Mark Latham Commodity Equity Intelligence Service

Friday 13th November 2015
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    BHP Billiton shares fall as doubts grow over dividend policy

    BHP Billiton shares struck a seven-year low on Friday, their weakest since the global financial crisis, on mounting concerns it may ditch a policy of paying ever higher dividends.

    The world's biggest mining company has been hammered by sinking commodity prices, a situation made worse by last week's Samarco mine tragedy in Brazil, where millions of dollars in fines and penalties are beginning to emerge.

    BHP stock tumbled more than 3 percent to A$19.81 in early trading, more than double the fall in the broader S&P/ASX 200 , and was on track to fall more than 11 percent for the week, it's biggest weekly fall since 2008.

    BHP has been upping its dividend payout annually under a "progressive" dividend policy that's endeared the company to investors.

    However, mining analysts are speculating this could soon come to an end as market forces and unexpected costs start to overwhelm the balance sheet.

    "We've been bemused for some time at the lack of share price depreciation in light of the deteriorating earnings profile for the group and we've been skeptical for many months about the dividend policy of the company, " said Ben Lyons, a portfolio manager at ATI Asset Management.

    "It's interesting to see how things have played out reasonably rapidly. Brazil was certainly one of the major catalysts," said Lyons, whose firm holds an underweight position in BHP shares.

    Goldman Sachs this week said BHP needed to cut its dividend in half to get it down to a sustainable level.

    UBS is forecasting a near 50 percent fall in BHP's fiscal 2016 net earnings to $3.3 billion, about half the $6.49 billion the company paid out last year on dividends.

    The progressive dividend policy is expected to be a key topic at the company's annual general meeting in Perth, Australia on Nov. 19.

    A legacy of Australia's now-busted mining boom, it has raised the risk that future dividends will need to be funded by debt.

    "That's certainly possible in the short term but it's not a sustainable policy for any company to pursue, particularly one that's exposed to cyclical commodity prices," said Lyons.

    Read more at Reuters

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    China allows biggest corporate bond default yet in step toward reforming financial markets

    Communist leaders allowed China's biggest corporate bond default yet on Thursday in a fresh sign of wrenching economic change as growth slows and Beijing gives market forces a bigger role in its financial system.

    The default by China Shanshui Cement Group, a major cement producer, highlights the decline of once-dominant heavy industry as Beijing tries to shift from growth based on trade and investment to a consumer-driven economy.

    Shanshui, headquartered in the eastern city of Jinan, cannot repay any of a 2 billion yuan ($315 million) note due Thursday, said a man who answered the phone in its investor relations department.

    "The company has no money to pay investors," said the man, who refused to give his name.

    On Wednesday, Shanshui asked a court in the Cayman Islands, where it is incorporated, to appoint a liquidator to wind down its operations.

    Until last year, Beijing bailed out troubled borrowers to preserve investor confidence. But the ruling Communist Party allowed its first bond default last year as part of efforts to make its financial system more market-oriented.

    That shift in attitude "will obviously lead to more default cases," said Ivan Chung, who is in charge of Greater China credit research for Moody's Investors Service.

    Earlier official efforts to stave off defaults by other borrowers with loans from state banks or other aid prompted complaints Chinese authorities were wasting money. The implicit guarantee meant interest rates failed to reflect default risks, a key function of bond markets.

    The most vulnerable companies are in steel, mining, solar equipment and other sectors where debts are high and supply exceeds demand, Chung said.

    "Private enterprises with poor corporate governance will be vulnerable too because it will be difficult to hide their weaknesses and problems in a down cycle," he said.

    Until now, real estate developers and other private companies have been able to issue debt at interest rates almost as low as that paid by government-linked entities that face little likelihood of default.

    "The market appears to be grossly mispricing risks," Bank of American Merrill Lynch analysts said in a report last month.

    SinoSteel Corp., a steel producer that is part of the top tier of state companies owned by the central government, was due to miss a Sept. 22 interest payment on 2 billion yuan ($315 million) in debt. Hong Kong news reports said the Cabinet's planning agency intervened and told investors to wait until Nov. 16 to be repaid.

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    Commodity Flows Contracting?

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    EU's free carbon permit allocation too generous-court adviser

    An adviser to Europe's highest court said on Thursday the European Commission's calculations meant it had handed out too many free carbon permits to some industries, raising the prospect of higher costs for big energy users.

    Opinions from advisers to the European Court of Justice in Luxembourg in most cases determine the final ruling, which is likely in the coming months.

    In a statement on Thursday, a court adviser said "the ceiling was too high", when a calculation known as the correction factor was used to distribute free allowances that shelter industry from added energy costs they say could drive them out of Europe.

    The legal challenge was brought by a group of refiners and chemical companies including OMV Refining & Marketing, Esso Italiana, Api Raffineria di Ancona, DOW Benelux and Borealis Polyolefine.

    The companies argued they had received a smaller number of emission allowances than they believed they were entitled to.

    EU sources, speaking on condition of anonymity, had previously said that even if the court agreed the correction factor was flawed, energy intensive industry would not necessarily receive more carbon allowances.

    Benchmark EU Allowances (EUAs) - the currency used in the EU Emissions Trading System (ETS) - were trading at around 8.40 euros per tonne on Thursday, down 3 cents on Wednesday's settlement but up from the mornings low of 8.35 euros.

    Scrapping the correction factor would not change the overall number of allowances on the market, just the way they are handed out.

    Thomson Reuters Point Carbon, however, said the prospect of fewer allowances could lead industry to hoard permits, providing a boost for the market.

    "Should industrials for instance fear that they will receive fewer allowances for free in the future, their intent will likely be to hold on to their current EUAs which I would see as supportive for prices," Thomson Reuters Point Carbon analyst Marcus Ferdinand said.

