Mark Latham Commodity Equity Intelligence Service

Monday 24th October 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Gold: biding her time.

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    China's Capital Outflows Are Soaring Again: Goldman Finds Sept. FX Flows Surged To $78 Billion


    If one looks at China's reserve data released by the PBOC, one would be left with the impression that China's capital outflows - the bogeyman that sent global risk assets tumbling in late 2015 and early 2016 -  have moderated notably in 2016 after the surge during the summer of 2015 and in early 2016. However, as we explained previously, the PBOC has a habit of hiding what is truly happening below the surface, using legitimate mechanisms such as forward contracts,as well as some less legitimate ones. So to get an accurate perspective of what is happening with China's fund flows, one has to look at a monthly dataset provided by SAFE, which presents the capital flow data in a way that can't be "fudged."

    As a reminder, according to PBOC official data, China’s currency reserves fell by $18.79 billion in September to $3.17 trillion. The drop was larger than the $11 billion fall estimated and followed a drop of $15.89 billion in August and was the largest monthly decline since May. However, in what will surely be a troubling sign to Yuan bulls, not to mention all those who believe another burst of Chinese capital outflows can destabilize the market (as China is forced to dump US denominated reserves), Goldman has found that the real outflow in September was vastly greater: more than 4 times the official number, and the highest since January, an indication that the capital outflows are once again picking up substantial pace.

    As Goldman's MK Tang writes in a note released overnight, his preferred gauge of FX flow (based on SAFE data) shows that FX outflows rose to US$78bn in September (from US$32bn in August). The particular gauge incorporates information on both onshore net FX demand by non-banks and cross-border RMB movements.

    http://www.zerohedge.com/news/2016-10-21/chinas-capital-outflows-are-soaring-again-goldman-finds-sept-fx-flows-surged-78-bill
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    China's energy guzzlers Sep power use edges up on year


    Power consumption of China's four energy-intensive industries edged up 0.6% on year to 148.4 TWh in September, accounting for 29.9% of the nation's total power consumption, the China Electricity Council (CEC) said on October 20.

    Of this, the chemical industry consumed 35.0 TWh of electricity, and the ferrous metallurgy industry consumed 41.6 TWh, dropping 4.9% and 0.7% on year, respectively; while power consumption of building materials industry and non-ferrous metallurgy industry stood at 28.1 TWh and 43.8 TWh, separately, rising 4.1% and 4.3% compared to the same month last year.

    In the first nine months of the year, the four energy guzzlers consumed 1284.1 TWh of electricity in total, or 29.3% of the country's total power consumption, declining 1.9% from the year-ago level, compared to a 2.2% drop a year prior.

    The ferrous metallurgy industry consumed 353.6 TWh of electricity during January to September, falling 6.8% year on year, compared to the drop of 7.8% from the previous year; while the non-ferrous metallurgy industry used 376.2 TWh of electricity, down 1.7% year on year, against a 3.7% rise from the year prior.

    The chemical industry consumed 322.7 TWh of electricity over the same period, up 1.6% year on year, against a 2.5% rise from a year ago; while power consumption of building materials industry increasing 0.9% year on year to 231.6 TWh, compared to a 6.4% decline a year ago.

    http://www.sxcoal.com/news/info?id=4548387&lang=en
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    Oil and Gas

    Iraq says doesn't want to join OPEC cut


    Iraq said it wanted to be exempt from any deal by producer cartel OPEC to cut production to prop up the market, and as U.S. drillers stepped up work.

    Traders said price falls followed comments from Iraq, which said it wanted to be exempt from a production cut by the Organization of the Petroleum Exporting Countries (OPEC) that the group plans to decide at its Nov. 30 meeting.

    OPEC plans to reduce production to a range of 32.50 million to 33.0 million barrels per day (bpd), down from 33.39 million bpd in September.

    That would be harder to achieve if Iraq, which is OPEC's second-biggest producer after Saudi Arabia, didn't participate.

    Iraq said on Sunday that its oil production stood at 4.774 million bpd, with exports standing at 3.87 million bpd.

    "We are not going back in any way, not by OPEC not by anybody else," said Falah al-Amri, the head of Iraq's State Oil Marketing Company.

    "Comments by Iraq over the weekend that it may not join the OPEC agreement to cut production could see oil prices come under pressure in today's session," ANZ bank said on Monday.

    On the demand side, Japan's crude imports fell 4.6 percent in September from the same month a year earlier, to 3.27 million bpd, official data showed on Monday.

    Despite Monday's lower prices, analysts said that oil markets, which have been dogged by two years of oversupply, might be rebalancing in terms of production and consumption.

    "Statistical balances suggest that conditions have improved markedly. We suspect that the market is moving more quickly into balance than is generally recognised," Barclays bank said in a note to clients on Sunday.

    "The market moved into a small deficit in Q3, will remain so in Q4 and then the deficit will expand significantly in 2017," it added.

    http://www.reuters.com/article/us-global-oil-idUSKCN12O02S

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    Saudi Arabia looks to Russia to boost non-OPEC cooperation


    Saudi Arabia's Energy Minister Khalid al-Falih said on Sunday he had invited his Russian counterpart Alexander Novak to meet Gulf Arab energy ministers in Riyadh as part of efforts to cooperate with non-OPEC members to stabilize the oil market.

    "Russia is one of the world's biggest oil producers ... and is one of the influential parties in the stability of the oil market," Falih said at the opening session of the six-member Gulf Cooperation Council (GCC).

    Falih said Novak had welcomed the invitation, "as a clear indication of sincere desire to continue cooperation and coordination with the oil producing and exporting countries for more stability in the market."

    Novak had said on Friday he would take "some" proposals to the meeting in Riyadh.

    Last month in Algiers, the Organization of the Petroleum Exporting Countries agreed modest oil output cuts. The goal is to cut production to a range of 32.50-33.0 million barrels per day (bpd).

    "The Algeria meeting last month was successful in pushing the path of cooperation between oil producing and consuming countries and included important talks between experts from OPEC countries and outside of OPEC about oil markets," Falih said calling on his Gulf energy counterparts to work together as a bloc.

