Mark Latham Commodity Equity Intelligence Service

Wednesday 27th April 2016
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    The 'Hail Mary' Throw,

    Here is a question it would have seemed incredible to pose as recently as five years ago: are the liberal elites on the wrong side of history? Are they about to succumb to that favourite feature of university examination papers “a historical watershed”? Consider the accumulating evidence.

    Last weekend, in the first round of the Austrian presidential election, Norbert Hofer, the candidate of the Freedom Party (FPO), led the poll with 36.4 per cent. The candidates of the governing coalition parties were in fourth and fifth place, each with a humiliating 11 per cent of the vote, and are eliminated from the second round where Hofer will face a run-off against Green candidate Alexander Van der Bellen.

    The Austrian and EU establishment is now investing all its hopes in the supporters of the other candidates uniting to stop Hofer in the final round on 22 May. Since Van der Bellen’s platform is an open-doors policy for immigrants, while Hofer’s victory is attributed to the influx of 90,000 migrants into Austria in the past year, his appeal to voters may be less seductive than the establishment hopes.

    This is just the latest shock for the European elites. Earlier this month the Dutch electorate, in a referendum, voted down a proposed treaty between the EU and Ukraine. That, of course, was the “wrong” result. For fear of serial embarrassment by the untutored public, the Dutch minister of the interior has already said he will “look more closely” at the referendum law. A Dutch minister with his finger in the dyke of public opinion is an accurate metaphor for the beleaguered condition of the political establishment. Geert Wilders’ PVV party is leading the polls in the Netherlands.

    Marine Le Pen similarly heads the polls for next year’s presidential election in France. The insurgency is now ubiquitous. In Germany last month voters delivered a rebuff to Angela Merkel, provoked by her immigration policy, with Alternative für Deutschland (AfD) – a party that did not even exist four years ago – taking 24.4 per cent of the vote in Saxony-Anhalt and doing well everywhere else that was contested. In Poland and Hungary the victory over the discredited establishment has already been won, with the electorates voting into power, with overall majorities, governments that reject the Brussels agenda and instead reflect the national will.

    In Britain, the mere fact the Leave campaign in the EU referendum seriously threatens Remain is a seismic change. The response from the threatened elites has been to unite against the perceived danger of the popular will prevailing. In the United States, the two surviving establishment (Ted Cruz now rates that label) candidates in the presidential race have formed an alliance to stop Donald Trump. How insulting is it to the voters of Oregon and New Mexico that Ted Cruz will cut campaigning for their support, while John Kasich will reciprocally snub Indiana?

    Donald Trump has 845 delegates to Ted Cruz’s 559. Today is another Super Tuesday, with five states voting and 172 delegates available. Trump has poll leads ranging from 26 to 38 per cent across all five states. Even if, eventually, he rolls into the GOP convention 20 delegates short, if backroom deals were to cheat him of the nomination, even the National Guard could not contain the resulting explosion.


    What is helicopter money and how does it work?

    As I learned when I spoke about it in 2002, the imagery of “helicopter money” is off-putting to many people. But using unrealistic examples is often a useful way at getting at the essence of an issue. [3] The fact that no responsible government would ever literally drop money from the sky should not prevent us from exploring the logic of Friedman’s thought experiment, which was designed to show—in admittedly extreme terms—why governments should never have to give in to deflation.

    In more prosaic and realistic terms, a “helicopter drop” of money is an expansionary fiscal policy—an increase in public spending or a tax cut—financed by a permanent increase in the money stock. [4] To get away from the fanciful imagery, for the rest of this post I will call such a policy a Money-Financed Fiscal Program, or MFFP.

    To illustrate, imagine that the U.S. economy is operating well below potential and with below-target inflation, and monetary policy alone appears inadequate to address the problem. [5]Assume that, in response, Congress approves a $100 billion one-time fiscal program, which consists of a $50 billion increase in public works spending and a $50 billion one-time tax rebate. In the first instance, this program raises the federal budget deficit by $100 billion. However, unlike standard fiscal programs, the increase in the deficit is not paid for by issuance of new government debt to the public. Instead, the Fed credits the Treasury with $100 billion in the Treasury’s “checking account” at the central bank, and those funds are used to pay for the new spending and the tax rebate. Alternatively and equivalently, the Treasury could issue $100 billion in debt, which the Fed agrees to purchase and hold indefinitely, rebating any interest received to the Treasury. In either case, the Fed must pledge that it will not reverse the effects of the MMFP on the money supply (but see below).

    From a theoretical perspective, the appealing aspect of an MFFP is that it should influence the economy through a number of channels, making it extremely likely to be effective—even if existing government debt is already high and/or interest rates are zero or negative. In our example the channels would include:

    1. the direct effects of the public works spending on GDP, jobs, and income; 
    2. the increase in household income from the rebate, which should induce greater consumer spending;
    3. a temporary increase in expected inflation, the result of the increase in the money supply. Assuming that nominal interest rates are pinned near zero, higher expected inflation implies lower real interest rates, which in turn should incentivize capital investments and other spending; and
    4. the fact that, unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens. [6]
    Standard (debt-financed) fiscal programs also work through channels #1 and #2 above. However, when a spending increase or tax cut is paid for by debt issuance, as in the standard case, future debt service costs and thus future tax burdens rise. To the extent that households today anticipate that increase in taxes—or if they simply become more cautious when they hear that the national debt has increased—they will spend less today, offsetting some of the program’s expansionary effect.[7] In contrast, a fiscal expansion financed by money creation does not increase the government debt or households’ future tax payments and so should provide a greater impetus to household spending, all else equal (channel #4 above). Moreover, the increase in the money supply associated with the MFFP should lead to higher expected inflation (channel #3)—a desirable outcome, in this context—than would be the case with debt-financed fiscal policies.

