Mark Latham Commodity Equity Intelligence Service

Monday 16th November 2015
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    Hollande cries "War!"

    In Brussels, at the political headquarters of NATO, and in Mons, the military “Pentagon” of NATO just an hour south, officials will be working through the weekend. The 28-nation alliance, after all, is founded on one key premise enshrined in the Article 5 of its founding treaty: “The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked.” It is worth noting that the only country to ever activate Article 5 was the United States after the 9/11 attacks in 2001.

    If France would like to become the second such country, the first step would be to call for an Article 4 consultation, which would convene the ambassadors of the 28 nations, who are in permanent session in Brussels, to discuss the situation and decide a course of action. This happened most recently in 2014, when Turkey requested an Article 4 meeting after the Islamic State attacks there.

    It seems likely that an Article 4 meeting would conclude that the Paris massacres, given their scale and scope, should be considered an attack under Article 5. That would be entirely appropriate. The terrorist attacks — assuming that the Islamic State is, in fact, responsible for them — are the culmination of a long-running humanitarian disaster in Syria that has destabilized the Middle East and initiated the flow of millions of refugees into the heart of Europe. NATO can no longer pretend the conflict does not affect its most basic interests.

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    US Port Traffic Slows

    For the first time in at least a decade, imports fell in both September and October at each of the three busiest U.S. seaports, according to data from trade researcher Zepol Corp. analyzed by The Wall Street Journal. Combined, imports at the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor, which handle just over half of the goods entering the country by sea, fell by just over 10% between August and October.

    The declines came during a stretch from late summer to early fall known in the transportation world as peak shipping season, when cargo volumes typically surge through U.S. ports.

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    New York AG mulls widening effect from Peabody climate settlement

    The New York state attorney general's office, which told Peabody Energy this week to give investors more details about how its sales would suffer from measures to curb global warming, is now mulling whether the tactic it used with the coal firm could be applied to companies beyond the energy sector.

    The state investigation into Peabody, which was settled on Monday, found that the company repeatedly denied in public filings it could predict how potential climate change regulations would affect its business, even though its internal studies showed revenue could tumble if coal were targeted in a carbon pollution crackdown.

    New York Attorney General Eric Schneiderman seized upon this discrepancy between public and private pronouncements as a violation of securities laws, arguing that material facts were withheld.

    While the settlement will pressure other fossil fuel companies to bolster their climate change disclosures, it also could spawn new pressures on a range of companies facing regulatory risks over policy issues from obesity to soaring drug prices, according to corporate governance experts including James Cox, a law professor at Duke University in Durham, North Carolina.

    "This is sweeping," Cox said. "I think there will be a ripple effect from this."

    Schneiderman's office has considered the effects the Peabody settlement could have on disclosure practices for companies outside the energy industry, though no additional actions are planned at the moment, a person familiar with the matter told Reuters.

    At least one other case similar to Peabody is in the works in New York, where Schneiderman's office last week was reported to have opened an inquiry into whether Exxon Mobil Corp misled shareholders about climate change risks.

    U.S. Securities and Exchange Commission disclosure guidelines give companies considerable leeway to make their own judgments about the likelihood that future events, such as tougher regulations, will affect their valuations.


    The Peabody settlement, while not binding for corporate America, could prompt companies to reexamine what they are defining as material to shareholders, at a time when demands by investors for more robust disclosures are growing, corporate governance experts said.

    For example, soda makers could see a crackdown on sugary drinks by governments worried about public health, or changes in insurance rules might result in lower drug prices paid to pharmaceutical companies, they said

    "There is this horrible mismatch between what companies know about their own businesses and what they tell investors in mandatory public filings. That isn't okay," said Michael Guttentag, a law professor at Loyola Law School.

    He said the New York settlement sets a precedent that could prod companies to make fuller disclosures, though others said firms would still have ample latitude under SEC rules, which they do not see changing.

    Andrew Logan of Ceres, a group that advocates for more sustainable business practices, said companies will need to be more forthcoming with investors.

    "The Peabody settlement ... should be seen as a shot across the bow to any company that faces regulatory risk in its core business, whether you produce junk food, high-priced pharmaceuticals or fossil fuels," he said.

    When it announced on Monday it would amend its disclosures, Peabody said there was no admission or denial of wrongdoing and no financial penalty. It could not be reached for comment on Thursday.

    Corporate officers are still digesting the settlement.

    A handful of prominent food companies canvassed by Reuters said they were either unaware of the Peabody settlement or not yet prepared to address it. The Pharmaceutical Research and Manufacturers of America trade group said it would be premature to comment.

    Meredith Cross, a former SEC official who now advises companies and their boards on disclosure and securities law as a partner at Wilmer Hale, warned against expecting companies to divulge even the smallest of facts or being asked to reliably predict regulatory changes in the future.

    "I do not think it is a good idea to require companies to provide an encyclopedia of data and make people wade their way through it. That doesn't strike me as a reasonable approach," she said.

    Read more at Reuters

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    Australian Senate passes China-Australia FTA

    The Australian Senate has passed the China-Australia Free Trade Agreement (CAFTA), paving the way for implementation from January 1 next year that will help lower the import tariff on coal selling into China.

    Australian media reported that the Customs Amendment (China-Australia Free Trade Agreement) Bill 2015 and the complementary Customs Tariff Amendment (China-Australia Free Trade Agreement) Bill 2015 passed the Senate on November 9, after being approved by the House of Representatives on October 22.

    The agreement will come into effect after gaining approval from China’s legislative body.

    China and Australia are important trade and investment partners. Australia is the second largest destination of Chinese overseas investment after Hong Kong. China is the largest trade partner of Australia, and its largest import and export destination.

