Mark Latham Commodity Equity Intelligence Service

Wednesday 19th April 2017
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    China March power consumption up 7.9pct on year

    China March power consumption up 7.9pct on year

    China consumed 513.9 TWh of electricity in March, up 7.9% year on year, showed the latest data from National Energy Administration (NEA) on April 14.

    From January to March, the average utilization hours of power generating units across the country was 888 hours, 2 hours more than a year ago, according to the NEA data.

    Of this, hydropower plants logged average utilization of 623 hours, a decrease of 68 hours from the preceding year; the average utilization of thermal power plants increased 31 hours year on year to 1037 hours.

    China added 21.87 GW of power generating capacity during the same period, including 1.93 GW of new hydropower and 11.39 GW of new thermal power capacity.

    China consumed 1,446 TWh of electricity in the first quarter this year, up 6.9% year on year, the NEA said.
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    China's energy guzzlers Q1 power use up 9.4%

    Power consumption of China's four energy-intensive industries rose 9.4% on year to 417.2 TWh in the first quarter of the year, compared to a 5.8% drop in the same period of 2016, accounting for 28.8% of the nation's total power consumption, showed data from China Electricity Council on April 17.

    Of that, the chemical industry consumed 106.1 TWh of electricity, up 1.8% from the year-ago level, compared with a year-on-year increase of 3.4% in 2016; while power consumption of building materials industry stood at 60 TWh, rising 4.1% from the year-ago level, compared to a 4.7% decline in 2016.

    Ferrous metallurgy industry and non-ferrous metallurgy consumed 117.5 TWh and 133.5 TWh, climbing 12.8% and 16% from year before, compared to a 14% and 5.7% decrease a year prior, respectively.

    In March, China's four energy-intensive industries consumed 144.5 TWh of power, up 5.2% year on year, compared to a 2.9% increase in the same period of 2016, accounting for 28.1% of the nation's total power consumption, data showed.

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    China cabinet approves state planner's 2017 guidelines

    China's cabinet has endorsed guidelines by the country's state planner to reduce leverage in the corporate sector and push forward with mixed-ownership reforms at state-owned enterprises this year.

    Notification of the State Council approval of the National Development and Reform Commission's key plans was published on the State Council's website on Tuesday.
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    China says to deepen structural reforms in 2017

    China plans to deepen reform of its economy, cutting more excess factory capacity while making its state-owned firms more competitive and currency regime more market-driven, Reuters reported on April 18, citing guidelines issued by the country's cabinet.

    China's State Council said it endorsed the reform guidelines drafted by the National Development and Reform Commission, the country's state planner, according to an announcement published on the cabinet's website.

    The guidelines, which include a raft of measures aimed at improving the economy, also call for reducing leverage in the country's corporate sector and pushing forward with fiscal and tax reform.

    The guidelines represent an annual outline of government reform priorities. State sector reform, including shutting down excess industrial capacity, is among this year's priorities.

    Merger and reorganization of central government-owned conglomerates will be further promoted this year, the guidelines said, alongside the introduction of qualified non-state strategic investors.

    A special plan for deepening reform of state-owned enterprises in China's struggling northeast region will also be formulated, the document said.

    The cabinet said China would further improve the yuan's market-based mechanism, increase the currency's flexibility and maintain its stable status in the global monetary system, while steadily pushing forward yuan internationalization.

    China will quicken interest rate reforms to build a market-based benchmark interest rate and yield curve, it said.

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    In Indonesia, labour friction and politics fan anti-Chinese sentiment

    A bitterly fought election to govern Indonesia's capital that has fanned religious tensions has also thrown a spotlight on anti-foreign sentiment, as conspiracy theories swirl about an influx of illegal Chinese workers spurring vigilantism.

    Foreign direct investment from China hit a record high of $2.67 billion last year after President Joko Widodo rolled out the red carpet to Chinese investors, who are typically willing to take on risks for infrastructure and other big projects.But the cheap funding comes at a price: Chinese companies often bring in their own workers and machines, creating friction with locals, according to interviews with labor groups, company executives and government officials.

    Indonesian investment chief Thomas Lembong said a "freak-out over foreign workers" had been politicized, fuelling tensions surrounding the Jakarta poll, which pits the ethnic Chinese Christian incumbent Basuki Tjahaja Purnama against a Muslim rival.

    Purnama is backed by Widodo's ruling party and Lembong said the issue of anti-foreign and - in particular anti-Chinese - sentiment had been harnessed by rivals of the government.

    "It's part of a broader effort to turn political sentiment anti-foreigner and anti-Chinese at a time when Chinese investment is poised to be the biggest factor driving the Asian economy," Lembong told Reuters.

    The number of Chinese work permit holders jumped 30 percent in the past two years to 21,271 in 2016, the latest data from Indonesia's manpower ministry showed. In comparison, there were 12,490 from Japan and 2,812 from the United States last year.

    While the issue had been compounded by discredited reports circulating on social media claiming that 10 million Chinese workers had flooded Indonesia, labor unions still dispute official figures.

    Chinese companies have been mis-using a visa-free route meant for tourists to bring in "hundreds of thousands" of low-skilled Chinese workers, said labor leader Said Iqbal.

    Since February, the Confederation of Indonesian Workers' Union (KSPI) has been compiling unofficial data on Chinese workers suspected of not having proper documentation and it has asked the manpower ministry to take action, he said.

    "Local unskilled labor cannot work because the jobs have been filled by the Chinese," the KSPI's Iqbal told Reuters.

    Liky Sutikno, the Beijing-based chairman of the Indonesian Chamber of Commerce in China, said some Chinese companies temporarily bring in their own "technical workers", who would return to China once the local teams take over.

    These workers may have a better knowledge of products and processes, on top of being faster in executing steps such as installing machinery, Sutikno said.


    Late last year, around 150 college students on Sulawesi island, where several Chinese smelters are being built, stopped vehicles they suspected of carrying illegal Chinese workers and brought them to the authorities.

    The group planned more raids this year, said Erik, one of the students, who declined to give his full name.

    Maruli Hasoloan, a manpower ministry official, acknowledged some labor friction and vigilantism over the past few months. While the ministry was coordinating with other authorities to prevent any abuse of visa-free entry, it does not condone a vigilante crackdown on foreign workers, he added.

    Indonesia has suffered bouts of anti-Chinese and anti-communist sentiment over its history, though this has usually been directed at its minority ethnic Chinese community.

    On average, Indonesian Chinese are far wealthier than other ethnic groups. During riots leading to the fall of President Suharto in May 1998, ethnic Chinese were targeted, making up many of around 1,000 people who were killed in the violence.

    Under Suharto, Chinese culture and language were severely restricted, but at the same time he cultivated some ethnic Chinese businessmen who became hugely rich.


    The capital Jakarta has seen a series of mass rallies led by hardline Islamists calling for Purnama, Jakarta's first Christian and Chinese governor, to be jailed even as he was put on trial over allegations that he had insulted the Koran.

    Purnama, who is competing against former education minister Anies Baswedan, denies what are regarded by critics as politicized charges.

    While it is too soon to assess whether all this could have an impact on Chinese investment decisions, some Chinese business groups say they are worried about the uglier mood and also about potentially losing a business-friendly leader of Jakarta.  

    Many Chinese companies favor Purnama for his perceived ability to execute Widodo's infrastructure reform agenda, which is aligned with Chinese President Xi Jinping's "One Belt, One Road" policy to invest billions of dollars in global projects.

