Mark Latham Commodity Equity Intelligence Service

Thursday 22nd October 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Emerging: Mr Gann would say short.

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    China key UHV transmission line expected to finish ahead of schedule


    China’s key ultra-high voltage (UHV) power transmission line -- the 1,000 kV AC Huainan-Nanjing-Shanghai line -- is expected to come on stream before March 2016, the scheduled time of commissioning, the state news agency Xinhua reported.

    The line started construction in September 2014, and presently 85% of the project has been completed, Xinhua said.

    With a total investment estimated at 26.8 billion yuan ($4.21 billion), the line has a designed substation capacity of 12 GW.

    The project is aimed at meet increasingly growing power demand in economically developed Jiangsu and Shanghai.

    China put its first UHV transmission line -- the 1,000 kV AC southeastern Shanxi-Henan’s Nanyang-Hubei’s Jinmen line – into operation in 2009.

    At present, China has six UHV power transmission lines in operation, including 1,000 kV southeastern Shanxi-Henan’s Nanyang-Hubei’s Jinmen line, 800 kV Sichuan’s Xiangjiaba-Shanghai line, 800 kV Guizhou’s Jinping-southern Jiangsu line, 1,000 kV Anhui eastbound power transmission project, 800 kV Xinjiang’s south Hami-Henan’s Zhengzhou line, and 800 kV Xiluodu left bank-Zhejiang’s Jinhua line.

    China aims to operate 27 UHV power transmission lines by 2020, including the existent six lines, eight in construction or planning, and 13 lines to be built.
     
    http://en.sxcoal.com/0/133331/DataShow.html
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    Dispute over rigged ship engine tests adds to Volkswagen's woes


    Norwegian shipowner I.M. Skaugen has disclosed it is seeking $50 million in compensation from a marine unit of Volkswagen for rigging performance tests of ship engines produced over a decade ago.

    I.M. Skaugen alleges that the specifications of the six engines it bought from MAN were misleading and it is seeking compensation for higher fuel use than specified over the expected 30-year lifetimes of the engines.

    VW now owns 75 percent of MAN Diesel and Turbo SE, although it was not an owner of MAN when the engines were made. MAN supplied the engines to Skaugen in 2002-03 and has legal counter-claims over contracts with Skaugen. VW first acquired a stake of 22 percent in MAN in 2006.

    I.M. Skaugen has decided to publicise the case, filed in a Singapore court in July, because it sees similarities between MAN's handling of the ship engine tests under VW ownership and the German company's response to the biggest scandal in its 78-year history, caused by cheating diesel car emissions tests.

    "We have tried to engage MAN for quite some time to sort out these problems. In 2012 we were promised transparency and we were promised that they would do whatever they could to settle the issues," CEO Morits Skaugen told Reuters.

    "My goal here is to highlight that the method being applied, the software, is the same. The purpose seemed to be the same, to conceal the fact that these engines do not meet the promised standards, whether it is fuel consumption or emissions."

    A VW spokesman contacted by Reuters declined to comment. VW acquired a controlling 55 percent stake in MAN in 2011, up from almost 30 it had held since 2007, and now owns 75 percent.

    MAN admitted in 2011 that some of its factory tests of four-stroke marine diesel engines may have been rigged to show artificially low fuel use. A MAN spokesman said the company has worked to compensate clients since but has not published a list of those affected and has been unable to settle with I.M. Skaugen.

    In July 2015, I.M. Skaugen filed a $20 million demand in a Singapore court for compensation from MAN for the six engines which it says were underperforming. Skaugen said the company would revise up the amount to $50 million to reflect new estimates for fuel and other costs.

    http://www.reuters.com/article/2015/10/21/volkswagen-emissions-ships-idUSL8N12F37L20151021
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    Oil and Gas

    Russia Races Past Saudi Arabia in Tussle for Chinese Oil Market


    Russia beat Saudi Arabia to become the biggest seller of crude to China for the second time this year in the race to supply the world’s biggest energy consumer.

    Asia’s largest economy bought a record 4.04 million metric tons of crude from Russia, or about 988,000 barrels a day, in September. That’s 42 percent more than a year earlier and 31 percent higher than in August, according to data from the General Administration of Customs in Beijing on Wednesday. Oman was the third-biggest supplier, behind Saudi Arabia, while Angola slipped to fourth place from second in the previous month.

    China, the world’s second-biggest oil user, is buying near record amounts of crude from overseas as it seeks to take advantage of a plunge in prices to boost its stockpiles. The International Energy Agency estimates the nation will be responsible for more than a quarter of global consumption growth next year, making it a keybattleground for producers seeking to defend market share amid a worldwide oversupply.

