Mark Latham Commodity Equity Intelligence Service

Tuesday 15th September 2015
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    Australia to get new PM as Abbott loses out to rival Turnbull

    Australia will get its fifth prime minister in eight years after the ruling Liberal Party on Monday voted out Tony Abbott in favour of longtime rival Malcolm Turnbull following months of speculation and crumbling support from voters.

    Turnbull, a multi-millionaire former banker and tech entrepreneur, won a secret party room vote by 54 to 44, Liberal Party whip Scott Buchholz told reporters after the meeting in Canberra.

    Foreign Minister Julie Bishop was elected deputy leader of the party which, with junior coalition partner the National Party, won a landslide election in 2013.

    Since then, the popularity of the government and Abbott in particular has suffered from a series of perceived policy missteps, destabilising infighting and leaks.

    The opposition Labour Party has consistently led opinion polls, while Turnbull has been consistently viewed as preferred prime minister.
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    Karnataka to ban export of power by private sector power firms

    Economic Times reported that Karnataka will issue a notification on Monday banning private sector power generating companies from exporting power to outside entities under the short-term open access deal.

    These firms will be asked to supply power to the state's own distribution utilities. The proposed ban will hit private players like JSW, BMM Ispat, Agarwal Sponge & Energy, etc, who will have to divert STOA power to the state grid.

    However, the long and medium term open access deals signed by these firms to outside consumers will go on as usual. Energy minister Mr DK Shivakumar cleared a proposal to impose restrictions on power sales in view of the unprecedented power crisis in Karnataka, and laid his hands on every bit of possible power source. Karnataka requires about 185 MUs of power a day, while the availability has dropped to 135 MUs.

    Mr Shivakumar said that "I have already signed the file, and we are going to notify this tomorrow." His move is expected to fetch about 300 MW of power. The minister is exercising powers under Section 11 of The Electricity Act, 2003, which empowers the state to issue directions to private generating firms to ‘operate’ their station the way the government desires under extraordinary circumstances.

    There are also about 23 sugar mills that co-generate and export power to outside consumers and they will have to now close the tap to outsiders. The energy minister said their idea is to buy power at INR 5.08 a unit from them, but the final tariff is subject to the state power regulator's decision.

    Mr Shivakumar said that "We have also invited bids for 400 MW, and are requesting the Centre to give us about 1,500 MW from the Centre's unallocated share." The 400 MW is being sought for supply during night hours, but power experts are sceptical about getting this in view of the transmission bottlenecks. The Centre conceding to Karnataka's request is also doubtful, though Mr Shivakumar is pushing hard for it.

    The availability of power from hydel sources has crashed to 10 million units a day from what was 40 MUs a day this time last year. KPTCL engineers say they are drawing less power from hydel units to save whatever little power left for summer. In Bengaluru and surrounding districts, distribution utility Bescom has imposed long hours of load shedding to tide over the 3,000 MW of power shortage the state is battling against.

    Poor inflow into the three major hydel reservoirs of Linganamakki, Supa and Mani coupled with breakdown of generating units at Raichur and Bellary thermal power stations have aggravated the power crisis which experts believe is unlikely to end soon.
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    Moody’s downgrades Teck’s rating to below investment grade

    Risk management firm Moody's Investors Service on Monday became the first major ratings agency to downgrade Canadian diversified miner Teck Resources’ investment rating to below investment grade, or junk. 

    Citing expected prolonged commodity price weakness and big capital spending projects, Moody's VP and senior credit officer Darren Kirk stated that these items would keep the Vancouver-based company’s leverage well in excess of typical investment grade thresholds through at least 2017. 

    Moody's had downgraded Teck’s senior unsecured rating to Ba1 from Baa3 and assigned the company a Ba1 corporate family rating (CFR), an Ba1-PD probability of default rating and a SGL-2 speculative grade liquidity rating. Teck's ratings outlook remained negative, Moody’s advised. 

    Teck's Ba1 CFR was driven by its significant financial leverage and material free cash-flow consumption, offset by the diversity and scale of its business, low geopolitical risks, average cost position and good liquidity. Exposure to commodity price volatility, production and development risks, and meaningful capital expenditure (capex) requirements also constrained the rating. 