    Falih also said that the low oil price environment had led to a decrease in investments which could lead to a shortage in supply in the future and have a negative effect on the global economy.

    http://www.reuters.com/article/us-oil-opec-gulf-idUSKCN12N094
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    Finding the right model for Indonesia's oil and gas management


    Indonesia has substantial unexplored basins predicted to hold 43.7 billion barrels of crude oil, according to data from the country's Upstream Oil and Gas Taskforce (SKK Migas).

    But companies are reluctant to fund expensive explorations of new oil fields, which in Indonesia's case are mostly offshore. The problem: Indonesia does not have a dedicated law for oil and gas management. The lack of clear regulation creates legal uncertainty for the industry.

    It was not always like this. Indonesia had a dedicated oil and gas law. In 2002, the parliament passed a law that ended the state oil company's three-decade monopoly over oil and gas management in Indonesia. But a decade later the Constitutional Court ruled in favour of nationalist groups and declared the 2002 oil and gas law unconstitutional.

    The country's lawmakers for the past two years have been deliberating a new oil and gas bill without much progress. Nationalist groups are pushing to return monopoly rights over the country's oil and gas reserves to the state oil company, Pertamina.

    Learn from past failures

    Lawmakers should learn from past failures and avoid this option. Throughout the 1970s to the early 2000s, the concentration of power in the hands of Pertamina created systemic corruption. It also created complacency within the company, resulting in inefficiency and a lack of competitiveness.The Pertamina monopoly used a model called the production sharing contract. It was introduced in Indonesia in the 1960s and is now used for oil and gas contracts by around 40 developing countries in Africa, Central Asia and Southeast Asia.

    Under this model, a state, represented by a state oil company, hires private contractors to explore and produce oil and gas. The contracted company will bear all the risks, including the financial costs of exploration and production. If oil is discovered, the company receives 'payments' for the oil produced after covering production costs. If the exploration fails, the company receives nothing.

    Pertamina held both supervisory and commercial roles under the production sharing contract model. There was no independent agency to monitor Pertamina's commercial activities. Since private contractors did all of the hard work, Pertamina's own capacity in oil production regressed.

    http://www.oilvoice.com/n/Finding-the-right-model-for-Indonesias-oil-and-gas-management/18c330306407.aspx
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    Rosneft may buy own shares in stake sale: minister


    Russia's top oil producer Rosneft can buy some of its shares slated for privatization and re-sell them later, an Economy Ministry official told Reuters on Friday.

    Russia hopes to raise around 700 billion roubles ($11.2 billion) from the sale this year of a 19.5 percent stake in Rosneft by state holding company Rosneftegas, which holds 69.5 percent of its shares.

    "In accordance with the law, a part of Rosneft stake may be bought by the parent company (Rosneft) or its subsidiary," Oksana Tarasenko, head of the Economy Ministry's Corporate Governance Department, said in emailed comments.

    "Even if there is a buyback (by Rosneft), we will expect a further sell-off of these shares to an investor at the most suitable point of time," she added.

    President Vladimir Putin also said last week the state-owned company could buy its shares from the government and resell them to private investors in future.

    Tarasenko said the search for investors for the Rosneft stake continued.

    She said Rosneft's value had increased after it bought a 50.1 percent stake in rival Bashneft , adding "the budget should receive quite a substantial amount (of funds) from the (Rosneft privatization) deal". 

    Moscow envisages the funds it raises from the stake sale will help plug holes in a state budget hit by low world oil prices and Russia's economic stagnation.

    http://www.reuters.com/article/us-russia-rosneft-privatisation-idUSKCN12L15O
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    Cooper Energy has struck an $82 million deal with Santos which will transform the Adelaide company


    COOPER Energy will buy Santos’s Victorian gas assets for $82 million in a deal which will transform the Adelaide company.

    The transaction, which is expected to be effective on January 1 subject to approvals, will give Cooper full ownership of its Sole gas project which was a 50:50 joint venture with Santos, and will also bring on board producing gas assets.

    Cooper’s full year production this year will jump 3.9 times to one million barrels of oil equivalent and on an annualised basis production is expected to increase sevenfold.

    The company’s proved and probable reserves will also increase by a factor of nine.

    The assets to be acquired as part of the deal are:

    — a 50 per cent interest and, subject to the approval of the joint venture partners, operatorship of the producing Casino-Henry gas project in the offshore Otway Basin

    — a 10 per cent interest in the producing Minerva gas field and Minerva Gas Plant in the

    Otway Basin

    — the remaining 50 per cent interests in the Sole gas field and Orbost Gas Plant in the

    Gippsland Basin, increasing Cooper Energy’s interest in both assets to 100%

    — acreage prospective for gas in the offshore Otway Basin, Victoria, and

    — a 100 per cent interest in the largely depleted and non-operating Patricia Baleen gas field and

    associated infrastructure in the offshore Gippsland Basin.

    Cooper Energy has been on a path to transition away from oil to gas in recent years, based on a theory that the east coast gas markets present an attractive proposition.

    “The transaction will transform Cooper Energy by substantially increasing our production,

    further enhancing our gas reserves and resources for supply to southeast Australia and adding

    proven technical and project expertise,’’ managing director David Maxwell said.

    “Our position as a gas supplier to the southeast Australia gas market will be strengthened considerably.

    “The assets acquired align with our gas strategy, and offer immediate and long term benefits in

    the interests of our shareholders.

    “In the near term, Cooper Energy will be repositioned within the oil and gas sector with a fourfold lift in its Australian production and ninefold increase in Australian proved and probable reserves.

    “Cooper Energy will shift to over 85 per cent of total production being sourced from gas sold under stable long term contracts.

    “Looking to the long term, we now have more gas to market at a time when supply is being

    keenly sought in southeast Australia.’’

    Cooper Energy expects to make a final investment decision on the $552 million Sole project, which would bring gas from offshore fields into the Victorian market, in the last quarter of this year, with first gas expected in the March quarter of 2019.

    Front end engineering and design was completed during the past quarter and the optimal funding and equity structures are the final elements being considered.

    “Sole is considered to be an outstanding gas project with robust and attractive economics

    featuring highly competitive costs and a favourable price and demand outlook,’’ the company said.

    Santos employees involved with the relevant assets will be offered employment with Cooper.

    “This includes the engineering and project staff who have managed the Sole Gas Project front end engineering and design work, and who are assisting Cooper Energy reach its final investment decision for the Sole Gas Project,’’ the company said.

