Mark Latham Commodity Equity Intelligence Service

Tuesday 8th March 2016
Background Stories on

News and Views:

Attached Files


    China and Oil: front and centre ..again!

    Image titleImage title
    Back to Top

    China Trade Balance Plunges To 11-Month Lows As Exports Crash Over 25%

    Worse than expected is an understatement.

    Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline - the longest ever. Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.

    So much for that whole "devalue yourself to export growth" idea...

    As Bloomberg notes,

    China’s exports in yuan terms fell 20.6% year on year in February, down from a 6.6% drop in January, and missing expectations of an 11.3% fall. Imports were down 8.0%, an improvement from January’s 14.4% drop. The trade surplus came in at 209.5 billion yuan ($32 billion), down from 406.2 billion yuan.

    The Chinese New Year holiday, which fell at the start of February in 2016 and in the middle of February in 2015, distorts the data in unpredictable ways.Holiday effects mean the outsize drop in February exports overstates the weakness in China’s factory sector.

    Even so, looking at a year-to-date figure for the first two months of the year, the picture is only slightly less gloomy. In the year through February, exports are down 13.1%.

    Attached Files
    Back to Top

    Oil and Gas

    China Delays Emergency Oil Storage Completion to Beyond 2020

    China has pushed back completion of its emergency petroleum stockpiles to beyond the original 2020 deadline.

    The world’s largest energy consumer will finish construction of the second phase of its strategic oil reserves and begin preliminary work on additional sites by 2020, according to the 2016-2020 Five Year Plan released over the weekend. The country’s previous plans called for three phases to be completed by the end of the decade.

    “China may have reached its current storage capacity limit and it takes time to build up new” reserve sites, said Lu Wang, an analyst at Bloomberg Intelligence in Hong Kong. “Some SPR will be stored underground, which might take more time to build and cause the delay."

    China took advantage of falling crude prices last year to build upits emergency reserves, helping to partially mop up a global oil glut. The country increased imports by 8.8 percent to a record 335.5 million metric tons (about 6.7 million barrels a day) in 2015 as oil averaged the lowest annual price in more than a decade.

    China finished building the first phase of its storage with four sites in 2009, totaling 91 million barrels, according to the National Bureau of Statistics. The second-phase, with a designed capacity of 168 million barrels, was to be completed by last year, the state-run China Energy News said in 2014.

    "Completion of the second-phase tanks will probably be delayed for about two years from 2015 while a third-phase program is now quite uncertain,” Li Li, a research director with ICIS China, said by phone.

    China stockpiled 26.1 million metric tons (about 191 million barrels) of crude as of mid-2015 at eight SPR sites and commercial storage tanks, the NBS said on Dec. 11.
    Back to Top

    China crude oil imports hit record 8 mln bpd in February

    China's February crude oil imports jumped 20 percent on year to their highest ever on a daily basis, as prices at their lowest in more than a decade drove buying from a group of new importers and state and commercial stockpiling.

    The world's second-largest oil consumer imported 31.80 million tonnes of crude last month, or a record 8.0 million barrels per day (bpd), data from China's General Administration of Customs showed on Tuesday. C-CNIMP-PRM

    China's robust crude demand has been supported by independent refiners, also known as teapots, that have been receiving import quotas from Beijing over the past nine months.

    "This is the teapot effect," said Virendra Chauhan, an analyst at Energy Aspects in Singapore.

    "Higher teapot demand and stronger refining margins which encouraged higher refinery throughputs have contributed to increased imports," he said.

    On a daily basis, February's imports also jumped roughly 27 percent from 6.29 million bpd in January.

    Last week, Beijing-based consultancy SIA Energy said it expects China's 2016 crude imports to rise by 860,000 bpd, or nearly 13 percent, boosted by storage needs, robust gasoline demand and fuel exports.

    The country's top energy group state-owned China National Petroleum Corporation (CNPC) forecast in January that the China's net crude imports would rise 7.3 percent this year.

    China's imports reached a previous record of 7.81 million bpd in December, closing out 2015 with an average 6.71 million bpd, according to customs data for the full year.

    The February volumes were more than a million bpd higher than the final estimate by Thomson Reuters Oil Research and Forecasts, which had expected more deliveries to spill over into March. March imports are forecast by the Thomson Reuters analysts at under 7 million bpd.

