Mark Latham Commodity Equity Intelligence Service

Thursday 14th May 2015
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    New border power flows to shake up West Europe's prices

    New ways of handling cross border electricity flows are set to shake up the prices West European utilities and grids pay in power markets from May 20, with Germany facing a possible 4 percent rise.

    Wholesale prices could fall by 1, 5 and 10 percent in France, the Netherlands and Belgium respectively as prices across the region converge, Thomson Reuters Point Carbon analysis shows.

    French and Benelux consumers could enjoy lower prices as more supply comes in their reach, while German prices may rise on an increase in power exports.

    The parties involved are German network companies Amprion and Transnet BW, German/Dutch TenneT, and their Belgian, Luxembourg and French counterparts Elia, Creos and RTE, for the grid side, as well as spot power exchanges Epex Spot, APX and Belpex of Germany, the Netherlands and Belgium.

    The Central West European (CWE) region of Benelux, France and Germany/Austria will adopt what it calls "flow-based" market coupling, after regulators in the participating European countries agreed on the new ways to distribute power across borders.

    Transmission firms in the region that covers more than a third of Europe's total electricity demand, constantly collaborate to improve market convergence, driven by EU policy and by prospects of increased efficiency.

    The region historically had isolated power systems and limited interconnection, which still hampers power flows and keeps prices divergent.

    With new IT solutions and closer co-operation, existing systems will be more effectively linked.

    http://www.reuters.com/article/2015/05/13/power-europe-grids-idUSL5N0Y23LH20150513
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    South Africa considers partial Eskom privatisation

    South Africa is considering either partially privatising state-owned utility Eskom or putting up some of its assets for sale in order to secure funding for the power producer and resolve an energy crisis, the Treasury said on Wednesday.

    The proposal could revive previous plans to raise funds for the company, which is battling the worst power supply shortages since 2008 and faces a funding crunch as it races to bring new power plants online.

    South Africans are subjected to frequent rolling power cuts which Eskom imposes to prevent the grid from collapsing.

    "Given Eskom's constrained balance sheet and government's constrained fiscal position, there is a need to explore all options," the Treasury said in a statement.

    "Consideration is being given to ring-fencing and selling stakes in Eskom's non-core businesses or power stations as well as into Eskom's business as a whole."

    The government would still retain control of the company, the statement said, and authorities would also consider amending regulations to allow private firms to generate electricity for their own use and sell any surplus to the national grid.

    Another option could be increasing private generation by independent producers. Some 5.2 gigawatt has already been procured through that initiative.

    The Business Day daily reported on Wednesday that Treasury Director General Lungisa Fuzile had said government had revived a discarded policy that stipulates the private sector could take a stake of up to 30 percent in Eskom's power-generating assets.

    Suspended Eskom CEO Tshediso Matona said in March the power firm may sell assets to raise capital.

    http://www.reuters.com/article/2015/05/13/safrica-eskom-idUSL5N0Y426P20150513
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    Vedanta Loss Widens on $4.5 Billion Writedown as Oil Prices Drop

    Vedanta Resources Plc, the metals and oil producer controlled by billionaire Anil Agarwal, reported a wider full-year loss after booking a $4.5 billion impairment.

    The net loss expanded to $1.8 billion in the fiscal year through March from $196 million a year earlier, the London-based company said Thursday in a statement. Sales were little changed at $12.9 billion.

    Vedanta, mainly a mine operator, gained access to India’s biggest onshore oil field in 2011 after buying a controlling stake in Cairn India for $8.67 billion. That unit accounted for almost all of the impairment charge after crude prices plunged by half amid a global supply glut.

    “We will continue to have a relentless focus on costs,” said Chief Executive Officer Tom Albanese, the former head of Rio Tinto Group who was appointed to lead Vedanta last year. “Over the next few years, we expect the worst of the sector oversupply to be behind us.”

    The company proposed a final dividend of 40 cents a share, increasing the total payout to 63 cents, up 3 percent from a year earlier.

    Free cash flow in the period was $1 billion after capital spending, Vedanta said. Net debt swelled by $500 million to $8.5 billion at the end of March, while gross debt was $16.7 billion.

    http://www.bloomberg.com/news/articles/2015-05-14/vedanta-loss-widens-on-4-5-billion-writedown-as-oil-prices-drop

     Vedanta Resources Plc reported a 16.7 percent drop in full-year core earnings as oil and iron prices declined.