    The deal will be funded via a capital raising from institutional and retail investors to raise $62.6 million.

    Retail investors will be offered new shares on a one for two basis at 28.5c per share.

    That offer is expected to close on November 15.

    Cooper will pay Santos $62 million in cash as part of the deal and a further $20 million when the sole FID is made or if Cooper sells down any of the other Victorian assets.

    http://www.adelaidenow.com.au/business/cooper-energy-has-struck-an-82-million-deal-with-santos-which-will-transform-the-adelaide-company/news-story/8793f221205a343e860719d33ce9e7ce
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    India's oil demand seen rebounding after sluggish September


    After posting double-digit growth in August, India's oil products demand in September declined as widespead rains and regional unrest took toll on transport, but analysts expect a rebound in October on the back of firm fundamentals and following the end of the monsoons.

    The sharp growth in consumption of LPG and jet fuel in September was not enough to offset a drop on demand for diesel and gasoline, pulling down overall oil products demand 0.8% year on year to 14.6 million mt, or 3.82 million b/d, latest provisional data from the Petroleum Planning and Analysis Cell showed.

    "The conclusion of seasonal rainfalls, the onset of winter, and improving industrial demand amid festive season should propel growth in coming months, notwithstanding any increases in crude prices," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

    The negative growth recorded in September was a steep decline from the double-digit demand growth of 11% year on year to 15.81 million mt, or 4 million b/d, posted in August.

    Analysts attributed the fall in demand to heavy rains towards the end of the June-September monsoon season and water sharing disputes between two southern states -- Karnataka and Tamil Nadu -- and political unrest in the northern state of Jammu and Kashmir.

    "Reasonably healthy levels of rainfalls, riots in the southern states and weak stockpiling activities led to a sharp year-on-year decline in gasoline and gasoil demand," Paravaikkarasu said.

    Diesel consumption fell more than 11% year on year to 5.22 million mt, from 5.89 million mt. But the fall was more from the previous month -- down about 15% from 6.1 million mt in August.

    Gasoline also witnessed a similar trend, dropping 3.4% year on year and 17.6% month on month to 1.82 million mt in September.

    "Oil products demand typically remains subdued in September due to seasonal rainfall. Reduced economic activities dampen gasoil demand. But, this September turned to be an oddity because demand not only dropped month-on-month but fell from year-ago levels as well," Paravaikkarasu added.

    LPG, JET FUEL DEMAND UP

    LPG demand posted the sharpest growth of all products in September, rising 16% year on year and 1.6% from August to 1.87 million mt, the data showed.

    Larger subsidies granted for new connections and more LPG dealerships for oil marketing companies helped boost demand last month, according to analysts.

    Around 3.3 million new connections were given in August, highest ever in a single month.

    While the price gap between subsidized and non-subsidized LPG cylinders narrowed to a record low of Rupees 41.44 (62 cents) per cylinder in September, according to Facts Global Energy.

    "This encouraged consumers to purchase beyond their fixed quota of 12 subsidized cylinders, along with a strong increase in commercial use," Paravaikkarasu added.

    Other than LPG, India's appetite for jet fuel was another bright spot, with consumption rising nearly 12% year on year in September to 555,000 mt.

    "Airline capacity has been increasing at about 20%, helping jet fuel demand grow at above 10%," Credit Suisse said.

    Demand for naphtha fell 1.3% year on year to 1.05 million mt in September, while fuel oil demand grew 5.5% year on year to 591,000 mt.

    With the government encouraging use of cleaner fuels and slashing kerosene subsidy, its demand fell 11% year on year to 501,000 mt in September, the data showed.

    Over the January-September period, India's oil products demand rose 9% year on year to 143.04 million mt, or 4.1 million b/d.

    "Fundamentals remain solid and we see demand springing back positively this month [October]. Gasoline demand should increase by an average 12% in the fourth-quarter, while gasoil consumption should post a 5% increase," Paravaikkarasu added.

    The International Energy Agency in its Oil Market Report for October said that global oil demand was continuing to fall on vanishing OECD growth and economic slowdown in China.

    For 2016, a gain of 1.2 million b/d was expected, with a similar rise expected next year.

    The potential for colder weather should see global demand rebounding in the fourth quarter of 2016, the IEA report said.

    http://www.platts.com/latest-news/oil/singapore/analysis-indias-oil-demand-seen-rebounding-after-27694009
     
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    Asia naphtha crack hits 6-month high on improved demand, short covering


    Asian naphtha crack spreads soared to a six-month high and spot price differentials improved Friday amid rebounding demand stirred by the conclusion of the cracker maintenance season, a healthy gasoline blending market as well as short covering and hedging for CFR term cargoes, traders said.

    A stronger LPG market due to fourth-quarter winter stockpiling has also made propane and butane less attractive petrochemical feedstock alternatives, they said.

    Naphtha supply, in abundance for most of this year due to excess exports from India and steady flows from the Middle East, is starting to be constricted, as Indian Oil Corp. phases out exports from the Paradip refinery due to the end-September startup of the gasoline-making reformer at the complex, after a near nine-month outage, traders said.

    The CFR Japan naphtha crack versus the front-month December ICE Brent marker jumped by $11.03/mt day on day to $69.68/mt Friday, the highest since hitting $70.10/mt on April 25, S&P Global Platts data showed.

    The persistently firm European market continued to shut the Western arbitrage, despite the recent rally in Asia, keeping the East/West spread at $8.30/mt, the widest in a month but still off the $20/mt mark needed to prise the arbitrage open.

    The base-load monthly flows from Europe to the traditionally net-short Asian market have been limited to below 700,000 mt during September and October.

    Some sources said the November program is expected to hover at that level, versus 1 million-1.5 million mt a month last year.

    "It's driven by the West and Asia front month cleared the overhangs," one market source said.

    News that BASF will restart its two Ludwigshafen steam crackers in the coming days also offered relief to the market.

    A Western trader said: "The market is stronger due to traders short covering. And some hedging for CFR term cargoes as well, I believe."

    A third trader said that, when the market was in a steep contango structure almost two months ago, Northeast Asian end-users had "rushed to buy cargoes on a term basis and traders sold without securing cargoes. Traders built up short positions first and have to cover for their shorts later."

    "So, the potential buying interest persists in the market," he said, adding that the strength seen for the fourth quarter would last through the first quarter.

    STRONG END-USER DEMAND

    End-users such as South Korea's Yeochun Naphtha Cracking Center and Lotte Chemical, Japan's Mitsubishi Chemical and refiner Idemitsu, Taiwan's Formosa Petrochemical and Thailand's Siam Cement Group have finalized annual or half- yearly term contracts for 2017 during the third quarter at discounts of between $6/mt and $8/mt to the Mean of Platts Japan naphtha assessments.

    YNCC, South Korea's top ethylene producer, and Lotte Chemical continued to show appetite for spot cargoes for November and December deliveries amid robust ethylene cracks, narrowing the CFR Korea discounts.

    YNCC on Friday bought three cargoes of open spec naphtha with a minimum 70% paraffin content at a discount of $3.75/mt to the MOPJ naphtha assessments, for H1 December delivery CFR Yeosu, while Lotte earlier in the week bought four similar grade lots for the same laycan at a $5/discount, CFR Yeosu and minus $4.50/mt, CFR Daesan basis, traders said.

    YNCC and Lotte had previously bought H2 November delivery cargoes at minus $7/mt to the MOPJ naphtha assessments, CFR basis, traders said.

    Another North Asian trader said supply from the Middle East would also be limited by the comprehensive maintenance scheduled at Saudi Arabia's Yasref refinery from early November and at the Ras Tanura complex from early December.

    Price differentials for FOB Middle East cargoes have also flipped to premium levels from months of discounts, as appetite for prompt cargoes improved.

    Kuwait Petroleum Corp. last week sold by tender a 25,000 mt parcel for November 1-2 loading at a small premium to the Mean of Platts Arab Gulf assessments and this week sold a 50,000 mt cargo for mid-November loading at around $5/mt premium, traders said.

    The discount of propane to naphtha -- which has widened to up to $100/mt around early June, stoking demand for LPG as substitute feedstocks -- has narrowed to around $50-$54/mt this week. The discount of butane has even shrank to single digits, Platts data showed.

    "LPG is now used in smaller amounts," the North Asian trader said.

    But some traders pointed to the potential of increased supply with commercial startup next month of South Korean Hyundai Oilbank's 130,000 b/d condensate splitter at its Daesan complex, in a joint venture with Lotte Chemical, which can produce 1 million mt/year of light naphtha.

    Trade sources had said the new splitter could reduce Lotte Chemical's monthly naphtha imports by two to three cargoes, or 60,000 mt, though Lotte's continued imports for November and December showed that any reductions would not come so soon.

    Qatar Petroleum's new condensate-fed refinery -- Laffan Refinery 2 -- is expected to start up next month after a slight delay, and can produce 60,000 b/d to 70,000 b/d of naphtha.
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    U.S. oil and gas rig count up again; Permian booms


    U.S drillers sent 14 rigs back to the oilfield this week, the fifth increase in a row and the 17th in the past 20 weeks, the Houston oilfield services company Baker Hughes reported Friday.

    The rig count climbed to 553, up from a low of 404 in May. The count, however, is still down more than 200 over the same period last year, when 787 were operating in U.S. oil and gas fields.

    Drilling activity has followed a modest rebound in prices, from February’s low of about $26 a barrel to more than $50 over the past week.

    This week, the number of active oil rigs increased by 11 to 443. Gas rigs rose 3 to 108. The number of offshore rigs was unchanged, at 23.

    Drillers operated 253 rigs in Texas, up 10 from the week prior; All of those came in the Permian Basin.

    http://fuelfix.com/blog/2016/10/21/u-s-oil-and-gas-rig-count-up-again-permian-booms/

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    LHS crude market falls to multi-month lows as barrels come out of tanks


    The Light Houston Sweet crude market saw a late-week decline in value relative to cash WTI, which market sources attributed to a number of factors including a disappearing contango structure in the Brent-WTI spread.

    The sweet crude grade ended the week at a 95 cents/b premium to November cash WTI, down 15 cents/b from Thursday and 25 cents/b less than one week ago. It is also the weakest premium for LHS over cash WTI since July 19, when it was at 90 cents/b over cash WTI, S&P Global Platts data showed.

    "It's the usual cash period mess," a Houston crude trader said, referring to the period of time between when front-month NYMEX WTI expires and the cash market rolls a little less than one week later.

    A second trader said the Gulf Coast market was a "bloodbath" Friday and added grades were "completely collapsing."

    "The market is flooded with everything coming out of tanks," a crude trader said Friday. "That will help push crude down."

    The front-month Platts WTI-Brent Houston swap ended the week at minus $1.71/b, compared with minus $1.63/b for month 12 -- a difference of about 8 cents/b contango. That compares with a front-month to month-12 spread of 3 cents/b backward one week ago, Platts data showed.

    http://www.platts.com/latest-news/oil/houston/lhs-crude-market-falls-to-multi-month-lows-as-21860450

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    Shell nets $1 bln through Canadian shale divestment


    Royal Dutch Shell, through its unit Shell Canada Energy, agreed to sell approximately 206,000 net acres of non-core oil and gas properties in Western Canada to Tourmaline Oil for approximately US$1 billion.

    The consideration is comprised of $758 million in cash and Tourmaline shares valued at $279 million, the company said in a statement.

    Shell expects to close the transaction in the fourth quarter of 2016.

    The acreage includes 61,000 net acres in the Gundy area of Northeast British Columbia, Canada, and 145,000 net acres in the Deep Basin area of West Central Alberta, Canada.

    The assets are a combination of developed and undeveloped lands, along with related infrastructure, producing 24,850 barrels of oil equivalent per day (boe/d) of dry gas and liquids, Shell said.

    Andy Brown, Shell upstream director, said, “Shell retains a significant shale position in Canada and we are actively working to mature our attractive core asset base in the Montney and Duvernay.”

    In Canada, Shell retains approximately 430,000 net acres in the Duvernay liquids play in Alberta and approximately 218,000 net acres in the Montney gas play in Northeast British Columbia.

    http://www.lngworldnews.com/shell-nets-1-bln-through-canadian-shale-divestment/
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    Southwestern Energy 3Q16: Still in Red, but Trims Loss by Half


    Southwestern Energy issued its third quarter 2016 update yesterday. The good news is that the company continued to drill in 3Q16 in the Marcellus, and was able to lower their losses.

    Southwestern is still in the red, losing $735 million in 3Q16. But that’s down from losing $1.8 billion in 3Q15–so they cut their losses by more than half. Still, you can’t be in the red forever.

    The average price Southwestern received for natural gas in 3Q16 was $1.73 per thousand cubic feet (Mcf), down from the $2.21/Mcf they averaged in 3Q15.

    In northeast PA Southwestern drilled 18 new wells in 3Q16, completing 9 of them. However, production in NEPA was down, from 93 billion cubic feet (Bcf) in 3Q15 to 84 Bcf in 3Q16.

    In Southwestern’s southwest PA/WV area they drilled 4 new wells and completed 8 wells. Production in that region stayed even at 37 Bcf/d. The company said they expect to exit 2016 with 85 drilled but uncompleted wells (DUCs).

    http://marcellusdrilling.com/2016/10/southwestern-energy-3q16-still-in-red-but-trims-loss-by-half/
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    Alternative Energy

    Wind, solar almost half the cost of new coal generators in South Africa


    The cost of wind and solar energy has fallen so dramatically that wind and solar plants can now be built in South Africa at nearly half the cost of new coal, according to the country’s principal research organisation.

    A presentation from the energy division of the Centre for Scientific and Industrial Research (CSIRO, that country’s equivalent of the CSIRO) illustrates the dramatic different in costs, based on tenders held this year for wind, solar and coal and assumed costs for other technologies.



    Image titleThe analysis by Dr Tobias Bischof-Niemz and Ruan Fourie shows that solar and wind are on par on pricing, and are more than 40 per cent cheaper than new baseload coal plants. Solar and wind are at 0.62 rand per kilowatt hour ($A0.058/kWh), with coal at 1.03 rand/kWh ($A0.09/kWh).

    It’s a standout result for South Africa, which unlike developed economies has a shortage of power rather than a surplus, so needs to build new capacity to meet the demands of its growing population and economy.

    But they also have implications for countries like Australia, which over the next two decades will need to replace much of its existing fossil fuel capacity. Solar and wind, which are following a similar if slower trajectory in Australia (thanks to its policy environment), will present similar price advantages.

    Indeed, the results will be seen as important for any review of the draft update to the Integrated Resource Plan for Electricity (Draft IRP), currently in progress by the Department of Energy and which will set the country’s new energy priorities.

    According to the Daily Maverik website in South Africa, that review was to have been delivered earlier this year, but possibly because of the falling cost of solar, in particular, and wind, the process has been delayed.

    That program has sought to build 17.3GW of renewable energy and 11.5GW of “non renewables”, including 5GW of coal and 4.7GW of gas fired generation.

    A request for proposals for 9.6GW of nuclear power has been put off indefinitely – from its previous deadline of late March and a later deadline of late September – possibly as the result of an assessment of the technology costs.

    http://reneweconomy.com.au/2016/wind-solar-almost-half-the-cost-of-new-coal-generators-in-south-africa-75194

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    China's first molten salt solar thermal plant sends power to grid

    China's first molten salt solar thermal plant sends power to grid

    China's first molten salt solar thermal power plant has started to send electricity to the grid, said the developer based in north China's Tianjin municipality on October 23.

    Known as concentrated solar power, solar thermal energy is believed to be the next generation of solar energy, and an ideal green power source for energy-hungry countries like China.

    The Tianjin Binhai Concentrating Solar Power Investment Co. Ltd. said its 50 MW molten salt trough project in Akesai in northwest China's Gansu Province shows the maturity of the commercial development of solar thermal technology.

    Guan Jingdong, chair of the company, said that the company will carry out large-scale production with the technology in 2018, when it is scheduled to produce facilities with 200 MW of annual solar power output.

    Molten salt solar thermal plants can harness solar energy by using molten salt as a heat transfer medium.

    The Akesai plant was among 20 demonstration solar thermal plants listed for construction by China's National Energy Administration in September as the government eyes the potential of renewable energy.

    http://www.sxcoal.com/news/info?id=4548370&lang=en
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    Agriculture

    China lays out plan for agricultural modernization by 2020


    China aims to achieve "marked progress" in agricultural modernization by2020, according to a five-year plan released by the State Council Thursday.

    The country will strive to ensure food security, improve the quality and efficiency of farmproduce supply, and enhance the sector's international competitiveness by 2020, the plansaid.

    It also targets all-round moderate prosperity for rural residents, and a beautifulcountryside.

    Modern agriculture should be established in the country's eastern coastal developedregions, major cities' suburbs, state farms and several demonstration areas, according tothe plan.

    The plan specified tasks to promote innovation, coordination, green development, openingup and farmers' welfare.

    Fourteen key projects will be carried out to attain the plan's goals. They include projects tocultivate high-standard farmland, integrate various sub-industries and ensure farmproduce quality.

    Fiscal and financial support will be given to the agricultural sector, while better landpolicies and farm produce market regulations will be introduced, the plan said.

    http://en.people.cn/n3/2016/1021/c90000-9130529.html
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    Grain exporters in Argentina invest $1.2 billion in Rosario hub


    Companies that ship grains from Argentina including Glencore, Cargill, Cofco, and Bunge, will invest some $1.2 billion over three years to improve infrastructure in the main port network of Rosario, the government said on Friday.

    The largest investment came from Renova, a joint venture between Glencore Plc and Argentina's Vicentin SA, for 6.2 billion pesos ($410 million), according to export chamber CIARA-CEC. Renova will build a new dock and improve unloading areas and storage capacity by the end of 2017, CIARA-CEC said.

    At Terminal Six, the largest at Rosario, operators AGD, of Argentina, and Bunge are investing 1.66 billion pesos to improve railway access to the port and expand storage capacity through 2018.

    The grain exporters are the latest to pledge investment in the first year of market friendly President Mauricio Macri's government.

    Argentina is the world's No. 3 soybean and corn exporter and top exporter of soyoil and soymeal, but antiquated infrastructure and lack of investment over the past decade have threatened its competitive advantage. Rosario's terminals export around 80 percent of the country's grain output.

    "The news is more significant given that investments in the sector were paralyzed for some years," CIARA-CEC said in a statement.