    Fuel exports in February rose 71.8 percent on a daily basis compared to the same month last year, reaching 2.99 million tonnes, or 721,700 bpd, after hitting a record 975,500 bpd in December, as China continues to export more diesel amid weakening domestic demand for the industrial fuel. C-FUEXP-PRM

    Net fuel exports were 350,000 tonnes in February. C-FUNIMP-PRM

    For a summary of China's commodities trade see. A breakdown of the data will be available later in the month.

    Attached Files
    Back to Top

    China crude import demand may slow after oil rises above $40/bbl - trade

    A rise in the price of global benchmark Brent crude above $40 a barrel could slow down shipments to China in the second quarter, after imports hit a record in February, trade sources said on Tuesday.

    Crude imports by the world's second-largest oil consumer have been supported by low prices that have driven stockpiling, as well as buying by a new group of Chinese refiners who have received import quotas over the past nine months.

    February imports hit the highest ever on a daily basis, customs data showed on Tuesday.

    But trade sources said import momentum has slowed after a $10 a barrel gain in Brent crude futures in the past three weeks, and new buyers - smaller so-called "teapot refiners" - may choose to draw down inventories or carry out maintenance at their plants.

    "Such high outright prices will impact demand," said a source from an independent refiner who declined to be named due to company policy.

    "China's crude inventories are very high so we are likely to draw down stocks first and keep a watch on prices."

    He added that demurrage costs have also risen for shipments to eastern Shandong province where most of the new buyers are located, because of the recent high demand which has strained port facilities. Such costs could run up to $500,000 for supertankers or suezmaxes, he said.

    "It takes 10-15 days to unload at Qingdao and 7-8 days at Rizhao," he said.

    A source at another Chinese refiner said the spot discount over three months has narrowed by about $1 a barrel for May delivery crude from three months ago, making spot cargoes less attractive.

    "We've finished buying for May and are waiting to see if prices will fall before looking at purchases for June," the buyer said, adding that its refinery may undergo maintenance unless China's fuel demand exceeds expectations.

    Strong demand from the new Chinese buyers for Russian ESPO has pushed up the grade's spot premiums in recent months, but premiums for April-loading spot cargoes traded last week have dropped about $1 from the previous month.

    "I didn't see them buying many ESPO cargoes for April," a trader with a major oil firm said.

    A slowdown in China's import demand and peak refinery maintenance season in Asia in the second quarter may weigh on spot prices for Middle East and Asia-Pacific crude when trade for May-loading cargoes starts later this month.

    This was especially after some of the Middle East producers raised their monthly prices in the past week to multi-month highs.

    Attached Files
    Back to Top

    China's CNPC to Cut Capex 23%, Lower Oil Output on Price Crash

    China National Petroleum Corp. said it will cut capital spending this year by more than 20 percent and sees domestic crude production slipping as the country’s biggest oil and gas company looks to shore up profit amid the energy downturn.

    CNPC aims to produce 108 million metric tons of crude domestically this year, a decline from a year ago of about 3.2 million tons, or 2.9 percent, Su Jun, general manager of the production and operation department of the state oil company, said in an interview on Sunday. It has decided to cut capital spending this year by about 23 percent, Su said, without providing a total amount.

    The state-run energy giant is facing “unprecedented” pressure from lower oil prices, according to Su. “We have to cut capital spending and output to sustain profit and maintain positive cash flow.”

    CNPC and listed-unit PetroChina Co. have struggled to survive low oil prices through cutting costs and selling assets including pipelines to strengthen the balance sheet. Brent crude, the global benchmark, has tumbled more than 60 percent since a peak in June 2014. PetroChina warned in January that its 2015 profit may have fallen as much as 70 percent from a year earlier because of the energy slump.

    CNPC is reviewing output at 16 oil and gas fields in China and may further cut targets, Su said. Output from its Daqing oilfield will fall by 1.5 million tons this year while the Liaohe oilfield, also in the nation’s northeast, will also have reduced output, he said.

    “The capex and output cut are prudent decisions by CNPC to survive this oil industry downturn,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong, said by e-mail. “The strategy is consistent with cost-cutting reforms amid the government campaign to reduce uneconomic production.”