    Moody's expected Teck's adjusted debt versus earnings before interest, taxes, depreciation and amortisation (Ebitda) to increase to above 5.5x through 2016, incorporating a 1.32 US dollar:Canadian dollar exchange rate and base commodity price assumptions of $95/t for benchmark metallurgical coal, $2.35/lb for copper and $0.80/lb for zinc. 

    Moody's forecast steady, albeit modest improvement in these commodity prices beyond 2016, which should enable Teck's cash flows to strengthen in 2017. 

    The company's significant spending for its 20% stake in the C$13.5-billion Fort Hills oil sands project, in Alberta’s Athabasca region, 90 km north of Fort McMurray and controlled by its partner Suncor, came at a time when commodity prices were weak. 

    Teck's cash consumption was expected to be about C$1.5-billion in 2016 and C$1-billion in 2017. “Absent asset sales or other inorganic actions taken by management, this will further drive up debt levels and limit material improvement in Teck's adjusted debt/Ebitda,” Moody’s explained.
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    Oil and Gas

    OPEC sees higher demand for its oil in 2016 as rival output slows

    OPEC on Monday predicted higher demand for its crude oil next year, sticking to its view that a strategy of letting prices fall will curb supply from the United States and other rival producers.

    The monthly report from the Organization of the Petroleum Exporting Countries, however, trimmed its estimate for 2016 global oil demand growth and predicted a less dramatic slowdown in non-OPEC supply than the International Energy Agency.

    OPEC said it expected demand for its crude next year to average 30.31 million barrels per day (bpd), up 190,000 bpd from last month, despite slower demand growth overall due to a weaker outlook for Latin America and China.

    Oil is trading below $50 a barrel, less than half its level of June 2014. But OPEC has refused to cut output, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by OPEC's former policy of keeping prices near $100.

    "Despite moderate economic growth, recent data shows better-than-expected oil-demand in the main consuming countries," OPEC said in the report.

    "At the same time, U.S. oil production has shown signs of slowing. This could contribute to a reduction in the imbalance of oil market fundamentals, however, it remains to be seen to what extent this can be achieved in the months to come."

    OPEC expects supply from non-member countries to increase by 160,000 bpd next year, a downward revision of 110,000 bpd from last month and marking a sizeable slowdown from growth of 880,000 bpd in 2015.

    The 2016 forecast for U.S. tight oil production, also known as shale, was reduced by 100,000 bpd.

    But OPEC did not go as far as the IEA, which in its report on Friday said lower oil prices would force non-OPEC to cut output by the steepest rate in more than two decades next year.

    The producer group also expects the recent strength in oil demand growth to moderate. OPEC trimmed its estimate of 2016 world oil demand growth by 50,000 bpd to 1.29 million bpd.

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    Iraq targets record Basra oil exports in Oct, adding to global oversupply

    Iraq aims to export a record volume of Basra crude from its southern terminals in October as it ramps up production, adding to a global oil supply glut.

    The oil surplus combined with weakening demand has depressed global crude prices and pitted members of the Organization of the Petroleum Exporting Countries (OPEC) against each other in a battle for market share.

    Iraq, the largest OPEC producer after Saudi Arabia, plans to export 3.68 million barrels per day (bpd) of Basra crude, traders said on Monday, citing a preliminary loading programme.

    The volume, if realised, would beat a previous monthly record of 3.064 million bpd set in July.

    Iraq's decision to split its output into two grades, Basra Heavy and Basra Light, resolved quality issues, enabling the producer to ramp up output, industry sources said.

    However, the country tends to allocate more volumes than it can supply each month to avoid disrupting production as it has limited storage capacity to keep excess oil, one industry source familiar with the matter said.

    Iraq is unlikely to export more than 2.35 million bpd of Basra Light in October while the volume of Basra Heavy would not exceed 850,000 bpd, he said.

    Some of the October cargoes are also expected to be lifted in November instead, according to the source.

    Iraq cut official October selling prices (OSPs) for Basra Light and Heavy by 50 cents and $1.10 a barrel, respectively, from the previous month, but these reductions were unlikely to lift spot differentials given the glut, traders said.

    In October, Basra Light exports could jump by 800,000 bpd to about 2.8 million bpd, traders said, citing a preliminary loading programme.

    The grade has been performing well in the spot market, fetching premiums to its OSP for September-loading cargoes, but the potential jump in supply could depress differentials for cargoes loading in October, traders said.

    For Basra Heavy, exports could drop to about 900,000 bpd in October, according to the loading programme.

