Mark Latham Commodity Equity Intelligence Service

Friday 4th March 2016
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    Who's Running Brazil? Chaos Builds as Rousseff Ducks Her Allies

    When President Dilma Rousseff of Brazil extended her visit to Chile last weekend, she was not engaging in an act of international relations but of domestic avoidance. Her Workers’ Party was holding anniversary celebrations in Rio de Janeiro and if she had shown up as planned, there would likely have been more than a few boos.

    All across South America, plunging oil and commodity prices have caused political instability, but Rousseff ranks among the least popular heads of government. Since she began her second term 14 months ago, a wide corruption probe and deep recession have gnawed away at her support, nearly paralyzing the government and causing many now to wonder how she can continue and who is in charge.

    "There is no type of leadership, everyone is pulling in a different direction," Luiz Fernando Figueiredo, former central bank director, said in an interview. "Without a doubt the possibility of impeachment is gaining momentum. Over the past three to four weeks, we’ve reached a boiling point."

    This week, Justice Minister Jose Eduardo Cardozo became the third cabinet member in five months to resign under party pressure, as members express anger with austerity measures and the probe into kickbacks at state-run oil company Petrobras that has locked up several of their former leaders.

    Investigations are even encroaching on former President Luiz Inacio Lula da Silva, with the latest threat coming on Thursday after local media reported a former government leader in the Senate allegedly negotiated a plea bargain that could potentially drag Lula and the president deeper in to the corruption scandal and accelerate her ouster. Investors have actually begun bidding up the currency and stocks -- the benchmark gauge snapped back into bull market territory Thursday after plunging last year -- as a bet that impeachment would resolve the impasse; it’s a curious gamble given that such a development could drag on for months and trigger a battle for power.

    While the rank and file of the Workers’ Party, known as the PT, are still rallying behind Lula in spite of the corruption probe, what they ask of Rousseff is that she scales back on budget cuts and returns to the party’s traditional leftist values. That leaves her stuck between her party and the more pro-market Brazilian Democratic Movement Party, or PMDB, her largest ally in Congress.

    During the anniversary celebrations last weekend, Lula was honored as a hero and figured prominently in the party’s TV ads. By contrast, Rousseff has alienated members for having cut labor benefits, hiked interest rates, and proposing to increase the age of retirement. Moreover, her campaign strategist has been arrested amid reports that her 2010 presidential bid received illegal donations from a construction company.

    Rousseff’s press office declined to comment on this story.

    The president is now so isolated that her ability to stay the course of austerity is severely compromised as are her chances of fending off efforts to remove her.
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    Moody's downgrades BHP Billiton's debt

    Credit ratings agency Moody's Investors Service cut its ratings on BHP Billiton Plc to "A3" from "A1", citing a deterioration in the company's earnings and cash flow, and said the outlook on the ratings was negative.

    A slump in the prices of commodities such as copper and iron ore has put the balance sheets of miners the world over under strain.

    Moody's said it expected BHP's credit metrics to remain substantially weaker as low commodity prices and softer demand fail to offset changes in the company's dividend policy.

    BHP abandoned its progressive dividend policy and slashed its interim dividend by nearly three quarters last week in order to conserve cash.

    The miner has long maintained that a solid "A" level credit rating is its top priority. It said it had $25.9 billion of debt at the end of 2015.

    Last month, Standard & Poor's also cut the company's debt ratings to "A" from "A+".
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    Oil and Gas

    Nigeria says OPEC, non-OPEC producers to meet in Moscow on March 20

    Some members of the Organization of Petroleum Exporting Countries plan to meet with other producers in Russia around March 20 for new talks on an oil output freeze, Nigeria’s petroleum minister said on Thursday.

    "We're beginning to see the price of crude inch up very slowly. But if the meeting that we're scheduling, it should happen in Russia, between the OPEC and non-OPEC producers happen about March 20, we should see some dramatic price movement," he told a conference in Abuja.

    "Both the Saudis and the Russians, everybody is coming back to the table," he said. "I think we're very humbled today to accept that if we get to a price of $50, it will be celebrated. That's a target that we have."

    Benchmark Brent futures LCOc1 were around $37 per barrel at 1215 GMT (0715 ET) on Thursday.

    No decision on the date or venue of a possible meeting between OPEC and non-OPEC producers has been made yet, a Gulf OPEC delegate said on Thursday.

    "There has been no decision made regarding the meeting yet. No date or location decided yet. The Gulf countries prefer that it would be held in the first half of April, and preferably in Doha, or some other Gulf city," the delegate told Reuters.
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    Iran hopes to raise March oil exports on higher European sales - sources

    Iran, OPEC's No. 3 producer, is expected to raise its oil exports in March to around 1.65 million barrels per day from 1.5 million bpd a month earlier on the back of higher crude shipments to Europe, two industry sources told Reuters on Thursday.

    State-run National Iranian Oil Co. (NIOC) is expected to ship around 250,000-300,000 bpd to Europe this month after it finalised term deals with France's Total and Spanish refiner Cepsa, effective from March 1, said the sources, who are familiar with Iran's exports.

    The French oil major has a contract to buy about 200,000 bpd, while Cepsa's deal was for about 35,000 bpd, one source said. Total is expected to lift at least 5 million barrels in March, the source added.

    Litasco, the trading arm of Russia's Lukoil, Cepsa and Total have become the first buyers in Europe after the lifting of sanctions and lifted trial cargoes in February, trading sources told Reuters.

    Hellenic Petroleum, Greece's biggest oil refiner, has said it will receive its first shipment of Iranian crude oil at the end of March.

    Tehran is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. Oil exports rose by 500,000 bpd to 1.5 million bpd in February, a senior NIOC official said on Tuesday.

    The sanctions had cut Iranian crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.

    Tehran has said it would boost output immediately by 500,000 bpd and by another 500,000 bpd within a year, ultimately reaching pre-sanction production levels of around 4 million bpd seen in 2010-2011.

    But even a gradual increase in its exports would come at a time of global oversupply, with producers around the world pumping hundreds of thousands of barrels every day in excess of demand. Oil prices are near 11-year lows at around $37 a barrel.

    Saudi Arabia, Qatar, Venezuela and non-OPEC Russia agreed last month to freeze output at January levels in the first global oil pact in 15 years.

    Iranian Oil Minister Bijan Zanganeh said last week the freeze was "laughable". Iranian sources say the country would be prepared to discuss a production pact once output reaches pre-sanctions levels.
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    Brazil January oil, natural gas output falls to 14-month low

    Output of oil and natural gas in Brazil fell to its lowest in 14 months in January as companies performed maintenance on offshore oil platforms, the country's petroleum regulator ANP said on Thursday.