    China’s output in 2016 will decline between 3 percent and 5 percent from last year’s record 4.3 million barrels a day, according to forecasts last month by analysts from Nomura Holdings Inc. and Sanford C. Bernstein & Co. CNPC said in January that it planned to increase natural gas production and maintain crude output near 2015 levels, without providing details.

    Attached Files
    Back to Top

    Oil ETF Holders Withdraw Most Money Since Last October

    Investors in the biggest exchange-traded fund that tracks oil prices last week withdrew the most money in five months as crude rebounded. The U.S. Oil Fund had a weekly outflow of $125.2 million, the biggest since Oct. 2, according to data compiled by Bloomberg. West Texas Intermediate crude settled at $35.92 on March 4, the highest level since January.
    Back to Top

    Indonesia eyes Iran LPG, condensates deal, but crude unlikely

    Indonesia's OPEC governor said on Monday a deal was imminent for importing Iranian condensate and liquefied petroleum gas, but not for crude oil.

    A delegation of Indonesian oil officials will travel to Iran later this week to negotiate a number of energy deals and there had been hopes of finalising a short-term agreement for 120,000 barrels per day (bpd) of Iranian crude for a refinery in Central Java.

    Indonesia's OPEC governor Widhyawan Prawiraatmadja said a crude import deal with Iran was unlikely for now because Southeast Asia's largest economy needed sweet crude for its refineries, not Iran's sour oil grades.

    "We have limited demand for crude," he told reporters, adding Indonesia imports around 400,000 bpd of crude, of which 125,000 bpd was sour crude from Saudi Arabia.

    Before Indonesia can seal the import deal for Iranian LPG and condensates, the government needed to work out how to transfer funds to Iran, Prawiraatmadja said.

    He declined to provide details on the expected agreements.

    "Clearly, Indonesia needs several things and I think its biggest need is LPG. Iran has an LPG surplus and if they can give us a better LPG price, we should automatically buy from Iran," Prawiraatmadja said.

    President Joko Widodo, who met with Iran's foreign minister on the sidelines of a Jakarta conference, said he asked Indonesia's bank regulator to work with Iran to resume banking relations after the lifting of economic sanctions.
    Back to Top

    Chevron kicks off production at Gorgon LNG

    Oil and gas giant Chevron said on Monday it started producing liquefied natural gas at its Gorgon LNG project on Barrow Island off the northwest coast of Australia.

    The company said in its statement that the first cargo of chilled gas is expected to leave the US$54 billion project next week.

    “The long-term fundamentals for LNG are attractive, particularly in the Asia-Pacific region,” as Chevron is looking to become a major LNG exporter by 2020, Chairman and CEO John Watson, said.

    Watson noted that 80 percent of Gorgon LNG production as well as the output from its second project under construction, the Wheatstone LNG project, is under long-term contracts.

    The project began the cool-down process in mid-January when the Chevron-operated LNG carrier, Asia Excellence delivered the commissioning cargo.

    It uses gas from the Gorgon and Jansz-Io fields located off the coast of Western Australia. The onshore plant on Barrow Island has the capacity to produce 15.6 million tons of LNG per year and 300 terajoules of gas per day for the Western Australia market.

    The project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent)

    Attached Files
    Back to Top

    Total, Eni bet on new finds as rivals cut costs in oil downturn

    As oil firms slash billions of dollars of investment to survive the market crash, France's Total and Italy's Eni are making some of the smallest cuts, gambling in the hope of big-ticket discoveries that will reward them when prices recover.

    Both approaches carry risks. Intensive exploration programmes mean higher costs and lower profits in the short term, with no guarantee of finding new fields. But firms that scale back too far may damage future growth prospects, forcing them to splash out on acquisitions.

    Wood Mackenzie analysts expect this year's exploration spending to fall to just half of a peak of $95 billion reached in 2014. Against that background, Total's 21 percent cut is among the smallest.

    The French company, which pursued a "high risk-high reward" strategy under late chief executive Christophe de Margerie, will still spend $1.5 billion on exploration this year, including off Myanmar, Argentina and Nigeria.

    "Our new exploration manager will be able to explore most of the prospects he wanted to," Total Chief Financial Officer, Patrick de la Chevardiere, told journalists last month.

    "We're giving him a certain budget which leaves him sufficient flexibility to explore what he wants to explore."

