Mark Latham Commodity Equity Intelligence Service

Monday 18th April 2016
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    Yen, and more importantly Yuan

    Japan’s Finance Minister Taro Aso on Friday threatened “necessary” action against a rising yen despite U.S. Treasury Secretary Jacob Lew arguing there was no justification for Tokyo to intervene in the country’s currency.

    The public clash between the two allies over currency policy underscores growing worries in the U.S. that Japan might resort to exchange-rate depreciation to revive the world’s third-largest economy.

    Mr. Aso, speaking after a meeting of finance officials from the Group of 20 largest economies, said countries can intervene in their currencies if there is “excess volatility” or “disorderly” movement in exchange rates. Those are terms agreed to by the G-20 and the smaller Group of Seven industrialized economies that can justify currency intervention.

    Japan and other global heavyweights have said they won’t intervene in markets unless strong exchange-rate movements threaten to jeopardize their economies.

    “Taking necessary measures against such exchange-rate movements would conform to the G-20 agreement,” Mr. Aso said told reporters. Earlier this week, Japanese central bank Gov. Haruhiko Kuroda said the yen’s recent rise has been “excessive,” his strongest language yet on the currency’s recent moves.

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    Gold, Google and Good Luck!

    China’s economy expanded 1.1% in the first quarter of 2016 from the fourth quarter of last year, National Bureau of Statistics data showed, missing analysts forecasts.

    The slower-than-expected quarterly growth rate comes amid other signs the Chinese economy is stabilizing in the first quarter, including positive surprises from trade, inflation, output and credit.

    Analysts had expected quarterly growth of 1.5% for the first quarter, but the statistics bureau did not release quarterly figures when it issued annual figures on Friday.

    “The 1.1% growth rate clearly illustrates that China’s economy still faces downward pressures,” Zhou Hao, senior economist at Commerzbank, wrote in a research note on Monday.

    “If we calculate the seasonally adjusted GDP growth based on the qoq numbers, we find that there is a big gap (0.4 percent point) between headline GDP growth (non-seasonally adjusted) and the seasonally adjusted GDP growth. As economists, we always prefer the seasonally adjusted qoq numbers, which better tell the underlying growth momentum,” he added.

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    China deal may trigger knee-jerk metal sales, but little long-term impact

    China's bold deal to ditch its disputed export tax rebates on some niche aluminum and steel products could flood the saturated global market, as producers scramble to sell excess metal ahead of the changes, prolonging the industry's pain, traders said.

    While a rush to offload unwanted product may be a knee-jerk reaction and last a short time, any increase in shipments from the world's top producer would likely stir concerns about the world glut that has led to the industry's worst crisis in a generation.

    It would also hurt domestic and international prices, which are languishing at their lowest levels in years. The world's second-largest economy accounts for half of global steel and aluminum output.

    To ease trade friction with Washington, Beijing agreed on Thursday to scrap a program that has provided export subsidies of some $1 billion over three years to a range of sectors from aluminum to textiles.

    U.S. regulators gave few other details on the types of metal product or when the steps would take effect, but it was widely welcomed as a small step toward creating a more level playing field for metal producers across the globe.

    It could, for instance, do away with the country's 13-percent value-added tax rebate on semi-fabricated aluminum products that has spurred exports and complaints that China is exporting its excess capacity, hurting prices and damaging Western producers like Century Aluminum Co.

    While waiting for more details, aluminum traders in Asia said they would still sell excess material abroad, and may even pick up the pace of deals before any clampdown.

    "There's ... bound to be a flood of exports running up to the implementation. In aluminium and steel, there are enough stocks to feed an export boom," said Caroline Bain, senior commodities economist at Capital Economics in London.

    One source said the deal was more of a public relations stunt after congressional hearings this week with U.S. steel and aluminum companies including United States Steel Corp.

    That is because it does little to tackle complaints from the European and U.S. steel and aluminum makers that Beijing is propping up its domestic industries through indirect subsidies, like low-cost energy, interest-free loans and free land.

    "On the surface, it sounds like a big move. But I don't know if it's just another rule that will be ignored," said Lloyd O'Carroll, senior analyst with CRU Group in Richmond, Virginia.

    The tax reform was limited in scope too - specialty steel products, like stainless steel and super alloys used by the aerospace and automotive sectors, only account for about 2 percent of the 1.6 billion-tonne global steel market.

    While the 40 million-tonne aluminum market is smaller, the effect of the policy change is potentially greater as it could include a broader range of products from plate and sheet used by the automotive sector to foil.
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    U.S. industrial output falls, signals weak first-quarter GDP growth

    U.S. industrial production fell more than expected in March as manufacturing and mining production decreased, the latest indication that economic growth braked sharply in the first quarter.

    Industrial output declined 0.6 percent last month after a downwardly revised 0.6 percent drop in February, the Federal Reserve said on Friday. Industrial production has fallen in six of the last seven months.

    Economists polled by Reuters had forecast industrialproduction slipping only 0.1 percent last month after a previously reported 0.5 percent drop in February.

    Industrial production fell at an annual rate of 2.2 percentin the first quarter after decreasing at a 3.3 percent pace in the fourth quarter. The report joined data on retail sales, business spending, trade and wholesale inventories in suggesting that economic growth slowed to crawl at the turn of the year.

