Mark Latham Commodity Equity Intelligence Service

Thursday 15th October 2015
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    Iran Weapons Probe End Sets Stage for Nuclear Deal to Begin

    United Nations investigators are set on Thursday to end their probe into Iran’s nuclear past, taking the next step toward the lifting of oil and financial sanctions imposed on the Islamic Republic.

    International Atomic Energy Agency monitors have until Oct. 15 to collect information and question Iranian authorities about possible military dimensions of past nuclear activities, according to a July 14 agreement between Iran and the IAEA. Inspectors will then have until Dec. 15 to draft and present a final assessment of their inquiry.

    Iran’s nuclear work has been the focus of IAEA scrutiny since February 2003, when Iranian officials told inspectors visiting Tehran of their plans to begin enriching uranium on an industrial scale. Subsequent discoveries that Iran had secretly procured nuclear materials and technologies led to years of mistrust. In May 2008 and again in November 2011, the IAEA publicly disclosed its suspicions about Iran’s activities.

    Concluding the IAEA investigation will set the stage for the broader deal between Iran and world powers to enter into force on Oct. 18, so-called “Adoption Day,” when both sides begin implementing their commitments. The U.S. and Europe have pledged to draft legislation lifting financial and energy sanctions.

    In Iran, engineers and technicians will have to begin mothballing centrifuges at the Natanz and Fordo enrichment facilities as well as retrofitting a heavy-water reactor in Arak. They’ll also need to reduce their stockpile of enriched uranium -- the core material needed to generate nuclear power and weapons -- by more than 95 percent before sanctions relief takes effect.
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    Japan, Iran agree on investment pact after sanctions end

    Japan and Iran have reached agreement on an investment accord, which may give a boost to Japanese investments into the Islamic Republic once sanctions are lifted as early as next year, the countries' foreign ministers said in a statement.

    Japan is keen to boost ties with Iran and invest in resource projects there, as well as increase crude imports from the Middle Eastern country.

    Japan's crude imports from Iran plunged more than 40 percent from 2011 levels before tough Western sanctions were introduced in 2012 over Tehran's disputed nuclear programme.

    Foreign business delegations from Italy, France and others have flocked to Tehran ahead of the expected opening of markets in the oil-rich nation of 80 million people.

    Japanese foreign minister Fumio Kishida reached an agreement on the investment pact during a meeting with the Iranian counterpart Mohammad Javad Zarif in Tehran on Monday.

    "Both sides affirmed that further efforts will be made for the earliest possible conclusion and entry into force," the statement from the ministers said.

    The Japanese government wants the agreement to come into force around the middle of next year, Japanese media reported.

    Japan's top oil and gas explorer Inpex Corp, which in 2010 was forced to give up a stake in Iran's Azadegan oil field because of the sanctions, was among dozens of companies that visited Iran in August.

    Iran's chief negotiator for new oil contacts said last week the country would introduce more than 50 exploration and production projects to investors in the near future.
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    China's Tianjin to relocate chemicals firms after blasts

    Hazardous chemical companies in the Chinese port city of Tianjin will be moved to an industrial zone far from the site of deadly warehouse explosions in August in the city's development area, state media reported on Wednesday.

    The frequency of industrial accidents, and the explosions that killed more than 160 people in Tianjin's Binhai New Area in August, have raised questions about safety standards following three decades of breakneck economic growth in China.

    Firms handling dangerous chemicals will be relocated to the Nangang Industrial Zone about 30 kilometres (19 miles) from the blast site and at least 10 kilometres from the nearest residential area, the official Xinhua news agency said, citing local officials.

    Nangang aims to become a "world-class port and base for the heavy chemical industry", Xinhua said.

    "A third-party organisation will be authorised to enact and release evaluation reports on the environment, safety and ecology," the news agency said without giving further details.

    Tianjin officials came under criticism in the wake of the blasts, which flattened part of one of the world's busiest ports.

    Hundreds of residents had protested, demanding compensation for apartment buildings that were closer to the warehouse than allowed by Chinese regulations on the storage of dangerous materials.

    China's state prosecutor has said an investigation of the blasts found officials from a range of agencies, including Tianjin's transport, land resources, work safety and customs offices, had been irresponsible, negligent and lax in the supervision.

    Chemical facilities explosions are relatively common in China and blasts have killed people since the Tianjin disaster, which spurred nationwide shutdowns and safety checks.

    A blast occurred at a Tianjin alcohol materials warehouse on Monday, although no casualties were initially reported.