    Jakarta, a city of more than 10 million people, accounts for nearly a fifth of national economic output and is home to major construction projects including a $5 billion Chinese-backed rail connecting the capital to the West Java city of Bandung.

    The anti-Purnama movement has also revived jitters about the racial and religious under-currents in Indonesia, which has the world's largest Muslim population.

    "Chinese concern is stability and consistency of the rule of law," Sutikno said. "What they are scared of the most is a repeat of 1998, that the Chinese will be singled out again."
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    Oil and Gas

    Saudi Oil Exports Drop to 2015 Low as Kingdom Sticks to Cuts

    Saudi Arabia trims exports to a 21-month low in February as local refineries took advantage of more abundant supplies and processed a record amount of crude.

    (Bloomberg) -- Saudi Arabia, the world’s largest crude shipper, trimmed exports to a 21-month low in February as local refineries took advantage of more abundant supplies and processed a record amount of crude.

    Oil exports fell to 6.95 million barrels a day, the lowest since May 2015, from 7.7 million a day in January, according to data published Tuesday on the Riyadh-based Joint Organisations Data Initiative website. The kingdom boosted production to 10 million barrels a day from 9.7 million a day, the data show.

    Saudi Arabia is bearing the brunt of the output cuts that members of the Organization of Petroleum Exporting Countries pledged to make in the first six months of this year. It committed to pump no more than 10.058 million barrels a day, as OPEC and other major producers sought to rein in global oversupply and support prices.

    Saudi refineries increased the amount of crude they processed in the month by 26 percent to 2.67 million barrels a day, the highest in JODI data going back to January 2002. The amount of crude used directly as fuel in power plants and other facilities also rose, as did volume in storage. Stockpiles increased to 264.7 million barrels at the end of February from almost 262 million barrels in January.

    Saudi Arabian Oil Co. was planning an 80-day maintenance work at its Riyadh refinery starting in late February to last through mid-May, according to two people with knowledge of the situation. The refinery has capacity to process 120,000 barrels of crude a day, according to data compiled by Bloomberg.

    “It seems that Aramco is preparing for the long shutdown of the Riyadh refinery by increasing production from other refineries as they need to keep some products in stocks while the refinery is closed,” said Mohamed Ramady, an independent London-based analyst. “The amount of crude not being processed at the Riyadh refinery is reflected in the oil stockpiles in February as they increased from January.”

    The country plans to double refining capacity to as much as 10 million barrels a day within 10 years, Saudi Energy Minister Khalid Al-Falih has said. Saudi Arabian Oil Co., the state producer known as Saudi Aramco, expects to start operating a 400,000 barrel-a-day refinery next year at Jazan on the Red Sea, adding to two other plants of the same size that have come online since 2013.
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    China seen moving swiftly to rein in oil blending frenzy

    China is inching closer to imposing a consumption tax on mixed aromatics, light cycle oil and bitumen blend, a move that will likely curb inflows of those products and stem surging oil product exports by Asia's biggest oil consumer.

    The planned policy change will also likely increase China's imports of lighter crudes for gasoline production to offset the squeeze in the blending pool if consumption taxes are imposed, market participants told S&P global Platts.

    Beijing is widely expected to levy consumption taxes on mixed aromatics and light cycle oil. Although there has been no official confirmation, market participants expect details to be released some time between May 1 and July 1.

    Sources with knowledge of the matter said the consumption taxes for mixed aromatics, LCO and bitumen blend would use the current consumption taxes on gasoline, gasoil and fuel oil as a reference; these currently stand at Yuan 1.52/liter, Yuan 1.20/liter and Yuan 1.20/liter respectively.

    "This means importers will have to pay Yuan 1,000-2,000/mt more for importing those products, which is expected to largely curb inflows of these grades, just like what happened to fuel oil a few years ago," a market source said.

    China's fuel oil imports have fallen dramatically since Beijing imposed the consumption tax in 2008.

    Mixed aromatics is the main blending material for gasoline, and LCO for gasoil. Bitumen blend is a mixture of fuel oil and heavy crude, which can be used as a refining feedstock.

    "Blending profit will immediately be eliminated due to the consumption tax," said one Guangzhou-based importer.

    China's imports of mixed aromatics and LCO have surged in recent years, as both are currently free of consumption tax. China's mixed aromatics imports jumped 81.4% year on year to 11.7 million mt in 2016, while LCO imports soared 135% to 4.46 million mt, General Administration of Customs data showed.

    The mixed aromatics inflows in 2016 translated roughly into 39 million mt of gasoline supply from the blending pool, in addition to the official output of 129.32 mt from refineries. LCO inflows resulted in an additional 10 million mt of gasoil supply on top of the 179.18 million mt output from refineries.

    The impact on bitumen blend import volumes from a consumption tax is expected to be softer as imports of the grade have been sliding since 2015, when independent refineries started using crude oil as feedstock. China imported around 3.69 million mt of bitumen blend in 2016, down 72.5% year on year, according to customs data.


    According to Platts China Oil Analytics, huge imports of blending components into China resulted in "hidden demand" last year as blended fuels were not captured by official production data.

    "We estimate that gasoil and gasoline demand last year was understated by at least 290,000 b/d and this did not include finished grades produced by independent fuel blenders, which is difficult to quantify," it said in a report issued April 11.

    The additional supply from the blending pool was responsible for pushing up China's gasoline and gasoil exports by 64% and 114% year on year respectively in 2016 to 9.7 million mt and 15.4 million mt.

    When the consumption tax takes effect, China's exports of gasoline are expected to drop, as refineries would need to boost supply to the domestic market to make up for the supply cut from oil blenders, sources said.

    "Once the import window for mixed aromatics is closed, less gasoline will be available for export out of China," said a Beijing-based analyst.

    A Singapore-based market observer said gasoil exports would be somewhat sustained as LCO accounted for a relatively smaller portion of the gasoil pool. Mixed aromatics makes up a crucial portion of the gasoline pool.

    However, China is unlikely to have adequate gasoline or gasoil inflow to compensate for the supply reduction from blenders, because Beijing has suspended issuing import quotas for these products in 2017, except for a small volume with special specifications for car racing.

    "Despite pushing for deregulation in the refining sector by encouraging more players into the market to compete on a level playing field, the theme is veering toward control and consolidation, with the government now appearing to take an active stand to curb exports," Platts China Oil Analytics said in the report.


    Plans to impose consumption taxes on mixed aromatics and light cycle oil are already taking a toll on freight rates for Medium Range tankers, brokers across East and North Asia said.

    Large numbers of mixed aromatic cargoes are shipped out of Singapore to China in MR tankers. These tankers then load distillates for delivery to Singapore, the Philippines and South Korea, among other destinations.

    The proposed consumption tax, refinery turnarounds and lower export quota volumes for oil products from China have started to hurt freight rates for MRs across the region.

    "The MR market is collapsing," said a broker in Seoul.

    The lump sum freight on the South Korea-Japan route was assessed last Friday at $290,000, down 27% from $395,000 at the start of the year, Platts data showed.

    The South Korea-Hong Kong and the Singapore-Hong Kong rates were assessed at $250,000 and $260,000 respectively, down from $325,000 and $320,000 at the start of the year, the data showed.

    "Exports [of distillates] from China have been slow from end March," said an MR broker in Singapore. Prompt ships are in oversupply, he added.