    Read more at Reuters
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    Noble Group Q3 profit slumps 84 pct, CFO stepping down

    Noble Group Q3 profit slumps 84 pct, CFO stepping down

    Singapore-listed Noble Group posted a sharp fall in quarterly profit, battered by losses in its shrinking metals division and its agricultural arm and announced the departure of its chief financial officer.

    Asia's biggest commodity company, which is trying to repair investor confidence after a bruising accounting dispute, said it was on track to slash capital expenditure and cut costs.

    Already grappling with a commodity price rout, Noble's shares have lost nearly 60 percent since mid-February when blogger Iceberg Research alleged it was inflating its assets by billions of dollars. Noble rejected the claims and board-appointed consultant PricewaterhouseCoopers found no wrongdoing in a report published in August.

    With revenues of $86 billion last year, Noble is one of Asia's largest companies to find itself in a reputational battle over accounts.

    "Our year end target of positive cash flow has been achieved early with net cash flow generated by operations in the three months ended 30 September 2015 of $318 million, and net debt fell by $155 million in the same period," CEO Yusuf Alireza said in a statement on Thursday.

    Noble said group net profit for the nine months to Sept 30 fell to $194 million from $372 million in the same period a year ago.

    Noble said it had appointed Paul Jackaman, the company's Asia CFO, as acting group CFO. Robert van der Zalm, group CFO, has decided to step down from his position due to family reasons, the company said.

    Founder and Chairman Richard Elman owns about a fifth of Noble's shares, while sovereign wealth fund China Investment Corp owns about 9 percent.

    Singapore-listed Noble Group flagged plans to raise $500 million as it reported a sharp fall in third-quarter profit on Thursday, battered by losses in its metals division and its agricultural arm.

    Asia's biggest commodity trader, trying to repair investor confidence after a bruising accounting dispute, said it would take steps to retain its investment grade credit rating, crucial for firms relying heavily on bank financing for day-to-day operations.

    "I'm committing to an additional support of our balance sheet of an additional $500 million," CEO Yusuf Alireza told investors after Noble reported results, though he declined to give a time frame for the fund raising.

    Read more at Reuters
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    Rolls Royce Plunges On Bombshell Profit Warning, Dividend Review

    You’d think that with balance sheets full of cash, record high stock prices, and a record low cost of capital, corporate management teams and their newly-minted billionaire executives could afford to splurge on a private jet or two, but apparently, the outlook isn’t looking good for 2016.

    On Thursday, Rolls Royce delivered a stunner of a profit warning as new CEO Warren East said the company will take a hit of some $990 million on expected “sharply lower” sales of corporate jets along with headwinds facing the offshore oil market where the company’s customers use vessels powered by Rolls Royce engines.

    “The magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short term,” East noted, adding that “the fixed costs in this business are simply too high, so that small, relatively modest changes in the top line driven by market conditions just make too big an impact on our profit.”

    Here are some other highlights from East's "review" (available here):

    Although many Land & Sea businesses had good order intake in the quarter, the offshore business intake was very weak. New contracts included MT30 gas turbines for the Royal Navy’s Type 26 Global Combat Ship, MTU diesel engines for the refit of the Royal Navy’s fleet of Type 23 Frigates and a new agreement for the supply of engines for a range of Sunseeker luxury yachts.
    Compared to the expected outturn in 2015, the key areas of demand weakness are affecting selected aerospace and offshore marine markets. In aerospace, these mainly relate to the themes emerging in the third quarter, including sharply lower volumes of corporate jets powered by Rolls-Royce engines, further weakness in demand for corporate jet aftermarket services, further significant declines in aftermarket service demand for our engines on 50-70 seat regional jets and more conservative assumptions on demand reductions for some legacy programmes. Together, these impacts on our corporate and regional business account for roughly £100m of our incremental profit headwind.
    We have begun to see reduced utilisation by some specific operators of older wide-bodied engines. This management of short-term excess capacity, as the market takes delivery of newer, more fuel efficient airplanes, is already starting to impact aftermarket revenue and profit.Together with other changes, the incremental profit headwinds for our wide-bodied engine business are expected to be roughly £100-150m.

    And then there was this: "Shareholder payments policy will be reviewed by the Board and changes, if any, will be announced in due course."

    Right, so Rolls is may cut the dividend "in due course."

    Needless to say, the market is not happy as shares plunged as much as 22% and CDS spiked.

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    Platgold goes pear shaped too.

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    Mining rights in space?? Who are you kidding?

    On Tuesday evening Congress took a key step toward encouraging the development of this industry when the Senate passed H.R. 2262the US Commercial Space Launch Competitiveness Act, with bipartisan support. The legislation provides a number of pro-business measures, such as establishing legal rights for US citizens to own resources in outer space as well as extending indemnification for commercial launches through 2025.

    "This bill provides the boost America’s private space partners need as they lead the world into the future," said Lamar Smith, a Texas Republican who chairs the House Science, Space, and Technology Committee. "This bill will keep America at the forefront of aerospace technology, create jobs, reduce red tape, promote safety, and inspire the next generation of explorers."

    Space mining advocates, including Planetary Resources, praised the new law. “Many years from now, we will view this pivotal moment in time as a major step toward humanity becoming a multi-planetary species," said Eric Anderson, co-founder and co-chairman of the asteroid mining company—which is backed by several Google founders. "This legislation establishes the same supportive framework that created the great economies of history, and it will foster the sustained development of space."

    In addition to mineral rights and indemnification, the new law also extends the so-called "learning period," which protects space tourism companies by requiring paying customers to fly at their own risk and prevents the FAA from stepping in unless there is a major accident. The bill also extends the lifetime of the International Space Station through 2024, ensuring viability of commercial projects on board the orbiting laboratory.

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    Oil and Gas

    OPEC says global Oil inventories at five year high.

    OPEC Says Oil-Inventory Glut Is Biggest in at Least a Decade (1)
    Surplus in developed economies exceeds level of 2009 crisis
    Slowing non-OPEC supply may help `alleviate the overhang'
    (Updates with analyst comment in sixth paragraph.)