    That would be down from a planned 1.017 million bpd for this month, but remain elevated compared with 600,000-650,000 bpd in July and August, traders said.

    Basra Heavy crude sellers are struggling to find buyers for the high export volumes as refiners in Asia want to purchase and process the grade while similar quality Latin American grades can be had at cheaper prices.

    Basra Heavy's discount has dropped to as low as $2 a barrel for cargoes loading in September.

    Basra Heavy's OSP in the months ahead "will have to drop another dollar to compete with Latin American crude" like Colombia's Castilla and Mexico's Maya, a seller said.

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    Azeri SOCAR says oil price fall halves revenue

    Azeri state energy company SOCAR said on Monday it would transfer less money to the state next year as its revenues had halved due lower oil price.

    The former Soviet republic has had to devalue its currency following a sharp decline in the Russian rouble.

    "The decline in the oil price has affected our financial condition. Our revenues fell two times," Rovnag Abdullayev, the company's president, said.

    Abdullayev did not say to what level the company's revenue fell. Oil and gas account for 95 percent of Azeri exports and 75 percent of government revenues.

    The SOCAR president also suggested that next year's state budget should be calculated based on an estimated oil price of $50-$55 per barrel, down from $90 this year.

    The 2015 budget anticipates revenues of 19.4 billion manats ($18.5 billion) based on an estimated oil price of $90 per barrel, down from $100 last year. Brent crude is now trading around $50.

    SOCAR's Vice-President Suleiman Gasymov told Reuters in February that an average oil price of $60 per barrel would reduce the company's revenues by $510 million this year. In March, SOCAR placed $750 million worth of Eurobonds.

    According to SOCAR officials and independent analysts, the production cost of oil for SOCAR is estimated at $15 per barrel, while the oil production cost for BP, which operates some big energy projects in Azerbaijan, is $12 per barrel.

    SOCAR will also ask the central bank for a 1.8 billion manats ($1.7 billion) loan, mainly for building its $16.5 billion oil, gas and petrochemicals processing plant, Abdullayev said.

    Last year, it had delayed the completion of the complex, outside the capital Baku, by four years until 2030 due to a lack of funds.

    "We intend to get 1.8 billion manat worth of credit in the central bank," Abdullayev told reporters.

    He said 1.2 billion manats would be used for modernisation of the oil, gas and petrochemical plant, while the rest was expected to be used for current drilling projects.

    The first stage of the project, intended to replace SOCAR's ageing oil refinery as well as the Garadagh gas processing plant and facilities of chemicals firm Azerikimya, is estimated to be worth $2.1 billion.

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    China's NDRC will cut natural gas prices for non-residential users

    China's NDRC will cut natural gas prices for non-residential users by CNY0.5-0.6 per cubic meters, or nearly 20%: MNI...Zerohedge

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    Lukoil says could sell treasury shares to raise funds

    Lukoil, Russia's No.2 oil producer, may sell its treasury shares to raise money or distribute them among shareholders, Chief Executive Vagit Alekperov was quoted as saying on Monday.

    Earlier this month, Lukoil, where Alekperov and his deputy, Leonid Fedun, are the largest private shareholders, said its Cypriot unit had increased the percentage of shares held by the company in treasury to 16.2 percent from 11.25 percent.

    Alekperov, who held a stake of around 23 percent in Lukoil as of the end of 2014, told the Rossiya-24 TV channel on Monday that the company could use treasury shares to raise money, among other options.

    "The first way is to sell them on the stock market and to raise funds for large-scale projects. The second one -- to distribute among our shareholders," Alekperov was quoted as saying. He added the firm had yet to choose a preferred option.

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    Petrobras chairman to take leave, to focus on job as Vale CEO

    Murilo Ferreira will take a leave of absence as chairman of state-run oil firm Petrobras, turning his full attention to his job as chief executive of Vale SA as the mining giant grapples with a downturn in the sector.

    Petroleo Brasileiro SA, as the company is formally known, did not give a reason for Ferreira's leave, which it said would last until Nov. 30. A company source told Reuters he had requested time off to focus on Vale as it navigates a slump in iron ore prices and a slowdown in China.

    Ferreira, 62, who has been CEO of Vale since 2011, was appointed chairman of Petrobras in April as it looked to send a market-friendly signal after a giant corruption scandal resulted in billions of dollars in writedowns.

