China's Producer Price Index (PPI), which measures inflation at wholesale level, dropped 4.6% year on year and down 0.1% month on month in March, the National Bureau of Statistics (NBS) said on April 10.
It was the 37th straight year-on-year decline, due to persisting sluggish demand from downstream sectors.
Factory prices of production materials declined 5.9% from the previous year, contributing 4.6 percentage points to the PPI drop, the NBS said.
The price of oil and natural gas mining industry posted a huge decline of 39.3% on year; the price of coal mining and washing industry dropped 13.0% on year and down 1.9% on month. Besides, prices of ferrous and non-ferrous metal industries remained on a losing track, data showed.
The data came along with the release of the Consumer Price Index (CPI), which rose 1.4% year on year but down 0.5% from the month before in March.
China Money Rate in Longest Slide Since 2009 as Funding Cost Cut
China’s benchmark money-market rate was set to drop for a sixth week, the longest run of declines since 2009, as the central bank guided funding costs lower.
The People’s Bank of China cut the yield in its reverse-repurchase operations by 10 basis points this week, the fourth reduction since early March. Consumer prices gained 1.4 percent last month from a year earlier, data from the statistics bureau showed Friday, trailing the government’s 3 percent inflation target this year.
The seven-day repurchase rate, a gauge of interbank funding availability, slid 54 basis points, or 0.54 percentage point, this week to 2.86 percent as of 10:25 a.m. in Shanghai, a weighted average compiled by the National Interbank Funding Center shows. It dropped 16 basis points Friday.
Inflation “remains low, suggesting there’s little change in a tepid economy and weak demand,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shanghai. “It’s still necessary to roll out measures to stabilize growth, and loosen monetary policy.”
The PBOC lowered the interest rate in the seven-day reverse-repo operations to 3.45 percent this week, compared with 3.85 percent in January. The central bank drained a net 15 billion yuan ($2.4 billion) in the last three days, after injecting funds for two consecutive weeks, data compiled by Bloomberg show.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, dropped 16 basis points this week and was steady Friday at 3.09 percent, data compiled by Bloomberg show.
Economic growth is set to slow in some of the world's largest economies, although the eurozone is set for a pick-up, according to leading indicators released on Thursday by the Organisation for Economic Cooperation and Development.
The Paris-based research body said its gauges of future economic activity -- which are based on information available for February -- point to slowdowns in Canada, China, Brazil and Russia.
By contrast, the leading indicators pointed to a return to growth in France and Italy, and a pickup in the eurozone as a whole. For most of the world's other large economies --including the US, Japan and the UK-- the gauges indicated growth will remain at current rates over coming months.
The leading indicators suggest the global economy once again faces a patchy, and therefore relatively weak, recovery in 2015. While in some previous years large developing economies grew rapidly while developed economies floundered, slowdowns in China and elsewhere would leave developed economies at the vanguard in driving global growth, with India the main exception, since the leading indicators continue to point to a pick-up in growth in that economy.
The leading indicators also suggest that a wave of central bank easing in late 2014 and early 2015 has had only a modest impact on global growth prospects. That may have implications for US rate setters, who are counting on a revival in growth in other parts of the world to limit the impact of a stronger US dollar on exports.
The OECD's composite leading indicators are designed to provide early signals of turning points between the expansion and slowdown of economic activity, and are based on a wide variety of data series that have a history of signalling changes in economic activity.
Iranian Supreme Leader Ayatollah Ali Khamenei said on Thursday he neither backed nor rejected an interim accord with six world powers on Tehran's disputed nuclear programme but demanded all sanctions be lifted immediately a final agreement was concluded.
He added in a televised speech that the details of the accord would be decisive, and the publication of a U.S. fact sheet showing terms that were at variance with the Iranian view of the agreement showed "devilish" U.S. intentions.
"I neither support nor oppose it," he said. "Everything is in the details; it may be that the deceptive other side wants to restrict us in the details."
Housing sales in the first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen have surged 51.4 per cent compared to the previous week, according to new data from China Index Academy, a housing price consultancy.
Property transactions in 38 major cities also soared 19.5 per cent over the same period.
The Academy believes the latest surge in housing transactions is due to recent government policy announcements aimed at boosting the housing sector.
The policies include lowering the down payment requirement for second-home buyers as well as for consumers that are looking to upgrade.
As slowing growth fuels labor unrest in the world’s second-largest economy, China’s top leadership is pushing for greater efforts to foster harmony across its increasingly agitated workforce. As the WSJ’s Chun Han Wong reports;
In a recent directive, top Communist Party and government officials called on party cadres and bureaucrats across the country to “make the construction of harmonious labor relations an urgent task,” to ensure “healthy economic development” and to consolidate the party’s “governing status.”
With China “currently in a period of economic and social transition,” labor relations have become “increasingly pluralistic, labor tensions have entered a period of increased prominence and frequency, and the incidence of labor disputes remains high,” the paper said, according to a copy reviewed by The Wall Street Journal. It cited problems including unpaid wages to China’s legions of migrant workers, growing protests and other issues.
Labor scholars say the paper—titled “the Communist Party Central Committee and the State Council’s opinion on the construction of harmonious labor relations”—marks a rare move by Beijing to formally outline policy priorities for tackling worker unrest. It also comes after Premier Li Keqiang pledged in early March, during an annual policy speech, to curb unpaid wages for migrant workers.
“The government is acknowledging the reality of rising worker unrest and wants to make this a bigger priority,” said Wang Jiangsong, a professor at the China Institute of Industrial Relations in Beijing. “But it also lacks specifics on implementation—it remains to be seen how this would work on the ground.”
Devil is in the detail of deal shrinking Iran's nuclear programme
Tehran's nuclear programme will shrink significantly under a framework deal to make Iranian moves towards building an atom bomb virtually impossible for years - but the devil is in the detail.
Iran has agreed with six world powers to curb its nuclear activity in three main areas: the size and grade of its uranium stockpile, the number of centrifuges that enrich uranium, and the maximum fissile purity of the product of these machines.
"The approach outlined will effectively prevent Iran from building a nuclear bomb for an extended period of time," said Robert Einhorn, senior fellow at the U.S.-based Brookings institution.
Still, some details have yet to be determined and the pact will take effect only if a final deal is agreed by June 30, a big "if" which can still scupper an agreement.
Deals to soon yield $8 bln in investments for Mongolia -PM
Mongolia will soon finalise negotiations that will free up $8 billion for expansions at the country's largest coal and copper mines, its prime minister said in a national address on Sunday.
Talks between the government and investors are progressing towards the close of deals on Mongolia's multi-billion dollar Oyu Tolgoi copper mine and Tavan Tolgoi coking coal mine, Prime Minister Chimed Saikhanbileg's said late on Sunday.
Mongolia is desperate for a revival in foreign investment after it fell 74 percent last year amid disputes with foreign investors such as global miner Rio Tinto .
"Now the parties are finalising their respective internal processes and we will soon officially announce results," Saikhanbileg said about the expansion project for the Oyu Tolgoi copper mine, according to an unofficial translation of his televised speech.
A spokesman for Rio Tinto, holder of a 66 percent stake in the copper mine, could not be reached for comment.
Disputes over the rising costs at Oyu Tolgoi and taxes have delayed construction of the second underground phase at the $6.5 billion mine since August 2013.
Rio Tinto must resolve the disputes before banks can release more than $4 billion in financing to fund the expansion.
The government is also in the final stages of forging a deal to hand over management of state-owned Erdenes Tavan Tolgoi coal mine to China's Shenhua Energy, Japan's Sumitomo Corp and Mongolian Mining Corp subsidiary Energy Resources.
Mongolia has asked the partners to spend $4 billion to expand the Tavan Tolgoi mine's capacity.
Both mines are located less than 250 kilometres from the Chinese border.
Mongolia's mineral riches and strategic location drove peak economic growth of 17.5 percent in 2011, but disputes with investors have recently soured investment appetite.
The Asian Development Bank has estimated the average economic growth rate for 2015 and 2016 could slow to as little as 4 percent, without a strong recovery in foreign investment.
Saikhanbileg, who entered office last November to kick-start the economy again, blamed the disputes with mining investors on the political posturing by the country's 76 lawmakers.
Mongolia is also planning to announce a final deal this month for the long awaited Combined Heat and Power Plant 5 project led by GDF Suez, Japan's Sojitz Corp. Korea's POSCO and Mongolia's Newcom Group, he said.
The consortium in 2014 signed an initial 25-year power purchase agreement for the 415 megawatt coal-fired facility.
YPF: Argentina's Vaca Muerta Shale Output Rises To 45,000 Bpd
Argentina's shale oil output from the vast but barely tapped Vaca Muerta formation has increased, but low world oil prices and high drilling costs threaten profitability, the chief executive of state-run YPF said on Thursday.
YPF has said the slump in international oil prices over the last year has had no impact on the company's exploration plans, defying the industry trend of multinational giants announcing multibillion-dollar spending cuts.
The South American country wants to ramp up its exploitation of Vaca Muerta, which lies beneath the windswept plains of Patagonia, to reverse an energy deficit.
Government controls on the economy and high costs, however, have deterred foreign investors.