    By Grant Smith
    (Bloomberg) -- 
    Surplus oil inventories are at the highest level in at least a decade because of increased global production, according to the Organization of Petroleum Exporting Countries.

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    Stockpiles in developed economies are 210 million barrels higher than their five-year average, exceeding the glut that accumulated in early 2009 after the financial crisis, the organization said in a report. Slowing non-OPEC supply and rising demand for winter fuels could “help alleviate the current overhang,” enabling a recovery in prices, it said. The group’s own production slipped last month because of lower output in Iraq.

    “The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand,” OPEC’s Vienna-based research department said in its monthly market report.

    Oil prices have lost about 40 percent in the past year as several OPEC members pump near record levels to defend their market share against rivals such as the U.S. shale industry. While inventories peaked in early 2009 before OPEC implemented record production cuts, this time the group has signaled it won’t pare supplies to balance global markets and U.S. output is buckling only gradually in response to the price rout.

    The current excess is bigger than the surplus of 180 million barrels to the five-year seasonal average that developed in the first quarter of 2009, according to the report. The 2009 glut was the only other occasion in the past 10 years when the oversupply has topped 150 million barrels, it said.

    “The massive stockpile overhang is one more indicator, along with the ongoing slump in prices, that Saudi Arabia’s oil strategy isn’t working so far,” said Seth Kleinman, head of energy strategy at Citigroup Inc. in London. “The physical oil market is falling apart just as we are hitting the winter, when it’s all supposed to be getting better.”

    Oil futures extended losses after the report, falling 96 cents, or 2.2 percent, to $41.97 a barrel in New York as of 9:38 a.m. local time.

    OPEC ministers will meet on Dec. 4 in Vienna to review their current policy. While some members such as Venezuela have recommended changing strategy to support prices, OPEC Secretary-General Abdalla El-Badri said Nov. 9 that supply and demand are on course to rebalance next year.

    Output Drops

    Production from OPEC’s 12 members slipped by 256,500 barrels a day to 31.38 million a day in October, according to a number of “secondary sources” compiled in the report. The biggest drop was in Iraq, where output fell by 195,400 barrels a day to 4.01 million. While the report didn’t specify a reason for Iraq’s decline, storms have disrupted loading at Basra oil terminal in the south of the country and sabotage attacks have reduced flows through the Kurds’ export pipeline in the north.

    Production in Saudi Arabia, the group’s biggest member, fell by 72,200 barrels a day to 10.125 million in October, according to the data from secondary sources. The kingdom’s output often declines after summer as domestic fuel demand for power generation eases. Saudi Arabia’s own reports to OPEC showed a production increase in October of 50,000 barrels a day to 10.276 million a day.

    OPEC kept unchanged its 2015 and 2016 forecasts for global oil demand, production outside the group, and the amount OPEC will need to pump.

    Non-OPEC supply will contract next year for the first time since 2007, decreasing by 130,000 barrels a day, as $200 billion in spending cuts takes its toll on the global industry, according to the report. Projects equivalent to 5 million barrels of daily output have been delayed or canceled, OPEC said.

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    Oil Tanker Storage: Replaces rig count on traders radar.

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    Tankers off Galveston, Houston.

    Oil Tankers Are Filling Up As Global Storage Space Runs Low

    The rebound in oil prices is still not here, and new data suggests that it will take some more time before the markets start to balance out.

    Global supplies are still too large to justify a significant rally in oil prices. The latest indicator that the glut of oil has yet to ease comes from the FT, which concludes that there is 100 million barrels of oil sitting in oil tankers. Oil has piled up in tankers that are floating at sea, as onshore storage space begins to dwindle.

    The level of crude oil stashed at sea is nearly double what it was earlier in 2015. “Onshore storage is not quite full but it is at historically high levels globally,” David Wech of JBC Energy told the FT. “As we move closer to capacity that is creating more infrastructure hiccups and delays in the oil market, leading to more oil being backed out on to the water.”

    Rising levels of crude stored at sea has more to do with shrinking capacity onshore, rather than traders stockpiling volumes in order to profit from an eventual rebound in prices. Oil tanker rates have surged this year, so it doesn’t exactly make sense to store oil at sea strictly for a trading opportunity. Daily ratesfor very large crude carriers (VLCCs) are around $60,000 per day, although down from a peak of $111,000 per day hit on October 8. 

    Off Indonesia, Malaysia and Singapore, Asia’s main oil hub, around 35m barrels of crude and shipping fuel are being stored on 14 VLCCs.
    “A lot of the storage off Singapore is fuel oil as the contango is stronger,” said Petromatrix analyst Olivier Jakob. Fuel oil is mainly used in shipping and power generation.
    Off China, which is on course to overtake the US as the world’s largest crude importer, five heavily laden VLCCs— each capable of carrying more than 2m barrels of oil — are parked near the ports of Qingdao, Dalian and Tianjin.
    In Europe, a number of smaller tankers are facing short-term delays at Rotterdam and in the North Sea, where output is near a two-year high. In the Mediterranean a VLCC has been parked off Malta since September.
    On the US Gulf Coast, tankers carrying around 20m barrels of oil are waiting to unload, Reuters reported. Crude inventories on the US Gulf Coast are at record levels.

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    OPEC sees oil supply hole in 2016 as low prices curb rival output

    OPEC said its oil output fell in October and forecast supply from rival producers next year would decline for the first time since 2007 as low prices prompt investment cuts, reducing a global supply glut.

    In a monthly report, the Organization of the Petroleum Exporting Countries said it pumped 31.38 million barrels per day (bpd) last month, down 256,000 bpd from September.

    If realised, the forecast of a decline in supply outside OPEC would be a further indication the group's strategy is working. OPEC last year abandoned a longstanding policy of propping up prices and instead raised output, seeking to recover market share taken by higher-cost rival production.

