Mark Latham Commodity Equity Intelligence Service

Thursday 26th January 2017
Background Stories on www.commodityintelligence.com

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    Macro

    Animal Spirits: Can we measure this gold at the end of the rainbow?

    Origins[edit]

    The original passage by Keynes reads:

    Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.[1]

    William Safire published an article "On Language: 'Animal Spirits'" in the New York Times on March 10, 2009, stating:

    The phrase that Keynes made famous in economics has a long history. "Physitions teache that there ben thre kindes of spirites", wrote Bartholomew Traheron in his 1543 translation of a text on surgery, "animal, vital, and natural. The animal spirite hath his seate in the brayne ... called animal, bycause it is the first instrument of the soule, which the Latins call animam." William Wood in 1719 was the first to apply it in economics: "The Increase of our Foreign Trade...whence has arisen all those Animal Spirits, those Springs of Riches which has enabled us to spend so many millions for the preservation of our Liberties." Hear, hear. Novelists seized its upbeat sense with enthusiasm. Daniel Defoe, in "Robinson Crusoe": "That the surprise may not drive the Animal Spirits from the Heart." Jane Austen used it to mean "ebullience" in "Pride and Prejudice": "She had high animal spirits." Benjamin Disraeli, a novelist in 1844, used it in that sense: "He...had great animal spirits, and a keen sense of enjoyment."[2]

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    China’s metals curb plan seen risking shortages in biggest user


    China’s proposal to halt some metals production to fight air pollution over the winter would create shortages of alumina but have a more limited impact on aluminium supply, according to China’s top industry body, which has been consulted on the plan.

    The proposal involves an alumina suspension in three provinces that would affect about a fifth of the nation’s operating capacity producing the raw material for aluminium. The halts to aluminium, which is used in everything from cans to window frames, would be less severe – about a tenth of the country’s operating capacity would be targeted, across four provinces, according to the plan.

    A draft was circulated by the Ministry of EnvironmentalProtection earlier this month and is subject to change pending industry feedback, according to a person with knowledge of plan, who asked not to be identified because it’s confidential. The period targeted runs from November to March, when pollution peaks due to coal-fired heating. While the intention is to implement the plan next winter, it hasn’t been decided whether it would come into force over the remainder of this season, the person said.

    The impact on aluminium production would likely be limited at about one-million metric tons, the deputy chairman of the China Nonferrous Metals Industry Association, Wen Xianjun, said by phone on Wednesday. For alumina, the impact would be bigger and create an imbalance in supply and demand, he said, without giving figures.

    If the plan materializes, it would lead to a 12% production loss for alumina and a 4% loss for aluminium, Citigroup analysts including Jack Shang and Ada Gao said in a note on Wednesday.

    China churns out more than half the world’s aluminium and produced a record volume last year of almost 32-million tons, according to the statistics bureau. It had been expected to boost output further to put the global market into surplus in 2017. Alumina production in 2015, the latest for which figures are available, was 56-million tons, according to state-backed researcher Antaike Information Development.

    News of the proposal pushed aluminium prices in London to their highest level in 20 months on Tuesday, while on Wednesday the nation’s biggest smelter China Hongqiao Group surged as much as 8.4% in Hong Kong; the No. 2, Aluminium Corp of China, or Chalco, rose as much as 5.1%.

    LIMITED DOWNSIDE

    There’s limited downside for aluminium prices with alumina supply remaining tight in 2017, even without the production cut plan, according to Citigroup. The bank said the proposal would affect China Hongqiao more in terms of volume than Chalco.

    Researcher SMM Information & Technology said in a note Tuesday it doubts the proposal will be implemented, as the halt would cost aluminium smelters about 2.25-billion yuan ($327-million) to stop and resume production, and risks other capacity coming online to fill the supply gap.

    Under the proposal, 30% of running capacity at some aluminium smelters in Hebei, Shandong, Henan and Shanxiprovinces would be ordered to halt over the period, according to the person. The operations targeted account for more than 11-million tons, or about 30% of the nation’s total. For alumina, 50% of running capacity in Shandong, Henan and Shanxi provinces would be affected, operations which account for about 28-million tons, or 40% of the nation’s total.

    Nobody responded to a fax requesting comment from the Ministry of Environmental Protection’s news department. An official at China Hongqiao, which also producers alumina, declined to comment. An e-mail to Chalco didn’t get a response.

    http://www.miningweekly.com/article/chinas-metals-curb-plan-seen-risking-shortages-in-biggest-user-2017-01-26

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    China Said to Order Banks to Curb New Loans in First Quarter


    China’s central bank has ordered the nation’s lenders to strictly control new loans in the first quarter of the year, people familiar with the matter said, in another move to curb excess leverage in the financial system.

    The new guidance from the People’s Bank of China puts a particular emphasis on mortgage lending, the people said, as authorities grapple to contain runaway property prices. And while the PBOC regularly seeks to guide banks’ credit decisions, this time it may also make errant lenders pay more for deposit insurance, one of the people said.

    The central bank declined to comment. Policy makers are trying to strike a balance between avoiding excess credit that fuels asset bubbles and keeping enough funding in the financial system to meet the seasonal surge in demand for credit ahead of the start of the Lunar New Year holiday this week. President Xi Jinping and his top economic deputies reaffirmed last month that they plan to prioritize the control of financial risks in the economy to prevent asset bubbles.

    “This is a continuation of the tightening trend we’ve seen since the second half of last year and extends from shadow banking to on-balance sheet loans,” said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

    Record Lending

    The PBOC may use its MPA framework to punish banks which don’t comply with the new lending rules by lowering interest rates on reserves they are required to deposit with the central bank, according to the people, who asked not to be identified as the discussions are private. The central bank may also punish errant lenders by making them pay more for deposit insurance, one of the people said.

    The new instructions included a request for banks to keep any increase in new mortgage lending in the first quarter below the increase seen in the fourth quarter of last year, the people said. The growth rate of total outstanding mortgages should also not exceed the fourth quarter rate, they added.

    Chinese banks doled out a record 12.65 trillion yuan ($1.8 trillion) of new loans in 2016, with many tending to front-load their lending in the first quarter of the year so they could record the interest income earlier. Of the total new loans, 36 percent were given out in the first quarter of last year.

    In another sign of the effort to curb risks, the PBOC on Tuesday unexpectedly increased the interest rates on medium-term loans that it uses to manage liquidity. Earlier, the central bank said it will include wealth-management products held off bank balance sheets in its macro prudential assessmentframework for gauging risk to the financial system starting in the first quarter.

    Property Controls

    The government has been targeting home loans since the fourth quarter to containrunaway property prices in areas deemed overheated.
    At their annual economic work conference last month, Chinese leaders singled out property, saying that “houses are built to be inhabited, not for speculation,” according to a post-meeting statement released by the official Xinhua News Agency. Apart from mortgage curbs, China’s government is encouraging city-specific measures such as raising down-payment requirements.

    As well as setting a limit on new mortgages, the central bank told banks to keep other loans under control, the people said. Bank of Communications Co.estimates that China’s new loans may reach 13.5 trillion yuan in 2017, which would be a new record.

    https://www.bloomberg.com/news/articles/2017-01-26/china-said-to-require-banks-to-curb-new-loans-in-first-quarter-iydpaupi

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    China's 2016 industrial profits rise most in 3 years on commodities recovery


    Profits for China's industrial firms rose the most in three years in 2016 as a construction boom fueled a rally in prices of building materials from steel to cement, giving companies more flexibility to start chipping away at a mountain of debt.

    Strong profit growth of 8.5 percent last year suggests there may be a solid pick-up in industrial investment in 2017, though many analysts still expect China's overall economic growth to cool to around 6.5 percent this year from 6.7 percent in 2016.

    Industrial profits fell 2.3 percent in 2015.

    Profits in December rose 2.3 percent from a year earlier to 844.4 billion yuan ($122.76 billion), the National Bureau of Statistics (NBS) said on Thursday, slowing sharply from growth of 14.5 percent in November.