    Could the central bank implement an MFFP on its own? Some have suggested an alternative approach in which the central bank prints money and gives it away—so-called “people’s QE.” From a purely economic perspective, people’s QE would indeed be equivalent to a money-financed tax cut (Friedman’s original helicopter drop, although perhaps more targeted). The problem with this policy, which would certainly be illegal in most or all jurisdictions, is not its economic logic but its political legitimacy: The distribution of what are effectively tax rebates should be subject to legislative approval, not determined unilaterally by the central bank. I’ll return to the issue of MFFP governance in a moment.


    "It's the economy, stupid"
    ~Bill Clinton

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    Stronger China March industrial profits add to economic recovery hopes

    Profits earned by Chinese industrial companies rose 11.1 percent in March from a year earlier, adding to signs that the country's economic slowdown may be bottoming out.

    Industrial profits rose to 561.24 billion yuan ($86.50 billion) in March, the National Bureau of Statistics(NBS) said on its website on Wednesday.

    That brought total first-quarter profits to 1.34 trillion yuan, up 7.4 percent from a year earlier and improving from a 4.8 percent rise in the January-February period.

    The data covers large enterprises with annual revenue of more than 20 million yuan from their main operations.

    The first-quarter gains were largely led by chemical companies and agricultural and foodprocessing companies, which posted 20.8 percent and 12.1 percent growth compared with the same period a year earlier.

    But heavy industry and mining continued to struggle, with ferrous metal smelting and rolling firms seeing profits fall 15.8 percent in the quarter and profits for coal miners slumping 92.6 percent. Oil and gas producers posted a loss.

    Debt at Chinese industrial companies increased 5.2 percent on a yearly basis to 55.22 trillion yuan as of end-March, the bureau said.

    China's economy grew 6.7 percent in the first quarter this year from a year earlier, its slowest pace in seven years, but beter-than-expected consumer, investment and factory data have fueled hopes that the economy's prolonged downturn may be easing.

    Still, analysts are worried that the improvement may be largely driven by companies taking on more debt, raising questions about whether the seeming pick-up in the broader economy can be sustained.

    Adding to that caution, the statistics bureau warned that profits from investment and non-core activities "increased dramatically", and that the rise in profits was not seen across the industrial spectrum.

    The bureau said that 30.5 percent of industrial profits in March stemmed from investments and non-core activities.

    "The pickup in March industrial profits was partly due to an improving economy, but it was not a balanced and stable recovery," NBS official He Ping said in a statement accompanying the data.
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    South Africa's Eskom to spend $23.5 billion on new plants

    South Africa's Eskom to spend $23.5 billion on new plants

    South African power utility Eskom is not under pressure to tap international markets to help fund its 340 billion rand ($23.5 billion) five-year expansion plan, its chief executive said on Tuesday.

    State-owned Eskom is building new plants and transmission lines to augment a power grid that nearly collapsed in 2008 and was forced to implement controlled blackouts, or load shedding, early last year that dented economic growth.

    "Our funding for last year is complete and most of the funding for this year is done," Eskom CEO Brian Molefe told reporters. "We never issue less than benchmark which is anything above $500 million, so it can be $750 million or $1 billion."

    He said the timing would depend on market conditions, adding that the successful pricing of a 10-year dollar bond by the National Treasury in April was a good sign.

    Eskom is building three new power plants and expects to add 5,620 megawatts (MW) to the network by 2018.

    Minister Lynne Brown, whose department oversees the power utility, told parliament that power supply had stabilised, adding that "for the longest of time South Africans have had their lights on and load shedding has become a distant memory".

    Brown said the rest of Africa was a key growth area, with Eskom eyeing new business opportunities this financial year in the Democratic Republic of Congo, Mozambique and Uganda.

    Brown also said Eskom, which provides virtually all the electricity to Africa's most industrialised economy from coal-powered plants, has been paying above inflation prices to secure coal, despite being the main buyer of the commodity.

    "Eskom coal costs have been growing above inflation levels," she said, adding that she hoped the cost could come down.

    Eskom gets 51 percent of its coal from global miner and commodity trader Glencore, Exxaro, South32 and Anglo American.

    To help reduce the cost of coal for Eskom, CEO Molefe said the utility was busy renegotiating its long-term coal contracts.

    Eskom was also investigating whether it could lay claim to some of the mine assets of its coal suppliers, given the utility had helped to pay for the operations of their mines as part of historical contracts, he said.
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    Teck Resources reports surprise profit helped by cost cuts

    Canadian miner Teck Resources Ltd reported a surprise quarterly profit as cost-cutting measures and a weak Canadian dollar helped cushion the impact of lower coal and copper prices.

    The global commodity rout has pushed coal and copper prices to multi-year lows, forcing miners to sell assets, lay off workers, and cut dividends and capital spending to preserve cash and reduce debt.

    However, a strong U.S. dollar has helped Teck, which sells commodities in the U.S. currency but incurs expenses in local currencies, particularly the Canadian dollar.

    Teck, the largest producer of steel-making coal in North America, said on Tuesday it expected coal sales to exceed 6.5 million tonnes in the current quarter.

    The company said the construction of the Fort Hills oil sands project in northern Alberta is more than 55 percent complete and was on track for first oil production by late 2017.

    The company had earmarked C$2.9 billion for the project, of which about C$1 billion remains to be spent as of April 25, the company said.

    A prolonged slump in oil prices has resulted in a number of oil projects being deferred, but Fort Hills is one of the projects that is expected to be completed because of the investments already made.

    Teck owns a 20 percent stake in Fort Hills, majority owned by Suncor Energy Inc.

    Net profit attributable to the company rose to C$94 million ($74 million), or 16 Canadian cents per share, for the first quarter ended March 31, compared with C$68 million, or 12 Canadian cents per share, a year earlier.

    Excluding gains from asset sales and other items, the company earned 3 Canadian cents per share, compared with analysts' average estimate of a loss of 3 Canadian cents.

    The Vancouver-based company's revenue fell by 16 pct to C$1.70 billion.

