Mark Latham Commodity Equity Intelligence Service

Tuesday 11th October 2016
Background Stories on

News and Views:

Attached Files


    Lula charged over Odebrecht Angola work in Brazil graft probe

    Lula charged over Odebrecht Angola work in Brazil graft probe

    Corruption charges against former Brazilian President Luiz Inacio Lula da Silva piled up on Monday as prosecutors accused him and Marcelo Odebrecht, ex-CEO of engineering group Odebrecht SA, in an alleged bribery scheme related to contracts in Angola.

    Lula already faced several other charges related to a sweeping kickback probe at state-run oil company Petrobras, and Odebrecht is serving a 19-year sentence after his conviction on other corruption allegations in the investigation.

    The new charges come amid expectations that Odebrecht - Latin America's largest construction conglomerate - is on the cusp of signing a leniency deal with prosecutors that would see its former CEO and dozens of other executives turn state's witness.

    Prosecutors have said the Odebrecht group, with its global reach and powerful connections inside Brazil, was at the heart of the long-running corruption scheme. Testimony from its executives could significantly expand the Petrobras probe, lead to new investigations and implicate more politicians.

    Brazil's top prosecutor Rodrigo Janot is investigating 66 politicians - many sitting lawmakers - for alleged participation in the Petrobras scheme, a number that could grow significantly with possible testimony from Odebrecht executives.

    To date, nearly 200 executives and former politicians have been charged in the Petrobras probe and 83 have already been found guilty. Prosecutors are seeking 38 billion reais ($12 billion) in damages from companies and individuals involved.

    Federal prosecutors in Brasilia said the latest charges are related to alleged crimes carried out from "at least" 2008 - when Lula was still president - until 2015.

    They allege Lula used his influence while in office to secure financing from Brazil's state development bank BNDES for undisclosed Odebrecht projects in Angola - and that Odebrecht in return paid 30 million reais in kickbacks to Lula and others.

    Lawyers for Lula did not immediately respond to a request for comment.

    Prosecutors also said in their statement they are looking into Odebrecht projects elsewhere in Africa and Latin America to see if the company received low-interest BNDES loans in the same manner as the alleged scheme in Angola.

    Lula was charged on Monday with corruption, influence peddling and money laundering - the latter of which prosecutors say they found on 44 occasions, often by Odebrecht paying inflated prices to subcontractor Exergia Brasil, which was run by a Lula confidant who was also charged in the case.

    It is now up to a federal judge in Brasilia whether or not to accept the prosecutor' charges against Lula and the others and put them on trial.

    Lula had already been charged twice for various counts of corruption in connection with a massive anti-graft investigation centered on state oil company Petrobras, known formally as Petroleo Brasileiro SA.

    Sergio Moro, a crusading anti-corruption judge in southern Brazil, has ruled that Lula will stand for at least one set of those charges. The trial date has not been set.

    Prosecutors wrote in their Monday indictment that Lula also received kickbacks for an unspecified sum from Odebrecht for delivering lectures to business leaders abroad, although it is not clear if the speeches actually took place.

    "It is suspected that ... those contracts and payments, in truth, were only to conceal the real reason behind Odebrecht's payments to ex-President Lula," the document read.
    Back to Top

    Russia and Turkey sign gas deal, seek common ground on Syria as ties warm

    Turkey and Russia signed an agreement on Monday for the construction of a major undersea gas pipeline and vowed to seek common ground on the war in Syria, accelerating a normalization in ties nearly a year after Turkey shot down a Russian warplane.

    Turkish President Tayyip Erdogan hosted Russia's Vladimir Putin at an Ottoman-era villa in Istanbul for talks which touched on energy deals, trade and tourism ties, defense and the conflict in Syria, where the two leaders back opposing sides.

    "Today has been a full day with President Putin of discussing Russia-Turkish relations ... I have full confidence that the normalization of Turkish-Russian ties will continue at a fast pace," Erdogan told a joint news conference.

    The warming relations between NATO member Turkey and Russia comes as both countries are dealing with troubled economies and strained ties with the West.

    Putin said Moscow had decided to lift a ban on some food products from Turkey, imposed after the Turks shot down a Russian fighter jet near the Syrian border last November, and that both leaders had agreed to work toward the full-scale normalization of bilateral ties.

    They signed a deal on the TurkStream undersea gas pipeline, which will allow Moscow to strengthen its position in the European gas market and cut energy supplies via Ukraine, the main route for Russian energy into Europe.

    The plan for TurkStream emerged after Russia dropped plans to build the South Stream pipeline to Bulgaria due to opposition from the European Union, which is trying to reduce its dependence on Russian gas.

    Erdogan also said plans for a Russian-built nuclear power plant in Turkey would be accelerated. Time lost on the Akkuyu project because of strained relations would be made up, he said.

    In 2013, Russia's state nuclear corporation Rosatom won a $20 billion contract to build four reactors in what was to become Turkey's first nuclear plant, but construction was halted after the downing of the Russian jet.

    But progress on Syria, over which they remain deeply divided, has been more problematic. Erdogan described the topic as "very sensitive", but said he had discussed Turkey's military operations in Syria with Putin on Monday.

    Putin says Russia agrees gas price discount for Turkey

    Russian President Vladimir Putin said on Monday Moscow had agreed a gas price discount mechanism for Turkey as part of a broader deal to construct the TurkStream gas pipeline.
    Back to Top

    Rio buys back more debt

    Mining major Rio Tinto will reduce its gross debt by a further $1.5-billion under cash tender offers.

    As part of the company’s ongoing capital management plan, Rio will purchase $1.5-billion worth of outstanding securities. The offer started on September 26 and will expire on October 24.

    Rio in September also announced the redemption of some $1.5-billion of its 2017 and 2018 notes. The redemption date is October 26, and along with the offer, the redemption will bring the total amount of notes purchased in October to $3-billion.
    Back to Top

    Oil and Gas

    Oil is sliding after the 'scariest man on earth' said no to freezing production

    The price of oil is sliding on Tuesday, after comments from Igor Sechin, the president and chairman of Russia's state oil company said that he sees no reason for a freeze or cut in oil production right now.

    Crude oil prices rose to their best levels of the year on Monday after Russian President Vladimir Putin said he hoped OPEC reaches an agreement, while speaking at an energy congress in Istanbul.

    "Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join," Putin said, according to

    However, speaking to Reuters at the same conference, Rosneft's Sechin — often referred to as "Russia's Darth Vader," and once dubbed the"world's scariest man" — questioned why he would take part in a cut, and said that Rosneft will not cut or freeze oil production as part of any possible agreement with OPEC.

