Mark Latham Commodity Equity Intelligence Service

Monday 5th October 2015
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    US recovery: what does recession look like?

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    Factory Orders.

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    More Than Half Of China's Commodity Companies Can't Pay The Interest On Their Debt

    Image titleEarlier today, Macquarie released a must-read report titled "Further deterioration in China’s corporate debt coverage", in which the Australian bank looks at the Chinese corporate debt bubble (a topic familiar to our readers since 2012) however not in terms of net leverage, or debt/free cash flow, but bottom-up, in terms of corporate interest coverage, or rather the inverse: the ratio of interest expense to operating profit. With good reason, Macquarie focuses on the number of companies with "uncovered debt", or those which can't even cover a full year of interest expense with profit.

    The report's centerprice chart is impressive. It looks at the bond prospectuses of 780 companies and finds that there is about CNY5 trillion in total debt, mostly spread among Mining, Smelting & Material and Infrastructure companies, which belongs to companies that have a Interest/EBIT ratio > 100%, or as western credit analysts would write it,have an EBIT/Interest < 1.0x.

    As Macquarie notes, looking at the entire universe of CNY22 trillion in corporate debt, the "percentage of EBIT-uncovered debt went up from 19.9% in 2013 to 23.6% last year, and the percentage of EBITDA-uncovered debt up from 5.3% to 7%. Therefore, there has been a further deterioration in financial soundness among our sample."

    To be sure, both the size (the gargantuan CNY22 trillion) and the deteriorating quality (the surge in "uncovered debt" companies) of cash flows, was generally known.

    What wasn't known were the specifics of just how severe this bubble deterioration was for the most critical for China, in the current deflationary bust, commodity sector.

    We now know, and the answer is truly terrifying.

    First, it shows the "debt-coverage" curve for commodity companies as of 2007. One will note that not only is there virtually no commodity sector debt to discuss, at not even CNY1 trillion in debt, but virtually every company could comfortably cover their interest expense with existing cash flow: only 4 companies - all in the cement sector - had "uncovered debt" 8 years ago.

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    And then in 2014, everything just falls apart. Quote Macquarie, "more than half of the cumulative debt in this sector was EBIT-uncovered in 2014, and all sub-sectors have their share in the uncovered part, particularly for base metals (the big gray bar on the right stands for Chalco), coal, and steel."

    Compared with the situation in 2013, while almost all sub-sectors did worse in 2014, but things appear to have worsened faster for coal companies as more red bars have moved beyond the 100% critical level for EBIT-coverage.

    It means that last year about CNY2 trillion in debt was in danger of imminent default.

    The situation since than has dramatically deteriorated.

    So are we now? Macquarie again: "Given the slumps in metal and coal prices so far this year, it’s quite likely the curve will have deteriorated further for commodity firms this year, with total debt getting better in the meantime."

    In other words, it is safe to assume that up to two-third of Chinese commodity companies are now at imminent danger of default, as they can't even generate the cash to pay down the interest on their debt, let alone fund repayments.

    We fully expect this to be the source of the next market freakout: when the punditry turns its attention away from macro China, which has more than enough problems to begin with, and starts to focus on the cash flow devastation in China at the micro, or corporate, level.

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    TPP Close? Good news!

     ATLANTA—The U.S. and 11 countries around the Pacific were in the home stretch Sunday on talks to complete a sweeping trade agreement that would lower barriers to goods and services and set commercial rules of the road for two-fifths of the world economy.Image titleImage titleAccording to the New York Times, "the clearest winners of the Trans-Pacific Partnership agreement would be American agriculture, along with technology and pharmaceutical companies, insurers and many large manufacturers" who could expand exports to the other nations that have signed the treaty.

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    Glencore shares surge in HK on agriculture asset sale hopes

    Shares in beleaguered trader and miner Glencore Plc rocketed as much as 72 percent on Monday in Hong Kong on hopes it would be able to cut debt with a sale of a stake in its agricultural assets.

    Reuters reported on Friday that Glencore is in talks with a Saudi Arabian sovereign wealth fund and China's state-backed grain trader COFCO, along with Canadian pension funds, to sell a stake in the assets.