    “The biggest battle to supply oil to China is between Russia and Saudi,” Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, said by phone. “Russia is gaining momentum with its pipeline and buying interest for its crude from teapot refineries.”

    A direct pipeline to northern China has boosted exports of East Siberia-Pacific Ocean crude. Seaborne shipments were also spurred by the proximity of the Kozmino port in Russia’s east to the Asian nation, while new rules allowing small independent refineries known as teapots to buy imported supplies have also helped sales.

    Shandong Kenli Petrochemical, a teapot refiner, bought ESPO crude as its first directly imported cargo after gaining a license last month, according to ICIS China, a Shanghai-based commodities researcher. The grade would help increase the plant’s production of both gasoline and diesel, it said in an emailed note earlier in October. Russia last beat Saudi Arabia as the Asian nation’s biggest supplier in May.

    Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, exported 3.95 million tons to China in September, 17 percent lower than a year earlier, the customs data show. Oman’s sales jumped 18 percent to 3.17 million tons for the month.

    http://www.bloomberg.com/news/articles/2015-10-21/russia-races-past-saudi-arabia-in-tussle-for-chinese-oil-market
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    Only five non-member countries attend oil meeting with OPEC


    Only five non-OPEC countries have sent representatives to a meeting of OPEC and non-OPEC oil market experts that began on Wednesday at the petroleum exporter group's Vienna headquarters.

    The Organization of the Petroleum Exporting Countries had invited eight non-member nations including Russia for talks on the market, ahead of OPEC's policy-setting meeting on Dec. 4.

    Wednesday's talks are not expected to increase the prospect of cooperation on oil supply curbs or show much support for a price band proposed by OPEC member Venezuela.

    But participants could agree to share information or continue to assess the market, OPEC delegates and analysts say.

    "There will be an exchange of views, discussion of the market and the OPEC secretariat's presentation, but I don't think there will be an agreement to coordinate," an OPEC delegate said.

    Of the non-OPEC countries invited, Mexico, Russia, Colombia, Kazakhstan and Brazil are understood to have sent representatives. A similar meeting held in May failed to achieve cooperation between the two sides.

    Non-OPEC producers have refused to work with OPEC in cutting supply to reduce a surplus that has prompted oil prices to sink below $50 a barrel from $115 in June 2014.

    In turn, OPEC has refused to limit supply alone and many of its members have raised output.

    Most OPEC countries have sent their national representatives - oil experts who rank below ministers - to the event, although Venezuelan Oil Minister Eulogio del Pino and his Ecuadorean counterpart Pedro Merizalde-Pavón are attending.

    Cash-strapped member Venezuela is pushing for OPEC and non-OPEC cuts and has proposed reviving OPEC's price band mechanism, attempting to set a price floor of $70 a barrel.

    But the Gulf OPEC members, including top exporter Saudi Arabia, have shown no interest in returning to a strategy of supporting prices, seeking instead to fight for market share.

    http://www.reuters.com/article/2015/10/21/opec-meeting-idUSL8N12L22V20151021

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    Santos rejects $5.1 bln sovereign wealth-backed bid


    Embattled Australian oil and gas producer Santos Ltd on Thursday rejected a A$7.1 billion ($5.1 billion) takeover proposal from a fund backed by the ruling families of Brunei and the United Arab Emirates.

    Santos effectively put itself on the block in August, looking to sell assets in a bid to cut its A$8.8 billion net debt as its Gladstone liquefied natural gas (LNG) project begins operations amid a sharp slump in oil prices.

    It said the bid from Bermuda-headquartered Scepter, pitched at a 26 percent premium to its close on Wednesday, was too cheap and included conditions that would hurt its consideration of asset sales and a wider strategic review.

    "The Proposal is considered to be opportunistic in nature and does not reflect the fair underlying asset value of the company," Santos said in a statement to the Australian stock exchange.

    Santos shares jumped as much as 20 percent on news of the bid, but were still worth only half as much as a year ago. The stock was trading at $6.28 at 0225 GMT, well below the proposed offer of A$6.88 a share.

    Scepter had no immediate comment on the rejection, its head of merchant banking, Anthony Steains, said.

    Two analysts said they thought shareholders would welcome the bid, given that the stock dipped below A$4 less than a month ago, but said valuations hinge on a long-term view of oil prices.

    "It looks a fairly punchy price relative to value of the assets," said Bernstein analyst Neil Beveridge. "It looks to be a pretty decent bid."

    Scepter, with offices in New York, London and Beijing, describes itself as a syndicate of ruling families, sovereign wealth funds and ultra-high net worth industrialists who have committed more than $14 billion to back large transactions.