    London-listed Vedanta, which has most of its assets in India, said earnings before interest, tax, depreciation and amortisation fell to $3.74 billion from $4.49 billion a year earlier.

    http://www.reuters.com/article/2015/05/14/vedanta-res-plc-results-idUSL4N0XZ6ER20150514
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    Oil and Gas

    Oil glut worsens as OPEC market-share battle just beginning - IEA

    A global oil glut is building as OPEC kingpin Saudi Arabia pumps near record highs in an attempt to win a market-share battle against stubbornly resistant U.S. shale production, the International Energy Agency (IEA) said on Wednesday.

    The West's energy watchdog said in a monthly report that although higher-than-expected oil demand was helping to ease the glut, growth in global oil consumption was far from spectacular.

    As a result, signs are emerging that the crude oil glut is shifting into refined products markets, which could make a recent rally in oil prices unsustainable.

    "Despite tentatively bullish signals in the United States, and barring any unforeseen disruption elsewhere, the market's short-term fundamentals still look relatively loose," said the IEA, which coordinates energy policies of industrial nations.

    Global oil production exceeds demand by around 2 million barrels per day, or over 2 percent, following spectacular growth in U.S. shale production and OPEC's decision last year not to curtail output in a bid to force higher-cost U.S. producers to cut theirs.

    As a result, benchmark Brent oil prices more than halved from June 2014 to $46 per barrel in January. They have since rebounded to around $65, however, on fears of a steep slowdown in U.S. production growth.

    "In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked. Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating," the IEA said.

    But it added that the recent oil price rebound was giving U.S. producers a new lease on life.

    "Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits," the IEA said.

    "It would thus be premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started."

    http://www.reuters.com/article/2015/05/13/iea-oil-idUSL5N0Y429N20150513
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    China's crude oil imports up 7.5% in Q1

    China, the world's second largest oil consumer after the U.S., imported 80.34 million tons of crude oil in the first quarter of this year, 7.50% more than in the same period of last year, according to the latest figures from China's General Administration of Customs.

    The import value of crude oil for the three-month period declined 42.80% from a year earlier to RMB 206.09 billion.

    From Jan to Mar, the country saw its imports of refined oil reach 7.9 million tons, reflecting a decrease of 7.50% year on year. The import value of refined oil went down 43.30% from a year earlier to RMB 23.78 billion in the three-month period.

    In the month of Mar, the country imported a total of 26.81 million tons of crude oil and the import value for the month reached RMB 66.66 billion.

    Meanwhile, China imported 2.87 million tons of refined oil last month with import value of RMB 8.96 billion.

    http://en.chinamining.com.cn/News/2015-05-14/1431574329d72203.html
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    China to boost diesel exports as domestic demand remains weak

    China is set to step up diesel exports this month, with shipments climbing to near record highs of more than 650,000 tonnes, as domestic demand remains tepid and inventory builds, industry sources said.

    The increased exports come as regional demand for diesel is picking up in Asia, they said, and would likely keep refiner margins in check rather than putting them under pressure.

    Diesel, used to run trucks and tractors and generate power at construction and mining sites, is a bellwether of industrial activity. An increase in exports by the world's No. 2 oil consumer suggests that its economy is still weak, traders said.

    Diesel demand in China has been largely flat this year, also held down by efforts to shift to a more consumption-based economy, away from industrial and infrastructure development, they added.

    China's top refiners, including Sinopec Corp and PetroChina, are expected to export about 650,000 tonnes of diesel in May, more than double the nearly 300,000 tonnes in April, two sources familiar with the matter said.

    "Domestic demand for gasoil is weak and inventory high, so could be why there are more (gasoil) exports in May," a third source based in Beijing said.

    The export volumes are only estimates and actual shipments could change depending on refinery output for the month, the sources said.

    The expected volume is well above the 476,406 tonnes of diesel that China exported last June, which was the highest in 2014, according to customs data.

    This year, the country exported between 65,000 and 300,000 tonnes of diesel a month in the first quarter of 2015, down from last year's monthly average as domestic prices rose above international prices, one source added.

    The higher exports in May could also reflect increased activity from China National Offshore Oil Corp, the parent of China's top offshore oil producer CNOOC Ltd, which exported diesel for the first time in April, a Singapore-based trader said.

    http://www.reuters.com/article/2015/05/13/china-diesel-exports-idUSL3N0Y42I620150513
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    Japan's April LNG spot price falls to 2-month low

    Average liquefied natural gas (LNG) spot prices for buyers in Japan fell to a two-month low in April, trade ministry data showed on Thursday, in another sign of slack global demand.

    Spot LNG contracted in April for delivery to Japan averaged $7.60 per million British thermal units (mmBtu), down from $8  month earlier, less than half the level a year ago, the Ministry of Economy, Trade and Industry (METI) said.