    Eni has not published separate exploration budget numbers for 2016 but said it will keep seeking new resources in mature areas where it can use existing infrastructure and know-how to lower costs.

    The Italian group became the first big oil firm last year to cut its dividend in order to navigate the market downturn.

    Its bet on finding new resources was boosted last year when it made the bumper Zohr gas discovery offshore Egypt, the biggest ever in the Mediterranean and its fifth largeoil and gas find in just three years, giving it the best track record in reserve replacement among majors.

    "Many (oil majors) consider that buying smaller companies would now be an investment with a higher return than if the majors were doing the frontier exploration themselves," said Eric Oudenot, a partner specialising in oil and gas at The Boston Consulting Group.

    "Exploration is the one thing I think that we can phase, and we'll just be very cautious and careful around that," said BP Chief Executive Bob Dudley on the company's full-year earnings call in early February.

    Wood Mackenzie analysts say low exploration levels will feed through to lower production in 10 to 15 years' time.

    "Exploration is the easiest cost to reduce for a management team," said BCG's Oudenot. "It only bites you back a few years later."

    Attached Files
    Back to Top

    Shell repays Iran 1.77 billion euros debt for oil deliveries

    Royal Dutch Shell has paid 1.77 billion euros ($1.94 billion) it owed the National Iranian Oil Company, settling debts after sanctions against the country were lifted in January.

    The outstanding debt to Iran was a result of Iranian oil deliveries which Shell had been unable to pay for due to sanctions that were imposed on the country over its nuclear program.

    The Anglo-Dutch company resumed talks with Tehran on the debt after most Western sanctions were lifted in January as part of a deal with world powers. The payments were made over the past three weeks in euros as dollar transactions are still under U.S. sanctions.

    "Following the lifting of applicable EU and U.S sanctions, we can confirm that payment of the outstanding Shell debt to NIOC has now been made," a Shell spokesman said in a statement.

    The debt repayment could lead Shell to make new investments in the resource-rich country that hopes to revive an oil and gas industry that shriveled under sanctions.

    "We remain interested in exploring the role Shell can play in developing Iran's energy potential within the boundaries of applicable laws," the spokesman said.

    Western sanctions cut Iran's oil exports by more than half to around 1.1 million barrels per day from a pre-2012 level of 2.5 million bpd. The Islamic Republic holds the world's largestgas reserves and fourth-largest proven oil reserves.

    Tehran has said it would boost output immediately by 500,000 bpd and by another 500,000 bpd within a year, ultimately reaching pre-sanction production levels of around 4 million bpd seen in 2010-2011.

    The country has indicated it wants billions it is owed by foreign oil companies and governments paid in euros.

    U.S. officials estimate about $100 billion (69 billion pound) of Iranian assets were frozen abroad, around half of which Tehran could access as a result of sanctions relief. It is not clear how much of those funds are oil dues that Iran would want back in euros.
    Back to Top

    UK’s Grain LNG terminal re-exports cargo

    The UK’s Grain LNG import terminal, operated by National Grid, has shipped a cargo of previously imported liquefied natural gas.

    The 155,000 cbm Gaslog Saratoga LNG carrier reloaded a cargo of the chilled fuel and departed from the terminal on the Isle of Grain last week, a spokesperson from National Grid confirmed to LNG World News on Monday.

    According to shipping data, the vessel is carrying a cargo of LNG to the Penuelas LNG terminal in Puerto Rico.

    Grain LNG started offering reloading services to customers last year, the first time such a service has been offered in the UK.

    The terminal can import 15 million tonnes of gas each year and is the largest importation facility in Europe and the 8th largest in the world, according to Grain LNG’s website.
    Back to Top

    South Africa to start shale gas exploration in next financial year

    The first exploration for shale gas in South Africa will begin in the next financial year, the government said on Tuesday, following years of postponement. "One area of real opportunity for South Africa is the exploration of shale gas," the statement said. 

    "Exploration activities are scheduled to commence in the next financial year. This will lead to excellent prospects for beneficiation and add value to our mineral wealth." 