    But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms.

    Profits in the coal mining sector surged 223.6 percent in 2016, while those for iron and steel production and processing companies rose 232.3 percent.

    Baoshan Iron and Steel (Baosteel) said last week that it expected its net profit to rise 770 percent in 2016 from a year earlier.

    Baosteel Group is taking over rival Wuhan Steel to create the world's second-largest steelmaker, in the government's biggest effort yet to consolidate its fragmented steel industry.

    China's stock market investors have cashed in on the industrial revival. An index tracking the industrial sector has risen around 22 percent since June 2016 and reached a 10-1/2-month high in November.

    UNDERLYING WEAKNESS

    The NBS said a narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing contributed to the overall 2016 earnings turnaround.

    But part of the reason for the strong numbers last year was simply due to a weak base of comparison from the previous year and the foundation for further improvement in the industrial sector was not stable, the stats bureau added.

    "Average profit growth over the last two years has not kept up with output growth," NBS said in a statement. "An unreasonable demand structure, difficulties collecting funds and high costs are a drag on corporate profits."

    Indeed, the amount of time it took companies to collect payment rose to 36.5 days in 2016, while the increase in accounts receivables accelerated to 9.6 percent. The efficiency of production also fell, with companies having to invest more to generate the same amount of revenue as in the past.

    The stats bureau said the slower profit growth in December was due to volatility in oil prices and adjustments by some firms to their product structure.

    Profits for firms which make computers and other electronic equipment fell 10.5 percent in December, after rising 45.4 percent in November, possibly due to fewer new product launches at the end of the year.

    China's state firms fared worse than the broader industrial sector, with profits at government-owned firms rising only 1.7 percent in 2016, the Ministry of Finance said earlier on Thursday.

    Total profits at state firms stood at 2.3 trillion yuan for the year, while revenue rose 2.6 percent to 45.9 trillion yuan.

    China increasingly relied on its lumbering and often inefficient state firms to generate economic growth last year as private investment cooled.

    State firms' total liabilities rose 10 percent year-on-year to 87 trillion yuan at the end of December. For industrial firms overall, liabilities rose 5.6 percent in 2016.

    COMMODITY PRICES RALLY

    China's producer prices surged the most in more than five years in December, bolstered by a months-long rally in prices of coal and raw materials and contributing to a reflationary pulse felt across the global manufacturing sector.

    Government efforts to force bloated "smokestack" industries to shut excess and inefficient capacity also helped feed the rally by reducing supply.

    But some analysts worry the strong price gains may have been fueled by growing speculation in China's commodity futures markets, adding to the risk of asset bubbles in the economy which the central bank has vowed to prevent in 2017.

    Chinese futures prices for steel reinforcing bars used in construction have risen more than 10 percent so far this month, on top of a gain of more than 60 percent in 2016.

    TACKLING DEBT

    China's economy expanded 6.7 percent in 2016, roughly in the middle of the government's target range, but it faces increasing uncertainties in 2017, with a housing frenzy showing signs of cooling and the impact of previous stimulus measures expected to fade.

    Still, the stronger cash flow will in theory give China's big state industrial champions more room to tackle their debt burdens.

    Chinese firms as a group owe some $18 trillion, equivalent to about 169 percent of gross domestic product, according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms.

    China's industrial output is likely to grow around 6 percent in 2017, similar to the pace seen in 2016, a state-run newspaper quoted Chinese industry minister Miao Wei as saying in December.

    http://www.reuters.com/article/china-economy-industrial-profits-idUSL4N1FG19J
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    Oil and Gas

    BP: Fossil fuels will still be dominant in 2035, but not as before


    British oil major BP has issued its annual energy outlook, according to which oil and gas, together with coal, will remain the main source of energy powering the world economy, accounting for more than 75% of total energy supply in 2035, compared with 86% in 2015.

    While the number will still overpower all other energy sources in 2030s, there is a significant drop of 11 percent when compared to the 2015 market share, and thus BP titled its outlook – BP Energy Outlook: An energy transition is underway.

    “The global energy landscape is changing. Traditional centers of demand are being overtaken by fast-growing emerging markets. The energy mix is shifting, driven by technological improvements and environmental concerns. More than ever, our industry needs to adapt to meet those changing energy needs,” said Bob Dudley, BP group chief executive.

    According to the 2017 edition of the BP Energy Outlook, published Wednesday, global demand for energy is expected to increase by around 30% between 2015 and 2035, an average growth of 1.3% per year. However, this growth in energy demand is significantly lower than the 3.4% per year rise expected in global GDP, reflecting improved energy efficiency driven by technology improvements and environmental concerns.

    Oil demand growth to slow down

    Oil demand grows at an average rate of 0.7% a year, although this is expected to slow gradually over the period. The transport sector continues to consume most of the world’s oil with its share of global demand remaining close to 60% in 2035. However, non-combusted use of oil, particularly in petrochemicals, takes over as the main source of growth for oil demand by the early 2030s.

    Spencer Dale, group chief economist said: “The possibility that the most important source of growth in oil demand in the 2030s won’t be to power cars or trucks or planes, but rather used as an input into other products, such as plastics and fabrics, is quite a change from the past.”

    According to the report, all of the demand growth for oil in the period to 2035 comes from emerging markets, with China accounting for half.

    In the outlook, the transport sector accounts for around two-thirds of the growth in oil demand. Within that, oil demand for cars increases by around 4 million barrels per day underpinned by a doubling in the global car fleet.

    The number of electric cars is assumed to increase from 1.2 million in 2015 to around 100 million in 2035 (around 5% of the global car fleet). The Energy Outlook constructs two illustrative scenarios to consider the impact of the broader mobility revolution affecting the car market, including autonomous cars, car sharing and ride-pooling.

    “The impact of electric cars, together with other aspects of the mobility revolution, such as self-driving cars, car sharing and ride pooling, is one of the key uncertainties surrounding the long-term outlook for oil” said Spencer Dale.

    The slowing rate of oil demand growth is contrasted by the abundance of global oil resources. The Energy Outlook speculates that the abundance of oil may cause low-cost producers, such as Middle East OPEC, Russia and the US, to use their competitive advantage to increase their market share at the expense of higher-cost producers.

    Gas fast, renewables faster, coal peaks in 2020

    Gas grows more quickly than either oil or coal over the Outlook, with demand growing an average 1.6% a year. Its share of primary energy overtakes coal to be the second-largest fuel source by 2035. Shale gas production accounts for two-thirds of the increase in gas supplies, led by growth in the US. LNG growth, driven by increasing supplies in Australia and the US, is expected to lead to a globally integrated gas market anchored by US gas prices.

    Coal consumption is projected to peak in the mid-2020s, largely driven by China’s move towards cleaner, lower-carbon fuels. India is the largest growth market for coal, with its share of world coal demand doubling from around 10% in 2015 to 20%in 2035.

    As in the previous outlook, BP says that Renewables are projected to be the fastest growing fuel source, growing at an average rate of 7.6% per year, quadrupling over the Outlook, driven by increasing competitiveness of both solar and wind. China is the largest source of growth for renewables over the next 20 years, adding more renewable power than the EU and US combined.

    http://www.offshoreenergytoday.com/bp-fossil-fuels-will-still-be-dominant-in-2035-but-not-as-before/

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    Mediterranean diesel supply firms as Black Sea loadings return to normal


    Black Sea loadings of gasoil and diesel have returned to more typical levels in recent days after a period of weather-based disruption, helping to meet product shortages in the Mediterranean consumer markets, sources said this week.

    "We are seeing more cargoes in general, of both gasoil and diesel coming into the Med over the past few days," one trader in the Mediterranean said.

    The return of loadings follows a period of disruption to product flows caused by poor weather conditions in the Black Sea.

    Distillate product flows to Mediterranean consumer markets were limited by fewer daylight hours, congestion and traffic around the Turkish straits, sources reported.

    "The weather delays in the Med are not there anymore...there were some issues yesterday [in Sarroch and Skikda], but they have smoothen down now," a Mediterranean shipbroker said.