    Prince Abdul Ali Yil Kabier, a member of Brunei's ruling royal family, is a founder and director of the firm alongside financier Rayo Withanage. Other directors include Brunei's Prince Bahar Bin Jefri Bolkiah, the United Arab Emirates' Sheikh Juma al Maktoum, former HSBC chairman John Bond and former U.S. ambassador to Qatar Patrick Theros.

    Incorporated this year, the management team is made up of several former directors of Blackstone Advisory Partners in Asia.

    Santos' spokesman declined to comment on any other alternatives the company was considering or what conditions Scepter had sought in its bid sent on Oct. 20. Analysts and investors assumed one of the conditions was exclusivity.

    While analysts said the offer was a full price relative to their valuations on Santos based on a long-term oil price around $75 a barrel, a top 10 shareholder said it made sense for the board to reject the bid.

    "If you're prepared to auction off your assets, why would you offer someone exclusivity if they didn't offer a cracking (takeover) price?" said Jason Beddow, chief executive of Argo Investments, Santos' eighth largest shareholder.

    Santos has stakes in oil and gas production in Australia, Papua New Guinea, Indonesia and Vietnam, with the jewel in its crown considered to be its 13.5 percent stake in the Papua New Guinea LNG project.

    Analysts have said that stake alone could be worth more than A$5 billion, based on the value implied in a recent takeover bid by Woodside Petroleum for Oil Search Ltd, a bigger stakeholder in PNG LNG.

    http://www.reuters.com/article/2015/10/22/santos-ltd-ma-idUSL3N12L5TW20151022
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    '$60 barrel could fuel Norway revival'


    Cost reductions being achieved on both existing and new field projects off Norway will result in a rebound in investment and activity levels as early as next year given an oil price above $60 a barrel, according to a contractor boss.

    http://www.upstreamonline.com/live/1414564/usd-60-barrel-could-fuel-norway-revival?utm_source=twitterfeed&utm_medium=twitter
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    Japan's Jera says will significantly cut long-term LNG contracts resource coal


    Japan's JERA Co, set to become the world's biggest buyer of liquefied natural gas (LNG) next year, plans to significantly cut the amount of gas it purchases on long-term contracts, the company's president told the Reuters Global Commodities Summit.

    JERA, a joint venture set up by Tokyo Electric Power (Tepco) and Chubu Electric Power to initially handle fuel procurement with a possibility of eventually taking over thermal power stations, has more than 10 million tonnes of gas on long-term contracts that expire by around 2020.

    But the company will not automatically renew them, President Yuji Kakimi said.

    The move puts more question marks over planned big LNG projects, which rely on long-term contracts to get financing approved, amid a downturn in commodities markets that has cut investment in many areas.

    JERA, which buys around 80 percent of its gas on long-term contracts, will only contract volumes to cover the absolute minimum of fuel needed, using the most optimistic scenarios for rebooting its nuclear power plants and the take-up for renewable energy being promoted by the government.

    Additional requirements for gas will be met with mid-term and short-term contracts or spot purchases, Kakimi said.

    "Our original mission of procuring at a similar level to Europe and the U.S. is close to being achieved with oil price falling, but even if oil prices rose, we have to make sure that (procurement) costs are capped," he said.

    JERA will surpass Korea Gas Corp as the world's single biggest buyer of LNG with annual purchases of around 40 million tonnes once it fully integrates the partners' existing contracts next summer.

    Kakimi said Jera's annual purchases of gas are expected to decline in line with government forecasts, implying the company will be burning around 28 million tonnes a year by 2030.

    He also said the company is expanding Chubu Electric's unit in Houston to start LNG trading opportunities when the Freeport LNG project, in which Chubu invests in, starts export in 2018.

    CUTTING COAL PROCUREMENT COST

    JERA also aims to broaden its sources of coal to lower its reliance on high-quality Australian coals in order to cut costs.

    Australia is by far the biggest supplier to Japan, accounting for nearly 80 percent of Japan's thermal coal imports in the first eight months of this year.

    "Since it looks difficult to see more flows from Indonesia under current market circumstances, it is important to develop new sources such as Russia, the U.S., Colombia and Africa," Kakimi said.

    JERA, which buys about 20 million tonnes of thermal coal a year, is also interested in buying into in coal mines to hedge against rises in coal prices, he said.

    He declined to say how much a stake it aims to buy, but said stakes equivalent to 30-40 percent of its procurement would be "too much" under the current market.

    http://www.reuters.com/article/2015/10/21/commodities-summit-jera-reuters-summit-p-idUSL3N12L2U420151021

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    Shale gas research reveals huge potential


    China's shale gas exploration and development technology has entered the early stages of large-scale development, a report said on Wednesday.

    Released during a three-day international event - China Mining 2015 - the report said exploration and development of shale gas in the Sichuan Basin has made a major breakthrough, as they discovered the first un-compartmentalized field with a geological reserve of one hundred billion cubic meters.

    By the end of 2014, China had spent 23 billion yuan for exploration and development and has proven reserves of 106.8 billion cubic meters with an expected annual output of 3.2 billion cubic meters, the report said.

    It said the shale gas resource was rich and widespread in China with huge potential for commercialization.

    From 2009 to 2012, the Ministry of Land and Resources spent 660 million yuan on investigative work in key areas. It also made evaluations on the potential resource in 41 basins and regions.

    http://en.chinamining.com.cn/Specials/2012ChinaMining/2015-10-14/1444805400d74079.html
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    Polish Lotos CEO says interested in Saudi, Iranian oil


    IMr Pawel Olechnowicz the chief executive of Poland's No 2 oil refiner Lotos said that he was interested in refining Saudi and Iranian oil as part of efforts to diversify away from Russian crude.

    Mr Olechnowicz said that "We are interested in refining any oil, including Saudi and Iranian oil. Diversification allows for greater safety of the company."

    Last week, the head of Russia's biggest oil company Rosneft said that Saudi Arabia had started supplying crude oil to Poland, a market traditionally dominated by Russia.

    http://steelguru.com/gas-oil/polish-lotos-ceo-says-interested-in-saudi-iranian-oil/437306#tag
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    Brazil gives SBM ultimatum in $250 mln bribery settlement


    Brazil has told Dutch SBM Offshore NV, the world's top oil production ship leaser, to agree soon to a $250 bribery settlement if it wants to regain its biggest client in the world's largest oilship market, a government source told Reuters.

    The ultimatum gives SBM several days to sign a leniency deal that includes financial reparation and other clauses such as cooperation with a corruption investigation. The settlement, which has been under negotiation for months, would lift a ban on the Amsterdam-based firm from bidding for new business with Petrobras, Brazil's state-run oil company.

    Petrobras, whose officials were accused by Brazilian prosecutors of accepting bribes from SBM representatives in order to win contracts, will receive the proceeds of the deal, gaining badly needed cash to finance expansion and pay debt, the largest in the oil industry.

    Petrobras officials were not immediately available for comment. SBM had no immediate comment on the matter.

    The government source, who asked not to be named because he is involved in the negotiations, told Reuters on Wednesday that an agreement was very close but there remained a 50-50 chance of the talks folding over difficulties related to a few final clauses.

    "We have negotiated endlessly and we gave them an ultimatum: Either we finish now or we break off talks and the company will be penalized," the source said.

    The official did not detail the stumbling blocks but he said negotiations had been particularly complex because they involved several parties, including the Comptroller General's office, which is the main negotiator, as well as Rio de Janeiro state prosecutors and Petroleo Brasileiro SA, as the oil company is formally known.

    The source confirmed that the leniency deal under negotiation involves payment by SBM to Petrobras of about 1 billion reais ($253 million), part of which would be paid in cash and the rest in services to be provided by the Dutch company to Petrobras.

    Brazilian prosecutors had accused SBM of paying millions of dollars in bribes between 1995 and 2003 to secure contracts with Petrobras. Since the corruption scandal emerged, SBM and other suppliers, including construction and engineering firms, have been implicated, resulting in a ban on doing business with Petrobras.

    http://www.reuters.com/article/2015/10/22/brazil-petrobras-sbm-offshore-idUSL1N12L1NF20151022
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    Sound Energy announces strategic collaboration with Schlumberger

    Sound Energy announces strategic collaboration with Schlumberger

    Sound Energy, the European / Mediterranean focused upstream oil and gas company, is pleased to announce:

    a Memorandum of Understanding between Sound Energy and Schlumberger Oilfield Holdings Limited in respect of a strategic relationship between Sound Energy and Schlumberger across Europe and Africa; and
    a Term Sheet with Schlumberger Production Management, the production management arm of Schlumberger regarding the Tendrara licence, onshore Morocco.

    The non-binding Term Sheet represents the first preliminary agreement to be entered into under the MOU and where it is envisaged that, subject to the execution of a definitive project agreement, SPM will collaborate with the Company on the Tendrara licence in Morocco. This collaboration would include SPM providing integrated technical services on a risked basis with an upside linked to production performance.

    http://www.upstreamonline.com/live/1414547/schlumberger-in-sound-morocco-deal?utm_source=twitterfeed&utm_medium=twitter
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    Baker Hughes Revenue Falls 39% on Depressed Oil Prices


    Baker Hughes Inc. on Wednesday reported a 39% drop in revenue for its third quarter, as the oil-field services company forecast difficult conditions for its current quarter while depressed oil prices continue to pressure spending from its customers.

    Baker Hughes, which is being acquired by larger rival HalliburtonCo., has cut thousands of jobs and closed facilities as plunging oil prices have prompted many of its clients to curtail or cancel projects. Baker Hughes and its peers are particularly struggling in the U.S., where shale producers have dialed back operations.

    Chief Executive Martin Craighead said Baker Hughes is seeing greater interest in its production offerings, as customers focus on optimizing production from existing wells over exploration and production. Mr. Craighead said he expects the company to face further reductions in activity and pricing pressures throughout the remainder of the year.

    For the quarter ended Sept. 30, Baker Hughes reported a loss of $159 million, or 36 cents a share, compared with a prior-year profit of $375 million, or 86 cents a share.

    Excluding restructuring charges and merger costs, among other items, the company’s adjusted per-share loss was 5 cents a share.

    Revenue fell to $3.79 billion from $6.25 billion a year earlier.

    Analysts polled by Thomson Reuters were expecting an adjusted loss of 14 cents a share on revenue of $3.79 billion.

    Revenue fell across all of Baker Hughes’s geographic segments in the quarter compared with a year ago, with the biggest drop in North America. The division saw a 57% decline in revenue to $1.4 billion, as average rig counts fell 54% and customers cut spending.

    Latin America posted a 23% decline in revenue, while revenue fell 21% in the Middle East and Asia Pacific division.

    http://www.wsj.com/articles/baker-hughes-revenue-falls-39-on-depressed-oil-prices-1445430736
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    Baker Hughes expects less drilling in 4th qtr


    Oilfield services provider Baker Hughes Inc said it expects less drilling in the current quarter due to reduced customer spending but said it was seeing "stronger interest" in services that help increase oil and gas production.

    http://www.reuters.com/article/2015/10/21/baker-hughes-results-idUSL3N12L41K20151021
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    US Inventories post another large gain


    U.S. oil inventories rose by 8 million barrels last week, as another week of refinery downtime meant fewer barrels of oil were processed and more flowed into storage.

    The larger-than-expected build reminded traders that an end to the glut of oil driving down prices remains far off. U.S. benchmark oil prices fell by 90 cents or 1.94 percent in early trading Wednesday.

    U.S. inventories stood at 476.6 million barrels in the week ending Oct. 16, the highest level for this time of year in at least eight decades, according to the U.S. Energy Information Administration. Traders had expected a build of about 3.75 million barrels, according to the median estimate of 10 economists surveyed by Bloomberg.

    The gain comes as U.S. refineries have reduced the amount of oil they process during the fall maintenance season. Refineries ran at 86.4 percent of their full capacity, up 0.4 percentage points from last week but still far below the 95 percent-plus rates common a few months ago.

    Gasoline inventories fell by 1.5 million barrels to 219.8 million barrels. Distillate fuels fell by 2.6 million barrels to 145 million barrels.

    Wednesday’s weekly data showed the fourth consecutive weekly build in U.S. inventories and the second second consecutive gain of more than 7.5 million barrels.

    http://fuelfix.com/blog/2015/10/21/inventories-post-another-large-gain/
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    US oil production unchanged on week



                                          Last Week  Week Before  Last Year
    Domestic Production........ 9,096          9,096            8,934

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

    China solar power capacity reaches 37.95 GW by end-Sept


    China’s solar power installed capacity reached 37.95 GW by end-September, data showed from the National Energy Administration on October 20.

    Of this, capacity from photovoltaic (PV) power plants stood at 31.7 GW, while that from distributed PV power projects was 6.25 GW.

    Over January-September, China’s newly-built solar power capacity stood at 9.9 GW, with capacity from PV power plants and distributed PV power projects at 8.32 GW and 1.58 GW, respectively.

    China produced a total 30.6 TWh of solar power during the same period, with 3 TWh or around 10% abandoned, data showed.

    Northwestern Gansu and Xinjiang provinces topped the abandonment rate at 28% and 20%, reaching 1.76 TWh and 1.04 TWh in the first three quarters, separately.

    So far, nine provinces of the country saw their solar power capacity exceed 1 GW, with Xinjiang, Gansu ranking the top two at 6.17 GW and 5.81 GW, respectively.

    http://en.sxcoal.com/0/133326/DataShow.html
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    Mexico Planning $46 Billion Coast-to-Coast Wind-Energy Push


    Mexico is planning to quadruple its wind-power capacity as part of President Enrique Pena Nieto’s effort to transform the country’s energy industry.