    Spot cargoes booked earlier and arriving in April averaged $7.90 per mmBtu, up from $7.60 in March. Asian benchmark spot LNG LNG-AS stood at $7.40 per mmBtu last week,  little changed from a month ago, as demand from end users remained subdued.

    Tokyo started surveying spot LNG prices in March 2014 to add transparency to the market amid concerns about rising fuel costs
    in the wake of the shutdown of nuclear plants after the Fukushima crisis. The average spot price is based on around 10 percent of the nation's purchases of the super-chilled fuel.

     The trade ministry survey looks at samples of fixed prices for LNG sold to power companies and utilities among others, and excludes spot deals linked to benchmark prices such as the U.S. natural gas Henry Hub index.

    http://www.reuters.com/article/2015/05/14/lng-japan-spot-idUSL3N0Y52EG20150514
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    ConocoPhillips 'encouraged' by Colombia test: Canacol!

    ConocoPhillips liked what it saw with a test well drilled in partnership with Shell targeting Colombia's La Luna shale, its chief executive said.

    http://www.upstreamonline.com/live/1399824/conocophillips-encouraged-by-colombia-test?utm_source=twitterfeed&utm_medium=twitter

    Attached Files
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    Retail gasoline sales falling? They are supposed to be going up!

    U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending May 8, 2015, 379,000 barrels per day less than the previous week’s average. Refineries operated at 91.2% of their operable capacity last week. Gasoline production increased last week, averaging 9.7 million barrels per day. Distillate fuel production decreased last week, averaging 4.9 million barrels per day.

    U.S. crude oil imports averaged 6.9 million barrels per day last week, up by 340,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.2 million barrels per day, 2.2% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 776,000 barrels per day. Distillate fuel imports averaged 294,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 484.8 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 1.1 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 decreased by 2.5 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories rose 1.9 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 5.5 million barrels last week.

    Total products supplied over the last four-week period averaged 19.4 million barrels per day, up by 3.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.0 million barrels per day, up by 3.0% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, down by 0.5% from the same period last year. Jet fuel product supplied is up 9.0% compared to the same four-week period last year.

    http://ir.eia.gov/wpsr/wpsrsummary.pdf

    Attached Files
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    North Dakota posts surprising jump in oil output in March

    North Dakota posted a surprising jump in oil and natural gas output in March, as producers leaned on newer technologies and processes to offset a slump in commodity prices.

    Many industry observers had expected output to fall for the third consecutive month in the wake of a more than 50 percent drop in oil prices since last summer.

    "We scratched our heads in the month of March" as to why production increased, Lynn Helms, director of the state's Department of Mineral Resources, said during a conference call with reporters.

    Yet the increase shows producers' willingness to wring efficiencies out of existing operations, as well as their attempt to maintain production, even at depressed prices, to safeguard relationships with service providers ahead of any future spike in crude oil prices.

    About 189 North Dakota wells were completed in March at locations owned by Exxon Mobil Corp, Hess Corp, Continental Resources Inc and ConocoPhillips, reversing a trend in which most producers delayed completions.

    "These four appear to be more in tune with having normal cash flow, and continue to complete their wells in a more aggressive manner," Helms said.

    But in a sign of divergent strategies in the No. 2 U.S. oil producing state, EOG Resources Inc and Marathon Oil Corp continue to delay fracking.

    "These two are going to hold onto completions as long as they legally can," Helms said. North Dakota producers have one year once drilling has finished to bring a well into production or face placing the well on an abandoned status.

    The state's oil producers pumped nearly 1.2 million barrels per day (bpd) in March, up about 1 percent, or some 15,000 bpd, from February, according to the Department of Mineral Resources.

    The number of wells that had been drilled but not fracked, a metric commonly known as "ducks," fell by 20 during March to 880, reversing a months-long trend that had concerned some in the industry.

    http://www.reuters.com/article/2015/05/13/north-dakota-oil-production-idUSL1N0Y41IU20150513
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    LLOG plans to drill in U.S. Gulf near blown out BP well

    LLOG Exploration, a privately-held oil and gas company focused on deepwater in the Gulf of Mexico, plans to drill a well into the block near where BP Plc's Macondo well ruptured in 2010, causing the worst offshore oil spill in U.S. history.

    LLOG Exploration, which has backers including Blackstone Energy Partners, received approval to drill a well in Blocks 252 and 253 in the Mississippi Canyon area of the Gulf from regulators on April 13, according to records filed with the U.S. Bureau of Safety and Environmental Enforcement.