    When asked about the potential for a freeze or cut on the sidelines of the conference in Turkey, Sechin said: "Why should we do it?"

    Sechin also cast doubt on whether certain countries in OPEC would actually be willing to join in with a cut: "Try to answer this
    question yourself: would Iran, Saudi Arabia or Venezuela cut their production?"

    Sechin is one of Putin's closest allies, but his comments are almost exactly the opposite of what Russia's President said on Monday,
    suggesting potential conflicts in Russia's official stance on oil.
    Back to Top

    Putin says Russia ready to support OPEC in oil production freeze and even cut

    Russian President Vladimir Putin has said Russia will join the deal to cut global oil output. On September 28, the Organization of the Petroleum Exporting Countries said it would reduce production by about 700,000 barrels per day (bpd).

    "We support the recent initiative of OPEC to fix oil production limits. We hope that at the OPEC meeting in November, the idea will be embodied in an official agreement, giving a positive signal to the markets and investors," said Putin at the World Energy Congress in Istanbul on Monday.

    The Russian President added that the era of oil and gas will not come to an end in foreseeable future.

    "The demand for traditional energy supported not only the motorization and electrification of such huge countries and economies as China and India, but also by the continuing participation of oil and gas products in the most diverse areas of human life, in industrial processes," he said.

    Oil prices surged during Putin’s speech. The North Sea benchmark Brent was trading at $52.61 per barrel, up 68 cents, rebounding from Monday morning losses. The US benchmark West Texas Intermediate rose 55 cents to $50.36.

    Oil producing countries want to reduce the global glut of an estimated 1.0 million to 1.5 million barrels per day (bpd). On September 28, OPEC agreed to curb production by 700,000 bpd.

    The details of how the production cuts will be shared are still to be worked out at the next OPEC meeting in Vienna on November 30. OPEC also needs to convince oil producers outside the group like Russia to participate.

    Russian Energy Minister Aleksandr Novak said Moscow favors the idea of a global oil production limit, but added it’s profitable for Moscow to freeze production at September’s level. Last month, Russia pumped a record volume of oil, exceeding 11 million bpd.
    Back to Top

    OPEC action should not shock rebalancing oil market: Saudi energy minister

    Saudi energy minister Khalid al-Falih said Monday an agreement among OPEC members outlined last month should not shock the market and a "very gentle hand on the wheel" was needed as global supply and demand was already converging.

    Speaking at the World Energy Congress in Istanbul, Falih said he was "optimistic" the details of last month's preliminary agreement in Algiers would be pinned down when OPEC holds its regular meeting in Vienna in November.

    Several OPEC ministers are expected to meet here this week, with Russian energy minister Alexander Novak also due in Istanbul.

    Falih reiterated comments earlier in the year that an increase in oil prices to $60/b was "not unthinkable," while insisting that prices were not the over-riding consideration.

    However his comments on the need for caution by OPEC may fuel suggestions that Saudi Arabia is reluctant to deviate greatly from the policy it adopted in 2014 of tolerating low prices and seeking to maintain market share.

    "OPEC needs to make sure that we don't crimp too tightly and create a shock to the market. We don't want to give the market the opposite signal and shock markets into prices that could be harmful," he said.

    Falih added that market conditions had changed since OPEC made its decision in late-2014 not to intervene in the market to support prices -- a time, he said, when booming US shale production was causing a divergence in the market.

    "It's a very gentle hand on the wheel and we're not doing anything dramatic, different. I think the market forces have shifted significantly between 2014 and now," he said.

    "I spoke in June about the rapidly emerging rebalancing and the fact that I was seeing the convergence of supply and demand, from a very clear [divergence] in 2014, where supply from one region alone, North America, was growing much faster than global demand. OPEC made its decisions not to intervene because there was a long-term structural divergence," he said.

    "In June I said that divergence has been reversed and now we're seeing the convergence of supply and demand."

    OPEC ministers who gathered in Algiers last month agreed to take action to support low oil prices. Concessions that would allow output to increase in countries such as Iran and Nigeria are expected, but the details are unclear.

    But Falih on Monday stressed he was taking account not only of prices and OPEC producers, but of the global supply and demand picture.

    "My eyes are not on the price -- my eyes are on supply and demand... I make sure that we collaborate with our colleagues in OPEC and non-OPEC producers our decisions, our signals, so that we balance the interests of all these stake holders and most importantly the interests of the billions of people around the world" who depend on oil, he said.

    Falih also reiterated his worries about a drop in investment in oil and gas globally, either due to current low oil prices or factors such as exaggerated expectations of renewable energy or lack of demand.

    "I don't want to shrink it to an issue of targeting a single price for the purpose of maximizing the income of Saudi Arabia," he said.

    "I am concerned about all the talk about stranded resources, coupled with the view of abundant oil and the low oil prices in recent time pulling away investment that is needed for the continued growth in demand we anticipate.

    "To ensure availability of reliable and sufficient supplies of energy during the transition period we all must recognize that we need the continued use and investment in all energy sources, especially oil and gas, which is the core energy source today," he added.
    Back to Top

    BP CEO: Oil market is in balance

    "The oil market is "pretty much in balance," Bob Dudley the chief executive of BP has told CNBC.

    Speaking at the World Energy Conference in Istanbul he said the current oil price was giving producers a little more breathing room.

    "We look at it on a daily basis and it is pretty much in balance. It is pretty much there, within half a million barrels one way or the other," Dudley told CNBC.

    Dudley added with oil stocks still so high, the wider market sentiment may take time to change.

    On the cost of production per barrel, Dudley told CNBC that said BP was looking to re-base targets: "We said $60 next year; we are under $55 now. We can see our way to $53 next year."

    "We are going to work hard make these sustainable, so that we don't have to rely on swings in prices that are volatile and not healthy for industries and consumers and markets."

    The oil-producing cartel OPEC announced at its meeting in Algeria late last month that it plans to agree on an output cut by the time it meets in late November.

    The targeted range is to cut production to a range of 32.50 million barrels per day (bpd) to 33.0 million bpd.

    On Monday the Saudi Arabian Energy Minister Khalid al-Falih said he was optimistic that while a production deal could be reached, OPEC shouldn't curb supply too tightly.

    Dudley added that the meeting of oil suppliers in Algiers gave those looking for a supply freeze deal some reason to be optimistic

    "I will note that countries that traditionally don't have good relations actually made some understanding and agreement there," he said.
    Back to Top

    Vitol sees no oil market supply balance before second half of 2017

    The oil market may see supply and demand rebalance if OPEC and Russia deliver a meaningful enough production cut, but it will still take until the second half of 2017, Vitol  chief executive Ian Taylor said on Monday.