    At the time some mining executives criticized the move, saying Vale was going through a difficult patch and needed the full focus of its CEO. Ferreira shrugged off concerns, saying the double job would only eat into his "leisure time."

    But the world's largest producer of iron ore has continued to struggle. Shares in Vale have lost nearly 40 percent over the past 12 months and touched their lowest in a decade last month.

    Analysts predict the price of iron ore .IO62-CNI=SI, the main ingredient in steel, will stay low for years after falling more than half since last year.

    Despite being one of the world's lowest-cost producers of the mineral, Vale has found itself in a tight spot as its investments are well above those of Australian rivals BHP Billiton and Rio Tinto. Vale is in the process of building a giant iron ore mine in the Amazon known as S11D. The expansion is the world's largest iron ore project at the moment.
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    Mexico’s finance ministry sets minimum fiscal terms for September auction

    Mexico’s finance ministry has set the minimum fiscal terms companies will be required to meet in order to win development rights in an upcoming oil auction.

    The country is gearing up for the second round of its auctions in its Round One tender after an historic energy overhaul last year.

    The minimum amount of profits required to win development rights varies slightly by contract.

    The minimum value of pre-tax profits for the five offshore extraction contract up for grabs range between 30.2 and 35.9%.

    The National Hydrocarbons Commission, known by its Spanish-language acronym CNH, is the oil regulator that will run the September 30 auction.

    The minimum amount of profits required to win development rights varies slightly by contract.

    At the high end, the second contractual area, which covers the Hokchi field, is set at 35.9 percent. Bids for the fifth contractual area on offer, covering the Mision and Nak fields, will require at least 30.2 percent of pre-tax profits for the government.

    The five production-sharing contracts covering nine oil and gas fields will be awarded by the CNH based on which company or consortium offers the biggest share of pre-tax profits to the government via a weighted formula that also includes an investment commitment.

    The share of profits is 90 percent of the formula, while the investment commitment accounts for the remaining 10 percent.

    However, the newly released terms do not require bidders to offer a additional minimum work program investment, although previously established taxes and royalties will also apply.

    The contracts are for shallow water exploration and production of tracts located along the southern rim of the Gulf of Mexico near the country’s best-producing offshore fields, Ku-Maloob-Zaap and Cantarell.

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    “There’s just no cash.”

    “There’s just no cash.” That’s the Coles Notes from a senior banker describing the book of oil service loans he manages for one of Alberta’s leading lenders. There’s simply not enough cash flow to support current levels of debt.

    Bankers and borrowers have kicked the can down the road about as far as they can as more oilfield service (OFS) and exploration and production (E&P) companies default on their loans and seek more relief on lending covenants. While a significant oil price increase to lift all the sinking boats will surely come, it won’t happen soon enough. More of the same won’t work.

    Oil industry debt is everyday news. But the discussion is about the symptoms, not the ailment.

    Companies cannot borrow their way out of debt. Equity capital is only available at distressed valuations. Specialized OFS assets will fetch only a fraction of replacement cost—if somebody actually wants them. Although oil and gas reserve valuations are down by half, borrowers are being forced to sell them anyway to repair balance sheets. The last four months of 2015 will be very difficult for any company with meaningful amounts of debt. Same for their lenders, the other signatories to the loan agreement.

    As the banker said, “There’s just no cash.” Here’s what it means.

    The foundation of global credit markets is based upon the borrower’s capability, obligation and commitment to pay the money back. The amount of money anybody can or should borrow is dependent upon free cash. Not forecast cash flow, not earnings before interest, taxes, depreciation, and amortization (EBITDA), not good intentions. Free cash. How much money is available to service debt after all the other bills are paid. This is the key factor behind every credit application, from a car loan or home mortgage to an operating line of credit or senior secured term debt. The more free cash you generate, the more you can borrow. When free cash drops, the opposite is true.

    But what happens when an entire industry can no longer service previous levels of debt?

    ARC Financial produces a weekly chart calculating revenue, spending and upstream cash flow for the entire Canadian E&P sector for the current and preceding 14 years. Selected data has been reproduced below. MNP added 1998, 1999 and 2000 from prior reports. ARC calculates total revenue from all oil and gas produced, then deducts direct lifting and operating costs, taxes and royalties and the administrative cost of running the business. The result is “after-tax cash flow,” which is the free cash available for exploration, development, dividends and, of course, debt servicing.