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    Oil and Gas

    Saudi Arabia targets Russia in battle for European oil market

    From global majors such as Shell and Total to more modest Polish energy firms, oil refiners in Europe are cutting their longstanding use of Russian crude in favour of Saudi grades as the world's top exporters fight for market share.

    Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. But now Riyadh is retaliating in Moscow's backyard of Europe with aggressive price discounting.

    This has nothing to do with Western sanctions imposed on Russia over Ukraine, which apply to energy industry equipment but not to oil or gas itself. Instead it is a commercial battle for customers as both exporters ramp up their output despite weak world oil prices.

    This is likely to complicate further a dialogue between Moscow and the OPEC exporters' group on tackling the global oil glut, with joint production cuts already looking elusive.

    Trading sources told Reuters that majors such as Exxon, Shell, Total and Eni have been all buying more Saudi oil for their refineries in Western Europe and the Mediterranean in the past few months at the expense of Russian oil.

    "I'm buying less and less Russian crude for my refineries in Europe simply because Saudi barrels are looking more attractive. It is a no brainer for me as Saudi crude is just cheaper," said a trading source with one major, who asked not to be named because he is not allowed to speak to the media.

    Riyadh traditionally focused on the U.S. and Asian markets, leaving Moscow as a major supplier to Europe, especially the eastern countries that were once part of the Soviet bloc.

    But Russia's most powerful oil executive, Rosneft chief Igor Sechin, said on Tuesday that Saudi Arabia had started supplying ex-communist Poland at "dumping" prices. Then on Wednesday, Russian Energy Minister Alexander Novak described the Saudi entry into eastern European markets was the "toughest competition".

    Trading sources said at least one cargo reached the Polish port of Gdansk in September and two more could come in October, to be processed by refiners PKN Orlen and Lotos.

    Two trading sources said Saudi Arabia was looking at storing crude in Gdansk so that it can supply eastern European customers more quickly, just as it has done for years for western European clients from ports in the Netherlands or Belgium.

    One trader said supplies from Gdansk could be sent to Germany to compete with Russian crude sent down the Soviet-built Druzhba (Friendship) pipeline.

    The Baltic state of Lithuania, once a Soviet republic, is also looking to diversify its energy supplies. Lithuanian energy minister Rokas Masiulis told Reuters on Wednesday that the country is in talks with U.S. liquefied natural gas company Cheniere Energy Inc over possible imports as it tries to cut its dependence on Russian supplier Gazprom.

    The battle may raise suspicions in Moscow that Riyadh is trying to punish the Kremlin for supporting Syrian President Bashar al-Assad, an enemy of Saudi Arabia, most recently with Russian air strikes on rebel groups.

    "The Saudis want to secure the market share before Iran comes back," said a trading source with an oil major.

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    Mexico to import 9 Bcf/d of natural gas from US under five-year plan: ministry

    Mexico aims to import 9 Bcf/d of natural gas from the US under a five-year plan to build gas pipelines and infrastructure, Mexico's Energy Ministry said Wednesday.

    Currently, Mexico imports about 1.5 Bcf/d from the US.

    The five-year plan, to run from 2015-2019, includes a new compression station in the northern state of Chihuahua and 13 other projects, many of which are already being tendered or under construction.

    Investment was calculated by Energy Minister Pedro Joaquin Coldwell at $11 billion through 2019.

    So far all the tenders are being organized by the two state companies of the sector, the Federal Electricity Commission and the oil company Pemex. The recently founded Cenagas will organize them beginning from next year. Cenagas is the autonomous state regulator for natural gas, under the terms of last year's energy reform.

    The Ramones pipeline, already under construction by Pemex from the US border to the north Mexican state of Nuevo Leon, is to be extended by 855 km to the southern Gulf state of Veracruz, Joaquin Coldwell said at an event to present the five-year plan.

    By 2018, when the current Mexican administration ends, Mexico will build at least 5,000 km of additional pipeline, an increase of 84% on the present network, representing an investment of $10 billion, Joaquin Coldwell added.

    His deputy, Lourdes Melgar, recalled the crisis years of 2012 and 2013, when demand for natural gas in Mexico exceeded far more than the available supply from the US and the nation's LNG reception terminals.

    Currently, more than 3,000 km of pipeline is under construction to help remedy the shortages, she said, and investment so far amounts to $2 billion.
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    E.ON sells Norway oil and gas assets to Russian billionaire

    E.ON is selling its Norwegian oil and gas assets to Russian billionaire Mikhail Fridman in a deal worth $1.6 billion as Germany's biggest utility continues to shed assets under a restructuring plan.