    The country expects to have about 10 gigawatts of turbines in operation within three years spread across almost every region, up from 2.5 gigawatts in 2014, part of a government plan to add 20 gigawatts of clean energy by 2030, according to Mexico’s Wind Energy Association.

    A total of 22 gigawatts of wind power will be added over the next 25 years, requiring $46 billion in investment. The wind push is due to two converging trends: Mexico’s historic shift from a state-controlled energy monopoly, and its efforts to transform a grid that relies on fossil fuels for three-fourths of the nation’s electricity.

    "We’re already a new country," Alejandro Peraza, general director of the energy regulator CRE, said in an interview in Mexico City. "Mexico is getting cleaner."

    Mexico pledged to reduce 22 percent of its greenhouse gas emissions by 2030. Wider use of renewable energy will reduce fossil-fuel based power generation to 45 percent.

    http://www.bloomberg.com/news/articles/2015-10-21/mexico-planning-46-billion-coast-to-coast-wind-energy-push

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    Precious Metals

    Alrosa sold 42% of its mined diamonds in Q3 Analyst says results reflect waning demand.


    Alrosa PJSC, the world’s largest rough- diamond producer by output, sold less than half of the stones it mined in the third quarter, reflecting a collapse in global demand.

    The company mined about 11.6 million carats in the three months through September, an increase of 20 percent compared with the same period a year earlier, it said in a statement on its website Wednesday. The producer sold 4.9 million carats in the period. In the second quarter, Alrosa’s sales had lagged production by only 600,000 carats.

    “Alrosa’s third-quarter results reflect the slowdown in demand” and has forced the company to stockpile a portion of output, said Konstantin Yuminov, an analyst at Raiffesenbank AO. “This situation may roll over to the next year.”

    Diamond producers, including Alrosa and De Beers, are under pressure to cut supply and lower prices as traders, cutters and polishers struggle to turn a profit amid a squeeze on credit and languishing jewelry sales. Prices for rough diamonds have slumped about 15 percent this year as China’s economic slowdown cut demand for luxury goods.

    http://www.mineweb.com/news/diamonds-and-gems/alrosa-sold-42-of-its-mined-diamonds-in-q3/

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    Lonmin aims for $400 mln rights issue, proceeds with job cuts


    Platinum producer Lonmin plans a $400 million rights issue of new shares and will proceed with a planned restructuring to cut 6,000 jobs in the face of depressed prices, it said on Wednesday.

    The moves, along with a debt restructuring, are last-ditch efforts to turn round a company that has seen its share price fall to record lows this year. The $400 million rights issue exceeds its current market capitalisation of 170 million pounds ($262 million).

    Lonmin also announced that it had cut its capital expenditure for the year to Sept. 30 to $136 million from an original target of $250 million.

    The company, which had already flagged the possibility of 6,000 job losses with the aid of voluntary severance and early retirement programmes, said the restructuring is now expected to be completed by the end of September 2016.

    It said that South Africa's Public Investment Corporation (PIC), which owns about 7 percent stake of the company, had indicated to Lonmin's board that it would take up its full entitlement and might "underwrite a material portion of the proposed rights issue in excess of that.

    The embattled platinum producer, whose Marikana mine was the scene of the police killing of 34 wildcat strikers three years ago, also said it planned to amend its debt facilities "for a total of $370 million, maturing in May 2020".

    It said this would be conditional on the raising of $400 million in new equity funding through the rights issue.

    "The amended debt facilities will replace the existing debt facilities commitments, which as at 30 September 2015 were approximately $543 million and mature in May and June 2016," it said.

    Lonmin had to rely on an $800 million rights issue to shore up its battered balance sheet in November 2012 and has been beset by a string of problems since.

    Lonmin also has social and housing obligations to meet under South African law and achieving these would be difficult under current operating and market conditions.

    Job losses are another sensitive issue in Africa's most advanced economy, where the unemployment rate is about 25 percent, the mining workforce is restive and income disparities are glaring.

    http://www.reuters.com/article/2015/10/21/lonmin-issue-idUSL8N12L10V20151021
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    Base Metals

    State-owned company should take Freeport Indonesia stake -minister


    One of two Indonesian government-owned companies, miner Aneka Tambang or aluminium producer PT Inalum, should buy the stake that Freeport-McMoran's plans to divest in its Indonesian unit, the country's state-owned enterprise minister said.