    If tariffs come down, there would be a 96.45% export tariff cut for Chinese products, totaling $1.6 billion yuan, in force for three years from ratification.

    The CAFTA will benefit Australia’s exports of coking coal, thermal coal and aluminium oxide, enhancing Australian miners’ competitiveness in the seaborne market and cutting production cost for coal chemical, steel and aluminium producers of China.

    Upon implementation, China would scrap the existing 3% import tariff on coking coal, and lower the current 6% import tariff on thermal coal to 4%, and gradually reduce to zero in 2017.

    This will directly improve profitability of Chinese holding companies or subsidiaries in Australia, such as Yancoal Australia.

    Half of China’s imported coking coal comes from Australia. Over January-September, China imported 19.59 million tonnes of coking coal from Australia, down 6.1% on year, accounting for 53.8% of China’s total coking coal imports, customs data showed.

    During the same period, China’s imports of thermal coal -- including bituminous and sub-bituminous coals -- from Australia fell 25.8% on year to 33.89 million tonnes, taking 53.3% of China’s total thermal coal imports, the data showed.
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    China Oct power consumption down 0.2pct on year

    China’s power consumption stood at 449.1 TWh in October, edging down 0.2% on year and down 1.58% on month, showed data from the National Energy Administration (NEA) on November 16.

    Power consumption by the residential segment was 56.6 TWh, rising 4.7% from the year prior but down 17.3% from September.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 7.3 TWh of electricity in October, rising 6.6% on year but down 28.4% on month.

    The secondary industries – mainly the industrial sector – consumed 329.8 TWh of electricity, falling 1.9% on year but up 5.43% from September.

    The industrial sector specifically, consumed 324.5 TWh of electricity in October, decreasing 1.9% from the year before but up 5.77% from September, with the heavy industry accounting for 83.4% or 270.5 TWh, dropping 1.5% year on year but up 8.46% on month.

    Power consumption by tertiary industries – mainly the services sector – reached 55.4 TWh in October, increasing 4.6% year on year and 14.8% lower from the month prior.

    Over January-October, China consumed a total 4,584 TWh of electricity, up 0.7% from the same period last year, the NEA said.

    Power consumption by the residential segment amounted to 614 TWh during the same period, gaining 4.6% from the previous year.

    Under the non-residential segment, the primary industries used 87.9 TWh of electricity, up 3% year on year; the secondary industries used 3,285.8 TWh of power, down 1.1% year on year, with the industrial sector at 3,228.5 TWh, down 1%; while the tertiary industries consumed 595.9 TWh, up 7.1%.

    Meanwhile, the average utilization of power generating units across the country dropped 7.56% year on year to 3,279 hours over January-October this year.

    Hydropower plants logged average utilization of 2,989 hours during the same period, dropping 3.67% from the previous year; while thermal power plants logged average utilization of 3,563 hours, falling 7.86% from a year ago.

    China added 82.57 GW of power generating capacity from January to October, including 12.58 GW of new hydropower capacity and 43.36 GW of new thermal power capacity.

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    Chinese firm to invest $2.15b in Mexico's energy sector: report

    Chinese firm to invest $2.15b in Mexico's energy sector: report
    China National Corporation for Overseas Economic Cooperation (CCOEC) is set to invest $2.15 billion in Mexico's energy sector, it was announced at a bilateral trade forum which ended in Mexico City on Thursday, Xinhua News Agency reported on Saturday.

    The government of Mexico's northern state of Durango signed the agreement with the Chinese partner as part of the 2015 China-Mexico Trade and Investment Expo and Forum, which took place in Mexico City through November 10-12.

    The project, in which the CCOEC will be the main investor, calls for the construction of what is known as a combined cycle plant with capacity of 1,500 megawatts.

    The plant "will be built over three different stages of 500 (MW) each," said Durango's Secretary of Economic Development, Ricardo Navarrete Gomez.

    "Each stage will be developed over a two-year period, generating 1,500 direct jobs," he explained.

    China is supplying 85 percent of the investment needed, with the remaining 15 percent coming from Mexican sources, he said. "This is quite a large investment for Durango, but it opens up future investment" possibilities.

    President of CCOEC, Huo Xuejun, noted bilateral business in various fields has been "steadily" strengthened.
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    Oil and Gas

    US Bound VLCC's at 4 year high.

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    U.S. highway bill should include oil export provision -senator

    The U.S. ban on crude oil exports stands the best chance of being lifted when linked to highway funding legislation, said U.S. Senator John Hoeven, a Republican from North Dakota.

    The 1970s-era ban on most oil exports is deeply unpopular in North Dakota and other crude-producing U.S. states, with energy executives chafing at the limited access to global markets.

    Various stand-alone measures in Congress to pass a repeal have failed, and President Barack Obama has threatened to veto any such legislation that reaches his desk, saying the focus should be on renewable energies.

    Now supporters of a repeal are trying several tactics that they hope will force Obama's hand.

    Hoeven said a bill providing funds for new bridges and roads, potentially by selling oil from the Strategic Petroleum Reserve, would be the best way to end the restrictions.

    The Senate and House of Representatives have each passed versions of the proposal. Hoeven said he hoped to add the export clause in a negotiated final version, in a tacit bet that Obama will not put transportation funding in jeopardy with a veto of the entire bill.

    "Using the Strategic Petroleum Reserve for a strong portion of funding for this highway bill makes a strong case to keep our oil and gas industry viable," Hoeven said on Thursday night on the sidelines of the annual banquet of the Williston, North Dakota, chapter of the American Petroleum Institute trade group.