    Oil is trading at just under $46 a barrel, more than 50 percent below its price in June 2014.

    "The recent decline in oil prices has encouraged additional oil demand," OPEC said in the report. "It has also provided a challenging market environment for some higher-cost crude oil production, which has already shown a slowdown."

    The group expects non-OPEC supply next year to fall by about 130,000 bpd, following growth of 720,000 bpd this year, "as nearly $200 billion of capex cutbacks this year and next create a gaping supply hole".

    OPEC production, which has surged since the policy shift of November 2014 led by record Saudi Arabian and Iraqi output, fell in October on export delays in Iraq and lower supply from Saudi Arabia and Kuwait, said the report, citing secondary sources.

    OPEC's report points to a 560,000-bpd supply surplus in the market next year if the group keeps pumping at October's rate, down from 750,000 bpd indicated in last month's report.

    In the third quarter of 2016, demand for OPEC crude will rise to an average of 31.51 million bpd, OPEC predicted - above current output for the first time in months.

    OPEC in the report left its 2016 oil demand forecasts unchanged, predicting the world would need 30.82 million bpd of OPEC crude and that global demand would grow by 1.25 million bpd.

    Read more at Reuters

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    Iraq oil overtakes Saudi in Europe as OPEC battles rage on - IEA

    Iraq oil overtakes Saudi in Europe as OPEC battles rage on - IEA

    A market share battle between Russia and OPEC oil producers in Europe is intensifying as Iraq has overtaken Saudi Arabia as the second largest seller there and Iran has already lined up buyers for its crude for when sanctions are lifted.

    The International Energy Agency cited market sources on Friday as saying Tehran would be able to sell at least an extra 400,000 barrels per day (bpd) to buyers in Asia and Europe when the sanctions are lifted. Customers would include refiners in Italy, Greece and Spain who prefer to use Iranian crude as their baseload feedstock.

    "For this reason, producers are likely to grow still more competitive on pricing," the IEA said.

    Russia has gained market share from OPEC in many Asian markets thanks to a pipeline to the Pacific and China.

    The shift opened opportunities for rivals in the European markets, traditionally dominated by Russia, and Saudi Arabia has this year sold crude to Polish and Swedish refiners

    "While the headlines focus on Russia and Saudi Arabia jostling for position on the continent, it is Iraq that has stolen a march on its regional rivals," the IEA said.

    Europe imports over 9 million bpd of crude from outside the region, and sour grades account for more than 6 million.

    Although Russian Urals continues to dominate with around 55 percent, Iraq has gained substantial market share since 2012 after sanctions were tightened on Iran, the IEA said.

    Before Tehran was banned from selling oil to Europe in 2012, it was delivering about 1 million bpd of high-sulphur sour crude.

    Since mid-2014, Iraq's overall exports have risen by about 40 percent to above 3 million bpd and deliveries of 1 million bpd to Europe during July and August raised Iraq's market share to 17 percent - allowing it to overtake Saudi Arabia, according to the IEA.

    As a result of market share battles, the oil glut in Europe is aggravating further.

    "Sour crude markets appear especially over supplied with discounts versus sweet grades widening. Europe is awash with competing sour crudes from the FSU and Middle East and U.S. sour crudes remained depressed by refinery maintenance," the IEA said.

    Read more at Reuters

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    Petrobras Hits the Road to Find `Strategic' Buyers in Sale Drive

    Petroleo Brasileiro SA will start a road show next week to talk to investors and find “strategic partners” for its Brazilian operations as part of an effort to reduce the biggest debt load in the oil industry, Chief Financial Officer Ivan Monteiro said Thursday.

    Executives will travel to countries including the U.S., China, Mexico, Canada and the U.K., and investors have already shown strong interest for a stake in Petrobras Distribuidora SA, Latin America’s largest petroleum products distributor, Monteiro said. Petrobras runs little risk of missing its target to raise more than $15 billion from divestments before the end of 2016, he said. The company also plans to tap international debt markets this year to secure its financial needs for 2016, he said.

    “There has been a lot, a lot of interest” in investments in the distribution unit, he told reporters at a third-quarter earnings news conference in Rio de Janeiro.

    Petrobras is looking to reduce indebtedness while it grapples with a collapse in commodity prices, a widening graft scandal that has resulted in some of its suppliers seeking bankruptcy protection, and oil unions that started striking on Nov. 1 to protest asset sales and spending cuts that threaten jobs. Shares have collapsed 24 percent this year.
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    Premier Oil cuts back on spending, beats production target

    Premier Oil has cut full-year capital expenditure as the oil producer deferred some project development and exploration spending into 2016, it said on Thursday.

    Like its peers, Premier Oil is having to reduce spending to cope with a halving in oil prices since a peak in June last year that has eaten into revenues.

    The group now expects to spend $1.05 billion this year on developing projects and exploration work, nearly $100 million lower than previously expected. It will move into 2016 some spending on projects such as its Sea Lion field in the Falkland Islands.

    Next year, its budget is estimated at $650 million, 38 percent lower than this year mainly due to project completions, Premier said.

    The energy company, whose operations stretch from Indonesia to the Falklands, said oil production so far this year had averaged 57,500 barrels per day (bpd), ahead of full-year guidance of 55,000 bpd, which it left unchanged.

    Analysts have been keeping a close eye on the start-up of Premier Oil's Solan project in the North Sea which will add cash flow to the company's coffers. Chief Executive Tony Durrant told Reuters first oil would flow from the field just before Christmas.

    Durrant also said he was in a good position to acquire further assets in the North Sea as many fields remained on sale in this mature basin.

    "The market really is moving in our favour. We are one of the obvious acquirers in the UK, there's lots to look at, so we can afford to be quite rigorous with our criteria," he said.

    In the context of weak oil prices, Premier Oil said it had reduced costs by over 25 percent compared with last year. Further savings of 5-10 percent could be made next year, it said.