    Forty-three companies in Brazil produced an average of 2.965 million barrels of oil and equivalent natural gas a day (boepd) in the month, 3.6 percent less than a year earlier and 6.3 percent less than it produced in December.

    Petroleo Brasileiro SA, or Petrobras, plans to increase oil platform maintenance shutdowns through June, taking advantage of low oil prices and low demand to fix and upgrade equipment, Reuters reported on Monday.

    Petrobras was the biggest producer in January despite the platform shutdowns. It accounted for 2.408 million barrels a day of output in the month, or 81 percent of Brazil's total.

    BG Group Plc, which became part of Royal Dutch Shell Plc on Feb. 15, was the second largest producer, with 206,778 boepd.

    Together, Shell and BG would have had 240,868 boepd. Shell was the No. 6 producer in the month with 34,090 boepd.

    Shell expects its output in Brazil to quadruple to about 1 million barrels a day by 2020, the company said last month.

    Attached Files
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    Kurds Tighten Grip on North Iraq Oil Fields With Kirkuk Deal

    Iraq’s self-governing Kurds are cementing control over oil produced in the north of the country by agreeing to pay for crude pumped in Kirkuk province, a contested area that Kurdish forces occupied after federal troops fled ahead of advancing militants.

    The accord covers oil produced in Kirkuk and exported through a Kurdish-controlled pipeline to Turkey, Kirkuk Governor Najmuddin Omar Karim said in an e-mailed statement. The Kurds agreed to deposit $10 million a month into a dedicated bank account for Kirkuk, which received no oil revenue from Iraq’s central government from June 2013 until June 2015, he said Wednesday.

    Pipeline exports from northern Iraq to the Mediterranean port of Ceyhan, Turkey, are still halted, Karim said. Shipments have been suspended since Feb. 16 after attacks on the link inside Turkey, according to the Kurdistan Regional Government.

    The financial arrangement between the Kurds and Kirkuk is in line with an earlier agreement about cooperation in the energy industry, a KRG official in the Kurdish city of Erbil said Wednesday in an e-mailed statement. The official couldn’t comment on details of the new accord, he said, declining to be identified in accordance with KRG policy.

    Kurdish Reserves

    Iraq’s minority Kurds, who historically have chafed at control by governments in the capital city Baghdad, are independently developing oil reserves they say may total 45 billion barrels -- equivalent to almost a third of Iraq’s total deposits, according to data from BP Plc. The KRG and the central government have traded accusations of breaches to a December 2014 agreement that provided for the Kurds to export their oil through the national oil company in return for cash from authorities in Baghdad.

    The failure of the two sides to settle differences over how to share revenue from oil sales has added to uncertainty about crude supplies from northern Iraq.

    The Kurds produced an average of 577,000 barrels a day of oil in 2015, with exports averaging 421,000 barrels a day, according to a report issued last month by the KRG’s Natural Resources Ministry. The figures include oil pumped from Kurdish-controlled deposits in Kirkuk.

    Iraq’s state-run North Oil Co. exported about 150,000 barrels a day through the Kurdish pipeline to Ceyhan before shipments were halted in February, according to the KRG. North Oil, which operates within Iraq’s oil ministry, will change its name to Kirkuk Oil Co., said Karim, the Kirkuk governor.

    Iraq, the second-largest member of the Organization of Petroleum Exporting Countries, produced a total of 4.385 million barrels a day in February, data compiled by Bloomberg show, with most of the oil produced and exported from southern fields.

    Attached Files
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    China 2016 crude oil import growth may exceed 800,000 bpd -analyst

    China's crude oil imports may rise by more than 800,000 barrels per day this year, boosted by storage needs, robust gasoline demand and fuel exports, an executive from a Beijing-based consultancy said on Thursday.

    The jump in imports, if realised, could see China overtaking the United States as the world's largest crude importer after China's average crude imports hit a record 6.71 million bpd in 2015, up 8.8 percent from a year ago.

    China is expected to import 860,000 bpd more crude this year, Yao Li, chief executive of SIA Energy said at a Platts conference.

    Independent refiners who recently received import quotas, have become a driver of Chinese crude demand and their preference for low-sulphur oil could cause producers from Venezuela and the Middle East to lose market share, Li said.

    "China's crude oil slate will become sweeter and lighter because of production yield requirement and as independent refiners prefer low-sulphur crude due to cost advantage," she said.

    "Middle East producers will probably lose more market share. Russian ESPO is the biggest winner."

    China's domestic oil consumption is expected to grow by 410,000 bpd as strong car sales boost gasoline use in the world's second largest economy, Li said. The estimate is higher than that of the International Energy Agency which sees China's oil demand growing by 330,000 bpd to 11.51 million bpd in 2016.

    SIA Energy's Li expects Chinese fuel exports to rise by 330,000 bpd this year as local refiners, driven by strong margins, have increased output, although this will be offset by incremental imports of 120,000 bpd, including mixed aromatics for gasoline blending.

    Most of the exports will be from state refiners rather than private companies as they have weak trading capabilities, Li said. Private refiners are "more likely to compete in the domestic market", she added.

    China is also expected to import 240,000 bpd more crude than last year to fill storage tanks for strategic and commercial purposes, Li said.

    More imports are also needed to replace falling domestic crude production, she said.
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    Origin: APLNG officially commences operations phase

    Origin Energy, the owner of a 37.5 percent stake in the Australia Pacific LNG said on Thursday the project has officially transitioned to the operating phase.

    The project, that has shipped its first cargo on January 9 has since then shipped additional five cargoes of liquefied natural gas, Origin said in a statement.

    Australia Pacific LNG CEO, Page Maxson in an earlier statement said that the full production capacity of 9 million tons per year from the APLNG facility is expected to be reached in 2016.

    Australia Pacific LNG is a joint venture between ConocoPhillips, the operator with a 37.5 percent stake, Origin 37.5 percent stake and Sinpec with a 25 percent stake.

    Sinopec also has a 7.6 mtpa long-term contract with Australia Pacific LNG.
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    Vitol seeks partner in VTTI oil storage business -sources

    Vitol, the world's top oil trader, is looking to sell a stake in wholly owned storage company VTTI, in a bid to cash in on one of its most profitable businesses in the current downturn in crude prices, several banking and industry source said on Thursday.

    Oil storage companies have lately enjoyed booming business as traders and oil companies held increasing amounts of crude and refined products in tanks in the face of huge oversupply.

    Besides the immediate financial rationale, a stake sale could also allow Vitol to mitigate risk surrounding future oil prices and demand changes. For buyers, such a deal could offer an opportunity to access Vitol's large trading operations and VTTI's many storage outlets around the world.