    Delays in awarding exploration licenses and lower oil prices led to firms such as Royal Dutch Shell pulling back a year ago on planned shale gas projects in the onshore Karoo Basin.
    Back to Top

    EIA Report Sounds Somber Note For U.S. LNG

    Due to the wonders of hydraulic fracturing (fracking) and horizontal drilling, the U.S. is now on track to join LNG production heavyweights, current LNG leader Qatar – with 77 million tons per annum (mtpa) of liquefaction capacity – and Australia, who by 2018 when all of ten of its LNG projects are in operation with have liquefaction capacity of 85 mtpa, bypassing Qatar.

    The U.S. just entered the global LNG race when Cheniere Energy exported its first cargo from its Sabine Pass export terminal on the U.S. Gulf of Mexico. For years, Alaska has exported LNG, mostly to Pacific Rim countries, but these volumes have been small. Cheniere’s cargo is the first LNG shipment from the Lower 48.

    Moreover, as many as five more LNG projects are in various stages of construction in the U.S. However, plunging oil and gas prices will effectively cut short any celebratory cheers.

    This is the backdrop that the U.S. Energy Information Administration released its report on Friday. The EIA said that the first LNG export shipment on February 24 is “a milestone reflecting a decade of natural gas production growth that has put the United States in a new position in worldwide energy trade.”

    “With the rapid growth of supply from shale gas resources over the past decade, U.S. natural gas production has grown each year since 2006. The resulting decline in domestic natural gas prices has led to rising natural gas exports, both via pipeline to Mexico and, since last week, to overseas markets via LNG tankers,” the report said.

    After touting the remarkable rise of U.S. shale gas production and the highly developed natural gas infrastructure and pipeline system that the country enjoys (one reason U.S. LNG projects have a clear logistical and cost advantage of their Canadian LNG project counterparts), the EIA report sounds a somber note for U.S. LNG.
    Back to Top

    5 Key Insights from the 2015 Marcellus and Utica Shale Databook – Vol. 3:

    1. As of the end of 2015 combined production coming from the Marcellus and Utica had peaked and started to decline–but just barely. Production from the two plays combined is still stratospheric compared to just a few years ago.

    2. The cash price for natural gas sold in northeastern PA stayed around the $1 per thousand cubic feet (Mcf) mark for the last half of 2015. The cash price for natgas in the Utica was an average of around $0.50/Mcf higher, and the price for natgas in southwestern PA was an average of around $0.70/Mcf higher for much of the year. By the end of last year, prices in the Utica and SWPA had dropped to be much closer to the price received in NEPA (as it became obvious a cold winter was not going to “save” the price of gas).

    3. WV saw the steepest drop in the number of permits issued over the course of last year. In the first four months, 611 permits for discrete, individual wells were issued. By the last four months, 404 permits were issued (34% drop). There was a drop-off in permits for PA–from 785 in first four months to 633 in last four months (19% drop)–while Utica permits remained steady over the course of the year at around 200 per 4-month period.

    4. The number of rigs steadily declined over the entire year for PA, OH and WV. We entered the year with 123 rigs operating in the three states. By the end of December, there were 59 rigs operating–a 52% drop in the number of rigs operating.

    5. Perhaps one of the most striking things we noticed, when reviewing the Databook’s proprietary Permits by Driller chart for the past three years was this: In the first four months (“trimester”) of 2014, Chesapeake Energy applied for and received permits to drill on 329 discrete/individual wells in PA. In the final four months of 2015, Chessy received 14 permits in PA. The pattern was similar in OH and WV.

    Attached Files
    Back to Top

    Clinton Doubles Down Against Fracking in Debate, Raising Alarms

    Hillary Clinton’s promise during a debate Sunday to aggressively regulate fracking deepens the divide between Republican and Democratic presidential candidates on oil and gas development and signifies her continued shift to the left on environmental issues.

    In the Democratic presidential debate in Flint, Michigan against Vermont Senator Bernie Sanders, Clinton said she wouldn’t support fracking in states or local communities that don’t want it, if it causes pollution, or if the chemicals used aren’t disclosed.

    "By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place," Clinton said.

    The comments marked a shift for Clinton, who, like President Barack Obama, has generally supported fracking, while insisting methane leaks must be plugged and steps taken to ensure the practice doesn’t contaminate water. She even highlighted natural gas in a campaign fact sheet last month as lowering energy costs, reducing air pollution and putting people to work.