    Growth estimates for the first quarter are as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter. But given a buoyant labor market, the ebb in growth is likely to be temporary.

    U.S. financial markets were little moved by the data.

    The industrial sector has been undermined by a slowingglobal economy and robust dollar, which have eroded demandfor U.S. manufactured goods. It is also being weighed down by lower oil prices that have undercut capital investment inthe energy sector, as well as an inventory correction.

    But there are signs the worst of the industrial sector downturn is over, with recent manufacturing surveys turning higher. In addition, the dollar's rally has fizzled and oil prices appear to be stabilizing.

    Last month, manufacturing output fell 0.3 percent, the biggest decline since February 2015, after slipping 0.1 percent in February. Manufacturing was dragged down by motor vehicle and parts production, which plunged 1.6 percent after rising 0.8 percent the prior month.

    For the first quarter, manufacturing output rose at a 0.6 percent rate. In March, there were also decreases in the output of electronic equipment, appliances and components.

    Mining production tumbled 2.9 percent as oil and gas welldrilling plummeted 8.5 percent after diving 15.8 percent in February. Last month's drop in mining output was the largest since September 2008, when output was curtailed because of hurricanes. Mining production has declined in each of the last seven months.

    A plunge in oil prices since June 2014 has hurt the profits of oil-field companies like Schlumberger (SLB.N) and Halliburton (HAL.N), leading to deep cuts in their capital spending budgets.

    Unseasonably warm weather in March hurt utilities production, which fell 1.2 percent after declining 3.6 percent in February.

    With output declining last month, industrial capacity use fell 0.5 percentage point to 74.8 percent, the lowest level since August 2010. Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.

    As The NY Fed notes:

    Business activity expanded for New York manufacturing firms for the first time in over a year, according to the April 2016 survey. After remaining in negative territory for seven months, the general business conditions index rose to a reading slightly above zero last month, and climbed nine more points to reach 9.6 in April. Thirty-one percent of respondents reported that conditions had improved over the month, while 22 percent reported that conditions had worsened. After a steep gain last month, the new orders index edged up two points to 11.1, pointing to an increase in orders. The shipments index edged lower but, at 10.2, still signaled a modest increase in shipments. The unfilled orders and delivery time indexes both came in close to zero. The inventories index was -4.8, indicating that inventory levels were slightly lower.

    The prices paid index rose sixteen points to 19.2, suggesting that input prices increased at a significantly faster pace than last month. The prices received index, up nine points to 2.9, showed a small increase in selling prices. The index for number of employees edged up to 2.0, indicating that employment levels remained fairly steady.
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    In crushing defeat, Brazil's Rousseff moves close to impeachment

    Brazil's leftist President Dilma Rousseff suffered a humiliating loss in a crucial impeachment vote in the lower house of Congress on Sunday and is almost certain to be forced from office months before the nation hosts the Olympics.

    Fireworks lit up the night sky in Brazil's megacities of Sao Paulo and Rio de Janeiro after the opposition comfortably surpassed the two-thirds majority needed to send Rousseff for trial in the Senate on charges of manipulating budget accounts.

    The floor of the lower house was a sea of Brazilian flags and pumping fists as dozens of lawmakers carried in their arms the deputy who cast the decisive 342nd vote, after three days of a marathon debate.

    The final tally was 367 votes cast in favor of impeachment, versus 137 against, and seven abstentions. Two lawmakers did not show up to vote.

    Brazilian financial markets were expected to open higher on Monday after the vote - a major step toward ending 13 years of the left-leaning Workers' Party rule in the world's ninth largest economy.

    If the Senate now votes by a simple majority in early May to proceed with the impeachment, as expected, Rousseff would be suspended from her post and be replaced by Vice President Michel Temer as acting president, pending her trial. Temer would serve out Rousseff's term until 2018 if she is found guilty.

    The impeachment battle, waged during Brazil's worst recession since the 1930s, has divided the country of 200 million people more deeply than at any time since the end of its military dictatorship in 1985.

    It has also sparked a bitter battle between the 68-year-old Rousseff and Temer, 75, that could destabilize any future government and plunge Brazil into months of uncertainty.

    Despite anger at rising unemployment, Rousseff's Workers Party can still rely on support among millions of working-class Brazilians, who credit its welfare programs with pulling their families out of poverty during the past decade.

    "The fight is going to continue now in the streets and in the federal Senate," said Jose Guimaraes, the leader of the Workers' Party in the lower house. "We lost because the coup-mongers were stronger."

    Opinion polls suggest more than 60 percent of Brazilians support impeaching Rousseff, Brazil's first female president, less than two years after she won reelection in 2014.

    While she has not been accused of corruption, Rousseff's government has been tainted by a vast graft scandal at state oil company Petrobras and by the economic recession.

    Hundreds of thousands of demonstrators from both sides took to the streets of towns and cities across the vast nation, in peaceful protests. Millions watched the congressional vote live on television in bars and restaurants, in their homes or on giant screens in the street, as the soccer-mad nation does for major football matches.
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    IMF Panel Calls for ‘More Forceful’ Policies to Boost Growth

    IMF Panel Calls for ‘More Forceful’ Policies to Boost Growth

    Global finance ministers and central bankers pledged to step up their efforts to support growth, as chances rise of a broader slowdown and risks including refugee crises and a potential U.K. exit from the European Union threaten the world economy.