    The Organization of the Petroleum Exporting Countries agreed in Algiers last month to limit output to bring oil supply more quickly into balance with demand.

    Taylor, whose heads the world's largest trader of physical crude oil, said that while the price would get a boost from a cut of 1 million barrels per day (bpd), he was unsure OPEC members could agree on who should cut and by how much.

    "If they really give us 1 million bpd, I think you're going to have to say oil is going to be in the high 50s, early 60s," Taylor said at the annual Reuters Commodities Summit, referring to the price of a barrel of oil in dollars.

    "That for sure will start having an impact, much more on paper immediately, and will bring the market back to balance in the second half of 2017. But can they really give us a million between OPEC and non-OPEC? It's a tough call," he said.

    The oil price LCOc1 has risen by 45 percent so far this year to around $52 a barrel, in large part driven by the prospect of OPEC tackling a global supply glut.

    OPEC, led by Saudi Arabia, has indicated it could cut production by 700,000 bpd, but not how this would be shared.

    Iran is struggling to recapture market share lost to five years of international sanctions over its nuclear program, while Libya and Nigeria are pushing to raise output against a backdrop of geopolitical upheaval and violence.

    Major non-OPEC rival Russia said it believes a cut would be a positive for the market, but has not indicated whether or not it would limit its own production, which is close to record highs above 11 million barrels per day.

    More modest global economic growth has prompted a more cautious view on demand from forecasting agencies such as the International Energy Agency and OPEC itself.

    The prospect of a steep rise in output from outside OPEC, such as from the Kashagan field in Kazakhstan, and the likelihood of a return of volumes from within the cartel, specifically from Libya and Nigeria, could keep pockets of the market in surplus, Taylor said.

    "One of the features of the market at the moment is probably physical crude is a bit longer than the paper markets are telling us," he said adding the Mediterranean market could end up being significantly oversupplied.
    Back to Top

    Iran, Russia sign MoU for developing Iran's oil field

    National Iranian Oil Company (NIOC) and the Russian Tatneft signed a Memorandum of Understanding (MoU) here on Saturday for feasibility studies on development of Iran's Deholoran oil field, Iran's Petro-Energy Information Network (SHANA) reported.

    Addressing the signing ceremony, Director General of Tatneft Nail Ulfatovich Maganov introduced the capabilities of his company for doing the project and said that his company is active in various oil industry subsidiaries, including the upstream and downstream activities.

    Oil extraction, enhanced oil recovery, oil refining, manufacturing of machinery and equipment are among the expertise of Tatneft, Maganov was quoted as saying.

    Tatneft uses specialized forces and takes advantage of the latest technologies in oil industry, Maganov said.

    He voiced satisfaction for cooperating with the NIOC, expressing hope that the agreement will prepare the ground for future cooperation.

    Dehloran oil field is 22 km to the southwest of Dehloran city in Iran's Ilam province and contains about five billion barrels of oil reserves.
    Back to Top

    Petrobras Says Deep-Water Opening Luring Big Oil to Brazil

    International oil companies are reaching out to Brazil after it opened its most promising offshore region to increased competition, a move welcomed by Petrobras Chief Executive Officer Pedro Parente as he seeks partners to spread investment costs.

    Producers rushed to contact Houston-based Brazilian officials last week after Congress removed a requirement that Petrobras control operations at all new projects in an area known as the pre-salt, Parente said. It’s the most investor-friendly change in regulation since the 1997 oil law that ended the company’s monopoly in Brazil.

    “Our foreign ministry representation unit in Houston, in the very following day, received seven manifestations of interest of big companies," Parente said at Bloomberg’s offices in New York City.

    The policy shift comes as the state-controlled producer is selling assets to slash debt, which stood at $125 billion in the second quarter. The Rio de Janeiro-based producer has a group of more than 30 projects worth about $40 billion that it is marketing to potential buyers, Parente said.

    Allowing others to control drilling and production in the potentially oil-rich pre-salt will provide a larger group of offshore operators for Petrobras to team up with at upcoming licensing rounds. Foreign oil companies haven’t had a chance to bid for licenses to operate in the pre-salt since before anyone knew how vast the reserves were.

    The nationalistic oil policies were put in place in 2010 when the government moved to put Petrobras in control of the biggest group of offshore discoveries this century. This limited access to bidding with Petrobras as a minority partner, or trying to buy into an existing license awarded under previous rules.

    Pre-salt oil was formed when the South American and African continents began separating more the 100 million years ago. The repeated flooding and evaporation of salt water in what is now the South Atlantic created a layer of the mineral as thick as 2,000 meters that blankets the deposits. The biggest discovery in the area, Libra, holds an estimated 8 to 12 billion barrels of recoverable reserves.

    Interest in the region is strong. Petroleo Brasileiro SA, as it is formally known, recently sold its stake in a pre-salt concession to Statoil ASA for $2.5 billion. The government is planning to offer new pre-salt exploration acreage in 2017, and the new rules let Petrobras bid more selectively as it looks to contain capital expenditures. The company is likely to continue shedding staff in the next two years, said Parente.

    Higher-than-expected output at the pre-salt has cut Petrobras’s break-even cost to $40 a barrel, and the company can lower it further, said Parente. The company will continue efforts to reduce spending even if oil prices rebound, he said, adding that he sees oil at $50 to $55 a barrel next year.

    “Productivity of the pre-salt fields in Brazil is amazing,” said Parente. “Some wells produce 40,000, 50,000 barrels a day per well. So I think this is what is in the mind of these companies.”

    For more on Petrobras fuel price policy, click here.

    Petrobras is also looking to bring in partners for its refineries, which posted losses in four out of the past five years. The "ideal" partner would supply knowledge, not just money, according to Parente.

    The influx of partners, asset sales and increased competition in offshore fields from foreign producers will force Petrobras to become more efficient, the company’s top managers said.

    “Five to ten years from now the market landscape will be completely different,” said Nelson Silva, Petrobras’ head of strategy who was at the interview. “It will put pressure in us to improve.”
    Back to Top

    China to boost shale gas output

    China will boost its shale gas annual output to 30 billion cubic meters by 2020 and 80-100 billion cubic meters in another ten years, according to a document released by the National Energy Administration (NEA) on September 30.

    The goal represents a huge increase from the current level, 4.5 billion cubic meters last year, according to NEA data.

    To realize this ambition, China will ramp up government subsidies, introduce more investors to the cash-starved sector and encourage cooperation with foreign companies in advanced prospecting technology.

    As the world's biggest energy producer and consumer, China is promoting the use of clean energy for greener growth.

    China's exploitable shale gas reserves are estimated at 21.8 trillion cubic meters, the most in the world and nearly doubling that of the United States, with 544.1 billion cubic meters discovered. The country's shale oil reserves are also vast, ranking third globally.