    China's COFCO is also investing 420 million pesos to expand a dock for barges. U.S.-based Cargill committed investments of 140 million pesos and Nidera announced 255 million to expand storage, CIARA-CEC said.

    http://www.reuters.com/article/argentina-ports-idUSL1N1CR1CH
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    Precious Metals

    Centerra’s Thompson Creek takeover establishes ‘leading low-cost gold producer’


    TSX-listed miner Centerra Gold has completed its acquisition of US-basedThompson Creek Metals, establishing a geographically diversified gold producer with a high-quality producing platform and a strong growth pipeline.

    The companies announced Thursday that they had completed a plan of arrangement through which Centerra acquired all of the issued and outstanding common shares of Thompson Creek for 0.0988 of a Centerra common share.

    “The transaction diversifies Centerra’s operating platform and adds low-risk production and cash flow from a very high-quality, long-lived asset in Mount Milligan, [creating] a leading low-cost mid-tier gold producer,” said Centerra CEOScott Perry.

    He added that the acquisition established an operating base in Canada, one of the lowest-risk mining jurisdictions in the world. “[This] will complement our Greenstone project and provide for further flexibility to expand into the Americas,” he added.

    The common shares of Thompson Creek have been transferred to Centerra’s newly formed, wholly owned subsidiary, Centerra BC Holdings, issuing 22.3-million shares to the former Thompson Creek shareholders.

    All of Thompson Creek's 7.375% senior notes, due 2018, and 12.5% senior notes, due 2019, have been redeemed at 101.844% and 106.250% of the principal amount redeemed, respectively, plus accrued and unpaid interest to October 20.

    Thompson Creek operates the world-class Mount Milligan mine in British Columbia, a low-cost asset with more than two additional decades of profitable production expected from the current reserve base.

    http://www.miningweekly.com/article/centerras-thompson-creek-takeover-establishes-leading-low-cost-gold-producer-2016-10-21
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    South Africa's AMCU union reaches tentative wage deals with platinum trio



    South Africa's AMCU union has reached wage deals in principle with platinum producers Anglo American Platinum, Impala Platinum and Lonmin, subject to final approval from its members, the union's president said on Friday.

    This means a strike has almost certainly been averted in South Africa's platinum sector, which is still recovering from a crippling five-month stoppage led by the Association of Mineworkers and Construction Union (AMCU) in 2014.

    "What our members have been demanding has been secured from the companies," AMCU President Joseph Mathunjwa told Reuters, without elaborating.

    Asked if AMCU had an agreement in principle with the three producers, Mathunjwa responded: "Yes, subject to a mass meeting of general members to confirm it again."

    He said the meeting would be held on Oct. 30 and AMCU would disclose more details at a press briefing next week.

    Known for its militancy and strident tone, AMCU had publicly sought wage increases of about 50 percent compared with offers in the single digits from the employers. It is not clear if AMCU watered down its demands to reach agreements.

    Earlier AMCU said in a statement that it had received its "members' mandate", which is union speak for their agreement, on wages at the trio of companies while Lonmin confirmed it had reached an agreement "in principle" with the union.

    However, Amplats said on Friday that "wage negotiations are progressing well" and it could "comment further in due course".

    Sibanye Gold will be relieved at a wage deal as it is set to take over Amplats' labour-intensive Rustenburg operations, which is where the company's AMCU membership is concentrated.

    AMCU dislodged the once dominant National Union of Mineworkers (NUM) on South Africa's platinum belt in a turf war that triggered violence in which dozens were killed. It is also trying to grow its membership in the gold sector.

    Heading off a strike is rare good news in the mining sector in South Africa, where investors have been rattled by labour unrest, policy uncertainty and generally depressed prices.

    Platinum prices rallied in the third quarter of this year but have since cooled and spot platinum is now only about 4.5 percent higher so far this year and below $930 an ounce.

    http://www.reuters.com/article/safrica-strikes-platinum-idUSL8N1CR2X6
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    Base Metals

    Las Bambas protests could halt copper production


    Copper bulls might be tempted to place buy orders after a protest at a Peruvian mine turned ugly about 10 days ago.

    That's because supplies needed to allow Las Bambas, one of the world's largest copper mines, to keep operating are running out because access roads are being blocked by protesters following a death on Oct. 14. The mine just came online this year.

    "Community roads are currently blocked and supplies for operating and subsisting are about to run out," mine owner MMG's CEO Andrew Michelmore said in a statement e-mailed to Reuters. "We now have large reserves that cannot be transported by road, a situation that cannot go on for much longer."

    The several thousand protesters are demanding that Peruvian President Pedro Pablo Kuczynski attend the scene in the highland province of Challhuahuacho.

    The group is protesting against the ongoing noise and high levels of dust close to the road used by trucks that carry the Chinese-owned mine's copper concentrates. The protests led to clashes with police that culminated in one of the protesters being shot by police.

    Interior Minister Carlos Basombrío said the victim died from a bullet wound to the head, presumably fired by Peruvian police while they attempted to disperse more than 200 protesters who had blocked an access road to the mine, the country’s largest copper operation.

    The government has now launched an internal probe to determine who authorized police intervention, local paper La República reports (in Spanish).

    Las Bambas produced 35,000 tonnes of the red metal in August, or almost a fifth of Peru’s overall output, official data shows. The operation is set to deliver 400,000 tonnes of copper per year during the first five years of production.

    http://www.mining.com/las-bambas-protests-halt-copper-production/
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    Codelco copper premiums $80 to $85 Europe, $70 China – sources


    The world's biggest copper miner, Codelco, has slashed its 2017 physical copper premium to European buyers to the $80 to $85 per tonne range and is offering Chinese buyers a premium of around $70, three traders told Reuters this week.

    That would represent a deep cut from last year, underlining continued oversupply and demand weakness in the global copper market. Two of the sources said that Codelco would offer a premium of $82 to buyers in Europe.

    Codelco's premiums, the delivery charge buyers use on the London Metal Exchange to secure physical copper, are viewed as a benchmark for global contracts, and other producers are likely to follow suit.

    The state-run copper giant offered a Chinese premium of $98 and a European premium of $92 last year.

    Last week, Aurubis, Europe's largest copper smelter, offered its clients a premium of $86, down from $92 the previous year.

