Mark Latham Commodity Equity Intelligence Service

Friday 19th February 2016
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    The Oil Bears are spitting blood, and missing the point!

    For all the euphoria about the proposed OPEC oil production freeze deal, the reality is that nothing has been actually decided. As readers will recall, the only "decisions" agreed to between the Saudi and Russian oil ministers were to cap production at already record high levels of output, however contingent on everyone else voluntarily joining said production cap.

    Then yesterday, as part of its own meeting, Iran made it clear that while it supports efforts to push the price of oil higher, it would certainly not limit its output at current levels, and instead requires an explicit loophole granting it a production limit from the pre-sanctions period. This put OPEC in a bind: if it grants Iran special treatment, then who else will have a similar request.

    The answer was revealed just hours later when Iraq earlier today stopped short of saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries.

    According to the WSJ, Iraq oil minister Adel Abdul Mahdi said his country supports any decision that will serve producers, prop up prices and achieve balance in the crude markets. However, just like Iran he didn’t explicitly say whether Iraq would curb its own output but said any rapprochement between all sides to restrict crude output is a step in the right direction.

    As the WSJ summarizes, his comments "came a day after Iran’s oil minister didn’t commit to limiting production, throwing into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels."

    “The deterioration of the oil prices has directly impacted the global economy and the historical responsibly of the producers requires great speed in finding positive solutions that will help prices return to the normal [levels],” Mr. Abdul Mahdi said in a statement.

    In other words, more of the same.

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    US Distillate demand turns sharply negative.

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    Hagens Berman Files National Lawsuit Against Mercedes over pollution

    An owner of a Mercedes BlueTEC diesel automobile today filed a class-action lawsuit against Mercedes stating the automaker knowingly programmed its Clean Diesel vehicles to emit illegal, dangerous levels of nitrogen oxide (NOx) at levels 65 times higher than those permitted by the EPA when operating in temperatures below 50 degrees Fahrenheit, according to consumer-rights law firmHagens Berman.

    Nat'l Lawsuit Filed vs #Mercedes Stating BlueTEC Diesels Pollute at Illegal Levels

    The suit, filed Feb. 18, 2016, in the U.S. District Court for the Northern District of Illinois, accuses Mercedes of deceiving consumers with false representations of its BlueTEC vehicles, which it marketed as “the world’s cleanest and most advanced diesel” with “ultra-low emissions, high fuel economy and responsive performance” that emits “up to 30% lower greenhouse-gas emissions than gasoline.” According to the complaint, on-road testing confirmed that Mercedes’ so-called Clean Diesel cars produced average on-road NOx emissions that are 19 times higher than the U.S. standard, with some instantaneous readings as high as 65 times more than the U.S. limit.

    “Mercedes labeled its BlueTEC vehicles as ‘earth friendly,’ selling consumers the false notion that these diesel cars were less harmful to the environment, but Mercedes never divulged to consumers that BlueTEC diesels pollute at illegal levels when driven at lower temperatures and that its ‘champion of the environment’ mantra was a sham,” said Steve Berman, managing partner of Hagens Berman. “It appears that Mercedes has been caught in a similar scheme as Volkswagen and programmed these BlueTEC vehicles to pollute, all the while reaping profits from those who have fallen victim to its aggressive and deceptive eco-conscious branding.”

    The suit seeks relief for those who purchased the affected vehicles, including injunctive relief in the form of a recall or free replacement program and restitution including either recovery of the purchase price or overpayment or diminution in value due to Mercedes’ misleading statements and omissions regarding the emission levels of its Clean Diesel BlueTEC vehicles.
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    3D Printed Dress..responds to your body?

    Francis Bitonti, who did 3D design work on the Adrenalin Dress, told Wired UK that 3D printing is becoming critical to creating new fashion wear. To stay innovative, the fashion world requires deeper thinking about tools, materials and manufacturing.Image titleAyse Ildeniz, vice president of Intel’s New Devices Group who has established partnerships with fashion leaders like Opening Ceremony, Fossil Group, Luxottica Group, TAG Heuer, and the Council of Fashion Designers of America (CFDA), told Wareable that new technologies are “empowering and inspiring the fashion industry by elevating the utility of clothing and accessories with intelligent capabilities.” Biomimicry Dress By partnering with Milk Studios, MADE Fashion Week, WMG-IMG and other innovators in the fashion world, Ildeniz was able to help make all the right connections that led to McCharen’s latest wearable tech designs.  

    These two animated garments were designed with the Intel Curie Module — a button-sized computer hardware that can power wearables — and sensors that detect body heat, perspiration and respiration, all things indicative of adrenaline.

    Changes in these human biometrics trigger shape-shifting movements, bringing extra comfort or flare to the wearer.

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    Oil and Gas

    Saudi Arabia 'not prepared' to cut oil production: AFP

    Saudi Arabia is "not prepared" to cut oil production, Agence France-Presse reported, quoting the Saudi foreign minister Adel al-Jubeir.

    "If other producers want to limit or agree to a freeze in terms of additional production that may have an impact on the market but Saudi Arabia is not prepared to cut production," al-Jubeir told AFP in an interview.

    "The oil issue will be determined by supply and demand and by market forces. The kingdom of Saudi Arabia will protect its market share and we have said so."

    Oil prices rose more than 14 percent over the last three days after a plan by Saudi Arabia and Russia, endorsed without commitment by Iran on Wednesday, to freeze oil output at January's highs.