    Currently, only the US, Canada, China and Argentina commercially produce shale gas. China has produced 5.7 billion cubic meters of shale gas since its commercial exploitation started in 2014.

    The government has vowed to increase the proportion of natural gas used in its energy consumption to more than 10% from the current 5.9%. The global average is 24%.

    According to Department of Land and Resources of Hubei Province, eight shale gas projects in the province have gained approval recently.

    Meanwhile, Qianneng Shale Gas Development Co. in southwestern China's Guizhou province on August 18 decided to get its 10 billion yuan ($1.49 billion) Anye #1 into operation in October, with a capacity of 3 billion cubic meters per annum.
    Back to Top

    Rosneft ‘buys $5.3bn Bashneft stake’

    Rosneft has reportedly acquired the state-owned stake of another Russian major oil player Bashneft in a recently approved 329.6 billion rouble ($5.3 billion) deal.

    The sale was approved by Russian Prime Minister Dmitry Medvedev on Monday, according to reports in the Russian press.

    The deal for just over 50% of Bashneft is reportedly expected to be closed by 14 October.

    The acquisition follows plans of the Russian Economy Minister Alexei Ulyukayev announced earlier this year to privatise a stake in Bashneft.

    The agreed sale, however, came as a surprise as initially the government said it should delay selling its stake for up to five years, until the company was worth more.

    Bashneft declined to comment on the deal when contacted by Upstream. Rosneft was not immediately available for a comment.

    The Russian government, which owns almost 70% of Rosneft, also hopes to get more than $11 billion for a minority stake of the company. Supermajor BP holds a 19.75% share of Rosneft.

    Russia's top oil producer Rosneft has around $32 billion in available funds, so it buying a controlling stake in mid-sized oil company Bashneft would not be a problem, Russian Economy Minister Alexei Ulyukayev told state television in comments broadcast on Monday.
    Back to Top

    BP scraps plan to drill off Australia's south coast

    BP Plc has abandoned plans to drill for oil and gas off the south coast of Australia, saying it can get better value for its exploration spending elsewhere, although it still sees strong potential in the Great Australian Bight.

    The decision comes as a win for environmental groups which have heavily opposed drilling off the coast of South Australia, saying it would damage whale and sea lion breeding grounds, a haven for dolphins, and important fisheries.

    BP said the Bight project, where it has been working with Norway's Statoil, would not be able to compete for capital investment with other opportunities in its global portfolio in the foreseeable future.

    "This decision isn't a result of a change in our view of the prospectivity of the region, nor of the ongoing regulatory process," BP's head of exploration and production in Australia, Claire Fitzpatrick, said in a statement.

    "It is an outcome of our strategy and the relative competitiveness of this project in our portfolio."

    BP was forced to revise its Bight exploration drilling plan late last year and was awaiting a decision by the National Offshore Petroleum Safety and Environmental Management Authority later this month on two wells, and a broader environmental plan by the end of this year.

    The agency said on Tuesday it had yet to receive a request from BP to withdraw its application.

    The Wilderness Society, which has long fought to stop drilling in the Great Australian Bight, on Tuesday urged the federal government to terminate BP's leases and cancel all exploration permits in the basin.

    "We should not be expanding the fossil fuel industry into pristine treacherous seas where the risk of spills is far greater than we've seen before," Wilderness Society national director Lyndon Schneiders said in a statement.

    Others with exploration permits in the region include Chevron Corp, Murphy Oil working with Santos, and Karoon Gas Australia, which just won an exploration permit last week.

    Karoon called the Bight Australia's "most active and prospective frontier oil exploration province." Industry consultant Wood Mackenzie has estimated it could hold 1.9 billion barrels of oil equivalent, making it a potentially major resource.

    BP said Statoil, a 30 percent partner in the exploration licenses for four blocks in the Bight, had accepted its decision to give up on the Bight.

    The Australian Petroleum Production and Exploration Association said earlier this year the industry was potentially looking to spend more than A$1 billion ($760 million) on exploration alone in the region.
    Back to Top

    New China refinery faces delay as Myanmar seeks extra tax on oil: sources

    A newly built Chinese refinery near its border with Myanmar is facing a delayed start after State company PetroChina Co balked at paying an extra tax for piping crude oil through the Southeast Asian nation, two senior Chinese industry sources said.

    PetroChina parent China National Petroleum Corp early last year began trial operations of a deep sea port and 2,400 kilometer pipeline through Myanmar to Southwest China's Yunnan Province. The pipeline is aimed at easing China's reliance on the Malacca Strait, through which about 80 percent of its oil imports now pass.

    PetroChina has also been building a refinery with capacity of 260,000 barrels per day at Anning, Yunnan to process the oil, which so far can only be stored in tanks.

    The company completed construction of the Anning plant around July, and had aimed for test operations this month, but the project is facing delays, said one of sources with knowledge of the matter.

    "The Myanmar government is asking for an additional 5 percent tax for the crude oil, which is on top of an agreed transit fee and pipeline tariff," said the Beijing-based industry official.

    It [the tax] is quite off the international norm. The refinery will certainly run into losses if this tax applies," said the source, adding that the start of the plant was being held back by this issue.

    Commercial operations of a new refinery typically follow several months after testing.

    A Nay Pyi Taw-based senior official with Myanmar's Energy Ministry said the two countries had agreed that the pipeline contract was subject to change if the Finance Ministry and other government agencies suggested it needed changing.

    A PetroChina spokesman said the company does not comment on operational matters.
    Back to Top

    Argentina wants to delay, cancel three-four Oct LNG cargoes: sources

    Argentina's Enarsa is trying to defer or cancel three to four LNG cargoes due to be delivered in October, after doing the same for up to four cargoes in September, sources told S&P Global Platts Monday.

    Enarsa awarded contracts for a total of eight October cargoes via tender, with five cargoes scheduled for delivery into the Escobar terminal and three for the terminal at Bahia Blanca.

    According to cFlow, Platts trade flow software, only one cargo has been delivered to either port. One vessel, the Arctic Voyager, is laden and has been in a holding pattern off the coast of Bahia Blanca for two weeks.

    The country's reduced appetite for LNG is understood to be driven by warmer-than-expected weather after an Argentinian winter -- which runs between June and August -- that was colder than in the previous three years.

    Enarsa told Platts on October 4 that warmer weather conditions have caused demand for natural gas to drop considerably, adding that its ability to store LNG was minimal relative to the total volume consumed.

    According to one London-based analyst: "My view on Argentina is that they overbought for September assuming colder weather, similar to [that of] July and August, but the reality turned out relatively normal and demand is falling fast as it is mainly residential."

    The tenders for the October cargoes were launched in July and August, when temperatures were below those seen in previous years.

    The average daily temperature in Argentina between June and August was 1.07 degrees Celsius below average winter temperatures for the past three years, with a similar trend observed for the two months leading into the winter, according to Platts Analytics data.

    Average temperatures for September, however, have fallen back in line with those for the previous three years, with both amounting to 13.7 degrees. Temperature data for October was not available.

    Despite the colder weather, LNG imports to Argentina for the winter were down year on year from 2.52 Bcm to 2.42 Bcm, with aggregate deliveries over the 12 months prior to October down 23% or 1.467 Bcm of gas equivalent at 5.02 Bcm.

    The utilization of gas in electric generation has been relatively steady year on year, implying increased pipeline deliveries from Bolivia and Chile. From September 2015 through August, gas consumption fell only 2.8% from 15 Bcm to 14.58 Bcm, according to data from Argentina's Comision Nacional de Energia Atomica.
    Back to Top

    Talisman Energy Facing Texas Federal Lawsuit Over Unpaid Oil, Gas Royalties

    Attorneys representing oil and gas royalty owners with interests in the Texas Eagle Ford Shale have filed a federal lawsuit against Talisman Energy USA Inc. based on claims that the company manipulated oil and gas production volumes by as much as 20 to 30 percent and consistently shorted royalty payments.

    Attorneys from Texas-based Provost Umphrey Law Firm, L.L.P., are representing Eugene and Kimberly Cran of DeWitt County in their claims against Warrendale, Pennsylvania-based Talisman.

    Talisman entered the Texas oil and gas market in 2010 by acquiring leases and wells in the Eagle Ford Shale under a 50/50 joint venture agreement with Norway-based energy company Statoil. Today, the joint venture includes some 4,500 oil and gas leases covering 59,000 net acres and 494 producing wells. In 2014, Talisman reported its share of Eagle Ford production topped 22,000 barrels of oil/condensate per day and represented approximately 20 percent of its proven reserves.

    In July 2013, Talisman and Statoil revised their agreement to allow Statoil to assume well operations for half of the Eagle Ford joint venture, while Talisman remained the operator for the remaining wells. As a result, the Crans and other royalty owners began receiving monthly checks from both companies rather than Talisman alone. Shortly after the transfer of operations, the Crans began receiving checks from Talisman with substantial variances in production volumes compared to those reflected in their Statoil royalty payments. The lawsuit refers to these shorted production volumes and shorted payments as the "skim."

    Talisman is accused of secretly altering wellhead production data by arbitrarily reducing the measured volumes of oil and gas by as much as 20 percent. The royalty owners say Talisman further reduced the measured volumes in the spring of 2015, shortly after the company was purchased by Spanish energy giant Repsol in a deal valued at more than $13 billion. This January, Talisman gave up all operator responsibilities and Statoil became the sole operator in the Eagle Ford Shale under the joint venture agreement.

    The lawsuit filed on Oct. 3 includes claims against Talisman for breach of contract, fraud, conversion and unjust enrichment, among others. A jury trial has been requested by Mr. and Mrs. Cran, who are represented by attorneys Bryan O. Blevins Jr. and Michael Hamilton of Provost Umphrey in Beaumont, Texas, and Ernest Freeman and Stephen Scholl of The Freeman Law Firm, P.C., in Houston.

    "When Talisman entered the U.S. market, they were totally unprepared to manage fractional ownership interest by individual royalty owners whose rights and remedies are governed by their lease terms," says Mr. Blevins, lead counsel for the Crans and a litigator who has represented clients in Texas and across the U.S. for more than 25 years. "Our clients have been and are still being significantly and purposely underpaid by Talisman for their mineral rights, and our goal is to make sure that the appropriate parties are held accountable. Talisman's manipulation of production volumes and shorted royalty payments were intentional and may have been related to the Repsol acquisition."
    Back to Top

    The Shale Hedgers start to bite!

    Image titleImage title
    Back to Top

    Alternative Energy

    Global Q3 clean energy investment at weakest since 2013-research

    Global clean energy investment fell to its lowest quarterly level since 2013 between July and September due to a lull in offshore wind financing in Europe and a slowdown in project financing in China and Japan, research showed on Monday.

    Investment in renewable energy and smart energy technologies totalled $42.2 billion in the third quarter, down 31 percent from the previous quarter and down 43 percent from the third quarter of 2015, a report by Bloomberg New Energy Finance said.

    Asset finance of utility-scale renewable energy projects fell 49 percent year-on-year to $28.8 billion in the third quarter.

    "These numbers are worryingly low even compared to the subdued trend we saw in Q1 and Q2," Michael Liebreich, chairman of the advisory board of Bloomberg New Energy Finance, said in a statement.

    Chinese investment fell by 51 percent compared with the third quarter last year to $14.4 billion and Japan's investment was 56 percent lower at $3.5 billion.

    In many countries, electricity demand growth is also lower than government forecasts.

    "My view is that the Q3 figures are somewhere between a 'flash crash' blip and a 'new normal'," Liebreich said.

    If more transactions emerge, Q3 figures could be revised upwards, but with Q1 and Q2 data down an average 23 percent from the equivalent quarters last year, clean energy investment this year could end up well below last year's record of $348.5 billion.

    Attached Files
    Back to Top

    Xinjiang reaches deals with eastern provinces on electricity supply

    Northwestern China's Xinjiang Uygur autonomous region reached deals recently with Jiangsu, Jiangxi and Tianjin on 1.5 TWh of outbound electricity supply this year, with 200 GWh of electricity generated from wind, solar and other new energies, local media reported.

    The electricity, as per contracts signed, will be transmitted from Xinjiang through multiple inter-province UHV DC power transmission lines to the three major power users in eastern China.

    It not only guarantees the power supply of these regions, but also contributes to the maximum utilization of Xinjiang's resource advantages and its economic development.

    In addition, Guangdong, Beijing, Hubei and Hunan will also purchase a total 2.05 TWh of electricity from Xinjiang this year, and the relative framework agreements will be signed between governments afterwards.

    By end-August this year, the installed capacity of power generation in Xinjiang totaled 74.47 GW, with 25.5 GW of new energies. Its installed capacity is expected to exceed 80 GW by end of this year.

    Xinjiang has outbound power transmission capacity of 8 GW presently, and its transmission capacity will further expand after operation of the Zhunger-Anhui UHV DC power transmission line by the end of the 13th Five-Year Plan period (2016-2020).
    Back to Top

    Canada's carbon pricing pushing mines to look at renewable alternatives

    Carbon pricing is pushing mining leaders to consider renewable-energy options as a way of further reducing greenhouse-gas emissions and stabilising energy costs, according to information source for energy and mining Energy and Mines director Adrienne Baker.