    Meanwhile, domestic refineries in China, especially state-owned refineries, are expected to benefit from the move, as the heavy tax on mixed aromatics and LCO would eliminate competition from oil blenders, sources said. "Once China imposes consumption taxes on mixed aromatics and LCO, the country's gasoline and gasoil needs have to be increasingly met by refineries, especially state-owned refineries," a source with a Singapore trading house said.

    "Independent refineries are also expected to benefit from less competition from oil blenders," the source added.

    A source with state-owned Sinopec Guangzhou refinery said: "Our domestic sales of gasoline will increase if the news turns out to be true. We will raise output too."
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    Petrobras’ oil output suffers due to FPSO stoppage

    Brazilian state-owned oil company Petrobras has said that its total production of oil and natural gas in March was 2.74 million barrels of oil equivalent per day (boed), of which, 2.61 million boed produced in Brazil and 130,000 boed produced abroad.

    Average oil production in the country was 2.12 million barrels per day (bpd). This volume represents a 3% drop compared to February, mainly due to maintenance stoppages on FPSO Cidade de Angra dos Reis, located in Lula field, in the Santos Basin pre-salt, and on P-37, in Marlim field, in the Campos Basin. The company’s domestic oil output was also down in February for a similar reason, the stoppage of the FPSO Cidade de Paraty.

    In March, the production of natural gas in Brazil, excluding the liquefied volume, was 77.7 million m³/d, 3% lower than in the previous month due to the mentioned stoppages.
    Pre-salt production
    In March, the production of oil and natural gas operated by Petrobras in the pre-salt layer, own portion and that of partners, was 1.50 million boed, volume 2% lower than in the previous month due to the stoppage on FPSO Cidade de Angra dos Reis.

    Compared to March 2016, there was a 36% production increase mainly due to the beginning of production on FPSO Cidade de Saquarema, in the Lula Central area, and on FPSO Cidade de Caraguatatuba, in Lapa field, in addition to the production increase on FPSO Cidade de Marica, in the Lula Alto area, during the period.
    Production of oil and natural gas abroad
    In March, oil production in overseas fields was 66,000 bpd, volume 4% higher than in the previous month. This performance resulted mainly from the return to production after stoppages in Lucius and Hadrian South fields, in the US, which took place in February.

    Natural gas production was 11.0 million m³/day, a 31% increase over the volume produced in February 2017. This increase resulted from a greater demand of gas production in Bolivia and from the resumption of production in Lucius and Hadrian South fields.
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    Brazilian court suspends Petrobras’ field sale to Statoil

    A Brazilian court is blocking the transfer of Petrobras’ stake in the BM-S-8 offshore exploration block, which contains the Carcará oil field, to the Norwegian oil company Statoil.

    According to a Monday statement by the Brazilian oil giant, the 2nd Federal District Court, Sergipe state, granted an injunction to suspend the transfer of the stake to Statoil and the exploration of the field, until further court deliberation.

    The Brazilian and the Norwegian oil company agreed last July for Statoil to acquire Petrobras’ 66% operated interest of the BM-S-8 offshore license in Brazil’s Santos basin for $2.5 billion. The acquisition included a substantial part of the Carcará oil discovery, which Statoil claimed to be one of the largest discoveries in the world in recent years.

    Statoil estimated the recoverable volumes within the BM-S-8 license to be in the range of 700 to 1,300 million boe. BM-S-8 holds exploration upside that may significantly increase its resource base. The license was in its final exploration phase with one remaining exploration commitment well to be drilled by 2018.

    On completion of the transaction in November, Statoil paid Petrobras $1.25 billion, which is half of the total consideration, with the remainder paid at the passage of certain future milestones.

    In the statement on Monday, Petrobras also noted that this transaction had already been finalized after the fulfillment of all the precedent conditions set forth in the contract, with no restrictions, such as approval by the Administrative Council for Economic Defense (Cade) and by the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

    Furthermore, the Brazilian company stated that the amount received after the closing of the transaction was used in full for early settlement of part of the financing contract between Transportadora Associada de Gás S.A. (TAG), a wholly-owned Petrobras subsidiary, and the National Bank for Economic and Social Development (BNDES), where such a measure was adopted to reduce its indebtedness.

    Petrobras added that it will take the appropriate legal action on behalf of its investors and own interests.

    Sale ‘result of competitive process’

    Offshore Energy Today has reached out to the Norwegian oil company seeking further details about the suspension and the company’s course of action.

    A spokesperson for Statoil confirmed the court suspended the Carcará sale process and all activities related to it.

    When asked about the reason behind the suspension, the spokesperson said: “We cannot speculate in the reason for this decision, but are confident that Brazilian institutions will confirm the legality of the transaction and Statoil will take appropriate actions to support this.

    “The deal was a result of a competitive process as part of Petrobras’ divestment plan and the deal was closed on 22 November 2016. It has been approved by the Brazilian anti-trust agency (CADE), the National Petroleum Agency (ANP) as well as the partners in the license.

    “Statoil was also named in the decision and we are currently evaluating our next steps.”

    Further regarding the reason for the suspension, Reuters reported that the National Federation of Oil Workers said it had filed the lawsuit because Petrobras, as a state-controlled enterprise, is required to hold an open bid for any asset sale.
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    Woodside’s Karratha gas plant suffers production outage

    Australian LNG player Woodside said its Karratha gas plant had suffered an unexpected production outage on Saturday.

    “At approximately 11.30am on Saturday 15 April, Karratha gas plant experienced a production outage. No injuries were sustained during the incident and everyone is accounted for,” Woodside said in a statement trough its social media channels.

    “People in the Karratha area will have seen black smoke from the KGP flare towers. This is a safety function used during a production outage,” the company added.

    Woodside said that the cause of the outage was being investigated. The company did not provide any additional information.

    The Karratha gas plant is located some 1260 kilometres north of Perth, Western Australia. It is a part of the North West Shelf project facilities.

    The Karratha gas plant facilities include five LNG processing trains, two domestic gas trains, six condensate stabilisation units, three LPG fractionation units as well as storage and loading facilities.

    It has an annual LNG export capacity of 16.9 mtpa which is supplied mainly to companies in the Asia Pacific region.

    Woodside operates these facilities on behalf of the NWS project participants. Other NWS JV partners are BHP Billiton, BP, Chevron, Japan Australia LNG (MIMI) and Shell.
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    Chevron begins Gorgon LNG Train 2 restart

    US-based energy giant Chevron began restart activities at its Gorgon LNG project’s second liquefaction train.

    “Restart activities are underway on Gorgon train 2. We continue to produce LNG from trains 1 and 3 and load LNG cargoes,” Chevron’s spokeswoman told LNG World News.

    No exact deadline for the Train 2 production restart has been given.

    Chevron suspended production at its second liquefaction train at the Gorgon LNG plant at the end of last month to carry out maintenance to “improve the train’s capacity and reliability.”

    The $54 billion Gorgon LNG project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
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    ConocoPhillips has potential buyers for LNG plant in Alaska

    ConocoPhillips is negotiating with potential buyers for the company's mothballed liquefied natural gas plant at Nikiski, on the Kenai Peninsula south of Anchorage, a company spokeswoman said Monday.

    The plant, which has a capacity to manufacture up to 1.5 million mt/year of LNG, was built in 1968 by Phillips Petroleum and made regular shipments of LNG to Tokyo Gas and Tokyo Electric under long-term contracts until 2012, when the contracts expired.

    Periodic shipments have been made to Japan and South Korea since then on a spot-sale basis, the last being in 2015.

    ConocoPhillips put the plant up for sale in November and also recently sold the North Cook Inlet gas field, which supplies gas to the plant.