    The Saudi-Russian production freeze plan, also joined by Qatar and Venezuela, is the first such deal in 15 years between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members.
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    Iran sees oil freeze pact as not enough to help market: Iranian sources

    Iran believes a global agreement to freeze oil output will not be enough to help prop up prices as the world is producing too much crude, Iranian oil sources told Reuters.

    Iranian Oil Minister Bijan Zanganeh and his counterparts from Qatar, Iraq and Venezuela held talks in Tehran on Wednesday aimed at persuading Iran to join a global pact to restrain output, agreed this week by OPEC leader Saudi Arabia and non-OPEC member Russia, the world's two largest oil exporters.

    Zanganeh chose his words very carefully after the meeting saying Iran, OPEC's third largest producer, supported the initiative as a first step to rebalance the markets and help prices recover from their lowest in over a decade.

    But during talks Iran stuck to its standard line that Tehran needs to regain market share it lost during years of sanctions while adding that regardless of what Iran does, the world was already awash with unwanted oil.

    "The problem in the oil market is the glut. There is a need to do something to bring down these extra barrels. The freeze for those people that have been producing to the maximum does not help the market," one Iranian oil source familiar with discussions told Reuters.

    A second Iranian source said the global pact idea should be discussed further when "countries that have increased their output - mainly Saudi Arabia - drop their production and Iran reaches pre-sanction levels of production".
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    Russian oil output under 'freeze pact' could rise 1.9% on year

    A preliminary agreement between Russia and three OPEC countries on a possible crude production freeze at January levels implies Russian output could grow by between 1.7% and 1.9% year on year, deputy energy minister Kirill Molodtsov said Thursday.

    "As of mid-January, there was an annual increase of around 1.7% to 1.9% on the year in daily crude production," Molodtsov told reporters.

    In an effort to stabilize global markets, non-OPEC Russian and OPEC members Saudi Arabia, Venezuela and Qatar agreed in Doha on Tuesday to freeze their output at January levels, if other major oil producers also join the initiative.

    Molodtsov said it is hard to say at the moment whether Russia's crude production would continue to grow at the same pace through the year.

    "There are three options: [output] can grow, it can remain stable, or we can regulate the production volume," he said

    His comments are in sharp contrast to previous statements by various officials that regulating Russian crude output at will is impossible due to geology and climatic conditions. The government also cannot dictate what companies, especially private ones, do, officials have said.

    The state does however have the option of raising taxes, which would make some resources uneconomic to develop in a low oil price environment.

    With oil prices at multi-year lows, a fresh hike in taxes is becoming more likely as the government looks for ways to boost its coffers, which have been hammered by the oil price collapse.

    The government is considering options to squeeze additional funds from the sector, on the heels of the latest tax hikes approved in late 2015, although no decisions have been taken so far.

    Even if there are no changes to the current tax burden, various forecasts have predicted that crude production in Russia could start falling this year, as oil producers have started to cut investment in response to low oil prices and Western sanctions that have pressured company finances.

    Still, there are a number of greenfields ready for launch this year that should mitigate natural declines in West Siberia, Molodtsov said.

    The Doha production freeze pact comes at a time when both Saudi Arabia and Russia have been pumping record amounts of oil. Russia's crude production has hit fresh record highs for the past four months, averaging 10.88 million b/d in January.

    The deal is contingent on Iran, Iraq, Oman, Kazakhstan, Azerbaijan, Mexico and other producers within and outside OPEC joining in.

    Iran, however, appeared to have rejected a request to join in the proposed oil output freeze the day after the idea was announced, according to comments by Iranian oil minister Bijan Zanganeh after a meeting with his counterparts from Iran, Qatar, Iraq and Venezuela in Tehran.

    The proposed freeze, if agreed, is expected to trigger a stock drawdown and lend support to prices, a senior OPEC delegate said Tuesday.
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    Russia will only sell control of Bashneft if paid premium - source

    The Russian state could sell only around 25 percent in mid-size oil company Bashneft if the likely buyer fails to offer a significant premium to the market price, a senior Russian government source said.

    The source, who spoke on condition of anonymity, said options under consideration were to sell 25 percent of Bashneft, 50 percent, or 75 percent.

    "We need to see how much money we can get for the premium which goes along with having control or full control, what premium we can suggest to the investors, whether they are ready to pay us significantly more than the market," the source said.

    "If they pay us significantly more than the market, then that will probably persuade us somehow. If the investor under these conditions is not prepared to give a premium, then probably we will lean towards giving a small share."

    The source said that state-controlled oil giant Rosneft was not among the potential buyers of the Bashneft stake. Lukoil, Russia's second-largest oil produce, has said it is interested in acquiring a controlling stake.
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    Pakistan Industry expects Qatar LNG supply at USD 6 per mmbtu

    The Nation reported that appreciating the landmark deal of liquified natural gas (LNG) with Qatar, the business community observed that it would help the government overcome energy shortfall in the country by at least by 20 percent.

    All Pakistan Textile Mills Association Punjab chairman Mr Amir Fayyaz welcomed the government agreement with Qatar on RLNG import, asking the government to implement the plan of supplying this cheaper gas to the industry at price of $5.5 per mmbtu at least.

    Mr Amir Fayyaz said that “We are expecting provision of RLNG at $6 per mmbtu to the industry to make us competitive in the region.”

    Terming the deal as a game changer for the local industry, he said that with the supply of 3.75 million tons of LNG to the energy-starved country the supply-demand gap, which is standing at approximately 2-4 BCFD (billion cubic feet per day), will decrease.