    Cargoes of 10 ppm diesel in the Mediterranean were assessed by S&P Global Platts at a $5.75/mt premium to low sulfur gasoil futures Monday, down from a six-month high of $11.00/mt earlier in the month.

    "A lot of gasoil is being exported now, following the [Black Sea] delays. Now seeing material coming into the Med," a refinery source said. "There are many cargoes loading. There is around 8-10 cargoes of 0.5% gasoil [a month]; 5-6 cargoes of 0.25% gasoil; and 12-14 cargoes overall of ULSD."

    Another trader reported three cargoes of blended 0.1% gasoil loading from the Black Sea this week, along with two ultra low sulfur diesel cargoes.

    Despite the return of Black Sea loadings, 0.1% gasoil differentials remained strong, boosted by tender demand from the North African countries.

    Among the latest tenders for 0.1% gasoil were Algeria's Sonatrach and the Egyptian General Petroleum Corporation.

    Mediterranean 0.1% gasoil CIF cargoes were assessed at $2.25/mt against low sulfur gasoil futures Monday, 50 cents/mt higher than Friday's close.

    http://www.platts.com/latest-news/oil/london/mediterranean-diesel-supply-firms-as-black-sea-26646444
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    Origin denies claims of compliance cover-up


    Energymajor Origin Energy has denied allegations of covering up regulatory breaches and has said it will “vigorously” defend the court claims made by a former employee.

    Former Origin compliance manager Sally McDow has filed legal action in the Federal Court claiming that Origin’s former CEO, Grant King, had engaged in a cover-up that included noncompliance with safety and environmental regulations at a number of wells in Australia and New Zealand, which she said had not been maintained for more than ten years, and had caused oil and gas leaks.

    McDow also alleges that Origin failed to record these regulatory breaches at the oil and gas fields, and did not report them to regulators.

    The issues were allegedly picked up in 2013, and despite numerous efforts by McDow, the issues were not rectified by 2015.

    MacDow was made redundant in late 2015 as part of an 800 staff job shed undertaken by Origin at the time, and is now suing Origin for breaches of her employment contract, the Corporations Act and the Fair Work Act.

    “We categorically deny the allegations that form the basis of McDow’s most recent claim [and will] vigorously defend the claim in court,” a spokesperson for Origin told MiningWeekly Online on Wednesday.

    “We are confident that we have met, and continue to meet, all compliance related reporting obligations in relation to our asset,” the spokesperson said.

    http://www.miningweekly.com/article/origin-denies-claims-of-compliance-cover-up-2017-01-25

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    U.S. LNG exports shift to Europe from Asia


    U.S. liquefied natural gas (LNG) exporters have shifted their focus to Southern Europe from Asia as cold weather and problems with Algerian gas supply have driven Europe's gas prices higher.

    Gas prices in Europe are at their highest premiums to U.S. gas prices for three years. Several cargoes have already made their way to Europe, and analysts expect more to come.

    Day-ahead prices at southern France's Trading Region South (TRS) gas hub jumped to a near five-year high last week of 45 euros per megawatt hour, or over $14 per million British thermal units (mmBtu), making TRS one of the world's premium markets.

    Next-day gas prices at the Henry Hub GT-HH-IDX benchmark in Louisiana, meanwhile, traded around $3.25 per mmBtu on Tuesday.

    Consumers cranked up their heaters as cold weather hit the region, pushing up demand for gas. As demand has risen, supply from Algeria has been reduced due to problems at Sonatrach's Skikda LNG export terminal.

    The ongoing shutdown of some French nuclear plants as a consequence of the discovery of forged manufacturing documents for some parts used in those plants has also fired up demand for power from the region's gas-fired plants higher than normal.

    Spain, Greece and Turkey would be other possible destinations for the LNG cargoes, said Madeline Jowdy, senior director global gas and LNG at PIRA in New York.

    The flow would likely slow in March, as winter comes to an end in Europe, said Ted Michael, LNG analyst, natural gas, at energy data provider Genscape.

    Over the past month, one vessel has delivered U.S. gas to Spain and one to Turkey. Two more vessels transporting U.S. gas were sailing in the Mediterranean and another was moving across the Atlantic, according to Reuters shipping data.

    That is very different from December when more than half of the vessels departing Cheniere Energy Inc's Sabine Pass terminal in Louisiana turned west toward Japan, South Korea and China. Sabine Pass is the only LNG export terminal in the lower 48 U.S. states.

    In December, spot gas prices in Asia LNG-AS spiked to a near two-year high of $9.75 per mmBtu in early January due to cold weather and a problem at the Gorgon LNG export terminal in western Australia.

    Asia gas prices have since collapsed by about 18 percent due in part to the return to service of the first liquefaction train at Gorgon.

    Sabine Pass should have more gas to sell than in December since the third liquefaction train at the facility started processing gas during its commissioning phase.

    Over the past two weeks, Sabine Pass has processed about 2.0 billion cubic feet per day (bcfd) versus an average of 1.4 bcfd in December, according to Thomson Reuters data.

    Since the first cargo left Sabine Pass in February 2016, about 65 vessels have carried off about 210 bcf of gas from the facility, worth about $540 million based on average Henry Hub prices in 2016. The United States consumes about 75 bcfd of gas on average.

    Royal Dutch Shell Plc's BG Group has the contract for part of the capacity of the first and second 0.65-bcfd liquefaction trains at Sabine Pass. Gas Natural Fenosa has a contract for part of the second train's capacity.

    http://www.reuters.com/article/usa-asia-lng-idUSL1N1FE4BG

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    Australia's Ichthys LNG dealt blow as major contractor pulls plug


    Australia's over $35 billion Ichthys liquefied natural gas (LNG) export project has been dealt a blow as engineering firm CIMIC, involved in building the facility's power station, announced on Wednesday it was pulling the plug.

    "CIMIC Group advises that the ... consortium (building the power station) ... has terminated its contract with JKC Australia LNG Pty Ltd for the design, construction and commissioning of the Ichthys Combined Cycle Power Plant (CCPP) project," CIMIC said in a statement to the Australian Securities Exchange Ltd (ASX) on Wednesday.

    CIMIC spokeswoman Fiona Tyndall said "we are not going beyond what we have said in that ASX statement."

    The power station is designed to supply the Ichthys LNG export facility with electricity.

    A spokesman for Japan's Inpex, the majority owner of Ichthys LNG, said the power station was 89 percent complete.

    And while the spokesman said Inpex did not see this cancellation as "critical" to Ichthys and that it would have "no fatal influence" on its launch, the cancellation will almost certainly delay the project's production ramp-up and add further costs, which was scheduled for July to September this year.

    Australia's $200 billion LNG production ramp-up is one of the biggest increases in supply the industry has ever seen, and will lift Australia over Qatar as the world's biggest LNG exporter.

    Even so, most of Australia's LNG projects currently under construction, including Chevron's huge Gorgon facility and Royal Dutch Shell's floating Prelude production vessel, are having trouble keeping within budget and sticking to schedules, and more delays are expected.

    "All projects currently being built or expanded in Australia are having trouble with time and cost control. They will almost certainly see further delays," a source advising LNG producers said on condition of anonymity.

    Once completed, Ichthys will produce 8.4 million tonnes of LNG per year.

    Inpex holds 72.8 percent of the project, France's Total 24 percent, with the rest spread over Japanese utilities Tokyo Gas, Osaka Gas, and Toho Gas .

    CIMIC gained the power station and infrastructure contracts for Ichthys after taking over Australian engineering firm UGL last year.

    UGL said in its last annual report that "unfortunately, the projects continued to be impacted by significant client delays and disruption resulting in additional costs incurred."

    CIMIC said the termination of the contract will not have any "material impact" on its 2016 and 2017 financial results.

    http://www.reuters.com/article/australia-lng-ichthys-idUSL4N1FF2PN
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    Oil Supermajors' Debt From the Crude Collapse May Have Peaked


    Surging debt dogged the world’s largest oil companies during crude’s collapse. Now, sweeping cost cuts and rising prices have combined to lessen the need to borrow.