    The Strategic Petroleum Reserve holds more than 695 million barrels of crude in Texas and Louisiana, but economists have cautioned that tapping it now, with oil prices down more than 50 percent in the past year, makes little financial sense.

    North Dakota produces more than 1.1 million barrels of oil per day, making it the second-largest producing state after Texas.

    The industry itself has undertaken various technological and cost-cutting measures to cope with that price drop, and Hoeven said lifting the ban is the best way to help oil producers, among his state's largest employers.

    "With low prices, we have to take a long-term view of our oil basin here," Hoeven said. "We're in a global battle now as to who will produce oil and gas."

    Hoeven's North Dakota counterpart in the Senate, Democrat Heidi Heitkamp, told Reuters last month that any proposal for lifting the ban would only succeed if it is tied to renewable energy incentives.

    Read more at Reuters

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    BG, partners to spend $1.7 billion on drilling for Queensland LNG venture

    BG Group and its Asian partners in the $US20.4 billion Queensland Curtis LNG venture have given the go-ahead for a further $1.7 billion of investment to drill up to 400 more wells to maintain gas supply, providing a welcome lift to resources industry spending.

    Drilling for the Charlie project will take place during the next two years in permits west of Wandoan in the Surat basin, with Leighton Contractors winning the main contract to carry out the work, which will create up to 1600 jobs.

    The large investment underscores the ongoing spending commitment required by Queensland coal seam gas-based LNG projects, which need to keep drilling new wells every year to maintain gas supplies for their export plants in Gladstone. BG started shipments from its QCLNG venture in January, marking the first gas exports from Queensland, and has so far delivered 62 cargoes to Asia.

    It also shows that British-based BG has not deviated from investment required to support the QCLNG project, even as it is set to be acquired by Royal Dutch Shell in a proposed $US70 billion ($98 billion) takeover and as returns from the venture are squeezed by low commodity prices.

    Environmental approval for the Charlie project, which will supply gas into an existing processing plant at Woleebee Creek, was already granted by the federal Environmental Minister in December 2014.

    As partners in QCLNG, China National Offshore Oil Corporation and Tokyo Gas will fund part of the work, but the British company will shoulder most of the investment in line with its 73.75 per cent stake in the gas permits.

    In addition to the wells, the project involves 725 kilometres of water and gas gathering lines and a compression station as well as other pipelines, power lines and water-handling facilities over a total footprint of 2500 hectares. The key infrastructure will be built on land owned by BG.

    Tony Nunan, managing director of BG's QGC subsidiary, described the project as "a vote of confidence in the secure, long-term future of Queensland's natural gas industry".

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    Gran Tierra Energy to acquire Petroamerica Oil Corp.

    Gran Tierra Energy Inc. and Petroamerica Oil Corp., both international oil and gas companies operating in Colombia, are pleased to announce that they have entered into an arrangement agreement dated November 12, 2015 whereby Gran Tierra has agreed to acquire all of the issued and outstanding common shares of Petroamerica by way of a statutory plan of arrangement under the Business Corporations Act (Alberta).

    Under the terms of the Arrangement Agreement, Petroamerica shareholders will receive, at their election, either 0.40 of a Gran Tierra common share or C$1.33 in cash for each Petroamerica share, subject to a maximum of 70 percent of the consideration payable in cash. If Petroamerica shareholders elect to accept all share consideration, Gran Tierra expects to issue 43.6 million common shares. Gran Tierra will also be assuming the net positive working capital of Petroamerica, estimated at $25 million as at October 31, 2015, after accounting for severance and transaction costs, and including previously restricted cash which Gran Tierra expects to replace with letters of credit. Based on a 5-day volume weighted average trading price of C$3.32 per Gran Tierra common share on the facilities of the TSX, the transaction value including working capital and accounting for severance and transaction costs is $84 million.

    Gran Tierra believes that the acquisition of Petroamerica is highly strategic and will strengthen its position as the premier operator and land holder in the Putumayo Basin. Petroamerica's undeveloped land holdings and exploration and development portfolio are highly complementary to Gran Tierra's own exploration portfolio, strong cash flow, reserves base and balance sheet strength. With expected base pro forma production of 28,000 to 30,000 boe/d in 2016, Gran Tierra believes that the combined entity will be uniquely positioned as a high growth, well-capitalized, Colombia focused oil and gas producer with a dominant position in the Putumayo basin and a growing presence in the Llanos basin. In addition, Gran Tierra has the financial capacity to pursue additional exploration and development projects within Petroamerica's asset portfolio. The successful completion of the Acquisition is expected to be accretive to Gran Tierra's net asset value per share. Gran Tierra will remain debt free with pro forma working capital of $135 million to $210 million, depending on the form of consideration elected by Petroamerica shareholders.
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    North Dakota oil well backlog eclipses 1,000 for first time

    The number of oil wells in North Dakota that have been drilled but not fracked eclipsed 1,000 for the first time in September, as producers delayed turning them on in hopes crude prices will soon recover.

    The milestone, which was widely expected around the second-largest oil producing state, highlights the immense cost pressure companies have come under in the past year as crude prices have dropped more than 50 percent.

    Fracking alone can account for nearly two-thirds of a well's cost.

    Today more than 8 percent of oil wells in the state are sitting idle, storing their crude and natural gas in rock miles underground until prices rise.

    The delay harms the industry's ability to grow production, a metric closely watched by investors. Daily output in the state fell 2 percent in September.

    "That's sending a definite signal to the market that oil and gas operators are not willing to do a lot of drilling or hydraulic fracturing or production at these low prices," said Lynn Helms, director of the state's Department of Mineral Resources (DMR), the oil regulator.