As the fall in world oil prices has forced energy companies to recalculate their plans, uncertainty has been heightened in Vaca Muerta, where production is in its infancy and engineers are still deciding at what angles to drill in order to optimize output.
"It is still early to talk about the profitability of non- conventional energy. It depends on a lot of factors," YPF Chief Executive Officer Miguel Galuccio told an industry conference in Uruguay.
"It is not profitable with an $11 million well and prices at $50 per barrel. We drilled our vertical wells with the expectation that they would be profitable at $84 per barrel and with wells that cost between $6.5 or $7 million," he added.
Brent crude futures settled at $56.57 per barrel on Thursday, having plummeted from more than $115 per barrel in June.
"The horizontal wells are demonstrating a much more positive range in terms of productivity, but we are talking about wells that have been producing for less than one year," Galuccio said.
"Today the Loma Campana field is producing 44,000-45,000 barrels per day equivalent," Galuccio said.
Halcon Resources Bonds Rise as Franklin Equity Swap Trims Debt
Halcon Resources Corp. bonds rallied by the most in two months after the energy company said the largest publicly disclosed holder of the notes agreed to a debt-for-equity swap.
Two funds headed by Franklin Resources Inc. agreed on Tuesday to exchange $116.5 million in principal of the 9.75 percent bonds maturing in 2020 for 66.5 million shares of Halcon stock, according to a company filing. The notes rose as much as 3.75 cents on the dollar to yield 15.4 percent Thursday in the second-highest daily trade volume ever, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Shares of the exploration and production company have tumbled 76 percent since July amid a commodity slump that’s cut the price of oil to about half of what it was last summer. The exchange, which will reduce the company’s debt, is expected to close this month, and comes after Halcon in March announced a $150 million equity offering.
“With any sort of distressed-debt scenario, you start to see lots of discussions around bondholders exchanging bonds” for other debt or equity, Spencer Cutter, an analyst with Bloomberg Intelligence, said by telephone Thursday. “Maybe Franklin’s got a view on Halcon and their ability to weather this storm. This is an easier way for them to trade out of the debt without impacting the market price for it and buy the equity also.”
The swap will give Franklin the second-largest publicly disclosed stake in Halcon shares, according to data compiled by Bloomberg. The investor is among the largest publicly disclosed holder of bonds for offshore drilling companies including Hercules Offshore to Vantage Drilling, Bloomberg data show.
OPEC's strategy of holding output steady is not working and the group's members should discuss production levels before its next meeting in June, Iran's oil minister said, a sign of the pain lower prices are causing OPEC's less wealthy producers.
However, Bijan Zanganeh also told Reuters it was up to other members of the Organization of Petroleum Exporting Countries (OPEC) to make way for any extra Iranian crude that reaches world markets if Western sanctions on Tehran are lifted.
"It seems [OPEC's strategy of not cutting output] does not work well, because prices are coming down," Zanganeh told Reuters on Thursday during a visit to Beijing. "We haven't witnessed stable situations on the market."
Iran was among the OPEC members which wanted an output cut at OPEC's last meeting, in November. But the Gulf OPEC members, who account for more than half of the group's output, refused to cut without the participation of non-OPEC producers.
Brent crude oil hit a near six-year low close to $45 in January. It was trading around $57 on Thursday, down from its 2015 high of $63.
OPEC, which pumps one third of the world's oil, may soon have to deal with an increase in supply from Iran if Western sanctions over its nuclear programme are lifted.
Working gas in storage was 1,476 Bcf as of Friday, April 3, 2015, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 651 Bcf higher than last year at this time and 173 Bcf below the 5-year average of 1,649 Bcf. In the East Region, stocks were 180 Bcf below the 5-year average following net withdrawals of 18 Bcf. Stocks in the Producing Region were 77 Bcf below the 5-year average of 694 Bcf after a net injection of 26 Bcf. Stocks in the West Region were 83 Bcf above the 5-year average after a net addition of 7 Bcf. At 1,476 Bcf, total working gas is within the 5-year historical range.
For U.S. shale drillers, the crash in oil prices came with a $26 billion safety net. That’s how much they stand to get paid on insurance they bought to protect themselves against a bear market — as long as prices stay low.
The flipside is that those who sold the price hedges now have to make good. At the top of the list are the same Wall Street banks that financed the biggest energy boom in U.S. history, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.
While it’s standard practice for them to sell some of that risk to third parties, it’s nearly impossible to identify who exactly is on the hook because there are no rules requiring disclosure of all transactions. The buyers come from groups like hedge funds, airlines, refiners and utilities.
“The folks who were willing to sell it were left holding the bag when prices moved,” said John Kilduff, partner at Again Capital LLC, an energy hedge fund in New York.
Other companies purchased insurance. The fair value of hedges held by 57 U.S. companies in the Bloomberg Intelligence North America Independent Explorers and Producers index rose to $26 billion as of Dec. 31, a fivefold increase from the end of September, according to data compiled by Bloomberg.
Though it’s difficult to determine who will ultimately lose money on the trades and how much, a handful of drillers do reveal the names of their counterparties, offering a glimpse of how the risk of falling oil prices moved through the financial system. More than a dozen energy companies say they buy hedges from their lenders, including JPMorgan, Wells Fargo, Citigroup and Bank of America.
The Permian Basin in West Texas is the most active hydrocarbon-producing area in North America, and, even in a low-price environment, it remains among the most favorable areas on the continent to drill of oil, natural gas liquids (NGL) and natural gas, according to the latest report issued by Bentek Energy, a unit of energy and commodities information provider Platts.
In the last three years, oil production in the Permian, which straddles Texas and New Mexico, has jumped 50%, while natural gas production has climbed 30% and NGL output has increased 61%, the report states. Horizontal drilling, new exploration and production techniques, and a multitude of unconventional producing formations have led to a major Permian renaissance.
The Permian also is showing greater resilience during the recent drop in drilling in response to falling crude oil, NGL, and natural gas prices. Permian rig count declines have been mainly vertical rigs, rather than horizontal rigs.
"Unlike other US producing basins, the Permian Basin is less exposed to adverse market conditions because of its more favorable production economics as well as its close proximity to major markets," said Ross Wyeno, senior energy analyst at Bentek Energy.
"Nowhere to Hide Except the Permian" provides an overview of the characteristics that make the Permian Basin such an attractive location for producers even in a low-price environment. The report includes information on the the Permian crude oil market; NGL infrastructure and natural gas market dynamics in the Permian and surrounding regions; a forecast of Permian crude oil, NGL, and natural gas production over the next five years; and a review of major challenges and risks ahead for Permian producers.
Russian Oil Floods Export Market as Teapot Refiners Lose Money
Crude oil exports from Russia, the world’s biggest producer, grew about seven times faster than output in the first quarter as the country processed less fuel at home.
Shipments from the country increased 7.4 percent from a year earlier between January and March, the biggest gain in at least nine years and outstripping a 1.1 percent rise in production, according to Energy Ministry data. Domestic crude deliveries to refineries fell 1.9 percent as OAO Rosneft said simple plants, known as teapots, were not profitable to run after prices plunged last year.
“Simple refining is struggling in Russia, freeing up crude for export,” Ehsan Ul-Haq, senior analyst at KBC Energy Economics in London, said by phone Wednesday. “Domestic demand is also very weak due to the economic situation. It takes time for low prices to impact crude output, so it may not be until the end of the year that Russian supplies start to slip.”
Rising shipments from Russia are adding to the pressure on crude prices, already down about 50 percent from last year as global inventories swell. Members of OPEC, who pump about 40 percent of the world’s oil, say they will not cut output unless other producers do the same. The U.S. is on track this year to produce the most oil since 1972.
The oil price slump, combined with U.S. and European Union sanctions in response to Russia’s role in the Ukraine conflict, has so far failed to reduce oil production, which grew to a post-Soviet record of 10.7 million barrels a day between January and March. The country’s crude exports in the first quarter expanded to 5.29 million barrels a day, compared with 4.92 million a day a year earlier, Energy Ministry data show.
A weaker economic outlook will curb the country’s oil-demand growth, according to the International Energy Agency. The Paris-based adviser on energy policy to 29 nations forecast last month that Russia would consume 3.44 million barrels a day of oil in 2015, a cut of 180,000 barrels a day since November.
The country’s economy may shrink 3.5 to 4 percent this year, Bank of Russia Governor Elvira Nabiullina said April 7. Car sales plummeted 43 percent in March compared to a year earlier, according to the Association of European Businesses in Russia. Consumer confidence fell to the lowest level since 2009 in the first quarter, the Federal Statistics Service said by e-mail Wednesday.
Companies delaying the completion of wells that have been drilled are keeping 373,000 barrels a day of oil out of the market, energy intelligence firm Genscape Inc. said.
Six companies announced plans to defer completing a total of 845 drilled wells this year, Genscape said in a report Wednesday.
Some oil producers have responded to the 50 percent drop in crude prices since June by delaying the hydraulic fracturing of wells. This backlog of unfracked wells, known as a fracklog, can then be completed and brought online when prices have rebounded.