    Glencore wants to sell some assets as part of a wider plan to cut about a third of its $30 billion in net debt, including raising $2.5 billion through a share sale, suspending its dividend and cutting costs by trimming its copper output.

    However doubts grew last week that it would be able to pay down debt fast enough to withstand a prolonged slump in commodities prices. Its shares sank to a record low last week, down 87 percent from when it listed in 2011.

    On Monday the stock rebounded in Hong Kong to a one-month high of HK$18.36, then eased to trade up 40 percent at HK$15.00 in its biggest one day gain, partly helped by higher copper and oil prices.
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    Oil and Gas

    Saudi Arabia to keep up energy spending despite oil drop- Naimi

    Saudi Arabia is continuing with its investments in the oil and gas industry as well as solar energy despite the current drop in oil prices, the kingdom's oil minister was quoted as saying on Friday.

    Ali al-Naimi was speaking at the G20 Energy Ministers' meeting in Istanbul, according to state news agency SPA.

    "Since the 1970s this industry has been experiencing sharp fluctuations in prices - up and down - which have impacted investments in the field of oil and energy, and its continuity," Naimi said.

    "This volatile situation is not in the interest of the producing and consuming countries, and the G20 countries can contribute to the stability of the market."

    Oil fell on Friday, reversing earlier gains after U.S. non-farm payrolls data came in weaker than expected which clouded the demand outlook from the world's largest oil consumer.

    Oil prices have almost halved in the past year because of excess supply, although analysts see signs that OPEC's strategy of allowing prices to fall to put a squeeze on growth in high-cost production areas is having some impact.

    International oil companies have significantly lowered spending this year due to persistently low oil prices, cutting budgets and thousands of jobs.

    Global oil investments this year are expected to drop by 20 percent marking their biggest decline in history, Fatih Birol, head of the International Energy Agency, said on Friday.

    Naimi said Saudi Arabia's investments should continue in exploration, production, refining as well as other alternative sources such as solar energy, SPA reported. The world needs clean, continuous and available energy now and for future generations, he said.

    Naimi met with his U.S., Russian and Indonesian counterparts in Istanbul, where they discussed bilateral relations in the field of petroleum and protecting the environment, SPA reported.

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    China gas boom falters, state giants grapple with wave of imports

    China's energy giants - after years spent scrambling to secure supplies for the world's third-biggest gas market - are being forced to sell a glut of the fuel to buyers in other countries as soaring demand grinds to a halt.

    Consumption has been hit by a cooling economy, but also state policies that ensure Chinese pay among the world's highest gas prices, threatening Beijing's targets of curbing pollution and emissions by using more of the clean-burning fuel.

    This will increase pressure on Chinese policy makers to speed up planned reforms of its oil and gas sector, as well as weigh on global gas prices.

    Chinese state oil firms agreed to a string of long-term liquefied natural gas (LNG) contracts with producers from Qatar to Papua New Guinea, as gas consumption jumped five-fold between 2004 and 2013, but that was before demand growth went from double-digits to less than 3 percent this year.

    Faced with a wave of new LNG imports, China's Sinopec Corp is in talks with global firms on selling part of the 7.6 million tonnes per year contracted from 2016 to 2036 at the Australia Pacific LNG (AP LNG) project, said an industry source.

    "Many oil majors have been making presentations to Sinopec about how to manage its perceived oversupply from AP LNG," said the source, who declined to be named due to the sensitivity of the issue.

    As a buyer and a quarter shareholder in AP LNG, Sinopec had leverage on diverting cargoes away from China, but would still need the consent of other shareholders, said the source.

    The company is likely to sell abroad only a chunk of the first few years of output, traders have said.

    Sinopec, which does not normally disclose operational matters, did not immediately respond to a request for comment.

    Facing similar headwinds, China National Offshore Oil Corporation, or CNOOC, recently concluded its first-ever tender to sell two surplus cargoes to buyers outside China and industry sources said it is holding private talks with counterparts about selling off more in 2016 and beyond.