    Some energy expert have also accused the government of signing dubious agreements for import of Liquefied Natural Gas from Qatar, questioning the levy of over Rs100 billion additional tax on gas consumers to meet the cost of pipeline for transportation of LNG from Qatar to Pakistan.

    Raising the question over transparency in the deal, they asked as to why no international tenders were called and why a long-term agreement was signed with Qatar. APBF founding president, who also deals in LPG import business, questioned the decision to construct the proposed pipeline from Qatar for a foreign company with the money of public. Moreover, the transportation problem within the country has not been resolved. The LNG transportation will require pipeline from Karachi to upcountry which will take a long time. And if it is transported through SSGC pipelines the province can raise objection and demand the share, resulting into hike in gas cost.

    He said that under the agreement with Qatar, three LNG-carrying ships would reach Pakistan every month which will be started within 2016 and the number of vessels would increase to five after 2017.

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    Santos Vows Cost Cuts After $2.8 Billion Charge on Oil Crash

    Santos Ltd.’s new Chief Executive Officer Kevin Gallagher promised to cut costs further after the oil price crash led to a wider net loss and A$3.9 billion ($2.8 billion) in writedowns.

    The full-year net loss was A$2.7 billion, compared with a loss of A$935 million a year earlier, Adelaide-based Santos said Friday. Profit, excluding one-time items, fell 91 percent to A$50 million, from A$533 million the previous year. The mean estimate of 14 analysts surveyed by Bloomberg was A$87 million.

    Santos, Australia’s third-largest oil and gas producer, has joined companies including Origin Energy Ltd. in seeking to shore up its balance sheet after the slide in crude prices. The oil producer, which unveiled a A$3.5 billion program to cut its debt in November, said it doesn’t need to sell assets and that the steps it has already taken will provide a buffer.

    “We have to do better in the future,” Gallagher told analysts on an earnings call. “It is therefore imperative that we continue to take costs out of our business. Hence my absolute focus and my first priority over the next few months will be to look closely at our operations. I will be scrutinizing our portfolio of assets.”

    ‘Deck Clearing’

    Santos, which lost almost half its value in Sydney trading last year, was down 3.7 percent at A$3.41 as of 1:14 p.m. in Sydney on Friday, paring an earlier loss of as much as 8.8 percent. Competitor Woodside Petroleum Ltd. on Wednesday reported a 99 percent decline in full-year profit after writedowns.

    Pre-tax writedowns for Santos included A$565 million from its Gladstone liquefied natural gas project in Queensland and A$2.1 billion for its Cooper Basin gas assets in central Australia. The company also cut its proved and probable reserves by 24 percent, and its spending forecast for 2016 by 34 percent to A$1.1 billion.

    “The extent of reserve downgrades and impairments are of major concern,” and may show the start of a “deck-clearing” phase from the new CEO, Goldman Sachs Group Inc. analyst Mark Wiseman wrote in a note.
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    Venezuela raises gas prices 6,200%

    Venezuela raises gas prices 6,200%

    Venezuela just raised gas prices for the first time in about two decades.

    Prices will now increase more than 60 times — to 6 bolivars a liter up from 9.7 centavos, a 6,200% increase according to Bloomberg's Javier Blas.

    Using the weakest exchange rate of 202.94 bolivars per dollar, Venezuela's announced increase translates to about $0.11 a gallon, according to Bloomberg.

    Even with this price hike, however, Venezuela still has the lowest gas prices in the world!

    Venezuela's government has long subsidized the country's fuel, allowing the people to have the cheapest gas in the world. Back in 1989, an increase in food and gasoline prices led to nationwide protests, which eventually led to the late President Hugo Chavez's rise. Venezuela last raised gas prices in 1996.

    Venezuela also devalued its currency on Wednesday, cutting the value 37% and taking its primary exchange rate to 10 bolivars a dollar from 6.3.

    "The devaluation will ease the drain on government coffers by giving state oil company Petroleos de Venezuela SA more bolivars for each dollar of oil revenue, while higher gasoline prices will reduce expenditure on subsidies," wrote Bloomberg's Andrew Rosati and Pietro Pitts.

    "At the same time, the devaluation will probably force the government to raise the cost of staple foods such as rice and bread that most of the country now depends on to eat," they added.
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    US Domestic oil production fall accelerates

                                               Last Week    Week Before    Last Year

    Domestic Production '000..... 9,135             9,186              9,280
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    Summary of Weekly Petroleum Data for the Week Ending February 12, 2016

    U.S. crude oil refinery inputs averaged over 15.8 million barrels per day during the week ending February 12, 2016, 338,000 barrels per day more than the previous week’s average. Refineries operated at 88.3% of their operable capacity last week. Gasoline production increased last week, averaging 9.7 million barrels per day. Distillate fuel production increased last week, averaging about 4.7 million barrels per day.

    U.S. crude oil imports averaged over 7.9 million barrels per day last week, up by 795,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.7 million barrels per day, 5.8% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 565,000 barrels per day. Distillate fuel imports averaged 232,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.1 million barrels from the previous week. At 504.1 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 3.0 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 1.4 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 3.4 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.8 million barrels per day, down by 0.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 3.0% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 15.6% from the same period last year. Jet fuel product supplied is up 11.0% compared to the same four-week period last year.

    PADD II +2.25 mmb yet Cushing only +36,000. Is it full?

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    Marathon Oil to focus diminished budget on Eagle Ford

    Marathon Oil Corp. detailed Thursday a diminished drilling plan, as the company continues to pull back on its spending amid cheap crude oil.

    The Houston-based independent driller said it would spend $1.4 billion drilling and exploring for oil in 2016, a 52 percent reduction from 2014 and a 75 percent reduction from 2014.