“The crude oil contango market in the U.S. has created a massive incentive to store oil, and while traditional storage hubs reach record high levels, operators look to their own wells as an avenue to store until commodity market conditions improve,” Randall Collum, managing director of supply side analytics at Louisville, Kentucky-based Genscape, said in the report. “Deferring the completion of wells makes economic sense by allowing capital conservation while banking on the forward curve.”
West Texas Intermediate crude for May delivery settled at $50.42 a barrel Wednesday on the New York Mercantile Exchange. The May 2016 contract was more than $7 higher, at $57.74.
Genscape analyzed the fracklogs of Cabot Oil & Gas Corp., Chesapeake Energy Corp., EOG Resources Inc., SM Energy Co., Apache Corp., and Anadarko Petroleum Corp. In addition to the oil supply, the delays are keeping 528 MMcfd of natural gas off the market.
Apache said in an e-mailed statement April 1 that it was no longer deferring completions and, with service costs falling, “all wells we are drilling today, we are completing.”
There are about 3,000 drilled but uncompleted wells across the U.S., James West, senior managing director at Evercore ISI in New York, said in a March 30 report.
Hess Corp., the biggest spender in North Dakota’s Bakken region, is doing the exact opposite of some of its rivals. The company is working this year to shrink its fracklog to 30 wells, down from the 60 that it had going into 2015, Chief Operating Officer Gregory Hill said at a Hart Energy oil conference in Denver April 1.
“I hear the guys that are saying they’re drilling these wells and not completing them, and that makes no sense,” Hill said. “The one thing I know in this industry is we can’t even predict long-term pricing. How are we going to predict short-term pricing? While you wait to complete that well, the return is steadily declining. You’re getting no revenue and you got all this sunk capital in the drilling part.”
Last week, crude oil inventories rose by 10.9 million barrels from the previous week, according to the Energy Information Administration's weekly data release. That brings the total to 482.4 million barrels, the highest level for this time of year in at least 80 years.
SBM Denies $1.7B Settlement with Brazil over Bribery Scandal
Dutch floating production vessel provider SBM Offshore refuted Wednesday an article in a Brazilian daily newspaper that it has agreed a $1.7-billion settlement with Brazilian authorities in connection to a bribery scandal in the country. SBM said that discussions with the Brazilian authorities remain at an early stage and no numbers have been agreed upon.
Last month, SBM and Brazil's comptroller general said they had agreed on a framework for a mutually-acceptable settlement over the scandal, which is also linked to Brazil's state-run oil firm Petrobras.
In November, SBM agreed to pay $240 million to settle the case with Dutch authorities. The firm also stated that the US Department of Justice had informed SBM that it had closed its inquiry into the matter. But individuals involved in the case could still face criminal charges in other countries.
The experience of the first half of the 1980s was still in our minds. At the time, we cut our production several times. Some OPEC countries followed our lead, and the aim was to reach a specific price that we thought was achievable. It didn't work. In the end, we lost our customers and the price. The Kingdom's production dwindled from over 10 MMBD in 1980 to less than 3 MMBD in 1985. The price fell from over $40 per barrel to less than $10. We are not willing to make the same mistake again.
That said, I would like to be absolutely clear. The Kingdom remains willing to participate in restoring market stability and improving prices in a reasonable and acceptable manner. But this can only be with participation from major oil producing and exporting countries. And it must be transparent. The burden cannot be borne by the Saudi Arabia, the GCC countries, or OPEC countries, alone.
I would also like to clarify, conclusively, that the Kingdom of Saudi Arabia does not use oil for political purposes against any country, and it is not in a competition with shale or other high-cost oils. On the contrary, we welcome all new energy sources which add depth and stability to the market and that will help meet growing oil demand in the years to come.
As previously reported the EIA, the IEA and the media have been understating demand and overstating “estimated” production. Today the EIA capitulated, finally exposing the game that has been occurring for 6 months now. They lowered 2015/2016 crude oil production growth to 550,000 B/D and 80,000 B/D respectively from 700,000 B/D and 140,000 B/D. This is a whopping reduction of 21% and 42% respectively when investors were led to believe that Cushing was filling fast and the glut would continue ad infinitum!
On the flip side the EIA has now “created” the overhang issue tied to Iran in 2016 saying that Brent prices may get reduced $5-$15 in 2016 if sanctions are lifted. To reiterate even if Iraq increases exports by 1M barrels demand will and has increased 1 million B/D. How many negatives to do we have to hear only to get dispelled and lose faith in the institutions that are supposedly providing unbiased research?
Halliburton to put drilling business units up for sale
Halliburton says it plans to hawk three business units as it works to persuade antitrust regulators to clear its $34.6 billion deal to buy smaller rival Baker Hughes.
The Houston oil field services firm said Tuesday it is putting its fixed cutter bits and roller cone drill bits, directional drilling, and logging-while-drilling and measurement-while-drilling businesses on the auction block in separate deals.
The transactions are expected to be finalized after federal trustbusters approve the Baker Hughes deal, which will tie up the world’s second and third-largest oil equipment suppliers, likely in the second half of 2015.
“We believe the value inherent in these businesses will be recognized by prospective buyers,” Halliburton CEO Dave Lesar said in a written statement, noting the firm “would prefer to retain these assets” if it wasn’t required by regulators to divest assets in certain oil tool markets.
Royal Dutch Shell says it has agreed to buy oil and gas exploration firm BG Group in a deal that values the business at £47bn.
The two firms say they have reached agreement on a cash and shares offer which gives investors a 50% premium on BG Group's share price on 7 April.
The deal could be one of the biggest of 2015 and is also the first big merger between energy companies in a decade.
It could produce a company with value of more than £200bn ($296bn).
Shell's £177bn market capitalisation dwarfs that of BG, which now stands at £31bn after a 20% fall in its share price over the past year.
BG Group is the UK's third largest energy company. It was created in 1997 when British Gas demerged into two separate companies: BG Group and Centrica.
Shell said BG Group shareholders would enjoy higher dividends, as it confirmed its intention to pay its existing shareholders $1.88 per ordinary share this year.
The oil giant also said it expected to commence a share buyback programme in 2017 of at least $25bn.
The deal comes at a time of uncertainty for oil and gas companies. In the past six months the price of oil has fallen by about 50%. Meanwhile, analysts have warned that investment in North Sea oil exploration has all but dried up, threatening the entire industry.
Moody's: Liquefied natural gas projects nixed amid lower oil prices
Liquefied natural gas (LNG) suppliers are curtailing their capital budgets, amid low oil prices and a coming glut of new LNG supply from Australia and the US, Moody's Investors Service says in a new report, "Lower Oil Prices Cause Suppliers of Liquefied Natural Gas to Nix Projects."
Moody's says low LNG prices will result in the cancellation of the vast majority of the nearly 30 liquefaction projects currently proposed in the US, 18 in western Canada, and four in eastern Canada.
"The drop in international oil prices relative to US natural gas prices has wiped out the price advantage US LNG projects, reversing the wide differentials of the past four years that led Asian buyers to demand more Henry Hub-linked contracts for their LNG portfolios," says Moody's Senior Vice President Mihoko Manabe.
However, projects already under construction will continue as planned, which will lead to excess liquefaction capacity over the rest of this decade. Notably, through 2017, Australia will see new capacity come online from roughly $180 billion in investments, which will result in a 25% increase in global liquefaction capacity. Likewise, the US is poised to become a net LNG exporter after the Sabine Pass Liquefaction LLC (Ba3 stable) project goes into service in the fourth quarter of 2015.
Moody's expects Cheniere Energy's Corpus Christi project will be the likeliest project to move forward this year, since it is among the very few projects in advanced development that have secured sufficient commercial or financial backing to begin construction.
Lower oil prices will result in the deferral or cancellation of most other projects, especially this year. While some companies like Exxon Mobil Corp. (Aaa stable) can afford to be patient and wait several years until markets are more favorable, most other LNG sponsors have far less financial wherewithal, and some may be more eager to capitalize on the billions of dollars of upfront investments they have made already, sooner rather than later.
Saudi pumps up oil production to record high 10.3 million bpd
Saudi Arabia has revved up crude production to its highest rate on record, feeding unexpectedly strong demand from foreign refiners and increased capacity at home.
Oil Minister Ali al-Naimi told reporters late on Tuesday that the Kingdom produced some 10.3 million barrels per day (bpd) of crude in March, a figure that would eclipse its previous recent peak of 10.2 million bpd in August 2013, according to records going back to the early 1980s.
Just a few weeks earlier, Naimi had pegged production at around 10 million bdp, some 350,000 bpd above what Saudi Arabia said it pumped in February. The Kingdom produces more than 10 percent of the world's crude.
Oil prices rallied on Tuesday on separate Naimi comments about working with other big producers to stabilize the market - something most analysts see as unlikely in the near future - but it was the production figure that raised eyebrows.
"While April and May could see a small pullback, overall it is clear that Saudi Arabia has reacted to stronger demand for their crude, despite being in an oversupplied market," Energy Aspects chief analyst Amrita Sen wrote in a note.
Demand was stoked in part by deep discounts on Saudi exports in March as the Kingdom offered Asian customers the deepest discounts on its flagship Arab Light crude in at least 12 years, according to Reuters data. ARL-OSP-A Saudi Aramco has raised its prices for the following two months, putting May at the highest level since last year.