    Revenue/CashflowGross revenue from production sales is in blue and after-tax cash flow in red. The green line is 2015’s estimated cash flow compared to prior years. The figures are not corrected for inflation.

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    North Dakota oil output down only slightly in July

    North Dakota's daily oil production fell less than 1 percent in July, state regulators said on Monday, a drop far less than many feared and one showing the state's Bakken shale formation could continue pumping high volumes of crude for the foreseeable future despite sliding prices.

    The state, the No. 2 U.S. crude producer, had output of 1,201,920 barrels of oil per day (bpd) in July, down from 1,211,328 bpd in June, according to the Department of Mineral Resources, which reports on a two-month lag.

    The slight dip in output came despite a more than 50 percent plunge in crude prices in the past year that has eroded the oil industry's profitability. Indeed, North Dakota's drilling rig count has dropped alongside the price of oil, and is 12 percent below June levels.

    Yet advances in technology and efficiencies have helped the productivity of each drilling rig roughly double in the past year, helping the industry do more with less.

    Highlighting that gain, the number of producing wells in North Dakota hit 12,940 in July, an all-time high.

    Natural gas production rose slightly in the month to about 1,657,138 million cubic feet per day, also an all-time high.
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    North Dakota may let more oil wells be temporarily idled

    North Dakota's oil regulators said on Monday they may allow more wells to be temporarily abandoned, a step that would permit producers to delay fracking beyond the typical one-year window and prevent even more crude from flooding onto global markets.

    The change would fuel massive savings for oil producers in the state who have amassed a backlog of almost 1,000 wells that have been drilled but not completed with processes needed to get the oil flowing. The delays are designed solely to ride out the roughly 50 percent drop in crude prices since last year.

    Any regulatory change in North Dakota also would assuage market concerns about supply continuing to outstrip demand at a time when Iraq, Saudi Arabia and other OPEC members show little sign of curbing their own output.

    While no decision has been reached, the North Dakota Department of Mineral Resources (DMR) is "leaning toward" sharply increasing the number of requests to temporarily abandon wells, director Lynn Helms told reporters on a conference call.

    "It's just going to be a whole lot better for everyone if we store the oil in the shale formation instead of in Cushing, Oklahoma," Helms said, a reference to the popular crude storage hub near the geographic center of the United States.

    Producers currently have one year to frack and start producing oil from a well. If that window passes, the DMR warns producers they have six months to plug the well or start producing oil. It then moves to confiscate the well if nothing has been done by the end of that six-month window.

    The number of North Dakota wells waiting to be completed rose by 70 to 914 in July, and most of them have one-year windows that expire in December, Helms said.

    Any decision to allow a well to be temporarily abandoned would be on a case-by-case basis, he said.

    "It's a delicate balancing act because royalty owners expect to get royalties from those wells," Helms said.

    The one-year window has loomed over corporate budget planning, with many producers hoping to wait as long as possible to bring new wells online.

    For example, EOG Resources Inc, which has one of the largest number of North Dakota wells waiting to be fracked, told investors last week it would spend most of its capital budget in early 2016 on fracking new wells.

    The rule change could abrogate the need for EOG and peers to start fracking come January.

    "This sends a signal to the global markets that the state is not going to force even more oil out there," Helms said.

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    China begins nationwide nuclear safety checks after Tianjin blast

    China has begun a nationwide safety inspection into all its existing nuclear facilities in the wake of an explosion at a chemical warehouse at the port of Tianjin last month that killed more than 160 people.

    The inspections will last until November and will focus on the manufacturing and utilization of nuclear equipment and technology, equipment used at uranium mines, and nuclear radiation risks, the Ministry of Environmental Protection said in a notice late on Monday.

    China is embarking on a rapid nuclear construction program that aims to raise total capacity to 58 gigawatts (GW) by the end of 2020, up from 23 GW at the end of July, and it also has ambitions to build its new reactor designs overseas.

    Though none of China's existing reactors has experienced any serious accidents, the country's entire nuclear construction program was suspended in 2011 following the Fukushima disaster in Japan. A moratorium on new project approvals until early this year has put the 2020 target in doubt.

    After Fukushima, Beijing promised to adhere to the highest possible "third generation" safety standards in all new projects.