    State officials last month said they would consider, on a case-by-case basis, allowing oil producers additional extensions to bring new wells online. The change was widely perceived as a cost-saving favor to the energy industry and has helped fuel the jump to above 1,000.

    The DMR doesn't expect that backlog to be worked off until next year at least and only if oil prices rise, Helms said.

    Helms released separate data showing the breakeven price for oil production now sits above current prices for two of the state's four main crude-rich counties.

    Producers "are shutting some wells in and producing only as much oil as they need to make the stockholders and the bankers happy," Helms said.

    North Dakota produced 1,162,253 barrels of oil per day (bpd) in September, compared with 1,187,631 bpd in August, according to the DMR, which reports on a two-month lag.

    The number of producing wells fell by six to 13,025, though state officials permitted one more well in September than in August.

    Helms acknowledged the state has experienced far more pain in its oil price battle with OPEC than initially expected when the cartel decided to maintain production last year.

    Many in the state had said at the time that OPEC's strategy would ultimately fail, an expectation that, so far, has proven premature.

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    Oil Producers Hungry for Deals Drool Over West Texas `Tiramisu'

    The worst oil market in decades would be hard to spot in West Texas, where two-lane county roads are still jammed with trucks and energy companies are on the prowl for deals.

    The Permian Basin, the biggest of the shale oil regions that ignited the U.S. energy boom, is also the only one where production is increasing even as drillers idle more than half the rigs in the country during the longest price slump since the 1980s.

    That’s drawn the interest of companies from Exxon Mobil Corp. to Anadarko Petroleum Corp., that have hunted for assets in the hot, arid flatland that spans an area the size of Syria. Anadarko’s bid for Apache Corp. was seen driven by Apache’s vast holdings in the Permian. Rising output from the region has helped buoy U.S. production after OPEC’s decision to pump more oil to maintain market share sent crude prices into a tailspin.

    “We’re already seeing a lot of people that are targeting the Permian,” Allen Gilmer, chief executive officer of Austin-based Drilling Info Inc., said in an interview in Houston. “If you were to look for the most stable area today to go do anything, it’s got to be there. Today you might even argue it’s more stable than Saudi Arabia.”

    Exxon, the largest publicly traded energy company in the world, bought 48,000 acres in the Permian in two deals in August, and is meeting with small, closely held producers to discuss additional purchases and joint ventures. Anadarko made an unsolicited, all-stock offer to purchase Apache, which has one of the largest Permian positions with 3.2 million acres, before withdrawing it, Anadarko Chief Executive Officer Al Walker said last week.

    Oil production in the Permian is forecast by the government to rise 0.6 percent in December to 2.02 million barrels a day, even as drillers have idled 59 percent of the rigs there in the past year. Output in rival shale fields like the Bakken and Eagle Ford has fallen 12% and 25%, respectively, as drillers pulled out after oil prices crashed last year.

    The Permian’s multiple layers of oil- and gas-soaked rocks, in some places stacked 5,000 feet thick, contain plenty of places to drill that will yield 30 percent to 40 percent rates of return with crude prices as low as $40 a barrel, Laird Dyer, a Royal Dutch Shell Plc energy analyst, said at a conference in Toronto Nov. 10.

    A single layer in the Permian, the Spraberry, probably holds 75 billion barrels of recoverable oil, Dyer said. That’s enough to supply the entire world for more than two years.

    “Somebody described it to me once as a tiramisu, it’s just lots of layers of beauty over there,” Gilmer said. “Everyone recognizes that the Permian Basin is by far the richest land on earth. The only thing holding it back from more and more is the engineering, and I think this is an industry that’s really proven that the engineering gets better every year.”

    The region seems to be the place where new companies continue to look to expand, he said. Roughly $50 billion in private equity capital is funding more than 80 management teams focused on the Permian Basin, Will Giraud, chief commercial officer at Concho Resources Inc., told a crowd of 1,100 attendees on Nov. 10 at the Hart Energy Executive Oil Conference in Midland, Texas. Concho has about 700,000 acres in the basin.

    “It’s the last oil basin standing,” Giraud said. “It’s still the last place you can put together a material position. It’s the last place you can drill in this environment and make money. It’s the last place where there’s still a tremendous amount of resources to be discovered.”

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    Chesapeake Lenders Flee Debt as Oil Rout Pummels Reserves Value

    Chesapeake Energy Corp.’s bonds have plunged to half their face value as lenders fret that tumbling energy prices are hurting their chances of getting paid on borrowings that are three times the current worth of the company’s oil and gas fields.

    The producer’s $1.5 billion of 4.875 percent notes due in April 2022 dropped 9.625 cents this week to 50.375 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Oklahoma City-based company estimates the discounted value of its proven oil-and-gas reserves will fall to about $4.2 billion by the end of the year down from $22 billion last December.

    Chesapeake shares have been the worst performer among their peers in the Standard & Poor’s 500 Index this year, plunging 73 percent. The downturn in oil markets has been especially painful for the driller because it happened just as the company was attempting to focus on petroleum, which traditionally has delivered higher profits than gas.

    “We are not forecasting a price recovery,” Chief Executive Officer Doug Lawler said during a conference call with analysts last week. “The downturn in commodity prices has presented a severe test to our industry.”

    Collapsing crude and gas prices have erased profits, starved companies of cash flow and spurred more than 200,000 job cuts globally as drillers struggle to stay solvent.

    Chesapeake recorded $15 billion in impairments during the first nine months of this year as the value of its fields dwindled. Additional write downs are expected during the current quarter and will continue for as long as energy prices remain under pressure, Chesapeake said in a public filing on Nov. 4.

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    U.S. oil drillers add rigs for first week in 11: Baker Hughes

    U.S. energy firms this week added oil rigs for the first week in 11, data showed on Friday, despite continued weak crude prices.

    Drillers added 2 oil rigs in the week ended Nov. 13, bringing the total rig count up to 574, oil services company Baker Hughes Inc said in its closely followed report.

    That total is about a third of the 1,578 oil rigs operating in same week a year ago. Over the prior 10 weeks, drillers cut 103 oil rigs.

    The additions this week showed that at least some drillers were willing to start drilling again even with U.S. oil prices trading in the $40s a barrel in hopes of higher prices in the future.

    U.S. oil futures averaged $43 a barrel so far this week, down from $46 last week.

    Crude futures were on track for their biggest weekly loss in more than two months as swelling stocks weighed on the market. [O/R] In the minutes after Baker Hughes released the report, U.S. crude prices dipped about 20 cents to around $40.50 a barrel.

    Energy traders noted the rate of weekly oil rig reductions over the past two months, about 10 on average, was much lower than the 19 rigs cut on average over the past year or so since the number of rigs peaked at 1,609 in October 2014, due in part to expectations of slightly higher prices in the future.

    U.S. crude futures for next year were trading around $46 a barrel, according to the full year 2016 calendar strip on the New York Mercantile Exchange. That however was down from $49 last week.

    Higher prices encourage drillers to add rigs. The most recent time crude prices were much higher than now was in May and June, when U.S. futures averaged $60 a barrel.

    In response to those higher prices, drillers added 47 rigs over the summer.

    Drillers added rigs in just one of the four major U.S. shale oil basins this week. They added one in the Eagle Ford in South Texas, while removing two in the Permian in West Texas and eastern New Mexico and one in the Bakken in North Dakota and Montana. The number of rigs in the Niobrara in Colorado and Wyoming remained unchanged.

    Despite the increase in oil rigs this week, total oil and natural gas rig count slid to a fresh 13-year low due to a decline of six gas rigs.

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    Alternative Energy

    Solar Power Is Booming and Its Biggest Component Is Dirt Cheap

    Prices for polysilicon, the main ingredient in solar cells, have dropped to a record low amid a supply glut that won’t end soon.

    There’s so much of the shiny black stuff on the market that suppliers including Europe’s Wacker Chemie AG, Hemlock Semiconductor Corp. in the U.S. and South Korea-based Hanwha Chemical Corp. are losing money at spot prices that reached $14.76 per kilogram this month, down 31 percent in the past year, according to data compiled by Bloomberg New Energy Finance.

    The global surplus is unlikely to ease with polysilicon manufacturers reluctant to curtail production because demand for solar power is surging, said Jenny Chase, lead solar analyst at New Energy Finance. It’s reminiscent of the panel glut that struck the industry a few years ago that drove down module-makers’ earning, and shows that the solar-power industry is still experiencing growing pains on its path to becoming a mainstream source of energy.

    “It’s another sign of how good the solar industry is at losing money,” Chase said in an interview Wednesday. “You don’t want to close an entire factory just because of a temporary drop in prices. It can take six months to shut down and start up again.”

    Prices can’t stay this low for long before producers start to cut back, said Jade Jones, a solar analyst at GTM Research in San Francisco. For a healthy industry, a price of $20 is more fair based on manufacturing costs.

    “We thought prices might start to tick-up in the fourth quarter as demand climbs but that’s not happening,” Jones said. Increased competition to garner market share has created a price war that’s not sustainable. “If the price stays this low in 2016 then I’d expect ramp-downs.”

    Low prices are taking a toll. Hemlock’s parent company Dow Corning Corp. reported a 9 percent decline in third-quarter sales, due in part to declining polysilicon revenue. Not only are prices low, some orders are being delayed.

    “Results continue to be impacted by fewer polysilicon shipments to Hemlock Semiconductor’s long-term contract customers,” Chief Financial Officer J. Donald Sheets said in an Oct. 28 statement.

    The current price is a huge drop from polysilicon’s heyday back in early 2008, when manufacturers were getting as much as $475 a kilogram -- some companies are still benefiting from long-term contracts panel makers signed back then. Suppliers also sell higher-grade polysilicon to semiconductor makers at higher prices.

    However, 90 percent of the world’s polysilicon supplies ended up in solar panels in 2014, up from 27 percent in 2001, according to GTM Research. While demand for panels is expected to climb 30 percent this year, polysilicon capacity is also increasing.

    Polysilicon production capacity currently stands at about 350,000 metric tons a year, and there are plans to increase that by at least 10 percent next year, according to New Energy Finance. That oversupply, combined with existing inventory, will continue to pressure prices.

    Wacker Chemie, the second-biggest producer, doesn’t see it that way. Chairman Peter-Alexander Wacker is predicting a rebound as strong demand for panels in the U.S. and China soaks up excess supplies.

    “We always have swings based on demand but this trough in price seems to be saying that even the biggest producers are finding it difficult to rein back production,” Wacker said in an interview in Berlin.

    He’s planning to open a new factory in Tennessee next year and is running the rest at full capacity, according to slides from the company’s third-quarter earnings presentation.

    That’s partly why New Energy Finance’s Chase sees little chance for price recovery. “Next year does not look much better for polysilicon manufacturers.”

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    Molycorp restructure plan includes asset sales

    Molycorp, the beleaguered rare earths producer that was forced into bankruptcy in June, has announced a plan to restructure that may include the sale of its Mountain Pass mine in California.