    "We had requested that initial bids be submitted by March 17. The data room that was set up to market the Kenai LNG Facilities is closed and we have received interest," company spokeswomen Amy Jennings Burnett said in a statement.

    "We are currently evaluating the bids to determine next steps. We believe the plant is a strategic asset that offers good opportunities for the right buyer," she said.

    Although LNG prices in Asia are currently low the plant does provide a potential market for companies now exploring and developing new gas discoveries in Cook Inlet. The regional utility market is now supplied by contracts extending beyond 2025 and unless there is a way to market new gas, such as through LNG exports, future development may be stymied, state officials have said.

    Phillips and Marathon Oil built the LNG plant in the 1960s as a way of marketing Cook Inlet gas discoveries that were stranded at the time. When exports began these were the world's first long-distance shipments of LNG and Japan's first imports of LNG.
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    JKM monthly: May-delivery LNG averages $5.454/MMBtu, down 10% on month

    The Platts JKM for May LNG averaged $5.454/MMBtu over the March 16 to April 13 assessment period, down 10.3% from the previous month.

    Oversupply concerns added to the downward pressure earlier in the assessment period but following supply outages at the Pacific Basin's Sakhalin 2 and Gorgon projects, it recouped some of the losses. Higher oil prices also helped provide support.

    UK National Balancing Point hub front-month gas futures averaged $4.977/MMBtu over the JKM May assessment period and the JKM-NBP spread narrowed to $0.488/MMBtu from $0.630/MMBtu a month earlier.

    Production at the Sakhalin-2 LNG plant was suspended after an accident at one of its platforms.

    Sources said Japanese utilities with long-term volumes tied to the Sakhalin and Chevron-operated Gorgon projects were encouraged to pick up some shipments in case of long cargo delays and continued cold weather at home.

    Sporadic demand was also observed from South Korea and India.

    India's IOC issued a two-cargo buy tender for H1 and H2 June while its peer Gail also launched a tender looking for an early May cargo. In South Korea, SK E&S was looking for at least two May cargoes.

    In Asia, some end-users were said to have relatively low stocks and so might look for spot cargoes, although it was not clear how firm their requirements would be.

    In the Atlantic, production at Angola LNG appeared robust and since March 27, Angola has launched four tenders.

    Supply was ample in the Atlantic, thanks to volumes from the Sabine Pass liquefaction project on the US Gulf Coast, although traders said not many of them had been directed to Asia as yet.

    In the Middle East, Egypt's Egas was said to be trying to defer 2017 cargoes to 2018 due to increased domestic gas production, particularly from the North Alexandria Concession controlled by BP.

    The number of cargoes that would be affected was unclear, with sources saying that 10 to more than 20 cargoes would be rolled into next year.
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    Exxon plans to boost shale gas output in Argentina: governor

    ExxonMobil plans to ramp up natural gas production from the Vaca Muerta shale play in Neuquen, Argentina, the governor of that province said.

    Neuquen Governor Omar Gutierrez said he met with senior executives of Exxon and its XTO unit in Houston, Texas, last week during a road show to promote a series of tenders for 56 blocks in the southwestern province, according to a statement Monday.

    The Irving, Texas-based company "is evaluating the potential of gas development in the Los Toldos 1 Sur block," and is poised to request a 35-year production license for the block, Gutierrez said.

    Exxon's focus is to be on developing gas from Vaca Muerta, among the world's most promising shale plays, where the company will have invested $750 million by the end of this year, the governor added.

    Exxon was not available for immediate comment on the governor's statement.

    The focus on gas has been driven by an extension of pricing incentives this year through 2021, as the quicker a company can get a block into production, the more they can profit from the higher prices, Gutierrez said.

    The incentives are designed to pay producers $7.50/MMBtu for output through 2018 and then gradually decline to $6/MMBtu in 2021, before free-market pricing takes effect in 2022, when prices are expected to average $4/MMBtu, or about $1/MMBtu less than current market averages.

    The pricing incentives, which started in 2013, have led a rise in output from Vaca Muerta and several tight plays to 123 million cu m/d in 2016, up 8.2% from a 10-year low of 113.7 million cu m/d in 2014, according to Energy Ministry data.

    Gutierrez said Exxon plans to enter into the production phase in May, without specifying on what block. The company will drill horizontal wells with laterals of 2,500-3,000 meters (8,202-9,843 feet), he added.

    By tapping into its experience in US shale plays and using advanced technology, Exxon and XTO expect to "accelerate gas production" to reach 5 million cu m/d in the next two to three years from the blocks it operates or has stakes in, according to the statement.

    Last year, XTO launched a pilot project on the combined blocks of Bajo del Choique and La Invernada with an investment of about $250 million. If the results prove promising, an additional $13.8 billion will be invested in the development of the combined block by drilling 556 horizontal wells, each with 2,500-meter legs and 25 frac stages, according to the company's investment plan approved by the Neuquen government in 2015.

    Exxon is part of a new wave of investment in Vaca Muerta that gained speed this year after the governments of Argentina and Neuquen reached an agreement with companies and labor unions to extend the gas pricing incentives, cap tax pressure, improve labor productivity and expand infrastructure capacity. The aim is to bring down drilling and completion costs, helping to boost profit potential.

    Tecpetrol, a leading local producer, recently announced a $2.3 billion investment to ramp up gas production to 10 million cu m/d from a Vaca Muerta block over the next three years.

    Gutierrez has said he expects more companies to come forward with investment plans this year, initially with a focus on gas.

    The country expects to close a 30% gas deficit by 2021-22, allowing it to resume exports to the region.

    Neuquen produces 20% of the country's 510,000 b/d of oil and 48% of its gas, according to data from the Argentina Oil and Gas Institute, an industry group.
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    Despite alliance, Russian shipper holds Venezuela oil hostage over debts

    Venezuela's state-run oil company, PDVSA, sent a tanker in October to the Caribbean with the expectation that its cargo of crude would fetch about $20 million - money the crisis-stricken nation desperately needs.

    Instead, the owner of the tanker, the Russian state-owned shipping conglomerate Sovcomflot, held the oil in hopes of collecting partial payment on $30 million that it says PDVSA owes for unpaid shipping fees.

    Despite a longstanding alliance between Venezuela and Russia, Sovcomflot sued PDVSA in St. Maarten, a Dutch island on the northeast end of the Caribbean.

    "The ship owners ... imposed garnishment on the aforementioned oil cargo," reads a March decision by the St. Maarten court.

    Five months after crossing the Caribbean, the NS Columbus discharged its cargo of crude at a storage terminal on St. Eustatius, an island just south of St. Maarten, under a temporary decision by the court. Another tribunal in England will decide if Sovcomflot will ultimately take the oil.

    The dispute, which is being heard by the United Kingdom Admiralty Court, highlights how shipping companies are becoming increasingly aggressive in pursuing PDVSA's debts.

    It also shows that political allies such as Russia are losing patience with delinquent payments from Venezuela, whose obsolete tankers are struggling to export oil and even to supply fuel to the domestic market.

    PDVSA also owes millions of dollars to Caribbean terminals - including the one in Saint Eustatius, which is owned by U.S. NuStar Energy, according to a PDVSA executive and an employee at one of the facilities.

    NuStar and a lawyer representing subsidiaries of Sovcomflot declined to comment. The Russian conglomerate PDVSA did not respond to requests for comment.

    PDVSA did not respond to written questions regarding its tanker fleet or its debts to shipping companies.