    "A partner makes sense for Vitol both financially and strategically," a source close to the process said.

    Vitol's sale plan comes after the company last August acquired the other half of VTTI from Malaysian shipping company MISC Bhd for $830 million, taking full control of the company headed by Chief Executive Rob Nijst. The deal was completed in November.

    The sources did not say what size of stake Vitol is interested in selling or at what price, but the Swiss-based trader will remain majority holder in any case, two of the sources said. The process is being run by Citi, they added.

    A Citi spokesman declined comment and a Vitol spokeswoman also would not comment.

    VTTI BV has total gross storage capacity of 54 million barrels, including assets under construction, the company said last year.
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    India wants to store OPEC’s crude

    Prime Minister Narendra Modi’s message to OPEC is come and store crude oil in India.

    Modi’s Feb. 29 budget exempts foreign companies from federal income taxes on permitted local sales of oil kept in caverns India has been building. That may spur the Organization of the Petroleum Exporting Countries to fill the bunkers, allowing Modi to skirt the full cost of about $5 billion for stockpiling a targeted 130 million barrels.

    “This is a good way to fill up the caverns,” said Arun Kumar Sharma, finance director at the country’s biggest refiner Indian Oil Corp. “Most of our refineries are heavily dependent on OPEC crude.”

    Using India’s bunkers would help the bloc maintain its 85 percent share of the local market. A portion of the oil would likely be ring-fenced for use in a crisis, with the rest available to trade.

    The world’s third-largest crude buyer is seeking to boost small strategic reserves of just 10 million barrels. India’s emergency stockpile is a fraction of the supply buffers in neighbors Japan and China, even in a world awash with cheap crude looking for a home.

    “The Indian model is similar to the Japanese model, in that the country saves money by allowing other nations to store crude but has first access to it in the case of an emergency,” said Amrita Sen, chief oil market analyst at Energy Aspects Ltd. in London.

    India could boost the strategic reserve by 30 million barrels this year, but there may be delays to the schedule of having the rest in place by 2020, Sen added.

    The government is seeking to create strategic storage capacity of 17.83 million tons across seven caverns, which would provide cover for 40 days. Some 1.33 million tons in one cavern is in place now, and two others with a total 4 million tons capacity are due to be completed by May.

    Besides emergency tanks, refiners have capacity to store as much as 28.5 million tons of crude and fuels in tanks and pipelines, sufficient for 63 days.

    Several national oil companies from OPEC members in the Middle East are interested in storing crude in Indian caverns, people familiar with the matter said in 2015.

    Last month, Oil Minister Dharmendra Pradhan said Abu Dhabi National Oil Co. has offered to storeoil at the Mangalore emergency reserve in southern Karnataka state. An official said two-thirds of the deposit would be strategic storage and the rest can be traded.

    While India is moving to make sales of crude from bunkers free of federal income tax, the nation’s states impose other levies foreign companies would have to pay.
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    Nigerian River Communities to Sue Shell over Oil Spills

    Nigerian River Communities to Sue Shell over Oil Spills
    Tens of thousands of Nigerian fishermen and farmers were given the green light to sue energy giant Shell in a British court on Wednesday for a series of destructive oil spills in the Niger delta over the past decade.
    The action, brought by London-based law firm Leigh Day on behalf of the Ogale and Bille communities, alleges that decades of uncleaned oil spills have polluted fishing waters and contaminated farming land.
    In addition to a compensation package, both groups of people want the Anglo-Dutch oil company to clean up the land devastated by the spills.
    Leigh Day hope to prove that Shell is liable for failing to protect its pipelines in the Bille community from damage caused by third parties extracting oil, which it says could mark a "significant expansion" in the firm's liability.
    The lawyers argued in a press statement that the 40,000-strong Ogale community continues to live with "chronic levels" of land and water pollution, which has had severe impacts on its farming and fishing.
    In hearings expected to take place later this year, Shell will argue that the two cases should be heard in Nigeria, not in Britain, according to a spokesperson for the company's Nigerian subsidiary, SPDC.
    The spokesperson added that both Bille and Ogale are areas "heavily impacted" by oil theft, sabotage and illegal refining, activities which Shell has long argued are the main causes of pollution in the Niger Delta.
    A 2011 report by the United Nations Environment Programme found that decades of oil pollution in Ogoniland region, where Ogale is located, may require the world's biggest ever clean-up and that drinking water had been contaminated by oil products. 
    Leigh Day says spills have meant the communities haven't had clean drinking water since 1989.
    Leigh Day says that Shell, historically Nigeria's largest oil producer, has failed to act on the report despite its promises, a claim that was also leveled last year by Amnesty International.
    An Amnesty International report says Shell promised to clean up the area, yet the fragile ecosystem surrounding the delta remains contaminated.
    Last year Leigh Day won an unprecedented US$83.5m in damages from Shell at the high court in London for the Bodo community, who live in another part of the Niger delta.
    This content was originally published by teleSUR at the following address: 
     "". If you intend to use it, please cite the source and provide a link to the original article.
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    YPF Joins Oil Industry Penny Pinching as Argentine Subsidy Fails

    YPF SA is the latest oil producer to join the industry’s drive to reduce spending, and its finance chief sees more cuts coming as artificially high prices at home have failed to shield the company from a global downturn.

    The state-run producer, which announced Thursday it invested about 33 percent less in 2015 than it had planned, will have to trim its capital budget further this year, Chief Financial Officer Daniel Gonzalez said in a telephone interview. With lower funding needs this year, it plans to sell less than $1 billion of bonds, he said.

    "Cuts will be done in exploration and production,” Gonzalez said. “Our financial needs this year will be significantly less than in 2014 to the point we will only need to raise less than $1 billion in the international bond market. We’re already monitoring the market conditions and will proceed with the sale as soon as window of opportunity opens."

    YPF had its first loss in at least a decade in the fourth quarter as higher domestic crude prices introduced by former President Cristina Fernandez de Kirchner’s government weren’t enough to protect the company from a market rout. The country’s Medanito crude was set at $77 a barrel in September, compared with an average $44.69 for Brent, the international benchmark, during the fourth quarter.

    Last year’s elections and a weak economy prevented the company, which also refines about 60 percent of the country’s crude, from taking unpopular steps to raise gasoline prices in U.S. dollar terms, Gonzalez said.

    YPF said it invested 61.2 billion pesos ($4 billion) last year, compared with the $6 billion of investment pledged last year. The fourth-quarter net loss was 1.7 billion pesos, or 4.32 pesos a share, compared with a profit of 1.4 billion pesos, or 3.52 pesos, a year earlier, YPF said Thursday in a statement after markets closed.