    As part of its major overhaul, E.ON put its North Sea oil and gas exploration and production activities (E&P) under review, hoping to rake in proceeds from a business where it lacks the critical mass to compete with large oil companies.

    "The successful sale of our E&P business in Norway is a landmark transaction in the sector," Michael Sen, E.ON's Chief Financial Officer, said in a statement.

    Under its restructuring plan, E.ON will spin off its energy trading, oil and gas activities and most of its power generation next year into a new company called Uniper.

    Fridman's LetterOne fund emerged as the frontrunner to buy E.ON's Norwegian North Sea assets after the Russian was forced to sell his British North Sea assets as a result of Western sanctions over the Ukraine crisis.

    E.ON E&P Norge has stakes in 43 licences but most are exploration assets, only a handful are in production and none is operated by E.ON. Its main production fields include Njord, operated by Statoil and Skarv, operated by BP.

    Shares in E.ON turned positive after the sale news and were up 2.6 percent at 1111 GMT, leading the German blue-chip index higher.

    The purchase by LetterOne, whose energy fund is headed by former BP boss John Browne, signals a push by the Russian oligarch to expand his fund's oil and gas portfolio.

    "This acquisition in Norway is a perfect fit to our renewed business strategy," said Thomas Rappuhn, CEO of DEA Deutsche Erdoel AG, which LetterOne bought from E.ON's German peer RWE earlier this year.

    Rappuhn said the company would look for further acquisitions in Europe and North Africa.
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    Repsol to sell assets and cuts spending

    Repsol said it had achieved “transformative growth” following its $8.3billion acquisition of North Sea operator Talisman, but would be focusing on efficiency and resilience as it laid out its strategic plan for 2016-2020.

    The group presented its plan today just months after buying Canadian producer Talisman in May, a deal that raised its international profile and boosted output but also drastically increased its debt.

    The Spanish oil major has said its net profit could fall by up to 22% in 2015, hit by low crude prices and a loss of value of some of its North-American assets which will trigger a big impairment charge in the third quarter.

    It aims to sell more than €6bn of assets and reduce capital spending over next five years as part of the new strategy which will seek to protect its investment grade rating and dividend from the slump in prices in the past year

    Repsol said it saw net profit reaching a range of between 1.25 billion and 1.5 billion euros ($1.43-1.72 billion) at the end of 2015, down from the 1.61 billion euros in 2014.

    Its net profit cleaned of inventory effects is seen at between 1.6 billion and 1.8 billion euros, down from 1.7 billion euros in 2014.

    The company said it would book a provision of 450million euros in the third quarter from impairments at its Gas & Power and Mississippian Lime units in the United States.

    The underlying business also showed signs of coming under increased pressure.

    Repsol is still aiming for a full-year increase of earnings before interest, tax, depreciation and amortisation (EBITDA) but it switched on Wednesday to a target cleaned of inventory effects, which is deemed easier to achieve in the current context of lower oil prices.

    The firm previously saw its 2015 EBITDA at between 5 billion and 5.5 billion euros, or an increase of up to 45 percent from 2014. It now sees its CCS EBITDA at between 5.2 billion and 5.45 billion euros, or an increase of up to 15 percent from 2014.

    Its production, while up in the third quarter at 651,000 barrels per day from 526,000 barrels per day in the previous three months, was also below a 680,000 barrels per day target announced at the time of the Talisman purchase.
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    Sinopec Gets Approval for $20 Billion West-East Gas Pipeline

    China Petrochemical Corp., Asia’s biggest refiner, received government approval to build a 8,400-kilometer (5,221-mile) pipeline network to connect gas fields in northwest China to southern and eastern provinces.

    The project from Xinjiang to Guangdong will have an artery and six regional links, the company, known as Sinopec Group, said in an e-mailed statement Wednesday. Investment in the pipeline will be about 130 billion yuan ($20 billion). The statement didn’t mention a construction timeframe.

    The network is designed to send gas produced from Sinopec Group’s Zhundong coal-to-gas project in Xinjiang to end users in populous eastern and southern provinces. It will also carry unconventional gas from coal-bed methane and shale gas projects in northwest China.

    “China’s National Development and Reform Commission has officially approved our project, ” Sinopec Group said in the statement. “The new pipeline will increase China’s natural gas supply and help meet central and eastern China’s increasing gas demands.” The NDRC is China’s top planning agency.