    The company's total debt was $6.97 billion, as of March 31, slightly higher than $6.96 billion at the end of last year.
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    Freeport McMoran reports bigger quarterly loss

    - Net loss attributable to common stock totaled $4.2 billion, $3.35 per share, for first-quarter 2016. After adjusting for net charges totaling $4.0 billion, $3.19 per share, first-quarter 2016 adjusted net loss attributable to common stock totalled $197 million, $0.16 per share.
    - Consolidated sales totalled 1.1 billion pounds of copper, 201 thousand ounces of gold, 17 million pounds of molybdenum and 12.1 million barrels of oil equivalents (MMBOE) for first-quarter 2016, compared with 960 million pounds of copper, 263 thousand ounces of gold, 23 million pounds of molybdenum and 12.5 MMBOE for first-quarter 2015.
    - The Cerro Verde expansion project reached full production capacity in first-quarter 2016, and Cerro Verde is on track to produce over 1 billion pounds of copper for the year 2016.
    - Consolidated sales for the year 2016 (adjusted for the anticipated closing of the Morenci transaction in second-quarter 2016) are expected to approximate 5.0 billion pounds of copper, 1.85 million ounces of gold, 71 million pounds of molybdenum and 54.4 MMBOE, including 1.15 billion pounds of copper, 195 thousand ounces of gold, 19 million pounds of molybdenum and 13.5 MMBOE for second-quarter 2016.
    - Average realized prices were $2.17 per pound for copper, $1,227 per ounce for gold and $29.06 per barrel for oil for first-quarter 2016.
    - Consolidated unit net cash costs averaged $1.38 per pound of copper for mining operations and $15.85 per barrel of oil equivalents (BOE) for oil and gas operations for first-quarter 2016. Consolidated unit net cash costs for the year 2016 are expected to average $1.05 per pound of copper for mining operations and $15 per BOE for oil and gas operations.
    - Operating cash flows totalled $740 million (including $188 million in working capital sources and changes in other tax payments) for first-quarter 2016. Based on current sales volume and cost estimates and assuming average prices of $2.25 per pound for copper, $1,250 per ounce for gold, $5 per pound for molybdenum and $45 per barrel for Brent crude oil for the remainder of 2016, operating cash flows for the year 2016 are expected to approximate $4.8 billion (including $0.8 billion in working capital sources and changes in other tax payments).
    - Capital expenditures totalled $982 million for first-quarter 2016, consisting of $459 million for mining operations (including $350 million for major projects) and $523 million for oil and gas operations. Capital expenditures are expected to approximate $3.3 billion for the year 2016, consisting of $1.8 billion for mining operations (including $1.4 billion for major projects) and $1.5 billion for oil and gas operations.
    - At March 31, 2016, consolidated debt totalled $20.8 billion and consolidated cash totalled $331 million. At March 31, 2016, FCX had $3.0 billion available under its $3.5 billion credit facility.
    - During first-quarter 2016, FCX entered into agreements to sell an additional 13 percent ownership in Morenci and to sell an interest in the Timok exploration project in Serbia for aggregate consideration of $1.3 billion. In addition, in April 2016, FCX entered into an agreement to sell certain oil and gas royalty interests for $0.1 billion. These transactions are expected to close in second-quarter 2016.
    - FCX continues to advance discussions for the sale of certain interests in its mining and oil and gas assets to accelerate its debt reduction initiatives. FCX expects to achieve additional progress during second-quarter 2016.

    Freeport-McMoRan Inc said it would cut about a quarter of the workforce in its oil and gas business after failing to sell the unit.

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    Oil and Gas

    Forget the Saudis, Texas will win the oil price war

    Forget the Saudis, Texas will win the oil price war

    Crude oil prices continued to surprise on Tuesday, with the US benchmark adding another 4% to $44.60 a barrel. West Texas Intermediate is now up 65% since hitting 13-year lows below $27 a barrel February 11. It's a performance only bettered by the globe's second most traded bulk commodity – iron ore.

    But like analysts of the steelmaking raw material, many in the industry have been surprised by the extent of the rally, consistently calling the oil price lower. The blame for the cloudy outlook for crude is mostly being laid at the door of Saudi-Arabia.

    Image titleUS spare capacity may be close to rivaling OPEC’s current spare capacity

    After the collapse of the Doha talks to freeze production and amid a spat with the US over terrorism, the world's top producer has threatened a scorched earth policy when it comes to maintaining and growing its market share.

    But there is an alternative view out there that argues that the US, more than the Saudis, will control the direction of the market and in the event of an all-out price war holds the commanding position.

    That's thanks to astonishing technological improvements in the US. The shale revolution that drove natural gas production between 2010 and 2015, found its way into the oil field, resulting in a 57% jump in US crude production in just three short years to peak at 9.7 million barrels per day in April 2015.

    And it's not just a crude story: In the last decade, the US has introduced 8.3 MMBoe/d (million barrels of energy equivalent per day) into the global market when one considers production of crude, natural gas and natural gas liquids according to research by Platts Analytics.

    Suzanne Minter, Manager of Oil and Gas Consulting for Platts Analytics on Tuesday testified before the US Senate Energy and Natural Resources Committee about where the global oil market is heading.

    Minter said "the time and the rate in which this energy entered the market appears to have stressed the system in ways unimagined" making the US producer "the marginal supplier and price setter into the global market":

    Texas alone could introduce 1.25m barrels into the global market – on average within just 30 days

    After 14 months of persistently low prices, U.S. producers have entered 2016 with estimated capital expenditures cuts of 40%, more than 6,500 drilled but uncompleted wells in inventory, and find themselves operating at or near cash costs.

    "Drilled but uncompleted wells hold reserves that can be brought on line in a short period of time, thereby defining the concept of spare capacity. It is plausible to believe that U.S. spare capacity may be close to rivaling OPEC’s current spare capacity. However, we believe that the prices needed to incentivize the U.S. producer to complete their drilled but uncompleted wells may be much lower than global competitors believe or would like it to be.

