy Beijing's reform measures to cut excessive capacity will also be barred from selling bonds, according to sources, who declined to be identified.

    China has been pushing what it calls "supply-side" reforms, urging companies in sectors such as steel, coal and real estate to slash overcapacity and improve quality.
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    German construction sector achieves strongest revenues since 2000

    The German construction sector achieved its highest revenues since 2000 last year and new orders were at their strongest level since 1996, data showed on Friday, in a further sign of the strength of this sector of Europe's largest economy.

    Low interest rates, a strong labour market and a lack of other lucrative investments have created a construction boom, especially in home building, in recent years.

    Revenues for firms with at least 20 employees rose by 7.4 percent to almost 72 billion euros ($76.27 billion), the sixth consecutive increase, data from the Federal Statistics Office showed.

    Construction industry associations expect sales to rise by 5 percent this year to hit the highest level since 1995.

    In 2016 construction firms received 67.8 billion euros' worth of orders - 14.6 percent more orders in nominal terms than in the previous year and the strongest level in 20 years.

    Data published on Thursday showed rising construction helped the German economy quadruple its growth rate to 0.4 percent in the fourth quarter of 2016.

    The Bundesbank has said it expects the German economy to remain on a strong footing in the coming months thanks to high industrial and construction activity.
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    Bitcoin hits record high above $1,200 on talk of ETF approval

    Digital currency bitcoin jumped to a record high above $1,200 on Friday, as investors speculated the first bitcoin exchange-traded fund (ETF) to be issued in the United States is set to receive regulatory approval.

    Traditional financial players have largely shunned the web-based "crytpocurrency," viewing it as too volatile, complicated and risky, and doubting its inherent value.

    But bitcoin, invented in 2008, performed better than any other currency in every year since 2010 apart from 2014, when it was the worst-performing currency, and has added almost a quarter to its value so far this year.

    It soared to as high as $1,200 per bitcoin in early Asian trading on Europe's Bitstamp exchange, before easing to about $1,190.

    That put the total value of all bitcoins in circulation — or the digital currency's "market cap", as it is known — at close to $20 billion, around the same size as Iceland's economy.

    Some analysts say regulatory approval of a bitcoin ETF would make the currency relatively attractive to the often more cautious institutional investor market.

    But despite potentially high returns, low correlations with other currencies and assets, falling volatility and increasing liquidity, there is scant evidence so far that most major players are considering investing in the digital currency.

    "Bitcoin is just not liquid enough for us to even think about," said Paul Lambert, fund manager and head of currency investment at Insight, in London.

    "We manage billions and billions of dollars we'd need to be able to go into that market and trade in hundreds of millions of dollars at a time, and my sense is it's not like that."

    Three ETFs that track the value of bitcoin have been filed with the U.S. Securities and Exchange Commission for approval.

    The Securities and Exchange Commission will decide by March 11 whether to approve one filed almost four years ago by investors Cameron and Tyler Winklevoss. If approved, it would be the first bitcoin ETF issued and regulated by a U.S. entity.
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    Aggressive cuts to Obama-era green rules to start soon: EPA head

    U.S. President Donald Trump's administration will begin rolling back Obama-era environmental regulations in an "aggressive way" as soon as next week, the head of the Environmental Protection Agency said on Saturday - adding he understood why some Americans want to see his agency eliminated completely.

    "I think there are some regulations that in the near-term need to be rolled back in a very aggressive way. And I think maybe next week you may be hearing about some of those," EPA Administrator Scott Pruitt told the Conservative Political Action summit in Washington DC.

    Pruitt added the EPA's focus on combating climate change under former President Barack Obama had cost jobs and prevented economic growth, leading many Americans to want to see the EPA eliminated completely.

    "I think its justified," he said. "I think people across this country look at the EPA much like they look at the IRS. I hope to be able to change that."

    Pruitt was confirmed as EPA head last week. His appointment triggered an uproar among Democratic lawmakers and environmental advocates worried that he will gut the agency and re-open the doors to heavy industrial pollution. He sued the EPA more than a dozen times as his states' top attorney and has repeatedly cast doubt on the science of climate change.

    But his rise to the head of the EPA has also cheered many Republicans and business interests that expect him to cut back red tape they believe has hampered the economy.

    Scott Pruitt, administrator of the Environmental Protection Agency (EPA), speaks to employees of the Agency in Washington, U.S., February 21, 2017. REUTERS/Joshua Roberts

    Trump campaigned on a promise to slash regulation to revive the oil and gas drilling and coal mining industries.


    Pruitt mentioned three rules ushered in by Obama that could meet the chopping block early on: the Waters of the U.S. rule outlining waterways that have federal protections; the Clean Power Plan requiring states to cut carbon emissions; and the U.S. Methane rule limiting emissions from oil and gas installations on federal land.

    A Trump official told Reuters late Friday that the president was expected to sign a measure as early as Tuesday aimed at rescinding the Waters of the U.S. rule.

    Pruitt said in his comments to the CPAC summit that rule had "made puddles and dry creek beds across this country subject to the jurisdiction of Washington DC. That's going to change."

    He also suggested longer-term structural changes were in store at the EPA.

    "Long-term, asking the question on how that agency partners with the states and how that affects the budget and how it effects the structure is something to work on very diligently," Pruitt said.

    Like Trump, he said cutting regulation could be done in a way that does not harm water or air quality.

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    Oil and Gas

    Total OPEC crude oil loading's so far in February

    Total OPEC crude oil loading's so far in February are above October's level, with Libya and Nigeria rebounding, non-compliance from others.

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    Bizarre Oil Flows a New Menace for OPEC in Its Prized Market

    West Canadian Select is among rare oil cargoes coming to Asia
    Rising Mideast crude costs have made rival supply attractive

    OPEC pumped at will the past two years to defend its turf against rivals. Its recent volte-face has left it contending with additional threats in the world’s biggest oil market.