    Sinopec Group’s coal-to-gas project in Xinjiang can produce 8 billion cubic meters of gas a year, it said.
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    TAG Oil reports reduction in forward guidance and reduced capital spending

    TAG Oil Ltd, is cutting its forward guidance and planned capital expenditures for the remainder of fiscal 2016 in response to the low commodity price environment, and due to a slower than expected ramp up of our workover program in the Taranaki Basin of New Zealand. TAG will focus on preserving capital, continuing with a reduced workover program and reducing costs.


    TAG is reducing its 2016 average production guidance down from 1,900 BOE/d to 1,400 BOE/d and expects to exit its fiscal 2016 year-end at approximately 1,400 BOE/d.
    TAG is reducing its 2016 forecast capital expenditures down from $23 million to approximately $13 million with $6 million already spent.
    Full year 2016 operating cash flow is expected to be approximately $13 million versus the $22 million forecast at the beginning of the year.
    TAG is now budgeting and running all of its economics based off of a US$45 per barrel Brent oil price for the remainder of the fiscal year.
    TAG will continue to focus on lower cost workovers, artificial lift optimization and re-perforations of certain intervals. To preserve capital, these programs have been prioritized over drilling new wells. Additional programs will include a water-flood pilot study.
    TAG expects to end fiscal 2016 with at least $15 million in cash and cash equivalents assuming US$45 per barrel Brent oil price for the remaining six months of operations.

    'We continue to maintain cash flow positive operations despite historically low oil prices. Driven by our operational expertise and strategic focus on cost containment and value creation, our current breakeven price for oil production remains at approximately US$38/BOE - well below the current industry average for similar conventional production.'
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    API data shows U.S. stockpile building sharply

    Data from industry group the American Petroleum Institute on Wednesday showed that U.S. crude inventories rose by 9.4 million barrels in the week to Oct. 9 to 465.96 million, compared with analyst expectations for an increase of 2.8 million barrels.

    Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.4 million barrels, API said.

    But some analysts were optimistic on the long-term outlook for oil markets.

    "(Our) base case price scenario results in Brent prices reaching $85 per barrel by 2020, around $20 higher than the current 2020 futures strip of about $65 per barrel," Barclays said in a report.

    "What happens to oil market balances after 2016 depends critically on three main wildcards: a slowing China's impact on oil demand, the return of Iranian oil and the rate of mature field decline.".

    BMI Research, part of the Fitch ratings agency, said in a note that China's crude oil imports would continue to grow over the next five years at an average annual rate of 3.2 percent.

    "This will be a result of higher refinery run rates to produce gasoline and continued strategic stockpiling activity up to 2020, which will help to override macroeconomic headwinds to domestic crude demand," it said.

    Asian shares rose on Thursday and the dollar struggled near multi-week lows after weak U.S. economic data added to expectations that the Federal Reserve will delay hiking interest rates.

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    U.S. shale oil output to fall by most on record in November: EIA

    U.S. shale production is expected to fall the most on record in November, extending a nationwide output decline into its seventh consecutive month, according to a forecast from the U.S. Energy Information Administration.

    Total output is set to fall by more than 93,000 barrels per day (bpd) to 5.12 million bpd, according to the EIA's monthly drilling productivity report. That's the largest monthly cut forecast since data was available in 2007.

    Oil production from the Eagle Ford play in South Texas was expected to fall 71,000 bpd to 1.37 million bpd. Bakken oil output in North Dakota was expected to slide 23,000 bpd to 1.16 million bpd.

    Oil production from the Permian Basin of West Texas, which continues to buck the trend, was projected to rise 21,000 bpd to 2.03 million bpd.

    New well oil production per rig remained unchanged for the Bakken and Eagle Ford. It rose 2 bpd in the Permian, data show.

    Natural gas production in the major shale plays was expected to fall 294 million cubic feet per day (mmcfd) to 44.9 billion cubic feet per day (bcfd) in November from October.

    That would be the fifth expected monthly decline in a row for gas production from shale fields and would be the biggest decline since March 2014, according to EIA data. Despite the expected decline in November, overall production would still be up from the 42.8 bcfd shale output in November 2014.

    EIA forecast the biggest production declines would be in the Marcellus in Pennsylvania and West Virginia, down 215 mmcfd, and the Eagle Ford in South Texas, down 135 mmcfd.

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    Wall Street Setting Aside More Cash to Cover Weakening Oil Loans

    Wall Street lenders that bankrolled the debt-fueled U.S. oil boom are setting aside more cash to cover potential energy losses as "lower for longer" takes its toll.

    Oil prices have declined 43 percent in the past year to $46.29 a barrel. JPMorgan Chase & Co. said Tuesday that it increased its loan loss reserves for oil and gas by $160 million in the third quarter. Bank of America Corp.’s at-risk loans increased 15 percent from a year ago due to the deteriorating finances of some of its oil and gas borrowers. And Wells Fargo & Co. reported that it reserved additional cash to cover potential losses in the energy sector.

    “That’s what we’re here for is to lend to clients, particularly in tough times,” JPMorgan Chief Executive Officer Jamie Dimon said during a conference call Tuesday discussing third-quarter financial results. “You can’t be a bank that every time something goes wrong you run away from your client.”

    After rebounding to $61 a barrel in June, crude prices tumbled 24 percent in the third quarter. Shale drillers have slashed spending, laid off thousands of workers and seen their credit ratingsdowngraded. Banks are in the middle of the second round of twice-yearly reassessments of oil and gas credit lines, and borrowing limits have been cut for companies including SM Energy Co., Oasis Petroleum Inc. and Emerald Oil Inc.

    Dimon said the bank stress-tested its loan portfolio to see what would happen if oil prices fell to $30 a barrel.

    “We think we’d have to put up another $500 million or $750 million in reserves, which is just not something we worry a lot about,” Dimon said.
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    October Bakken Rig Count

    According to the Department of Mineral Resources, there are now 67 active rigs in western North Dakota, down four from last month and seven from August.

    The all-time high was 218 rigs drilling in May of 2013.

    The price of sweet crude has recovered slightly and is at $35 per barrel Tuesday.

    That's up from $31.17 in September.

    In August, there were 13,016 active drilling wells, up from 12,965 in July.
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    Yale Study Concludes Fracking DOES NOT Contaminate Drinking Water

    The Sierra Club should start printing retractions (something they’ve been getting a lot of practice doing), because researchers from Yale University have concluded that hydraulic fracturing, or fracking, doesn’t contaminate drinking water!

    “There is no evidence of association with deeper brines or long-range migration of these compounds to the shallow aquifers” concludes the new study, which was published in the highly prestigious Proceedings of the National Academy of Science. The study, the largest of its kind, sampled 64 private water wells near fracking sites to determine if they could be contaminated by fracking fluids.

    “[The chemicals] are likely not a threat to human health,” said Brian Drollette, the study’s first author who is a chemical and environmental engineering graduate student.

    The Yale researchers found essentially no contamination in well water, and the amounts they did detect were hundreds or thousands of times smaller than can be detected by commercial labs.

    The Yale study also bolsters findings made by the Environmental Protection Agency earlier this year that “did not find that [fracking techniques] have led to widespread, systemic impacts on drinking water resources in the United States” from fracking.

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    Alternative Energy

    Lynas reports solid first quarter

    Despite low commodity prices, rare earths miner Lynas has achieved a strong first financial quarter. The ASX-listed company reported on Wednesday that stable production output, consistently high-quality end-product and efficient cost and cash management had been key contributors to the company generating A$1.3-million in free cash flow for the three months to September 30, despite rare earth prices dropping to historic lows.

    Lynas produced 3 171 t of ready-for-sale rare earths during the quarter, which was in line with guidance, and included 968 t of neodymium praseodymium. With production now stable, Lynas has focused on the quality of its cerium and lanthanum products and has made strides in improving quality output. This, the company said, would allow Lynas to serve new customers with higher-quality specifications. 

    The company sold 2 691 t of rare earth oxides in the three months under revieew, compared with the 2 353 t sold in the previous quarter. Sales revenue for the quarter reached A$46.2-million, down from the A$51.9-million achieved in the previous quarter. 

    Meanwhile, recovery rates improved at both the Mt Weld and Lynas Advanced Materials Plant, in Malaysia, and, along with the increased throughput, led to a reduced unit cost of production. Lynas said that continuing to reduce the cost of production was essential to mitigating the effects of the current low market prices.
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    Cheap natural gas from U.S. shale claimed another victim this week.

    Entergy, a large integrated utility specializing in nuclear power, announced that it will be shutting down its Pilgrim Nuclear Power Station in 2019, citing “poor market conditions, reduced revenues and increased operational costs.”

    The Pilgrim plant, located in Plymouth, Massachusetts, has a capacity of 680 megawatts, enough power to supply 600,000 homes in New England with electricity. However, the power plant has been undercut by cheap natural gas, as New England increasingly ties into shale gas from the Marcellus Basin in Pennsylvania.

    Cheap gas is putting downward pressure on wholesale power prices, pushing them down to $10 per megawatt hour, levels that are unprofitable for the Pilgrim plant. Entergy blamed flaws in electricity markets, which policymakers have failed to address. For example, nuclear power provides baseload power, 24 hours per day, and is low-carbon. That should theoretically make the plant a key part of the region’s climate change strategy. But since there is no price on carbon, the Entergy plant is not compensated for providing clean energy.

    And with an eye on cheap natural gas, the region is supporting the expansion of natural gas pipelines to increase access to the fuel, with the intention of sourcing a larger share of the region’s electricity supply from natural gas.
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    Precious Metals

    Gold breaks out

    Gold breaks out

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    Base Metals

    Vedanta raises prospect of more copper cuts

    Vedanta Resources raised the prospect of further cuts in copper production from its Zambia-based Konkola Copper Mines (KCM).

    "If copper prices remain low and we see further constraints on power availability that will put some copper production at risk," said Tom Albanese, CEO of Vedanta. He was commenting on the sidelines of the Joburg Indaba mining conference.

    On October 2, KCM said it would send an additional 148 workers on forced leave, owing to weak copper prices and power shortages. This follows some 133 employees who were asked to stay away from work while KCM reviewed operations.

    "We have reduced our own consumption by 20% in the past few months, but it is not enough to overcome the power deficit, so we have reduced refining capacity and that led us to reduce mining operations," said Albanese.

    In September Glencore's Mopani Mines said that it planned to cut 4,300 workers at its Mopani operations for the similar reasons as those of Vedanta.

    Zambia has installed capacity of 2,300MW but a drought which has restricted the productive capacity from hydroelectric sources has resulted in a deficit of some 985MW in September versus the maximum recorded demand of about 1,960MW.

    Zambia's finance minister, Alexander Chikwanda, estimated recently that the country would produce 25% less copper this year, partly owing to lower power availability. "By the end of the year, I don’t think we’ll go far beyond, very much beyond 600,000 tonnes," said Chikwanda.
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    Indian copper firms sends SOS to government on cheap imports

    ET reported that India's three copper majors Hindalco Industries, Vedanta Ltd and Hindustan Copper Ltd have warned the government that the sector is facing an imminent shutdown in the face of a surge in cheaper imports from Japan and Asian countries

    Operating at 75% of capacity, the industry has cautioned about further cuts in production that could impact 10,000 jobs, blaming free trade agreements or FTAs, which would allow an influx of duty-free copper by 2021, for making the entire sector unviable.

    An industry executive said “Both primary copper producers and downstream industries, including over 800 small and medium enterprises, are suffering, and production may have to be cut further soon. The issues have been raised with officials in the mines ministry and would also be taken up with the ministries of finance and commerce. 'The domestic industry looks forward to government's support to maintain its viability and improve its competitiveness and will contribute significantly to the PM's vision of Make in India.”

    The development assumes significance amid a tepid global commodity market that is seeing demand shrink as China's hunger for resources is slowing down in tandem with its growth. The copper industry's SOS call comes within a month of the Modi government decision to impose a 20% safeguard duty on import of some steel products for 200 days, after a similar clarion call from local steelmakers.

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    Steel, Iron Ore and Coal

    Coal strike ends after NUM agrees to wage deal - Union

    The unions said that the coal sector strike has ended after the National Union of Mineworkers (NUM) agreed in principle to a two-year wage deal with producers.

    This brings to an end just over a week of industrial action that 30,000-strong NUM members had embarked on. The end to the strike will also come as welcome relief to Eskom, as most of the power utilities’ stations are fuelled by coal.

    Mr Peter Bailey, NUM chief negotiator in the sector, said that although, no agreement has been signed, management will be talking to employees about a return to work, which is likely to happen on Wednesday morning.

    Mr Bailey said that “The parties have now concluded an agreement after a lengthy and dynamic process. It wasn’t easy. All of us had to steer the ship through the rocky waters. The parties will now bury the hatchet.”

    The deal, which the NUM has in principle agreed to, will see entry-level underground workers (categories 4-8) receive increases of ZAR 750 and ZAR 1,000 a month in the first year. In the second year, workers who fall in this category will get a guaranteed 7.5% pay hike.