    LLOG's plans to develop the block that sits due east of the plugged Macondo well were first reported by Subsea Engineering News in October.

    A representative for LLOG did not immediately respond to a request for comment.

    Macondo's blow-out caused the Deepwater Horizon oil rig to explode on April 20, 2010. The disaster left 11 workers dead and huge stretches of the Gulf of Mexico fouled with petroleum that gushed from the site for 87 days.

    BP sold its interest in six exploration blocks located in the deepwater Gulf of Mexico, including portions of Mississippi Canyon Block 252 in early 2014, it said.

    "Out of respect for the victims of the Deepwater Horizon accident and to allow BP to perform any response activities related to the accident, there is an exclusion zone covering the original Macondo well, the two relief wells and nearby debris, in which there will be no oil and gas operations," a BP spokesman said in a statement.

    http://www.reuters.com/article/2015/05/13/gulfmexico-macondo-idUSL1N0Y42IF20150513
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    Parsley Raises Production Guidance and drilling in Permian

    Parsley Energy, Inc. today announced financial and operating results for the quarter ended March 31, 2015. The Company has posted to its website a presentation that supplements the information in this release.

    First Quarter 2015 Highlights

    Parsley delivered record quarterly net production of 18.9 MBoe/d, an increase of 4% over Q4 2014 and up 106% year-over-year.
    Parsley is raising full-year 2015 production guidance from 18-19 MBoe/d to 20-21.5 MBoe/d.
    Wolfcamp B well productivity—already among the best in the Midland Basin—improved for the fourth consecutive quarter.

    The three Wolfcamp B wells Parsley completed in its Core area in Q1 2015 with 30 days of production had peak 30-day initial production (IP) rates per 1,000-foot lateral of 231 Boe/d on average, up 30% versus average peak 30-day IP rates for Wolfcamp B wells completed in its Core area in Q1 2014.

    Parsley drilled its most productive Wolfcamp A well to date, registering a peak 30-day IP rate per 1,000-foot lateral of 188 Boe/d on the Mary 18A-18-2H.
    Parsley is introducing a new Wolfcamp A/B type curve with an estimated ultimate recovery (EUR) of 1 million Boe, based on more than 30 Wolfcamp A and B wells the Company has put on production.
    The Company continues to weight activity toward the second half of 2015 but now plans to add three horizontal rigs on June 1st, one month earlier than anticipated, running four rigs from that time through the end of the year.
    Parsley now intends to complete 35-40 gross horizontal wells in 2015, up from the prior guidance range of 30-35 gross horizontal wells, and has revised its drilling schedule such that the average stimulated lateral length of wells completed this year is expected to be approximately 6,500 feet, up from the previous estimate of approximately 5,400 feet. To accommodate these changes, the Company is raising its capital budget from the previously announced $225-$250 million to $250-$300 million.
    Parsley acquired 3,562 net acres in its Core area in northwest Reagan and north Midland Counties for approximately $7 million in cash and an estimated $10 million in drilling carries. The Company has identified 114 net horizontal drilling locations associated with this acreage, with an estimated average stimulated lateral of approximately 5,800 feet.
    The Company increased its inventory of net horizontal drilling locations by more than 20% through acquisitions and revised spacing assumptions.

    “Our first quarter operating results continue to validate the tremendous potential of our resource base,” said Bryan Sheffield, Parsley Energy’s Chief Executive Officer. “We are pleased to have delivered production growth in Q1 despite weather related downtime that cost us an average of approximately 1,500 Boe of production per day. Having drilled more than 30 horizontal Wolfcamp wells, our confidence in the repeatability of our basin-leading well results prompted us to increase production guidance for the year and introduce a 1 million Boe type curve for our Wolfcamp A and B wells. We now expect to generate close to 50% year-over-year production growth on a capital budget that is significantly lower than 2014 spending.”

    http://finance.yahoo.com/news/parsley-energy-announces-first-quarter-203000370.html
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    Williams Cos to buy affiliate Williams Partners for $13.8 bln

    Williams Cos said on Wednesday it would buy affiliate Williams Partners LP for about $13.8 billion, the latest in a series of deals in the oil and gas pipeline industry as operators look to simplify their corporate structure.

    Master Limited Partnerships (MLPs) are also being bought out to eliminate incentivized distribution rights that can divert a large chunk of cash returns to general partners.

    Distribution payouts are becoming a burden for energy companies at a time when they are struggling to cope with a steep fall in global crude prices.

    Crestwood Equity Partners said last week it would buy Crestwood Midstream Partners to cut out incentive distribution rights.