    Freeport Indonesia is looking to divest 10.6 percent of the company as part of the process of extending its contract to operate its huge copper and gold mine in the region of Papua beyond 2021. It must propose the divestment share price to the government this month.

    The comments from SOE Minister Rini Soemarno come as ministers have been battling over control of U.S. mining giant Freeport's future in the country, threatening to mar President Joko Widodo's five-day trip to the United States later this month.

    "We propose that state-owned enterprises can take the divested share," Soemarno told reporters on Wednesday. "There are two possibilities: Antam and Inalum."

    Indonesia's government, which already has a 9.4-percent stake in Freeport Indonesia, will have 90 days to decide on the divestment proposal once it has been received.

    Freeport has no issues relating to the proposed divestment as long as it has a "legal basis and a clear mechanism", said company spokesman Riza Pratama. The U.S. miner would prefer to make the divestment through an initial public offering, he added.

    Aneka Tambang was willing to take the Freeport Indonesia stake, Chief Executive Tedy Badrujaman told a parliamentary hearing on Wednesday, although the state-owned nickel miner would need help from financial institutions to fund the acquisition.

    Ahead of Widodo's first trip to the United States next week, ambassador Robert Blake told reporters on Wednesday that Freeport was not actually seeking a contract extension, but instead wanted assurances that when its current contract expires, it would be extended.

    "Freeport is ready to start investing in the underground mine in Papua but of course they need some assurances that their contract will be extended so they can recoup some of their investment," said Blake, speaking in Jakarta.

    Earlier this month, Indonesian government officials said they planned to amend rules on mining contract renewals by the end of the year, which would allow companies to propose an extension 10 years before their contracts expire.

    Present rules only allows talks on an extension to start two years before a contract is due to end.

    http://www.reuters.com/article/2015/10/21/indonesia-freeport-divestment-idUSL3N12L1SM20151021
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    Steel, Iron Ore and Coal

    Australia to tighten grip on coking coal as U.S. rivals suffer


    Australia is set to boost its dominance of the global trade in steel-making coal, as cost cutting and better margins due to a slide in the local dollar stoke a rise in production and put pressure on U.S. rivals to cut output.

    Top exporter BHP Billiton , which along with Japanese partners Mitsubishi Corp and Mitsui & Co supplies nearly a quarter of globally traded coking coal, will be the biggest beneficiary.

    "As China's import flows stabilise and higher-cost North American production exits, BHP Billiton will be left as the dominant price-setting player on the supply side," Morgan Stanley analysts Tom Price and Joel Crane said in a note.

    Commodity prices have plunged over the past three years as demand in China has dropped, and the two key steel-making ingredients, coking coal and iron ore, have suffered the most.

    Coking coal prices have tumbled 75 percent from a peak of $330 a tonne in 2011, mainly due to a near one-third increase in Australia's exports from new mines that were approved at the height of China's demand boom.

    Steel demand has since fallen off in China and Japan as growth has slowed and the Chinese property market has softened.

    The World Steel Association last week forecast that China's demand for finished steel products would drop 3.5 percent in 2015 to 686 million tonnes and fall a further 2 percent in 2016.

    Despite the weaker outlook, coking coal producers in Australia are maintaining or boosting their output, shielded by an 11 percent slide in the Aussie dollar this year that has enhanced the impact of cost-cutting since coal is priced in U.S. dollars.

    That makes it worthwhile to produce as much as possible of any form of coking coal, whether it is hard, semi-soft or pulverised coal injection (PCI) material, which all fetch more than thermal coal, used in power stations.

    "We're minded to produce every tonne of PCI and semi-soft we can because that's where there's a healthy margin," said Paul Flynn, managing director of Whitehaven Coal, which started exporting from a new mine, Maules Creek, earlier this year.

    Unlike iron ore, where the market is being crushed by new supply from both Australia and Brazil, coking coal is dominated solely by Australia, the source for around 60 percent of global trade.

    That grip is set to tighten, with Australia's official forecaster seeing coking coal exports rising by 8 million tonnes over the two years to 2016, while it sees U.S. exports dropping by 6 million tonnes over the same period.

    Cuts are expected to come from the United States, where coal companies such as Walter Energy, Alpha Natural Resources and Patriot Coal face higher costs than Australian rivals and have been battered by sliding coal demand due to the shale gas boom. This has left some with little choice other than restructuring to avoid bankruptcy.

    http://www.reuters.com/article/2015/10/21/australia-coking-idUSL3N12G1T220151021
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    India's coal imports slump 27 pct in September 2015 - Mr Swarup


    Mr Anil Swarup, Coal Secretary, said that India's coal imports fell 27 percent to 12.6 million tonnes in September from a year earlier as local output jumped.