    "Its high leverage to a sustained weak oil price means we still struggle to see a compelling valuation argument," David Round, analyst at BMO Capital Markets, said. He rates the stock as "underperform."

    Read more at Reuters
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    Statoil Tops $969 Million of Bids Pledged for Canada Offshore

    Statoil ASA was the most active bidder for exploration licenses off Canada’s Atlantic Coast awarded Thursday as some of the world’s largest producers committed to spend about C$1.29 billion ($969 million) for the prospect of long-term growth.

    The Norwegian company and its partners successfully bid for six blocks off Newfoundland and Labrador and Statoil picked up two on its own, off Nova Scotia. Chevron Corp., Exxon Mobil Corp., BP Plc, BG Group Plc and Cnooc Ltd.’s Nexen subsidiary were part of winning bids to drill off Newfoundland. Licenses to seven of 11 blocks on offer were sold in the province’s first-ever scheduled auction. Nova Scotia received bids for two of nine blocks offered.

    The producers are pledging future drilling even as they shelve near-term projects to weather a crude price slump that has extended 16 months. The Atlantic Canadian provinces have been seeking to spur investment to bolster government revenues during the downturn. Newfoundland released a study last month that said the area being licensed for exploration contains a resource potential of 12 billion barrels of oil and 113 trillion cubic feet of gas, in place.

    “These are the biggest of the biggest companies,” said Chris Cox, an analyst at Raymond James Ltd. in Calgary. “They’re commitments to spend in the future, not today, so they’re leaving the option open.”
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    Thailand's PTT posts huge Q3 loss, hit by weak oil prices

    PTT Pcl, Thailand's largest energy company, on Thursday reported another record net loss in the third quarter, mainly due to losses at its upstream and exploration subsidiary and a weak gas business.

    It posted a net loss of 26.6 billion baht ($741.4 million) for July-September, higher than the average forecast for a loss of 24 billion baht from eight analysts polled by Reuters. Its previous record loss was 26.6 billion baht in fourth quarter of 2014.

    Third-quarter sales fell 27 percent on the year, mainly due to lower prices of petroleum and petrochemical products, while the depreciation of the baht against the dollar led to a foreign exchange loss of 6.9 billion baht, it said in a statement.

    The third quarter is likely to be the weakest period for state-controlled PTT and earnings should recover in the fourth quarter when PTT will book gain from selling its 36 percent stake in refiner Star Petroleum Refining Pcl in an IPO later this month, analysts said.

    Analysts have cut earnings forecast for PTT by 30-60 percent to reflect weaker performance of its subsidiaries, which are affected by weakness of global oil prices.

    Read more at Reuters
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    Summary of Weekly Petroleum Data for the Week Ending November 6, 2015

    U.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending November 6, 2015, 302,000 barrels per day more than the previous week’s average. Refineries operated at 89.5% of their operable capacity last week. Gasoline production increased last week, averaging 9.7 million barrels per day. Distillate fuel production decreased slightly last week, averaging about 4.9 million barrels per day.

    U.S. crude oil imports averaged 7.4 million barrels per day last week, up by 434,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.2 million barrels per day, 2.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 353,000 barrels per day. Distillate fuel imports averaged 136,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.2 million barrels from the previous week. At 487.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 2.1 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.4 million barrels last week and are in the middle of the average range for this time of year. Propane/propylene inventories rose 1.6 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 2.6 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.8 million barrels per day, up by 1.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.3 million barrels per day, up by 3.4% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day over the last four weeks, up by 8.3% from the same period last year. Jet fuel product supplied is up 4.0% compared to the same four-week period last year.


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    US domestic oil production sees small gain

                                                  Last Week   Week Before   Year Before

    Domestic Production '000......... 9,185           9,160             9,063

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    Encana to hike Permian basin spending

    Canadian natural gas producer Encana Corp reported a smaller-than-expected quarterly loss, helped by an increase in oil production, and said it is speeding up capital spending in the Permian basin in Texas.

    Encana said on Thursday it plans to spend $150-million in the Permian shale field in the current quarter that was originally earmarked for 2016.

    The company said it expects total capital spending of $2.2-billion this year, the upper end of its forecast.

    Encana said it now expects to cut net debt by $2.8-billion by the end of the year, lower than its target of $3-billion.

    Encana has been restructuring its portfolio to diversify production away from low-value natural gas towards oil, by acquiring new properties and selling some gas-producing assets.

    The company in August sold its Haynesville natural gas assets in northern Louisiana for $850-million and said in October it would sell its Denver Julesburg basin oil and gas assets in Colorado for $900-million.

    The Calgary-based company has booked impairment charges of $3.62-billion so far this year, including $1.07-billion in the latest third quarter, to write down the value of assets amid a prolonged slump in global crude and natural gas prices.

    Encana’s oil and gas-liquids production rose 35 per cent to average 140,400 barrels per day in the quarter ended Sept. 30. Natural gas output fell 30 per cent to 1.55 billion cubic feet per day.

    The company reported a net loss of $1.24-billion for the quarter, compared with a profit of $2.81-billion a year earlier.

    Encana’s operating loss, which excludes most one-time items, was $24-million, or 3 cents per share, compared with a profit of $281-million, or 38 cents per share, a year earlier.

    Analysts on average were expecting a loss of 4 cents per share, according to Thomson Reuters I/B/E/S.

    Encana’s cash flow, an indicator of its ability to pay for new assets and drilling, more than halved to $371-million.

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    Dire Straits: Magnum Hunter Tells SEC Heading for Bankruptcy

    Here’s one time when we wish we had been wrong. In October we warned you that Magnum Hunter Resources (MHR), a smaller but important driller in the Marcellus/Utica, was either heading for a sale or bankruptcy. Looks like it’s the later.