    Williams Cos is offering 1.115 of its own shares for each Williams Partners' share. The offer works out to $55.86 per share, an 18 percent premium to Williams Partners' Tuesday close.

    William Cos' shares were up 8 percent, while William Partners rose 27 percent to trade at $60.

    The combined company said it expects third-quarter dividend of 64 cents per share. Williams previously expected to pay dividend of 60 cents per share, while Williams Partners was expecting to pay out 85 cents.

    The companies said the deal would reduce cost of capital, freeing up funds for acquisitions. Lower capital cost would also drive a 10-15 percent dividend growth rate through 2020.

    http://www.reuters.com/article/2015/05/13/williams-lp-ma-williams-idUSL3N0Y45SQ20150513
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    Cheniere approves new LNG export plant: LNG supply makes iron ore look tight!

    Woodside of Australia said that the conditions precedent to the LNG deal it has signed last year with Cheniere’s unit Corpus Christi Liquefaction have been satisfied.

    Cheniere has just made a final investment decision on the construction of Trains 1 and 2 of the Corpus Christi liquefaction project.

    Under the deal, Woodside will buy about 0.85 million tonnes of LNG per annum from the Corpus Christi project on start-up of the second train at the export facility being developed near Corpus Christi, Texas.

    LNG will be purchased on a free on board basis. The price payable by Woodside will be 115% of the monthly Henry Hub price plus US$3.50 per million British thermal unit (MMBtu), in line with contracts signed with the other buyers from the Corpus Christi LNG project, Woodside said in a statement on Thursday.

    The twenty-year agreement includes an extension option of up to an additional ten years and a mechanism that gives Woodside the option to forgo deliveries with sufficient notice through the payment of US$3.50/MMBtu for cancelled quantities.

    Cargoes to Woodside from Train 2 are expected to start in 2019.

    http://www.lngworldnews.com/woodside-cheniere-close-corpus-christi-lng-deal/

    Attached Files
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    Agriculture

    Israel Chemicals optimistic govt will ease tax plan

    Israel Chemicals (ICL) said on Wednesday it was optimistic the country's incoming government might water down a plan to impose stiff taxes on mining firms.

    The plan, drafted before March elections and which still needs parliamentary approval, would levy a progressive tax of 25 percent after miners reach an annual return on investment of 14 percent, rising to 42 percent for returns over 20 percent.

    ICL Chief Executive Stefan Borgas said he met Finance Ministry officials this month, but not incoming Finance Minister Moshe Kahlon, and there was a new political willingness to work out a deal beneficial to both sides.

    "This could be the starting point to a much more constructive dialogue," Borgas told reporters after the company released first-quarter results.

    "Emotions are down a little bit and we are talking about facts. Israel Chemicals has a big interest to build and strengthen in Israel."

    ICL, which has exclusive permits to extract minerals from the Dead Sea, has halted or put under review nearly $2 billion in investment in Israel because of the plans.

    At the same time, ICL is expanding outside Israel in China, Britain and Spain. Borgas also said ICL was seeking to accelerate development of an Ethiopian mine through an offer to buy Canada's Allana Potash.

    ICL, one of the three largest suppliers of crop nutrient potash to China, India and Europe, has been hit by a strike at two of its Dead Sea plants over plans to implement an efficiency plan that includes 280 job cuts.

    Its bromine unit has been closed since workers walked out in February. Employees at a potash plant joined the strike later.

    Although the strike weighed on first-quarter results, ICL posted a higher net profit thanks to the sale of non-core businesses. It earned $193 million excluding one-time items up from $189 million a year earlier and above an average forecast of $144 million in Reuters poll.

    Sales fell 13 percent to $1.4 billion, roughly in line with forecasts.

    Borgas said ICL would recover most of its delayed potash sales when the strike ends, most likely in the second half. He said it was "manageable" since cash flow from other operations was high and it was not hurting potash supplies to China.

    http://www.reuters.com/article/2015/05/13/icl-results-idUSL5N0Y443X20150513
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    Precious Metals

    SA gold miners face repeat of brutal 2014 platinum strike

    Last year South Africa's platinum mineworkers were responsible for the longest strike in that country's history.

    The strike was called by AMCU, a radical union that had been gaining strength in the platinum belt following the August 2012 killing by police of more than 30 mineworkers.

    The platinum strike was ended after five months and 1.3 million ounces lost – about a third of global output.

    Now AMCU is bringing its wage demands to South Africa's gold sector, again asking for a doubling of the lowest paid workers wages and similar increases in housing benefits. That would bring entry-level remuneration for gold mine workers to $1,200 a month.