    On a conference call with investors Thursday, Marathon said about 42 percent percent of that budget will go to the Eagle Ford. Another 14 percent will be spent drilling to Oklahoma shale and 13 percent in the Bakken.

    Marathon said it planned to reduce its Eagle Ford rig count to five in the first quarter of 2016. The company said it will run two rigs in Oklahoma. In the Bakken, the company will work with a “half rig year” and a part time frac crew.

    A handful of international projects will continue, Marathon said. The company will invest $41 million in its Canadian oil sands holdings, while targeting more savings in the future. Its Kurdistan assets will get $72 million. The Equatorial Guinea project will need $76 million, and it’s expected to start producing in mid-2016. In the Gulf of Mexico, Marathon will spend $68 million.

    In addition to cutting its budget, Marathon said it’s planning to raise funds by selling off non-core assets. The company targeted between $750 million and $1 billion in asset sales this year.

    Combined, executives expect the cuts to begin to eat into Marathon’s production. The company said its 2016 production will decline between 6 percent and 8 percent after adjusting for asset sales.
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    Ousted Cheniere CEO Souki resigns from board

    Former Cheniere Energy CEO Charif Souki, who was replaced in December following disagreements with billionaire activist investor Carl Icahn, has resigned from the company’s board.

    Souki notified the board of the Houston-based natural gas terminal operator that he was leaving, effective immediately, the company said in a filing to the U.S. Securities and Exchange Commission released Thursday. Within days of his being replaced as CEO, Souki said he would keep his seat on the board until he had a chance to review the company’s new strategy.

    “It’s just time to move on,” Souki said by phone on Thursday. “The ski season is almost over. It’s time for me to do something else.”

    Souki said in December that he was ousted over his plan to speed the growth of Cheniere’s liquefied natural gas projects, a strategy opposed by Icahn, the company’s largest investor. His departure came just weeks before Cheniere was scheduled to export the first-ever cargo of U.S. shale gas. The company has since delayed that shipment to late February or next month.
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    Ultra Petroleum posts $3.2 billion loss as potential bankruptcy looms

    Houston-based Ultra Petroleum Corp. is trying to avoid filing for bankruptcy after reporting a net loss of $3.2 billion for the quarter on Thursday.

    The natural gas producer is mired in $3.39 billion in debt after expanding its asset base in Wyoming in 2014.

    Ultra Chairman, President and CEO Mike Watford said he is trying to restructure the company’s debt — “so far unsuccessfully” — in order to avoid filing in bankruptcy court, but he admitted Ultra needs external assistance.

    “All of our debt is unsecured,” Watford said. “We’re in a unique position. It’s not all that pleasant. We need some help from the creditors to get across the finish line.

    He said Ultra submitted a restructuring plan to its three main creditors in January, but he is still awaiting replies. “We would’ve anticipated a response weeks ago,” he said.

    While a compromise is still possible, it likely would’ve occurred by now, said Michael Scialla, analyst at Stifel, Nicolaus & Company.

    “I think it looks like bankruptcy is almost inevitable,” Scialla said. “It’s been a pretty long downward slide for them.”

    Ultra was one of the premier energy stocks during the height of the shale gas boom in 2008 before the recession. The company traded for nearly $100 a share at the time. They stock sold for $50 a share in 2011, nearly $30 in 2014 and fell below $1 for the first time on Feb. 11. The selloff continued Thursday, driving the stock down to 39 cents a share, a decrease of 26 cents on the day.

    Ultra “fell in love” with the Pinedale shale play in Wyoming, Scialla said, which remains strong, although other shale plays have surpassed it. As recently as 2014, Ultra paid $925 million and gave 155,000 acres in the Marcellus Shale to Royal Dutch Shell in exchange for Shell’s natural gas field operations in Pinedale.

    “They didn’t diversify quickly, used too much debt and got backed into a corner,” Scialla said. “It’s a sad story.”

    The company recently hired Kirkland & Ellis as legal advisers and Rothschild and Petrie Partners as financial advisers. Such hires are harbingers of major restructuring efforts, said Pearce Hammond, of Simmons & Company International, in an analyst note.

    “This illustrates the intractable balance sheet problems the company faces,” Hammond wrote, arguing that Ultra has a “very dire outlook” overall.

    Watford said Thursday that putting assets up for sale wouldn’t do enough good. He said the hope is to survive the current trough of low natural gas prices and start profiting again next winter.

    This year’s relatively warm winter likely was the “last nail in the coffin” for Ultra with reduced natural gas demand, Scialla said.

    Watford said Ultra is reducing its capital spending in 2016 by nearly 50 percent from $500 million down to $260 million.

    Nearly all of Ultra’s $3.2 billion loss came from a $3.1 billion write down on the reduced value of its assets. While the impairment is a non-cash charge, it demonstrates the company’s reduced profitability. As such, Ultra’s adjusted net loss was $39 million.

    In the final quarter of 2014, Ultra reported a $210 million profit. Ultra employed about 125 people as recently as 2014.

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    Alternative Energy

    SunEdison to sell plant in Malaysia, close Texas facility

    SunEdison Inc said it would sell a facility in Malaysia that produces silicon wafers and close a polysilicon manufacturing plant in Texas, blaming Chinese tariffs on polysilicon manufactured in the United States.

    As a result of these actions, the company said it expected to record $266 million in impairment charges and $171 million in other restructuring charges in the fourth quarter ended Dec.31.