    The company filed its required quarterly form 10-Q with the Securities and Exchange Commission earlier this week (full copy of the 10-Q below). In the filing we get this statement: “As of September 30, 2015, the Company had $6.5 million in cash and a working capital deficit of $1,037.2 million, and the Company continues to incur significant losses from continuing operations.” Eeeks. They only have $6.5M in the bank to keep the lights on and make payroll, and they owe over $1 billion.

    Then we get this: “…these factors raise substantial doubt about the Company’s ability to continue as a going concern.” Near the end of the report, they spell it out in black and white: “We may seek the protection of the United States Bankruptcy Court (the “Bankruptcy Court”), which may harm our business and place equity holders at significant risk of losing all of their interests in the Company.” Translation: We’re going bankrupt.

    In addition, earlier this week the New York Stock Exchange made good on its previous threat and has begun the process of de-listing MHR’s stock–which caused a selloff of the stock. The stock price hit 15 cents per share, so the NYSE halted trading. Never rains but it pours…

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    Eclipse Resources 3Q15: Production Up 163%, Net Loss $81M

    Eclipse Resources, an exploration and production company focused solely on the Marcellus and Utica Shale region headquartered in State College, PA but focusing on Utica drilling, released its third quarter earnings and operational update.

    It was also just yesterday we told you about the rumor that Eclipse is shopping itself. What does the 3Q15 update show? Production averaged 225.2 million cubic feet equivalent per day (MMcfe/d), up 163% over 3Q14. Eclipse drilled 9 gross (4.8 net) wells, completed 15 gross (7.2 net) wells and turned 22 gross (6.4 net) wells to sales.

    Because of smart hedging, the company got $2.86 per thousand cubic feet (Mcf) in 3Q15–10 cents per Mcf more than what gas has been trading for at the Henry Hub. But even with pumping way more gas and getting favourable pricing, it still wasn’t enough to prevent an $81 million net loss for the quarter. Yes, some of that was a paper loss (depreciation/amortization stuff)–but not all of it. Some of it was actual money out of pocket loss...
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    European scientific advisers say glyphosate unlikely to cause cancer

    The European Food Safety Authority (EFSA) on Thursday said glyphosate, the active ingredient in Monsanto weedkiller Roundup, was unlikely to cause cancer in humans, but it proposed new controls on any residues in food.

    EFSA advises EU policymakers and its conclusion will be used by the European Commission to decide whether to extend the current approval period for glyphosate, which ends on Dec. 31.

    Environmental groups have been calling for a ban after the International Agency for Research on Cancer (IARC), part of the World Health Organization, said in March that glyphosate was "probably carcinogenic to humans".

    Some businesses and authorities have sought to limit glyphosate use.

    "This has been an exhaustive process - a full assessment that has taken into account a wealth of new studies and data," Jose Tarazona, head of the pesticides unit at Parma, Italy-based EFSA, said in a statement.

    "Regarding carcinogenicity, it is unlikely that this substance is carcinogenic."

    EFSA scientists, who worked with experts from EU member states, said their study differed from IARC's in that it considered only glyphosate, whereas IARC had assessed groups of related chemicals. They said the toxic effects could be related to reactions with "other constituents or 'co-formulants'".

    However, they are for the first time proposing a limit on the maximum safe daily dose, of 0.5 milligrams per kilogram of body weight.

    That means an 80-kg person could eat food containing 40 milligrams of glyphosate per day for the rest of their life.

    Read more at Reuters
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    U.S. forecaster sees El Nino peaking in Northern Hemisphere winter

    A U.S. government weather forecaster on Thursday said El Nino conditions would peak during the Northern Hemisphere 2015-16 and taper off to neutral in late spring or early summer 2016.

    The Climate Prediction Center (CPC), an agency of the National Weather Service, in its monthly forecast broadly maintained its outlook for strong El Nino conditions likely to persist through the winter.

    El Niño is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years, triggering heavy rains and floods in South America and scorching weather in Asia and as far away as east Africa.

    Read more at Reuters
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    Syngenta rejects ChemChina's $42 bln takeover offer

    China National Chemical Corp is in talks to buy Switzerland's Syngenta AG but its initial offer of nearly $42 billion for the world's largest agrichemical company was rejected, Bloomberg said on Thursday.

    State-owned ChemChina's first offer valued the agricultural chemicals group at 449 Swiss francs per share, or 41.7 billion Swiss francs ($41.72 billion), according to Bloomberg.

    Citing unidentified sources, it said the rejection stemmed from regulatory concerns. 

    The two companies have not broken off talks and an agreement could still be reached in the next few weeks, Bloomberg said.

    Syngenta, under pressure to offer value to shareholders after turning down a big offer from Monsanto Co earlier this year, is also talking to other potential suitors, according to Bloomberg.

    U.S.-listed shares of Syngenta were up 14 percent at $79.22 in extended trading on Thursday.

    Syngenta and ChemChina could not immediately be reached for comment.

    Syngenta rejected Monsanto's cash plus stock offer in August. The offer was worth about $47 billion and Syngenta said it "significantly undervalued the company."

    At the time, some shareholders expressed disappointment over the spurned deal and questioned the company's ability to improve its financial fortunes in a slumping commodity market.

    To appease shareholders, Syngenta announced plans in September to buy back more than $2 billion of stock, funding the measure by selling its vegetable seeds business.

    Read more at Reuters
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    Precious Metals

    Barrick Gold sells four US mines for $720 million

    Canada’s Barrick Gold, the world's biggest gold producer, is unloading four of its non-core Nevada mines for US$720 million in cash, and said Thursday it expects to sign at least one of the deal before year-end.

    The move would help the Toronto-based miner to meet its ambitious target for reducing its $13 billion debt by $3 billion this year.

    “As we move into 2016 and beyond, we will continue to take steps to strengthen our balance sheet,” Barrick President Kelvin Dushnisky said in a statement. “But we will balance debt repayments with investments to drive future growth in free cash flow and Ebitda.”