    "Carbon pricing in Canada is having an impact on the energychoices of mines. With carbon becoming a commercial liability, mines are evaluating renewables for remote sites and integrating alternative energy into feasibility studies for new operations as a way of limiting carbon exposure," she says.

    Energy and Mines points out that Canadian miningcompanies currently leading carbon reduction and renewables integration include Barrick Gold, Iamgold,AurCrest Gold, Goldcorp and TMAC Resources.

    These companies are investing in renewables and mine electrification to significantly reduce their carbon exposure, stabilise energy costs and boost social licence to operate.

    "The projects these mines are doing and the approaches they are taking to energy are models for the entire sector to mitigate carbon risk and address energy challenges," notes Baker.

    Internationally, Conference of the Parties 21 targets, as well as emerging carbon policies in key mining jurisdictions – including Chile, Argentina and South Africa – are also pushing mining leaders to integrate carbon exposure into their energy choices.

    Energy and Mines notes that mining leaders are adopting shadow prices - the estimated price of a good or service for which no market price exists - on carbon and introducing carbon risk into their energy plans for global operations, which is a big change over the last two years, when the core focus has been energy savings.

    "Many miners, including Newmont and Gold Fields, are elevating carbon risk to a strategic level and integrating it into their energy plans," she adds.

    Carbon pricing and the role of renewables will be a key topic at the fourth yearly Energy and Mines World Congress, taking place in Toronto, Canada on November 21 and 22, which will bring together over 300 mining, renewables andfinance leaders to discuss carbon mitigation and renewables integration.

    Solar energy company Lightsource Renewable Energy is the event sponsor, which drives connections between globalmining and renewables experts to accelerate sustainable energy for mines.

    The event will also celebrate mining companies for their achievements in renewable energy for the first time this year.
    Back to Top

    Government reveals tax rates for green electricity

    The government has revealed new tax rates for gas and electricity for the next three years.

    It includes new prices for electricity generated from renewables following former Chancellor George Osborne’s announcement in July last year to scrap the Climate Change Levy exemption for green power.

    That means from April 2017, the price for green electricity will be £0.568p/kWh and 0.583p/kWh a year later and £0.847p/kWh in 2019.

    The rate for gas has been set at 0.198p/kWh for 2017, 0.203p/kWh for 2018 and 0.339p/kWh the following year.

    The price for petroleum gas and other gaseous hydrocarbon supplied in a liquid state will be 1.272p/kg in 2017, 1.304p/kg in 2018 and 2.175p/kg in 2019.

    The government has also announced the standard landfill tax rates for April 2017 which will be £86.10 per tonne, £1.70 higher than  previously set.

    The rate from April 2018 will be £88.95 per tonne, 3.3% higher than the previous rate.
    Back to Top

    BHP swallows Lomborg line and sells itself short on wind and solar

    Australia’s biggest company and the world’s bigger miner, BHP Billiton, has issued a downbeat forecast for wind and solar in a blog post that predicts demand for fossil fuels – among its core businesses – will continue to flourish for decades to come.

    The BHP blog post is tantalisingly titled – “How much spark is there in the solar and wind revolution” – and begins with the comment that the world is seeing “the dawn of a wind and solar power revolution”.

    But a “dawn” is about all it sees.

    The post is apparently based on the ground-breaking Paris climate agreement, which aims to limit average global warming to well below 2°C and possibly at 1.5°C.

    Yet its forecasts for wind and solar are based on the world completely ignoring that deal and pushing forward with the current suite of enacted and proposed policies, rather than the additional initiatives that the agreement will require world governments to bring to the table.

    Borrowing a line often spoken by climate contrarian Bjorn Lomborg – and frequently cited by the Coalition government – BHP says that wind accounts for just 3.5 per cent of total electricity and solar 1 per cent and will not play a huge role into the future.

    It says that the share of wind and solar will grow, even triple, but that fossil fuels will continue to provide 80 per cent of the world’s energy needs in 25 years time.

    This forecast is based on the International Energy Agency’s “new policies” scenario, which forms the bedrock of similarly pessimistic predictions by Lomborg, and also forms the basis of the Australian Coalition government’s latest energy white paper.

    It effectively ignores climate change because the new policies scenario is expected to produce an outcome of between 3°C and 4°C of global warming. Is this then the basis of BHP Billiton long-term investment decisions?

    Billions of dollars are at stake, and investors would not want to see a repeat of its Johnny-come-lately dive into the US shale gas industry which cost it billions of dollars in write-offs.

    BHP, however, hints that the trillions of dollars of sunk investment in fossil fuel industries will make it difficult for renewable energy to get much more of a foothold.

    “The trillions of dollars already ‘sunk’ in existing conventional, long-life power plants must also be considered,” it writes. “This will impact the speed of renewables uptake, but not the direction of change.”

    It then adds that there is plenty of headroom for renewables to grow before the “constraints of the current renewables technology begin to bite.”

    It defends its predictions by citing the cost of solar in the world’s biggest energy market, China, where it predicts that solar will not compete with coal for at least another decade.

    These are perilous predictions. The established world order has made a terrible hash of predicting the uptake of wind and solar, or realising its rapid cost reduction curves.

    BHP recognises that solar is already cheaper than fossil fuels countries such as Morocco and Chile – but suggests it will take a while for that to happen in China.
    Back to Top


    Bayer: won't use Monsanto buy to force GM seeds on Europeans

    The CEO of Germany's Bayer AG is promising it won't use its planned acquisition of Monsanto Co. to force genetically modified crops on skeptical Europeans.

    Monsanto in September accepted an offer from Bayer to pay $57 billion to its shareholders and assume $9 billion in debt. The combination would create a global agricultural and chemical giant—and bring Bayer together with a leading producer of genetically modified seeds that are engineered to resist drought, among other things, but viewed with deep suspicion in Europe.

    Bayer CEO Werner Baumann was quoted Monday as telling German daily Sueddeutsche Zeitung: "We don't want to take over Monsanto in order to establish genetically modified plants in Europe." He added that Bayer accepts European resistance "even if we are of a different opinion."

    Read more at:
    Back to Top

    Base Metals

    Copper: Funds turn net long again in copper

    The funds trading Comex copper were net buyers last week for the fourth week running, with 2,328 lots of fresh buying and 661 contracts of short-covering.

    This made for a net rise of 2,989 contracts, switching the net fund position to net long 899 contracts from net short 2,090 contracts last week....
    Back to Top

    Vedanta expects higher second-half production at Indian zinc unit

    Diversified miner Vedanta Resources Plc said it expects production at its Indian zinc unit to be significantly higher in the second half of the financial year ending March 31, 2017 compared with the first half.