    The Texas closure would affect 180 jobs, the company said on Thursday.
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    MHI Vestas to provide turbines to Belgium's largest wind farm

    MHI Vestas, a joint venture between Vestas and Japan's Mitsubishi Heavy Industries , said on Thursday it would likely supply turbines to Belgium's largest wind farm project.

    The company, which is now selling the largest and most powerful wind turbines in the world, said it had been selected as a preferred supplier for the 370 megawatt (MW) project in the Belgian North Sea.

    That amounts to about 46 of its V164-8.0 MW turbines.

    The project is run by Norther N.V., a 50-50 joint venture between The Netherland's Eneco and Belgium's Elicio.

    "When commissioned in 2019 the Norther project will be Belgium's largest wind power plant," MHI Vestas said in a statement.

    The wind farm would be based about 22 kilometres (14 miles) off the coast of Zeebrugge. With 370 MW of power generation, MHI Vestas said the consumption of 370,000 households would be met.

    MHI Vestas makes wind turbines for the growing offshore market, which is dominated by Siemens' wind turbine unit. The Danish-Japanese joint venture has been established to combat that domination.
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    Saft profit dives as lithium-ion battery take-up disappoints

    Saft's 2015 net profit plunged 72 percent as a slower than expected switch to lithium-ion batteries forced the French battery maker to take a writedown on its factories.

    Saft said many of its industrial and utility customers were sticking with lead batteries longer than it had expected and that lead still accounted for more than 80 percent of the battery market.

    "Energy storage was the disappointment of 2015," Saft chief executive Ghislain Lescuyer said on an earnings call.

    He said the adoption of lithium-ion batteries by its clients is proceeding more slowly than the firm had expected and that it therefore reduced the accounting value of its Jacksonville, United States, and Nersac, France, lithium-ion battery plants.

    The two plants' combined 2015 losses rose to 21.3 million euros ($24 million), from 13.1 million in 2014 and Lescuyer said it would probably take another two or three years before they became profitable.

    Lithium-ion batteries perform better than lead-based batteries, but the aviation, automotive and other industries are switching more slowly than anticipated to the new technology.

    Lescuyer said U.S.-based Tesla Motors - which last year unveiled a move into battery systems for homes, companies and utilities - is not in the same market segment as Saft, as it is more focused on the consumer market.

    Saft specialises in high-tech nickel- and lithium-based batteries for the defence and space industries. Lescuyer said a price war on the lithium-ion market also hurt its business.

    "It is clear that big, low-cost Asian players have bought market share," he said.

    In 2013, Boeing's global 787 fleet was grounded for months after two lithium-ion batteries burned out in separate incidents, which caused some planemakers to switch back to nickel-cadmium batteries.

    Saft saw 2015 core earnings rise 6.2 percent to 110.4 million euros as revenue rose 1.9 percent to 759.4 million.

    Net earnings dropped to 13.6 million euros due to 35.9 million euros of impairments on its lithium-ion assets and costs related to its restructuring plan announced in November.

    Saft gave no 2016 earnings guidance because of what it said is a volatile and uncertain economic environment, but confirmed medium-term objectives for revenue over 900 million euros and a margin of at least 16 percent by 2019.

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    Charges filed over illegal waste disposal at K+S

    German prosecutors have filed charges over suspected illegal waste disposal at potash miner K+S, a judge said on Thursday.

    "We have received the indictment, and it will probably be delivered to the accused soon," Bernhard Landwehr, judge at the regional court in Meiningen, southeast of K+S's headquarters in the German city of Kassel, told Reuters.

    He declined to say whom the indictment named as defendants.

    The charges stem from accusations made against K+S by a small town near Meiningen, called Gerstungen, which said the company illegally disposed of saltwater between 1999 and 2007.

    K+S has said it had approval from state mining authorities for the waste water disposal during the time in question and that K+S was fully cooperating with the investigators.

    "We are still convinced that the approvals granted at the time are valid and consider the accusations to be baseless. An ongoing assessment by an external law firm has backed that in recent months," a spokesman for K+S said on Thursday.

    Prosecutors in September searched offices at K+S for evidence in the case. Police said at the time that some K+S subsidiaries and employees as well as the state's mining authority were subject to the probe.

    German magazine WirtschaftsWoche reported on Wednesday that the investigation was nearly complete.

    The court will now examine whether there is enough evidence for the matter to go to trial. Any sentence in the case could range from a fine to a prison sentence of up to five years, the judge said.

    The saltwater emerges from the production of fertiliser from potash ore that K+S extracts from mines. The group has for years been embroiled in a dispute with environmental groups and local municipalities about the waste water discharge into the Werra river and into porous layers of rock.

    Shares in K+S turned negative on the news, trading 2 percent lower at 18.86 euros by 1258 GMT, underperforming the German blue-chip index, which was up 1.7 percent.
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    Precious Metals

    Asia shuns gold on higher prices; India discounts hit record high

    Asian physical gold demand slowed this week as consumers opted to wait out the metal's biggest rally in years, with discounts in key consumer India hitting a record high as some investors cashed-out holdings.

    Gold has rallied 13.7 percent this year amid a tumble in global stocks that stoked demand for the safe-haven metal. But physical buyers have so far shied away from making big purchases as they wait to see if the rally will last.

    "Buyers are closely watching the wild movement in gold prices in the last one month. They are making enquiries but conversion ratio is low," said Tanya Rastogi, a director at Lala Jugal Kishore Jewellers in Lucknow, India.

    In India, the world's second biggest consumer, discounts surged to a record high of $50 an ounce to the global spot benchmark this week, widening from the $35 discount offered last week, dealers said.