    The largest union is asking for an 80% wage hike

    AMCU says it represents 40% of the 94,500 workers at AngloGold Ashanti, Sibanye Gold and Harmony Gold Mining. NUMSA, the union  representing the bulk of workers, is asking for an 80% wage hike according to Bloomberg Business:

    “Mineworkers are enslaved across the country, across the mining sector, so whatever we put forward is to liberate the mineworkers in this economic oppression,” Association of Mineworkers and Construction Union President Joseph Mathunjwa told reporters Wednesday in Johannesburg.

    South Africa is the world's sixth largest gold producer and AngloGold and Sibanye are the third and ninth largest listed gold mining companies.

    While South Africa's gold miners don't play nearly as dominant a role in the global supply of the yellow metal as they did for most of the 20th century, a platinum-style strike would nevertheless impact the fundamentals of the industry.

    http://www.mining.com/sa-gold-miners-face-repeat-of-brutal-2014-platinum-strike/?utm_source=twitterfeed&utm_medium=twitter
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    Base Metals

    Sumitomo Metal sees nickel market swinging into deficit in 2015

    Sumitomo Metal Mining Co, Japan's biggest nickel smelter, expects nickel supplies to swing into a deficit of 5,000 tonnes in 2015, the first shortfall in five years, due to lower output of nickel pig iron (NPI) by China.

    "We anticipate a small deficit this year because China will probably produce less NPI due to a shortage of ore," the company's general manager, Hiroshi Sueta, told Reuters on Wednesday.

    Weak domestic demand and low prices had already prompted China's NPI producers to stop or cut production and sell stocks for cash, industry sources in China said in March.

    Sumitomo Metal estimates China's NPI output will be cut by 22 percent to 357,000 tonnes this year.

    Sueta, who oversees the smelter's nickel sales and procurement, said the drop in NPI supply would more than offset a planned increase in nickel output from new projects such as Ambatovy in Madagascar, with global supply falling 0.8 percent and demand rising 1.8 percent, due to higher Chinese demand.

    Sueta declined comment on the price outlook, but the company, which plans to boost nickel output by 11 percent in the business year to next March, made an annual profit forecast on Tuesday that assumed an average nickel price of $6.5 per lb ($14,330 per tonne) against $7.62 per lb ($16,799 per tonne) a year earlier.

    Sumitomo Metal plans to produce 20,000 tonnes of ferronickel in terms of nickel content this year, down 7 percent from a year ago, due to lower nickel content in the ore it procures, Sueta said.

    http://www.reuters.com/article/2015/05/13/nickel-sumitomo-mtl-min-idUSL3N0Y45IY20150513
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    Chalco: big bull?

    Chalco is possibly one of the worst managed companies we follow.Image title
    About two years ago we ran a story that the drunken chairman of Chalco admitted to a journalist at dinner in Hong Kong that his company was 'out of control'.  It must remain apocryphal now, the story has disappeared and the chairman has been sacked, replaced by a Mayor:

    "Aluminum Corp. of China has turned to a local politician, who has been out of industry for more than a decade, to head up the nation’s biggest producer, naming the mayor of Chengdu as its chairman.

    Ge Honglin replaces Xiong Weiping, 58, whose five-year tenure as head of the state-run company known as Chinalco ends with a top executive embroiled in a graft probe and the company’s listed unit, Chalco, posting a first-half loss of 4.12 billion yuan ($673 million) due to lower aluminum prices."


    This follows a host of other arrests at Chalco including:

    - The vice chairman of Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, is being investigated for graft as China intensifies its corruption crackdown.

    Sun Zhaoxue, also general manager of parent company Aluminum Corp. of China, is being probed for “serious violations of discipline and law,” the Chinese Communist Party’s Central Commission for Discipline Inspection said in a one-line statement late yesterday, using a phrase that signals a corruption probe. Sun returned to the company in October from his role as president at China National Gold Group Corp., the country’s biggest gold producer by output.


    Chalco's ROE just tells the story:
    Image title
    There was a marvellous note in the annual:
    "The Group will also step up its monitoring and control over the credit risks of its subsidiaries to guard against credit risks."

    There are two full pages of subsidiaries listed in the Annual.

    Chalco is basically controlled by state Chinalco, and in turn is responsible for a plethora of local Aluminium plants built during the great boom by local authorities and municipalities anxious to create employment and grow!

    The quoted unit in HK, is basically a funding unit for China's  vast and messy Aluminium industry.