    Two of the traders said they believed Codelco this year will have less margin to offer premiums that are significantly higher than those that traders can obtain later in the year in the spot market.

    One trader said that premium pricing would be tricky this year in South Korea and Taiwan, as premiums in those countries are typically tied to the European premium and are below the Chinese one. As the Chinese premium is below the European premium this year, the source said, that pricing framework will not work.

    Treatment and refining charges, or TC/RCs, will be similar to last year or slightly lower, the traders said.

    http://www.miningweekly.com/article/codelco-copper-premiums-80-to-85-europe-70-china-sources-2016-10-22
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    Steel, Iron Ore and Coal

    China increases limits on construction of coal-fired power plants


    China will further limit construction of coal-fired power plants by cancelling some projects that were already approved this year, the National Energy Administration (NEA) said on October 20.

    China will postpone construction of some coal-fired plants that have already secured approval, according to a statement posted on the NEA's website.

    The agency will also stop the building of any project that started this year and reassess the schedule for those that started in 2015, it said.

    It was not immediately clear how many plants this might involve.

    The NEA will also limit the capacity of some big coal power projects in major coal producing regions that are still under construction, it said.

    In northwestern Xinjiang, the planned output for the East Junggar Basin Coal Electricity Complex plant will be cut in half, while in northern Inner Mongolia, the Xinlingol project capacity will be capped at 7.3 GW per year by 2020, it said.

    The plan is an expansion of the government's prolonged effort to produce power from renewable energy such as solar and wind, and wean the country off coal, which accounts for the majority of the nation's power supply.

    http://www.sxcoal.com/news/info?id=4548321&lang=en
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    China called a halt to construction work on 30 large coal-fired power plants


    Chinese leaders have called a halt to construction work on 30 large coal-fired power plants with a combined capacity of 17GW — greater than the UK’s entire coal fleet.

    This unprecedented move indicates just how serious the Chinese authorities are about bringing the country’s coal power bubble under control.

    And those 30 plants aren’t the only ones that are being stopped.

    The policy also dramatically scales down plans for transmitting coal-fired power from the west of China to the coast through a network of very long-distance transmission lines.

    Another 30 large coal plant projects, for which transmission lines were already under construction, are being axed.  

    Ten of those plants were already under construction but will now be marooned as they will have no connection to the grid.

    This means China is stopping work on the equivalent of the combined coal-fired capacity of UK and Spain.

    Up to now, the Chinese government had avoided interfering in projects that had already been contracted and financed, and where construction had started.

    The cancellations will be painful, and entail major commercial losses and disputes.

    But spending money to complete these unneeded coal plants would have been even more wasteful — it would likely have cost well over $20 billion.

    http://energydesk.greenpeace.org/2016/10/21/china-coal-crackdown-cancel-new-power-plants/

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    China's utilities beg for coal as supply expansions yet to kick in


    China's electric power utilities are scrambling to get coal from anywhere they can, but are coming up short as efforts to boost supply take time to come into effect.

    China's government in September ordered miners to boost thermal coal output by 1 million tonnes per day, but it will take months before new supplies from the recent reopening of mines hits the market. Additionally, new rules on trucking have caused logjams in deliveries and transportation price spikes while suppliers at home and abroad are digging in for ever-higher prices.

    Together this is causing a major headache for China's power companies as they rush to secure feedstock ahead of their highest demand period during the Northern Hemisphere winter.

    "A couple months ago, when prices are low, we have begged power plants to sign more long-term contracts, but they refused," said a trader based in Shandong province, one of the nation's top producing regions.

    "Now they begging us to give them more supply."

    In a major break from the tradition of agreeing to monthly contracts, some small coal miners are only pricing on a daily basis and accepting cash upfront, said two analysts and a coal trader who have spoken to the utilities.

    That has added a major strain to the electricity companies' cash flow and eroded profits.

    Beijing's steps to boost coal supplies have done little to derail the months-long price rally. South China coal futures prices hit record highs this week above $85 per tonne, up by 21 percent since the start of the month.

    The quickening pace of the gains has stirred speculation that the government may wade in again to try and calm the markets and soothe utilities' concerns about tighter supplies and falling profits.

    "Some electricity producers (only) break even or are on the brink of losses. If the coal prices continue to rise from the current level, the majority of power plant will turn into losses," said Zheng Min, a coal analyst at China Sublime Information Group.

    TRUCKING

    Adding to the tumult are new trucking rules that came into effect on Sept. 21 aimed at cracking down on lorries that were illegally converted to carry extra weight.

    The regulations have affected the transportation of commodities from petrochemicals to pigs but has hit coal the hardest given the race for raw materials.

    Since being introduced, truck rates have jumped some 30 percent to 400 yuan ($59) per tonne. Smaller players do not have access to rail freight as an alternative, although those prices are also rising, traders said.

    Analysts who have visited some mines in Shaanxi province, one of the largest producing coal regions, report seeing long lines of trucks in and out of plants as power companies rush to secure feedstock.

    "With buyers, a serious problem has been they cannot find enough trucks, not to mention the delay to port due to traffic," said Xiaojing Zhang, an analyst at Everbright Futures.

    http://www.reuters.com/article/china-coal-utilities-idUSL4N1CR2T0
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    Coal India to maintain prices despite rising international coking coal market


    CoalIndia Limited (CIL) has decided to maintain its domestic coking coal prices to liquidate stocks and offer an import substitution window to local steel producers, as international coking coal prices surge.

    According to a CIL official, by maintaining price of domestic coking coal, CIL expects to woo domestic steel producers that, according to two analysts’ reports, have booked imported coking coal at average price of $200/t for October to December deliveries.

    The official said that CIL had sufficient coking and thermalcoal stocks. Besides maintaining domestic prices, the miner would also ramp up volume offerings to give local steel mills the opportunity to shift to domestic dry fuel.

    While welcoming the CIL move, steel company officials have expressed reservations over the efficacy of the move’s impact on costs of steel production. They maintained that steelcompanies were yet to work out cost benefits of domestic coking coal factoring in railway freight charges in relation to the landed cost of coking coal, particularly for steel mills located along the coast.

    CIL officials said that most of the higher supplies of cokingcoal to steel companies would be through forward auctions to be conducted by CIL over the next three to four months of current financial year.