    With the slowdown already forcing state firms to cut back domestic onshore production and delay developing new offshore fields, consultancy SIA Energy said it would take at least five years for state firms to digest the over-contracted volumes

    Experts put a large part of the blame for the slowdown in China's gas demand on the state's pricing policy, as well as supply and infrastructure bottlenecks.

    Oil giants PetroChina, CNOOC and Sinopec dominate domestic production and imports, and while the state sets a price ceiling they have little motivation to cut prices even when demand falls.

    Natural gas demand was 178.6 billion cubic metres last year, according to the National Development and Reform Commission, China's top economic planner.

    SIA Energy and Wood Mackenzie have cut their 2020 demand estimates to a range of 271-305 bcm, well below the 360-400 bcm forecast late last year by Chinese industry researchers.

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    Russia ready to talk with producers

    Crude oil futures rose on Monday after Russia said it was ready to meet other producers to discuss the situation in the global oil market, where prices have more than halved from last year's highs due to a persistent supply glut.

    "As Russia requested talks, investors seem to expect a possible reduction in oil output to be agreed during rebalancing procedures, with global supply surplus being too burdensome," said Yoo-jin Kang, commodities analyst at NH Investment & Securities based in Seoul.

    Top oil producer Russia has been unwilling to cut output to support crude prices. Last November, it refused to cooperate with the Organization of the Petroleum Exporting Countries (OPEC) in order to defend its market share.

    Russian oil output hit a new post-Soviet monthly high of 10.74 million barrels per day in September, despite a drop in global crude prices to 6-1/2-year lows in August.

    But the country is now prepared to meet with OPEC and non-OPEC oil producers to discuss global oil markets if such a meeting is called, its energy minister said. He said a separate meeting between Russian and Saudi officials was being planned for the end of October.

    Given the weaker oil prices, global oil investments are on track to drop by 20 percent this year - their biggest decline in history, Fatih Birol, head of the International Energy Agency, has said.

    Saudi Arabia, however, is continuing with its investments in the oil and gas industry as well as solar energy, its oil minister said.

    On the geopolitical front, tensions have intensified with Russia saying its planes had struck 10 Islamic State targets in Syria.

    The oil market is now waiting for an indication on when the U.S. Federal Reserve will hikeinterest rates for further trading cues. The prospect of an imminent hike faded after Friday's weaker-than-expected U.S. employment data.
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    Exxon, Chevron Outlooks Cut to Negative by S&P in Oil Slump

    Exxon Mobil Corp. and Chevron Corp. were among several U.S. oil and natural gas producers that had their outlooks or ratings cut by Standard & Poor’s as the industry suffers from weak crude prices, hurting their cash flow and liquidity.

    S&P cut ratings for Chesapeake Energy Corp., Denbury Resources and Whiting Petroleum Corp., while giving Exxon and Chevron "negative" outlooks, the ratings agency said Friday in a statement. Exxon “has substantially more debt than during the last cyclical commodity price trough in 2009, while upstream production and costs are at similar levels,” S&P analysts Thomas Watters and Carin Dehne-Kiley said.

    Exxon is one of only three U.S. industrial issuers to have a triple-A bond rating, along with Johnson & Johnson and Microsoft Corp. The oil company has held that grade from S&P since at least 1985, according to data compiled by Bloomberg.

    The last U.S. company to lose the triple-A designation from S&P, as well as Moody’s Investors Service, was Automatic Data Processing Inc., which was stripped of the ratings after spinning off its auto-dealer services unit in April 2014.

    Chevron has been rated AA by S&P since at least July 1987, Bloomberg data show.

    “Most rating actions reflect lower credit-protection measures, negative cash flow, and uncertainty about liquidity over the next 12 months,” S&P said in the statement.
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    Australia's liquids output set to rise to 413,000 b/d in 2017-2018

    Australia's liquids production is expected to increase to 413,000 b/d in the financial year ending June 2018, up from 328,000 b/d in 2014-2015, according to the latest forecast from the Office of the Chief Economist in the Department of Industry, Innovation and Science.