    Mr Swarup said that "With unprecedented increase in coal production by Coal India Ltd (COAL.NS), import of coal comes down for third successive month."

    Meanwhile, India is opening a mine a month as it races to double coal output by 2020.

    http://steelguru.com/coal/india-s-coal-imports-slump-27-pct-in-september-2015-mr-swarup/437312#tag
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    Rio Tinto gets preliminary nod to expand Australian coal mine


    Rio Tinto on Thursday came a step closer to gaining approval to expand its Warkworth coal mine in Australia after an influential panel recommended the work proceed, against the wishes of environmental and community groups.

    Without a final go-ahead to expand, the mine producing electricity-generating thermal coal would by December no longer be economically viable, according to the company.

    In the coming weeks, the actual approval or rejection determination will be made by a division of the New South Wales state Planning and Assessment Commission.

    Generally, the commission follows the preliminary recommendation passed by an independent panel established by the state government.

    An approval could help in any efforts by Rio Tinto to attract buyers for its coal mines in Australia, where high operating costs and low selling prices are weighing on profits.

    In September, the company agreed to sell its 40 percent stake in the Bengalla coal mine to local operator New Hope Coal

    Georgina Woods, a coordinator for the Lock the Gate Alliance in New South Wales, said the recommendation failed to take into account the wishes of the local community.

    "The New South Wales government has failed to create balanced and common sense policy that protects villages, the wine-industry and endangered bushland from coal mining," Woods said.

    "This short-sighted mining-at-any-cost policy is costing us a thriving, diverse and sustainable economic future for the region."

    A Rio Tinto spokesman said that the expansion enjoyed widespread community support and would help retain jobs and pour money into local economies.

    "Today's recommendation from the NSW Planning Assessment Commission provides a great sense of hope for the 1,300 people who work at the mine and for the hundreds of Hunter Valley businesses and community groups it supports," the spokesman said.

    http://www.reuters.com/article/2015/10/22/rio-tinto-australia-coal-idUSL3N12M1EH20151022
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    Vale earnings slide as iron-ore rout blunts cost-cutting efforts


    Vale SA, the world’s biggest iron ore and nickel producer, reported a decline in quarterly earnings as slumping prices overshadowed efforts to focus on higher quality deposits and cut costs.

    Third-quarter adjusted earnings before interest, taxes, depreciation and amortization fell 15 percent from a year earlier to $1.88 billion, the Rio de Janeiro-based company said Thursday in a statement. That compared with the $1.86 billion average of 11 dollar-based estimates compiled by Bloomberg. On a net basis, Vale had a loss of $2.12 billion as a weaker Brazilian real increased the burden of the company’s debt and derivative losses.

    Vale is producing more higher-quality iron ore and halting some of its most expensive output to improve margins and navigate an oversupplied market that sent prices down more than 70 percent from a 2011 peak. The company is betting an expansion of its Carajas complex in northern Brazil, its biggest project ever, will trim costs further, allowing the producer to boost market share and offset the effect of lower prices.

    “Lower iron ore and base metals prices should weigh on the company’s earnings in 2016 and 2017, ultimately jeopardizing cash flow generation and stretching the balance sheet,” Credit Suisse Group AG analyst Ivano Westin said in a research note Tuesday.

    On Monday, Vale posted record iron-ore output for the third quarter thanks to higher production at Carajas, while it shuts down less efficient operations elsewhere in Brazil. Production of nickel and copper missed analysts’ estimates amid shutdowns in Canada.

    http://www.mineweb.com/news/iron-and-steel/vale-earnings-slide-as-iron-ore-rout-blunts-cost-cutting-efforts/

    Attached Files
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    China steel output may collapse 20%, Baosteel Chairman says


    China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20 percent.

    Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said.

    After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn. The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production.

    ‘“If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20 percent,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.”

    Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association. The country produced 608.9 million tons in the first nine months, 2.1 percent less than the same period last year, the statistics bureau said on Monday.

    “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – – both loans and the financing provided for steel and raw material stockpiles.”

    “We are talking about output contracting by 20 percent, not just capacity,” Xu said, adding that Shanghai Baosteel Group may be able to report a small profit this year.

    “Steel prices have slumped by about 27 percent to 28 percent year-to-date,” Xu said. “So how much further can the steel price drop? I think we are back to the question on how long those loss-making mills can keep producing. If nobody exits the market, the price will fall further. But I think it won’t be like this for too long.”

    http://www.mineweb.com/news/iron-and-steel/china-steel-output-may-collapse-20-baosteel-chairman-says/
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