    The plan filed with a U.S. bankruptcy court in Delaware would allow Molycorp, the only rare earths miner and processor in the United States, to emerge from Chapter 11 bankruptcy protection "either a stand-alone reorganization that would substantially de-lever its balance sheet or a sale of substantially all of its assets," according to a press release. If approved, the plan could reduce Molycorp's debt by $1.9 billion as well as cut interest payments, "putting us on a more solid financial and operational footing going forward,” stated Geoff Bedford, president and CEO.

    In July Molycorp received $130 million in debt financing from Oaktree Capital Management LP. In August the Greenwood, Colorado- based company moved its Mountain Pass facility intocare and maintenance, while continuing to serve customers through its production facilities in Estonia and China.

    Mountain Pass was expected to be America’s flagship source of rare earths. In 2010 Molycorp sensed an opportunity to capitalize on reduced rare earth oxide exports from China – which supplies about 90 percent of the world's rare earth minerals – which caused the prices of REOs to spike. When China subsequently relaxed export rules, however, prices fell, leaving Molycorp holding the bag on a $1.25 billion expansion of Mountain Pass.

    Hit by lower rare earth prices, Molycorp had warned in March it might not have enough money to remain in business. Three months later, it filed for chapter 11 bankruptcy protection.
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    Sandy solution for renewable energy storage

    SAND is emerging as a key ingredient in the race to develop a viable electricity storage system for renewable energies.

    Latent Heat Storage has developed a low cost thermal energy storage system based on the latent heat properties of silicon derived from sand.­

    The device – known as TESS – is being developed in South Australia with the help of an AUD $400,000 government grant to take it from prototype to commercial reality.

    The TESS device stores electricity as thermal energy by heating and melting containers full of silicon. The high latent heat capacity and melting temperature of silicon makes it ideal for the storage of large amounts of energy.

    Latent Heat Storage Chief Executive Officer Jonathan Whalley said storage was the next big challenge for energy generation worldwide.

    “Renewable energy sources generally spill energy due to supply and demand mismatches, so we’ve designed the TESS device to capture this ‘spilt’ energy for later use or release to the grid,” Whalley said.

    “Our system also means that energy consumers will be able to purchase stored electricity off-peak at low tariffs, which ultimately means cheaper energy.”

    A key benefit of the TESS device is its capability to handle an increasing workload from 500kW applications through to an industrial scale of up to several hundred megawatt hours – enough to power about 7000 homes for a day.

    The patented device is small enough to fit inside a 20-foot shipping container but is readily scalable as demand requires.

    TESS is suitable for grid and off-grid applications and has been designed to overcome the intermittent nature of renewable energies such as wind and solar by providing a stable energy output suitable for base load power.

    It can be integrated anywhere within an electricity network and is suitable for commercial and industrial businesses where heat and electricity are required such as hotels, schools and hospitals.

    “After three years of research and development, our key objective now is to complete building a commercial prototype of the TESS device and start showcasing its potential to global markets,” Whalley said.

    A commercial prototype will be ready in early 2016 to be used as a selling tool to potential clients and Whalley said devices would initially be built to meet the needs of individual sites rather than mass produced.
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    Precious Metals

    Tahoe surges on strong results

    Shares of Tahoe Resources Inc shone in an otherwise lacklustre day on precious metals markets after the company announced better than expected third quarter financial results on the back of a strong operational performance and near-record breaking cash flows despite the fall in metals prices.

    The Vancouver-based miner was trading 11% higher in Friday afternoon trade on the New York Stock Exchange in heavy volume with some 1.5 million shares changing hands. The $1.7 billion company like its peers is experiencing a torrid 2015 with the counter losing nearly 40% year to date.

    The company reported operating earnings of $40.1 million during the three months to end-September, on revenues of $145 million generate from its Escobal silver mine in Guatemala and the La Arena gold mine in Peru.

    Operating cash flow was a robust $53 million. That boosted the company's cash pile to a healthy $110.6 million. Sales consisted of 5.5 million ounces of silver, 59,814 ounces of gold, 2,557 tonnes of lead and 2,753 tonnes of zinc.

    Silver production from Escobal was a record 5.8 million ounces in concentrate for the quarter, and 14.9 million ounces year to date. Escobal is the world's third largest primary silver mine.

    Gold production from La Arena was 57,415 ounces in doré for the quarter and 117,697 ounces from April 1 to date. All-in sustaining cost came in at $9.72 per silver ounce produced and $729 per gold ounce produced.

    Tahoe entered into a friendly $1 billion deal with Rio Alto Mining in February, acquiring La Arena and the Shahuindo gold project in Peru that is on track for first production early next year.

    The project’s technical report of November 2012 will be updated before the end of the year according to Tahoe. The 2012 study detailed measured and indicated resources totalling 147.3 million tonnes with gold and silver grades of 0.515 g/t and 7.1 g/t.

    Tahoe's 2015 production guidance is between 160,000 – 170,000 ounces of gold and 18–21 million ounces of silver.

    Guatemala’s Constitutional Court recently ruled that a 10% mining royalty lawmakers passed in late 2014 was unconstitutional and that the 1% royalty rate in place since 1996 will stay in place until a new regime is negotiated with the new government which won a landslide election last month.
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    Base Metals

    Codelco cuts China 2016 copper premium to 3-year low -sources

    Codelco cuts China 2016 copper premium to 3-year low -sources 

    Codelco, the world's top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market's biggest buyer.

    In a move that will deepen concerns about waning consumption as growth in the world's second-largest economy slows, Chile's State-owned miner Codelco offered a premium of $98/t for 2016 term shipments, down from $133/t this year, three trading sources in China said. 