    But one high-profile third-generation project, the world's first Westinghouse-designed AP1000 reactor in eastern coastal Zhejiang province, has been repeatedly delayed as a result of design flaws and tougher safety checks.
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    Base Metals

    CNMC says followed the law in closing Zambian copper mine

    China's CNMC Luanshya Copper Mines followed Zambian law when it closed the Baluba mine and sent more than 1,600 workers on forced leave due to plunging prices and energy shortages, the company said on Monday.

    CNMC Luanshya Copper Mines spokesman Mr Sydney Chileya said in a statement “As a law abiding corporate citizen, we have always followed the Zambian laws and it did not plan to make employees redundant. Those placed on forced leave would receive a monthly allowance and other entitlements such as medical cover.”

    Mr Chileya said the entire Luanshya Mine would have collapsed within three months if the company had not suspended production at Baluba.

    Zambia had threatened to revoke Luanshya's mining licence if the company did not reinstate workers.

    The Mine Workers' Union of Zambia (MUZ) said on Saturday it would challenge the decision, which it alleged was made without consulting labour unions.

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    Alcoa to cut remaining capacity at Suriname refinery

    Alcoa Inc said it would cut remaining capacity at its Suralco alumina refinery in Suriname and take a related restructuring charge of $65 million-$75 million.

    The company said it would curtail 887,000 metric tons in refining capacity by Nov. 30.

    Alcoa said in March it would evaluate 2.8 million metric tons of refining capacity for possible curtailment or divestiture.

    On a per share basis, the company expects a charge of $0.05-$0.06 per share in the second half of 2015, half of which it will record in the third quarter.
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    Ford F-150 2016 model parts to be made of Alcoa's Micromill aluminium

    Ford Motor Co will begin in the fourth quarter to use multiple components in its high-selling F-150 pickup model made from an advanced Alcoa Inc aluminium alloy that is tough enough to replace steel parts yet significantly lighter, both companies said on Monday.

    The two corporations also announced a joint development agreement to collaborate on using next-generation aluminium produced through Alcoa's new "Micromill" process in other vehicles.

    The deal with the automaker is a high-profile first for Alcoa's Micromill - Ford's F-Series pickup trucks have been the best-selling model in the United States since 1982. The full-size pickup truck is a key profit generator for the No. 2 U.S. automaker.

    Automakers have turned to lighter aluminium alloys instead of high-strength steel, which is far heavier, to build more fuel-efficient vehicles that still meet safety standards.

    Last year, Ford rolled out its 2015 F-150 with an aluminium alloy body that made it 700 pounds (320 kg)lighter than earlier models, boosting fuel efficiency.

    "The fact that is one of the crown jewels of the company shows our faith in the (Micromill) technology," Ford chief technology officer Raj Nair told Reuters.

    The first components using the new aluminium alloy will appear in the 2016 year model F-150, including for the tailgate and the bed of the pickup truck, adding to the vehicle's towing and hauling capabilities, Nair said. Micromill will be used to make more parts in more Ford vehicle platforms in years to come.

    The alloy is part of New York-based Alcoa's strategy of investing in more advanced aerospace and automotive products while selling off some of its more traditional yet costly smelting facilities. The metals firm is in talks with eight other automakers on using Micromill technology.

    Unveiled by Alcoa in December, Micromill produces high-strength aluminium alloy that goes from molten metal to cooled, coiled metal in 20 minutes versus the 20 days it takes to roll conventional aluminium.

    The alloy is 30 percent stronger that regular aluminium and 40 percent more formable, meaning it can be shaped into more intricate forms, including inside car door panels or fenders.

    In a separate announcement, Alcoa said it had agreed to license intellectual property associated with Micromill's alloys and process technology to Italy's Danieli Group.

    Alcoa will also grant Danieli exclusive rights to sell Micromill equipment for a limited period, targeting potential customers in Europe, South America and Southeast Asia.
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    Steel, Iron Ore and Coal

    China Aug coke output down 6.6pct on year

    China produced 37.35 million tonnes of coke in May, falling 6.6% from a year ago and down 0.9% from July, showed data from the National Bureau of Statistics (NBS) on September 13.

    That was the seventh straight yearly decline, mainly due to low operation rates of coking plants amid weak demand and the environmental protection pressure.

    Over January-August, total coke output of China reached 301.47 million tonnes, down 4.2% year on year, the NBS data showed.