    The company’s oil and gas production increased 3 percent to 576,700 barrels of oil equivalent a day last year.
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    InterOil provides Antelope appraisal drilling update

    InterOil Corporation provided an update on the appraisal drilling on the Antelope field in Petroleum Retention License 15 ('PRL15') in the Gulf Province of Papua New Guinea.


    During February, the second extended well test on Antelope-5 was completed. The well flowed at an average of 53.3 million standard cubic feet gas per day (mmcfd) measured through a 48/64' choke for 14 days and then shut-in for over 14 days to record the subsequent pressure build-up. The majority of the stabilized flow occurred on a 48/64' choke at a rate of approximately 57 mmcfd.

    Downhole pressure gauges have been successfully retrieved from both Antelope-5 and Antelope-1 (observation well) and data has been extracted for analysis.

    Preliminary analysis has confirmed the excellent reservoir quality and connectivity seen in the initial Antelope-5 production test conducted in mid-2015. The forward plan is to undertake further analysis to quantify nearby reservoir properties.


    During the month of February, 9-5/8' liner was run to the top reservoir, four cores were cut from the upper section of the reservoir and intermediate logs were run.

    The four cores were cut over an interval of 2,268 to 2,330 meters measured depth from rotary table (MDRT) and the well reached a depth within the reservoir section of 2,330 meters (MDRT). Preliminary interpretation shows approximately 12 meters of dolomite is present in the drilled section.

    It was decided to conduct an intermediate, multi-rate flow test over an interval from 2,264 to 2,330 meters MDRT in the target interval. A final stabilized flow rate of approximately 13 mmcfd was obtained over a 24 hour period, measured through a 40/64' choke. The well is currently shut-in for pressure build-up.

    Once testing is complete it is planned to drill through the gas-water-contact to a proposed total depth of approximately 2,650 meters MDRT and then run a full suite of wireline logs. Once logs have been obtained, a decision will be made regarding the need for further testing.

    The Antelope-6 appraisal well is located 2km east-south-east of the Antelope-3 well and is designed to provide structural control and reservoir definition on the eastern flank of the Antelope field. Antelope-6 spudded in December 2015 and intersected the top of the reservoir at approximately 2,264 meters MDRT.
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    As oil glut swells, Exxon Mobil reportedly joins export race

    Exxon Mobil Corp. has become the first major U.S. oil company to ship American crude overseas, joining a band of independent traders that are trying to ease a glut at home after a 40-year export ban was lifted.

    Exxon Mobil shipped U.S. crude into a refinery it owns in Sicily, according to a person familiar with the matter and three traders and ship brokers. The Maran Sagitta oil tanker sailed in early February from Beaumont, where Exxon Mobil operates a refinery. It recently arrived in the Italian port of Augusta.

    Until now, trading houses including Vitol Group BV and Trafigura Pte and European-based oil companies have shipped U.S. crude overseas. Exxon Mobil is the first American firm that joins the race, which comes as domestic U.S. crude inventories surge to the highest level in nearly 90 years.

    “While we do not comment on the details of proprietary commercial agreements, crude exports from the U.S. are now another commercial option that we may elect to exercise from time to time,” Exxon Mobil said in an e-mailed statement.

    Oil traders are shipping West Texas Intermediate to refiners in the Mediterranean to profit from the difference in crude prices between the two regions. A glut of WTI has pushed up U.S. stockpiles to a record, depressing the price of the U.S. benchmark relative to European Brent crude.

    The exports into Europe follow a congressional deal in December to lift a 1970s-era prohibition on overseas shipments and a movement in relative prices between the U.S. and Europe making exports profitable.

    “The arbitrage to European refiners for WTI loading promptly currently seems to be open,” Ben Luckock, global head of crude oil at Trafigura said on Feb 22. “A number of vessels of WTI crude oil have recently been fixed to Europe.”

    The overseas sales could relieve pressure on storage capacity in the U.S., after stockpiles rose to nearly 518 million barrels last week, the highest level in official data going back to 1930. Inventories at the biggest U.S. oil storage hub in Cushing, Okla., climbed to a record above 66 million barrels last week, according to the Energy Information Administration.
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    Phillips 66 cut fuel production in February, CEO says

    The refining sector is slogging through a weak first quarter after bringing in big refining profits in 2015, Phillips 66 Chairman and CEO Greg Garland said Thursday.

    Several Midwestern refineries cut back production last month because of a lack of profits, Garland said at the Bank of America Merrill Lynch 2016 Refining Conference in New York. He said at one point Phillips 66 also took offline about 400,000 barrels a day of crude processing from its 2.1 million barrels capacity nationwide, although he would not cite specific refineries.

    He said Phillips 66 refineries are now back up to running more than 90 percent of capacity, after dipping down to about 80 percent.

    “We all ran max gasoline (production) in the fourth quarter,” Garland said, and refineries built up too much storage inventory of winter-blend gasoline.

    “Generally, when we look in the mirror, we find the enemy,” Garland said. “We had to work through that overhang in the first quarter.”

    Now, many refineries are about to undergo seasonal maintenance to switch to more expensive summer-blend gasoline, Garland said, which will temporarily lower crude oil demand and drive up crude storage inventories even higher.

    Despite the weak quarter, Garland said he expects good gasoline demand this year moving into the busier spring and summer driving seasons, especially since so many people bought gas-guzzling trucks and sport-utility vehicles last year with low gasoline prices.

    Although the rest of 2016 should make for a pretty good refining year, he cautioned it won’t repeat the high profit margins of 2015.

    Attached Files
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    Canadian Natural Cuts 2016 Budget as Oil-Price Outlook Darkens

    Canadian Natural Resources Ltd. lowered its 2016 spending budget, joining peers in clawing back investments as price assumptions fall in the worst oil rout in a generation.

    Canada’s largest heavy-crude producer now plans to spend C$3.5 billion ($2.6 billion) to C$3.9 billion this year, down from November’s estimate of between C$4.5 billion and C$5 billion, the Calgary-based company said Thursday in a statement. Analysts expect U.S. crude to average about $39.50 a barrel in 2016, according to the median of 37 estimates compiled by Bloomberg.

    Canadian Natural is among energy companies shelving projects and cutting costs to withstand an oil-price slump that’s lasted more than 20 months. The company, also the nation’s biggest gas producer, is contending with a drop in prices for that fuel as well. Canadian Natural continues to expand its Horizon oil-sands project to a target of 250,000 barrels a day in 2018 as it stays focused on long-term profits.