    The assets to be sold are Bald Mountain and Ruby Hill mine, as well as its 50% stake in the Round Mountain mine and a 70% interest in the Spring Valley project.

    Fellow Canadian miner Kinross Gold is acquiring the stake in Round Mountain mine and all of the Bald Mountain mine, where the two gold producers are forming a 50-50 exploration joint venture. In total, Kinross is paying Barrick $610 million.

    In addition, units of Waterton Precious Metals Fund II Cayman LP have agreed to buy Barrick’s interest in Spring Valley and all of Ruby Hill mine for $110 million.

    In May, the company sold half of its Porgera mine in Papua New Guinea to Zijin Mining Group in a $298 million cash deal.

    And in July, Barrick sold a 50% stake in its Zaldívar copper mine in Chile to Antofagasta Plc for $1 billion.

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    Base Metals

    Copper sell-off gears-up as key support wiped out

    Copper fell to just $4,800 per tonne the lowest level since July 2009.
    Poor demand from either funds or physical players has weighed while there remains an abundance of material available should you need it.
    Add to this negative data out of China this week and a stronger dollar and there is nothing for the market to make it change its bearish stance.
    Aluminium was back under $1,500, while zinc is back to its softest since 2010 and nickel is in under $9,500.

    - See more at:
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    China's cashed-up Jinchuan unit seeks copper, nickel assets

    A Hong Kong-based unit of China's Jinchuan Group is hunting globally for quality copper and nickel assets, leveraging its access to capital at a time when Western rivals are finding it hard to secure finance, its chief executive said.

    "People are running out of money. Whether it's their balance sheets or they just can't fund their operations, or their projects," Peter Albert, CEO of Jinchuan Group International Resources, told Reuters on Thursday.

    "Companies like ours, who do have access to capital, it's an opportunity for us."

    Jinchuan International (JCI) is a unit of state-owned Jinchuan Resources, China's biggest nickel producer and a major copper producer. China has urged its huge SOES to expand overseas for growth to combat struggling activity at home.

    "Because it's China Inc, financing is available. And it is available on competitive, if I might say, attractive terms for the right projects," Albert, who was appointed CEO in July, said on the sidelines of a mining conference.

    "It puts us in a very competitive position."

    JCI already operates two mines in the central African copperbelt, the Ruashi copper and cobalt mine in the Democratic Republic of Congo (DRC) and the Chibuluma copper mine in Zambia. Its Kisenda copper mine is still under construction.

    In Africa, it has its eyes on Botswana, because of the potential of the Kalahari copper belt and the country's strong governance. It's also looking to expand its footprint in DRC and Zambia.

    "We have identified a couple of opportunites there (Botswana). We know it is good place to work and the policy and licensing is straight forward," Albert said.

    "Our focus is in the industrial base metals space, especially in copper and nickel."

    Rather than greenfields or exploration plays, JCI is eyeing early stage projects that have finished feasibility and may be in the initial stages of construction, or high value projects already in production with good asset grades.

    In Asia, Albert said Indonesia and Papua New Guinea offered the most potential based on geology and working with government.

    The prolonged downturn in copper and nickel prices had pushed JCI to seek efficiencies, he said, but the company's focus was on securing raw materials to support China's long-term urbanisation.

    "We're looking and we're interested. We're being careful, but there is an opportunity in the marketplace today and probably for 18-24 months from now."

    Read more at Reuters
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    Glencore Shares Drop Below a Pound for First Time in a Month

    Glencore Plc dropped below a pound for the first time in a month as a six-day selloff in the stock accelerated and metal prices showed no signs of recovery.

    Copper traded near a six-year low. Glencore is the worst performer in the U.K.’s FTSE 100 Index with a 68 percent drop this year after a rout in commodity prices cut profits and focused investor attention on its ability to pay down $30 billion in debt.

    “It’s very geared into the copper price,” said Richard Knights, a mining analyst at Liberum Capital Ltd. that recommends holding the shares. “Prices are obviously taking a hit on the back of U.S. dollar strength and the Fed’s clear intention to raise rates before the end of the year.”

    The renewed downturn in industrial metals heightens the pressure on Glencore Chief Executive Officer Ivan Glasenberg to deliver on a $10 billion debt reduction plan announced in September. Glencore has completed about 75 percent of the targeted reduction in borrowing and is likely to lower its debt by more than $10 billion, according to a Nov. 4 report from Deutsche Bank AG analyst Robert Clifford.

    Industrial metals continued to retreat on Thursday on concerns over demand in China, the world’s biggest consumer. Data earlier this week showed the country’s industrial output matching the weakest reading since 2008. Monetary and fiscal easing in China has yet to spur an economic rebound and the country’s economy is expanding at the slowest pace in a quarter of a century.

    Glencore has raised funds over the past two months by scrapping its dividend, selling assets and raising $2.5 billion through a share sale. The stock plunged 29 percent on Sept. 28 after analysts at Investec Plc said the company’s equity value may “evaporate” if a rout in commodities was sustained and the company didn’t restructure.

    “The impetus was clearly already there for them to try and deleverage as quickly as possible,” Liberum’s Knights said of Glencore’s debt-reduction. “Their mindset has probably changed a little bit from $2 a pound copper being a fantasy number to $2 a pound copper potentially being a realistic number.”
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    Rusal Q3 earnings drop, sees bigger aluminium surplus

    Russian aluminium giant Rusal reported an 11 percent fall in third-quarter core earnings from a year earlier, in line with expectations, as aluminium prices dropped, and warned the market remained "highly challenging".

    The world's top aluminium producer "confirmed the potential closure of up to 200,000 tonnes of production this year," which it flagged it was considering earlier this year, but did not specify when or where it might cut output.

    "During the third quarter of 2015, the aluminium industry was under significant pressure from sliding prices and premiums due to a higher than expected market surplus," Chief Executive Vladislav Soloviev said in a statement.