    Anyway, the rumour is that Chinalco, Chalco,and all its various subsidiaries will be rolled into one super SOE. As we pointed out yesterday, more likely given Beijing's Thatcherite bent, is that the vast amorphous mess of a company is broken up and privatised into coherent 'temesek' style units with local capital invited to participate. There is a delicate task of extricating all the local units from party control. 

    So the stock is going up. 





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    Steel, Iron Ore and Coal

    China Apr coal output down 7.4pct on yr: NBS

    China produced 298.02 million tonnes of coal in April, down 7.4% year on year, said the National Bureau of Statistics on May 13, the first time for the bureau to release monthly coal output data.

    The output was higher than the 290 million tonnes of output from the China Coal Transport & Distribution Association late last week, which represented a drop of 6.5% year on year and 9.4% from the month before.

    Over January-April, total coal output of China stood at 1.15 billion tonnes, down 6.1% on year, said the NBS.

    China’s coal output has been on the decline in recent months, as miners cut output in the wake of falling prices as a result of oversupply and weak demand.

    http://en.sxcoal.com/0/118766/DataShow.html
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    China Apr thermal power output down 2.8 pct YoY

    Electricity output from China’s thermal power plants – mainly coal-fired – fell 2.8% year on year to 340.9 TWh in April, showed data from the National Bureau of Statistics (NBS) on May 13.

    This was also a decrease of 2.5% from March, mainly due to weak industries and pressure from higher hydropower output. Hydropower output rose 11.5% year on year to 70.2 TWh in the month, up 3.8% from March, since hydropower output gradually gained strength with the increase in water levels.

    Total electricity output in China stood at 445 TWh in April, up 1% from a year ago, but down 1.4% on month, the NBS data showed.
    That equates to daily power output of 14.83 TWh in on average, up 1% on year and rising 1.9% from March.  

    Over January-April this year, China produced a total 1,759.3 TWh of electricity, up 0.2% on year, with thermal power dropping 3.5% on year to 1,391.9 TWh while hydropower output increasing 15.3% to 241.4 TWh.

    http://en.sxcoal.com/0/118807/DataShow.html
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    Iron ore overcapacity to last through 2019 – CISA

    Iron ore overcapacity to last through 2019 – CISA

    Overcapacity in the seaborne iron ore market will persist for another four years through to 2019 as the largest suppliers expand production further, according to the China Iron & Steel Association.

    Growth in low-cost supply will exceed cuts to output made elsewhere, including in China, Vice Chairman Wang Liqun said at conference in Singapore on Thursday. Steel-demand growth in China is seen as flat this year, Wang said.

    Iron ore lost about 39% in the past 12 months as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA expanded low-cost output to boost sales volumes and cut costs, spurring a glut as China slowed. Major producers remain intent on expansions and a battle for market share is under way, combined with an attempt by miners to reduce their costs faster than prices retreat, according to Credit Suisse Group AG.

    “The second half of 2015 looks ominous as further supply looms and we expect the price to fall to $45 a ton,” Credit Suisse analysts including Matthew Hope said in a report on Thursday. “There is sufficient room for major producers, but only if all seaborne supply from small producers gives way.”

    Ore with 62% content at Qingdao fell 0.5% to $62.58 a dry ton on Wednesday, according to Metal Bulletin Ltd. While prices rebounded from a low of $47.08 on April 2, they’re still 67% below a 2011 record.

    In 2015, the big four miners will boost output 100 million tons, while output cuts elsewhere total 80 million tons, Wang said in a presentation. The association is funded by China’s major steelmakers and is the only nationwide industry body.

    The seaborne glut will widen to 215 million tons in 2018 from 45 million tons this year, according to UBS Group AG. Exports from Australia are set to pick up in the second half on mine expansions, UBS said in a report this month.

    http://www.mineweb.com/news/iron-and-steel/iron-ore-overcapacity-to-last-through-2019-cisas-wang-predicts/
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    BHP, Rio Tinto face political heat in Australia over strategies

    BHP Billiton and Rio Tinto face mounting political pressure in Australia over taxes and flooding the global iron ore market while the price of the steel-making commodity plummeted.

    Independent federal Senator Nick Xenophon has called for an inquiry into the impact on the Australian economy of falling prices caused by oversupply.

    Xenophon, who is on the powerful Economics Committee, said he will put the inquiry to a vote in the senate on Thursday.

    Australia's treasurer Joe Hockey says the slump has caused a A$20 billion ($16 billion) loss in government revenue in the past year and his fiscal 2016 budget released this week hinges on iron ore fetching at least $48 a tonne over the next year.