    "The near term oil recovery will be more than likely be tenuous and ebb and flow, rather than occur in a linear fashion, as all parties involved figure out how to balance supply growth. However, due to spare capacity and the unique economic environment which drives producer activity, it may very well be that the US producer is best positioned to lead the recovery and bolster economic growth.”

    Platts Analytics research shows that Texas alone could introduce 1.25 MMB/d of oil into the global market and can do so in a short space of time – on average just 30 days. That's more oil than the Saudis have threatened to flood the market with and all very close to the world's top refining hub.

    Over and above resources and technology, the US has another powerful advantage: dynamic markets. The country has roughly 9,000 different entities producing energy. Saudi Arabia's oil wealth – indeed its whole economy – is now in the hands of a 30-year old prince.

    Minter said that "while each producer will behave differently than the next, it seems realistic pricing in the mid-$40 – $50 per barrel range they will bring incremental volumes back into the market place. Well, that's where we got to today.

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    Eastern Libya ships first oil cargo in defiance of Tripoli

    A government based in eastern Libya shipped its first cargo of crude on Monday in defiance of authorities in the capital Tripoli, a bold move that could deepen the divisions that have brought chaos since the fall of Muammar Gaddafi.

    The eastern government has set up its own National Oil Company (NOC) to act in parallel to the Tripoli-based NOC that is recognised internationally as the only legitimate seller of Libyan oil.

    A tanker carrying the eastern NOC's first export shipment was en route to Malta carrying 650,000 barrels of crude, a spokesman for the company said on Tuesday.

    Libya's economy depends almost exclusively on oil export revenue, and the fight over who controls those funds has been at the heart of the chronic instability and civil war since Gaddafi was toppled and killed by rebels in 2011.

    Parallel parliaments and governments have operated in Tripoli and the east since 2014. Much of the country is in the hands of dozens of armed groups that proclaimed loyalty to one or the other of the two rival governments, while small areas are controlled by Islamic State fighters.

    The India-flagged tanker Distya Ameya left the eastern Libyan port of Hariga on Monday evening, eastern NOC spokesman Mohamed al-Manfi said, adding that the tanker has entered international waters.

    A Reuters tracking system showed the Distya Ameya about 250 km (155 miles) north-east of Hariga early on Tuesday.

    The eastern NOC has long been trying to sell its own oil, but until now those efforts have been blocked by the NOC in Tripoli, with the support of Western countries.

    The NOC in Tripoli says any sale by its eastern rival would breach U.N. Security Council resolutions and put the future of Libya's economy at risk.

    The NOC in Tripoli has continued to run oil production throughout the crisis that followed Gaddafi's fall, with the funds paying state salaries across Libya, including many of the rival armed groups, which have generally been granted official status.

    The Tripoli NOC has retained strong international backing, and says it is working to plan future oil sales with a new U.N.-backed unity government that arrived in the capital late last month. The unity government includes figures from across Libya's divides, but has not yet been fully accepted by either of the two loose alliances fighting for power since 2014.

    News of the eastern NOC's effort to export its first shipment of oil emerged late last week, when the NOC in Tripoli said it had prevented port workers from loading oil onto the Distya Ameya.

    It said the shipment had been ordered for a company called DSA Consultancy FZC, registered in the United Arab Emirates. Reuters was unable to locate contact information for the firm.

    A U.N. Security Council resolution last month said the unity government had the "primary responsibility" for preventing illicit oil sales, urging it to communicate any such attempts to the U.N. committee overseeing Libya-related sanctions.
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    For The First Time Since The Great Depression, Exxon Mobil Loses 'AAA' Rating

    Exxon Mobil has been rate AAA by S&P since 1930 according to Bloomberg. Today that ended as the global crude explorer with sales that dwarf the economies of most nations was cut to AA+ (Outlook stable). Having been put on notice in February (negative watch), citing concern that credit measures would remain weak through 2018.

    Credit measures will be weak for a AAA rating due, in part, to low commodity prices, high reinvestment requirements and large dividend payments, S&P says.

    Maintaining production and replacing reserves will eventually require higher spending, S&P says.

    Greatest business challenge is replacing co.’s ongoing production, S&P says.
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    Qatar to Scrap Fuel Subsidies in May as Decade of Surplus Ends

    Qatar will scrap gasoline and diesel subsidies next month as the world’s richest nation per capita is set to plunge into deficit this year after more than a decade of budget surpluses.

    The world’s biggest exporter of liquefied natural gas is in the second year of a $200 billion infrastructure upgrade to help it host soccer’s 2022 World Cup. The decision to link transportation fuel to international prices follows a Jan. 30 percent increase in local gasoline prices for the lowest available grade.

    Ending subsidies aims to reduce wasteful consumption, the official Qatar News Agency reported Tuesday, citing comments by Sheikh Mishaal bin Jabor Al Thani, who heads a committee studying domestic gasoline and diesel prices.

    Unlike some of its oil-rich neighbors that have cut spending, Qatar will increase outlays to 35.1 percent of GDP this year compared with 33.1 percent in 2015, according to the International Monetary Fund. As part of belt-tightening plans, the United Arab Emirates eliminated fuel subsidies last year, while Saudi Arabia, Oman and Bahrain reduced support.

    Reducing and scrapping subsidies, curbing spending and seeking non-oil revenue sources has become a priority for crude exportersfrom Saudi Arabia to Algeria that are grappling with low prices.

    Qatar is expected to post a budget deficit of 2.7 percent of gross domestic product this year, after recording a surplus of 10.3 percent in 2015, according to IMF estimates. It had an average budget surplus of 9.3 percent of GDP between 2000 and 2012.
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    Total first quarter beats forecasts on high output, strong margins

    French oil and gas major Total reported a better that expected net profit in the first quarter of the 2016 as high output and a strong performance in refining and chemicals helped limit the impact of a prolonged fall in oil prices.