    Crude that’s rarely or never-before seen coming to Asia is now sailing from all over the globe to the region, with the door to the market seemingly held open by its traditional suppliers from the Middle East. Would a South Korean buyer like a taste of Russian Urals oil it hasn’t touched in a decade? Sure. What about some West Canadian Select for China? Yes, please. Brazilian Lula with some American shale to the trading hub of Singapore? Of course.

    These and several other unusual shipments signal the price the Organization of Petroleum Exporting Countries is paying to reach its goal of eroding a glut that caused the worst price crash in a generation. While Goldman Sachs Group Inc. sees the group succeeding in shrinking inventories, OPEC’s top members aren’t relaxing. As their output curbs have made Middle East crudes costlier and rival supply attractive, they are attempting to play defense by shielding their most prized customers from the reductions.

    “Asian refiners have the choice to buy crudes from North America, the North Sea, the Caspian as well as North and West Africa,” said Ehsan Ul-Haq, an analyst at KBC Advanced Technologies. “Refiners will certainly look at arbitrage economics but with all key benchmarks showing a narrow spread with each other, there are numerous possibilities to meet their requirements.”

    Saudi Arabia, the world’s biggest crude exporter and OPEC’s top producer, agreed to supply buyers in Asia all the oil they asked for March. Iraq and Kuwait did too. This was after nations such as Japan and South Korea were largely spared from cuts in the previous two months as well. The burden of output reductions is primarily being borne by other regions such as Europe and the Americas.

    “So far, the market share lost in Asia by OPEC Middle Eastern producers is still modest, but this is a key market for them,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. “So there will be limits as to how much they will give up.”

    Arbitrage Cargoes

    The latest strategy for defending their share of the Asian oil market isn’t without chinks in the armor. With most of the output cuts coming from Middle East producers, some buyers have been tempted to purchase rival supply they’ve shunned previously as European, African and American benchmarks have weakened against the Dubai marker. These include Canada’s Hibernia as well as Southern Green Canyon from the U.S.

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    “Right now, these very-long haul arbitrages are opportunistic plays on freight and benchmark crude differentials to replace barrels lost to OPEC production restraint,” Tchilinguirian said. “They cannot be viewed as regular feature of the market. Do not forget, Asian customers place a high value on the security of supply, and the longer the voyage the more delay risks in the timely arrival of barrels to the refinery.”

    Stronger Dubai

    During the previous OPEC strategy of boosting production, the flow of rival shipments to Asia was hindered because Middle East crude costs weren’t high enough to make a large number of buyers turn elsewhere. But that tactic also meant global oil prices were mired in a downturn that was eating into the revenue of nations such as Saudi Arabia and Kuwait.

    OPEC and 11 other nations’ agreement to trim output took effect on Jan. 1, with an aim to reduce output by about 1.8 million barrels a day during the first six months of 2017. The group has achieved a record 90 percent initial compliance with the accord, according to the Paris-based International Energy Agency.

    Speculation that the producers’ actions will curb a glut has generally lifted oil prices worldwide, with crude trading higher than $50 a barrel this year.

    Still, some crudes have been boosted more than others. The premium of Brent, the benchmark for more than half the world’s oil, against Middle East marker Dubai crude was at $1.58 a barrel on Thursday, after shrinking to the smallest since September 2015 last month. U.S. West Texas Intermediate fell below Dubai in December for the first time since at least May.

    “OPEC’s moves on production cuts will keep Brent-Dubai in a narrow range in the short term and we will continue to see such bizarre trade flows,” said Sri Paravaikkarasu, head of East of Suez oil at industry consultant FGE in Singapore.

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    Funds prepare $2 billion oil market play as supply tightens

    Passive investment funds are poised to shift an estimated $2 billion from far-term to near-term crude futures over the next week, anticipating an energy market rally as a historic OPEC output cut slashes supply.

    The switch may foreshadow the end of a global oil glut that built up during a two-year price war.

    On Friday - for the first time in six years - a rule in one of the most popular commodity market indices was triggered, requiring funds tracking the index to sell Brent crude futures contracts for December LCOZ7 and to buy contracts for June LCOM7.

    The S&P GSCI Enhanced Commodity Index rule aims to ensure that investors are positioned to cash in when oil market fundamentals change - in this case, when supply becomes so tight that the current price of oil becomes higher than the price of oil for delivery many months or years into the future. That structure is called backwardation.

    When markets are oversupplied, the opposite is true: It is cheaper to buy crude now than to buy it for delivery later. That structure is called contango.

    An S&P bulletin late Friday confirmed the rule had been triggered for Brent contracts. It stipulates that the funds must bring their money forward if the second and third month contract settles at a difference of less than 0.5 percent on the third to the last day of any given trading month.

    On Friday, the Brent May contract LCOK7 price settled at $56.31 a barrel, while the June LCOM7 price settled at $56.55 a barrel. That would make the difference about 0.4 percent.

    The threshold was not breached for West Texas Intermediate crude.

    Investors will need to start the shift on March 1 and complete it over the next five business days, moving 20 percent of their money each day. Two traders with knowledge of the indices told Reuters that they estimated that rule impacts between 35,000 and 45,000 Brent contracts.

    Each contract represents 1,000 barrels. So if those predictions prove true, about 40 million barrels - worth about $2 billion - will change hands.

    "This is just another reason to be very bullish" about oil prices, said one trader involved with the deals, who spoke on condition of anonymity.


    When the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed in November to cut output, they wanted to stem a flood of supply that had left the contango so deep that traders found it profitable to buy crude and store it for sale later.

    That dynamic pushed worldwide inventories to record levels and helped drive oil prices to multi-year lows.

    OPEC's output cut, however, has tightened supply and narrowed contango, prompting traders from the United States to Asia to start selling oil from more expensive storage facilities because the contango is no longer enough for them to make a profit by holding oil.

    If contango narrows further, tens of millions more barrels could flood out of storage.

    That could put downward pressure on prices in the short term, but the move to unleash stored oil is viewed by analysts as a first step toward rebalancing global markets after a period of oversupply.

    The fast flow of capital into front-month contracts will make it uneconomical for traders to store physical barrels, said Michael Tran, director of energy strategy at RBC Capital Markets.

    "The unintended consequence" of the trading shift, he added, "is helping OPEC in its objective to draw barrels from storage."

    It's not clear exactly how much money is managed by firms that benchmark off the indices, but exchange-traded funds linked to them, such as the iShares S&P GSCI Commodity-Indexed Trust (GSG), have more than $1.1 billion in assets, according to ETF Securities LLC.


    Since the OPEC output cut, the spread between the front month and second month Brent contracts LCOc1-LCOc2 has tightened to as little as 5 cents from 79 cents. June and December contracts LCOM7-Z7 traded near parity on Friday.

    To make money by holding crude, the spread between oil prices for future months needs to be wide enough to cover the cost of leasing tank space and borrowing the money to buy the fuel to fill it.

    For the last two years, U.S. traders have rushed to that opportunity as those price spreads widened. Now, they may be forced to rush out of it.

    "When there's a shortage, there's no value to storage. So, there's a premium put on having the oil right now," said Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices. "That's where you want to be sitting up front in the near contract."

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    Chevron starts work on Gorgon second development phase

    US-based energy giant Chevron said work has begun on further development at the Gorgon LNG project on Barrow Island offshore Western Australia.

    “Future development phases at the Chevron-operated Gorgon project have always been anticipated to maintain gas supply,” Chevron spokesman told LNG World News in an emailed statement.

    The work will initially include additional wells and subsea infrastructure at the Gorgon and Jansz-Io fields.

    “Front-end engineering design activities have commenced,” on the Gorgon stage two development with the aim to provide certainty for when the project partners consider a final investment decision.

    The statement further adds that Chevron’s priority remains on the completion and operation of the Gorgon foundation project.

    It is also worth mentioning that the company recently secured the right to explore an area off the Western Australian coast for the next six years in a gas-rich part of the Northern Carnarvon Basin very close to the Gorgon gas project.

    At the end of January, Chevron said the construction on Gorgon LNG Train 3 was completed and the company is currently commissioning the last unit and expects first LNG early in the second quarter of this year.

    Once in full production, the three-train plant on Barrow Island is expected to have a capacity of 15.6 million mt/year.

    The Gorgon LNG project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
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    Fosmax LNG mulls small-scale loading service

    Fosmax LNG issued a call for expressions of interest for small-scale LNG services at its Fos Cavaou LNG terminal on the Mediterranean coast, 50 km west of Marseille.

    In the Mediterranean, there are notable growth opportunities for developing LNG as a maritime fuel, LNG terminal operator Fosmax, a unit of Engie’s Elengy, said, adding that this is a result of regulations and increased environmental concern.

    The company is considering making a short/medium-term investment to modify its existing facilities and to be able to load the majority of existing or planned small-scale LNG vessels at the Fos Cavaou LNG terminal.

    Currently, the Fos Cavaou LNG terminal can receive vessels with a minimum capacity of 15,000-cbm of liquefied natural gas, however, small-scale vessels that are currently in operation or under construction have a capacity between 5,000-cbm and 7,500-cbm.

    Prior to sanctioning the investment, Fosmax LNG launched a call for expressions of interest to the market to discuss the technical side of the project with interested parties and to ascertain the needs and expectations relating to the small scale LNG vessel loading service.

    “Depending on the results of this call for expressions of interest, Fosmax LNG may initiate a binding reservation phase by mid-2017 if necessary and contemplate making the aforementioned investments,” Fosmax LNG said.

    Under the scope of planned modifications, Fosmax LNG would adjust the loading/unloading arm work envelope, modify the configuration of the mooring hooks at the terminal’s jetty as well as change how vessels are accessed. In addition, the company intends to build in redundancy for equipment mobilized for vessel loading operations.

    Fosmax LNG further added that the service will allow one slot per week and plans to have up to 50 slots per year.

    The small-scale LNG vessel loading service is scheduled to start commercial operation at the Fos Cavaou terminal in early 2019.

    The company is added that expressions of interest can be submitted until March 30, 2017.
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    ExxonMobil enters FLNG game

    Norway’s Sevan Marine has entered into a long term framework agreement with ExxonMobil for the provision of services and use of Sevan Marine’s cylindrical hull technology.

    Sevan Marine has worked with ExxonMobil since 2015, when the company was awarded a feasibility study to explore the use of Sevan Marine’s cylindrical hull for an FLNG development.

    Sevan Marine is currently working on a follow up study focusing on the hull and marine aspects of Sevan Marine’s cylindrical design. The total value of the framework agreement is subject to the calling off of individual orders.

    The Norwegian company said it expects the first order for this agreement, involving the continuation of engineering and FLNG design work, to be called off later in February.

    “We are delighted to have secured this long term frame agreement with ExxonMobil. It is a further milestone in the development of Sevan Marine, its cylindrical hull design and its engineering capabilities. We look forward to continuing to support ExxonMobil in the years to come,” says Reese McNeel, CEO of Sevan Marine ASA.

    He continues:”Sevan Marine has received substantially increased interest in its unique design from several oil companies over the last months and the company believes this is a reflection of a changing market place, increased willingness of large oil companies to consider different technologies and Sevan Marine’s own business development efforts.”

    Classification body ABS in 2014 granted approval in principle (AIP) for the Sevan cylindrical floating LNG (FLNG) production unit concept for offshore production, storage and transfer of LNG, LPG and condensate.

    Sevan’s FLNG concept is based on the existing circular and geostationary Sevan FPSO design, which is being used in the Norwegian Sea, Central UK North Sea, Barents sea and offshore Brazil.
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    Chevron suspends production at Gorgon Train Two

    Chevron has temporarily suspended production of LNG at its Gorgon Train Two production line in Australia.

    "Train Two production has been temporarily suspended to undertake minor maintenance," commented a spokesman.

    The Gorgon project continues to load LNG cargoes as production at Train One continues.

    "Train Three construction is complete and we are well into start-up and commissioning activities," Chevron said.
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    Algeria's Sonatrach in talks to begin offshore drilling - source

    Algeria's Sonatrach wants to start offshore oil drilling and has begun discussions with U.S. operators Exxon Mobil Corp and Anadarko as well as Italy's Eni, a source at the state energy company told Reuters on Sunday.

    The North African OPEC member nation has struggled to attract oil investment in recent years because of tough terms that have made foreign companies wary.

    Sonatrach last year began a more flexible approach to bilateral talks with foreign partners.

    Low oil prices have also pressured Sonatrach, prompting it to focus on developing production at more mature fields in the southern Sahara and bringing online delayed gas projects. Offshore drilling could offer another area for growth.

    "Seismic operations carried out by Sonatrach have shown an interesting potential in the areas including Bejaia and Oran," said the source, who asked not to be identified. Bejaia is an eastern port and Oran is a port city in western Algeria.

    Algeria needs the know-how and expertise of major international firms to launch offshore drilling, the source said.

    "Foreign partners, including Anadarko, Exxon Mobil and Eni were invited by Sonatrach to provide technical assistance given the experience they acquired in the Gulf of Mexico and deep water in Mozambique," the Sonatrach source said.

    "The offshore is complementary to our operations in the south. It will also contribute to boosting our output," the source said.

    The source did not give any information on the timing or scale of any offshore projects.

    Such details, including when the drilling will start, are expected to be announced soon by Sonatrach's leadership, the source said.

    Algeria's earnings from oil and gas fell to $27.5 billion in 2016 from $35.7 billion in 2015 and more than $60 billion in 2014.

    Algeria's oil output was previously estimated at 1.1 million barrels per day (bpd) but it has cut production by 50,000 bpd under an agreement between OPEC and non-OPEC producers aimed at raising crude prices.
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    Petrobras settles four more lawsuits with investors in the U.S

    Petrobras settles four more lawsuits with investors in the U.S

    Brazil's state-run oil company Petróleo Brasileiro SA, or Petrobras, said on Friday its board has approved settlements with investors in four more lawsuits in a U.S. federal court in New York.

    In a securities filing, Petrobras said the new settlements would raise total provisions for the lawsuits to $372 million in the fourth quarter, $8 million above the quarter ended in September. The company is settling with New York City Employees Retirement System, Transamerica Income Shares, Internationale Kapitalanlagegesellschaft mbH and Lord Abbett Investment Trust.
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    U.S. drillers add oil rigs for sixth week in a row: Baker Hughes

    U.S. drillers added oil rigs for a sixth consecutive week, extending a nine-month recovery as shale producers ramp up spending to take advantage of a recovery in oil prices.

    Drillers added five oil rigs in the week to Feb. 24, bringing the total count up to 602, the most rigs since October 2015, energy services firm Baker Hughes Inc said on Friday.

    During the same week a year ago, there were 400 active oil rigs.

    Since crude prices first topped $50 a barrel in May after recovering from 13-year lows last February, drillers have added a total of 286 oil rigs in 35 of the past 39 weeks, the biggest recovery in rigs since a global oil glut crushed the market over two years starting in mid 2014.

    The oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May as U.S. crude collapsed from over $107 a barrel in June 2014 to near $26 in February 2016.

    On Friday, U.S. crude futures were up about 1 percent on the week but lower on the day at around $54 a barrel on Friday, amid the market's concerns over whether a surge in U.S. production will dampen efforts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers to drain a global oil glut. [O/R]

    Production increases in the United States, predominantly from onshore shale plays, could potentially limit further increases in oil prices during 2017/18.

    Futures for the balance of 2017 were trading around $54.75 a barrel, while calendar 2018 was fetching less than $54.40.

    U.S. producers have signaled higher capital spending and further production growth, perhaps beyond what many analysts expect, Citi Research said in an investor note this week.

    "The global crude stock draws expected would be partially offset by the out-performance of U.S. production, which might upset calculations of core OPEC countries in lifting prices," Citi said.
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    Cabot Oil & Gas Corporation Announces Fourth Quarter and Full-Year 2016 Results,

    Cabot Oil & Gas Corporation today reported financial and operating results for the fourth quarter and full-year ended December 31, 2016.


    Equivalent production growth of four percent year-over-year
    Proved reserves growth of five percent year-over-year including proved developed reserves growth of 16 percent
    Total company all-sources finding and development costs of $0.37 per thousand cubic feet equivalent (Mcfe) and Marcellus-only all-sources finding and development costs of $0.26 per thousand cubic feet (Mcf)
    Generated positive free cash flow (cash flow from operating activities less capital expenditures) for the full-year
    Improved operating expenses per unit by eight percent and cash operating expenses per unit by 11 percent year-over-year
    Reduced outstanding debt by $497 million and ended the year with approximately $2.2 billion of liquidity
    Increased Marcellus estimated ultimate recovery (EUR) per 1,000 feet of lateral to 4.4 billion cubic feet (Bcf)

    “Our 2016 performance demonstrates Cabot’s ability to deliver strong operational and financial results despite lower commodity prices for the majority of the year,” said Dan O. Dinges, Chairman, President and Chief Executive Officer. “The Company delivered production and reserves growth while spending within operating cash flow during a year in which we realized record-low natural gas prices, highlighting Cabot’s world-class asset base and the consistent execution by our employees.” Dinges added, “Based on our current outlook for 2017, we anticipate another year of production and reserves growth while generating positive free cash flow.”

    Equivalent production was 627.1 billion cubic feet equivalent (Bcfe) in 2016, consisting of 600.4 Bcf of natural gas, 4,013.1 thousand barrels (Mbbls) of crude oil and condensate, and 441.2 Mbbls of natural gas liquids (NGLs).

    Year-End 2016 Proved Reserves

    Cabot reported year-end proved reserves of 8.6 trillion cubic feet equivalent (Tcfe), an increase of five percent over year-end 2015. Specific highlights from the Company’s year-end reserve report include:

    Total company all-sources finding and development costs of $0.37 per Mcfe
    Marcellus-only all-sources finding and development costs of $0.26 per Mcf
    Total company all-sources reserve replacement of 168 percent
    Marcellus-only all-sources reserve replacement of 183 percent

    “Despite our lowest level of capital spending since 2004, Cabot grew proved reserves and proved developed reserves by five percent and 16 percent, respectively, at record-low finding and development costs,” explained Dinges. “We expect a return to double-digit reserve growth in 2017 as the Company increases its capital spending in anticipation of new takeaway capacity out of the Marcellus Shale.”
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    Apache says Alpine High discovery, despite skeptics, has even greater potential

    A vulture soars over an Apache Corporation flare and drilling rig north of the Davis Mountains Friday, Sept. 16, 2016 in Balmorhea, TX. The company recently announced the discovery of an estimated 15 billion ... more

    The Alpine High oil and gas field, touted by Houston-based Apache Corp. as a major find, has greater potential than the company initially reported despite disappointing early production results, CEO John Christmann IV assured shareholders Thursday.

    Apache announced the discovery on the West Texas oil and gas field in September, estimating it holds the equivalent of 15 billion barrels of oil and gas. But production results released earlier this month disappointed analysts and investors, many of whom have been skeptical of Apache's find, because other companies had drilled in the area near Balmorhea without much success.

    In a call with analysts following the release of Apache's fourth-quarter earnings, Christmann attributed the lower-than-expected output to a lack of equipment and pipelines in the remote area, which has limited hydraulic fracturing operations and the amount of oil and gas that can be extracted. But Christmann promised that, with the completion of a pipeline in July, the company's enthusiasm for Alpine High would be justified.

    "We are very pleased with where we are, and the scope and scale of this field has increased since we first disclosed it," Christmann said.

    But some analysts say they remain cautious. It's still too early to know if Apache's expectations for the field will bear out, said Hassan Eltorie, a principal energy analyst for IHS Markit. Eltorie said that Christmann seemed to suggest that there would be more-thorough exploration to come.

    "We never reacted with optimism," Eltorie said of Apache's discovery. "We still reserve judgment, as there is more to be done."

    The discovery of Alpine High was a highlight last year for a company recovering from major losses during the oil downturn. Apache Corp. on Thursday said it narrowed its losses in the fourth quarter, ending a year that was significantly better than 2015.

    The Houston exploration and production company said it aggressively cut costs while meeting production targets, shrinking its loss for the three months ending in December to $182 million from $4 billion in the same period a year earlier.

    For all of 2016, Apache reported a loss of $1.4 billion compared with $10.4 billion in 2015. Revenues in the fourth quarter slipped 2 percent to $1.45 billion from $1.48 billion in the same period in 2015. Annual revenues declined more than 20 percent to $5.4 billion from $6.9 billion in 2015.

    Apache said it earned an average of $47.39 per barrel of oil in the last three months of 2016, compared to $39.79 in the same period a year earlier. Christmann called 2016 "an important step in Apache's transformation."

    "We are poised for excellent long-term, organic growth through 2018 and beyond, which will be driven primarily by our high-quality acreage positions in the Delaware and Midland basins," he said in a statement.

    The majority of Apache's investments in 2017 will focus on the Permian Basin, with $500 million over the next two years going to developing Alpine High, where Apache will have to build the pipelines it will need to transport gas, he said.
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    Core Laboratories is Pushing the Unconventional Decline Curve

    Core Laboratories is introducing technology to boost IRR and EUR for unconventional recovery

    Many conventional technologies have been developed in the pursuit of increasing the overall amount of hydrocarbons that can be produced from any given well.

    Among the most commonly used is Enhanced Oil Recovery (EOR), in which an injection well is used to pump gases like Natural Gas, CO2, Nitrogen or a combination of gases into a reservoir to move crude oil to a producing well. Core has determined that the EOR techniques most effective in unconventional reservoirs will differ greatly from EOR methods used in conventional reservoirs worldwide.  The injection of miscible gases and the application of gas-adsorption techniques developed at in situ reservoir pressures and temperatures have proven far superior to the pressurized physical movement of hydrocarbons using flood fronts typically employed in conventional fields.

    Core Laboratories is looking to change that though with a new technology that allows operators to increase their ultimate recoveries in unconventional plays through EOR. Core Lab has developed cutting-edge laboratory technologies and protocols to evaluate the complex properties of unconventional reservoirs.

    These collaborative efforts have resulted in the deployment of one of the most technologically advanced flow-studies instrumentation with ultra-low volume measurement capabilities at full reservoir pressure and temperature conditions.  An example of the technology recently created by Core Lab scientists is High Frequency Nuclear Magnetic Resonance (NMR).

    “NMR technology started off in the food sciences and medical imaging,” Core Laboratories Vice President of Corporate Development and Investor Relations Gwen Schreffler explained to Oil & Gas 360®. “The food scientists need to differentiate amounts between oil and water in seed products such as a kernel of corn. That was interesting to us because we want to know how much oil and water are in a reservoir.”

    By setting up laboratory conditions that mirror those found in an unconventional reservoir, Core Lab is able to use high-frequency NMR to identify what is believed to be immovable heavy hydrocarbon and lighter hydrocarbon left behind in the reservoir.   Once the hydrocarbons are identified, the appropriate combination of in situ light hydrocarbon gases are determined using proprietary reservoir condition testing.  Cycling of in situ light hydrocarbon gases and the absorption and capture of longer-chained hydrocarbons in unconventional reservoirs are leading to significant improvements in oil-recovery factors.

    On average, unconventional reservoirs currently yield a recovery factor of approximately 9%.  Light hydrocarbon gas cycling and adsorption efficiencies have yielded recoveries greater than the 9% average under laboratory-based, reservoir-condition testing parameters.  Increased recovery factors from unconventional tight-oil reservoirs significantly raises client ROIC, FCF, and the net present value of their producing assets.

    “The average recovery in an unconventional well is approximately 9%, so helping our clients achieve a greater ROIC, FCF and the net present value of their producing asset by using unconventional EOR science to increase their incremental and ultimate recovery rates,” explained Schreffler.

    No one technology will ever be a be-all, end-all solution for improving well results, said Schreffler, but Core remains focused on technologies which increase the incremental and ultimate recovery for its clients, which, Schreffler said, is why Core continues to be the most successful innovative oilfield services technology company.
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    USGC gasoline differentials hover at nearly five-month highs

    Gulf Coast conventional gasoline and CBOB found multimonth highs at midweek and maintained those highs Thursday at the end of a shipping cycle and on the back of a Gulf Coast area refinery outage.

    Gulf Coast sources said Thursday that Chevron's 360,000 Pascagoula, Mississippi, refinery recently took down a fluid catalytic cracking unit for what appeared to be unplanned work. Market talk surrounding the incident was a primary driver behind the strength in gasoline prices at midweek.

    US Energy Information Administration data released Thursday further supported high differentials. Gulf Coast refinery runs fell in the week ended February 17 to 84.2%, the lowest utilization rate in nearly 13 months. Gasoline production and stocks weakened as well, with production reaching a 10-month low of 1.963 million b/d, and stocks seeing an eight-week low of 81.702 million barrels.

    With the end of winter-grade gasoline trade approaching, market sources have pointed to an ongoing selloff of 11.5 RVP barrels in recent weeks. Assessments for summer-grade 9 RVP barrels will begin with Colonial Pipeline's 16th shipping cycle.
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    Alternative Energy

    India's wind power tariffs hit new low in push for renewables

    Indian wind power tariffs fell to a record low in a government-run auction on Friday, weeks after solar power rates too hit an all-time low, as the country looks to cut chronic electricity shortages in one of the world's biggest clean energy programmes.

    India, the world's third-biggest greenhouse gas emitter, has set a target of raising its renewable energy generation to 175 gigawatt by 2022, around five times current usage, to supply power to its 1.3 billion people and fight climate change.

    The government push, personally monitored by Prime Minister Narendra Modi, has prompted companies to bid aggressively for solar and wind projects, pushing tariffs low enough to challenge power generated by fossil fuels such as coal over the long term.

    In an auction conducted by state-controlled Solar Energy Corporation of India (SECI) for various wind projects totalling 1 gigawatt, five companies separately quoted a tariff of 3.46 rupees ($0.0519) per unit to win the projects.

    "After solar cost reduction below 3 rupees/unit, wind power cost down to 3.46 rupees/unit through transparent auction," India's coal, power and renewable energy minister, Piyush Goyal, said in a tweet on Friday.

    Mytrah Energy , part of London-based Mytrah Group, Ostro Kutch Wind, backed by British private equity firm Actis, and Indian company Inox Wind Infrastructure won contracts for 250 megawatts (MW) each.

    Green Infra Wind Energy, majority-owned by Singapore-based Sembcorp Industries Ltd, won a contract for 249.90 MW and Adani Green Energy, part of Indian billionaire Gautam Adani's infrastructure group, was awarded a 50 MW project, according to a senior SECI official and a bid document seen by Reuters.

    "The auctions have been hard fought and have led to tighter pricing than one would have foreseen even a few months earlier," said Vikram Kailas, chief executive of Mytrah Energy.

    The other companies were not immediately available for comment.

    Attached Files
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    Precious Metals

    Sibanye on steriods

    Sibanye on steriods

    Last year was indeed a year of a step change for Sibanye. Macroeconomic conditions that prevailed for the first part of the year, together with the foundation provided by operational improvements, allowed the company to capitalise on the “perfect storm” presented by the surging rand gold price.

    The rand gold price over 2016

    This saw the gold division increasing operating profit by 60% to a record R10.2 billion. This was made possible by a doubling of the margin to 23%, with all-in sustaining costs (AISC) coming in at R450 152 per kilogram, and production remaining stable at 47 034 kilograms, or 1.5 million ounces.

    Costs were well contained at R1 941 per tonne, an increase of 4% year-on-year. Guidance for the year remains unchanged at between 47 000–48 000 kilograms with AISC of R470 000–R480 000 per kilogram. Total capital expenditure for the gold division will come in at R4 billion.

    While appreciative of the hard work and good fortune that came the way of the company during the year, Sibanye CEO Neal Froneman sounded a word of caution to investors thinking the feat may not be repeated this year. “[Expect] radically different earnings out of the gold sector this year,” he told analysts at the results presentation.  

    The balance of the R300 million operating profit was contributed by the still relatively new platinum division to help the company set a new record operating profit of R10.5 billion. Sibanye announced Rustenburg has turned the corner (as Amplats said it had), generating a small profit of R74 million for November and December.

    Listen to Neal Froneman’s plans for the Platinum division and the timing of the rights offer for the Stillwater acquisition here.

    The end result was headline earnings of R2.5 billion, some 269% higher than the previous year. Removing once-off expenses, Sibanye’s normalised earnings per share came to R3.97. A declaration of a final dividend of 60 cents per share (R1.45 over the full year) now places the company on a higher dividend yield (5.1%) than all of its peers. This is partly why Froneman lamented the fact that Sibanye’s share price should be higher (and thus reflective of a lower dividend yield). He has previously attributed the policy uncertainty in South Africa as a major factor contributing to the discount inherent in the share price.
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    Base Metals

    At least three dead, 19 missing as floods hit central Chile

    At least three people are dead and 19 others missing after heavy rains struck Chile over the weekend during the country's usually dry summer months, causing mudslides and water outages in the South American nation, officials said on Sunday.

    The rains, which caused rivers to overflow their banks in mountain valleys near Chile's capital, Santiago, had isolated 373 people, the Onemi emergency service said late on Sunday.

    The drinking-water supply for over a million households in Santiago had been affected, and Aguas Andinas, the company that provides water to the capital, said rains were making repairs difficult.

    "Emergency teams are working on the ground to connect with isolated persons and re-establish the water supply wherever possible," Chilean President Michelle Bachelet wrote on Twitter.

    In the O'Higgins region, south of Santiago, a 12-year-old girl was killed when a landslide swept away the car in which she was traveling.

    In the San Jose de Maipo valley, directly above the city, emergency crews had to clear the roads of debris before residents could evacuate to lower, less mountainous ground.

    It was the second major flooding event to hit central Chile in the past year. Last April, heavy rains battered the San Jose de Maipo valley, killing one and shutting production at some of the largest copper mines in the world.

    Mining giants Antofagasta, state-owned Codelco [COBRE.UL], and Anglo American have sizeable deposits in the zone affected by this weekend's rains.
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    Steel, Iron Ore and Coal

    Mongolian coal miners bet on One Belt, One Road to feed demand

    Coal miners operating in Mongolia are hoping on China's massive 'One Belt, One Road' program to improve access to existing markets in China and Russia and enter new ones as far afield as Eastern Europe, CNBC reported on February 24, citing David Paull, managing director of ASX-listed Aspire Mining Ltd.

    Although Chinese demand for coking coal, or metallurgical coal has recovered, infrastructure restraints in Mongolia, particularly a lack of rail capacity continues to cause 'bottlenecks' and delays in getting product to markets, said Paull on February 21.
    In the longer term, China's efforts to re-invent the Silk Road trading route for the modern era, connecting Asia to the Middle East and Europe will shift the balance.
    "One Belt, One Road and investment in Mongolian rail will provide capacity allowing greater penetration of the Chinese and Russian markets and eventually Eastern Europe," Paull said.
    Despite the longer-term demand of new growth markets, Mongolian-focused miners like Aspire remain cautious.
    "The coking coal market certainly has stabilized," Paull said. "The capital markets were completely closed to us during the commodity price collapse in 2014."
    In the near term, China's ban on North Korean coal imports is boosting demand for Mongolian coking coal, said Thomas Hugger, founder and CEO of Asia Frontier Capital. "Naturally, Mongolia should be the main beneficiary of this."
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    China SOEs cut 34.97 Mtpa coal capacity in 2016

    China's state-owned enterprises cut surplus capacity in coal and steel industries by 34.97 Mtpa and 10.19 Mtpa last year, respectively, a senior official said on February 23.

    In order to improve operational efficiency and enhance the profitability of state assets, China closed 2,730 legal-person companies in SOEs last year, said Xiao Yaqing, director of the State-Owned Assets Supervision and Administration Commission (SASAC).

    The move helped reduce losses by 4.39 billion yuan ($636.2 million) last year, and cut management cost by 4.91 billion yuan, said Xiao.

    China also rectified 398 zombie enterprises and unprofitable enterprises in 2016.  

    Cutting overcapacity is high on the central government's reform agenda as excess capacity in sectors such as steel and coal have weighed on the country's overall economic performance.
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    Shanxi continues to halt coal mining rights approvals and transfers

    North China's coal-rich Shanxi will continue to halt coal mining rights approvals and transfers in 2017 as it seeks to reduce overcapacity in the struggling industry, Xinhua News Agency reported, citing a local official.

    The province will strictly limit increases in newly added coal output, said Xu Dachun, head of the provincial Department of Land and Resources.

    Shanxi, where mining rights approvals and transfers were suspended for the first time in 2016, cut 23.25 Mtpa of coal production capacity last year.

    In addition, Shanxi will further step up mergers and acquisitions of existing mines to form large mining groups. It aims to limit the number of its mines to 900 in 2020, with each having an average production capacity of 1.8 Mtpa, the official said.

    Coal output in Shanxi hit 832 million tonnes in 2016, a decline of 14.7% from the figure in 2015.

    Shanxi accounts for a quarter of China's coal reserves with more than 260 billion tonnes.

    Attached Files
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    Vale intensifies CEO search as Ferreira to quit, sources say

    Vale intensifies CEO search as Ferreira to quit, sources say

    Vale has stepped up the search for a new CEO as Murilo Ferreira announced his departure, signalling efforts by some top shareholders to shield the world's No 1 iron producer from political interference, three people with direct knowledge of the situation said on Friday.

    Earlier in the day, Rio de Janeiro-based Vale said Ferreira will step down as CEO when his term expires on May 26. In a securities filing, Vale did not name a potential replacement for Ferreira or detail how a transition will happen.

    Some of Vale's controlling shareholders lean towards picking one of Ferreira's lieutenants to spearhead Vale's transition into a company with dispersed share ownership, the people said. External candidates with previous experience at Vale are also under consideration, the people added.

    Potential candidates include CFO Luciano Siani; ferrous metals director Peter Poppinga; and Clovis Torres, Ferreira's right hand man and currently Vale's executive VP for human resources.

    Nelson Silva, a former Vale executive who is now chief strategy officer at state-controlled oil firm Petróleo Brasileiro is on the list, the people said. Other outsiders include former Vale executives Jose Carlos Martins and Tito Martins, one of the people added.

    The choice of Vale's top commander is crucial to ensuring the success of a plan that will phase out a 20-year controlling shareholder pact and merge Vale's different classes of stock into a single one.