    “Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows,” the International Monetary Fund’s top policy advisory committee said in a statement following a meeting on Saturday in Washington. To achieve strong global growth, “we will employ a more forceful and balanced policy mix,” the panel said.

    The statement reflects policy makers’ concern that expansion will slow, after the IMF this week downgraded its global outlook again, warning that a prolonged period of slow growth has left the world economy at risk of slipping into stagnation.

    Using all policy tools “is vital to stimulate actual and potential growth, enhance financial stability and avert deflation risks,” according to the communique from the panel, known as the International Monetary and Financial Committee. The panel advises the board of governors of the 189-member nation IMF.

    After a separate gathering at the IMF’s spring meetings in Washington, Group of 20 finance ministers and central bankerssaid on Friday that risks to the global recovery have stabilized even as threats to the outlook remain, including terrorism and the U.K.’s potential exit from the European Union.

    In nods to emerging markets, the IMFC said the fund will discuss the reporting of official reserves in Special Drawing Rights, the IMF reserve-currency unit of account that’s adding China’s yuan to its basket this year. In addition, the IMFC said the fund’s next review of voting shares should be completed by late 2017, and should increase the power of emerging market and developing countries.

    The latest governance change was approved in December by U.S. lawmakers. It gave more of a voice to emerging markets such as China and India in exchange for greater congressional oversight of the fund.

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    Oil and Gas

    Oil producers get worst possible outcome, destroy remaining credibility.

    It was the worst possible outcome for oil producers at their weekend meeting in Doha, with their failure to reach even a weak agreement showing very publicly their divisions and inability to act in their own interests.

    Expectations for the meeting had been modest at best,
    with sources in the producer group predicting an agreement to freeze output. But even this meagre hope was dashed by Saudi Arabia's insistence Iran join any deal, something the newly sanctions-free Islamic republic wouldn't countenance.

    From a producer point of view, an agreement including Iran that shifted market perceptions on the amount of oil supply available would have been the best outcome.

    The acceptable result would have been an agreement that froze production at already near record levels, with an accord that Iran would join in once it had reached its pre-sanctions level of exports.

    What was delivered instead was confirmation that the Saudis are prepared to take more pain in order not to deliver their regional rivals Iran any windfall gains from higher prices and exports.

    The meeting in Qatar on Sunday effectively pushed a reset button on the crude markets, putting the situation back to where the market was before hopes of producer discipline were first raised.

    What happens now is that the market will have to continue along its previous path of re-balancing, without any assistance from the Organization of the Petroleum Exporting Countries (OPEC) or erstwhile ally Russia.

    Brent crude fell nearly 7 percent in early trade in Asia on Monday, before partly recovering to be down around 4 percent.

    The potential is for crude to fall further in coming sessions as long positions built up in the expectation of some sort of producer agreement are liquidated in the face of the reality of no deal.

    It's likely that recriminations will follow for some time among the oil producers, with the Russians and Venezuelans said to be annoyed at what they see as the Saudi scuppering of a deal that had almost been locked in.

    This will make it harder for any future agreement, with the OPEC meeting on June 2 the next chance for the grouping to reach some sort of agreement.

    For the time being, OPEC's credibility is shot, and won't be restored by even a future agreement as it will take actual, verifiable action to convince a now sceptical market.

    However, as the events in Doha showed, the Saudis are unlikely to agree to anything in the absence of Iranian participation, and that is also equally unlikely.

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    Oversupply crashes Asian gasoline cracks, lengthens contango

    High refinery runs across Asia and a huge amount of arbitrage cargoes for March and April arrival have created severe gasoline oversupplies that have defied the product's seasonal price patterns.

    "We may not see a gasoline summer peak this year," a trader in the city state said. The benchmark FOB Singapore 92 RON gasoline crack against front-month Brent futures stood at $7.52/b at the Asian close Friday, 55.82% lower from the year-to-date high of $17.02/b saw on January 12. The sharp downward trend in cracks is highly unusual for the fuel's seasonal price movement, which usually starts picking up towards summer as demand goes up and supplies tighten due to turnarounds.

    The refinery turnaround schedule is light so far this year with most producers incentivised to run their units at high or full levels to cash in on higher light-ends margins, despite the sluggish middle distillates market.

    Higher refinery run rates have led to larger export volumes from North Asian countries, with first-quarter shipments up more than 50% year on year from China, about 20% each from Japan and Taiwan, and more than 10% from South Korea, customs data showed.

    These cargoes were more than enough to meet all the importing countries' increased demand, with some parcels having to head outside of Asia to look for outlets.

    Adding to the crowded supply scene was arbitrage cargoes brought in from Europe and the US.

    Switching from winter to summer specifications rendered some western gasoline unusable in their markets. This coupled with already high inventories there had encouraged traders to move these surpluses over to Asia to look for opportunities.

    Loaded on Long Range-sized vessels, these gasoline cargoes are of lower RON and specifications barely suitable for most importing countries here except Indonesia.