    Indian consumers were also waiting to see if the government will cut the gold import duty from a record 10 percent in the annual budget to be presented on Feb. 29.

    There was also little buying interest in other Asian markets.

    "Demand has been slow across the region for the past few days. It's almost dead," said a Singapore-based dealer at an international bank. "A lot of people are looking to sell at these levels."

    India and top consumer China bought record amounts of gold in 2013, when the price dropped by 28 percent after a 12-year rally, believing that the decline was a one-off and that prices would rise again.

    But gold dropped for two more years before rising in early 2016, leaving investors to take a more cautious outlook on prices.

    "The spike in prices is giving investors an opportunity to liquidate old stocks they bought at lower levels. Many investors are selling coins and bars," said a Mumbai-based dealer with a private bank.

    In China, demand was quiet following the Lunar New Year holiday last week, which marked the end of the peak buying season there.

    China has seen strong demand for gold investment products during the holiday, but for the momentum to continue bullion would have to maintain its price rally, a World Gold Council official said Thursday.

    Prices in China were largely on par with the global price, giving banks little incentive to import bullion.

    "We haven't seen much demand after the spring festival. The premiums are also not very good. So we haven't imported a lot recently," said a dealer with an importing bank.

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    Base Metals

    Chilean labour reform threatens shake-up in copper industry

    Chilean copper miners who have grown reliant on cheap outsourced workers are bringing more of them in-house or bracing for salary hikes ahead of the expected passage of a pro-worker reform bill.

    The legislation, on track to be approved in March, is likely to raise labour costs and marks the latest blow to mining companies in the world's No.1 copper exporter already hit by flagging productivity and prices near six-and-a-half-year lows.

    The reform is set to boost the bargaining position of unions representing outside contractors, making strikes among outsourced workers more common and difficult to break, analysts and lawyers say.

    Labour activists argue the reform is needed to give workers more leverage in a country with loose collective bargaining rules, and they criticize contracting as a tool for companies to undercut bargaining rights and offer substandard pay.

    Companies counter that the reform will stunt growth, and say that outsourcing is vital for increasing efficiency and offering the flexibility needed to weather the volatile copper market.

    Now, however, those firms are making adjustments: some are bringing contracted workers in-house to better paid positions, so as to avoid potential labour disputes. Others are preparing to pay significantly more for the same outsourced services they have used on the cheap for decades.

    "There are a lot of studies being done (by mining companies), looking at how many workers can be brought in, at what mines, in which processes," said Felipe Saez, an advisor to heavy industry group Sofofa, which represents Chilean mining among other sectors.

    Outsourcing has increased in Chile over the past two decades. Seventy-four percent of workers at Chile's "large" copper miners, which account for well over 90 percent of output, were contracted out as of 2014, according to government statistics. That compares with 69 percent in 2013, and 66 percent in 2006.

    However, in 2015, following years of gains, the number of mining contractors in Chile fell by 12.5 percent, far outpacing total job losses among mine workers.

    That is largely due to companies getting fed up with already rising labor unrest among outsourced workers, analysts say. Last year, protesting contractors with state producer Codelco blockaded and closed a mine for three weeks.

    But the proposed reform, which allows unions from different contractors to join forces and lowers barriers to creating unions in small companies, among other measures, is fueling the trend, and making companies less likely to rehire outside when prices rebound.

    "Under the labour reform it would be better for (mining companies) to bring contractors with sensitive labour agreements in-house, and have those workers opt for the company's benefits, so they can better control the bargaining situation," said Fernando Villalobos, a leading Chilean labor lawyer and former advisor to the Labor Ministry.

    New in-house workers, however, are costly. Government data show that average per worker remuneration costs for contracted employees at copper mining companies were only 43 percent that of direct employees in 2014.

    It remains unclear how many workers mining companies are prepared to bring in.

    But if just 5 percent of the 163,827 total workers at Chile's large copper mines in 2014 were made direct employees, it would cost Chilean miners approximately $370 million a year. Though that is relatively small compared to total industry-wide costs of $25.8 billion in 2014, such numbers are significant for a sector that is now struggling to maintain razor-thin margins.

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    China zinc refineries slash fees as supply shrinks -trade

    Chinese zinc refineries have agreed to take sharply lower fees for processing raw material into metal as a long awaited shortage rears its head following the closure of several giant mines, industry sources said this week.

    Zinc mine supply has been shrinking as several blockbuster mines such as Australia's Century and Ireland's Lisheen have dried up with no new major lodes in the pipeline, and as prices near six-year lows force miners to slash output.

    Spot treatment charges have slumped to $125-$130 a tonne this week from $180-$200 at the end of last year, three concentrate traders told Reuters. Treatment charges are fees that miners pay refiners to process their concentrate into metal, used by producers to galvanise steel.

    "You've had Century, that's done now, and Lisheen. China zinc mines have also shut due to the low prices, so there's a short-term gap in the market" said a trader in Asia.

    Goldman Sachs in a Feb. 9 note forecast zinc prices would jump 7 percent in three months to $1,800 a tonne due to mine depletion, with analysts polled by Reuters expecting zinc to be the top perfoming metal this year.

    London Metal Exchange zinc was trading up 1 percent at about $1,715 a tonne on Friday, having already climbed nearly 7 percent this year.

    Closures or output announced in recent months by major miners such as Glencore and smaller players such as Australia's CBH Resources and Horsehead in the United States have stoked the shortage.