    Since prices began to sink in 2014, the five “supermajors” more than doubled their combined net debt to $220 billion. That may be as bad as it gets. At $50 a barrel, they can balance their books and pay dividends without borrowing for the first time in five years, according to analysts at Jefferies International Ltd. All of the drillers will probably report profit growth in the next two weeks.

    As the price of oil declined, producers saved billions of dollars by shedding jobs, renegotiating supplier contracts and canceling projects. BP Plc has said it plans to keep at least 75 percent of its cuts, and other companies have expressed similar sentiments. That strategy, combined with oil’s recovery, are allowing the majors to generate cash again, a key focus for investors heading into earnings season.

    “As a group they are at peak debt levels now,” said Jason Gammel, a London-based analyst at Jefferies, citing operating and capital efficiency as well as rising oil prices. “Because quarterly earnings are backward-looking, the outlook is usually a bigger driver of the stock,” he said, with cash flow and dividends more important.

    In 2014, when oil sold for $100 a barrel, the five supermajors generated a combined $180 billion in cash from operations. Last year, that figure fell to just $83 billion, Jefferies estimates. Cost cuts and higher oil prices will drive that up to $142 billion in 2017 and $176 billion the following year, according to the brokerage.

    As the companies report for the fourth quarter, three of them -- Exxon Mobil Corp., Chevron Corp. and BP -- are likely to post the first year-on-year increase in profit since 2014, according to analyst estimates compiled by Bloomberg. Based on those expectations, here’s what we should see:

    Chevron is expected to return to profit from a loss a year earlier when it reports on Jan. 27.

    Exxon is likely to report a 5.8 percent income boost on Jan 31.

    Royal Dutch Shell Plc on Feb. 2 will probably announce higher profit for the second quarter in a row.

    BP’s adjusted earnings could end nine quarters of successive declines when the company releases results on Feb. 7.

    Total SA is likely to report an increase in adjusted net income of 4.3 percent.

    During the market rout, oil producers borrowed to maintain dividends they deemed sacrosanct. In the case of Shell, debt was also pushed higher by its $54 billion purchase of BG Group Plc. The Anglo-Dutch company, as well as Exxon, BP and Total, suffered credit-rating downgrades as debts spiraled higher.

    Fitch Ratings Ltd. estimates Total will have a $1 billion cash surplus after paying dividends if oil stays at $55 a barrel this year compared with a deficit of $3.6 billion at $45 barrel. Shell’s shortfall would be $823 million at $55, compared with $7.5 billion at $45.

    “A lot of fat has been cut,” said Maxim Edelson, a Moscow-based senior director at Fitch. “The companies will have to think about if they want to keep cutting spending or start investing for growth again.”

    Repairing and strengthening the balance sheet will remain the principal use of surplus cash, Jefferies’ Gammel said. Shell, the world’s most indebted oil producer after Brazil’s Petroleo Brasileiro SA, said last year that tackling that burden was its top financial priority. Shell and some of its peers remain on credit-rating watch for further downgrades.

    Benchmark Brent crude is still trading at half its level of mid-2014 but is expected to average $56 a barrel this year, up from $45 in 2016, according to analyst forecasts compiled by Bloomberg. It rose 0.9 percent to $55.57 at 1 p.m. Singapore time.

    “We’ve had 2 1/2 years of doom and gloom and we are on the cusp of the upstream oil and gas sector entering a new recovery,” said Tom Ellacott, a senior vice president at consultants Wood Mackenzie Ltd. “We expect the mood music to be a bit more upbeat.”

    https://www.bloomberg.com/news/articles/2017-01-26/big-oil-debt-tops-out-as-cost-cuts-combine-with-rally-in-prices

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    TAP natural gas pipeline open to 'all potential suppliers': official


    The operator of the planned Trans-Adriatic Pipeline (TAP) to help bring Azeri natural gas to Europe would welcome offers of supply from any source, a TAP official said, after Gazprom deputy CEO Alexander Medvedev on Tuesday said it could look to link its own TurkStream pipeline into TAP.

    "We are open to all potential suppliers," TAP commercial director Ulrike Andres said at an energy conference in Vienna.

    TAP is part of the Southern Gas Corridor to bring non-Russian gas to Europe and has a design capacity of 10-20 Bcm/year.

    Should the line be underused once it begins operations in 2020, there could be an economic incentive to consider a Gazprom tie-up.

    TurkStream will consist of two pipelines, each with a capacity of 15.75 Bcm/year.

    One will serve the domestic Turkish market, while the other is planned to link in with other planned pipeline infrastructure to southern Europe.

    Previously, Gazprom said it would like to revive the 8 Bcm/year ITGI Poseidon pipeline project to link into TurkStream to enable Russian gas to reach Italy via the southern route.

    The TAP pipeline is designed to link into the 31 Bcm/year TANAP line across Turkey, part of the Southern Gas Corridor to bring Azeri gas into Europe.

    http://www.platts.com/latest-news/natural-gas/vienna/tap-natural-gas-pipeline-open-to-all-potential-26647093
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    Very small increase in US oil production


                                                          Last Week   Week Before   Last Year

    Domestic Production '000............. 8,961            8,944           9,221
    Alaska .................................................. 529         .      513        .     518
    Lower 48 ......................................... 8,432            8,431           8,703

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

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    Summary of Weekly Petroleum Data for the Week Ending January 20, 2017


    U.S. crude oil refinery inputs averaged over 16.0 million barrels per day during the week ending January 20, 2017, 421,000 barrels per day less than the previous week’s average. Refineries operated at 88.3% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.8 million barrels per day. Distillate fuel production decreased last week, averaging 4.6 million barrels per day.

    U.S. crude oil imports averaged over 7.8 million barrels per day last week, down by 568,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 4.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 593,000 barrels per day. Distillate fuel imports averaged 159,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 488.3 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.8 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories remained virtually unchanged last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.0 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 8.9 million barrels last week.

     Total products supplied over the last four-week period averaged about 19.0 million barrels per day, down by 2.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.3 million barrels per day, down by 4.7% from the same period last year. Distillate fuel product supplied averaged over 3.4 million barrels per day over the last four weeks, up by 1.3% from the same period last year. Jet fuel product supplied is down 3.4% compared to the same four-week period last year.

    Cushing down 300,000 bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    Hess Reports Estimated Results for the Fourth Quarter of 2016


    Fourth quarter highlights:

    Net loss was $4,892 million, or $15.65 per common share, compared with a net loss of $1,821 million, or $6.43 per common share in the fourth quarter of 2015; Fourth quarter 2016 results include a noncash accounting charge of $3,749 million on deferred tax assets and other after-tax charges totaling $838 million

    Adjusted net loss was $305 million, or $1.01 per common share, compared with an adjusted net loss of $396 million, or $1.40 per common share in the fourth quarter of 2015

    Oil and gas production was 311,000 barrels of oil equivalent per day (boepd) compared to 368,000 boepd in the fourth quarter of 2015
    E&P capital and exploratory expenditures were $414 million. Full year E&P capital and exploratory expenditures were $1.9 billion, down 54 percent from $4.0 billion in 2015
    Confirmed a second oil discovery on the Stabroek Block, offshore Guyana (Hess 30 percent) at the Payara-1 well located approximately 10 miles northwest of the Liza discovery
    Year-end 2016 cash and cash equivalents totaled $2.7 billion
    Year-end total proved reserves were 1,109 million barrels of oil equivalent (boe), reserve replacement was 119 percent for 2016 at a finding and development cost of approximately $13 per boe

    2017 Guidance:

    E&P capital and exploratory expenditures are expected to be $2.25 billion, up from $1.9 billion in 2016
    Oil and gas production excluding Libya is forecast to be in the range of 300,000 to 310,000 boepd compared to full year 2016 net production of 321,000 boepd

    http://boereport.com/2017/01/25/hess-reports-estimated-results-for-the-fourth-quarter-of-2016/
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    Hess to triple Bakken rig count, forecasts late 2017 supply surge


    Hess plans to triple its rig count in the Bakken Shale by the end of 2017 from two rigs to six and forecasts the company's production in the play will grow as high as 110,000 b/d of oil equivalent by Q4, up 10% from the start of this year.