    The cargoes now floating on Singapore seas could amount to between 3 million and 4 million barrels, some market participants estimated.

    This is on top of the 14 million-15 million barrels of light distillates in Singapore's onshore storage. 

    The temporarily unwanted inflows coincided with lower-than-usual demand from Asia's top importer, Indonesia, which is expected to import less than 7 million barrels of its most widely used 88 RON gasoline in both April and May.

    Ever since the country's state-owned Pertamina started operations at two new domestic gasoline units last year, the country's import volume has fallen sharply.

    Despite peak demand coming in early June with Ramadan, market participants were not expecting Pertamina to significantly stock up in May as the country's limited storage spaces are already relatively full.

    Import increases could come later in June as Pertamina replenishes stocks.

    Only by then can the cargoes now floating at sea be absorbed, market participants said.

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    Kuwait lowers crude production 1.9m bpd on strike.

    Kuwait reduced its crude oil output and refining production on Sunday as part of an emergency plan to help the OPEC member deal with the largest petroleum workers' strike in years.

    Thousands of Kuwaiti oil and gas workers are striking to protest against a government plan for public sector pay reforms, although non-Kuwaiti workers in the industry are not on strike. Unions have not said how long the walkout will last.

    Kuwait Oil Company (KOC) spokesman Saad Al-Azmi said in a posting on KOC's Twitter account that the company had cut crude output to 1.1 million barrels per day (bpd) from its normal production level of about 3 million bpd.

    State refiner Kuwait National Petroleum Company (KNPC) has also reduced production, to some 520,000 bpd from 930,000 before the stoppage started on Sunday, Kuwait's state-owned news agency KUNA reported.

    It quoted KNPC chief executive Mohammed Ghazi Al Mutairi affirming its "success ... in implementing the emergency plan and operating the company's three refineries".

    Khaled al-Asousi, a spokesman for KNPC, said without elaborating that there was an increase in fuel supply to the local market and to the ministry of electricity. Export ports were operational and tankers were loading, he said.

    Oil sector spokesman Sheikh Talal al-Khaled al-Sabah said in remarks carried by KUNA that oil exports had not been affected by the strike and that Kuwait was capable of fulfilling the demands of its customers.

    In a later statement on Twitter, al-Khaled said production rates were gradually improving and that normal levels were "not far off".

    Kuwait's cabinet said in a statement carried by KUNA that the strike would hamper work in the vital sector and that it had authorised state oil companies to take all necessary steps to find labour and ensure production was not affected.

    The cabinet also said it would take legal measures against any unacceptable practices.

    Sheikh Mohammad al-Mubarak al-Sabah, minister for cabinet affairs, told Reuters the strike was illegal as union members had refused to negotiate ahead of the stoppage.

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    China shale gas output soars as govt aims to improve energy structure

    Shale gas production in China soared in 2015, giving a powerful boost to the commercial exploitation of the fuel, the latest data showed.

    The output of shale gas soared 258.5% to 4.47 billion cubic meters (bcm) in 2015, Yu Haifeng, director of the department of mineral resources reserves under the Ministry of Land and Resources, told a press conference.

    However, China's shale gas output in 2015 missed the target of 6.5 bcm, a goal set in 2012.

    "China's total shale gas output has reached 5.72 billion cubic meters since 2014, when the commercial exploitation of shale gas began," he said.

    There was also a great breakthrough in China's shale gas exploration during the 12th Five-Year Plan period (2011-15), with cumulative new proven reserves of 544.13 bcm, said Yu.

    Commercial production of shale gas is on a fast track in the nation. Oil giants such as China Petroleum and Chemical Corp and PetroChina have begun exploration for the fuel in the southwestern regions of China and they made major strides.

    The exploration, development and production of shale gas can improve China's overall energy structure, media reports said, citing experts.

    Shale gas production was included as a national strategic emerging industry in 2013, according to an announcement on the website of the National Energy Administration.

    China's shale gas exploration companies can get State subsidies of 0.3 yuan ($0.05) per cubic meter from 2016 to 2018, and 0.2 yuan per cubic meter from 2019 to 2020, according to the Ministry of Finance.
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    Santos eyes GLNG Train 2 first cargo

     Australian independent Santos is on track to deliver the first cargo from Train 2 at its Gladstone LNG project off Australia by the end of June.
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    Goldman Sachs, Denmark Said to Target Dong IPO This Quarter

    The owners of Dong Energy, who include the Danish government and Goldman Sachs, may hold an initial public offering almost one year before a previously announced deadline, according to three people close to the talks.

    The people, who asked not to be identified by name because the talks are private, said Dong’s owners still reserved the right to delay a public listing should markets suddenly turn. Denmark’s Finance Ministry in September laid out an 18-month time horizon for bringing Dong to market. Morten Kidal, a spokesman at Dong Energy, declined to comment.

    Finance Minister Claus Hjort Frederiksen said last month the timing of the IPO would depend more on the state of the stock market than on the price of oil. Those comments followed a 16 billion kroner ($2.4 billion) writedown in January of Dong’s oil and gas unit, which the company had sought to divest.