    Mine supply cuts will weigh in at about 1 million tonnes this year in a roughly 14 million tonne market given the closures and after Glencore pledged in October to slash 500,000 tonnes of annual zinc production, equivalent to around 4 percent of global supply. It started those curbs with a 100,000-tonne cut in the fourth quarter.

    "I think the Chinese didn't believe that Glencore would actually cut ... now you see them scrambling for supply," the trader said.

    But China's zinc trade stocked up late last year. Zinc imports surged by 440 percent in December after shipments nearly quadrupled in November and almost tripled in October, as galvanisers hoovered up cheaper imports ahead of this year's expected shortfall.

    Yearly contract terms are expected to be hammered out at next week's International Zinc Association conference in Arizona. Traders said they expected sharply lower terms at $180-$200 a tonne, from around $245 last year. But they added that low TCs were not sustainable.

    "The view is that if things improve enough, at some stage Glencore will just flick the switch back on," the trader said.

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    Madagascar's Ambatovy mine says new tax rules halt nickel shipments

    The Madagascan arm of Sherritt International said on Thursday containers carrying nickel had been prevented from leaving the island's Toamasina port due to new regulations, and unless the situation changed the mine could only stay open for a week.

    The $7 billion Ambatovy mining project, 40 percent owned and operated by Sherritt, has been hit by record low nickel prices and management has been forced to lay off more than 1,000 of its workforce over the past year.

    Ambatovy said in a statement it was seeking a meeting with Madagascan President Hery Rajaonarimampianina to discuss new Advance Cargo Declaration (ACD) regulations, which levy a $100 fee on every shipping container, as it believes it should not be applied to Ambatovy.

    Ambatovy said that due to enforcement of the ACD regulation introduced by the transport ministry, it was also unable to ship spare parts and raw materials, limiting its cash flow.

    "The blocking of containers at the Port means that Ambatovy has no income and cash flows, already very low and affected by the nickel price, the lowest in history, is increasingly critical," Ambatovy said in a statement.

    "Ambatovy can only survive for a week in the current circumstances."

    Ambatovy, Madagascar's biggest foreign direct investment and one of the world's largest nickel and cobalt plants, added the implementation of ACD represented "additional and unexpected costs of several million dollars over the duration of the project"

    If the government does not instruct shipping companies to accept Ambatovy cargo without implementing ADC, Ambatovy said it "would be forced to take drastic measures before the end of next week". The company did not elaborate on its (threat?).

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    Eramet seeks cost cuts, shareholder deal to save nickel unit

    French mining group Eramet said it needs to accelerate cost savings and win financial support from its fellow shareholder in New Caledonian nickel subsidiary SLN if the business is to survive a slump in the global nickel market.

    Eramet reported a current operating loss of 207 million euros for 2015, reflecting a 261 million euro loss at its nickel division that has been battered by 12-year price lows linked to global oversupply and slowing Chinese demand.

    "We can't continue losing 20 million euros a month at SLN, otherwise the Eramet group will be put at risk," Chairman and Chief Executive Patrick Buffet said during a results presentation in Paris.

    The group was preparing measures for SLN to reduce its production cash costs to $4.5 a pound by the end of 2017 from $5.8 in 2015, which would represent a boost of around 140 million euros in operating profit from 2018, he said.

    The new cost plan, which would go beyond a continuing effort to cut group costs by 360 million euros over 2014-17, would be submitted to a board meeting in April, at which Eramet also wanted to obtain financial support from SLN's other major shareholder, the STCPI.

    The STCPI is a vehicle representing the provincial authorities in New Caledonia that owns 34 percent of SLN, alongside Eramet with 56 percent and Japan's Nisshin Steel with 10 percent.

    Eramet's group board approved on Wednesday 30 million euros in extra liquidity for SLN, on top of 120 million granted in December, to keep the nickel firm afloat until April, he said.

    France, which controls the Pacific territory of New Caledonia, said this month it would support the struggling nickel sector there, which also includes mining operations run by Glencore and Vale.

    Eramet's group losses last year also reflected falling prices for manganese, mainly used in carbon steel, although Eramet's relatively low costs at its mine in Gabon helped it post a small profit for the division, Buffet said.

    In response to weak manganese prices, Eramet would cut production of manganese ore and alloys in early 2016 through a four-week stoppage of output at its Gabonese mine, he said.

    Societe Generale analysts said in a note the operating loss at Eramet's nickel division was bigger than the 224 million euros it had anticipated, and that Eramet's drawdown of a 980 million euro credit facility last month was a concern.
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    Steel, Iron Ore and Coal

    China coal firm Up Energy seeks debt restructuring after bond default

    Coal mining company Up Energy Development said on Friday it is in talks with creditors to restructure its debt or at least ensure no action is taken by them against it following a default on its convertible bonds due in January.

    The default on the HK$976 million ($125.46 million) bond, whose grace period for payment expired on February 18, also triggered cross-default provisions on debt amounting to HK$3.459 billion, the company said in a notice to the Hong Kong stock exchange.

    "In light of the adverse operating environment of the industry, the board believes that it would be in the best interest of the company and its stakeholders to arrange for a restructuring of the company's outstanding indebtedness to ensure the sustainability of the company," it said.

    Up Energy shares slumped 15.7 percent on Friday.

    The company also plans an offer of shares to existing shareholders to boost liquidity. The details of such a sale are yet to be finalised, the company said.

    The Group has three coal mines in Fukang, Xinjiang region, China, according to Thomson Reuters data. While China is the world's top coal consumer, demand has been on the wane as economic growth slows and the country shifts away from fossil fuels to curb pollution. China aims to close 4,300 mines and re-employ a million workers in the coming three years.