    "We are increasing activity in the Bakken," John Hess, the company's CEO, said during a Q4 earnings call Wednesday.

    Related episode of Capitol Crude: John Hess on the 'new chapter' for oil prices, US shale production

    Hess reported that its Bakken production averaged 95,000 boe/d in Q4, down about 13% from the same quarter a year ago, due largely to severe winter weather and the company's reduced drilling activity.

    Hess' production in the Gulf of Mexico fell from 73,000 boe/d in Q4 of 2015 to 61,000 boe/d in Q4 2016.

    Overall, oil and gas production averaged 311,000 boe/d in Q4, down from 314,000 boe/d in Q3 and 368,000 boe/d in Q4 of 2015.

    "Lower volumes were primarily due to a reduced drilling program across our portfolio, planned and unplanned downtime, and natural field declines," the company said in a statement.

    The dip was expected as the company cut its capital and exploratory expenditures to $1.9 billion in 2016, down from $4 billion in 2015. It plans to spend $2.25 billion on those expenditures in 2017 when it forecasts production to average between 300,000 boe/d and 310,000 boe/d.

    Still, production, particularly in the Bakken, is expected to surge through 2017, the company said. Hess forecasts production to average about 270,000 boe/d to 280,000 boe/d in Q2, but to grow as high as 340,000 boe/d by Q4.

    During the earnings call, Hess indicated that the global market is expected to approach supply-and-demand balance in the near future as worldwide capex cuts will likely cause production to fall below levels of future oil demand growth.

    In addition to increased Bakken activity, Hess said that offshore developments at North Malay Basin in the Gulf of Thailand and Stampede in the Gulf of Mexico are on track to come online in 2017 and 2018.

    http://www.platts.com/latest-news/oil/washington/hess-to-triple-bakken-rig-count-forecasts-late-21708666

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    Continental Resources Projects 2017 Guidance And Capital Budget Of $1.95 Billion – Cash Neutral At $55 Per Barrel WTI


    Continental Resources, Inc. today announced a 2017 capital expenditures budget of $1.95 billion, which is expected to accelerate production growth in second half 2017 to an exit rate of 250,000 to 260,000 barrels of oil equivalent (Boe) per day. Crude oil is projected to account for approximately 59% of total production by year end, compared with approximately 55% in the fourth quarter 2016.

    Fourth quarter 2016 production averaged approximately 210,000 Boe per day, reflecting persistent severe weather in North Dakota since late November 2016. The Company expects production to range between 210,000 and 215,000 Boe per day through first half 2017, after which production is expected to significantly accelerate due to the timing of pad completions in the Bakken and six new multi-well density projects in the over-pressured oil window of Oklahoma’s STACK play.

    Full-year 2017 production is expected to average approximately 220,000 to 230,000 Boe per day, compared with approximately 217,000 Boe per day for 2016.

    Of the total $1.95 billion budget, the Company is allocating $1.72 billion to drilling and completion activities, with the remainder planned to be invested in other opportunities including leasehold and facilities.

    More than 80% of the drilling and completion budget is focused on completing the Company’s deep inventory of uncompleted wells in North Dakota, additional drilling in the Bakken, and further STACK development, which will drive the 2017 increase in crude oil volumes as a percent of total production. Crude oil production is expected to grow to approximately 150,000 barrels of oil (Bo) per day by year-end 2017, a 29% increase compared with approximately 116,500 Bo per day for fourth quarter 2016. Natural gas production is expected to increase to approximately 630 million cubic feet (MMcf) per day at year-end 2017, an approximate 12% increase over fourth quarter 2016.

    The capital budget is projected to be cash neutral for full-year 2017 at an average $55 per barrel NYMEX WTI and $3.14 per thousand cubic feet (Mcf) of natural gas Henry Hub. Continental noted that, at a full-year average $60 per barrel WTI price, the Company would expect to generate approximately $200 million in additional cash.

    Budgeted completed well costs reflect further enhancements in completion designs and potential increases in service costs, partially offset by drilling efficiencies and lower drilling day rates as long-term rig contracts expire.

    Continental intends to adjust the level of spend if necessary to remain cash neutral for the year. It also continues to target reducing long-term debt to $6 billion or lower using proceeds from the potential sale of non-strategic assets.

    2017 Operating Plan

    Continental plans to operate an average 20 drilling rigs in 2017, an increase of one rig from 2016. The Company expects to complete a total of 280 gross (178 net) operated wells with first production in 2017. The Company also plans to participate in completing 40 net non-operated wells in 2017, 35 of which will be in the Bakken.

    The Company plans to complete 131 gross (100 net) operated wells out of its Bakken uncompleted well inventory with first production commencing by year end. In addition, Continental plans to complete with first production approximately 17 gross (8 net) newly drilled Bakken wells in 2017. At year-end 2017, the Company expects to have 140 Bakken wells in inventory, of which 72 gross (40 net) wells will have been completed but waiting on first sales and 68 gross (47 net) operated wells will be waiting on completion.

    In Oklahoma, the Company expects to complete 132 gross (70 net) operated wells with first production in 2017, including 98 gross (50 net) operated wells in STACK and 34 gross (20 net) operated wells in SCOOP.

    Outlook for 2018 and Beyond

    The Company projects its current inventory will support an average annual production growth rate of more than 20% in 2018 to 2020 at $60 to $65 per barrel NYMEX WTI oil prices and remain cash neutral. At these prices the Company expects to deliver a 2018 exit rate of 290,000 to 310,000 Boe per day, which is an increase of approximately 18% over the projected 2017 exit rate (midpoint to midpoint). Continental expects crude oil production will continue increasing at an accelerated rate, accounting for 60% to 65% of total production in years after 2017.

    “We are capitalizing on the exceptional performance delivered by our operating teams the last two years,” said Harold Hamm, Chairman and Chief Executive Officer. “Our disciplined 2017 budget and growth plan will position the Company for multiple years of double-digit production growth. I’ve never been more excited by Continental’s opportunities to realize the value of our premier assets and to deliver exceptional shareholder value.”

    Bakken Well Completions Drive Production Increase

    Continental expects to grow Bakken production by approximately 26% in 2017, when comparing the 2017 exit rate to the fourth quarter 2016.

    Approximately $550 million, or 70%, of the operated Bakken capital investment in 2017 will be focused on completing wells from the Company’s uncompleted well inventory. The Company has five stimulation crews working currently and plans to average seven crews for 2017 as a whole.

    Continental plans to apply various enhanced stimulation techniques on all Bakken completions in 2017 to define the optimum designs for future completions. This includes larger proppant loads, diverter technology, shorter stage lengths and shorter cluster spacing. The Company is also applying high-rate production lift technology to accelerate fluid recovery and early production rates. Combined, these techniques add an average of approximately $1.4 million to the previous standard enhanced completion cost of $3.5 million.

    For the uncompleted well inventory, the average budgeted completion cost for the larger enhanced completion is approximately $4.9 million per well. The incremental investment is budgeted to deliver an average estimated ultimate recovery (EUR) of 980,000 Boe per well, or approximately 15% over the previous average EUR of 850,000 Boe per well. At $55 per barrel WTI, these completions should generate a cost forward average rate of return in excess of 100%.

    The Company also plans to maintain four operated drilling rigs in the Bakken throughout 2017 and drill 101 gross (57 net) operated wells, with 17 gross (8 net) of these wells completed in 2017 with first production. The 17 gross wells will have an average budgeted well cost of approximately $7.0 million. The average EUR for wells drilled in 2017 is expected to be 920,000 Boe per well. At a WTI price of $55 per barrel, these wells should generate over a 40% rate of return.