    Employees in higher categories will get between 5% and 7.5% wage salary increases.

    He said that coal producers Anglo American Coal, Delmas, Exxaro, Kangra, Koornfontein, Msobo and Glencore, which are represented by the Chamber of Mines, were set to sign the agreement with the NUM after final details were ironed out.

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    Australia clears way for Adani's $7 bln coal and rail project

    The Australian government on Thursday reissued an environmental permit for construction of one of the world's biggest coal mines to India's Adani Enterprises, after clearing concerns about two rare outback species.

    The decision by Environment Minister Greg Hunt opens the way for Adani to proceed with the A$10 billion ($7 billion) project in the undeveloped Galilee Basin that promises to generate billions of dollars in export revenue for Australia.

    Adani, which wants to ship 40 million tonnes of coal a year in the mine's first phase, has battled opposition from green groups since starting work on the project five years ago.

    A court in August temporarily blocked progress on the mine following a claim Adani failed to take into account the welfare of the yakka skink and ornamental snake.

    "The conditions I have imposed take into account issues raised by the community and ensure that the proponent must meet the highest environmental standards," Hunt said in a statement.

    The conditions include protecting and improving habitat for an endangered finch, protecting groundwater and providing A$1 million in funding for research to improve conservation of threatened species in the Galilee Basin.

    The project's proponents argue it is needed if Indian Prime Minister Narendra Modi is to keep his promise to bring electricity to hundreds of millions of people living off the grid. Critics are concerned greenhouse gases from burning coal will hinder efforts at combating global warming.

    Several French and German banks have said they will not provide financing for coal mining in the Galilee Basin, while Standard Chartered and Commonwealth Bank of Australia pulled out of the project in August.

    "Minister Hunt is sacrificing threatened species such as the Black Throated Finch and precious ground water resources for the sake of a mine that simply does not stack up economically," Ellen Roberts, co-ordinator of the Mackay Conservation Group, said on Thursday.

    Adani, which stills needs state government approvals including a mining lease and permission to dredge for a port, has yet to line up funding.

    "It is certainty over the remaining approvals that is now key to the company progressing its plan to deliver mine, rail and port projects in Queensland that will deliver 10,000 direct and indirect jobs, and A$22 billion in taxes and royalties," Adani Australia said in an emailed statement.

    While a push in India to rely more on solar and wind power and domestic coal has raised questions over the viability of the project, Adani has said the majority of Carmichael production had been pre-sold, guaranteeing revenue.
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    Poland's Grupa Azoty plans $648 mln coal gasification plant

    Poland's biggest chemical group Grupa Azoty has given initial approval to a 2.4 billion zlotys ($648 million) project to build a coal gasification plant, which would help boost local demand for coal by 1 million tonnes a year, it said on Wednesday.

    The state-run company said it would make the final decision on the investment in the town of Kedzierzyn Kozle in the first quarter of 2016, after it completes a feasibility study and concludes talks with potential partners.

    "The development of alternative coal use technologies confirms that coal is one of the most important natural resources of Poland," treasury minister Andrzej Czerwinski said in a statement.

    Earlier this year, the Polish government approved the plan for Grupa Azoty to develop the coal gasification project valued at between 1.8 billion zlotys to 4.2 billion zlotys, depending on whether it would produce hydrogen or methanol.

    The project was identified as a part of a wider programme designed to boost the country's southern industrial area Silesia, where the bulk of Poland's struggling coal mines are located. Poland is estimated to have an oversupply of coal amounting to around 7 million tonnes a year.
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    BHP gloomy on iron ore price, but cautiously optimistic on China

    BHP Billiton, the world's largest miner, was downbeat on Wednesday about iron ore prices as low-cost producers continue to swamp the market and as the intensity of China's demand for the steel making raw material ebbs.

    However, there were some positive signs on the economic outlook for top commodity consumer China, BHP officials told a briefing during the LME Week industry gathering.

    "By the end of this year, there will be additional iron ore coming from Australia, from Brazil," Arnoud Balhuizen, president of the group's marketing unit, told a media briefing.

    "Our expectation is that the iron ore market cost curve will continue to flatten and continue to come under pressure."

    In China, while some state-owned iron ore mines continue to operate even though they are losing money, privately-owned mines have largely been closing down when they go into the red, he added.

    "You'd be surprised how capitalism is making its way into China. If you own a mine in China, it's a universal thing that you don't like to lose money."