    “Canadian Natural is committed to advancing the completion of the Horizon expansion project, the major component of its transition to longer-life, low-decline asset base,” it said in the statement. “The Horizon project will generate substantial cash flow.”

    The company expects total production of 809,000 to 868,000 barrels of oil equivalent a day this year, down from an initial forecast of between 843,000 and 886,000 barrels. It reported an 89 percent decline in fourth-quarter net income to C$131 million, or 12 cents a share. Excluding one-time items, its 4-cent-a-share loss beat the 14-cent loss expected by analysts, according to the average of 14 estimates compiled by Bloomberg.
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    Eclipse Resources: Production Up 186%, Continued Drilling in 2016

    Eclipse Resources, a small but growing driller headquartered in State College, PA but drilling exclusively in the Ohio Utica Shale, released their fourth quarter and full year 2015 update yesterday. Among the highlights: Production was up 186% in 2015 over 2014. Revenue was up 97% over 2014. Eclipsed drilled 31 wells, completed 51 wells and brought 76 wells online in 2015. The company will continue to focus exclusively on the Utica in 2016, as they did in 2015. They plan to spend $168 million in 2016, of which $130 million is for drilling and completions, and with that money they will drill 7.6 net Utica wells, complete 9.4 net Utica wells and exit the year with 11.5 net Utica wells drilled but uncompleted (DUCs). The elephant in the room is that Eclipse lost nearly $1 billion in 2015. However, as with many other drillers, the loss was on paper only–not out of pocket. With impairments (write-down of lease values) and with depreciation and other accounting shenanigans, almost all of the loss was on paper. Hey, at least they will keep on drillin’ in 2016! Here’s the update with the details…

    Eclipse Resources Fourth Quarter and Full Year 2015, 2016 Capital Budget

    Fourth Quarter 2015 Highlights:

    • Net production averaged 247.0 MMcfe/d, which was approximately 5% above the high end of the Company’s previously issued guidance range for the quarter, representing a 100% increase to the fourth quarter of 2014 and an approximately 10% sequential increase over the third quarter 2015. For the fourth quarter 2015, the production mix was approximately 70% natural gas, 18% NGL’s and 12% oil
    • Revenues grew to $65.8 million. Adjusted Revenue1, which includes the impact of cash settled derivatives, grew to $74.4 million, representing a 41% increase relative to the fourth quarter 2014
    • Adjusted EBITDAX1 grew to $31.3 million, representing a 20% increase relative to the fourth quarter 2014
    • Unit operating expenses2 were $1.31 per Mcfe, below the low end of the Company’s previously issued guidance
    • Cash general and administrative expenses fell to $6.8 million, representing a 48% decrease relative to the fourth quarter 2014, and $3.2 million below the low end of the Company’s previously issued guidance
    • The Company realized a natural gas price, before the impact of cash settled derivatives and excluding firm transportation expenses, of $2.32 per Mcf, a $0.22 premium to NYMEX natural gas prices. The Company realized a natural gas price, after the impact of cash settled derivatives and including transportation costs, of $2.66 per Mcf, a $0.56 premium to NYMEX natural gas prices
    • The Company realized an average oil price, before the impact of cash settled derivatives of $32.03 per barrel, a $9.75 per barrel discount to WTI oil prices. The Company realized an oil price, after the impact of cash settled derivatives, of $38.25 per barrel, a $3.53 per barrel discount to WTI oil prices
    • The Company realized a natural gas liquids price of $14.50 per barrel, or approximately 35% of the average WTI oil price
    • Capital Expenditures were $45.1 million
    •  The Company drilled 4 gross (1.0 net) wells, completed 2 gross (0.3 net) wells and turned 15 gross (8.0 net) wells to sales

    Full Year 2015 Highlights:

    •  Net production averaged 207.9 MMcfe per day, a 186% increase from 2014. For the full year 2015 the production mix was approximately 66% natural gas, 19% natural gas liquids and 15% oil
    • Revenues grew to $255.3 million. Adjusted Revenue1, which includes the impact of cash settled derivatives, grew to $271.7 million, representing a 97% increase over full year 2014
    •  Adjusted EBITDAX1 grew to $113.1 million, representing a 81% increase over full year 2014
    •  Unit operating expenses2 were $1.26 per Mcfe, below the low end of the Company’s previously issued guidance for the year
    • Capital expenditures were $309.5 million, $20.5 million below the Company’s previously revised capital budget
    • The Company drilled 31 gross (15.0 net) wells, completed 51 gross (20.5 net) wells and turned 76 gross (33.8 net) wells to sales for the full year 2015
    • During 2015, the Company averaged 20 drilling days (from spud to rig release) per well with an average lateral length of 8,500 feet, representing a 31% drilling day improvement compared to the 2014 drilling program; additionally, Eclipse averaged 5.18 completion stages per day, a 16% increase over 2014

    2016 Strategic Plan and Capital Budget Highlights:

    At the beginning of 2016, the Company had liquidity of $281 million consisting of $184 million in cash and cash equivalents, and available borrowing capacity under the Company’s revolving credit facility of $97 million (after giving effect to $28 million of outstanding letters of credit)
    In February, the Company completed its spring borrowing base redetermination of its revolving credit facility, that resulted in no change to its $125 million borrowing base which remains undrawn other than for letters of credit

    The Company has recently augmented its hedges by adding a collar on 30,000 MMbtu per day of natural gas for calendar 2017 with a floor price of $2.50 per MMbtu and a ceiling price of $3.03 per MMbtu, and a swap of 850 Bbl per day of oil for March 2016 through December 2016 at an average price of $45.55 per Bbl

    Based on production guidance for the year, the Company has hedges in place representing 90% of its expected natural gas production at an average floor price of $3.11 per MMbtu and ceiling price of $3.21 per MMbtu; 70% of its expected oil and condensate production at an average floor price of $53.84 per Bbl and ceiling price of $59.50 per Bbl; and 60% of its expected propane production at an average price of $0.46 per gallon

    During 2016, the Company plans to focus on enhancing its margins, continuing to improve its peer leading drilling and completion efficiencies in the Utica Shale, strengthening its balance sheet and preserving its high quality asset base for the future. Details on these initiatives include:

    The Company plans to continue to streamline its operations in order to improve its operating margins which include the sale of certain non-core and higher-cost assets. During the year, the company anticipates receiving proceeds from these non-core assets of between $15 million and $20 million

    As a result of decreased activity, the Company implemented a workforce reduction in the second half of 2015. The Company estimates that its 2016 cash general and administrative expenses fall to approximately $36.0 million, and the Company intends to continue to thoroughly analyze its cost structure to identify additional savings opportunities