    Oklahoma Outlook: New STACK Density Projects

    In Oklahoma, strong liquids-weighted production growth in 2017 will be driven by the completion of six density projects in the over-pressured oil window of STACK, where the Company announced several record-production wells in the past year. STACK year-over-year production growth is expected to be approximately 130% in 2017.

    Continental plans to operate an average of 16 drilling rigs this year, of which 11 rigs will be in STACK targeting the Meramec and Woodford formations and five rigs will be drilling in the SCOOP play. The Company plans to average four completion crews in Oklahoma. In 2017, the Company will have an expected average working interest in STACK of approximately 57%, versus an average 42% working interest in 2016.

    In the STACK over-pressured oil window, the Company’s average budgeted completed well cost is approximately $9.0 million. Wells in the SCOOP Woodford condensate window have an average budgeted completed well cost of $10.3 million. STACK Woodford wells completed as part of the joint development agreement with SK E&S of South Korea have an average budgeted completed well cost of $13.0 million. As noted in Continental’s newly posted investor presentation on its website (www.clr.com), new wells in its Oklahoma plays typically generate rates of return ranging from 55% to more than 100% at $55 per barrel WTI and $3.50 per Mcf of natural gas.

    http://boereport.com/2017/01/25/continental-resources-projects-2017-guidance-and-capital-budget-of-1-95-billion-cash-neutral-at-55-per-barrel-wti/

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    Susan Avery Elected to ExxonMobil Board


    Exxon Mobil Corporation announced today the election of Dr. Susan K. Avery to its board of directors, effective February 1, 2017. Avery, an atmospheric scientist, is the former president and director of the Woods Hole Oceanographic Institution.

    With the election of Avery, the ExxonMobil board stands at 13 directors, 12 of whom are non-employee directors.

    Avery’s leadership experience in multiple academic and scientific organizations, coupled with her breadth of scientific and research expertise, reinforce the corporation’s long-standing technical and scientific foundation.

    She served as president and director of the Woods Hole Oceanographic Institution from 2008 to 2015, and was the first woman and the first atmospheric scientist to hold the position. Avery served as interim dean of the graduate school and vice chancellor for research, and interim provost and executive vice chancellor for academic affairs from 2004 to 2008 at the University of Colorado Boulder. From 1994 to 2004, Avery served as director of the Cooperative Institute for Research in Environmental Sciences, a collaboration between the University of Colorado Boulder and the National Oceanic and Atmospheric Administration (NOAA).

    In 2013, Avery was named to the Scientific Advisory Board of the United Nations Secretary-General, which provides advice on science, technology and innovation for sustainable development. She also serves on the National Research Council Global Change Research Program Advisory Committee, participates on advisory committees with NASA, NOAA, the National Science Foundation, and the National Park System and worked with the Climate Change Science Program from 2003-2004. During her career, Avery authored or co-authored more than 80 peer-reviewed articles on atmospheric dynamics and variability.

    Avery earned a bachelor’s degree in physics from Michigan State University, and a master’s in physics and Ph.D. in atmospheric science from the University of Illinois Urbana–Champaign.

    She is a professor emerita at the University of Colorado Boulder and recently served as a senior fellow at the Consortium for Ocean Leadership in Washington, D.C. She is also a fellow of the American Meteorological Society, the American Association for the Advancement of Science, and the Institute of Electrical and Electronics Engineers

    http://boereport.com/2017/01/25/susan-avery-elected-to-exxonmobil-board/
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    Speculation: Transco Sending M-U Gas to Louisiana LNG Terminal

    Speculation: Transco Sending M-U Gas to Louisiana LNG Terminal

    Over a year ago the mighty Transco turned bidirectional, sometimes sending gas northward from the Gulf (as it’s done for 50 years), and now, sometimes sending gas from the Marcellus/Utica southward, to the Gulf.

    Much more gas will head south once the Atlantic Sunrise Pipeline project gets built. However, from various stories we’ve read, and from our speculation, we’ve assumed that at least some Marcellus/Utica gas now flows far enough south that perhaps some of it reaches the Cheniere Energy LNG export facility in Sabine Pass, Louisiana.

    Until now, the gas traveling from north to south has only made it as far as the Creole Trail pipeline and from there Creole Trail would conduct the gas to Cheniere’s LNG plant in Sabine Pass.

    But beginning yesterday Transco is now connected directly to the Sabine Pass facility. We have to confess this is speculation on our part, but we don’t think it’s much of a stretch to say that Marcellus/Utica gas is now flowing to Sabine Pass for export. And if our gas is not now flowing to Sabine Pass, it soon will be.

    http://marcellusdrilling.com/2017/01/speculation-transco-sending-m-u-gas-to-louisiana-lng-terminal/
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    Precious Metals

    Barrick Gold estimates gold output dropped 9.8 percent in 2016

    Barrick Gold estimates gold output dropped 9.8 percent in 2016

    Canadian miner Barrick Gold Corp on Wednesday estimated its gold production in 2016 fell 9.8 percent to 5.52 million ounces.

    The world's largest producer of bullion also estimated 2016 all-in sustaining costs was at or slightly below the low end of its forecast of $740-$775 per ounce of gold.

    In comparison, Barrick had all-in sustaining costs of $831 per ounce in 2015. (bit.ly/2ksmpJ6)

    Barrick also estimated its cost of sales applicable to gold last year was at the low end of the forecast of $800-$850 per ounce it gave in October.

    The Toronto-based company estimated its full-year copper production dropped 18.8 percent to 415 million pounds, with all-in sustaining costs of $2.00-$2.20 per pound. These costs were $2.33 per pound in 2015.

    http://www.reuters.com/article/us-barrick-gold-results-idUSKBN1591JL
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    Fresnillo forecasts higher silver production in 2017


    Fresnillo Plc forecast higher silver production in 2017, after reporting record high 2016 production.

    The company set 2017 silver production target of 58 million ounces to 61 million ounces.

    Fresnillo, which mines silver and gold from six mines in Mexico, reported a 7.1 percent rise in 2016 production to 50.3 million ounces, in line with its guidance.

    The company attributed the rise to the start of phase 1 at its San Julian mine and in part to higher silver grades at its Cienega and Fresnillo operations.

    It said it expects to attain steady inventories after inventory reductions at its Herradura operation in Mexico last year.

    http://www.reuters.com/article/fresnillo-outlook-idUSL4N1FF2OM
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    Base Metals

    Antofagasta churns out strong fourth quarter production and costs


    Chilean copper and gold miner Antofagasta enjoyed a strong fourth quarter performance and kept cash costs for the year below its guided level.

    The final quarter of 2016 saw copper production 205,500 tonnes, up 13.8% versus the previous quarter to lift production for the full year to just under 710,000 tonnes, 12.5% higher than the prior year.

    Net cash costs for the year fell by 20.0% to $1.20/lb, below the $1.25/lb expectations from October and $1.30/lb at the half-year stage, which chief executive Iván Arriagada said was down to rigorous cost control, increased production and lower input prices.

    With gold production up 29.7% quarter-on-quarter due to continued improvements in grades and throughput at the Centinela mine, full year production hit 270,900 ounces, a 26.6% gain on 2015.

    Roughly 2,000 tonnes of molybdenum were produced from the Los Pelambres mine in the quarter to make 7,100 tonnes for the full year, a small increase for the quarter and a 3,000 tonne decrease for the full year as grades and recoveries fell.

    Arriagada said the new Antucoya mine and latest acquisition Zaldívar were now fully integrated and operating well.

    "Looking ahead into 2017 we remain focused on operating and cost efficiencies, and achieving our production targets. Although we believe the industry has passed the low point in this commodity cycle, uncertainty persists and we need to build carefully on the solid foundations of our existing operations."

    Production guidance for 2017 was reiterated as a range of 685-720,000 tonnes of copper, 185-205,000 oz of gold and 8,500-9,500 tonnes of molybdenum.