    PDVSA's tangled web of payment disputes now spans the globe, from unpaid shipyards in Portugal and half-built tankers in Iran and Brazil to the seized cargo in tiny St. Eustatius, whose strategic location in the Caribbean made it an 18th century colonial-era trading hub.


    The oil price crash starting in 2014 hit Venezuela particularly hard. Once a paradise of oil-fueled consumption, the OPEC nation is now a Soviet-style economy of empty supermarket shelves and snaking food queues.

    Russia has consistently supported President Nicolas Maduro with financing arrangements and oilfield investments. State-run oil firm Rosneft has lent money to PDVSA since 2016 and last month was in talks to help PDVSA make a hefty bond payment, according to Venezuelan government and banking sources.

    But problems had been brewing for months between Venezuela and Sovcomflot, which provides about 15 percent of vessels that PDVSA charters to ship crude to its clients amid a steady deterioration of its own fleet, according to a captain and two shipbrokers working with PDVSA.

    Debts to Sovcomflot had by 2016 swelled enough that company's top brass complained in person to PDVSA President Eulogio Del Pino in the Russian city of Sochi, according to source from PDVSA's trade department with knowledge of the meeting.

    Del Pino agreed to a payment schedule proposed by his trade and fleet executives and accepted by Sovcomflot, the source said. But PDVSA - saddled with heavy bond payments and billions of dollars in unpaid bills to oilfield services providers - was unable to make sufficient payments to avoid Sovcomflot's unusually public debt-collection gambit.

    A PDVSA representative denied that Del Pino was confronted by Sovcomflot in Sochi, saying the account was false, without elaborating.

    Detentions of oil cargoes have been unusual because creditors rarely have sufficiently detailed information on tanker movements to obtain timely court orders.

    Venezuela also tends to ensure that any cargoes that leave its ports legally belong to the clients rather than to PDVSA, meaning they are rarely in a position to be seized.

    The Sovcomflot dispute was different in that the creditors are the tanker owners. Although the crude onboard the NS Columbus had already been sold to Norway's Statoil, the cargo was being carried in a tanker navigating with a bill of lading under PDVSA's name, according to two inspectors and a representative of one of the companies involved.
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    Oil slides more after U.S. settlement on API inventory report

    Oil prices fell on Tuesday, then slid more in post-settlement trade after an industry group reported that U.S. crude stockpiles fell less than expected in the latest week while gasoline stockpiles grew unseasonably.

    U.S. crude prices were down more than 1 percent at $52.32 a barrel in post-settlement trade after the American Petroleum Institute released its weekly data, indicating that crude stockpiles declined less than analysts had forecast.

    Oil futures fell during the trading session, touching their lowest in 11 days as the U.S. government reported that shale oil output in May was expected to post the biggest monthly increase in more than two years.

    The oil market has been caught in a tug-of-war, with OPEC production cuts supporting prices while signs of rising U.S. production have pressured crude on concerns about a glut. On Tuesday, U.S. West Texas Intermediate crude touched a low of $52.10 before bouncing on suggestions that Saudi Arabia is holding crude off the market.

    "We're right at the battle ground: the bulls and the bears are facing off against each other, trying to make their last stand," said John Kilduff, Partner at Again Capital in New York.

    Global benchmark Brent crude futures swooned as low as $54.61, the lowest since April 7, then settled down 47 cents at $54.89 a barrel.

    U.S. WTI futures settled at $52.41 a barrel, down 24 cents. U.S. crude's intraday low was also the weakest since April 7.

    At a time when OPEC and other producing nations have been trying to cut output, government drilling data showed U.S. shale production next month was set to rise to 5.19 million barrels per day (bpd). Output from the Permian play, the country's largest shale region, was expected to reach a record 2.36 million bpd.

    Members of the Organization of the Petroleum Exporting Countries are cutting oil production 1.2 million bpd from Jan. 1 for six months, the first reduction in eight years.

    "The battle between the 'sheiks and the shale oil producers' is far from decided ... with all attempts by OPEC to achieve a lasting production deficit on the oil market being torpedoed by non-OPEC producers – first and foremost the U.S.," analysts at Commerzbank wrote.

    The energy minister of OPEC member the United Arab Emirates predicted healthy oil demand growth this year and said inventories would fall, but it would take time.

    OPEC leader Saudi Arabia tightened February crude oil exports to the lowest since mid-2015, official data showed.

    "We've fought to a draw today and the inventory report will help break us out of this logjam," Kilduff said.

    The market will watch Wednesday morning to see if U.S. government data confirms the API report. A Reuters poll showed analysts expected data to show U.S. crude stocks fell in the week to April 14.
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    East Coast refiner shuns Bakken delivery as Dakota Access Pipeline starts

    Philadelphia Energy Solutions Inc, the largest refiner on the U.S. East Coast, will not be taking any rail deliveries of North Dakota's Bakken crude oil in June, a source familiar with delivery schedules said on Tuesday - a sign that the impending start of the Dakota Access Pipeline is upending trade flows.

    At its peak, PES would have routinely taken about 3 miles' worth of trains filled with Bakken oil each day. But after the $3.8 billion Dakota Access Pipeline begins interstate crude oil delivery on May 14, it will be more lucrative for producers to transport oil to refineries in the U.S. Gulf Coast.

    The long-delayed pipeline will provide a boost for Bakken prices and unofficially end the crude-by-rail boom that revived U.S. East Coast refining operations several years ago.

    "It's the new reality," said Taylor Robinson, president of PLG Consulting. "Unless there's an unforeseen event, like a supply disruption, there will be no economic incentive to rail Bakken to the East Coast."

    PES declined to comment for this story.

    The 1,172-mile (1,885-km) Dakota Access line runs from western North Dakota to a transfer point in Patoka, Illinois. From there, the 450,000 barrel per day line will connect to large refineries in the Nederland and Port Arthur, Texas, area.

    The project became a focus of international attention, drawing protesters from around the world, after a Native American tribe sued to block completion of the final link of the pipeline through a remote part of North Dakota.

    The Standing Rock Sioux tribe said the pipeline would desecrate a sacred burial ground and that any oil leak would poison the tribe's water supply.

    But after U.S. President Donald Trump took office in January, one of his first acts was to sign an executive order that reversed a decision by the Obama administration to delay approval of the pipeline. The tribe also lost several lawsuits aimed at stopping the project led by Energy Transfer Partners LP.

    PES has scheduled just five rail deliveries of crude for May and none for June at its facility in Philadelphia, according to the source familiar with the plant's operations, who spoke on condition of anonymity because they are not authorized to speak about company operations. Deliveries are often scheduled months in advance to manage logistics like storage and manpower.

    In recent months, PES was getting roughly one unit train per day, the equivalent of 75,000 barrels a day. During the boom years between 2013 and 2015, PES would routinely receive three trains a day of Bakken.

    PES and other refiners built large rail terminals on the East Coast in recent years to accommodate cheap Bakken flowing from North Dakota. The PES refinery terminal, which opened in 2013, was able to handle roughly 280,000 barrels a day, making it the largest on the U.S. East Coast.

    Rail volumes of Bakken crude peaked at 420,000 bpd, resulting in bumper profits for those refiners. But Bakken crude's discount to U.S. crude slowly eroded as pipeline capacity out of North Dakota expanded, increasing competition for the heavy oil.