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    China's five year plan sees 50% drop in growth rates.

    China planned to cut coal consumption share from the present 66% to 60% or less in total energy consumption by 2020, one senior official with the National Development and Reform Commission (NDRC) said on September 11.

    China’s energy demand is forecasted to grow at an average annual rate of 3.3% during the 13th Five-Year Plan period over 2016-2020.

    Total domestic energy consumption is expected to some 4.8 billion tonnes of standard coal equivalent in 2020, and coal consumption will total some 3.9 billion tonnes in 2020.

    China's energy consumption has witnessed an average 7.9% annual growth over the past 14 years. Coal is still dominant in the country’s energy mix, comprising about 66% of its total energy consumption. Some 4.26 billion tonnes of standard coal equivalent were used in 2014, according to the National Energy Administration (NEA) figures.

    Non-coal-fired power generating units could satisfy all new power demand of the country after 2020. Besides, coal consumption may realize negative growth at major air-polluted areas, and clean utilization of coal will be further promoted.

    Meanwhile, China’s natural gas consumption is planned to reach 350 billion cubic meters in 2020.

    China would also see its non-fossil energy consumption accounts for 15% of the total primary energy consumption by 2020.

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    Adaro Energy to lower coal output next year

    The Jakarta Post reported that Jakarta-listed coal miner PT Adaro Energy will likely cut down production at its mining site next year following ongoing decline in the commodity’s price.

    Mr Garibaldi Thohir, Adaro president director, said that his company was looking at output in the range of 52 million to 54 million tons next year, which would be up to 7 percent lower compared to this year’s target of between 54 million to 56 million tons. The main driver of the cut is the low price.

    Mr Garibaldi said that “We sell most of our coal under long term contracts and only a few we offer on the spot market. We will reduce the amount [of coal offered] on the spot market.”

    Coal miners worldwide have been reporting weak trade following the plunge in oil prices, which has been mainly caused by weakening global demand while other energy sources, particularly the shale gas and oil, are on the rise.

    Indonesia, a major thermal local exporter, set its coal price reference (HBA) for 6,322 kcal/kal coal at a new low level of USD 58.21 per ton for September, which is already 8.8 percent lower compared to a reference price of USD 63.84 per ton set in January. The September price is around 54 percent lowered compared to the all-time-high HBA price of USD 127.05 per ton set in February 2011.

    Adaro reported it sold its coal at a 13 percent lower average selling price during the first half of the year compared to the price in the same period last year. In terms of volume, the company sold 26.6 million tons of coal during the January to June period, or 6 percent lower compared to the same period last year.

    Following the continuing decline in prices, Adaro also recently adjusted its production target for this year to between 54 million and 56 million tons per year from an initial plan of between 56 million to 58 million tons.

    He said that “The company’s coal output for this year has already been fully contracted.”
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    CEA identifies old power plants to be replaced by super critical units

    Image Source: Top NewsBusiness Standard reported that power projects with total generation capacity of 36,000 MW, which are more than 25 years old, need to be replaced in a phased manner. The Central Electricity Authority, which recently held a comprehensive review with states, suggested that utilities need to explore possible options to utilise existing land and other facilities in most effective manner in view of land being scare.

    CEA has said that replacement of old units by new super critical units is being encouraged by the Centre and the necessary guidelines have been issued for automatic transfer of coal linkage from old and inefficient units.

    CEA has brought to the states' notice that the Centre has proposed capacity addition of 84,600 MW during 13th plan through super critical units. The retirement, renovation and replacement of old units by super critical units will also contributed towards proposed capacity addition.

    Sources in the know said that “Some of the old generation plants have plant load factor ranging between as low as 1% and 14%. States have been asked to soon submit plant-wise plan for retirement, replacement, renovation of such old plants. CEA will hold its next meeting in the third week of September to finalise the action plan.”

    CEA believes that replacement of sub critical old and inefficient thermal units by super critical units will enable effective utilisation of already available scarce resources like land, water and coal.

    Some of the states including Maharashtra, Haryana, Rajasthan, Gujarat, Madhya Pradesh and Tamil Nadu have already expedited the replacement process including terms of reference for the environment clearance obtained from the Union ministry of environment and forests.
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    India imposes 20 pct duty on some foreign steel products as imports surge

    India imposed a 20 percent import tax on some steel products with immediate effect on Monday, Finance Minister Arun Jaitley said, as the government investigates a threat to domestic companies from rising imports from China, Japan, South Korea and Russia.

    "Notification is being issued imposing a provisional safeguard duty effective from today on hot-rolled flat products of non-alloy and other alloy steel in coils of a width of 600 mm or more at the rate of 20 per cent ad-valorem for a period of 200 days," the finance ministry said in a statement.

    The products subject to the new tax together accounted for more than half of the 5.5 million tonnes of steel imported in the last fiscal year into India, the only major market that is expanding at a time when top consumer and exporter China is slowing.

    Indian steel companies, struggling to compete due to higher borrowing and raw material costs, have in recent months successfully lobbied to get duties on some products raised to 12.5 percent and quality checks strengthened.

    But those duties did not apply to Japan and South Korea, countries with which India has free-trade agreements, prompting the companies to seek a safeguard duty that applies to all.

    An Indian steel company executive, who declined to be named, said the so-called safeguard duty would not completely halt imports of the products but would prevent foreign suppliers from "predatory pricing" when local production is rising.

    Acting on a complaint lodged jointly by Steel Authority of India (SAIL), JSW Steel and Essar Steel , the Directorate General of Safeguards said last week any delay in implementing the duty would cause such damage to the local industry that it would be "difficult to repair".

    Attached Files
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    Tokyo Steel cuts product prices for October, first cut in 11 months

    Tokyo Steel Manufacturing Co , Japan's top electric arc furnace steelmaker, said on Tuesday it will cut the price of products for delivery in October by 5,000 yen to 13,000 yen ($42-$108) a tonne due to a rise in cheap imports and slack domestic demand.

    The move marks its first price reduction in 11 months.

    The company's pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which export to Japan.

    Prices for Tokyo Steel's main product, H-shaped beams, which are used in construction, will fall by 7,000 yen, or 9 percent, to 70,000 yen ($582) per tonne in October.

    "The price cut is to reflect the current spot market in Japan which has been pressured by slow demand in construction due to delayed projects and high inventories of steel sheets," Tokyo Steel's Managing Director Kiyoshi Imamura told reporters.

    "In addition, steelmakers overseas including in China, South Korea and Taiwan are stepping up their efforts to sell products at a discount to Japanese users. That weighs on the prices here," he added.

    Imamura said he expected construction demand to improve later this year, and hoped to signal to buyers through a single large price cut that steel prices were bottoming out.

    Attached Files
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    Steel rebar futures at SHFE dips on demand worries in China

    Image Source: southernstructuralsteelReuters reported that Shanghai steel futures dropped 1 percent on Monday on worries over lean seasonal demand. The most traded rebar for January delivery on the Shanghai Futures Exchange was down 1 percent at CNY 1,937 a tonne by 0254 GMT, after touching a low of CNY 1,928

    Chinese spot steel prices slipped over the weekend, traders said, indicating slack demand at a time when consumption of the building material typically picks up along with construction activity after the summer hiatus. A trader said “I still believe there will be some increase in demand this month and October. I just don't know how strong demand will be and if it will be enough to support prices.”

    Billet sold in China's key Tangshan area dropped 10 yuan to 1,750 yuan per tonne over the weekend.
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    Canada imposes anti dumping duty on Russian and Indian steel plates

    Image Source: wordpressUnian reported that Canada has imposed anti-dumping duties on Russian and Indian steel in an attempt to protect domestic producers from competition from the states with weakened currency, according to Canada Border Services Agency. Temporary duty imposed on the hot rolled carbon steel plates and HSLA (high strength light alloy) steel plates.

    Canada has introduced a fee of 239.4% on steel plates from Russia, but for Severstal company, the customs duty will amount to only 50.9%.With regard to the Indian producers, Canada has introduced a fee of 240.8%.

    Fees apply to products that have been reported to the Canadian customs after September 8.

    The final decision on the results of Canada’s investigation is expected to be taken at the beginning of next year.

    The complaint was originally filed by Essar Steel Algoma, the Canadian arm of Essar Steel. The complaint was filed in April this year seeking import duty on carbon and high-strength low-alloy steel plates, mostly of 5-10 mm thickness.

    Essar Steel Algoma has said “In our complaint, we identified 58 subsidy programmes, which we feel have provided actionable benefits to Indian plate producers and are therefore countervailable under Canadian law.”
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