    Codelco's premiums, which buyers pay on top of metal prices on the London Metal Exchange to secure physical refined copper, are viewed as a benchmark for global term contract prices, and other producers are likely to follow suit. 

    Traders and buyers in China, who had expected a premium of $105 to $110, were shocked at the size of the drop, which they said underscores the bleak outlook for the year ahead as LME prices languish at six-year lows. "We are surprised, and the offer is quite low," said a trader at an international trading firm. "It could change the game, as buyers need to think how much they should buy, not how little." 

    The trader said many Chinese buyers had planned to reduce 2016 term shipments heavily if Codelco offered more than $110, as demand in China was expected to be weak next year. Now buyers could book more than they had planned due to the lower-than-expected offer, he added. 

    Codelco has been widely expected to cut term premiums to China for shipments in 2016 after it reduced premiums to European customers by 18 percent to $92 a tonne. Still, few players expected Codelco's term premium to be lower than the term offers for Japanese copper, which have come in at $105 to China. 

    Traders said Codelco's offer showed it had accepted that demand in China is weak. The offered premium is still higher than the $80/t to $90/t seen on spot copper imports recently.

    Attached Files
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    Falling copper forces Poland's KGHM to scale back

    Europe's No. 2 copper producer, Poland's KGHM, cut 2015 production targets for its main overseas mine and flagged lower spending as well as mining asset write-downs on Friday, as copper prices hit a six-year low.

    "The situation on the commodity market is getting worse and there are reasons to presume the possibility of testing our mining assets for value loss," KGHM's Chief Financial Officer Jaroslaw Romanowski said.

    "We see 2016 as a turnaround year, but we presume that this crisis may continue into next year," he added. "Our capital expenditures will surely go down or be postponed."

    Worries over growth in China, which consumes half of global copper production, have pushed copper prices below $5,000 a tonne, seen as a stress-test level for KGHM.

    State-run KGHM, also the world's top silver producer, said a 21 percent surge in the dollar against the Polish zloty helped limit the effect of an 18 percent fall in copper prices in the first nine months of 2015. But its net profit for the period dropped 31 percent to 1.23 billion zlotys ($312.1 million).

    Earnings before interest, taxes, depreciation and amortization (EBITDA) inched up 1 percent to 3.72 billion zlotys, capped by losses at KGHM's key Sierra Gorda mine in Chile, launched commercially last quarter.

    The group gained control of the Sierra Gorda facility in 2011 when it bought Canada's Quadra FNX, for C$2.87 billion ($2.16 billion), inking the largest ever foreign acquisition by a Polish company

    Sierra Gorda, which KGHM co-owns with Japan's Sumitomo , holds 5.5 million tonnes of copper deposits.

    KGHM and Sumitomo are testing for deposits near the mine, calling their potential "second Sierra Gorda." They also want to cut the mine's costs and expect it to book positive EBITDA in the fourth quarter of 2015.

    However, they also cut Sierra Gorda's 2015 production targets to around 90,000 copper tonnes and around 20 million pounds of molybdenum, planning to hit previous goals of 120,000 tonnes and 50 million pounds in 2016.

    While Chinese demand worries weigh on copper, used by power and construction industries, swelling oil stocks have hit molybdenum, used in oil refining and steel production.

    That has helped send KGHM shares down 25 percent this year.

    A stronger dollar increases KGHM's dollar-denominated debt. The group said it expects its net debt to EBITDA ratio to hit 1.3 this year versus 1.0 at the end of the third quarter.

    Read more at Reuters

    Attached Files
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    Steel, Iron Ore and Coal

    Coal consumption of China power industry to reach 60% by 2020

    Coal consumption in China’s power industry is expected to account for 60% of the country’s total coal use by 2020, compared with the current 50%, according to the 13th Five-Year Plan.

    This means that more coal would be used for power generation, as the government advocates use of the clean energy, said one official with China Electricity Council at the 3rd Global Thermal Coal Resource & Market Summit on November 13.

    China’s consumption of primary energy was expected to be 4.8 billion tonnes of standard coal equivalent by 2020, with coal consumption at 4.2 billion tonnes, the official said in the summit.

    Total installed power capacity across the country would reach around 1.8 TW by 2020, according to the plan, with thermal, hydropower, wind, solar and nuclear power capacity at 1TW, 350GW, 200GW, 100GW and 58GW, respectively.

    By 2020, coal consumed for per kWh of power output should be limited within 310g of standard coal equivalent; while that of 600MW-above thermal units and new thermal units should be within 300g.

    Coal consumption of per kWh of power output averaged 318g of standard coal equivalent in 2014.

    Power consumption has slowed in China this year, due to lackluster industrial activity. In the first three quarters, China’s power consumption saw a slight year-on-year rise of 0.8%, and the average growth of the whole year is expected to be 1% or so.

    Over January-September, power consumption in industrial sector fell 4.6% on year; while service sector and residential sector rose 7.43% and 3.9%, respectively.

    The utilization of power generating units saw a decline of over 200 hours from the previous year. The operation hour of thermal units for the whole year is expected to reach 4,448 hours, with that over January-September at 3,245 hours.

    The newly-added installed capacity may reach 1.77 TW this year, compared with last year’s 1.66 TW.
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    Coal India Q2 net profit up 16pct

    Coal India (CIL), the world's biggest coal miner, posted a 16% rise in consolidated net profit at Rs 2,543.80 crore for the quarter ended September 30 on the back of higher sales, it said on November 13.

    The consolidated net sales of the company was Rs 16,957.59 crore during the quarter, registering an increase of 8%.

    "The increase in earnings is largely due to the higher production and sales during the current period compared to the corresponding period in the previous year," it said.