    Net adjusted profit of $1.6 billion fell 37 percent compared with the same quarter in 2015. A Reuters poll of analysts had estimated the company's net adjusted result of $1.2 billion.

    Weak oil prices have hit the whole industry, and led a day ago to U.S. giant Exxon Mobil losing its Standard & Poor's top credit rating for the first time in almost 70 years.

    Total said its hydrocarbons production for the first quarter of the year rose by 4 percent to 2.479 million barrels of oil equivalent per day compared with the same quarter last year, a level in the quarter last seen ten years ago.

    It added that in its downstream segment, although refining margins were down compared with 2015, the business had held up well and remained strong at the beginning of the second quarter.

    "Refining & Chemicals improved its results compared to 2015 despite the decrease in refining margins to $35 per ton, thanks to a record high utilization rate of 94 percent and favorable petrochemicals margins," Total's Chief Executive Officer Patrick Pouyanne said in a statement.

    The company proposed to maintain its dividend unchanged at 0.61 euros per share, payable through cash and scrip scheme.
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    E.ON's Uniper woos investors with cost cuts, asset sales

    Uniper, the power plant and energy trading business being spun off by Germany's biggest utility E.ON, on Thursday promised cost cuts, asset sales and a dividend in its battle to keep investors onboard despite faltering markets.

    E.ON, like local rivals RWE and EnBW, has been hammered by the rise of renewable energy, plunging wholesale electricity prices and Germany's plans to abandon nuclear power by 2022.

    It has responded by seeking to spin off most of its nuclear, gas and coal-fired plants as well as energy trading activities into Uniper, to focus on growing renewables, networks and services instead.

    In its first public remarks to investors, Uniper said it would pay 200 million euros ($226 million) in dividends for 2016, sell at least 2 billion euros of assets by 2018 and cut costs to reduce debt. It did not put a figure on savings.

    Asset sales are likely to include a 12.25 percent stake in Brazilian power producer Eneva, worth 257 million reais ($72 million) based on its current market capitalisation.

    "Now it's about getting the house in order," Uniper Chief Executive Klaus Schaefer, E.ON's former finance chief, said in joint presentations with E.ON. "No unit will be spared, we will look at everything."

    Chief Financial Officer Christopher Delbrueck added there would be no "sacred cows" within the company.

    Some analysts and traders are sceptical about prospect for Uniper, whose struggling assets have been widely blamed for driving down E.ON's market value.

    "It's a poor business model," one trader said, pointing to proforma results showing Uniper's business had been loss-making every year since 2013.

    Shares in E.ON, which are down nearly 40 percent over the past twelve months, were up 2 percent at 1226 GMT.

    As part of the spin-off, under which E.ON will list 53.35 percent of Uniper later this year, existing shareholders will receive one Uniper share for every ten E.ON shares they own.

    E.ON confirmed it was aiming to divest the remaining stake over the medium term, but added further stake sales would not take place before 2018 to avoid a large tax payment.
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    Statoil Unexpectedly Posts Profit in First Quarter Amid Oil Drop

    Statoil Unexpectedly Posts Profit in First Quarter Amid Oil Drop

    Statoil ASA, Norway’s biggest oil company, said profits slumped by 86 percent as crude prices fell to their lowest level in almost 12 years in the first quarter.

    Statoil reported adjusted earnings after tax of $122 million, down from a $902 million a year earlier, it said in a statement Wednesday. Still, that beat the average forecast for a $125 million loss in a Bloomberg survey of 12 analysts. Adjusted earnings after tax is a measure that excludes financial and other items to better reflect underlying operations.

    “Our financial results were affected by low oil and gas prices in the quarter,” Chief Executive Officer Eldar Saetre said in the statement. “We delivered strong operational performance across all business areas, high production efficiency and results in line with expectations from liquids trading and refining.”

    Statoil and rivals such as Royal Dutch Shell Plc and BP Plc have seen earnings weighed down by a collapse in crude prices since the middle of 2014. Most of the majors have responded by cutting spending, delaying projects, streamlining operations and eliminating jobs in order to protect their cash flow and pay dividends.

    Statoil, which is 67 percent owned by the Norwegian government, in February deepened cuts to capital expenditure to about $13 billion in 2016, a target it reiterated Wednesday. The company will pay a dividend of 22 cents for the first quarter, in line with the board’s intention to keep payouts flat for the first three quarters. Statoil introduced a scrip dividend program in February, letting shareholders opt for new shares at a discount instead of cash.

    The company produced 2.05 million barrels of oil equivalent in the first quarter, little changed from 2.06 million barrels a year earlier and beating a 2.03 million barrel estimate in a survey of 26 analysts conducted by Statoil.
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    Argentina's YPF Said Set to Resume Crude Exports After Two Years

    YPF SA is set to export crude oil from Argentina for the first time in two years next month, taking advantage of a new government subsidy.

    It was the state-controlled oil company’s first use of an incentive announced last month to spur drilling amid low oil prices. YPF sold 200,000 barrels of Escalante crude to PetroChina Co. as part of a combined 1 million-barrel joint cargo with Pan American Energy LLC, which provided the other 800,000 barrels, according to three people with knowledge of the matter who asked not to be identified because they weren’t authorized to discuss the matter.

    The shipment is scheduled to load May 10-20 from Caleta Cordova, Argentina.
    YPF, which is based in Buenos Aires, plans to export another cargo in June, and more shipments are likely to follow this year, one of the people said. Argentine refiners are also buying imported crude at prices cheaper than the one the government sets for domestic oil.

    “In light of sluggish demand for feedstock from Argentine refineries, the subsidy offers a way for producers to compete internationally while supporting their domestic industry,” Mara Roberts, an analyst with BMI Research in New York, said in an e-mail.

    Argentina’s government last month announced it would provide a $7.50-a-barrel subsidy on exported oil as long as the price of Brent crude, the international benchmark, was below $47.50. Brent futures for June delivery settled at $45.74 a barrel Tuesday on ICE Futures Europe.