U.S. imports of Saudi crude rose to more than 950,000 bpd over the four weeks to March 27, the highest since last September, U.S. data show.
The Saudi production figure also likely reflects some additional domestic refinery demand.
The 400,000 bpd Yanbu Aramco Sinopec Refining Co (Yasref) refinery, a joint venture between state oil firm Saudi Aramco and China's Sinopec, has been steadily ramping up production this year and was due to reach full capacity by mid-February. A venture with Total started up in late 2013.
"Production is always going to grab the headlines, but exports will be more important than ever to focus on," said Mike Wittner, Global Head of Oil Research at Societe Generale.
Saudi Arabia also burns more crude to generate power heading into the summer months. Direct use of crude last year rose from around 350,000 bpd in March to nearly 900,000 bpd in July, according to the JODI data.
US oil output is falling! Or maybe not - market's data quandary
The immediate outlook for U.S. oil production has rarely been more important for the financial world, with traders scrutinizing every scrap of data for signs of a sustained pull-back in output. It has also rarely been harder to predict.
Until late last year, a handful of energy analytics firms had honed the art of real-time oil production forecasts to a near science, running reams of information through complex models that account for everything from a well's production curve to weather patterns. With the price slump, however, these firms are struggling to keep up with the rapid pace of change.
"Things were much more straightforward at $100," says Bentek Energy analysis manager Anthony Starkey, whose Colorado-based firm publishes end-of-month production data, one of several closely monitored private reports.
Last week's U.S. government data showing a marginal drop in weekly output was a case in point. Some thought it marked a turning point and crude prices rallied more than $1 right after the data, despite an otherwise bearish rise in crude stocks.
The problem is the figure is not what it might seem to be. Rather than a survey-based data like most other weekly government statistics, the number is an estimate based on weekly production in Alaska and U.S. Energy Information Agency's month-old forecasts, according to the agency's methodology.
A comparison of EIA's weekly production figures for December and the monthly figure based on state data published two months later, underscores the risk of taking the weekly numbers at face value.
While the weekly numbers never exceeded 9.13 million barrels per day, the monthly number came in at 9.3 million. The latest weekly estimate is due on April 8.
State well production statistics are the industry standard, but they vary widely in terms of timeliness and detail. Some states such as North Dakota and Texas release the information within about two months, others, such as Ohio do so once a year.
Energy analytics firms are deploying cameras on pipelines, using natural gas flows to help predict crude output and relying on new algorithms that take into account production potential.
The techniques can work remarkably well when producers follow established patterns. Things get tricky though, when they scramble to keep up with tumbling crude prices that have fallen about 60 percent since June 2014.
Drillinginfo Inc., of Austin, Texas, for example, has recently began producing its own monthly index for "new production capacity," representing the likely future output and based on a model that uses everything from daily rig information to well types and production curve data.
Given that most shale wells begin pumping only about five months after they were drilled, the index has effectively served as a pretty accurate five-month leading indicator, according to co-founder and chief executive Allen Gilmer.
"If you did a backward comparison, the index is within a percent," he said.
But that time lag is getting longer and much less predictable, as more oil companies opt to leave new wells idle to await a recovery in prices, making calculating output harder. The share of wells that start pumping oil within five months has fallen to 72 percent from 78 percent a year ago, Gilmer says.
Gilmer says their suggests U.S. production will peak in May and then enter a five-month decline.
Petrobras to halt 5 drill rigs under contract with Schahin
Brazil's state-run oil company Petroleo Brasileiro SA said on Monday it would halt five drilling rigs under contract with Schahin.
Petrobras, as the company is known, said it was informed by Schahin on April 2 that the financially strapped oil services company was planning a controlled shutdown of drilling activities at five of its rigs.
Schahin debt has come under pressure after unconfirmed media reports said the company was close to filing for bankruptcy protection and that it was being sued by its creditors for unpaid notes.
The drop in oil prices and the sanctions on Russia could be taking its first victim.
According to sources, Russian company Rosneft could be forced to delay the development of its Far East LNG plant on Sakhalin island for two years at least, Reuters reports.
Rosneft’s Sakhalin plant was scheduled to start production in 2018, with an output of 5 mtpa, after it signed the agreement with ExxonMobil in 2013.
As an unnamed source revealed, the project could be delayed for three to five years due to falling oil price and lack of funds, although the company’s spokesman said no changes have been made to the project’s timeline.
Long-beleaguered energy stock bulls got a boost from Monday’s surge in crude oil prices, sending oil-related shares sharply higher. For chart watchers, today’s move is less of a surprise: Green shoots have been popping up in the sector for weeks. Specifically, oil and gas exploration and production stocks have built nice bases on the charts and some sport actual technical breakouts.
To be sure, this is a far cry from a bull market. That said, every bull market has to start somewhere, and there are plenty of technical signs to argue at least that the bear is over.
The SPDR Oil & Gas Exploration & Production exchange-traded fund (ticker: XOP ) set its low-water mark in December, and since then has formed a series of higher highs and higher lows (see Chart 1).
Iran Oil Officials in Beijing to Discuss Oil Supplies, Projects
An Iranian delegation is in Beijing this week to push for more oil sales and discuss Chinese oil and gas investments in Iran, just days after Tehran and world powers reached a framework nuclear deal, Iranian oil officials told Reuters.
China is Iran's largest trade partner and oil client, having bought roughly half of Iran's total crude exports since 2012, when sanctions against Iran were tightened.
Amir-Hossein Zamaninia, Iran's deputy oil minister for commerce and international affairs said he and his colleagues would discuss China's oil and gas projects in Iran, while officials from state-run National Iranian Oil Company (NIOC) will meet with China's biggest crude buyers.
The NIOC and other officials are expected to meet with regular customers Unipec, the trading arm of top Asian refiner Sinopec Corp, and state trader Zhuhai Zhenrong Corp, which started taking Iranian crude in the mid-1990's when Tehran sought to repay arms purchases with oil.
Parex: Q1 Production 26,700 bopd Drilling Activity Increase in 2015
Parex Resources Inc., provides an operational update that confirms Q1 2015 production of 26,700 bopd and announces the start of its 2015 exploration program. All amounts herein are in United States dollars (USD).
Exploration & Production Update:
Oil production for Q1 2015 averaged approximately 26,700 barrels of oil per day, exceeding our original 2015 fully year production guidance of 26,500 bopd. Block LLA-34 Tilo-1: On March 28, 2015 Tilo-1 commenced a long-term test and current production is approximately 850 bopd. Commencement of 2015 Exploration Program: Block LLA-26 Rumba-1 exploration well was spud on March 25, 2015. The well is targeted to drill to a total depth of approximately 13,800 feet to test the Mirador and Une formations. Plan to increase the 2015 exploration drilling program by 2 additional exploration wells on Block LLA-32 and 1 contingent appraisal well for a total of 11 wells in 2015.
2015 Capital Plans: Brent Oil Price Scenario $50-$60 per barrel
Parex has a robust asset portfolio that provides capital allocation flexibility together with capital preservation. Within a Brent oil price scenario of $50-$60 per barrel, our current 2015 capital and production guidance is as follows:
Base Production (excluding 2015 Exploration): 26,500-26,700 bopd Base + Exploration Capital: $145-$155 million
Supported by sustained production and an improving cost structure, Parex is seeking partner and regulatory approval to drill up to 3 additional wells on Block LLA-32 in 2015, in addition to our existing 8 exploratory commitment wells on 7 blocks for a total of 11 exploration and appraisal wells.
Further, as a result of a 15-20% reduction in capital costs over 2014, Parex expects to increase its exploration drilling program by the 3 wells while maintaining its original capital budget range of $145-$155 million. Dependant on exploration results, Parex will evaluate deploying additional non-budgeted capital to increase 2015 production.
Record gasoline output to curb biggest U.S. oil glut in 85 years
Refiners are poised to make gasoline at a record pace this year, keeping the biggest U.S. crude glut in more than 80 years from overflowing storage.
They’re enjoying the best margins in two years as they finish seasonal maintenance of their plants before the summer driving season. They’ll increase output to meet consumer demand and they’ve added more than 100,000 barrels a day of capacity since last summer, when they processed the most oil on record.
Booming crude production expanded inventories this year by 86 million barrels to 471 million, the highest level since 1930. Analysts from Bank of America Corp. to Goldman Sachs Group Inc. have said storage space may run out. What looks like an oversupply is turning into an all-you-can-eat buffet for those making gasoline and diesel fuel.
“A lot of the excess crude we’ve been sitting on is going to get chewed up quickly,” Sam Davis, an analyst for energy consulting company Wood Mackenzie Ltd., said in Houston April 2. “We’re going to move from a stock build to a stock draw.”
Refining margins in March have averaged $28.09 a barrel, the most since March 2013.
Refiners typically schedule maintenance shutdowns in the spring and fall, reducing oil demand during that time. U.S. refiners increased crude runs by an average 1.1 million barrels a day in April through July over the past five years. During that period, U.S. crude inventories have fallen an average of 24.7 million barrels from the end of May through September.
WTI is in a contango market structure, with futures contracts for April 2016 selling for $10.84 a barrel more than April 2015 when that contract expired on March 20. That encourages traders to keep crude in Cushing to profit on the trade, Lipow said.“There’s an incentive to fill up Cushing and hold it there,” he said.
Libya's official government in new bid for oil cash
Libya's Prime Minister Abdullah al-Thinni has said his government would run its own oil sales and deposit revenues abroad in a bid to divert proceeds away from a rival self-declared administration in Tripoli.
Crude revenues are at the heart of a battle for control of the North African OPEC producer that has pitted the two rival governments against each other in a growing conflict, four years after the civil war ousted strongman Muammar Gaddafi.
On Sunday, a suicide bomber struck at a checkpoint near the Tripoli-allied town of Misrata, killing at least six people and wounding 40 more, according to a local news agency.
Thinni, based in the eastern city of Al-Bayda, announced late on Saturday he had authorised his internationally recognised government's oil corporation to open a separate bank account in the United Arab Emirates for oil revenues and to seek independent oil sales.
Until now oil sales and revenues have gone through Libya's central bank and National Oil Corporation in Tripoli, where a rival administration took over last summer. The Tripoli-based NOC has tried to stay out of the conflict between the rival governments.
Analysts say Thinni's government will struggle to convince international traders it is legally entitled to claim ownership of Libyan crude.
After 14 weeks of declines, drilling activity is showing signs of stabilizing in the Eagle Ford shale region just south of San Antonio. This week's figures from theBaker Hughes Rig Count showed no declines in drilling activity for the Eagle Ford.
Although there were no gains, many oil industry observers have predicted that the market would reach an equilibrium point between drilling and production during the second quarter of 2015.
“The drive for Aramco to raise prices is the improvement in the refining margin for gasoline and diesel,” Essam al-Marzouk, a Kuwait-based analyst and former vice president for Europe at Kuwait Petroleum International, said by e-mail Sunday. “The Saudis have established good market share in Asia and are less worried by competition from other producers than they used to be early in the year.”
Brent, a global oil benchmark, fell almost 50 percent in the past year amid increasing supply from areas including North America. Saudi output at near-record level is making up for sluggish sales from other OPEC members, as bad weather stunted Iraq’s exports and fighting in Libya kept some fields and ports shut. Iran may add supply if an interim agreement reached last week over its nuclear program leads to a final deal.
Brent for May settlement added as much as $1.95 a barrel, or 3.6 percent, and traded at $56.48 at 2:20 p.m. local time on the London-based ICE Futures Europe exchange.
Saudi Aramco narrowed the discount for its Arab Light grade to Asia to the least since December, cutting it by 30 cents a barrel to 60 cents less than the regional benchmark, the company said in an e-mailed statement Sunday. Arab Medium will sell at a $2 discount in May, an increase of 20 cents a barrel from April, according to the statement.
Prosecutors say around 230 businesses are being investigated, and a total of more than $700 million may have been stolen. A former Petrobras chief executive said earlier this year that write-downs of inflated values would probably total at least $1.2 billion, maybe much more.
Sales of renewable automobiles in China tripled in March an industry association said on Thursday.
Over 14,300 new energy cars were sold in March, three times the amount previously the China Association of Automobile Manufacturers (CAAM) announced yesterday.
Electric vehicle sales experienced the largest increase, with total sales of 9390 vehicles in March, up 3.5 times.
The Chinese government has extended incentives to promote the production and use of new energy vehicles. According to Beijing's industrial policy, the country aims to produce half a million renewable energy cars by the end of 2015 and expand that goal 5 million cars at the end of 2020.
Tesla is replacing its lowest-priced Model S sedan with a new version, called the 70D.
In a statement, the car maker said that the new car will start "at $67,500 after Federal Tax Credit, Model S 70D includes dual motor all-wheel drive technology, an EPA-rated 240 miles of range, and a 0-60 time just north of five seconds."
The 70D replaces the previous, non-all-wheel-drive Model S, which delivered about 208 miles of range on a single charge.
Before tax credits, the Model S will cost $75,000.
New aluminium battery for smartphones can be charged in a minute
New aluminium battery for smartphones can be charged in a minute
U.S. scientists said they have invented a cheap, long-lasting and flexible battery made of aluminium for use in smartphones that can be charged in as little as one minute.
The researchers, who detailed their discovery in the journal Nature, said the new aluminium-ion battery has the potential to replace lithium-ion batteries, used in millions oflaptops and mobile phones.
Besides recharging much faster, the new aluminium battery is safer than existing lithium-ion batteries, which occasionally burst into flames, they added.
Researchers have long tried but failed to develop a battery made of aluminium, a lightweight and relatively inexpensive metal that has high charging capacity.
A team led by chemistry professor Hongjie Dai at Stanford University in California made a breakthrough by accidentally discovering that graphite made a good partner to aluminium, Stanford said in a statement.
In a prototype, aluminium was used to make the negatively-charged anode while graphite provided material for the positively charged cathode.
A prototype aluminium battery recharged in one minute, the scientists said.
"Lithium-ion batteries can be a fire hazard," said Dai. "Our new battery won't catch fire, even if you drill through it."
The new battery is also very durable and flexible, the scientists said.
While lithium-ion batteries last about 1,000 cycles, the new aluminium battery was able to continue after more than 7,500 cycles without loss of capacity. It also can be bent or folded.
Larger aluminium batteries could also be used to store renewable energy on the electrical grid, Dai said.
Fears over Roundup herbicide residues prompt private testing
U.S. consumer groups, scientists and food companies are testing substances ranging from breakfast cereal to breast milk for residues of the world's most widely used herbicide on rising concerns over its possible links to disease.
The focus is on glyphosate, the active ingredient in Roundup. Testing has increased in the last two years, but scientists say requests spiked after a World Health Organization research unit said last month it was classifying glyphosate as "probably carcinogenic to humans."
"The requests keep coming in," said Ben Winkler, laboratory manager at Microbe Inotech Laboratories in St. Louis. The commercial lab has received three to four requests a week to test foods and other substances for glyphosate residues. In prior years, it received only three to four requests annually, according to its records.
"Some people want to stay out in front of this. Nobody knows what it means yet, but a lot of people are testing," said Winkler.
Microbe has handled recent requests for glyphosate residue testing from small food companies, an advocacy group testing baby formula and a group of doctors who want to test patients' urine for glyphosate residues, said Winkler. The firms and doctors do not want their identities published.
Abraxis LLC, a Warminster, Pennsylvania-based diagnostics company, has also seen a "measurable increase" in glyphosate testing, said Abraxis partner Dave Deardorff.
Monsanto Co, the maker of Roundup, on April 1 posted a blog seeking to reassure consumers and others about glyphosate residues.
"According to physicians and other food safety experts, the mere presence of a chemical itself is not a human health hazard. It is the amount, or dose, that matters," Monsanto senior toxicologist Kimberly Hodge-Bell said in the blog. Trace amounts are not unsafe, she stated.
Tests by Abraxis found glyphosate residues in 41 of 69 honey samples and in 10 of 28 soy sauces; Microbe tests detected glyphosate in three of 18 breast milk samples and in six of 40 infant formula samples.
North Dakota State University agronomist Joel Ransom reported to the U.S. Wheat Quality Council in February that tests he ordered showed traces of glyphosate in several U.S. and Canadian flour samples.
Pesticides could lead to shortage of crop pollinators - EU report
Evidence is mounting that widely-used pesticides harm moths, butterflies and birds as well as bees, adding to concerns crop production could be hit by a shortage of pollinators, according to a report drawn up for EU policymakers.
The European Commission, the EU executive, placed restrictions on three neonicotinoid pesticides from Dec. 1, 2013, citing worries about their impact on bees, but said it would review the situation within two years at most.
The makers most affected include Bayer CropScience and Syngenta.
When the restrictions were agreed, the European Academies' Science Advisory Council (EASAC), a network of EU science academies that seeks to inform EU policymakers, assembled 13 experts to assess the relevant science.
Its report published on Wednesday found there was "an increasing body of evidence" that neonicotinoids, used in more than 120 countries, have "severe negative effects on non-target organisms".
Bees are, generally speaking, the most important crop pollinators.
But the report said relying on one species was unwise and found the attention on bees had masked the impact on other pollinators such as moths and butterflies, as well as birds, which eat some pests.
Citing an increase in crops that require or benefit from pollination, the report noted "an emerging pollination deficit".
Proponents of neonicotinoids say they have a major economic benefit because they destroy pests and help to ensure abundant food for a growing world population.
But the report cited the monetary benefits of protecting pollinators and natural pest controllers.
Some 75 percent of crops traded on the global market depend on pollinators and the value of pollination in Europe is estimated at 14.6 billion euros ($15.9 billion).
Natural pest control, whereby insects, such as wasps and ladybirds, as well as birds consume enough pests to avoid the need for chemical treatment, is estimated to be worth $100 billion annually worldwide.
Neonicotinoids are synthetic chemicals that act systemically, meaning they are absorbed and spread through the plant's vascular system, which becomes toxic for insects sucking the circulating fluids or ingesting parts of it.
The European Crop Protection Association (ECPA), which represents the pesticide industry, said the new report was biased.
In a statement Jean-Charles Bocquet, ECPA Director General, said it reflected "a bias of the anti-neonicotinoid campaign toward highly theoretical laboratory tests rather than fully considering published field studies and other independent research that proves the safety of these pesticides".
The Commission welcomed the report and said it would start a review of new scientific information by the end of May.
NOAA points out that this is a weak event and that it is likely to remain weak and that it is unlikely to have a significant impact on weather and climate.
The long awaited El Niño Pacific Ocean warming event has finally arrived, according to forecasters from the National Oceanic and Atmospheric Administration (NOAA) of the US.
NOAA has updated its alert status for the so called El Niño Southern Oscillation (ENSO) to El Niño Advisory which is issued when El Niño conditions are observed and expected to continue.
Pacific Ocean sea surface temperatures (SSTs) have been elevated for a year or so but the scale and nature of the warming has, until now, failed to achieve a sustainable El Niño - in particular the necessary interaction between the atmosphere and the ocean has been lacking.
Earlier this week Australia's Bureau of Meteorology said that it thought the chances of an El Niño occurring had increased but it did not state that an event was in progress.
NOAA is basing its assessment that an El Niño is happening on the persistent observations of above-average sea surface temperatures (SSTs) across the western and central equatorial Pacific Ocean and a consistent pattern of sea level pressure.
Debswana Diamond Company, a joint venture between Botswana and diamond giant De Beers, will trim output as it waits for demand for the precious stone to recover, an executive said on Thursday.
The company, which produced a peak of 34-million carats of diamonds in 2007, will produce between 23-million and 26-million carats a year in the medium to short term as the company tries to match demand, director Balisi Bonyongo told journalists. "We will produce to demand. We would rather keep our goods in the ground and wait for the market to recover," he said, adding that he expected the global rough diamond market to recover in the second half of 2015.
Bonyongo said that from the last part of 2014 going into 2015, the global diamond market had slowed mainly due to liquidity constraints in India, the world largest cutting and polishing centre. In February, De Beers, a unit of mining company Anglo American, said it expected sales to rise by 3% to 4% in 2015 after a 4% climb last year. Botswana is the world's biggest diamond producer and early technical studies indicate that Debswana mines' lifespan will be extended from 2030 to 2050.
Denver-based Newmont Mining Corp is going ahead with building the first phase of its Long Canyon gold mine in Nevada, some 100 miles from the company's existing operations in the state.
The first phase, which consists of an open pit mine and heap leach operation, is expected to produce between 100,000 ounces and 150,000 ounces of gold a year over a mine life of 8 years.
First commercial production is expected in the first half of 2017 and costs are some of the best in the industry with all-in sustaining costs of between $500 and $600 per ounce.
Thanks to a phased approach to developing Long Canyon, Newmont has kept the capital outlay to between $250 million and $300 million, according to a company statement.
Newmont acquired the Long Canyon gold deposit from Fronteer Gold in April 2011.
Newmont forecasts 2015 gold production roughly in line with last year at 4.6 million to 4.9 million ounces, with all-in sustaining costs of $960 – $1,020/oz. By 2017 output could top 5 million ounces as the Turf Vent Shaft in Nevada achieves production in late 2015 and the Merian project in Suriname come on stream late next year.
Newmont, worth $11 billion in New York is the only gold company that forms part of the S&P500 index and which has been publicly traded since 1940.
The company, the world's second largest public gold miner in terms of output, is having a strong 2015 so far, with just under 17% gains in market value this year.
Australian gold miner Evolution Mining has repaid some A$35-million in debt during the March quarter, reducing its total debt by around 28%, to A$91.8-million.
The miner told shareholders on Wednesday that cash balance at the end of the March quarter was reported at A$32.5-million, after accounting for the voluntary debt repayment, a A$5.6-million dividend payment and a A$1.2-million once-off debt refinance establishment fee.
The debt was repaid on the back of continued strong cash generation, with Evolution producing some 103 305 oz of gold during the quarter. “This is an outstanding result with almost A$27-million dollars of free cash flow generated during the quarter, by far our best quarter to date,” said chairperson Jake Klein. “This has been achieved despite group gold production being around 9% lower than the previous quarter and is a great reflection of the successful inroads our staff continue to make in reducing costs and improving operational efficiency.” Klein noted that with gold now trading close to A$1 600/oz, Evolution was optimistic about the company’s future.
Large scale speculators in gold futures are scrambling to cover massive short positions – bets that prices will fall – as the price of gold continues to recover from near four-year lows hit last month.
On Monday gold for delivery in June – the most active futures contract – leaped $23.30 or nearly 2% from Thursday's closing price hitting $1,224.20 during lunchtime trade in New York before settling at $1,218.60, a six-week high.
Moday's strength is on the back of disappointing economic data released on Friday when markets were closed when the US Labor Department reported that the world's largest economy added just 126,000 new jobs in March against expectations of a 245,000 gain and the smallest increase since December 2013.
After eight straight weeks of increasingly bearish positioning on the gold market to levels last seen December 2013, large investors like hedge funds or so-called "managed money" last week added 44% to net longs – bets that price will rise.
In the week to March 31 according to the Commodity Futures Trading Commission's weeklyCommitment of Traders data, hedge funds slashed short positions by a fifth and at the same time added to long positions in gold.
75% of Alcoa's Australian gas supply needs secured
Aluminium producer Alcoa has secured 12 years of gas supply for its Australian operations, ASX-listed Alumina reported on Thursday.
Alumina, which holds a 40% interest in the alumina alliance Alcoa World Alumina and Chemicals, said the latest agreement meant that nearly 75% of the AWAC gas had been secured to replace existing gas supply agreements that would expire at the end of the decade.
The new supply agreement provides for 120 TJ/d of natural gas, starting in 2020, and secured the low-cost position of AWAC’s Australian alumina refining business. Alumina noted that the impact of the gas supply agreement on AWAC’s alumina production costs would not be material, relative to the costs incurred in 2014. “This secures the competitiveness of our low-cost Australian refining business into the next decade and is a very positive achievement given the current tightness in Western Australian energy markets,” said Alumina CEO Peter Wasow.
As part of the gas supply arrangements, Alcoa would make a $500-million prepayment against contracted supply. The prepayment would be payable in two installments, the first $300-million of which was due on the closing of the Apache asset sale, expected in May 2015. The second installment of $200-million was due in 2016.
Alumina was not expected to contribute to funding the prepayment. “While Alcoa of Australia is making a significant up-front payment to secure this important gas supply, the Alumina board remains committed to distributing excess funds to its shareholders. The board anticipates that if current market conditions prevail, Alumina will be in a position to continue to pay dividends to shareholders, and the board will review the options available to supplement dividends in light of the energy repayment,” Wasow added.
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Canadian seafloor miner Nautilus Minerals said Tuesday it has struck a deal with provider Gardline CGG, which will allow the company resume exploration around Solomon Islands, east of Papua New Guinea (PNG), where it is developing a gold, copper and silver underwater mine.
The goal is to expand Nautilus’ Seafloor Massive Sulphide prospect inventory by applying high tech exploration techniques the firm has been refining since 2006.
The company’s CEO, Mike Johnston, said the goal is to expand Nautilus’ Seafloor Massive Sulphide prospect inventory by applying high tech exploration techniques the firm has been refining since 2006.
Gardline CGG will supply a vessel, the MV Duke, equipped with a hull mounted Kongsberg EM302 multibeam system, a state of the art seafloor mapping system that provides some of the highest quality seafloor mapping data available, according to Nautilus.
The deep sea miner settled a key dispute with the PNG’s government last year, and since then, progress has moved quickly on the Solwara 1 project. The company expects to have all its undersea mining tools ready to go by the middle of next year.
It has also entered a charter agreement for a massive mining vessel, which it expects to receive in late 2017. After that, Nautilus expects to start digging up copper and precious metals almost right away.
Chile, the world’s largest copper producer and exporter, will mine this year less of the red metal than previously anticipated, with estimations dropping from 6.0 million to 5.94 million tonnes, the state copper commission Cochilco said.
While the recent floods weighted on the forecast changes, they were mostly triggered by a lower estimate from projects run by Anglo American and at the Zaldivar mine, operated by Barrick Gold
In its annual global trends report released Tuesday, the authority said that while the recent floods weighted on the forecast changes, they were mostly triggered by a lower estimate from projects run by Anglo American and at the Zaldivar mine, operated by Barrick Gold, El Mercurio reports (in Spanish).
"There is an effect, albeit of low significance, from operations temporarily halted (mostly Codelco's Salvador and JX Nippon's Caserones) due to the heavy rains," the commission noted.
In terms of prices, Cochilco said it sees the red metal averaging $2.85 a pound this year, losing a bit in 2016 to settle at to $2.80.
Global copper production has been affected by several unforeseen events in the last few weeks. Before Chile’s torrential rains and floods workers in Indonesia blocked roads over a pay dispute, forcing the world’s second largest copper mine to halt production for five days.
London-listed Antofagasta Plc had to slash its copper-output forecast for Los Pelambres copper mine, its biggest operation in Chile, by around 5,000 tonnes last month. The announcement was followed by a court decision to force the company destroy a giant dam it constructed for the same mine.
Meanwhile, BHP Billiton recently revised down its 2015 forecasts for output from Escondida, the world’s largest copper mine, due to decreasing ore quality.
The world’s top gold producer may also look at disposing of its Zaldivar copper mine in Chile.
In an interview with the Financial Times John Thornton, chairman of the Toronto-based miner, would not comment on specific sale plans or negotiations for Barrick’s copper business.
But Thornton, who took over as chairman almost a year ago did indicate what a good deal may look like:
“I could imagine a joint venture in which, let’s say, we sold a minority interest to a party [with] a world-class chief executive and that chief executive was going to run the copper business the way he thought made sense.
“We would build the business with him. We would be majority owner or even 50-50 owner. It would build value for us.”
Mr Thornton said it would be a “good example” to assume that Barrick could go into a partnership with someone such as Mr Davis.
Sounds like just about everyone is hoping to get into bed with Mick Davis and his $5.6 billion X2 Resources fund these days. Not surprisingly, X2 declined to comment for the story says the FT.
China's 10 nonferrous metal output up 6.8% in Jan-Feb to 7.7 mln tons
The combined output of the ten nonferrous metals rose 6.8% year on year to 7.7 million tons in the first two months of this year, according to the latest statistics released by the National Development and Reform Commission.
The output of aluminum electrolytic rose 4.9% year on year to 4.64 million tons in the two-month period. The output of copper and alumina oxide see a growth of 15.7% and 13.4%, respectively.
The output of lead dropped 5.3% year on year in the period, and the output of zinc went up 16.7% from a year earlier in the first two months.
In Feb 2015, the prices of major nonferrous metals reflect a decrease from Dec 2014. The average prices of copper and lead futures on the Shanghai Futures Exchange stood at RMB 40,964 and RMB 12,495 per ton, down 13.3% and 6.6% from Dec 2014, respectively.
In the first two months of this year, China¡¯s nonferrous industry realized RMB 20.6 billion in profit, 1.8% higher than in the same period of 2014.
China coking coal market faces downturn amid falling prices
China’s coking coal market remained weak in the past week, and prices dropped in major production bases following large miners’ price cut.
Shanxi Coking Coal Group -- China’s largest metallurgical coal producer has increased discounts, setting prices separately with each end user at varied extents of discount. It is offering key buyers a 30-100 yuan/t discount for primary coking coal sold in April and a 30-70 yuan/t discount for fat coal, market sources confirmed.
One Changzhi-based large miner also reduced free-on-rail prices by 20-35 yuan/t for lean coal from its major production mines, sources said.
Sources said some Luliang-based miners cut prices by 20 yuan/t, with the ex-works price of primary coking coal with 1.6% sulphur at 520 yuan/t, inclusive of VAT.
Some buyers from eastern China said the ex-works price of Shanxi primary coking coal with 1.6-1.8% sulphur stood at 480 yuan/t with VAT.
One Shanxi-based seller said the ex-works price of primary coking coal with 1.5% sulphur was 550 yuan/t, unchanged from March. The delivered prices of coal transported outside the province dropped as trucking freight dropped, with the freight from Lulin to Tangshan at 190-200 yuan/t, VAT-excluded.
Iron ore in fresh crisis as forward prices crumble
Iron ore is veering to a new crisis as prices for future delivery of the commodity slide 30 percent in the space of a month, and its outlook is now more bearish than oil and more dire than ever for miners struggling to just stay in business.
Prices of the steel-making ingredient for immediate delivery have slumped 60 percent over the past year as demand particularly from China slowed rapidly.
Despite the crumbling cash market, miners had been able to hedge future production at prices well above spot levels. Indeed, a month ago, miners could still sell 2017 output at close to $70 a tonne even as April 2015 prices fell below $60 for the first time in more than five years.
Forward iron ore prices have since tumbled below $47 for deliveries all the way until the end of 2017, depriving nearly all miners of any chance of establishing hedges at or above breakeven levels during that period.
A combination of factors brought about the recent capitulation in forward prices, most notably news that China plans to subsidise its iron ore sector to protect its flagging steel industry. Subsidies would help keep mines open and keep supplies flowing.
Aggressive shipments from Australian and Brazilian exporters have also weighed on forward prices.
As prices fall even further, "it will be an issue of cash flow, and those miners without the cash to ride out the storm are going to go under," said Jeremy Platt, analyst at London-based steel consultancy MEPS.
Only three of the world's top 10 largest iron ore miners are estimated to remain profitable at those prices, with Rio Tinto and BHP Billiton projected to have breakeven costs of around $35-36 a tonne and Fortescue estimated at around $44 a tonne, according to UBS.
All other miners, including the world's largest, Vale , are estimated to have production costs above $50 a tonne, and so are now faced with a quandary with nearby as well as deferred prices entrenched below that level.
Market participants say they are on the lookout for signs that high-cost producers outside of China may accelerate cutbacks in production amid deteriorating cash flows and limited revenue potential.
Chinese banks are reducing their exposure to the country’s debt laden steel sector, withdrawing credit from struggling steel mills, according to the Economic Observer, a financial newspaper.
The Chinese banking system withdrew 150 billion yuan in loans from the steel sector, which accounts for 10 per cent of total planned lending of 1.5 trillion yuan.
Privately controlled steel mills have been hard hit by the latest lending policy. Zhao Xizhi, honorary chairman of the China Metallurgy Association says the cost of funding for private mills is about twice as expensive as state-owned firms.
China key steel mills daily output down 2.2pct in late-March
Daily crude steel output of key Chinese steel producers dropped 2.18% from ten days ago to 1.613 million tonnes over March 21-31, showed data from the China Iron and Steel Association (CISA), reflecting persisting weak demand in downstream sectors.
The drop was mainly due to output cut in some steel mills, which ran low capacities amid huge losses in an oversupplied domestic market and greater environmental protection pressure.
The Purchasing Managers Index (PMI) for the Chinese steel sector dropped 2.1 percentage points on month to 43.0 in March, the 11th consecutive month below the 50-point threshold separating growth from contraction, indicating persisting sluggishness in this sector, official data showed.
The extended decline came despite a rise in steel products in late March, as demand gradually improved with increased construction activities.
Over March 23-29, the price of steel products increased 1% on month, with the price of rebar increased 1.4%, according to data from the Ministry of Commerce.
The CISA didn’t give an estimate on China’s total daily output during the same period.
Meanwhile, the CISA members produced 1.60 million tonnes of pig iron on average each day during the same period, down 2.59% from the previous ten days.
Italy's Lecco steel mill to restart production, hire staff
Italy's Lecco steel rolling mill, formerly owned by the country's second-largest steelmaker Lucchini, will restart production in May and will hire nearly 100 staff including former employees currently under redundancy contracts.
Lucchini was previously owned by Russia's Severstal but was placed under special administration in 2012, battered by stiff competition from Asia and depressed demand following the 2008-2009 financial crisis.
The company sold the Lecco mill in the country's north to privately-owned steelmakers Duferco and Feralpi late last year, after selling its core steel plant in Piombino on the Tuscan coast to Algerian conglomerate Cevital.
Steel prices ST-CRU-IDX are currently at their lowest level in nearly six years, pressured by over-supply globally and demand that has yet to fully recover from the 2008-9 crisis.
As such, while the restart of the Lecco mill will be welcomed by an Italian government struggling to pull the country out of recession, rival steelmakers will be less pleased.
Duferco and Feralpi said on Wednesday they had formed a new company, Caleotto SpA, to own and operate the Lecco mill, rehire 74 staff who were laid off by Lucchini and employ an extra 10 staff.
The new owners also plan to invest more than 5 million euros ($5.4 million) between now and 2019 in the plant.
Italy's steel sector is Europe's second-largest after Germany but has been hard hit by post financial crisis austerity measures imposed on the country.
Spring in China heralds better steel market expectations
Spring in China heralds better steel market expectations
China's steel market outlook for April remains similar to March, underpinned by expectations of stronger construction activity in spring time, according to the latest Platts China Steel Sentiment Index (CSSI).
CSSI in April showed a headline reading of 74.7 out of a possible 100 points, rising from 72.2 in the previous month, and was the highest reading since March last year.
The CSSI reflects expectations of market participants for the current month.
A CSSI reading above 50 indicates an expansion and a reading below 50 indicates a contraction.
"The latest CSSI shows the seasonal aspect of China's steel market as March and April in both 2014 and 2015 were by far the strongest months in terms of expectations of new orders," said Paul Bartholomew, a Platts analyst on steel and steel raw materials.
"With Chinese New Year and the coldest winter months now out of the way, construction activity is expected to resume and help drive demand for steel. There has been greater emphasis on domestic demand for steel in the past two months rather than exports, which China relied on heavily last year."
There was a big change in the outlook for steel inventories, with most industry participants expecting steel inventories to start declining after staying high for much of this year.
China's steel production slips in the first two months
In the first two months, the total output of crude steel slipped 1.5 percent from the same period last year to 130.53 million tonnes, while the profit of the iron and steel industry plunged 45.2 percent year on year to 9.03 billion yuan, according to the statement.
The output fluctuations came amid China's efforts to tackle overcapacity, which has plagued China since the 2008 financial crisis.