    That forced the East Coast to rely more heavily on foreign, waterborne crude. Currently, Bakken barrels at the delivery point in Nederland, Texas, in June are trading around $1.25 to $1.50 a barrel over U.S. crude futures. Higher rail costs would boost those barrels to $7 to $8 more than U.S. crude.

    The East Coast has averaged roughly 100,000 bpd of crude rail deliveries in recent weeks, according to energy industry intelligence service Genscape.

    Monroe Energy, a subsidiary of Delta Air Lines, stopped receiving Bakken by rail for its 185,000 bpd refinery outside Philadelphia in January of last year. East Coast refineries operated by Phillips 66 and PBF Energy are still receiving modest volumes of Bakken crude.

    "At this point, there are no good reasons to rail crude to the East Coast," said Sarah Emerson, a managing principal at ESAI Energy LLC, a consultancy.

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    Alternative Energy

    German auction attracts first subsidy-free offshore wind deal

    Germany’s first competitive auction for offshore wind projects has not only delivered an average bid price that was “far below expectations” according to the Bundesnetzagentur, but also included what is likely one of the world’s first subsidy-free offshore wind projects.

    Germany’s federal energy markets regulator, the Bundesnetzagentur, announced Thursday the results of its first auction for offshore wind farms — which included bids for grid connections and funding for existing offshore wind farm projects. According to the Bundesnetzagentur, the average weighted average was 0.44 Euro cents per kilowatt hour ($A0.061/kWh), which was “far below expectations.”

    This shows the auction has unlocked medium and long-term cost reduction potential, which will lead to a reduction in funding to an extent that had not been expected,” said Jochen Homann, Bundesnetzagentur President. “Offshore wind energy is categorically proving its competitiveness. This is good news for all electricity consumers who contribute to funding renewable energy through the renewable energy surcharge. It remains to be seen, however, whether the prices in the next auction will be as low.”

    A total of four bids were accepted, with a total volume up for auction of 1,490 megawatts (MW) (out of a possible 1,550 MW), all located in the North Sea.

    DONG Energy was awarded the right to build three offshore wind projects in the German North Sea, for a total capacity of 590 MW: They were the 240 MW OWP West, the 240 MW Borkum Riffgrund West 2, and the 110 MW Gode Wind 3. All three projects are expected to be commissioned in 2024.

    “We’re pleased with being awarded three projects in the first of two German auction rounds, and we have good opportunities to add further capacity to our winning projects in next year’s German auction,” said Samuel Leupold, Executive Vice President and CEO of Wind Power at DONG Energy. “Today’s results contribute to our ambition of driving profitable growth by adding approximately 5GW of additional capacity by 2025.”

    Most importantly, however, for two of the projects — OWP West and Borkum Riffgrund West 2 — DONG Energy made bids of zero, meaning that these two projects will not receive, nor need government subsidy on top of the wholesale electricity price. The Gode Wind 3 project was awarded on a bid price of €60 per MWh.

    “The zero subsidy bid is a breakthrough for the cost competitiveness of offshore wind, and it demonstrates the technology’s massive global growth potential as a cornerstone in the economically viable shift to green energy systems,” Samuel Leupold continued.

    “Cheaper clean energy will benefit governments and consumers – and not least help meet the Paris COP21 targets to fight climate change. Still it’s important to note that the zero bid is enabled by a number of circumstances in this auction. Most notably, the realization window is extended to 2024. This allows developers to apply the next generation turbine technology, which will support a major step down in costs. Also, the bid reflects the fact that grid connection is not included.”

    DONG Energy wasn’t the only big winner, nor the only winner to present a zero bid. EnBW received approval for its 900 MW He Dreiht offshore wind farm, which was won at a bid of zero.

    “We are extremely pleased with this result,” said EnBW CEO Frank Mastiaux.

    “Our bid demonstrates that integrating offshore technology into the market by the middle of the next decade is possible and that offshore wind energy can make a significant contribution towards Germany meeting its energy and climate policy targets. Following on from very good energy yields, offshore technology has also made a quantum leap in terms of efficiency to now qualify as a true driver of the German Energiewende. He Dreiht thus demonstrates our clear commitment to the further responsible and cost-efficient expansion of offshore wind energy and symbolises our contribution to the Energiewende”

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    China renewable power waste worsens in 2016 - Greenpeace

    The amount of electricity wasted by China's solar and wind power sectors rose significantly last year, environment group Greenpeace said in a research report published on Wednesday, despite government pledges to rectify the problem.

    China promised last year to improve what it called the "rhythm" of construction of power transmission lines and renewable generation to avoid "curtailment," which occurs when there is insufficient transmission to absorb the power generated by the renewable projects.

    But Greenpeace said wasted wind power still rose to 17 percent of the total generated by wind farms last year, up from 8 percent in 2014. The amount that failed to make it to the grid was enough to power China's capital Beijing for the whole of 2015, it added.

    Wasted wind generation in the northwestern province of Gansu was 43 percent of the total generated last year, it said.

    Solar curtailment rates across China rose 50 percent over 2015 and 2016. More than 30 percent of available solar power in Gansu and neighbouring Xinjiang failed to reach the grid.

    In an earlier report Greenpeace said total solar and wind investment between now and 2030 could reach as much as $780 billion.

    But, rising levels of waste had cost the industry as much as 34.1 billion yuan ($4.95 billion) in lost earnings over the 2015 to 2016 period, it said on Wednesday.

    China produced 12.3 billion kilowatt-hours (kWh) of solar power in the first quarter of 2017, up 31 percent year-on-year but accounting for just 1.1 percent of total generation over the period, according to official data on Monday. Wind rose to 62.1 billion kWh, 4.3 percent of the total, but was dwarfed by the 77.9 percent share occupied by thermal electricity.

    Grid construction has fallen behind, with China focusing on expensive ultra-high voltage cross-country lines, which are better suited to large-scale power generation projects, including large hydropower facilities in the southwest.

    "Upgrades to the system are urgently needed, including a more flexible physical structure of the grid, efficient cross-region transmission channels and smart peak load operation," said Greenpeace climate and energy campaigner Yuan Ying.

    Many regions have used wind and solar only as back-up electricity sources during peak periods, and much of it falls idle when power use drops.

    According to official data, the renewables base of Zhangjiakou, north of Beijing, has more than four times the wind and solar installations than the local grid can handle, and capacity is still set to increase rapidly.

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    Turkmenistan invites bids for second potash plant construction

    Turkmenistan invited official bids on Monday for a project to build the Central Asian nation's second potash plant, stepping up the government's push to compensate for a downturn in its natural gas sector.

    The announcement published by state-run Turkmenhimiya said the plant would be based at the Karabil potash deposit. It provided no financial details, but two sources at the company told Reuters the project is worth about $1.4 billion.

    Turkmenistan, which has faced foreign currency shortages after its gas exports were hit by declining prices and volumes, is banking on the start of potash production and other projects to bolster the economy.

    The former Soviet republic opened a $1 billion Belarussian-built potash plant last month, aiming to export an annual 1.2 million tonnes of fertiliser to China and India as part of its drive to diversify away from natural gas exports.

    As a potash exporter, Turkmenistan will compete with its former Soviet overlord Russia, home to the world's biggest producer Uralkali, and Belarus.

    Belarussian companies built the plant launched last month and Minsk has said it will help Turkmenistan to market the product.
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    Base Metals

    Freeport Indonesia has initial approval to resume copper exports -spokesman

    Freeport McMoRan Inc has received preliminary approval to resume copper concentrate exports from its Indonesian operation and hopes to lodge an application for an export permit this week, a company spokesman said.

    Indonesia halted Freeport's copper concentrate exports in January under new rules requiring the Arizona-based company to adopt a special licence, pay new taxes and royalties, divest a 51 percent stake in its operations and relinquish arbitration rights.

    However, hopes of a resumption of exports from Freeport's Grasberg mine have improved since the end of March, when the mining minister said a temporary licence would be granted while discussions on longer-term issues continued.

    "We have approval for exports and are working on finalising an export permit," Freeport Indonesia spokesman Riza Pratama told Reuters on Tuesday.

    Mining ministry officials could not be reached for comment on the matter.

    An earlier recommendation for Freeport to export up to 1.1 million tonnes of concentrate would still apply, but the company still needs an export permit from the Trade Ministry, Director General of Coal and Minerals Bambang Gatot said at that time.

    The latest deal is expected to allow Freeport to export copper concentrate for six months, while working to reach agreement with the government on the other disputed issues.

    The stoppage has resulted in thousands of layoffs and cost both sides hundreds of millions of dollars. In February Freeport served notice, saying it has the right to commence arbitration in 120 days if no agreement is reached.

    Freeport's joint venture partner at Grasberg, Rio Tinto , has also warned several times it is considering whether to continue the partnership at the world's second-largest copper mine, given the uncertainties surrounding Freeport's negotiations over long-term mining rights in Indonesia.
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    Steel, Iron Ore and Coal

    China to create 10 'mega' coal companies through M&As: report

    China aims to create 10 "mega" coal producers by the end of the decade as part of its drive to consolidate the industry and tackle overcapacity, the official China Daily reported on Friday, citing an energy official.

    Wang Xiaolin, deputy director of the National Energy Administration, said China was preparing guidelines to create 10 new industry giants each with annual production capacity of more than 100 million tonnes.

    The report said China already has six firms with production capacity above 100 million tonnes.

    According to the China Coal Trade and Distribution Association, the new guidelines will compel coal mining regions to consolidate smaller mines over the next two years, and close those that are not restructured.

    The association said large-scale state miners, including the Shenhua Group, China's biggest coal producer, are also set to undergo restructuring.

    China is in the middle of a program aimed at tackling price-sapping supply gluts in the coal sector, and aims to shut at least 500 million tonnes of production capacity by the end of the decade, with smaller mines shut or consolidated.

    China aims to shut at least 150 million tonnes of coal production capacity this year alone, and the campaign has helped drive up coal prices by more than a quarter since the beginning of the year.
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    China March raw coal output up 1.9%pct on year

    China's raw coal output stood at 299.76 million tonnes in March, increasing 1.9% from the year prior, data showed from the National Bureau of Statistics (NBS) on April 17.

    From January to March, China produced 809.23 million tonnes of raw coal, down 0.3% from the preceding year, compared with 2% decrease during the same period of 2016.
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    Guangxi Qinzhou port Q1 coal imports up 34.8% on year

    Guangxi-based Qinzhou port imported 1.65 million tonnes of coal over January-March, surging 34.8% from a year earlier, customs data showed.

    Import value totaled $119.86 million during the same period, up 116.3% year on year, data showed.

    Anthracite coal imports via Qinzhou port amounted to 145,000 tonnes over January-March, accounting for 8.77% of the port's total coal imports and rising 49.27% year on year.

    Continued overcapacity cut and rising prices in China rendered imported coal more price-competitive, attracting buying interest from end users in metal smelting, cement and other industries in Guangxi.

    With abundant coal resources, especially anthracite coal, Vietnam, adjacent to Guangxi, is gaining favour among buyers in Guangxi.

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    Indian buying interest prompts European thermal coal reloads: sources

    Increased Indian buying interest for lower specification grades of thermal coal has prompted up to two reloads out of the Amsterdam-Rotterdam-Antwerp trading hub in a rarely seen trading move, numerous sources told S&P Global Platts April 13.

    The Capesize vessel Mineral Kyushu entered the port of Rotterdam April 4, according to S&P Global Platts vessel tracking software, with a current destination of Port Said, north of the Suez Canal, slated.

    A large producer-trader was heard to have attempted to charter the vessel in late March for loading in Rotterdam and delivery in Kandla, India, via the Suez Canal around April 17 at a cost of $49,000 -- or around $19/mt -- although the deal was widely reported to have fallen through for reasons unclear.

    However, sources close to Rotterdam port facilities confirmed the vessel had reloaded thermal coal over the weekend, although the final destination of the vessel remained unconfirmed.

    Also of interest was the Capesize Celigny which appeared to have entered Amsterdam for a potential reload after delivering thermal coal from Puerto Bolivar to Ijmuiden, sources said.

    The vessel, currently located off the coast of Portugal, had left Amsterdam March 25 and was also bound for Port Said, suggesting it would transit through the Suez Canal into the Asia Pacific basin.

    A number of sources said the vessel was likely bound for India, but this could not be confirmed.

    Several sources questioned the motives behind the apparent reloads given the associated port costs and additional shipping.

    "I can only assume they are getting better prices for the material in India than what they would get in Europe," one Switzerland-based trader said.

    The source added that the coal was likely to be US high sulfur material or possibly South African 4,800 NAR given that European traders had purchased both grades towards the end of 2016, when premiums against futures for high specification material had blown out to over $10 on tighter availability and keen Chinese buying interest.

    At that time, discounts for South African 4,800 NAR against index 6,000 NAR prices were as high as $25-$26, but had since narrowed to around $18-$19 on dwindling availability.

    "Prices are decent in India for certain grades at the moment," one UK-based seller said. "It seems there are a few offers for US coal around and Asia is coming under a bit of pressure now, so it could be the seller of this cargo decided it was the right time to move it."

    A London-based trader said the apparent reloads could also be an attempt to re-balance stocks in Europe which were now running above 5 million mt at a time when the market traditionally slows down.

    "It's unlikely [that the charter of the Mineral Kyushu] would be [a backhaul] picking something up on the way back [to deliver into the Asia Pacific basin] as its not their [the sellers'] ship, they hired it," a London-based trader said, explaining that the seller of the coal would likely use a portfolio vessel to make such a move in order to avoid incurring additional shipping costs associated with a short-term charter.
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    India revives coal export plans to check rising pithead stocks

    With rising pithead stocks across the country, India is considering exports to cope with surpluses.

    “The government is now looking for new consumers for the surplus coal,” Minister for Power, Coal and Mines PiyushGoyal said in an address to members of the media. “We are open to the idea of exporting coal; however to export we have to address the issue of quality . . . as pollution generated from Indian coal is higher,” he said.

    Late last year, the Ministry of Coal started planning to enter international coal markets, starting with shipments to neighbouring Nepal and Bangladesh. However, even a modest starting offer of 10-million tons did not find many takers in the two countries, which were averse to buying low-grade, high ash content Indian coal. As such, within four months of planning to start exports, the government jettisoned the plan.

    However, with the government once again keen to explore export options to check mounting stocks, miners, including Coal India Limited (CIL), are increasing beneficiation volumes as a prerequisite to woo international buyers of Indian coal.

    It has been pointed out that attempts to export beneficiated coal will be a “challenge” considering limited domestic beneficiation capacity of not more than 70-million tons a year.

    Among other consumers that the government is expecting to woo in order to tackle the problem of plenty are thermal power plants which are currently resorting to imports.

    According to data sourced from the Central Electricity Authority, total coal imports between April 2016 and February 2017 were estimated at about 61-million tons. Of this, 19-million tons were imported by 29 power companies for blending with domestic coal, while 11 other companies imported 42-million tons for undiluted feeding into their plants.

    CIL officials said that if domestic miners were able to replace at least half of the imported volume with domestic coal, it would mitigate the rising problem of pithead stocks.

    In March 2017, pithead stocks had mounted to 69-million tons, up from around 49-million tons in May 2016.

    A senior official in the Coal Ministry further said CIL did not have to increase the rate of coal production.

    Citing a recent communication from the Ministry of Power, he said domestic thermal power plants would require an estimated 584-million tons of coal during 2017/18.  Hence, he said that based on past trends wherein thermal powerplants accounted for about 75% of domestic coalconsumption, total coal consumption during the year would be 780-million tons, which could be adequately met at the current rate of production by domestic miners.

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    Teck: no plans to reopen Quintette met coal mine

    Teck could benefit in the short term from a windfall of soaring metallurgical coal prices and a recovery in other commodities it mines or processes such as copper and zinc.

    The price for steelmaking coal, which makes up more than 40% of the company’s business, shot above US$300 per tonne again recently. That’s about US$100 per tonne higher than the price Teck was using for an update of its earnings forecasts at the end of March.

    “We could essentially be looking at something like 2011,” said Joe Aldina, energy and mining analyst for S&P Global Platts.

    That’s when coal reached record prices of US$300 per tonne because of cyclones in Australia – the same reason they were back above that high-water mark last week. In 2011, weather-related flooding took Australian mines out of production, pushing up prices. By the time they were back online and supplying the market, demand for metallurgical (met) coal had begun to fall due to slowing growth in China, and by 2015 met coal prices had dropped below US$80 per tonne.

    Four metallurgical coal mines in B.C. were shuttered as a result, and proposed new mine projects, including Teck’s Quintette mine near Tumbler Ridge, were put on the back burner. Toward the end of 2016, met coal prices briefly rose back above US$300 per tonne, then fell back to half that price by the end of March.

    More recently, a cyclone took out a key railway link for met coal mines in Australia. Aldina expects spot prices for met coal will remain high for several weeks, which could provide a windfall for producers who are able to increase production and shipments.

    Of the four met coal mines that were shut down in B.C., two in Tumbler Ridge were restarted last year by new owners Conuma Coal Resources Ltd. But in an email to Business in Vancouver, Teck communications officer Chris Stannell said, “We have no near-term plans to reopen Quintette.”

    Teck is focused on completing the Fort Hills project in Alberta, as well as a copper mine expansion in Chile. Fort Hills production is expected to start in 2017’s fourth quarter. Teck owns 20% of the project; Suncor Energy Inc. (TSX:SU) owns 51%.
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    Wet weather rains on Atlas parade

    Wet weather conditions has seen iron-ore miner Atlas Iron ship less tonnes during the three months to March, while C1 cash costs increased from A$34/t to A$36/t, compared with the previous corresponding period.

    The volume of ore shipped during the March quarter declined from the 4-million tonnes shipped at the end of the December quarter, to 3.2-million tonnes, with wet weather and the expected decline at the Wodgina mine, as it approached the end of its mine life, resulting in lower production.

    Mining at Wodgina was completed, as scheduled, on April 6.

    MD Cliff Lawrenson told shareholder on Tuesday that despite the decline in production, the company had made significant progress on all fronts.

    “Atlas has posted a solid production result despite the challenging weather. Margins were good and free operating cash flow was strong.”

    The adverse weather conditions caused disruptions across all Atlas sites, and impacted haulage, Lawrenson said, noting that ports were shut due to the weather, and unscheduled repairs and scheduled maintenance reduced both shipment and haulage, leading to increased inventory at ports and sites.

    C1 and full cash costs were up slightly, driven by reduced portfee relief, reduced fixed cost dilution and higher seaborne freight.

    Meanwhile, during the quarter under review, Atlas approved the A$47-million to A$53-million development of its Corunna Downs project, which had the potential to deliver four-million tonnes a year of lumps and fines direct shipping ore over an initial five- to six-year mine life.

    First ore from Corunna Downs is now expected to be shipped in the March 2018 quarter.
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    Trump 'Buy American' edict may have little impact on U.S. steel

    U.S. President Donald Trump's "Buy American, Hire American" executive order on Tuesday left questions about how the government would enforce the order and whether it would make a real difference in output and employment, according to steel executives and analysts.

    "Buy American" provisions already exist in U.S. law but policing them has been difficult because of waivers granted to foreign companies that undercut their U.S. counterparts on pricing. Earlier on Tuesday, Trump ordered a review of government procurement rules favoring American companies to see if they are actually benefiting, especially the U.S. steel industry.

    Trump's executive order promises to properly police those provisions, but avoided detail about how that will happen.

    Bill Hickey, president of Chicago-based Lapham-Hickey Steel, which has seven steel mills in the Midwest and Northeast, said he has heard talk of "Buy American" for decades, but American or foreign contractors frequently find loopholes to use imported steel.

    "Politicians all talk the same, but at the end of the day it just doesn't work," Hickey said, citing waivers to existing provisions.

    Charles Bradford of Bradford Research said focusing on "Buy American" for U.S. steel does not take into account that some steel products - including tin plate and semi-finished products - are not made in the United States. So if enforced improperly, it could cause supply problems in a U.S. market in which up to 25 percent of steel was imported in the first quarter of this year.

    "The people who have pushed for this don't have a clue and they don't know math," said Bradford.

    Cutting off the supply of goods not made in the United States would create fresh problems for U.S. companies, he said.

    In the construction industry, there also are concerns over "too strict a definition of what constitutes U.S.-made steel products," said Kenneth Simonson, chief economist of the Associated General Contractors of America.

    Simonson cited concerns with steel that might have been melted down from scrap metal that could have come from outside the United States, for example, and tracing its origins before that point.

    Trump's White House track record so far also helps fuel skepticism inside the industry.

    Instead of bold action promised last year by then-candidate Trump on the North American Free Trade Agreement, on China, and free trade agreements, the new administration has "not shown much evidence of doing so," said KeyBanc Capital Markets steel analyst Philip Gibbs.

    "I'm a lot less optimistic than I was three-and-a-half months ago because so far what I've seen coming out of the Trump administration is the same as the prior administration," he added.

    As a result, Gibbs said investors should dial back expectations that Trump will do anything meaningful on trade, or on infrastructure which is where such an order could make a difference.

    Investors seemed to shrug off Tuesday's executive order.

    Nucor Corp shares closed up 0.2 percent at $57.33, AK Steel Holding Corp gained a penny to end at $6.32 and United States Steel Corp closed down 0.5 percent at $28.73.

    AK Steel did not respond to requests for comment. Nucor and U.S. Steel both welcomed the president's executive order.

    The move was welcomed by labor unions. The United Steelworkers said that under current practice, "contractors often try to avoid the law through loopholes to buy cheap and often substandard foreign products like many from China."

    Thomas Gibson, chief executive of lobby group the American Iron and Steel Institute, said in a statement that "Buy American" provisions "are vital to the health of the domestic steel industry, and have helped create manufacturing jobs and build American infrastructure."

    Veteran steel industry analyst Michelle Applebaum said while it remains to be seen how thoroughly the Trump administration will police the steel industry, the executive order sends a clear message to steel importers. "Trump has just created more risk for anyone who wants to import steel," she said. "If he puts money behind enforcement that will force people to play by the rules and that will be a good thing."
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