    The total expenses of CIL increased to Rs 15,067.87 crore, up 6.53% from Rs 14,144.73 crore in the year-ago period.

    Coal production during the second quarter of the current fiscal was 108.20 million tonnes, up 5.88% from the second quarter of the previous year, the statement said.

    Sales for the second quarter of 2015-16 was 121.99 million tonnes, up 10.91% from 110.49 million tonnes in second quarter of 2014-15, the statement added.
    Total sales during the first and second quarters of the current fiscal was 251.38 million tonnes, up 9.13% from 230.09 million tonnes year on year.
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    Russia Oct coal output up 4.4pct on year

    Russia, a major coal-producing country, produced 34.38 million tonnes of coal in October, posting a year-on-year rise of 4.4%, showed the latest data from the Ministry of Energy.

    Coal output of the country over January-October stood at 300.83 million tonnes, an increase of 4.7% on year, data showed.

    In October, Russia exported 13.45 million tonnes of coal, up 7% from the previous year.

    Coal exports over January-October fell 1.2% from a year ago to 126.14 million tonnes.
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    Moody's downgrades steelmaker ArcelorMittal

    In an advisory to clients at the close of markets on Thursday, the ratings agency said ArcelorMittal's corporate family rating (CFR) and probability of default rating (PDR) had been downgraded to Ba2 and Ba2-PD from Ba1 and Ba1-PD, respectively, primarily reflecting the steelmaker's “weaker operating performance since the beginning of 2015 as a result of falling steel prices, and a material decrease in EBITDA from its mining operations”.

    At the same time, Moody's also downgraded ArcelorMittal's senior unsecured ratings to Ba2 from Ba1.

    “The outlook on all the ratings is negative with limited opportunity for ArcelorMittal to experience a rebound in profitability over the next 12 months,” a spokesperson said.

    Apart from having to contend with a challenging climate in the steel industry, ArcelorMittal also has to absorb a material EBITDA shortfall from its mining operations of 66% compared to the third quarter of 2014, which have in the past contributed up to an average of 25% of the group's consolidated EBITDA.

    Moody’s added that its downgrade also reflects the current recession in ArcelorMittal's Brazilian market and a challenging operating climate in North America.

    On a more positive footing, Moody's believes ArcelorMittal's liquidity is solid and expects that it will remain adequate in 2016 as evidenced by "the large amount of cash held on the balance sheet" and the committed facilities available to the company.

    - See more at:
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    Brazil's CSN sinks as management fails to assuage debt worries

    Shares in Cia Siderúrgica Nacional SA sank the most in a month on Friday, as management failed to assuage mounting concerns over a swelling debt burden at Brazil's second-largest listed maker of flat steel.

    Executives led by Chief Executive Officer Benjamin Steinbruch told investors on a conference call to discuss third-quarter results that keeping capital spending near current levels is needed to stay competitive in steelmaking and mining.

    CSN, as the company is known, is pushing ahead with plans to refinance debt, sell assets, but avoid fire-sales, and raise the price of some flat-steel products. Steinbruch has likened his choices to "war economy decisions."

    Investments planned for next year will add value for shareholders in the medium term, Steinbruch said.

    Net debt rose to a record 6.6 times 12-month trailing operational earnings last quarter. That is twice CSN's 3.4 net debt to EBITDA ratio a year earlier. Investors are uneasy about capital spending and working capital trends, which have further eroded CSN's already weakened balance sheet, said Leonardo Correa, an analyst with Banco BTG Pactual.

    Dividend payments will resume next year, pending the outcome of some aspects like asset sales, Steinbruch noted.

    Shares extended losses during the call, falling as much as 9 percent to 4.92 reais. The stock has shed 50 percent over the past six months.

    The price on CSN's 7 percent perpetual bond was unchanged at 45 cents on the dollar on Friday. The bond has fallen from about 75 cents at the start of the year.

    "For now, the case has become very much an event-driven story, with leverage rising and depending on billions of asset sales," Correa said.

    CSN's net loss reached 532.7 million reais ($140 million) last quarter, compared with a shortfall of 250.1 million reais a year ago. The result, however, was smaller than the loss of 709 million reais estimated in a Reuters poll.

    More than 20 companies have shown preliminary interest in Sepetiba Tecon SA, a container terminal operator that CSN recently put up for sale, Chief Financial Officer Paulo Caffarelli said on the call.

    Read more at Reuters
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    Essar Steel appoints advisers to help find strategic investors

    The Hindu Business Line reported that under pressure from lenders, Essar Steel has appointed ICICI Securities & SBI Capital Markets as advisors to help identify and induct strategic investors into the company.

    This decision is in addition to the previously announced plans to monetise certain non-core assets to raise equity and infuse additional funds to enhance operations to full capacity.

    Earlier, Essar Steel had revealed a financial plan to sell two of its non-core assets to improve its liquidity, reduce debt and focus on core business area.

    According to the proposed plan, Essar Steel plans to hive off Hazira Coke Oven plant having a production capacity of 1.53 million tonnes per annum. The second one relates to 8 million tonnes per annum 267-km Visakhapatnam Slurry Pipeline (between Kiradul and Visakhapatnam)

    The company statement said that “The global steel industry is facing major headwinds due to falling steel prices and increased exports from China. The effects of these are already being seen in North America, Canada and Europe. Major steel companies across the world are taking suitable steps to cut costs and raise money.”

    It said that “India is no different and it is important that measures are taken now to maintain the long-term health of the steel industry. It is in this context that Essar Steel has taken a proactive decision to induct strategic / financial investors into the company.”
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