    The Company expects to maintain its voluntary production curtailment initiative through at least the first half of 2016 in order to preserve its productive capacity from its producing wells until commodity prices improve. At current forward strip prices, the Company anticipates that its production during 2016 to be consistent with the 2015 full year rate of approximately 200 MMcfe per day until such time as the Company elects to adjust this curtailment approach

    The Company plans to maintain flexibility in implementing its 2016 capital plan, which is heavily weighted to the second half of the year enabling the Company to further delay restarting its drilling and completion activity as necessary

    The Company has established an initial capital budget of $168.0 million3, which includes approximately $130 million for drilling and completion activities and approximately $35 million for land activities
    The initial capital budget includes capital expenditures to drill 7.6 net horizontal Utica Shale wells and complete 9.4 net horizontal Utica Shale wells in 2016. The Company expects to exit the year with 11.5 net drilled but uncompleted wells

    In establishing this capital budget, the Company has assumed an average Henry Hub natural gas price of at least $2.34 per Mcf and an average WTI oil price of at least $34.80 per Bbl for the year

    The 2016 Capital Budget is expected to be fully funded through internally generated cash flows and the Company’s current cash balance; the Company does not anticipate making any borrowings on its revolving credit facility during 2016 to fund its initial capital budget
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    Alternative Energy

    China aims to boost renewable energy with 'green certificates'

    China plans to set up a market for renewable energy certificates to try to increase the use of cleaner energy as the world's largest greenhouse gas producer tries to reduce its reliance on coal.

    Power suppliers will be able to trade "green certificates" that represent the proportion of non-hydro renewable energy that they generate, the country's National Energy Administration said on Thursday in a statement on its website.

    China aims to increase the use of non-fossil fuel in the primary energy mix to 15 percent by 2020 from the current 12 percent. It plans to boost the share of renewables such as wind and solar power, with the goal of cutting emissions of major pollutants in the power sector 60 percent by 2020. China already has the world's largest capacity of photovoltaic solar power.

    But the government's efforts to promote a switch to cleaner energy has been hindered because power generated from fossil fuels is cheaper and is therefore given priority on the power transmission grid.

    In the statement, the energy regulator also set provincial and regional targets for the proportion of non-hydro renewable energy in use in 2020. They ranged between 5 and 13 percent, with Beijing's target set at 10 percent.

    "Power companies can trade the certificates to meet their targets for the proportion of non-hydro renewable energy. Certificate holders are encouraged to participate in carbon-emission-reduction trading and energy-saving trading," the statement said.

    The NEA did not say when a trading platform would be built, but it did say that power companies should generate at least 9 percent of their electricity from non-hydro renewable sources by 2020.

    China is going to set a national cap-and-trade carbon market in 2017, allowing the trade of carbon credits earned from renewable energy projects to help emitters comply their obligations.
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    China’s Soft Power Tested as Sale of Cotton Stockpile Looms

    Global cotton prices have plunged in recent weeks as speculation mounts that China is getting ready to sell some of its 11 million metric ton stockpile—enough to make 10 billion pairs of jeans.

    Commodity analysts expect China to hold a new cotton auction in the next few months, its first since the end of August.

    While China sells nearly all of its cotton at home, it is such a big player in the market that unloading a chunk would depress global prices by reducing how much foreign cotton Chinese businesses buy. China holds about 60% of the world’s cotton stockpiles and is responsible for just less than a third of global consumption.

    In addition, China has tightened import quotas for cotton, leading to a 41% fall in imports in January compared with a year earlier. That means global cotton sellers have less access to the big China market.

    The expectation of a new round of selling by China has pushed down prices on the Zhengzhou Commodity Exchange to their lowest levels since 2004. Meanwhile, the benchmark ICE Futures U.S. exchange has cotton trading at around its cheapest level since 2009, having fallen 11.7% since the beginning of 2016.

    “Until those [Chinese] stocks are cleared, it is going to be hard for cotton to break away from current levels,” said Paul Deane, agricultural commodity analyst at Australia and New Zealand Banking Group, which is bearish on cotton.

    China’s National Cotton Exchange said it hadn’t been notified of further auctions from the National Development and Reform Commission. The commission was unavailable for comment. However, the U.S. Department of Agriculture said there “are numerous unofficial indications that the [Chinese] government intends to pursue a more aggressive reserve stocks sale program in the spring and summer of 2016.”

    But clearing its stockpiled cotton won’t be easy—or painless—for China.

    In the July-to-August auction, the National Development and Reform Commission wanted to sell 1 million tons of cotton. It fell way short, selling only 63,413 million tons.

    Global prices have dropped 9.5% since then, so China will need to put up its cotton at a far lower price if it is to sell.

    One factor putting pressure on China to sell: Cotton deteriorates, so it can’t simply hold supplies for years with hopes of rising prices.

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    Precious Metals

    Sagging industrial demand tarnishes silver’s sheen

    Weak industrial demand is holding back silver’s potential price performance against an upbeat gold price, seemingly treading water while gold enjoys renewed interest as a safe haven for investors in the uncertain global economic environment. 

    Bank of Montreal (BMO) Capital Markets research analyst for commodities Jessica Fung on Thursday – during BMO's Mining Outlook conference call – explained that the silver price typically moved in close relation to the gold price, meaning that when gold moved up, silver should be moving up by twice as much. Because of this, silver was often referred to as ‘poor man’s gold’. Fung stated, however, that she was seeing demand weakness across all industries for silver, not just in a specific industry, such as photography during the 1990s. 

    While silver’s uses had multiplied, manufacturers were also managing to reduce their use of the superconductive metal in certain applications, such as solar panels. “The reason we are not seeing this price performance right now is because silver is being held back by weak industrial demand. This is a trend that we think could potentially continue, so we will not see that gold-silver ratio come down that much,” she said. 

    Since the start of the year, gold had appreciated by about 18%, jumping by about 10% in February, while silver prices had only improved by about 9% since the start of the year, and by only about 5% in February. Fung advised that she expected the long-term gold-silver ratio to come down to about 0.60, down from around 0.80, where it was now. “We should see silver outperform at some point, but the industrial demand is just too weak to support silver prices.” 

    Meanwhile, gold prices were being supported by the global market uncertainty, prompting investors to renew their reliance on the yellow metals as a safe haven for value. Fung pointed out that the gold price trend was repeating itself early this year, compared with what happened early in 2015. Gold on Thursday closed at $1 256.80/oz, having earlier in the day touched a one-year high of $1 269.3/oz. 