    The push for an investigation follows a drive this week by Fortescue Metals founder Andrew "Twiggy" Forrest to get Australians to lobby politicians to force BHP and Rio to stop increasing production, warning every $1 price fall costs the country A$800 million in foreign income.

    Rio and BHP assert their strategies are justified and ultimately benefit Australia's mining-weighted economy.

    The heads of both companies this week reiterated separate defences of the so-called "saturate and dominate" strategy, whereby higher cost producers are forced out by lower cost ones, in the $60 billion sea-traded iron ore market.

    Rio and BHP each are among the lowest cost iron ore miners globally.

    "We operate in highly competitive and cyclical markets, where earnings out-performance through the cycle depends on being the most efficient supplier, not supply restraint," BHP Chief Executive Andrew Mackenzie told a Bank of America Merrill Lynch conference on Tuesday.

    The national mining lobby, the Minerals Council of Australia, said an inquiry was unwarranted, citing an earlier conclusion by the Australian Consumer Competition Commission that the iron ore market was operating normally.

    Western Australia state political leader Colin Barnett has labeled the actions of the big producers "one of the dumbest corporate plays."

    The state's Labor Party Shadow Minister for Development, Bill Johnston, is calling for a probe into why government approvals were granted for mine expansions.

    Johnston also wants the investigation to look into whether Singapore marketing offices established by companies including Rio Tinto and BHP, allow them to reduce how much is paid in state royalties.

    "The Labor party supports the free market, but we want to have an opportunity to make sure there actually is a free market, and whether the price returned to Western Australia is the best that can be achieved," Johnston said.

    Australian iron ore miners rely on access to government owned-land and pay royalties of around 7.5 percent of revenue.

    BHP's Mackenzie told Reuters the Singapore business had nothing to do with taxes but rather met expectations among customers that the company maintained an Asian presence.

    http://www.reuters.com/article/2015/05/13/australia-iron-miners-idUSL3N0Y47NX20150513
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    China steel consumption likely to fall 6 pct this year -CISA

    China's steel consumption will likely fall 6 percent this year, an industry official from the country said on Thursday, underlining how a slowdown in the world's No. 2 economy will continue to hurt industrial demand.

    Chinese crude steel consumption dropped 3.4 percent last year, shrinking for the first time since 1981, and fell again in the first quarter, spurring producers to sell more steel overseas.

    "This year it will continue to be negative growth, minus 6 percent," Wang Liqun, vice chairman of the China Iron and Steel Association, told an industry conference.

    ANZ had said last week that it expected Chinese steel consumption to fall 4 percent this year and 2 percent in 2016.

    The country's steel sector has been saddled by oversupply for years, with excess capacity now estimated at around 300 million tonnes, triple the annual output of Japan, the world's No. 2 steel producer after China.

    Liqun said the oversupply in both steel and iron ore will drive prices lower and cut profits for both steelmakers and miners.

    "There is no winner at all, the profit margin has dropped significantly," he said.

    Amid shrinking domestic demand, China's crude steel output fell 1.3 percent to 270 million tonnes in January to April, government data showed on Wednesday.

    http://www.reuters.com/article/2015/05/14/china-steel-demand-idUSL3N0Y51FX20150514
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    EU to impose duties on imports of electrical steel

    The European Union will impose anti-dumping duties from Thursday on imports of a grade of electrical steel from China, Japan, Russia, South Korea and the United States, its second set of measures this year to protect European steel producers.

    The European Commission has set tariffs on imports of grain-oriented flat-rolled electrical steel (GOES) following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

    The duties, detailed on Wednesday in the official journal of the EU, are provisional, pending the outcome of an investigation due to end in November. Normally such duties would then continue for five years.

    Duties of 28.7 percent will cover imports from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp, and of 22.8 percent from South Korea producers such as Posco.

    The rate for U.S. producers including AK Steel is 22.0 percent and for Russian firms such as NLMK 21.6 percent.

    Japan's JFE Steel Corp will face duties of 34.2 percent and Nippon Steel and Sumitomo Metal Corp and other producers from there 35.9 percent.

    European producers are ArcelorMittal, Stalprodukt , Tata Steel and ThyssenKrupp.

    The EU transformer industry has said it is deeply concerned by the prospect of duties.

    Imports reached about 45 percent of the market as their average price dropped by some 30 percent from 2011 to 2014.

    The Commission in March imposed anti-dumping duties on imports from China and Taiwan of cold-rolled flat stainless steel and last month opened an investigation into alleged dumping by Chinese producers of a grade of steel used to reinforce concrete in Britain and Ireland.

    http://www.reuters.com/article/2015/05/13/eu-trade-steel-idUSL5N0Y41DM20150513
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