    YPF, the country’s largest refiner, also has extra crude available because a coker unit was damaged at its La Plata refinery in 2013, limiting its demand for domestic oil. Construction of a new unit is under way and expected to be done at the end of this year. Exports of Escalante are likely to continue until tests on the new unit are concluded in 2017, according to a person familiar with the work.

    That could be stymied by a recovery in international crude prices, however, as producers cut global output. Front-month Brent futures have climbed 64 percent from a low of $27.88 in January.

    “Given that the subsidy requires benchmark prices to remain under $47.50, it’s unlikely that Argentine producers will be exporting significant quantities for much longer,” Roberts said.

    This year, Argentina imported 2 million barrels of oil from Nigeria, and may seek to import another cargo before June, according to data compiled by Bloomberg.
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    API report small crude drawdown

    the American Petroleum Institute reported a drawdown of nearly 1.1 million barrels in U.S. crude inventories last week versus a 2.4 million-barrel build expected by analysts in a Reuters poll.

    The API report is a precursor to official inventory data due on Wednesday from the U.S. Energy Information Administration.

    "There's a possibility we could see newer highs from here, notwithstanding the EIA data, as the market is really fired up on the idea of tightening supplies," said John Kilduff, partner at New York energy hedge fund Again Capital.
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    Here’s why Cheniere Energy, Inc (LNG) is a Potential Acquisition Target

    Why Cheniere Energy is an attractive buy?

    International demand for LNG is expected to rise 6% at a compounded annual growth rate (CAGR), or at an average rate of 23 metric tons per annum (mtpa) of new gas liquefaction capacity needed each year. The consultancy group, Wood Mackenzie projects LNG demand to increase by 193 mtpa till 2025.

    Considering LNG’s growth outlook, the company continues to strive to leverage its core infrastructure, in order to tap the growing LNG market. Cheniere Energy plans to develop up to seven trains, with a 4.5 mtpa expected nominal production capacity, near Corpus Christi, Texas.

    The proceeds generated from LNG export will be used to finance the company’s capital expenditure. The planned LNG export units are expected to generate $4.3 billion in the form of fixed contract fees through a long-term contract of 20 years.

    Discount on gas spot prices at the Henry Hub in Louisiana dipped by $2 per million British thermal unit in April. The Northeast Asia spot LNG price dropped more than $15 in December 2013. The squeeze in discount, however, will not dent Cheniere Energy due to its long-term contract that covers 87% of the company’s total capacity. Nonetheless, the spread poses a serious threat to the LNG industry.

    The company boasts a strong balance sheet with no bond maturities before 2020, which means that it could heavily invest in the LNG market to tap end-market opportunities. Chenier Energy utilized its $2.8 billion senior credit facility to meet near-term debt obligations and improve its liquidity position.

    Bottom Line

    Its low cost of production paired with untapped opportunities, justifies the company’s expectation for a significant premium in case of an acquisition. The company has shown some resilience in the prolonged downturn, as the stock price has increased in the past couple of months. This positive trend is likely to continue due to significant growth prospects for the commodity.
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    Consol swings to Q1 loss owing to lower prices, revenues

    US fossil fuels producer Consol Energy has swung to a first-quarter loss as lower realised prices for its natural gas and coal products drove down revenues. For the first quarter ended March 31, NYSE-listed Consol reported a net lost $97.6-million, or $0.43 a share, compared with a profit of $79-million, or $0.34 a share, in the same period a year earlier. 

    The results included a $29.3-million loss on commodity derivative instruments, $12.6-million loss from the sale of a gathering pipeline, and $2.9-million in severance. The adjusted earnings before interest, tax, depreciation and amortisation was $176-million, down from $242-million a year ago. Revenue fell 30% year-over-year to $558.5-million in the first quarter, down from $792.6-million a year earlier. 

    Natural gas revenue dropped 19% to $181.2-million, while coal revenue fell 39.5% to $251.9-million. 

    Consol had sold its cornerstone Buchanan mine, in Virginia, during the quarter, pushing the company’s cash balance in the bank up to $1.3-billion. "The Buchanan sale is significant for a number of reasons. Not only does this divestiture support our corporate strategy, it also brought forward substantial value, at a premium multiple valuation. “That said, this transaction was a win-win for both us and the buyer, who will benefit from this premier mine becoming their flagship operation. 

    For Consol, the sale of Buchanan marks another large step toward executing our strategy of becoming a pure-play E&P company,” Consol president and CEO Nicholas DeIuliis said in a statement.
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    Rex Energy Converts IOUs into Common Stock, Avoids Bankruptcy?

    In what appears to be an ongoing strategy/trend among exploration and production companies (i.e. drillers), Rex Energy is the latest driller to convert outstanding debt in the form of notes (IOUs) into equity, or stock ownership.

    Earlier this year Rex, a small Marcellus/Utica driller headquartered in State College, PA, offered to refinance its IOUs so the notes expire later, meaning Rex wouldn’t have to cough up cash sooner to pay off the debt.

    With few takers for a second lien, Rex then offered to sweeten the deal. Rex finally closed out the offer at the end of March.

    But what’s this? Rex announced yesterday they have exchanged a bunch of the notes, along with some preferred stock and second liens, for common stock.

    We’ve seen this before with companies either heading for or in bankruptcy–they exchange debt for equity. The strategy turns outstanding debt into ownership in the company, which tends to devalue the stock held by existing investors.
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    Alternative Energy

    China's newly installed wind power capacity grows 13 pct in Q1

    Newly installed wind power capacity in the first quarter reached 5.33 gigawatts, up 13 percent over the same period last year, according to the National Energy Administration (NEA) on Tuesday.

    By the end of March, China had 134 gigawatts installed wind power capacity, up 33 percent compared to the figure by March last year, the NEA said.

    However, wind-power use was falling due to wastage.

    The average usage of wind power in the first three months was 422 hours, 61 less than the same period last year, the NEA said.