    But translating Clinton’s debate-stage profession into actual regulation clamping down on the technique would be difficult, if not impossible. There are limits to what a president -- any president -- can do to limit the hydraulic fracturing process now being used to free gas and oil from dense rock formations nationwide.

    Although state and local governments regulate the practice -- and some ban it altogether -- the federal government doesn’t have much authority to directly regulate fracking on private lands. The biggest openings are through laws allowing the Environmental Protection Agency to regulate air and water pollution tied to fracking, said Kevin Book, an analyst with ClearView Energy Partners LLC. "But these controls are both limited and litigable."

    Further, most U.S. oil and gas wells today are stimulated into production using hydraulic fracturing. Shut down fracking, and you shut down the oil and gas boom along with it, said Katie Brown, a spokesman for Energy In Depth, a research program funded by the Independent Petroleum Association of America.

    Clinton has worked to burnish her environmental credentials on the campaign trail, pressed by activists who have embraced Sanders and his clean energy agenda. Unlike Clinton’s nuanced stance, Sanders’ response to the issue Sunday was direct: "No, I do not support fracking."

    Industry officials viewed Clinton’s fracking answer "as a political response to the guy standing to the left of her on the stage," said Neal Kirby, a spokesman for the Independent Petroleum Association of America.

    Attached Files
    Back to Top

    Alternative Energy

    Senvion owners aim to net up to $770 mln euros in Frankfurt flotation

    Owners of German wind turbine maker Senvion will offer shares worth as much as 703 million euros ($770 million) in its planned listing on the Frankfurt stock exchange, the company said on Monday.

    It said the private equity owners of the group, Centerbridge Partners and Arpwood Capital, are offering up to 29.9 million shares, or 46 percent of the company, seeking 20 euros to 23.50 euros apiece in an institutional placing which would give Senvion a market value of 1.3 to 1.53 billion euros ($1.42-1.68 billion).

    The sale could show a considerable profit for Centerbridge and Arpwood, which only bought Senvion last year, with Centerbridge paying 1 billion euros, including debt, while media reports said Arpwood subsequently paid Centerbridge the equivalent of $112 million for a 21 percent stake.

    Shares in Senvion's rivals like Vestas, Gamesa , Nordex and Xinjiang Goldwind on average trade on a price multiple, including debt, of eight times expected earnings before interest, tax, depreciation and amortisation, according to Thomson Reuters data.

    Senvion, formerly known as Repower, was owned by Suzlon Energy from 2007 to 2015, when the indebted Indian group sold it on to Centerbridge in a bid to cut debt.

    "Many market participants still link Senvion with overleveraged Suzlon and have shied away from engaging with it.

    "The IPO is a way to let the market know that the ties with Suzlon have been severed and that Senvion now has no debt, but actually net cash," the source said.

    No new shares will be issued in the private placement, meaning Senvion won't raise any money from the sale.

    The first day of trading is planned for 18 March 2016.

    The IPO will also enable Senvion to raise capital on the market should it need to co-finance large new wind farm projects.

    Since Centerbridge's acquisition of Senvion the group has raised spending on research and development as well as expanding into markets where former owner Suzlon prevented it from going, such as Chile.

    In December a new chief executive was appointed, Juergen Geissinger, the former head of German engineering group Schaeffler.
    Back to Top

    Base Metals

    China February copper imports surge 50 pct from a year ago

    China's copper imports in February surged 50 percent from a year ago, the biggest year-on-year percentage gain since April 2014, as favourable import prices prompted traders to increase spot purchases of the metal.

    Arrivals of anode, refined metal, alloys and semi-finished copper products stood at 420,000 tonnes in February, customs data showed on Tuesday. That was down 4.5 percent from January's 440,000 tonnes but a huge jump from last year's 280,000 tonnes.

    "The February imports were lower than January but still quite high given the one-week Chinese New Year holiday," said Peng Sanhao, analyst at Chaos Ternary Futures.

    He added that price differentials between the international and domestic markets had favoured imports in December and January mostly, prompting importers to place some spot orders and the shipments arrived last month.

    Copper imports rose 23.3 percent from a year earlier to 860,000 tonnes in the first two months of the year.

    Still, traders said demand for spot copper in the domestic market had not improved strongly after the Chinese Lunar New Year holidays.