    Denmark’s benchmark stock index, the OMX Copenhagen 20 CAP, has gained about 15 percent since a 2016 low on Feb. 9. Brent prices have also recovered and are up about 50 percent over the last 3 months after plunging 35 percent in 2015.

    A potential stumbling block for an early listing could be the pricing of Dong’s oil and gas distribution network, which under the IPO agreement is to be sold to government-owned, one of the persons said.

    The Danish parliament’s finance committee on Thursday officially gave the government backing to list Dong Energy. Denmark has been planning to list the company since 2004 but has postponed an IPO several times.
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    Woodside keen to follow Qld LNG producers’ maintenance coordination lead

    Australian oil and gas producer Woodside would look at greater cooperation between liquefied natural gas (LNG) operators in Western Australia and the Northern Territory, after the Australian Competition and Consumer Commission (ACCC) this week authorised LNG operators on the east coast to coordinate maintenance schedules. 

    The ACCC has allowed the Australia Pacific LNG,  Gladstone LNG and Queensland Curtis LNG operators to discuss their maintenance schedules, maintenance providers and maintenance techniques to increase efficiency in the sector. “Coordinating the maintenance undertaken at these facilities will increase the efficiency of these events and reduce the likelihood of major disruptions to domestic gas markets, which could occur if multiple maintenance events at the applicants’ facilities overlap,” ACCC chairperson Rod Sims said. 

    Sims noted that the LNG producers’ facilities convert natural gas into LNG for export, adding that each LNG facility was connected to gas wells in the Surat and Bowen basins of Queensland. However, gas is also purchased in nearby wholesale markets. When the applicants’ LNG facilities were offline, the operators could redirect their gas to these wholesale markets for sale. As the LNG facilities use large quantities of gas, this could have significant effects upon the market price when their facilities were offline. 

    Sims said that wholesale gas traders raised concerns that coordination between the LNG facilities would allow them to trade advantageously in gas markets, because each LNG producer would know when maintenance was going to occur. To address this, the ACCC had imposed a condition of authorisation requiring the LNG producers to publicly disclose maintenance schedule information that they share with each other. 

    The condition had been formulated in consultation with the LNG producers and market participants. “These LNG producers can create significant volatility in domestic gas markets when they go offline for maintenance. This condition allows all market participants to know when maintenance is going to occur and to make sure that they aren’t exposed to unnecessary risk,” Sims said. 

    The ACCC authorisation would last for a period of five years. Woodside COO Mike Utsler said on the sidelines of the eighteenth LNG conference, in Perth, that the company had been working with the east coast LNG producers behind the scenes with the intent of following their lead if a successful outcome was achieved with the ACCC. “We would look to propose to the ACCC to do the same in the Northern Territory and Western Australia because it's an issue for all of Australia,” Utsler said.
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    The oil rig count downward trend continues in Texas, U.S.

    Texas again led the way in another drop in the number of rigs actively drilling for crude as just 351 oil rigs are left nationwide.

    Both Texas and the U.S. saw a net loss of three rigs in the past week, according to weekly data compiled by Baker Hughes. That leaves a U.S. total of 440 rigs, including 89 gas-seeking rigs, which represents the lowest total count since the oil field services company first began compiling the data in 1944.

    Texas’ Permian Basin and Eagle Ford remain the two most active shale plays in the county, based on drilling activity, but each lost one rig this week. Texas is still home to 45 percent of the nation’s operating rigs.

    Analysts have projected the rig count would dip through most of the first half of 2016. The oil rig count is now down more than 78 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

    The benchmark price for U.S. oil was down nearly $1 on Friday and hovering near $40.60 per barrel.

    While many companies have stopped actively drilling new wells, it hasn’t stopped them from producing oil from existing wells. So oil production is taking much longer to fall than the rig count.
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    EIA: Winter Ends with Record High NatGas Storage on Hand

    In the natural gas world there are two seasons: winter (when you use natural gas) and summer (when you “inject” or store natural gas). The “winter strip” goes from November to March, and the “summer strip” runs from April through October.

    Storage levels are a key factor in the pricing of natural gas. Economics 101: the price for commodities like natgas is purely a function of supply and demand. If you have more supply than demand, the price goes down. In the northeast part of the country we just came through the mildest (temperature-wise) winter in a generation.

    We used a lot less natgas than we normally would. That means the gas sitting in storage didn’t get drawn down nearly as much as it usually does. That’s what you would expect, and the U.S. Energy Information Administration (EIA) has confirmed it.

    We ended the winter heating season at the end of March with “record high levels” of natgas sitting in storage. And now we begin the process of storing more. If all other factors remain equal–meaning there’s no new or sudden increase in demand this summer–it doesn’t take a genius to figure out how record high storage levels will affect the price.
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    Platts Analysis of U.S. Energy Information Administration (EIA) Data: Refinery, Pipeline Outages hit U.S. Refinery Runs

    U.S. Gulf Coast and Midwest refiners were forced to sharply cut their crude runs owing to refinery and pipeline issues during the week ended April 8, an analysis of U.S. Energy Information Administration (EIA) data showed Wednesday.

    Total U.S. crude oil inventories rose by 6.634 million barrels to 536.531 million barrels, a significantly larger build than the 1 million barrels expected by analysts surveyed by Platts earlier in the week.