    Zinc India's mined metal production was 318,000 tonnes in the first half ended Sept. 30, 2016, down about 33 percent on year due to lower production from the Rampura Agucha mine in the northwestern state of Rajasthan, Vedanta said.

    The company's shares rose as much as 2.5 percent, before paring gains to trade up about 1.1 percent at 0716 GMT on the London Stock Exchange.

    Vedanta said it expected to complete the takeover of oil and gas explorer Cairn India Ltd in the first quarter of calendar year 2017.
    Back to Top

    Peru's Antamina expects to double its zinc output next year

    Oct 10 One of Peru's top copper and zinc mines, Antamina, will likely double its zinc output to between 340,000 tonnes and 360,000 tonnes next year to take advantage of an expected rise in prices, the mine's general manager said on Monday.

    Abraham Chahuan added that annual copper production would probably rise to 430,000 tonnes in 2016 and 2017, slightly above the 412,000 tonnes the mine reported in 2015, according to the energy and mines ministry.

    BHP Billiton and Glencore Plc each own 33.75 percent stakes in Antamina. Teck Resources Ltd controls 22.5 percent of the mine and Mitsubishi Corporation 10 percent.

    Chahuan said the open-pit operation in Peru's central Andes is expected next year to tap a layer of zinc veins that would allow it to reap the benefits of potential price increases as a global shortage looms.

    "There's a lot of talk about how there are greater expectations for the price of zinc, and that's ... going to coincide with our much greater production of zinc next year," Chahuan said at a press conference.
    Back to Top

    Steel, Iron Ore and Coal

    Japanese steel mills delay Q4 deals as coking coal surges...Peabody deal

    A dramatic surge in the spot price of Australia's second-biggest
    export, coking coal, has seen Japanese steel mills delay new contract
    settlements that would deliver big gains to Australian miners, in a
    standoff over an expected doubling of the contract price that could
    spell the end of the current pricing system, The Australian reported.

    Australian coking coal spot prices have surged 155% since the start of
    June to a four-year high of $213/t as China cracked down on mining
    overcapacity at the same time that government stimulus fired the
    housing market, while rain and derailments hit Australian supply.

    The price is now more than double the still-standing September quarter
    contract price of $92.50/t, with the size of the ¬potential jump in
    the new ¬contract price delaying settlement more than a week into the
    December quarter.

    While BHP Billiton, the world's biggest coking coal shipper, has moved
    almost completely to spot pricing and is reaping the benefits of the
    surge, other ¬Australian miners are still receiving a contract price
    less than half that of current spot prices as they wait for price

    Japanese steel mills are delaying settling the current quarter's
    price, which is normally set at close to the spot price at the start
    of the quarter, as they hold out for a hoped-for fall in spot -prices.

    The surge in coking coal prices looks like being the major driver in a
    wiping out of Australia's monthly trade deficits for the first time in
    more than two years.

    Price negotiations between Japanese steel mills and Australian miners
    continued on October 7 in Sydney at the 33rd Japan-Australia Coal
    Conference, a closed meeting of coalminers and users that occurs every
    two years.

    Whitehaven Coal managing director Paul Flynn, who was this JACC
    meeting's co-chairman, said it was too early to say where contract
    prices would settle.

    Whitehaven, which produces both coking coal used in steelmaking and
    the thermal coal burned by power stations, is ¬exposed to the
    quarterly coking price settlements but is not participating in the

    According to Macquarie commodities analysts, Nippon Steel is demanding
    December quarter contract prices of $160/t.

    But miner Anglo American wants $212/t, which would be in line with the
    regular practice of settling at spot prices at the start of the

    The price of Australian PCI coal, a lower-grade steelmaking ingredient
    whose spot prices have not risen as much as premium coking coal,
    settled last week at $133/t, in line with the spot price.

    Peabody deal at $200/mt said to break Q4 coking coal impasse

    A benchmark coking coal accord at the upper end of expectations
    appears to be getting established, as Peabody Energy has sold North
    Goonyella premium mid-vol at $200/mt FOB Australia under contract for
    the fourth quarter to Nippon Steel, according to a source close to the

    The source described the sale as a benchmark deal, but this could not
    immediately be confirmed.

    The Q3 benchmark was $92.50/mt FOB, and spot prices rose after key
    spot buyer China increased purchases, supply was disrupted in
    Australia and China, and mining curbs were imposed in China, along
    with limited exports from the US at a time of greater global spot
    trade exposure. Steelmakers were left stunned at the prospect of
    $200/mt benchmark, given tight availability of alternative coals, with
    one Atlantic buyer suggesting the likely outcome would be lower steel
    production in due course. European and Brazilian steel mills have
    bought some coals ahead to cover the year at potentially lower prices,
    reducing the exposure to the quarterly benchmark while also increasing
    spot and index-linked purchasing.

    Talk of the settlement by US miner Peabody, which has US operations
    under Chapter 11 and mines met coal in Australia, surfaced Monday from
    the US, a public holiday in Japan. St Louis-based Peabody declined to
    comment on the matter. Nippon Steel & Sumitomo Metal Corp. was not
    available for comment when contacted outside usual office hours.

    The two-day Australia Japan Coal Conference ended Friday afternoon,
    with no news of a settlement emerging that day. The AJCC draws senior
    steel and coal executives, promoting cordial discussion around
    longer-term planning and industry challenges, more so than finalizing
    price negotiations.

    Analyst Lucas Pipes of investment bank FBR, citing a report of a
    "potential settlement," described it as "well above our and others'
    expectations even over the weekend of around $180-$190/mt."

    Anglo American and Glencore have previously set the hard coking coal
    benchmark in their sales negotiations with Asian steelmakers, leading
    some buyers to question the validity of the Peabody arrangement, ahead
    of confirmation.

    A source close to the price talks said Nippon Steel was getting closer
    to meeting bids after an opening negotiation position last month said
    to have been $150/mt FOB.

    "At the AJCC, Nippon became a lot more sensible about pricing, edging
    closer to a deal. If someone moved down to $190 they would have got a

    As key miners were seeking to get higher prices in line with spot
    prices, and keeping up offers last heard at $212/mt FOB in light of
    Chinese buying interest and a force majeure declared at Anglo's German
    Creek mine, Peabody may have taken the initiative. Peabody already
    settled PCI for Q4 at $133/mt FOB with a separate mill.

    The usual 80% ratio for PCI to HCC would have yielded a HCC price of
    around $160/mt, suggested a buyer, who was surprised at a $200/mt
    level potentially agreed. A $200/mt outcome for HCC would lead PCI to
    a 66.5% ratio, compared to the current spot price ratio at 61%.