    Copper players were also waiting for signals of the government's macro policies this year from the annual meeting of China's parliament, limiting demand for spot imports, traders said. Factories also appeared to have a cash crunch after returning to work from the holidays.

    A copper buyer for a state-owned rods manufacturing plant in the eastern province of Zhejiang said he had not seen any signs of demand rising for the firm's product after the holiday.

    Peng at Chaos Ternary said production at rods manufacturing plants in the northeastern province of Shandong and southern province of Hunan had been picking up over the past two weeks.

    Copper rods are used in the power sector, the top copper user.

    Imports of raw material copper ores and concentrate in February nearly doubled from a year ago, jumping 92.1 percent, to 1.46 million tonnes, the second-highest after a record in December 2015.

    The ore imports were up 24.8 percent from January.

    Strong treatment and refining charges prompted Chinese smelters to boost orders for imports of copper concentrates in November and December and some shipments arrived in the first quarter, traders said.

    The charges are paid by sellers to Chinese smelters, and then deducted from the smelters' buying price.

    Still, exports of aluminium reflected slow activities at factories in the holiday month. Primary aluminium, alloy and semi-finished aluminium products dived 26.3 percent from January to 280,000 tonnes in February.

    Aluminium exports dropped 33.3 percent versus a year ago. In the first two months, the outflow fell 22.3 percent year-on-year to 670,000 tonnes.

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    China Feb coal exports up 49.2 pct on mth

    China exported a total 910,000 tonnes of coal in February, soaring 111.6% on year and up 49.2% on month, showed data from the General Administration of Customs (GAC) on March 8.

    It was the third consecutive rise on both year-on-year and month-on month basis, thanks to weak demand and falling prices in domestic market. However, coal exports still stayed at a relatively low level.

    The value of the February exports was $71.07 million, increasing 45.3% from a year ago and up 61.5% from January. That translated to an average price of $78.1/t, falling $35.6/t on year but rebounding $5.96/t on month.

    In the first two months of the year, China’s coal exports surged 129.2% on year to 1.52 million tonnes, with value up 54.4% to $115.08 million.
    Back to Top

    Iron Ore Jumps Most on Record as Market Goes 'Berserk'

    Iron ore soared the most ever after Chinese policy makers signaled their willingness to buttress economic growth, boosting the outlook for steel consumption in the top user and igniting speculation that some investors who’d bet against the market had been caught out.

    Ore with 62 percent content delivered to Qingdao jumped 19 percent to $63.74 a dry metric ton, Metal Bulletin Ltd. data show. That’s the biggest gain in daily data going back to 2009 and the highest price since June. The surge was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange Ltd. climbing 21 percent to $60 and prices on the Dalian Commodity Exchange rising by the daily limit.

    “The iron ore and steel markets have gone berserk -- they’ve departed from fundamentals and are heavily driven by sentiment,” Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen, said before the Metal Bulletin price was published. “Investors are expecting further monetary easing by the Chinese government to boost steel demand.”

    Australia’s Fortescue Metals Group Ltd. jumped 24 percent in Sydney trading, where Rio Tinto Group and BHP Billiton Ltd. also climbed after futures prices jumped. Gains in London were muted. Rio, the second-biggest mining company, rebounded from an earlier decline in London trading and was up 2 percent by 1:04 p.m. local time, while BHP rose 1.1 percent.

    U.S. producer Cliffs Natural Resources Inc. climbed as much as 19 percent and was last up 6.3 percent in New York. Vale SA gained 6.9 percent in Brazil trading.

    Powered Higher

    Iron ore has powered higher in 2016 as steel prices have have strengthened, undermining forecasts for further losses driven by mounting low-cost supply from Australia and Brazil and weakening demand in China. At the annual National People’s Congress at the weekend, the authorities said they’d allow a record high deficit and higher money-supply target to support growth of 6.5 percent to 7 percent. At the same time, they also vowed to help cut overcapacity in steel, potentially curbing demand for iron ore.

    “There may be some short-covering in the futures markets today,” said Xu Huimin, an analyst at Huatai Great Wall Futures Co. in Shanghai, referring to investors closing bets on declines. “The crazy surge in futures prices has surprised traders and steel mills, as they haven’t seen a corresponding increase in physical orders.”