    Net cash cost are expected to be approximately $1.30/lb.

    http://www.digitallook.com/news/news-and-announcements/antofagasta-churns-out-strong-fourth-quarter-production-and-costs--2480010.html
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    Freeport says it will challenge $469m Indonesia water tax case


    Mining giant Freeport McMoRan Inc said its Indonesian unit, facing $469 million in water taxes and penalties in Papua province dating back to 2011, will contest a ruling by a local tax court that rejected its lawsuit on the matter.

    Freeport said in documents accompanying earnings disclosure on Wednesday it "expects to challenge this decision at Indonesia's Supreme Court and is evaluating its options".

    A spokesman for PT Freeport Indonesia declined to comment on the matter. The unit is currently in talks with the Indonesian government about changing the terms of its mining rights, a move whereby Indonesia expects the company to pay more taxes than under its existing contract.

    The miner is one of Indonesia's biggest taxpayers, with direct contributions of more than $16 billion to Southeast Asia's biggest economy in taxes, royalties, dividends and other payments between 1992 and 2015 according to company data.

    Freeport said the court had issued a ruling "for additional taxes and penalties related to surface water taxes for the period from January 2011 through July 2015 in the amount of $376 million", including $227 million in penalties.

    The company is also being asked to pay a further $93 million for similar taxes and penalties for August 2015 to December 2016, it said.

    Earlier, Indonesia's Papua province, home of Freeport's giant Grasberg copper mine, said it had won a court battle in a claim against the company for 2.51 trillion rupiah ($188 million) in outstanding surface water taxes from 2011 to mid-2015. There was no mention of penalties.

    Indonesia's tax court rejected a lawsuit lodged by PT Freeport Indonesia over claims for taxes on water the company used from the Aghawagon and Otomona rivers, it said, referring to a verdict from Indonesia's Tax Court on January 18. [bit.ly/2kslGaU ]

    Freeport, which used the water to suspend its tailings in the Ajkwa River, about 120 kilometres (75 miles) away, had argued that a substantially lower tax rate should be applied, as set out in its contract of work signed in 1991, it said.

    Freeport-McMoRan Inc reported a fourth-quarter profit, compared with a year-ago loss, when it recorded $4.1 billion in one-time charges.

    The company said on Wednesday net income attributable to shareholders was $292 million, or 21 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $4.08 billion, or $3.47 per share, a year earlier.

    Revenue for the world's biggest publicly listed copper producer rose 24.5 percent to $4.38 billion.

    http://www.reuters.com/article/indonesia-freeport-tax-idUSL4N1FG1NB
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    Russia's Norilsk to sell stake in Bystrinskiy copper-gold project


    Norilsk Nickel has approved the sale of a stake of up to 39.32% in its Bystrinskiy copper-gold project to CIS Natural Resources Fund, a Russia-focused natural resources fund established by Interros Group and ESN Group, the Russian metals producer said Wednesday.

    The Bystrinsky deposit in Russia's Chita region is one of the world's largest in terms of copper, gold, silver and iron reserves. The Bystrinsky mining and processing plant is scheduled to produce and process 10 million mt/year of ore on reaching full capacity in 2018.

    As a basis for the transaction, the project is being valued at $730 million on a 100% equity basis that corresponds to the valuation used for the acquisition of a 10.67% stake in the project by Highland Fund, a group of Chinese investors, in June 2016, the company said.

    "Divestment of an additional stake in Bystrinskiy project is fully in line with our corporate strategy of de-risking the project and 'clustering' our operations outside of core production chain. We welcome a major capital commitment from large strategic investors to the project amid volatile and challenging commodity markets," said Sergey Malyshev, Nornickel senior vice president and CFO, in a statement.

    The transaction will be subject to a right of first refusal by Highland Fund, as well as certain other pre-conditions and necessary regulatory approvals, and is expected to close by the end of 2017, Nornickel said.

    Following the closing of the transaction, Nornickel will retain a stake of above 50% and remain the operator of the project.

    http://www.platts.com/latest-news/metals/london/russias-norilsk-to-sell-stake-in-bystrinskiy-26647178
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    Steel, Iron Ore and Coal

    China's coal industry 2016 profits more than triple on year


    China's coal mining and washing industry profits soared 223.6% from the year-ago level to 109.09 billion yuan last year, showed data released by the National Bureau of Statistics (NBS) on January 26.

    The industry realized revenue of 2.32 trillion yuan in 2016, sliding 1.6% from 2015.

    Total profit of the country's entire mining industry declined 27.5% on the year to 182.52 billion yuan during 2016, with total revenue at 4.96 trillion yuan, a decrease of 4.0% from a year prior.

    China's above-sized industrial enterprises generated profits of 6.88 trillion yuan last year, increasing 8.5% from the previous year.

    http://www.sxcoal.com/news/4551835/info/en
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    Indonesia 2017 coal production may surpass 413 mln T


    Indonesian coal production is predicted to surpass 413 million tonnes this year, higher than the coal production target set in the government's 2015-2019 medium term national development plan, said Bambang Gatot, director general of Mineral and Coal at the Ministry of Energy and Mineral Resources.

    Bambang said the production hike will be triggered by the many mining permit holders that have entered production phase. Almost half of the 6,000 clean and clear mining permit holders will start production this year, local media reported, citing Bambang as saying.

    According to Bambang, the Ministry of Energy could not control the production plans of the mining permit holders, since the regional governments have the authority to set these holders' productions. The Ministry can only control companies that own coal mining concession agreements (PKP2B).

    In addition, Bambang said the Ministry will soon complete the 2017 Work and Budget plan of the PKP2B holders, albeit not disclosing the production rates proposed by the mining concession holders.

    Meanwhile, Hendra Sinadia, deputy executive director of the Indonesian Coal Mining Association, earlier said the increase of commodity prices brought fresh air for investment upgrades in the coal sector. However, Hendra could not yet estimate the percentage of production hike for this year, adding that there will be a rise of overall production.

    http://www.sxcoal.com/news/4551796/info/en

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    China 2016 thermal coal imports rise 17.35pct


    China imported 97.65 million tonnes of thermal coal (including bituminous and sub-bituminous coal) in 2016, rising 17.35% year on year, showed the latest data released by the General Administration of Customs.

    The value of the imports totaled $5.32 billion, climbing 9.62% year on year.

    In December, the country imported 10.72 million tonnes of thermal coal, surging 44.28% from the year-ago level but edging down 2.63% from the previous month.

    Imports value stood at $801.11 million in December, translating to an average import price of $74.73/t, rising $23.76/t from a year ago and up $16.47/t from the month prior.

    Meanwhile, China imported 72.18 million tonnes of lignite last year, surging 49.56% year on year, with the value increasing 33.71% from the preceding year to $2.64 billion.

    Lignite imports in December reached 7.58 million tonnes, more than doubling year on year while dropping 15.31% from November, with value at $352.19 million, soaring 190.17% year on year.

    Separately, the country exported 369,000 tonnes of thermal coal in December, with value at $29.00 million. Thermal coal exports during 2016 stood at 3.90 million tonnes, with value at $273.73 million.

    China's exports of lignite gained 14.3% on the year to 4,409 tonnes over January-December 2016, with values at $312,000; lignite exports in December was 1,030 tonnes, with value at $73,000.

    http://www.sxcoal.com/news/4551792/info/en
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    China 2016 coking coal imports up 23.8pct


    China's coking coal imports rose 23.8% from a year ago to 59.23 million tonnes in 2016, mainly owing to limited domestic coking coal output and edged up crude steel output, showed the latest data from the General Administration of Customs (GAC).

    Value of the imports totaled $4.70 billion, up 23% on the year.

    In December, the country imported 5.86 million tonnes of coking coal, increasing 31.9% year on year and 23.4% month on month, with value soaring 192.7% on the year and 83.9% on the month to $817.25 million.

    Major suppliers of the steelmaking material included Australia and Mongolia last year. China imported 26.82 million tonnes of Australian coking coal in 2016, up 3.7% from the year-ago level; the country imported 23.56 million tonnes of Mongolian coking coal, surging 85.8% on the year.