    The news came after the price settlement was delayed into a second
    week, after the usual calendar deadline of the end of the prior
    quarter in question.

    "A settlement of $200/mt would be the highest in US dollars since the
    Q3 2012 contract of $225/mt," FBR said. "In AUD, the settlement would
    imply a price of A$263/mt, the highest since Q4 2011 when the contract
    settled at A$274/mt and the Australian dollar was trading at $1.04/mt
    vs. $0.76 today."

    North Goonyella had a longwall move expected to last till
    end-September. It is a mid-vol with high fluidity. On the globalCOAL
    brokered screen trading platform, North Goonyella makes up one of five
    brands traded on the premium mid-vol contract, along with BHP Billiton
    Mitsubishi Alliance's Goonyella, Glencore's Oaky Creek, South32's
    Illawarra, and Anglo American's Moranbah North.
    Back to Top

    Rio Tinto says Guinea iron ore partner IFC to sell stake

    Mining giant Rio Tinto said on Monday that the International Finance Corporation (IFC), a partner in its $20 billion Simandou iron ore project in Guinea, is selling its 4.6 percent stake.

    The exit of IFC, an arm of the World Bank, is the latest setback for the project to develop the world's biggest untapped iron ore reserves. In July, Rio Tinto's new Chief Executive Jean-Sebastien Jacques indicated the project had been shelved temporarily due to a sustained slump in prices.

    "We confirm that the IFC has exercised a put option, which it has held since 2006, to require Rio Tinto and Chinalco to buy their stake in Simfer," Rio Tinto said in an emailed statement, referring to the joint venture.

    Rio has a 46.6 percent stake in the project; China's Chinalco has 41.3 percent and the Guinea government has 7.5 percent.

    A senior official at Guinea's mines ministry said he was not aware of the decision.

    The West African country is counting on the project to spur economic growth after Guinea was hit by a crippling Ebola epidemic that officially ended in June.

    When fully operational, Simandou has the potential to double Guinea’s GDP, the project partners have said, while China, the world's largest iron ore consumer provides an obvious market.
    Back to Top

    173 steel firms violate environmental rules

    As many as 173 Chinese steel enterprises were found to have violated the country's environmental rules during recent nationwide investigations into the industry, the environment ministry said on Monday.

    The Ministry of Environmental Protection said in July that it had set up dedicated inspection teams to determine whether the country's giant steel sector was meeting state technology and emission standards.

    After visiting a total of 1,019 steel enterprises across the country, the inspectors found that 173 firms had broken the rules, with 62 firms involved in illegal construction and 35 exceeding state emission limits, according to the ministry's official publication, China Environmental News.

    Worried by the social and political impact of pollution, China has vowed to crack down on lawbreaking companies and the local governments that protect them. It has also promised to use tougher environmental standards to help shut as much as 100-150 million tonnes of surplus steel capacity over the next five years.

    The ministry said 23 of the offending firms had been asked to cut production, while another 29 had been shut down temporarily in order to "rectify" their problems. Fines totaling 18.9 million yuan ($2.8 million) have been imposed and three officials have been detained.

    The paper singled out Xinyi Huada Steel in eastern China's Jiangsu province, saying the local government had repeatedly ignored requests from environmental regulators to close the firm down for producing illegally.

    As part of its war on pollution, China's traditionally underpowered environment ministry was this year granted new powers to send inspection teams to local regions without prior warning, and was also given the authority to summon senior provincial officials to explain their conduct.

    During a tour of Hebei province, China's biggest steel producing region as well as its biggest polluter, inspectors found that local steel firms had illegally expanded capacity and engaged in "fraudulent practices".

    The ministry has called on the regions to continue to pay special attention to the steel sector, to crack down hard on illegal behavior and to cooperate with local government efforts to close down surplus capacity in the industry, China Environmental News said.

    Attached Files
    Back to Top

    Dongbei Special Steel formally enters bankruptcy restructuring: Xinhua

    Dongbei Special Steel Group Co Ltd has formally entered into a bankruptcy restructuring process following a court filing by one of its creditors, official news agency Xinhua reported on Monday.

    Dongbei, owned by the Liaoning provincial government in the country's "rustbelt" northeast, has been at the heart of troubles in China's debt market this year, defaulting on nine separate bonds even as Beijing has vowed to crack down on "zombie" firms with perennial losses and too much debt.

    Its first bond default in late March helped trigger a sharp sell-off in the corporate debt markets as investors reassessed the likelihood of bailouts for key provincially-owned state enterprises, especially in coal and steel sectors hobbled by overcapacity.

    The firm has also been involved in an extended struggle with creditors over how to restructure its debt, highlighting the challenges in restructuring inefficient, state-owned enterprises, according to Reuters IFR and other media publications.

    Dongbei's listed subsidiary Fushun Special Steel had previously said on Sept. 30 that a Chinese court was reviewing an application for such a bankruptcy restructuring.

    In a separate exchange filing on Monday, Fushun said that 496.9 million of its shares held by Dongbei had been frozen by the court.

    The filing by creditor Alashan Jinzhen Smelting Co Ltd includes Dongbei subsidiaries Dalian Special Steel Co Ltd and Dalian Gaohe Jinbang Xiancun Co Ltd, Xinhua said. In its exchange filing, Fushun said it had not been named in the filing.

    A court-managed bankruptcy process will not necessarily end in liquidation, but analysts said the recent court-ordered liquidation of Guangxi Nonferrous Metal Group, another provincially-owned enterprise, sets a worrying precedent.

    Attached Files
    Back to Top

    China Baowu Steel to cut 6.05 Mtpa steel capacity this yr

    China Baowu Steel Group, restructured from Wuhan Iron and Steel Group (WISCO) and Baoshan Iron and Steel Group (Baosteel), planned to complete the reduction target of 6.05 million tonnes per annum (Mtpa) of steelmaking capacity set for 2016-2017 by the end of this year, sources reported.

    WISCO will shut 1.4 Mtpa of steel capacity over the period, while Baosteel will cut 4.65 Mtpa, said sources.

    The move may usher in a new wave of capacity cuts in China's steel industry, contributing to reorganization and improvement of the sector, said analysts.

    The merger of China's two major steelmakers had been approved by the State Council, the State-owned Assets Supervision and Administration Commission said on September 22.

    Shanghai-based Baosteel Group, China's second largest steelmaker, will issue new stock to shareholders of Wuhan Iron and Steel Group to absorb the other company, according to the merger plan announced late September 20.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

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

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

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

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

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

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

    © 2018 - Commodity Intelligence LLP