    In the Midwest, where refinery utilization fell by 5.3% to 82.4%, refineries reduced their crude runs after TransCanada shut its 550,000 barrels per day (b/d) Keystone pipeline -- which carries heavy Canadian crude from Hardisty, Alberta, to Patoka, Illinois -- after discovering an oil leak on April 2.

    While TransCanada restarted the pipeline over the weekend, the pipeline outage still appeared to be weighing on refinery throughput in the region. The 336,000 b/d Wood River refinery in Roxana, Illinois -- a joint venture between Phillips 66 and Cenovus -- experienced an upset on Tuesday after attempting to restart a unit following the Keystone restart.

    While the pipeline outage led refiners to cut throughput, crude stocks in the region drew by 1.988 million barrels as crude was taken out of storage to account for the reduction in imports.

    Stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude futures contract -- fell 1.767 million barrels to 64.55 million barrels.

    While Cushing stocks are still relatively oversupplied, this too has fallen. With last week's drop, Cushing inventories fell to just 5% above the five-year average of EIA data, down from over 10% the week prior and from over 30% in late-February.

    The prompt NYMEX crude contango -- trading around $1.28/b during midday New York trading Wednesday -- has narrowed sharply over this period, having widened as far as $2.62/b on February 11.

    This is reflected even more starkly in longer-dated time spreads such as the prompt-month/12th-month contango, which was trading around $4.40/b Wednesday, in from nearly $12/b in mid-February.Meanwhile, Midwest imports fell 686,000 b/d to 1.881 million b/d, while total U.S. imports from Canada fell 586,000 b/d to 2.581 million b/d -- roughly equal to the capacity of the Keystone pipeline.


    On the U.S. Gulf Coast, refinery utilization fell 1.9 % to 93.2% after a coker at LyondellBasell's 268,000 b/d Houston refinery caught fire Friday. The refinery was forced to cut runs by roughly 30%, amounting to 2% of regional coking capacity.

    Earlier in the week, Citgo shut a 44,900 b/d delayed coker at the West Plant of its 157,500 b/d Corpus Christi, Texas, refinery. A Citgo spokesman gave no timeline for repairs Wednesday.

    Gulf Coast crude stocks added 6.992 million barrels on the sharp reduction in run rates.

    A sharp rebound in U.S. crude oil imports from Iraq made up for the reduction in imports from Canada, as U.S. imports rose 692,000 b/d to 7.94 million b/d. Total imports were just 86,000 b/d above the year-to-date average.

    Imports from Iraq jumped to 634,000 b/d after dwindling to 59,000 b/d the week prior. Imports from Iraq averaged 213,800 b/d in 2015 and have averaged 277,600 b/d thus far in 2016, and were last higher in the week ended August 29, 2014.

    The rise in total imports would have been significantly higher if not for the Keystone outage, as a tight West Texas Intermediate (WTI)-Brent spread has encouraged imports of Brent-linked crude into the United States.

    Front-month WTI futures averaged a discount of 66 cents/b in March and have averaged a discount of 84 cents thus far in April, according to Intercontinental Exchange. In February, the discount was wider, averaging 1.47/b.

    Additionally, some analysts previously cited reduced imports on weather delays in the Houston Ship Channel, which may have landed on the U.S. Gulf Coast during this reporting week.
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    Default Cycle Now In Full Swing As Goodrich Petroleum Is Latest To File Chapter 11

    The energy bankruptcy wave has been officially unleashed.

    After just yesterday Energy XXI became the latest oil company to seek bankruptcy protection, this morning another troubled energy producer, Goodrich Petroleum announced a prepackaged Chapter filing meant to implement a financial reorganization after struggling to restructure its debt amid declining energy prices.

    In its press release, the company announced, that "through the Chapter 11 restructuring, the Company will eliminate approximately $400 million in debt from its balance sheet, substantially deleverage its capital structure and strategically position the Company for long-term performance in an anticipated improving commodity price environment. The RSA eliminates all of the Company's prepetition funded indebtedness other than its first lien reserve based loan facility, which currently has approximately $40 million outstanding, resulting in a significantly deleveraged balance sheet upon the Company's emergence from the Chapter 11 bankruptcy process. "

    The filing, just like EXXI's is not a surprise: Goodrich earlier this month reached an agreement with creditors to use its “best efforts” to file for Chapter 11 with a prepackaged plan to reorganize and emerge from court as an operating business. That agreement came after the company’s debt-for-equity exchange offer failed to gain enough traction among debt holders.

    As Bloomberg reminds us, on March 16, Goodrich delayed releasing its annual report, citing a large loss that auditors have determined may affect the company’s ability to operate as a going concern. The loss comes "mainly as a result of substantial impaired asset writedowns," Goodrich said in the filing.

    But what is most notable, and goes back to what we have said for the past year, is that even in bankruptcy energy companies will continue operating, and perhaps pump even more than prepetition: as Goodrich adds, the prepack agreement "provides for the Company's executive management team to remain with the Company, which will allow for the Company's operations to continue as normal throughout the court-supervised financial restructuring process, including the payment of royalty and operating expenses."

    In other words, the pumping will go on.
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    DOE authorizes Flint Hills to export LNG

    The United States Department of Energy recently issued an order granting Flint Hills Resources to export liquefied natural gas from the Stabilis Energy’s Eagle Ford LNG facility in George West, Texas.

    The permission to export produced LNG has a term of 20 years and the authorized amount of 3.62 billion cubic feet of natural gas per year, DOE’s order reveals.

    The permit restricts Flint Hills only to export to countries with which the United Stated has or will have a free trade agreement.

    Flint Hills, a Delaware limited liability company with its principal place of business in Wichita, Kansas, and a unit of Koch Industries, said it is negotiating with  Stabilis Energy to buy LNG for export from its George West LNG facility.

    According to Flint Hills, the facility has been producing LNG as a replacement fuel for domestic diesel used in transportation and exploration and production, adding that no additional infrastructure would be required.

    The facility has a storage capacity of 270,000 gallons of LNG, and according to Flint Hills, LNG from the facility will be loaded onto ocean-going vessels for transport to destination countries using tanker trucks, or ISO containers.
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    Alternative Energy

    Orocobre: Olaros ramp-up reaches cash breakthrough

    Argentina miner Orocobre has achieved operating cash-cost breakthrough at its Olaroz lithium project as production ramped up to 2,332t lithium carbonate in the March qtr (Q1), within 97% of its 2,400t target and up from 1,108t in the Dec qtr. Orocobre expects 3,000t in Q2.

    After first deliveries of battery-grade product in Q1, more are scheduled in Q2 at forecast lithium carbonate prices over $US7,500/t FOB. Orocobre expects more increases further into the year.
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    Neonicotinoids and Bees: the heat is on.

    Despite the fact that bee-endangering pesticides are banned in the EU, the UK government just gave the go-ahead to farmers to sow these toxic-coated seeds anyway. Any day now, Bayer and Syngenta's toxic bee-hurting seeds could be sown -- wreaking even more havoc on our bees.

    Instead of listening to us, the Government listened to the intensive farming industry - ignoring the growing evidence of how dangerous these chemicals are to bees and other pollinators.

    Hundreds of thousands of people have already signed petitions to the UK Government to stop harming our bees, and they're feeling the sting. A massive public outcry could force the government to back down and protect bees.

    Sign the petition now to the UK Government: stop allowing our bees to die -- uphold the pesticide ban!

    Neonicotinoids or "neonics", the world's most widely used insecticide, were restricted in the EU in 2013 because they were found to be of 'high acute risk' to bees. They can still be used on some crops but not those that attract bees when they flower.

    Serious scientific evidence shows that the nerve agents cause serious harm to bees - whose pollination is vital for many crops, and thus threaten our whole food supply.

    This plan to sow UK fields with treated bee-harming seeds flies in the face of science and facts.

    The Government gagged its own pesticide advisers to try and stop campaigners from piling pressure on the government -- showing that they are terrified of a massive public outcry. They haven't even seen the half.

    Companies like Bayer and their associates have been trying to overturn the neonics ban in the EU for years - using lawsuits and intimidation tactics to try and get their way. But we've been there at every step, fighting hard to make sure our precious pollinators aren't stamped out by corporate greed.

    Let's swarm the UK Government with signatures now and make sure they protect bees once and for all.


    More information:
    UK government gags advisers in bees and pesticides row, The Guardian, July 17, 2015
    Not Just Bees: Controversial Pesticides Linked to Bird Declines, Wired, 7 Sept 2014

    Attached Files
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    Base Metals

    Heavy rains in central Chile affect millions, hit copper output

    Heavy rains battering central Chile have left an estimated 4 million people without drinking water as landslides wreaked havoc and rivers breached their banks, leaving at least one person dead and closing the world's largest underground copper mine.

    A woman was killed by a landslide in the San Jose de Maipo valley, a mountainous region just southeast of capital city Santiago, while a special police force is searching for another four people in the same area, said Ricardo Toro, the head of Chile's Onemi emergency office.

    Television images showed streets in Providencia, an upscale neighborhood of Santiago, overrun by flood waters after the Mapocho River breached its banks.

    Codelco, the world's top copper producer, said the rains forced the Chilean state-owned miner to suspend production at its century-old underground El Teniente mine, likely leading to the loss of 5,000 tonnes of copper.

    Global miner Anglo American Plc suspended mining activities at its flagship Los Bronces copper mine and the smaller El Soldado deposit for security reasons.
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    Steel, Iron Ore and Coal

    BHP Billiton, Rio Tinto, private equity eye for Anglo American's coal assets

    BHP Billiton, Rio Tinto, Glencore and US private equity firm Apollo are circling Anglo American's metallurgical coal assets in Australia, which could be valued at about $US1.5 billion ($2 billion) in a sale.

    These four companies have all signed non-disclosure agreements as part of the sale process.

    Anglo American said in February that discussions were underway about divesting its Moranbah and Grosvenor assets, as part of its plans to sell $US3 billion - $US4 billion of assets this year in order to cut debt. The process is being run by Bank of America Merrill Lynch, Australian media The Age cited sources as saying.

    Some industry players have expressed caution at the future of coking coal assets given their increasing unpopularity from an environmental standpoint and their exposure to the troubled steelmaking industry.

    Several mining bankers said BHP a likely frontrunner for the assets through its BHP Billiton Mitsubishi Alliance (BMA), which operates seven mines in Australia's Bowen Basin, close to Moranbah and Grosvenor, a $US1.95 billion mine development project.

    Earlier this month Anglo said it had sold its stake in Australia's Foxleigh metallurgical coal mine to a consortium led by Taurus fund management.
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    China unveils guidelines to help laid-off coal, steel workers

    China's ministries unveiled general plans to help 1.8 million redundant workers from the steel and coal industries, Xinhua News reported on April 16.

    The guidelines, dated April 7 but made public late on April 15, was jointly released by seven ministries including the Ministry of Human Resources and Social Security, and six other government bodies including the National Development and Reform Commission.

    Billed as "opinions", the guidelines outline a range of measures to keep unemployment low.

    In addition to the help given to redundant staff, support will be offered to firms who create new jobs by adopting the "Internet Plus" strategy, developing new industries or products, and expanding domestic and overseas market, according to the document.

    Workers should receive free job training, and for those who want to start their own businesses, channels that will give them access to government support, it said.

    Local authorities should also enhance trans-regional cooperation to relocate redundant workers to regions with employment opportunities.

    To cushion the effect of job losses on families and the society, the central government decided to allocate 100 billion yuan ($15.43 billion) to help the laid-off workers find new jobs. The fund can be increased if necessary and local governments should handle their responsibilities accordingly, Premier Li Keqiang said in March.

    As China's economy slows, the government has pledged to slash overcapacity in labour-intensive industries, including coal and steel, to switch from an investment-led model to one that relies on domestic consumption, services and innovation. But this has prompted fears the country might face its fiercest unemployment pressures since the late 1990s.

    China aims to lay off 5-6 million state workers in the next two to three years as part of efforts to curb industrial overcapacity and pollution, its boldest retrenchment programme for 20 years, Reuters cited sources as saying in March.

    The leadership would spend nearly 150 billion yuan covering the cost of the layoffs in the coal and steel sectors alone over the next two to three years.

    Attached Files
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    Atlas Iron says it could go under without a debt-to-equity deal with its lenders

    Atlas Iron says it could go under without a debt-to-equity deal with its lenders

    Miner Atlas Iron, an early victim of falling iron ore prices, says there’s a high risk of going into voluntary administration if a debt restructure isn’t approved by shareholders.

    The debt-to-equity proposal would cut what Atlas owes to lenders to $US135 million ($176 million) from $US267 million ($348 million) and extend the maturity date to April 2021 from December 2017.

    The cash interest Atlas pays on the debt would be cut by about 65%, a saving of $20 million a year.

    The Pilbara miner will issue new shares and options, giving the lenders a combined stake of about 70% in the company.

    The companies shares fell further today, dropping 13% to $0.02.

    “This deal is necessary if we are to secure a strong future for Atlas, giving our company added resilience to withstand iron ore price volatility and maximising its potential to once again generate strong returns for shareholders,” chairman Cheryl Edwardes wrote in a letter to shareholders.

    “I appreciate that some aspects of the debt restructuring proposal may seem complicated. But the key objective is very simple: to deliver the best possible outcome for Atlas and its shareholders given the difficult position in which the company finds itself as a result of falls in the iron ore price.”

    Edwardes says many shareholders will be extremely disappointed at the prospect of their investment being further diluted by the issue of shares. However, the alternative would bring “potentially dire consequences” for shareholders.

    The Pilbara miner started mothballing its mines in April last year because the cost of digging the ore was greater than the price on the global market.

    It then restarted after doing deals with contractors and cutting costs hard. It also raised $87 million from shareholders to give the company a cushion against price fluctuations.

    For the six months to December, production was steady at 6.9 million tonnes but revenue fell 17.4% to $372 million.

    Atlas recorded a statutory loss of $114.3 million after non-cash asset impairments and inventory write-downs of $43.9 million and restructuring costs of $7.1 million. The company posted a loss of $1.08 billion in the same six months last year.

    Attached Files
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    Tokyo Steel hikes product prices on international pick-up

    Tokyo Steel hikes product prices on international pick-up

    Tokyo Steel Manufacturing , Japan's top electric arc furnace steelmaker, will raise the price of its products for May delivery by up to 16 percent in its first across-the-board price hike in more than two years, reflecting a recovery in international markets.

    Tokyo Steel's pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which all export to Japan.

    "We need to raise prices to reflect a stronger overseas steel market as well as higher steel scrap prices after China cut its steel exports," Tokyo Steel's Managing Director Kiyoshi Imamura told a news conference.

    "We also see increased activities in construction projects in Japan," said Imamura.

    Prices will rise by 5 percent to 16 percent in the first across-the-board hike since late 2013.

    Shanghai rebar prices have risen about 50 percent since bottoming out in early December, encouraging Chinese mills to sell to domestic customers instead of exporting.

    The price of Tokyo Steel's main product, H-shaped beams used construction, will rise by 5,000 yen to 72,000 yen a tonne, while prices for steel bars, including rebar, will rise by 7,000 yen to 51,000 yen ($472) a tonne, the company said.

    Prices for most of its sheet products, including hot-rolled coils, will rise by 3,000 yen.

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