    What will probably support gold prices around the $1 200/oz level, but not much above that level, was that there were potential negative interest rates on the cards for Japan, with talks about it in the European Union and possibly in the US too. Depending on how the global economy fared during the year, this might become a more pressing discussion point later in the year, said Fung. 

    “The next leg up for gold is that we need to price in more uncertainty and risk into what we already know. We know the [US Federal Reserve] is probably not going to raise interest rates this year. That was the reason our 2016 price forecast in December was $1 050/oz – we thought there were going to be three or four rate hikes,” she said.
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    Base Metals

    Freeport to sell stake in copper mine to Lundin for $263m

    Freeport-McMoRan’s agreed to sell part of its stake in a copper-gold project in Serbia to Lundin Mining Corporation for as much as $263 million, as part of its drive to offload assets to cut its debt by about $5 billion.

    The current partners in the Timok project are Freeport, who’s the operator, and an affiliate of  Reservoir Minerals, Toronto-based Lundin said on Thursday in a statement. The deal is expected to close in the second quarter, if Reservoir Minerals declines to exercise a right of first refusal, Lundin said.

    Commodity producers including Glencore and Anglo American are selling operations as weaker growth in China and supply gluts continue to weigh on prices and savage profits. Freeport agreed last month to sell an additional stake in an Arizona mine for $1 billion to Sumitomo Metal Mining Co.

    The planned sale adds to Lundin’s $1.8 billion purchase in 2014 of a controlling stake in Freeport’s Candelaria copper mining complex in Chile and its $325 million purchase of Rio Tinto Group’s Eagle nickel and copper project in northern Michigan in 2013.

    The deal will allow existing partners to use Lundin’s “proven underground base metals development, construction and operating skill sets to advance the Timok project into operation,” Lundin chief executive officer Paul Conibear said in the statement.
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    Steel, Iron Ore and Coal

    China Feb coal imports from Gladstone port hit 7-yr low

    China’s coal imports from Gladstone port in eastern Australia hit a seven-year low of 150,000 tonnes in February, down 73.8% from 573,000 tonnes in January, Gladstone Ports Corporation said in a monthly report on March 3.

    It was the port’s lowest export volume to China since 145,000 tonnes was sent in January 2009 — during the global financial crisis — and equivalent to just one Capesize cargo.

    The February total may have been impacted by lull in demand during the Lunar New Year holiday in China in February, although Gladstone did send 588,000 tonnes of coal to China in February 2015.

    China’s demand for Gladstone coal exports began surging from late 2009 as its domestic demand began to outstrip domestic production.

    The country imported 11.1 million tonnes of coal via Gladstone port in 2015, up from 624,000 tonnes in 2008, according to Gladstone port data.

    Gladstone’s total coal exports in 2015 stood at 72.6 million tonnes.

    Gladstone port shipped a total of 5 million tonnes of coal in February, down from 5.82 million tonnes in January, the port data showed.

    The port in the state of Queensland ships both thermal coal and coking coal and its shippers include major coal miners Idemitsu, Glencore, Rio Tinto, Yancoal and Wesfarmers.

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    Exxaro may buy Anglo's South African iron ore, coal mines

    South African coal miner Exxaro Resources is considering buying assets from Anglo American, its chief executive said on Thursday.

    The diversified mining company mainly produces coal and invests in iron ore, posted a two-thirds drop in full-year profit dropped by due to a sharp fall in commodity prices, and reported a sharply lower dividend.

    Exxaro's CEO Mxolisi Mgojo told reporters and analysts he would consider buying assets from Anglo, which has said it plans to sell its iron ore, coal and nickel units in a sweeping strategic overhaul to cope with a commodities rout.

    "As part of looking at our own portfolio we will determine whether it makes sense and if there is value," said Mgojo.

    Financial director Wim De Klerk told Reuters the option to buy Anglo's Kumba Iron Ore unit was a possibility.

    "We note their announcement last week and we are partners in Sishen so we will be considering our options now that we know they are on sale," he said.

    Exxaro holds a minority stake in the company that runs Sishen, one of the largest open pit mines in the world, while Kumba holds 73 percent.

    Headline earnings per share - the key measure of profit which strips off certain one-off items - reached 457 cents from 1,372 cents in the previous year, meeting expectations forecast by Thomson Reuters StarMine SmartEstimates.

    The firm's shares rose 3 percent to 73.46 rand by 1000 GMT (0500 ET), despite Exxaro saying it would pay a final dividend of 85 cents per share, down 60 percent from the previous year.

    The firm also cut spending on a five-year coal program to 2020 by 15 percent to 18 billion rand ($1.16 billion).

    The company cut spending by 807 million rand in the year to December and said it expects to cut 2016 costs by 300 million rand, with the lion's share of all capital expenditure focused on improving its coal business.
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    Joy Global sales fall 25 percent amid commodity slump

    Joy Global Inc posted a bigger-than-expected quarterly loss as it sold fewer of its giant draglines and shovels to coal miners, which have been hit hard by a slump in commodity prices.

    The mining equipment maker's shares were down 2.8 percent in premarket trading on Thursday after the company also trimmed its profit and sales forecast for the year.

    Joy Global, which gets more than half of its sales from coal miners, has cut jobs and lowered production as it copes with a relentless decline in sales over the past three years.

    The company said it now expected 2016 earnings and sales to be toward the middle of its forecast of 10-50 cents per share on revenue of $2.4 billion-$2.6 billion.

    Analysts on average were expecting 2016 earnings of 25 cents per share on revenue of $2.48 billion, according to Thomson Reuters I/B/E/S.

    Joy Global said it is now targeting more than $100 million in cost reductions in 2016, up from $85 million previously, as "strained cash flows" among its customers are expected to cause further delays in maintenance work and equipment purchases.

    "Our customers are taking unprecedented actions on their equipment fleets to conserve cash as commodity prices have weakened. This has adversely impacted our incoming order rate, particularly in the U.S. coal and copper markets," Chief Executive Ted Doheny said.

    Coal companies have been hurt by weak demand for thermal coal as utilities have switched to cheap and abundantly available natural gas. Sluggish demand has also weighed on prices of metallurgical or steel-making coal.

    The company said its total bookings fell 21 percent to $550 million in the first quarter ended Jan. 29, hurt by declines in regions including North America and China.

    The company reported a net loss of $40.2 million, or 41 cents per share, in the quarter, compared with a profit of $30.5 million, or 31 cents per share, a year earlier.

    On an adjusted basis, the company reported a loss of 23 cents per share. Net sales fell 25 percent to $526.3 million.

    Analysts had expected first quarter loss of 12 cents per share, on revenue $528.3 million.