    Pointing to weaker demand in some emerging markets and supply growth in the Middle East, India and China, Rusal trimmed its forecast for global aluminium demand growth in 2015 to 5.6 percent and raised its forecast for a global aluminium surplus this year by a third to 373,000 tonnes.

    It said aluminium capacity closures in China had been slow despite very low domestic aluminium prices as regional authorities subsidised loss-making production, but expected that to change next year.

    "We expect rapid closures early in 2016 with the onset of a new five-year development plan," the company said.

    Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $420 million in the September quarter from $470 million in the same period last year, slightly better than seven analysts' forecasts around $418 million.

    It cut its cash costs by 17 percent to a multi-year low of $1,440 a tonne in the quarter, helped by a weaker rouble, while its average sales price fell 20 percent to $1,843 a tonne from a year earlier.

    Selling prices were hit by a double whammy of falling prices on the London Metal Exchange as well as a 51 percent slump in the premiums paid over LME prices for immediate delivery. Rusal said premiums bottomed in the third quarter.

    "As expected, premiums should rebound in line with continued tightness in key consumption markets," it said.

    Recurring net profit, which is adjusted net profit plus Rusal's share of Norilsk Nickel's earnings, rose 15 percent to $287 million.

    Rusal last month declared its first dividend since going public in 2010, paying out a total of $250 million, or $0.016 a share, for the first half of this year.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    Iron ore cash curves force our forecast lower.

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    Brazil levies initial fines of $66 mln against mine for burst dams

    Brazil's president slapped preliminary fines of 250 million reais ($66.2 million) against a mine in the country's southeast where two dams burst, killing nine people and coating a two-state area with mud and mine waste.

    The fines, announced after President Dilma Rousseff flew over the affected area, come as federal prosecutors announced plans to work with state prosecutors to investigate possible crimes that could have contributed to the disaster at the mine, jointly owned by two of the world's biggest mining companies, BHP Billiton Ltd and Vale SA.

    Rousseff said the fines, imposed by Brazil's environmental regulator IBAMA for violations that include river pollution and damages to urban areas where water service has been suspended, could be followed by penalties from other federal or state agencies.

    The top government lawyer is working with IBAMA to sue the mine owners for up to $1 billion in environmental damages in civil court, a senior administration official told Reuters.

    "We are determined to hold responsible those who are responsible for this," Rousseff told reporters, citing the two multinationals by name, as well as their joint venture, Samarco Mineração SA.

    The moves by federal officials toughen the response of a national government, now faced with a disaster affecting two states, that until recently had left much of the official reaction in the hands of the state government of Minas Gerais, a global mining hub and site of the dams.

    Earlier on Thursday, the country's mining minister said the government would conduct an audit of other dams in the sector.

    On Wednesday, Rousseff, a native of Minas Gerais, spoke with the chief executives of BHP and Vale, who held a press conference earlier that day to apologize for the disaster and promised to meet their obligations as the mine's owners.

    During the conversation, Rousseff told them Brazil's government expected the companies to pay for rescue and cleanup efforts, as well compensation for more than 500 people who were displaced as their homes were destroyed.

    Earlier Wednesday, a top federal prosecutor said the federal government would form a task force with Minas Gerais prosecutors to see if federal crimes may have been committed in addition to violations found by the state, responsible for the environmental licensing.

    "Vale and BHP were completely careless in terms of prevention," said Sandra Cureau, an assistant prosecutor general in Brasilia, Brazil's capital. "There has been a total lack of concern with the victims."

    So far there have been nine deaths, BHP said on Friday, citing Samarco, the joint venture company that runs the mine.

    State authorities said 19 people were still missing and most were likely buried in the heavy trail of sediment that was disgorged when the dams burst last Thursday.

    Contaminated waste from so-called tailing ponds, mineral waste stored in reservoirs contained by the dams, was flowing through two states, cutting water supply to hundreds of thousands of people and raising concerns about the potential impact of the waste on residents' health, farms and the region's ecology.

    While Samarco maintained the tailings contained no toxins, dead fish have appeared in the River Doce.

    "Samarco is working with relevant authorities to manage river water quality and ensure availability of potable water," BHP said in a statement on Friday.

    Fisherman in Espírito Santo state planned to collect fish species downstream before the mud and mineral waste arrived put them in a nearby lake in what local authorities called Operation Noah's Ark.

    The mine employs about 1800 people, 13 of whom are among the believed victims, and makes up about 10 percent of Brazil's iron ore exports.

    The federal government has authorized an additional 9 million reais ($2.36 million) to the mines ministry for an audit of dams in the so-called iron quadrangle, the heavily mined region in Minas Gerais where the Samarco mine operates.

    Read more at Reuters
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    China apparent steel consumption falls 5.7 pct from Jan-Oct -CISA

    Apparent steel consumption in China, the world's biggest producer and consumer, fell 5.7 percent to 590.47 million tonnes in the first 10 months of the year, the China Iron and Steel Association (CISA) said on Friday.

    China's massive steel industry has been hit by weakening demand and a huge 400 million tonne per annum capacity surplus that has sapped prices.

    "The market will only achieve balance if uncompetitive enterprises with no market demand are allowed to die," CISA vice-secretary general Wang Yingsheng told a conference.

    Zhang Dianbo, vice-president of the Baoshan Iron and Steel Corp (Baosteel) told the conference that the capacity utilisation rate of China's steel industry now stood at 69.3 percent, down from 70.69 percent in 2014, despite efforts to restrict new projects and close old and polluting mills.

    China aims to raise the rate to more than 80 percent by 2017, according to a policy document published by the industry ministry earlier this year.

    "It is hard to answer how long it will take for China to reduce capacity, but we believe it won't be completed in a short time," said Zhang.

    China said earlier in the year that it will aim to cut as much as 80 million tonnes of excess steel capacity in the next three years.
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