The Ministry of Industry and Information Technology said last month it will accelerate the overhaul of its overly-invested iron and steel sector to bring it back to a "basically balanced level" by 2017.
China, the world’s largest buyer of seaborne iron ore, may introduce a nationwide subsidy for local producers of the steel-making commodity amid slumping prices, according to the official Shanghai Securities News.
A plan for the proposed subsidy is in the final stages of being drafted and it could start as soon as the middle of this month, the newspaper reported on Wednesday, citing people in the industry that it didn’t identify.
Benchmark iron ore prices sank below $50 a metric ton to a 10-year low last week as surging low-cost supplies from the world’s biggest mining companies including BHP Billiton Ltd. boosted a worldwide surplus as Chinese demand faltered. The rout has left higher-cost producers in China and overseas making losses, threatening mine closures and redundancies. Low-grade operations in China’s Hebei province are among the most exposed suppliers, Morgan Stanley said in a March 24 report.
“The subsidies, if implemented, will sustain domestic production, increase the global supply of iron ore and result in prices slumping further,” Wu Zhili, an analyst at Shenhua Futures Co. in Shenzhen, told Bloomberg by phone on Wednesday, commenting on the newspaper’s report. Domestic mines account for about 20 percent of China’s iron ore demand, according to Wu.
Two versions of the subsidy are under consideration, the report said. Payments may be pegged to the grade of the ore, with producers of lower-quality output receiving bigger payments, or there may be figure of 6 yuan ($1) a ton, it said.
As China’s steel demand drops this year, cuts to output will increase, reducing demand for iron ore, the China Iron & Steel Association said in a monthly statement on Tuesday. Iron ore prices won’t rebound as the oversupply will persist, according to the association.
China’s apparent steel demand fell about 5 percent in the past six months from a year earlier, the biggest drop since the global financial crisis, Goldman Sachs Group Inc. said in a report on April 6. Global iron ore consumption will contract this year, according to Deutsche Bank AG.
Glencore, Japan's Tohoku set annual coal price down 17 pct -sources
Mining group Glencore Xstrata Plc and Japan's Tohoku Electric Power Co have settled an annual Australian thermal-coal import contract 17 percent lower than a year earlier, sources with direct knowledge of the matter said on Tuesday.
The price for the fiscal year beginning April 1 was set at 67.80 per tonne, the same as an agreement last week between Tohoku and Rio Tinto , the three sources said, underscoring a mounting supply glut for thermal coal worldwide.
Australia is by far the biggest supplier to Japan, accounting for 80.4 million tonnes last year, or nearly three quarters of its thermal coal imports.
The price set by Tohoku and the two suppliers will likely be followed by other Japanese utilities.
Annual contracts starting in April account for the majority of Australian thermal coal imports to Japan, covering around 50 million tonnes.
International coal markets have been hit as China, the world's biggest producer and importer of the fuel, has curbed imports to support its own mines and as it battles pollution at home.
A Tohoku spokesman said it had agreed with multiple resource majors on Australian coal supplies for the new fiscal year but declined to give details.
Glencore did not immediately respond to requests for comment.
Other would-be buyers said they were disappointed with the price, as spot has recently plunged to below $60 a tonne.
Asian benchmark thermal coal from Australia's Newcastle terminal has fallen around 10 percent this year, last settling at $56.85 a tonne. The price has lost more than 60 percent since early 2011.
Australia chases BHP, Rio Tinto on Singapore tax shelter - AFR
Australia is pursuing global miners BHP Billiton and Rio Tinto for shifting billions of dollars in iron ore profits through marketing hubs in Singapore that pay almost no tax, the Australian Financial Review reported on Tuesday.
The Australian Taxation Office was chasing multibillion dollar claims against each company, the newspaper said, citing a source with direct knowledge of the disputes.
The Singapore arrangements save the two companies more than A$750 million (382 million pounds) a year in Australian tax, it said.
The newspaper said BHP declined to comment on whether it received a tax bill tied to its Singapore hub, while Rio Tinto said it had not received a tax bill.
Both companies say their Singapore operations were not set up to cut tax but to serve their customers better, while the Australian tax office considers the arrangements tax avoidance.
"It is a big issue. It's huge," Tax Commissioner Chris Jordan told the Australian FinancialReview in March, referring to tax audits of more than 15 marketing hubs used by resource companies. "There's a lot of funds that have been transferred into hubs for the so-called marketing, shipping, you know sales, supposedly, that are being carried on."
The newspaper said sources insisted that Rio Tinto's Singapore-related earnings, which flow to a UK company, were in dispute.
Close to A$1 billion in base tax was at issue from 15 marketing hub cases, the tax office said, according to the newspaper.
Atlas considers asset sales, restructuring to survive iron ore crash
Australia's Atlas Iron Ltd is reviewing its operations and could look to sell assets to combat a dramatic slide in iron ore prices in a vastly oversupplied market dominated by mega producers.
Shares in Atlas, one of a handful of small miners that emerged to meet rising demand for the steel-making mineral in China a decade ago but now struggling to stay afloat, were voluntarily suspended on Tuesday as it maps out a strategy.
Atlas shares have plunged 40 percent since January, outpacing a 35 percent decline in iron ore, and the firm said it has hired Lazard to advise on ways to reduce overheads.
Atlas could move to suspend production at the higher cost Mt Webber and Abydos mines, leaving it to focus on its more profitable Wodgina deposit, some analysts said.
"I reckon you would see them shrink to about two to three million tonnes a year from Wodgina only," said a analyst who has covered Atlas since its inception in 2004 and did not want to be named. "Wodgina is the closest to Port Hedland, has reasonably better grade and would be the cheapest operation."
Cheaper oil to run diesel-powered equipment, lower freight rates and a weaker Australian dollar against its U.S. dollar-priced sales have helped soften the blow, but the most recent price plunge means Atlas is operating with little or no profit margin
Spot ore .IO62-CNI=SI dropped to $46.30 a tonne this week, the lowest level since The Steel Index began publishing prices in October 2008.
That compares with a January average all-in production cost of A$60.80 ($46) CFR (cost and freight) China reported by the company.
"Atlas has already commenced discussions with a number of its stakeholders in relation to various initiatives intended to further reduce costs and preserve value," the company said, adding it would not comment further on the review.
India's Odisha state to renew 18 iron ore mine licences-official
India's top iron ore producing state is likely to renew the licences of 18 iron ore mines shut since last year, a state official said on Saturday, in a boost for local steel producers.
A panel of senior government officials in Odisha state has recommended the reopening of the mines, which were closed last year due to non-renewal of years-old leases, the state's mining director Deepak Kumar Mohanty told Reuters.
"We expect to complete the renewal process in 10 days," Mohanty said.
The re-opening of the 18 mines will raise iron ore output in Odisha state to 70 million tonnes this fiscal year, about the same level as before the mines were shut, from the 51 tonnes produced in the year ending March 31, the official said.
The panel has also recommended an extension of the lease period for eight separate mines in the state, which belong to Tata Steel, Steel Authority of India and Odisha Mining Corp and are currently operating under a so-called temporary express order, Mohanty said.
The Supreme Court last year ordered the closure of nearly half of the 56 mines operating in Odisha because they were operating without a renewal of years-old leases.
India's 2014/15 iron ore imports hit record 15.5 mln T
India's iron ore imports jumped to a record above 15 million tonnes in the fiscal year to end-March as tumbling global prices and limited domestic supply pushed steelmakers to buy more of the raw material overseas, industry data showed on Monday.
Formerly the world's No. 3 supplier of iron ore, India has been importing it over the past three years due to court-imposed restrictions aimed at curbing illegal mining in the major producing states of Karnataka and Goa.
The shortage deepened last year when some mines in the states of Odisha and Jharkhand were ordered to close after the expiry of licences.
India's iron ore imports totalled 15.5 million tonnes in the past fiscal year, according to data compiled by industry consultancy SteelMint, which tracks shipments at 18 ports across the country. In the year to March 2014, imports were just 320,000 tonnes.
More than half of imports in fiscal 2014/15 were brought in by JSW Steel, India's third-largest steel producer, with 8.4 million tonnes. Tata Steel followed with 3.06 million.
Official Indian government data only covers April-December, with imports totalling 7.38 million tonnes, according to the trade ministry.
Despite the jump in shipments to India, global iron ore prices fell below $50 a tonne .IO62-CNI=SI last week to the lowest level since a key benchmark pricing index began in 2008.
The steelmaking commodity has lost about two-thirds of its value since the start of last year amid a global glut and slow demand from top iron ore buyer China.
The reopening of iron ore mines in states such as Odisha, Jharkhand and Goa may reduce India's imports in the current fiscal year, said Dhruv Goel, managing partner at SteelMint.
"We expect imports will be limited to 6-7 million tonnes, subject to global iron ore prices," Goel said.
Industry experts also don’t expect to see a recovery in the price of iron ore, a primary steel-making ingredient, anytime soon.Caroline Bain, senior commodities economist at Capital Economics Ltd. in London, last month forecast that iron-ore prices are likely to hit $45 a ton by year-end as large surpluses of iron-ore continue to flood into the market and Chinese demand cools.
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