    Attached Files
    Back to Top

    Vale, Fortescue plan tie-up to boost iron ore market share in China

    The world's no.1 and no.4 iron ore miners are in talks that could see Brazil's Vale SA taking a minority stake in Australia-based Fortescue Metals Group and the blending of their iron ore to win market share in China.

    The proposal will help the pair match the quality of iron ore produced by rival Rio Tinto, seen as the benchmark in China, and comes just as beaten-down iron ore prices stage a recovery to eight-month highs.

    The two companies have been in talks for around a year, Fortescue said on Tuesday, for what would be the first deal involving the "big four" iron ore miners following a collapse in the price of the steel-making commodity in recent years.

    The non-binding memorandum of understanding could see Vale buy up to 15 percent of its Australian rival's shares on market, which up to Monday had been sitting not far off seven-year lows. It would also allow Vale to take stakes in Fortescue's existing or future mines, while joint blending operations in China could begin within six months.

    "The key to this agreement is about creating efficiency and supply chain consistency and reliability to our customers," Fortescue Chief Executive Nev Power told reporters, adding the deal would make both companies more competitive.

    Vale produces some of the world's highest grade iron ore, but has long complained it does not fetch the premium its high quality iron ore deserves in the international market.

    Blending Vale's ore with lower quality material from Fortescue would bring down the grade to a more standard quality, and create a better sintering product for Chinese steel mills.

    "What we're trying to do is what some other traders and perhaps some of our customers have had to do internally," Power said.

    Citi analysts said in a research note the deal was aimed at "maximizing the price realizations of Vale's high-grade and Fortescue's low-grade product."

    It also gave Vale the option of buying stakes in Fortescue's mines, protecting itself from potential challenges in securing environmental approvals for new mines in Brazil's south in the wake of the deadly Samarco dam disaster, Citi said.

    Vale is in the process of phasing out higher cost, lower quality production from its older mines in Minas Gerais state.

    Fortescue did not expect to run into any trouble with competition regulators in China or elsewhere, although analysts said opposition in China could be a big hurdle.

    "There is no reduction in competition from this. If anything it improves the competitiveness of supply to the Chinese steel industry," Power said, adding that the companies had already started talks with regulators.

    Fortescue, which has been racing to cut costs and slash debt to help weather the collapse in iron ore prices over the past two years, said it did not consider issuing new shares to Vale despite $6.1 billion net debt.

    The company, controlled by founder and chairman Andrew "Twiggy" Forrest, has long been reluctant to water down Forrest's one-third stake and done everything it could to raise funds without issuing new equity.

    Fortescue's shares rose nearly 7 percent after the announcement to a 16-month high, adding to a stunning 24 percent gain on Monday when iron ore prices soared on expectations of a short-term jump in steel output in China.
    Back to Top

    Rio expects 75Mt of new supply to enter iron-ore market this year

    Mining major Rio Tinto expected some 75-million of new iron-ore supply to come into the market during 2016, forcing further high-cost supplies to exit the market. The company’s Pilbara Mines MD, Michael Gollschewski, told delegates at the Global Iron Ore & Steel Forecast  conference, in Perth

    In 2015, about 110-million of new low-cost seaborne supply entered the market, with some 130-milllion tonnes exiting the contestable market, of which 35-million came from China. “Rio Tinto is the lowest cost producer on the curve and the demand for our high-quality product continues to be robust and attracts a premium,” Gollschewski said. 

    “We are continuing to focus on taking the necessary strategic and tactical actions to maintain our position. Complacency is not an option,” he added. Gollschewski noted that in 2015, Rio worked to increase productivity, reduce operating costs and working capital, and to deliver incremental volume expansions from its projects, in an effort to generate free cash flows. 

    Working capital was reduced by some 83% year-on-year, with the miner also delivering a 20% productivity improvement, with the iron-ore division delivering over $428-million in savings over 2015, and $1.1-billion since 2012. “We are not stopping there. Our pre-emptive actions have held us in good stead to date and we will continue to take decisive action. We have announced further cost management measures and significantly reduced our capital expenditure,” Gollschewski said. 

    He added that Rio’s focus was also on deriving full value from its investment in assets and infrastructure. “We adhere to a disciplined capital allocation framework and continually evaluate our portfolio and potential growth options so that we can full utilise our infrastructure when the time is right to invest.”
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP