Mark Latham Commodity Equity Intelligence Service

Tuesday 19th January 2016
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    China economic growth slowest in 25 years

    China's economy grew by 6.9% in 2015, compared with 7.3% a year earlier, marking its slowest growth in a quarter of a century. Economic growth in the final quarter of 2015 edged down to 6.8%, according to the country's national bureau of statistics.

    China's growth, seen as a driver of the global economy, is a major concern for investors around the world.

    Beijing had set an official growth target of "about 7%" for the world's second-largest economy.

    Chinese Premier Li Keqiang has said weaker growth would be acceptable as long as enough new jobs were created.

    But some observers say its growth is actually much weaker than official data suggests, though Beijing denies numbers are being inflated.

    Analysts said any growth below 6.8% would likely fuel calls for further economic stimulus.
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    Oil and Gas

    IEA says oil market to remain oversupplied until late 2016

    Unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016, the International Energy Agency said in its monthly report on Tuesday.

    Warm winter weather around the world cut global oil demand growth to a one-year low of 1 million barrels per day in the fourth quarter of 2015, down from a near five-year high of 2.1 million bpd in the third quarter.

    The IEA left its estimate of growth in global demand for 2016 unchanged from its previous monthly report at around 1.2 million bpd.

    Brent crude futures LCOc1 have fallen to their lowest level since late 2003, tumbling below $30 a barrel, after OPEC said in December it would not cut output to arrest the price slide despite global oversupply.

    "We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1 million bpd and there will be enormous strain on the ability of the oil system to absorb it efficiently," the IEA said.

    With the world economy slowing, the IEA said it had cut its forecast for 2016 OPEC crude oil demand by 300,000 bpd to 31.7 million bpd.

    Iran has said it will raise output by an initial 500,000 bpd now that international sanctions have been lifted, but the IEA said it believes the increase will be of a more modest 300,000 bpd by the end of the first quarter of 2016.

    The IEA is sticking with its forecast for a decline of around 600,000 bpd in non-OPEC output, which it said had been surprisingly resilient in the face of tumbling crude oil prices.
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    OPEC sees oil market rebalancing in 2016, but Iran to counter non-OPEC decline

    OPEC forecast on Monday that oil supply from non-member countries will post a larger-than-expected decline this year due to the collapse in prices, boosting the need for crude from the producer group.

    Supply outside the Organization of the Petroleum Exporting Countries (OPEC) would decline by 660,000 barrels per day (bpd) in 2016, led by the United States, OPEC said in a report. Last month, OPEC predicted a drop of 380,000 bpd.

    "The analysis indicates that 2016 will be a supply-driven market. It will also be the year when the rebalancing process starts," OPEC said.

    "Non-OPEC marginal barrel production in the next six months will be sensitive to sustained low oil prices."

    A drop in non-OPEC supply would reduce a supply glut which has prompted oil prices to collapse to below $28 a barrel, the lowest since 2003. OPEC's 2014 strategy shift to defend market share and not prices helped deepen the decline.

    The price drop has started to slow the development of relatively expensive supply sources such as U.S. shale oil and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.

    U.S. output will average 13.50 million bpd this year, the report said, down 380,000 bpd from 2015 and the largest drop outside OPEC. Output is also vulnerable in places such as the North Sea, Latin America and Canada, OPEC said.

    But OPEC's report makes no mention of the supply impact of the lifting of Western sanctions on member-country Iran, which on Monday said it was increasing output by 500,000 bpd - which would fill most of the hole left by non-OPEC members.

    The United Arab Emirates' energy minister, in the first comment by a Gulf OPEC member about Iran since most sanctions were lifted on Tehran, said anyone increasing output during the current oversupply would worsen the situation.

    For now, OPEC said it pumped less oil in December, reducing the excess in the market. Production including returning OPEC member Indonesia fell by 210,000 bpd to 32.18 million bpd in December, the report said, citing secondary sources.

    The report points to a 530,000-bpd supply surplus this year if the group keeps pumping at December's rate, down from 860,000 bpd implied in last month's report.

    OPEC left its 2016 global oil demand growth forecast little changed, predicting global demand would rise by 1.26 million bpd, marking a slowdown from 1.54 million bpd in 2015.
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    Saudi Oil Exports Climb to Seven-Month High as Refineries Return

    Saudi Arabia, the world’s largest crude exporter, shipped the most oil in seven months in November in a sign that overseas refineries were getting prepared to put plants back on line after seasonal maintenance.

    Saudi shipments rose to 7.72 million barrels a day, the highest since April, from 7.364 million in October, according to data on the website of the Joint Organisations Data Initiative based in Riyadh. JODI is an industry group supervised by the Riyadh-based International Energy Forum.

    “This is exactly what they’ve been doing for the last year and a bit, whenever there is demand for their crude they will export,” Amrita Sen, chief oil market analyst at Energy Aspects Ltd. in London, said by phone.

    Refineries are usually taken off line for repairs in September and October. Refined products exports from Saudi Arabia rose in November, to 1.18 million barrels a day from 1.09 million, according to JODI.

    “You would expect to see refinery buying in November ahead of their return from maintenance in December,” Sen said. “You are seeing more oil going into Europe.”

    Poland’s PKN Orlen bought three cargoes of Saudi crude, the company said this month. “The Mediterranean we think is going to be the new battle ground among Saudi, Iran and Iraq, which is why Saudi is focusing on Europe ahead of Iran’s return,” Sen said.

    The Organization of Petroleum Exporting Countries couldn’t agree on production limits at its Dec. 4 meeting amid Iran’s plans to boost exports following the end of international sanctions on its economy. Brent crude prices dropped 10 percent in November.

    The global oil surplus will persist at least until late 2016 as demand growth slows and OPEC shows “renewed determination” to maximize output, the International Energy Agency said last month.

    The oversupply is probably 2 million barrels a day, even before more supply from Iran, Louis Besland, head of the Europe, Middle East and Africa oil and gas practice at AlixPartners management consultants, said by phone from Dubai. “This imbalance has been mainly created by the North American shale oil and gas in the past four or five years. That’s why Saudi Arabia believed from the beginning it’s not up to them to cut back.”

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    Iran issues order to boost oil production by 500,000 bpd -Shana

    Iran has issued an order to increase crude oil production by 500,000 barrels a day, the deputy oil minister was quoted as saying on Monday, implementing its policy to boost production as soon as sanctions were lifted.

    Oil prices hit their lowest since 2003 on Monday as the market braced for additional Iranian exports, but later turned positive. Benchmark Brent crude was trading at around $29.25 at 1220 GMT.

    "Iran is able to increase its oil production by 500,000 barrels a day after the lifting of sanctions, and the order to increase production was issued today," Deputy Oil Minister Rokneddin Javadi, who also heads the National Iranian Oil Company, was quoted as saying by Iran's Shana news agency.

    The United States and European Union on Saturday revoked sanctions that had cut Iran's oil exports by about 2 million barrels per day (bpd) since their pre-sanctions 2011 peak to little more than 1 million bpd.

    The following day, Iran said it was ready to increase its exports by half a million barrels per day, pouring more supply into a market glut that has routed global crude prices. Tehran has pledged to boost production further in the coming months.

    Nevertheless, analysts say Iran may struggle to rapidly boost its production because its infrastructure, harmed by years of inactivity, needs foreign investment that will take time to arrive.

    On Sunday, the head of Italy's Eni SpA said Iran would need to attract $150 billion to become a major producer, and that "is not something that can be done in a second".
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    China's preliminary Dec implied oil demand down 1.3 pct on yr

    China's implied oil demand fell 1.3 percent in December from a year earlier to 10.46 million barrels per day (bpd), according to Reuters' calculations based on preliminary government data.

    Preliminary oil demand for full-year 2015 was 10.32 million barrels per day, up 2.5 percent from a year ago.

    Preliminary implied oil demand is the sum of domestic refinery throughput and net imports of refined products, on a bpd basis.

    Refinery throughput

    China's refinery throughput rose 2.7 percent in December from a year earlier to 45.38 million tonnes, or a record 10.79 million barrels per day (bpd), data from the National Bureau of Statistics showed on Tuesday.

    The daily run rate is up 1.0 percent compared with 10.69 million bpd in November, the previous record.

    Refinery throughput for full-year 2015 reached 522 million tonnes, or 10.44 million bpd, up 3.8 percent over the previous year.


    Attached Files
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    Shell, BP dividends.


    Image titleExxon has cut total shareholder payments 50% since the peak.
    Shell -10%, BP, 50%.


    Image titleShell has MORE rigs contracted at LONGER duration than Exxon. BP has one rig out at 1yr.

    Shell has debt: $50bn. Worst bond is 284bp over libor.  
    Exxon has debt $32bn. Worst bond is 185bps over libor.
    BP has debt $30bn. Worst bond is 214bps over libor.

    Contractual liabilities:

    Image titleShell claims this outsize figure is due to the LNG business, but comparison with other big LNG operators leaves uncomfortable questions. 
    Image titleImage title
    BP's disclosure is superb. We'll pick of the comparable capex commitments and score them as $35bn, but other analysts may be harsher.

    Exxon contractual obligations + debt =$86bn or 26% of mcap.
    Shell contractual obligations +debt= $530bn or  420% of mcap.
    BP contractual obligations +debt $65bn or 73% of mcap

    Corrected for working capital changes:
    Exxon operating ($39bn) exceeds capex ($29bn) by almost precisely the dividend ($11bn)
    Shell operating ($15) is less than capex ($17) and the dividend ($10bn) has no funding.
    BP operating ($17) is less than capex ($19), and the dividend ($7bn) has no funding.
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    Suncor to buy Canadian Oil Sands in sweetened deal

    Canadian oil and gas producer Suncor Energy Inc said on Monday it had reached an agreement to buy Canadian Oil Sands Ltd after raising its all-stock offer, valuing the deal at about C$4.24 billion ($2.93 billion) excluding debt.

    The deal came days after Suncor's hostile bid for the company fell short of support from Canadian Oil Sands shareholders.

    Alberta oil sands producers have been struggling with tumbling global crude oil prices, which slid to their lowest levels since 2003 on Monday over worries of a global supply glut.

    Suncor will now offer Canadian Oil Sands shareholders 0.28 of a Suncor share for each Canadian Oil Sands share they hold, more than the initial bid of 0.25 shares offered in October.

    The raised offer values Canadian Oil Sands at C$8.74 per share, which represents a premium of nearly 17 percent over the closing price of both stocks on the Toronto Stock Exchange on Friday.

    Suncor made a bid for Canadian Oil Sands in October and later extended the offer until Jan. 8, promising shareholders improved operating efficiencies and a higher dividend.

    In response to the hostile bid, Canadian Oil Sands adopted a shareholder rights plan that acted as a poison pill, and urged investors to reject what it called a substantially undervalued Suncor bid.

    Seymour Schulich, a major Canadian Oil Sands investor, urged his fellow shareholders on Jan. 5 to reject the bid, saying Suncor was offering "an unacceptable price for an irreplaceable asset."

    Suncor Chief Executive Steve Williams said on Monday the company was "pleased to have the support of the COS Board of Directors and shareholders, including Seymour Schulich, and have been advised of their intent to tender their shares."

    Including Canadian Oil Sands' estimated debt of C$2.4 billion, the new deal is valued at about C$6.6 billion, the companies said in a statement on Monday.

    Canadian Oil Sands has a 36.7 percent stake in Syncrude, the oil-sands mining consortium in northern Alberta that is Canada's largest single source of crude oil.

    Suncor currently owns 12 percent of Syncrude, a stake that would rise to 49 percent with the takeover.
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    Chevron has pencilled in another gas supply deal for its Gorgon LNG project

    The US oil and gas giant has signed a non-binding Heads of Agreement with China’s ENN Energy to receive 0.5 million metric tonnes of LNG a year for 10 years, with deliveries starting in 2018, or the first half of 2019.

    Chevron Midstream and Development executive vice president Mike Wirth said it was one more step in the development of the company’s Australian gas business and its global LNG portfolio.

    “As first LNG production from the Gorgon project draws near, we welcome ENN as a new customer,” Chevron Australia managing director Roy Krzywosinski said.

    “This deal shows the competitiveness of LNG supply from Chevron’s Australian projects.”

    The new deal follows the recently announced non-binding HoA with China Huadian Green Energy Co.

    ENN Energy is one of the biggest natural gas distribution companies in China.
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    Israeli pair eye 'big gas find'

    An Israeli exploration consortium may have uncovered a further major gas deposit based on a new resource estimate for a pair of finds off the Mediterranean country (Daniel East and West), according to a report.
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    Amazing how some still see falling rig count as important

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    Concho shakes up Permian holdings

    Concho Resources announced Monday three deals that will rearrange the company’s acreage in the Permian Basin through a swap, an acquisition and a sale.

    Combined, the transactions will bring down the Midland-based producers’ net debt without affecting its 2016 capital budget or production outlook, executives said in an announcement describing the deal.

    In the first part of the deal, Concho said it would buy roughly 12,000 net acres near the company’s North Harpoon prospect in Ward and Reeves counties. Concho will pay an unnamed private operator a combination of cash, stock and joint-venture interest in the acreage.

    The second deal is an exchange with Clayton Williams Energy that will consolidate 21,000 net acres where Concho doesn’t operate drilling into a concentrated position adjacent to company’s Big Chief prospect in Reeves County, Texas.

    The third deal will have Concho sell about 14,000 net acres in Loving County to Silver Hill Energy Partners II for $290 million in cash. Silver Hill is a closely held oil and gas company backed by private equity group Kayne Anderson Capital Advisors, which has raised $4.5 billion in capital.

    The assets Concho is selling produced about 2,500 barrels of oil equivalent per day in the third quarter from a total of 5 million barrels of oil equivalent in proved reserves, according to the announcement. Concho said the sale will free it from about $100 million in drilling costs through 2016.

    “The combined effect of these transactions not only strengthens our portfolio, but also frees up capital to develop higher returning properties while improving our leverage metrics,” said Tim Leach, Chairman and CEO of Concho in a prepared statement.
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    Alternative Energy

    SMA Solar launches new inverter with an eye on Tesla's Powerwall

    SMA Solar, Germany's largest solar company, on Monday said it would start selling an inverter designed for home storage systems, aiming to tap a market expected to thrive following the launch of Tesla's Powerwall battery.

    "Within a year, the cumulated number of battery-storage systems installed in Germany so far has more than doubled to over 30,000, thanks to the decline in prices," SMA Solar Chief Executive Pierre-Pascal Urbon said in a statement.

    The company will start selling "Sunny Boy Storage" to wholesalers from March, it said, adding the product was made "especially for high-voltage batteries like the Tesla Powerwall".

    Tesla, best known for its electric cars, sparked global interest in the idea of self-powered homes in April, when it said it would offer lithium-ion batteries for households next year, called Powerwalls.

    SMA Solar, the world's largest maker of solar inverters, will start selling the new system in Germany, which it said will then be rolled out to other markets, including Italy, Britain, Australia and the United States.

    The company expects the German home storage market to grow by 20,000 systems, or nearly double, this year, while putting the global market potential for electrical storage at an annual 0.5-1.2 billion euros ($0.55-1.2 billion) over the medium term.
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    China faces persistent challenge tackling false power plant emissions data

    A significant proportion of coal and gas-fired power plants in China are deliberately falsifying their emissions data, despite concerted efforts by the government to clamp down on the practice.

    Reuters reports that Beijing is struggling to reduce the pollution plaguing its cities and part of the problem has been isolated as widespread misreporting of harmful gas emissions by Chinese electricity firms.

    Although said to be a minority, the offenders are, according to the news agency report, motivated to distort the figures due to ‘crippling overcapacity and slowing demand growth’.

    As a result government threats of heavy fines or forced closures have failed to deter. Coal emission violations cost power producers $98m in lost subsidies and fines last year.

    The environment ministry said last month, "a minority of firms were still manipulating emissions control equipment and falsifying data in an attempt to avoid supervision".

    An unnamed source told Reuters that power companies that also provided heating for local communities could overstate the amount of coal used for heat generation, which is not subject to direct monitoring, and understate the amount used for power.

    In its latest bid to curb pollution, China's cabinet in December ordered all coal-fired power firms to reduce pollutants like sulphur dioxide by 60 percent by 2020, saying it would close inefficient plants and promote advanced low-emissions technology through subsidies.

    As an incentive, it offered increased payments to generators that upgrade facilities, with total subsidies estimated to be worth $6.4bn a year.

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    Muga boosts Highfield's position on cost curve

    Potash developer Highfield Resources has been tapped as the likely highest margin potash producer globally, with its Muga project, in Spain, expected to be the lowest-cost potash producer. 

    The ASX-listed company on Tuesday revealed results from an independent report by Argus FMB on behalf of the Europena project finance banking syndicate, which was based on the average potash prices achieved in 2015. “The Argus FMB report provides independent, third-party validation that Muga is likely to position Highfield as the highest margin potash producer globally,” said Highfield MD Anthony Hall.

    A 2015 optimised definitive feasibility study estimated that the Muga project could deliver more than one-million tonnes a year of granular potash, over a mine-life of 47 years. 

    The project was estimated to have a net present value of $1.46-billion, with a Phase 1 capital expenditure of €267-million. “We continue to believe we have the most compelling potash project globally, and this is the first of our portfolio of five projects that all appear to exhibit similar characteristics,” Hall said.
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    Precious Metals

    India's gold bonds seen luring investors in search of safe haven

    The second tranche of India's sovereign gold bonds, whose sale began on Monday, is likely to draw good response from investors, as they are priced below market rates for the metal and sharemarket turmoil spurs investors to diversify holdings.

    India plans to sell 150 billion rupees ($2.22 billion) in gold bonds in the fiscal year ending on March 31, as it seeks to wean investors off physical gold and contain the outflow of foreign exchange spent on imports.

    The price of gold has risen 4 percent so far in 2016, while India's benchmark has fallen nearly 7 percent.

    "Given the correction in the stock market, interest is shifting in favour of gold," said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities.

    "Investors are looking for safe-haven assets. This tranche will receive better response than the first tranche."

    The Reserve Bank of India has fixed the issue price of the bonds, wich will be sold until Friday, at 26,000 rupees per 10 grams, below the current market rate of nearly 26,050 rupees.

    The bonds, linked to the price of bullion, carry an annual interest of 2.75 percent and allow consumers to invest in 'paper' gold rather than physical gold.

    The first tranche debuted last November to lukewarm response, as it was priced nearly 5 percent above the market. At the time, the stock market also promised better returns, with the price of gold falling in anticipation of a U.S. rate hike.

    "Given that currently risk appetite is weak and bank interest rates are also falling, demand for gold bonds in the second tranche might be better," said Siddhartha Sanyal, an India economist at Barclays.

    A cut in policy rates by the Reserve Bank of India and robust growth in bank deposits, compared with credit in the last year, have prompted banks to cut deposit rates by more than 100 basis points.

    "However, it is a gradual process of publicity and it will take some time for the product to become popular," Sanyal added.

    The gold bonds are among measures India has adopted to damp ravenous appetite for gold imports, after a currency crisis in 2013 proved to be the country's worst since 1990.

    The rupee currency hit a record low in 2013 and the current account deficit stood at an all-time high of 4.8 percent of GDP, led by gold imports of more than $39 billion.

    That compares with the 2014 figure of $31 billion and a 2015 figure of $35 billion.
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    Base Metals

    Where should BHP and RTZ's dividends be?

    BHP has cut shareholder payouts by 50%
    Image title
    Rio has cut shareholder payments by 60%, but they funded in a prior year, which slightly ruins the intent.
    Image title

    #2Image title
    RTZ capex commitments are $78bn.Image title
    BHP capex commitments are $4.8bn, to which we should add $19bn for the Oil and Gas division.

    BHP $32bn. Worst bond is 309bp over Libor.
    RTZ $23bn. Worst bond is  409bp over libor.

    RTZ: debt + capex= $101 or 3.3x mcap.
    BHP: debt+ capex= $56, add $5bn for Samarco, $61bn or 1.6x mcap.


    Rio's operating cash flow (ex working cap) was $11bn in the yr to June 2015, capex was $6bn, leaving $5bn to cover a $4bn dividend. 
    BHP's operating cash flow (ex working cap) was $19bn in the yr to June 2015, capex was $13bn, leaving $6bn to cover a $6.5bn dividend.

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    MMG says ships first copper from Peru's Las Bambas mine to China

    China-backed miner MMG Ltd said on Monday it has made a first shipment of 10,000 tonnes of copper concentrate from its Las Bambas mine in Peru to China.

    MMG, backed by China Minmetals Corp and run from Australia, is aiming to become a mid-tier base metals producer, having bought the Las Bambas copper project from commodity giant Glencore.

    The mine is expected to churn out some 450,000 tonnes of copper a year.
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    Freeport says Indonesian unit head resigned for personal reasons

    The chief executive of Freeport-McMoRan's Indonesian unit, Maroef Sjamsuddin, has resigned for personal reasons, a spokesman at the mining company's head office in the United States said on Monday.

    A process to find a replacement has been started, Freeport spokesman Eric Kinneberg said in an email.
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    NALCO revives $2 billion Iran smelter plan as sanctions end

    National Aluminium Company NALCO will soon send an official team to Iran to explore setting up a smelter complex worth about $2 billion, its boss said, as world powers lift sanctions on Iran that had made negotiations difficult.

    NALCO Chairman Tapan Kumar Chand told Reuters on Monday that the ending of sanctions on Iran in return for the country's curbs on its nuclear programme could help the company finally move ahead with its long-held goal to set up a smelter there to make use of cheap gas resources.

    "It's a major bottleneck which has been cleared," Chand said. "As far as Iran is concerned they have already informed us that they are ready to receive the team."

    Cash-rich NALCO will also visit Oman and Qatar in the next two months to work out the best place to set up a 500,000-tonnes-per-year smelter and an associated power plant in the Middle East.

    Balvinder Kumar, the secretary of the mines ministry that controls NALCO, said the company's interest was at a preliminary stage though it should invest aggressively to expand wherever possible.


    NALCO is trying to push back on a finance ministry request to buy back 25 percent of its shares from the government, part of Prime Minister Narendra Modi's asset sales plan which looks set to fall well short of its goal this fiscal year.

    The company has agreed to repurchase 10 percent but says it also needs money for expansion - including the Middle East project - and to diversify into sectors such as nuclear energy.

    NALCO is a rare Indian aluminium company managing to make money despite a sharp drop in the metal's prices and rising imports from China that have badly hurt private competitors such as Vedanta Ltd (VDAN.NS) and Hindalco (HALC.NS).

    One factor is its easy access to raw materials such as bauxite, an aluminium ore. As a result, NALCO enjoys total liquid reserves of about 120 billion rupees ($1.77 billion), around half of that in cash, Kumar said.

    The finance ministry, which has managed to raise less then a fifth of the roughly $10 billion it had projected in divestments for 2015-2016, now wants NALCO to shell out about 32.5 billion rupees ($481 million) to buy back shares out of the 89 percent holding the government has in the company.

    "We're working on the 10 percent but a call on the rest will be taken by the board," Chairman Chand said, adding the buyback demand comes amid the fall in aluminium prices, eroding profitability and the need to have funds to grow.

    Attached Files
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    Steel, Iron Ore and Coal

    15 more coal mines to start production by March 31: Coal Secy Anil Swarup

    The move comes against the backdrop of the government mobilising over Rs 3 lakh crore in three tranches of coal auctions last year.

    As many as 15 more coal mines that were auctioned last year would begin production by March 31, taking the number of total producing mines to 23, government said on Monday.

    The move comes against the backdrop of the government mobilising over Rs 3 lakh crore in three tranches of coal auctions last year.

    "Fifteen more mines that we had auctioned last year will start coal production by March 31," Coal Secretary Anil Swarup told PTI.

    Swarup said eight of the mines have already come in production.

    The government had last year auctioned 31 coal mines in three tranches and made an allotment of 42 coal blocks to central or state government companies.

    However, the government had to annul the process for the fourth round of coal block auctions, scheduled for this month on account of poor response from bidders in sectors like steel as well as depressed commodity prices and adverse market conditions.

    Now, the government plans to initiate fourth round of auction as and when market condition improves.

    Attached Files
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    China steel and coal production falls in 2015


    China's crude steel output fell 2.3 percent to 803.8 million tonnes in 2015 from the previous year, government data showed on Tuesday, the first drop in more than three decades as the economy of the world's top producer slows.

    Production also declined 5.2 percent to 64.37 million tonnes in December from the year before, according to the numbers from the National Bureau of Statistics, dented by faltering demand.

    China's government is pushing to erode overcapacity in the steel industry, as the country aims to shift economic growth towards more consumption rather than heavy investment. The nation's massive steel sector is said to have a surplus capacity of about 300 million tonnes.

    China's crude steel output is expected to decline for a second straight year in 2016 on continued weakness in demand, according to a government study.

    "We would expect output to fall further this year, as the government is aiming to solve overcapacity and step up structural reform in supply," said Yu Yang, an analyst with Shenyin & Wanguo Futures in Shanghai.

    Steel prices tumbled over 35 percent in 2015, which has already forced many Chinese mills to slash output or shut permanently, with little indication of a strong rebound in steel demand.


    Output in December alone, normally a peak month for coal use as temperatures plunge, fell 0.3 percent compared to the same month a year earlier, according to data from the National Bureau of Statistics.

    China's coal industry is struggling with a huge supply glut that has sapped prices and forced many mines to shut.

    Key coal-consuming industries like steel and power also experienced declines in 2015, with crude steel production falling 2.3 percent over the year and power generation dipping 0.2 percent.

    Cement production, another important coal consuming sector, also fell 4.9 percent in 2015, following a downturn in construction activity.

    Beijing has urged coal producers to control output and it has also banned new project approvals, but the move is unlikely to have any immediate impact on the market, which has seen prices fall by a third since the beginning of last year.

    Senior officials at the China National Coal Association have said that despite the currenteconomic downturn, overall coal demand will increase over the long-term before peaking in the middle of the next decade.

    But Carlos Fernandez Alvarez, coal analyst at the International Energy Agency, said at a meeting in Beijing last week that coal consumption in China had already peaked.

    Environmental groups have urged the Chinese government to include an explicit 2020 coal consumption cap in its latest five-year plan, due to be published later this year.

    The Natural Resources Defense Council, a U.S.-based group, has urged China to set the cap at 4 billion tonnes and to cut the figure to 3.5 billion tonnes by 2030.

    The production of coking coal, used in steelmaking, also fell 6.5 percent over 2015 to 447.78 million tonnes, NBS data showed.

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    Rio Tinto to ship more iron ore in 2016 despite price rout

    Global miner Rio Tinto plans to increase iron ore production and shipments in 2016, defying a collapse in prices as it takes advantage of its position as the world's lowest cost producer.

    The world no.2 iron ore producer reported an 11 percent rise in annual iron ore shipments on Tuesday, roughly in line with its guidance of 340 million tonnes, and said it expected to produce and ship 350 million tonnes in 2016, including its mine co-owners' volumes.

    Rio's strong output, low costs and sharp cuts in capital spending are expected to help it maintain or raise its dividend at least for the next 12 months, in stark contrast to its rivals, even with commodities prices mired at multi-year lows.

    "We will continue to focus on disciplined management of costs and capital to maximise cash flow generation throughout 2016," Rio Tinto Chief Executive Sam Walsh said in a statement.

    The company has frozen all staff pay in 2016 and is slashing travel spending, stepping up a three-year cost-cutting effort to ride out a prolonged commodities slump. Walsh warned staff last week the outlook was "very sobering."

    Iron ore shipments in the fourth quarter rose 10 percent on a year earlier to 91.3 million tonnes, including its co-owners' volumes, and again outpaced quarterly production as Rio Tinto ran down stockpiles.

    Rio Tinto confirmed analysts' view that it would have to step up output in 2016 to keep up shipments.

    It said it expects to produce and ship around 350 million tonnes of iron ore, including co-owners' volumes, implying a 7 percent increase in production and 4 percent rise in shipments.

    Rio Tinto expects its share of mined copper production to rise to between 575,000 and 625,000 tonnes in 2016 from 504,000 tonnes last year, boosted by higher output from the Kennecott mine in the United States and an expected share of output from Freeport McMoRan's Grasberg mine in Indonesia.

    Mined copper output fell 13 percent to 111,000 tonnes in the fourth quarter of 2015, well below a Goldman Sachs forecast of 140,000 tonnes, mainly as there was less metal per tonne of rock dug at the Escondida mine in Chile, co-owned by BHP Billiton .

    Like its peers, Rio Tinto stepped up metallurgical coal production to offset sliding prices in 2015, however it flagged that volumes would be flat in 2016. The company is trying to sell its coal operations in Australia's Hunter Valley.

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