    In current round of forward e-auction, which got under way on Wednesday, CIL had put on offer 20-million tons, the official said.

    Depending on the response to the current auction round, CIL had the ability to progressively increase volumes on offer and such volumes would be dependent on off-take at the on-going auction, he added.

    Meanwhile in a related development, large Indian steelcompanies have requested that the government scrapped the 2.5% import duty on coking coal in light of rising international prices.

    In a memorandum submitted to the government ahead of Union Budget 2017/18, steel majors including Tata Steel,JSW Steel and Essar Steel, pointed out that coking coal had been exempted from import duty until 2014.

    Considering the rising international prices, the steelproducers believe the government should  scrap the duty  toenabled steel companies to reduce costs of production and to cope with depressed demand and prices.

    Steel company officials claim that the Steel Ministry had assured them that it would support the demand with theFinance Ministry, which had started preparatory work on the national Budget.

    According to published data of the Steel Ministry, in the current year, India has imported an estimated 50-million tons, compared with 43-million tons shipped in 2015/16. Imports are forecast to rise to 190-million tons by 2025 by when steel production is targeted at 300-million tons a year.

    http://www.miningweekly.com/article/coal-india-to-maintain-prices-despite-rising-international-coking-coal-market-2016-10-21
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    China to curtail 140 Mtpa steel capacity by 2020, CISA


    China planned to curtail 140 million tonnes per annum (Mtpa) of steelmaking capacity by 2020, with 70% of the target to be finished by 2018, said Chi Jingdong, vice president of China Iron and Steel Association (CISA) on October 20.

    It was the first time for China's steel industry officials to make public the detailed de-capacity target, after a goal of 100-150 Mtpa set for the next five years was released by the State Council in January this year.

    The country will slash 45 Mtpa of steel capacity this year, with over 80% completed in the first three quarters, said the Ministry of Industry and Information Technology of China in a press conference on October 20.

    Meanwhile, a total of 180,000 layoffs will be resettled this year.

    By mid-October, domestic steel products price increased 30% from the start of the year.

    http://www.sxcoal.com/news/info?lang=en&id=4548397
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    Cleaner, but not leaner: China steel mills defy capacity cutbacks


    Chinese steel mills are becoming cleaner every month as Beijing pushes to curb its smoke-stack industries. But they're not getting any leaner.

    Despite efforts to step up environmental checks and trim out excess capacity, steel output by the world's top producer has risen year-on-year for the past seven months.

    As emissions cuts will mean steel mills are better able to meet stricter government standards, Beijing may find it more difficult to cut overcapacity in a sprawling industry.

    For now, domestic demand from infrastructure and construction has been robust, absorbing most of the extra supply. But a steeper slowdown in the world's second-largest economy could force mills to ramp up sales abroad.

    That could rekindle tensions with Europe and the United States, major trading partners which have for years accused China of dumping its excess steel overseas, hitting producers and hurting global prices.

    The issue took center stage at a recent G20 summit in China when world leaders pledged to work to address excess output.

    China's top steel producing city of Tangshan in Hebei province illustrates Beijing's dilemma. Hosting a months-long international horticultural show, Tangshan had a major six-month clean-up to ensure blue skies for visiting dignitaries, including the country's president Xi Jinping.

    Industry experts predicted this would see a big drop in output in a province that accounts for a fifth of national production, going some way to realizing government goals on output and capacity cuts.

    But production dipped by far less than expected as mills sustained output even as they cleaned themselves up.

    They could do this largely because steel prices SRBcv1 have risen 40 percent this year, and strong domestic demand is expected to continue, underpinning those increases, though exports have fallen to their lowest since February.

    By end-September, China had completed more than 80 percent of this year's capacity reduction goals in coal and steel, said Huang Libin, an official at the Ministry of Industry and Information Technology.

    China has targeted a cut of 45 million tonnes from its surplus steel capacity this year.

    But the battle to tackle excess capacity and curb pollution has failed to dent production. China's annual crude steel surplus is estimated at around 300 million tonnes, three times the annual output of the world's second-biggest producer, Japan.

    "If steel mills are profitable, there's no reason for the government to order them to reduce production if they meet environmental criteria," said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.

    BATTLEGROUND IN TANGSHAN

    While many of Tangshan's small mills have closed, bigger plants have installed or upgraded equipment since a nationwide environmental crackdown began in 2014, industry sources say.

    Some were forced to cut sinter production - processing iron ore fines into lumps - for a few days in September and October to clear the skies during the recent horticultural show. But the city's about 150 blast furnaces only dropped output three times - in June, July and September - and for only a couple of days during the six-month clean-up, according to a survey by industry consultancy Custeel.com.

    The biggest drop was in early June when operating rates fell below 65 percent as leaders from central and eastern Europe gathered in Tangshan for talks on economic ties, followed by another fall in July as the city prepared to commemorate a 1976 earthquake that killed at least 250,000 people.

    Otherwise, mills have been operating at above 80 percent of capacity this year, the Custeel.com survey showed.

    "Production can be flexible. Even if production at steel mills is hit temporarily by the environmental crackdown, they can increase production later to offset the losses," said Xia at Hangzhou CIEC Trading.

    The government looks ready to keep targeting Tangshan's mills in its war on winter smog, with Hebei province last week imposing what it calls "special emission restrictions" on local steel mills, according to a policy document.

    Last month, the National Development and Reform Commission, China's state planner, said it punished hundreds of steel and coal companies nationwide for violating environmental and safety regulations. Some were forced to close or cut output.

    http://www.reuters.com/article/us-china-steel-tangshan-idUSKCN12M04H

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    Nippon Steel seeks 10,000 yen/T price hike as coking coal values surge


    Japan's biggest steelmaker Nippon Steel & Sumitomo Metal Corp is seeking an increase in product prices of about 10,000 yen ($96) per tonne from customers amid surging coking coal prices and weak margins, its president said.

    "We've sought a price hike since the first half of this financial year to improve our margin," Nippon Steel President Kosei Shindo told a news conference. "Given the surge in coking coal prices, we are now seeking an increase in (steel product) prices by 10,000 yen (a tonne) in total."

    Prices of steel making coal, or coking coal, have more than doubled this year.

    http://www.reuters.com/article/nippon-steel-prices-idUST9N17O001
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