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    Workers at Colombia's Cerrejon coal mine vote in favour of strike

    Union workers at Colombia's largest coal mine, Cerrejon, have voted in favour of a strike, the union said on Thursday, in a dispute with the company over wages and benefits.

    A strike at the Cerrejon mine, which produces 32 million tonnes of coal a year, or 37 percent of Colombia's total output, would come at an inopportune time for the country, which is experiencing a commodity-related economic slowdown.

    "The workers voted to declare the strike," Sintracarbon union leader Jairo Quiroz said in a phone interview. "In the next 10 days, we will decide the start date."

    Cerrejon is a joint venture between Australia-based BHP Billiton Ltd , London- and Johannesburg-based Anglo American Plc and Swiss-based Glencore Xstrata . It has been producing coal in Colombia since the mid-1980s under a concession that runs until 2033.

    Colombia is the world's fifth largest coal exporter. The country's output fell 3.5 percent in 2015 to 85.5 million tonnes.

    The vote came after a 40-day period of direct negotiations ended without an agreement. The union and the company will meet again on Friday, Quiroz said.

    A representative from Cerrejon said the vote did not necessarily mean a strike would take place and that it is important the two sides continue the negotiations during the 10-day period the union has to declare a start time.

    The union represents 4,200 of the 10,000 workers at the mine, located in La Guajira province in northern Colombia.

    The vast majority of union members who voted were in favor of the action, Sintracarbon said on Twitter, with 3,428 voting to strike. Twenty-seven members favored taking the matter to a tribunal and 33 were null votes.

    Cerrejon has offered a 6.77 percent pay increase, in line with last year's inflation rate, while workers want a 10.1 percent raise, Quiroz told Reuters in an interview last week.

    They also want improvements in education, health and housing.

    Production at Cerrejon fell by 1.48 percent last year, while exports were down 2.33 percent.
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    Iron ore price jumps to new 2016 high

    The rally in the price of iron ore continued on Thursday with the Northern China benchmark import price advancing to a four-and-a-half month high.

    The steelmaking raw material exchanged hands for $51.70 a tonne on Thursday according to data supplied by The Steel Index. Iron ore is now up 20.5% since the start of the year, surprising many in the industry who have consistently been calling it lower.

    Supply disruptions in Australia due to bad weather and restocking following the Chinese lunar new year buoyed the market and helped iron ore outperform steel prices by a wide margin in February.

    All eyes are now on the National People's Congress where Chinese leaders will set economic policies for the next 12 months

    Beijing’s plans to stimulate the slowing economy including a cash injection by the People’s Bank and a joint statement by nine ministries recognizing the industrial sector as key to restoring investment confidence have also improved sentiment. All eyes are now on the National People's Congress where Chinese leaders will set economic policies for the next 12 months.

    Iron ore is dependent on the health of the world’s second largest economy more than any other commodity. China last year consumed nearly three-quarters of the seaborne iron ore supply with imports reaching a record 952 million tonnes. January’s 82.2 million tonnes represented a 4.6% jump over 2015.

    However, analysts are skeptical about the longevity of iron ore's rally and point to the fact that Chinese steel production (nearly half the global total) is set to decline further in 2016 after last year brought to halt three decades of unbroken growth. January’s output of crude steel was 7.8% lower than the year before.

    An announcement earlier this week that that 1.3 million coal and 500,000 steel workers will be “re-assigned” as part of the government’s ongoing efforts to reduce industrial overcapacity is telling and it comes after fresh anti-dumping duties on Chinese steel imposed by the US and Europe.

    The bearish view is also supported by disappointing PMI-figures in February indicating worsening conditions in the country’s manufacturing sector, increasing stockpiles of ore at ports which last week climbed to above 95m tonnes to the highest levels since May, and little appetite among the big four producers to cut supply.
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    Brazilian prosecutors question Samarco dam burst settlement

    Brazilian prosecutors on Thursday criticized a deal that mining company Samarco reached earlier this week with the federal government to pay an estimated 20 billion reais ($5.27 billion)in damages for a deadly dam spill in November.

    The settlement favors the miner instead of the population affected by what is considered to be Brazil's worst environmental disaster, the prosecutors of the task force investigating the spill as well prosecutors in the states of Minas Gerais and Espirito Santo said in a statement.

    Samarco and its owners, BHP Billiton and Vale SA, inked a settlement deal with the government on Wednesday after weeks of arduous negotiations. The miner agreed to pay an estimated 20 billion reais in damages over 15 years to compensate local communities flooded by a tsunami of mining waste that also polluted a major river in both states.

    The burst tailings dam killed 19 people and left hundreds homeless.

    Prosecutors said the deal does not guarantee the proper clean up and payment of damages for populations that were not included in settlement talks.

    The deal does not block other judicial actions currently ongoing in both states, prosecutors said.
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    Nucor's steel sheet price increase gets buyers talking

    Nucor became the second producer to officially announce a sheet price increase on Thursday, which led some buyers to think pricing may begin to climb as a result of lean service center inventories and firmer scrap prices.

    The $30/st increase came after ArcelorMittal announced a similar move at the beginning of the week.

    Buyers noted that Nucor's announcement would have a larger effect on spot prices as ArcelorMittal was not as active in spot sales. The direction of pricing on new spot orders comes down to Steel Dynamics and Nucor now, according to a service center source.

    The market may be headed towards a 60- to 90-day upswing as service center inventory levels are very low and may need to begin restocking, he said. However, he cited poor demand as a reason pricing momentum will remain tempered.

    Looking ahead, the service center source believed the preliminary hot-rolled coil anti-dumping ruling in less than two weeks could also add to the sticking power of the announced increases.

    The service center estimated new HRC quotes from Nucor could may be as high as $440-$450/st for some but believed if transaction pricing settled at $420/st it would still be a positive.

    A second buy-side source believed buyers "are starting to take it a bit more serious with scrap being a bit more bullish." He noted it was a valid question if the firmer scrap and lean inventory levels could generate restocking at the service center level.

    One mill source said new quotes would likely be up closer to $20/st but would not offer equalization on freight.

    The ongoing trade cases and raw material price increases will add support to the mill announcements, according to a third service center source.

    "Unlike past attempts to increase there are some fundamentals to support these," he added and the cold-rolled coil/hot-dipped galvanized "fundamentals are much stronger."

    The third sources said he would be surprised, he said, if the full increase goes through for HRC as "everyone knows mills are desperate for HRC and when mills need HRC orders they will negotiate."

    On a lack of new spot transactions heard in the market, Platts maintained its daily HRC and CRC assessments at $395-$420/st and $560-$580/st, respectively. Both prices are normalized to a Midwest (Indiana) ex-works basis.

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