    Wind power wasting reached 19.2 billion kilowatt hours, an increase of 8.5 billion kilowatt hours compared with the same period last year, the NEA added.
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    Precious Metals

    Barrick Gold reports a quarterly loss

    Barrick Gold Corp, the world's largest gold producer, reported a quarterly loss, compared with a year-earlier profit, as asset sales weighed on production and realized prices fell.

    Barrick, which has been selling non-core assets and using cashflow to pay down debt, said it is on track to cut debt by $2 billion this year. The company's total debt fell to $9.1 billion from $10 billion at the end of December.

    The company, which has mines in the Americas, Australia and Africa, said gold production fell 7.9 percent to 1.3 million ounces in the first quarter, while all-in sustaining costs - the industry cost benchmark - fell 23.8 percent to $706 per ounce.

    Barrick also reaffirmed its gold production guidance of 5-5.5 million ounces for 2016 but cut its all-in sustaining cost forecast to $760-$810 per ounce from $775-$825.

    The Toronto, Ontario-based miner's stock has doubled in value this year on the back of stronger gold prices. Investors have also warmed to the company as it has cut operating costs and expenses and whittled down its mountain of debt.

    The company reported a net loss of $83 million, or 7 cents per share, in the quarter ended March 31, compared with a profit of $57 million, or 5 cents per share, a year earlier. On an adjusted basis, it earned 11 cents per share.

    Revenue fell about 14 percent to $1.93 billion.
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    Base Metals

    Indonesia estimates value of Freeport unit two-thirds below offer

    Indonesia has proposed a value for a 10.64% stake in Freeport-McMoran's local unit that is about two-thirds below the figure the company proposed in January. Copper miner Freeport's unit is valued at about $630-million and the US-based parent has been asked to revise its offer, an Indonesian mining ministry spokesperson said on Tuesday. 

    Freeport had offered to sell the stake in its Indonesian operations, including the Grasberg copper and gold mining complex, at $1.7-billion in January. Under an agreement reached with Indonesia in mid-2014, Freeport must sell the government a greater share of its Grasberg mine and invest in domestic processing to win an extension of its operating contract when it expires in 2021. 

    Freeport wants to invest $18-billion to expand its operations, including underground mining, but is seeking government assurances first that it will get a contract extension. "Based on the replacement value, the government calculates [the stake] to be worth around $630-million," ministry spokesperson Sudjatmiko told Reuters, referring to a 2013 regulation that sets out how the government calculates mining stakes.

    In all of Freeport's agreements with the Indonesian government, the company has indicted that a sale would be at fair market value, Freeport CEO Richard Adkerson said. "That's consistent with our contract and that remains our position," Adkerson said on a conference call with analysts to discuss Freeport's first-quarter results. 

    The Indonesian government wants to increase its ownership of Freeport Indonesia to 20% from 9.36% currently. A further 10% must be divested to the government by the end of 2019. "We have asked Freeport to revise their offer. Once we reach an agreement on price we can make a timeline," he added. 

    The US mining giant valued its Indonesian asset, one of the world's biggest copper mines, at $16.2-billion. But the amount was immediately criticised by Indonesia's state-owned enterprise minister Rini Soemarno, who hoped one of two government-owned companies, miner Aneka Tambang (Antam) or aluminium producer PT Inalum, would buy the stake. "We will review and respond to every statement we receive from the government," Riza Pratama, a spokesperson for Freeport Indonesia, said without elaborating. 

    Freeport's valuation of its Indonesian unit was based on an analysis of "fair market value for the Grasberg mining operations," Pratama said.
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    Oz Minerals hedges gold bets at Prominent Hill

    Copper-gold miner Oz Minerals has hedged a portion of the gold contained within stockpiles at its Prominent Hill mine, in South Australia, to take advantage of Australian gold prices, which were at a near 15-year high. 

    The miner told shareholders on Wednesday that the Prominent Hill stockpiles was estimated to contain some 370 000 oz of gold, and represented significant value for the company, as it had already been mined and contained known grades. 

    Oz has hedged some 60% of the recoverable gold from the stockpile, amounting to 171 200 oz, to generate revenue of A$293-million between 2018 and 2021. “The gold contained in the stockpiles at Prominent Hill is a tremendously valuable, de-risked asset and we have decided to lock-in approximately 60% of the value by taking advantage of the current historically high gold prices,” said CEO and MD Andrew Cole. 

    The hedge contracts were entered into with a banking syndicate, which included NAB, HSBC and Westpac. Cole said on Wednesday that the gold stockpiles at Prominent Hill would continue to grow over the remaining life of the openpit mine, adding that the company’s hedge position would be reviewed on a quarterly basis, and the ability to maintain a hedge position equivalent to around 60% of the recoverable gold contained in the stockpile would be retained. 

    The current stockpile was expected to be drawn down through to 2022.
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    Steel, Iron Ore and Coal

    Shenhua Mar coal sales double on rebounding downstream demand

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 48.4 million tonnes of coal in March, rising 106.8% on month and up 90.6% on year, the second straight monthly increase, data showed from the company’s announcement on April 25.

    Coal sales in the first quarter stood at 92.5 million tonens, rising 27.1% on year.

    The company said the sharp rise was mainly due to the increased sales of outsourced coal amid rebounding coal demand at downstream sector in March, as well as the visibly lower base in the same month last year.

    Coal sales via northern Chinese ports stood at 27 million tonnes in March, rising 132.8% on year and up 64.6% on month, while those in the first quarter up 63% on year to 55.1 million tonnes.

    Coal shipped from Shenhua’s exclusive-use Huanghua port stood at 19.3 million tonnes or 71.5% of its total shipment via northern ports in the month, increasing 221.7% on year and up 73.9% on month.

    That over January-March soared 122.9% on year to 37.9 million tonnes.

    The company produced 24.7 million tonnes of coal in March, rising 12.8% on month and up 6.9% on year, the second straight yearly rise. The output in the first quarter increased 2.9% from a year ago to 71.3 million tonnes.