    During a conference call to discuss the announcement, Ferreira gave no hint about who would succeed him.

    "As far as I am concerned, I have no successor, I haven't been informed who that person will be, and, to be sincere, I have no idea who it might be," Ferreira said.

    Some top shareholders had proposed that Ferreira stay in the job for another year, Reuters had reported in January. The initiative was scrapped by Ferreira, who might have asked to step aside as his age was getting closer to the company's limit, one of the people said.

    "We have a vision that we must have an age limit of 65 years, and that for us is very important," Ferreira said on the call. "The queue has to go on."


    Losses in Vale's preferred shares were wiped out as the list of candidates eased concern that Ferreira's seat may be filled by a government crony. Common shares were sliding 0.9% to 32.39 reais.

    A more dispersed shareholder structure is key to enhancing transparency and stifling interference from politicians, who for years have pressed Vale to invest in noncore projects.

    State pension funds led by Previ Caixa de Previdência , Bradespar, Mitsui & Co and an investment arm of state development lender BNDES are all members of Valepar, the investment holding company that controls Vale. Neither Valenor any of the shareholders had a comment on the situation.

    Vale was partly privatised in 1997, although the government continues to wield influence over it through BNDES's investment arm and the pension funds.

    Still, an unnamed government official familiar with President Michel Temer's thinking said Vale will look for a "top-notch, non-political manager," in a process similar to the recruitment of Pedro Parente as CEO of the oil giantknown as Petrobras.


    Bradespar would agree to a change of leadership outside Vale's current management only if potential picks go through a selection process conducted by an executive recruitment firm, one of the people added.

    That came after media reports earlier this month suggested members of Temer's PMDB party and Senator Aecio Neves of the PSDB party from the mineral-rich Minas Gerais state, where Vale is based, were vying to influence the selection of the new chief executive.

    In the filing, Vale thanked Ferreira for his achievement, listing his efforts to focus on core activities, undertaking the company's biggest investment project ever and reducing debt.

    "With his experience, dedication and respect ... Murilo leaves a legacy for all future generations of executives and employees at Vale," it said.

    Ferreira took the reins at Vale in 2011, in the midst of a high profile political clash between the company and the leftist government of Dilma Rousseff.

    Rousseff pressed for the ouster of Roger Agnelli, Ferreira's predecessor, after accusing Vale of not doing enough, in terms of local investment or job creation, to help Brazil's economy battle the global financial crisis.

    Ferreira tried to steer the company clear of government interference or scandal as Vale battled to complete a new mega mine in the Amazon known as S11D just as iron-oreprices collapsed. That combination led Vale to report a record net loss of $12.13-billion in 2015.

    However, last year, Vale's fortunes improved sharply as the new mine began to ramp up and iron-ore prices rose.

    Had Ferreira stayed, investors would have known that the next two years would have meant continuity of his strategy, said Rodolfo de Angele, a senior analyst with JPMorgan Securities.

    "One comfort investors have is that current shareholders seem to be pretty much aligned with the idea of a company with lower growth rates but with more discipline and sizable dividends," de Angele said.
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    China to facilitate SOEs reforms this year

    China will prioritize and accelerate the restructuring of steel, coal and power businesses in its major state-owned enterprises, in order to improve operational efficiency and enhance the profitability of state assets, the top state-owned assets regulator said on February 22.

    Eager to crack hard nuts such as overcapacity, low commodity prices and financial losses, the State-Owned Assets Supervision and Administration Commission (SASAC) will deepen the reform of SOEs from these three priority sectors via business reshuffles, reorganization and mixed ownership reforms.

    In addition to steel, coal and power, other sectors, including petroleum, gas, railways, telecommunications, civil aviation and military-related industries, will also be given priority to conduct mixed ownership reforms, said Xiao Yaqing, minister of the SASAC.

    The government will invest more in optimizing management and operations to help unprofitable SOEs and reduce the number of "zombie companies" this year, Xiao added.

    "Zombie companies" are economically inviable businesses, usually in industries with severe overcapacity, which only survive due to financing from the government and banks.

    "Affected by lower coal prices and the saturated global steel market, the steel, coal and power sectors are confronted with more overcapacity problems and comparatively accommodate more 'zombie companies'. This is the fundamental reason why these three areas have to be addressed first," said Ding Rijia, a professor at the China University of Mining and Technology in Beijing.

    The central government reorganized 22 central SOEs over the past three years, including China Ocean Shipping (Group) Co and China Shipping Group, CNR Corp and CSR Corp.

    So far, China has set up more than 200 funds worth more than 600 billion yuan ($87.36 billion) to support SOEs and private companies.

    Attached Files
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    American steelmakers ready to supply pipeline projects: US Steel's Longhi

    American steelmakers are prepared to supply the steel pipe needed for domestic pipeline projects, US Steel CEO Mario Longhi said Thursday following a meeting with President Donald Trump at the White House.

    "We've been making pipe in this country since the early stages of the past century in this country and the industry is certainly capable of producing it here," Longhi told CNBC.

    Longhi was among a number of CEOs from US-based companies to participate in a working session and meet with Trump Thursday for a listening session on creating jobs in the manufacturing industry.

    In his first week in office, Trump signed a series of executive memorandums to revive the Keystone XL and Dakota Access pipeline projects and has directed the US Commerce Department to make sure all future pipelines built in the US are constructed out of steel melted and finished in the US. Since the announcement, concerns have been raised that US producers may not have the capabilities to furnish the type of pipe needed on pipeline projects, but when pressed, Longhi said it's a non-issue for US steelmakers.

    "The capability is there for us to make everything that is needed," he said, adding that includes pipes for extraction production and transmission. One of the biggest problems facing US steel producers in recent years, particularly in the pipe and tube markets, has been the high level of imports coming into the US, Longhi said.
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