    A substantial driver of the decline in commodity prices this year has been the fear of a hard landing in China's economy, but BHP sees glimmers of hope despite weak industrial production data, said Stacie Wu, vice president of market analysis in the marketing unit.

    "In terms of the industrial side, which drives a lot of our commodities in the near term, we look at other measures as well, for example electricity generation, and some of those lead indicators actually tell us there is activity happening," she said.

    "If you look at property sales and property prices, those have been improving as well."

    Balhuizen said there has been no issues with finding buyers recently. In the most recent financial year, BHP's marketing unit handled $45 billion of sales.

    "All our commodities we have continued to see over the last couple of months, commodities going, inventory levels not being built up throughout the supply chain," he said.

    "So while prices are lower, it hasn't stopped business, and in some businesses we have seen increased flows."

    Balhuizen also said he did not share the concerns of some others that a surge of speculative activity was distorting commodity prices.

    In August, the chief executive of hard-hit commodity group Glencore, Ivan Glasenberg, blamed short sellers and hedge funds for a rout in his shares, saying they did not understand his business and were painting "doomsday scenarios" for commodities.

    Speculative activity has been a big factor in financial markets for over 25 years and can cause short-term volatility, but was not a cause for concern, Balhuizen said.

    "Some people who are complaining about it now have probably been big players in it as well. So let's be realistic about it," he said.
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    Iron ore miner Fortescue Q1 cost cuts beat target, shares climb

    Australia's Fortescue Metals Group reported on Thursday its quarterly iron ore shipments were virtually flat at 41.9 million tonnes, but the miner said production costs were cut more deeply than its fiscal 2016 target.

    The world's fourth-biggest iron ore exporter, which had been aiming to lower its cash production cost to $18 per wet metric tonne in a weak global market, said costs averaged $16.90 over the quarter.

    "Our team is continuing to deliver sustainable cost reductions through an unwavering focus on optimising every aspect of Fortescue's operations," Chief Executive Nev Power said in a statement. .

    "This has resulted in production costs being driven lower for the seventh consecutive quarter, down by 47 percent compared to the September 2014 quarter,"

    Fortescue has recently traded off seven-year lows, which analysts attributed to a period of stability in the iron ore price at around $55 per tonne.

    The steel-making commodity has now lost almost 3 percent in two days, reversing a four-day winning streak driven by expectations of further Chinese stimulus benefiting steelmakers.

    Also, Fortescue's debt of $6.6 billion remains a concern for investors amid rumours it was close to selling some assets or taking on new equity partners.

    Fortescue said it sold its ore at an average of $50 a tonne over the last quarter, or 91 percent of the 62 percent iron benchmark price, reflecting its lower grade.

    Australia's Fortescue Metals Group said on Thursday seaborne iron ore sales into China were clearly improving, and iron ore prices would increasingly be driven by demand rather than supply.

    "All eyes are on China at the moment to see what the Chinese government will do in terms of economic stimulus. That will determine steel demand and in turn demand for iron ore going forward," Chief Executive Nev Power told a conference call.
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    Roy Hill iron ore shipment delayed a bit

    Image Source: AfrSydney Morning Herald reported that Ms Gina Rinehart's key lieutenant Mr Tad Watroba has revealed the Roy Hill project has suffered a further delay and its first shipment of iron ore will not leave Port Hedland until at least November. Mr Watroba conceded in a statement on Wednesday the first shipment would now not be until the last two months of this year. Roy Hill said as late as last week the maiden shipment, originally slated for September, was still expected to occur in October.

    Within an hour, Roy Hill clarified the timing of the shipment with a statement from chief executive Mr Barry Fitzgerald who said it was imminent in the coming weeks but later than October 21, which had been reported by some media.

    In a rare public attack, Mr Watroba, executive director of Mrs Rinehart's Hancock Prospecting, lashed out at suggestions that supply from Roy Hill would put pressure on the soft iron ore price, which is hovering around USD 55 a tonne. Mr Watroba said analyst and media speculation on the prominent project's impact on prices was overstated. He said "They ignore that the prices dropped last year, pre-Roy Hill even shipping, and that when Roy Hill commences shipments in the last two months of this year, these initial shipments will only represent a small portion of its capacity of 55 million tonnes a year. Close to 90 per cent of the supply was spoken for under long-term contracts, so very little ore will actually enter the spot iron ore market.”

    It is understood the outburst is in response to media coverage of a research note Citi analysts published on September 28 which referred to the supply from Roy Hill as an impending whale likely to negatively impact pricing.
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