    Shenhua exported 300,000 tonnes of coal in March, soaring 200% on month and up 200% from previous year, while the number soaring 133.3% on year to 700,000 tonnes in the first quarter.

    The company produced 20.1 TWh of electricity in the month, climbing 12.4% on year and up 41.7% on month, while power output over January-March rose 4.2% on year to 54.9 TWh.

    Electricity sales rose 12.8% on year and up 42.2% on month to 18.86 TWh in March, and the number was up 4.8% on year to 49.15 TWh over the same period.

    Attached Files
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    Guangdong March coal imports rebound 66pct on month

    Southern China’s economic hub Guangdong province imported 4.27 million tonnes of coal in March, down 0.5% year on year but surging 65.5% from February, according to the latest Chinese customs data.

    The total value of the March imports was $201.1 million, which translates to an average price of $47.1/t, up $4.04/t on month but down $11.89/t on year.

    Imports of thermal coal, mainly used for power generation, stood at 3.39 million tonnes in March, up 44.9% month on month but down 14.2% year on year.

    Of this, lignite imports accounted for 55.2% or 1.87 million tonnes, climbing 30.8% from February but down 22.4% year on year. Around 96.3% lignite imports were from Indonesia.

    Besides, coking coal imports surged 440% from February and up 145.5% on year to 0.81 million tonnes, data showed.

    In the first quarter, Guangdong imported a total 10.1 million tonnes of coal, down 2.9% year on year.

    Of this, thermal coal imports stood at 8.6 million tonnes, down 8.5% on year; lignite imports stood at 5.07 million tonnes, up 1.2%; coking coal imports 1.3 million tonnes, up 26.2%.

    Attached Files
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    Fortescue buys out more debt

    Iron-ore miner Fortescue Metals would repay $577-million in debt through after issuing voluntary redemption notices to holders of 2019 notes.

    “This debt repayment delivers on our sustained commitment to reduce all-in costs, further generating strong cash flows and continuing to reduce our debt,” said CEO Nev Power on Wednesday.

    The notes would be redeemed in full from accumulated cash on hand, and was expected to generate additional interest savings of at least $48-million a year. Over the last 12 months, Fortescue has repurchased some $1.7-billion in debt, with the company’s total debt repayments in the last two-and-a-half years now exceeding $4.8-billion.
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    China’ key steel mills daily output hit new high in early April

    The daily crude steel output of China’s key steel mills rose 3.39% from ten days ago to 1.69 million tonnes in early April, hitting a new high since this year, according to data released by the China Iron and Steel Association (CISA).

    China’s daily crude steel output may total 2.26 million tonnes in early April, up 3.62% from ten days ago, CISA forecasted.

    Domestic steel prices were on the sharp rise during the past week, with rebar price climbing 20% or so on week. The gross profit of some steel mills has exceeded 1,000 yuan/t, which was caused by supply shortage amid rebounded downstream demand and traditional peak season.

    By April 10, stocks of steel products in key steel mills rose 7.1% from ten days ago to 12.91 million tonnes, yet it was still 5.8% lower than the same period last month. It won’t bring any great negative influences on supply-demand situation of spot market before hitting 15 million tonnes of steel stocks, said the analyst.

    Meanwhile, social stocks of steel products stood at 9.38 million tonnes last week. If the de-stock pace continues, it will be a sound support for steel prices. But the current price hike is the temporary sentiment-triggered situation, and it may face a downturn in later period.

    Analysts were still bullish toward the profitability of steel mills amid relatively proper supply in the second quarter.
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    In bold move, U.S. Steel launches campaign to stop China imports

    U.S. Steel Corp has launched a campaign to prevent imports from China's largest steel producers, it said on Tuesday, the boldest step yet by a U.S. company as a trade brawl with the world's largest steel producer escalates.

    In a complaint to the U.S. International Trade Commission (ITC), the U.S. steelmaker called on regulators to investigate dozens of Chinese producers and their distributors for allegedly conspiring to fix prices, stealing trade secrets and circumventing trade duties by false labeling.

    Analysts said it could be the most significantly development in U.S. steel trade in a quarter of a century, and will likely ratchet up tension between China and major steel producing nations, as the global industry grapples with chronic oversupply and sluggish demand.

    The petition, known as Section 337 and used to protect against intellectual property theft, listed some of China's top producers, including Hebei Iron & Steel Group and Anshan Iron and Steel Group and Shandong Iron & Steel Group Co .

    "We have said that we will use every tool available to fight for fair trade," said U.S. Steel Corp President and Chief Executive Officer Mario Longhi in a statement.

    "With today's filing, we continue the work we have pursued through countervailing and antidumping cases and pushing for increased enforcement of existing laws."

    It comes after U.S. officials last week warned that China should take steps to cut excess output or face possible trade action and Australia said on Saturday it will impose import duties on certain types of Chinese steel to protect domestic steelmakers.

    Even before the ITC makes its ruling, Chinese exporters may curb shipments fearing retroactive measures, Michelle Applebaum, analyst at Steel Market Intelligence, said.

    The ITC has 30 days to decide whether to initiate the case. It is also investigating allegations of unfair trade practices in the stricken aluminum industry.

    Beijing has defended itself against the allegations, saying it has done enough to reduce steel capacity and blaming global excess and weak demand for the industry's woes.

    The Pittsburgh, Pennsylvania-headquartered company has filed the complaint on its own and is relying on a clause in U.S. tariff law 337 not used by the steel industry for almost four decades.

    "It's a bold step," by U.S. Steel, said Patrick Macrory, director of the International Trade Center at the International Law Institute in Washington.

    In 1978, eight U.S. firms that used the clause went after 35 Japanese competitors over welded stainless steel pipe imports. Back then, rather than barring the product from U.S. shores, ITC issued a "cease and desist" order against 11 companies for engaging in unfair competitive practices.

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