    By contrast, China's imports of Canadian and Russian coking coal slid due to long distance and high mining cost.

    http://www.sxcoal.com/news/4551799/info/en
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    BHP Billiton's Oct-Dec thermal coal output falls 4% on year to 6.65 mil mt


    Australia-listed BHP Billiton's thermal coal production was down year on year for the second successive quarter due to lower rates from its Australian assets, the company said in its operational review Wednesday.

    Its thermal coal production from it Australian and Colombian mines was down 4% year on year and 3% from the previous quarter at 6.65 million mt, BHP said.

    Its Mt Arthur Coal open-cut thermal coal mine in the Hunter Valley region in New South Wales produced 3.85 million mt of thermal coal during the October-December quarter, down from 4.28 million mt a year earlier and 3.95 million mt in the July-September quarter, it said.

    BHP achieved an average price of $74/mt for its Australian thermal coal exports over July-December, up 51% year on year, it said.

    Its equity production from its 33.3%-owned Colombian Cerrejon mine was 2.8 million mt in the December quarter, up from 2.63 million mt a year earlier, but down from 2.93 million mt in the September quarter, it said.

    For calendar 2016, BHP's Australian coal production fell 13% year on year to 7.8 million mt, while Colombian production edged up 0.1% to 5.73 million mt, it said.

    Its thermal coal production guidance for fiscal 2016-2017 remains unchanged at 30 million mt, BHP added.

    BHP's Australian metallurgical coal production guidance also remained on track while the company logged marginally higher production in the December quarter.

    Metallurgical coal from its mines in Queensland, totaled 10.61 million mt in the December quarter, up 2% year on year and 1% from the July-September quarter.

    "Strong performances at Broadmeadow, Peak Downs, Saraji and Caval Ridge, underpinned by additional stripping and higher wash-plant utilisation, more than offset the completion of longwall mining at Crinum in the December 2015 quarter, adverse weather conditions in the September 2016 quarter and lower yield at South Walker Creek," it said.

    "Record production at Peak Downs was achieved during the December 2016 quarter with coal opportunistically trucked to Caval Ridge in order to utilise latent wash-plant capacity," it added.

    It achieved an average hard coking coal price of $179/mt in H2 2016, up 118% year on year and 116% from H1, it said.

    Coking coal prices averaged $122/mt in H1, up 82% year on year and 74% from H1, it added.

    The company's guidance for Australian metallurgical coal production for fiscal 2016-2017 remains at 44 million mt.

    BHP produced 8.68 million mt of metallurgical coal through its 50% interest in the BHP Billiton Mitsubishi Alliance joint venture in the December quarter, compared with 8.21 million mt a year earlier, and 1.93 million mt from the 80% stake in BHP Billiton Mitsui Coal, down from 2.19 million mt a year ago.

    BMA operations include Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge. It also owns and operates the Hay Point Coal Terminal.

    BMC owns and operates two open-cut mines in the Bowen Basin -- South Walker Creek and Poitrel.

    http://www.platts.com/latest-news/coal/sydney/bhp-billitons-oct-dec-thermal-coal-output-falls-26647095

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    Lower US utility coal stockpiles helping support OTC coal pricing


    US coal stockpiles continue to decline, which has helped support domestic thermal coal prices despite the recent pullback in natural gas, according to data from Platts Analytics' Bentek Energy.

    Power sector coal stockpiles stood at an estimated 155.7 million st as of January 19, roughly 17% below the year-ago figure and down 6.7% from the five-year average for the month.

    Through January 19, utility stockpiles have declined by 10.3 million st since the end of December, compared with a five-year average drawdown of 3.6 million st.

    Utility stockpiles have declined for the past two months compared with the five-year average, which hasn't happened since the early summer of 2015.

    Prices for over-the-counter Powder River Basin 8,800 Btu/lb coal have largely increased in the last few months with increased coal demand.

    S&P Global Platts assessed PRB 8,800 coal on Tuesday for February delivery at $12.55/st, the highest price since December 10, 2014. It also represents a 53% surge in price since PRB 8,800 coal was assessed at a multi-year low of $8.20/st on May 25.

    Central Appalachia rail (CSX) coal has also seen a steady increase in pricing, climbing to a recent peak of $64.45/st on January 18 from an all-time low of $33.30/st on May 31.

    At the end of May, utility stockpiles stood at 193.4 million st, up 11.9% compared with the five-year average for the month.

    Utility stockpiles have been pulled down by increased coal demand due to lower coal prices as well as higher natural gas prices.

    The NYMEX Henry Hub natural gas futures contract bottomed at $1.639/MMBtu on March 3, when utility coal stockpiles were roughly 19.3% higher than the five-year average for the month.

    But prices have largely rallied since, partly due to declining US dry natural gas production, which averaged 72.1 Bcf/d in 2016, down 0.6% from 2015. Cold weather also helped push up prices, which peaked at a multi-year high of $3.93/MMBtu on December 28, an increase of nearly 140% from the March low.

    http://www.platts.com/latest-news/coal/houston/lower-us-utility-coal-stockpiles-helping-support-21695309
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    South Africa's Kumba Iron Ore profit forecast lifts shares


    Kumba Iron Ore, which Anglo American has put up for sale, said on Wednesday its profit more than doubled for the year, setting it up to outstrip forecasts when it reports earnings next month.

    Africa's biggest miner of iron ore, which is used in steel-making, is one of the assets Anglo is jettisoning as part of a sweeping overhaul to cope with a rout in commodity prices.

    Anglo owns 70 percent of Kumba, which a year ago cut output and jobs to cope with weaker iron ore prices at the time.

    Kumba said headline earnings per share (EPS) for the year to end-December would likely be in a range of 26.36 rand to 27.72 rand, between 123 percent and 125 percent higher on a year ago basis, when it reports on 14 Feb.

    Kumba's forecast is well above a 22.32 rand estimate in a poll of 14 analysts by Reuters and its shares, which have surged nearly 20 percent so far this year, climbed 7.18 percent to 187.57 rand, a level last seen five weeks ago.

    It said the results were boosted by a weaker rand currency and higher iron ore prices.

    Unlike oil, gold and copper, whose benchmark pricing is set in London and New York, iron ore is one of the few commodities whose global pricing takes its cue from China.

    http://www.reuters.com/article/kumba-iron-ore-outlook-idUSL5N1FF1PC
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    POSCO Q4 operating profit climbs nearly 40 pct, but misses market forecast


    Jan 25 South Korean steelmaker POSCO posted fourth-quarter operating profit that jumped 40 percent but was still well below market forecasts, according to Reuters' calculations, reflecting raw material costs that rose faster than steel prices.

    The world's fourth-biggest steelmaker reported 2016 earnings on Wednesday without disclosing numbers for October-December. Reuters' calculations showed consolidated operating profit for the quarter climbed to 472 billion won ($405 million), including affiliates' earnings, from 341 billion won a year earlier.

    The consensus operating profit forecast for the period compiled by Thomson Reuters I/B/E/S was for 717 billion won. ($1 = 1,165.1100 won)

    http://www.reuters.com/article/posco-results-idUSL4N1FF2EL
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    China's major steel city allocates funds to slash production


    China's major steel making city of Tangshan will continue to channel funding this year to help reduce excess steel and iron production, authorities said.

    A total of 100 million yuan (about $15 million) has been earmarked this year to support the steel and iron industries in further cutting overcapacity, according to Tangshan government in the northern province of Hebei.

    The funds will be used to support those workers made redundant to find new jobs, as well as assisting firms with restructuring and upgrading.

    It will be also used to reward steel and iron enterprises that meet this year's capacity-cut targets.

    In early January, Tangshan committed to cutting steel capacity by 8.61 million tonnes and iron capacity by 9.33 million tonnes.

    Since excess capacity has weighed on China's overall economic performance, cutting overcapacity is high on the reform agenda. The city has phased out a total of 18.67 million tonnes of iron capacity and 31.86 million tonnes of steel capacity in the past four years.

    http://www.sxcoal.com/news/4551812/info/en
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