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    India coal imports may drop to 155 mln T this fiscal year

    India's coal import may drop to 155-160 million tonne in the current fiscal from 185 million tonnes in 2014-15, Press Trust of India reported on February 18.

    The imports may decline further to about 150 million tonnes in the next fiscal.

    "India's import of thermal coal in FY16 will be around 155-160 million tonnes compared with around 185 million tonnes in FY15 because of low imports by power generation companies on increased availability of domestic coal," Viresh Oberoi CEO and MD Mjucntion services told PTI.

    Coal imports will continue to taper down in FY'17 as well and will fall to around 150 million tonnes primarily because of fall in imports by non-coastal-area based state power generation companies, Oberoi said, adding that imports by coastal power plants and other sectors are likely to increase a little.

    He cautioned however that the situation may change and there might be higher import of coal if plant load factor (PLF) of thermal power plants, which is hovering around 61% till December 2015, goes up.

    Coal India Ltd (CIL) may end up with a production of around 535-540 million tonnes of coal in 2015-16 and around 580-585 million tonnes in 2016-17 and the import figures might change a bit depending on actual production by the coal PSU, he said.

    "According to our compilation, India's thermal coal imports in January 2016 stood at 13 million tonnes as compared with 16.52 million tonnes imported in January 2015," he added.

    Country's coal imports fell for the seventh straight month in January in the current fiscal. India imported 212.103 million tonnes of dry fuel worth over Rs 1 lakh crore in the last fiscal.

    The coal imports in financial year 2014-15 were at 212.103 million tonnes, an increase of 27% over the previous year, the provisional coal statistics of 2014-15 released by the Coal Ministry had earlier said.

    The government is eyeing to achieve 1.5 billion tonnes of coal production by 2020. Of this one billion tonnes is expected from CIL.

    The government has set a production target of 550 million tonnes for Coal India.

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    Vale says 4th-Qtr iron ore output 88.4 mln tonnes

    Brazilian miner Vale SA produced record amounts of iron ore, nickel, copper, cobalt and gold as it battled a slump in global metals prices by boosting output in search of greater market share.

    Results, though, were below what some analysts expected even as they helped Vale, the world's third-largest mining company, meet some of its own output targets.

    Fourth-quarter iron ore production rose 2.4 percent year on year to 88.4 million tonnes, its largest ever fourth-quarter total, the company said on Thursday. Output was down 3 percent compared with the third quarter.

    Vale preferred shares, the company's most-traded class of stock fell 2.9 percent in afternoon trading on Thursday in Sao Paulo to 8.34 reais, its first decline in five days.

    "Production fell short of both our estimate and consensus and surprisingly was down 3 percent on a sequential basis," said Garrett Nelson and Jason Nguyen, metals and mining analysts with BB&T Capital Markets in Richmond, Virginia in a note to clients.

    As a result, Nelson and Nguyen cut their fourth-quarter outlook for Vale earnings before interest, taxes, depreciation and amortization, or EBITDA, a measure of cash flow from operations, by 3.5 percent to $1.39 billion. Vale releases fourth-quarter and full-year financial results on Feb. 25.

    The result pushed full-year 2015 output to 345.9 million tonnes, another record, helping to maintain Vale's place as the world's largest producer of the steelmaking ingredient. It did though beat Vale's target of 340 million tonnes for the year.

    Along with Australian rivals BHP Billiton Ltd and Rio Tinto Ltd, Vale has moved to ramp up output of iron ore in the face of a 28 percent drop in prices in the past year and 75 percent over five years.

    Vale and its rivals are betting on their lower costs and higher volumes pushing out smaller rivals and stabilizing prices even as demand slows in China, the world's largest steelmaker and iron ore buyer.

    Quarterly output was also below expectations of Citibank analysts Alexander Hacking and Thiago Ojea.

    Fourth-quarter output excluding Vale purchases from third parties was 85 million tonnes, 5 percent below the Citi analysts' estimate. The lower-than-expected result was caused by "greater than expected losses stemming from the Samarco dam tragedy and previously announced shutdowns of higher-cost mines," they said.

    Samarco, a 50-50 joint venture between Vale and BHP Billiton, suffered a deadly iron ore tailings dam breach in November that damaged Vale mine systems nearby and led to a Samarco shutdown. Samarco output was not included in Vale results.

    Record output is far less important to Vale's future than low iron ore prices, said Leonardo Correa, mining analyst at BTG Pactual SA in Sao Paulo. A 23 percent gain in the spot iron ore price since December seems unlikely to last, he added.

    "Iron ore seems toppish to us with a clear disconnect between pricing and fundamentals," Correa wrote in a note to clients. "We struggle to see how iron ore will sustain recent gains."

    He expects iron ore output to remain stable in 2016 and finish the year at between 340 million and 350 million tonnes.

    Rio de Janeiro-based Vale, the second-largest nickel producer, said that production of the metal used to make steel rust resistant rose 12.3 percent to 82,700 tonnes in the quarter. Annual output was 291 million tonnes, up 15.4 percent on 2014.

    Coal output fell by nearly a third in the quarter to 1.59 million tonnes. Output in 2015 was down 23 percent at 7.34 million tonnes.

    Copper production, meanwhile, rose 6.7 percent in the quarter to 112,500 tonnes, boosting annual output by 13.4 percent to 423,800 tonnes.

    Gold output in the fourth quarter rose 26 percent to 117,000 ounces and cobalt production was up 0.4 percent at 1.27 million tonnes.

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