    Production for that year is expected to be supported by additional condensate output associated with the Prelude and Ichthys LNG projects, which are both scheduled to start up in 2017.

    The Inpex-operated Ichthys project is expected to produce more than 100,000 b/d of condensate from the third quarter of 2017, and Shell's Prelude is forecast to pump around 36,000 b/d when it starts up sometime that year.

    Australia's liquids production is expected to decline after 2017-2018, however, dropping to 368,000 b/d by the end of the decade, the Office of the Chief Economist said.
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    Woodside CEO says doesn't want to raise bid for Oil Search - AFR

    Woodside Petroleum's chief executive said the company does not want to raise its A$11.6 billion ($8.2 billion) offer for Oil Search Ltd because it would hurt his shareholders, the Australian Financial Review reported on Monday.

    Oil Search rejected the proposed all-share offer in September saying it grossly undervalued the company's low cost, high quality liquefied natural gas stake in Papua New Guinea and its gas exploration assets in the island nation.

    "Offering more is dilutive to our shareholders," the newspaper quoted Woodside CEO Peter Coleman saying in his first public comments since the proposal was rebuffed.

    "We are already at that balance point and we don't want to go any further," he was quoted saying in an interview.

    Analysts have said the company would have to offer between A$9 and A$10 a share, or at least A$13 billion, to win over Oil Search shareholders, led by the PNG government, Abu Dhabi's International Petroleum Investment Company and Capital Group.

    Coleman said the company did not want to include cash in any offer on top of its four-for-one share offer ratio as that could hurt shareholders if already weak gas prices fell further.

    "In this environment cash is king. You don't want to be using cash. If you pay cash you are locking in a particular price outcome," Coleman was quoted saying.

    He said his next step would be to "wait for Oil Search shareholders to start to say, 'Where's the deal'"

    "I'm a patient man. This is a once-in-a-cycle opportunity to do something quite special."

    Oil Search was not immediately available to comment on Coleman's remarks.
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    LNG Limited has drawn a blank as to why its shares have surged this morning.

    The company, which is focused on developing mid-sized LNG processing plants in the US, Canada and Australia, was queried by the ASX after its shares surged from an opening price of $1.48 to a high of $1.635 this morning.

    LNG told the exchange it had no explanation for the spike and was not aware of any price sensitive information that had not been released to the market.

    Shares in the company have been on the slide since peaking at $5 in April, mainly because of falling oil and gas prices and negativity towards the sector in general.

    In July, LNG announced it had secured the first offtake deal for its $1 billion Magnolia LNG project in Louisiana for a quarter of planned output.

    Perth-based LNGL said it had signed a binding agreement to provide liquefaction services to Meridian LNG for up to 2 million tonnes a year from the project in Louisiana.

    The company also has projects in Nova Scotia, Canada, and Gladstone in Queensland.

    LNG shares were up 22 cents, or 15.6 per cent, to $1.63 at the close after touching an intraday high of $1.645.
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    US rig count plunges 29 units to lowest total since May 2002

    In a shift reminiscent of the freefall that occurred earlier this year, the overall US drilling rig count plunged 29 units during the week ended Oct. 2 to a total of 809, the lowest since May 3, 2002, according to data from Baker Hughes Inc.

    The count has now fallen in 6 consecutive weeks, giving up 76 units during that time. The recent decline follows a small summer rebound in which the total climbed 28 units over a 9-week period from a nadir of 857 to a plateau of 885.

    Oil-directed rigs again made up a bulk of the downward shift, dropping 26 units to 614, down 977 year-over-year and 987 since a recent peak of 1,601 on Sept. 19, 2014. Oil-directed rigs have now fallen in 5 straight weeks, losing 61 units over that time.

    Gas-directed rigs dropped 2 units to 195, down 135 year-over-year.

    Land-based rigs dropped 24 units to 776, down 1,074 year-over-year. Rigs engaged in horizontal drilling fell 20 units to 609, down 732 year-over-year and 763 since a recent peak of 1,372 on Nov. 21, 2014. Directional drilling rigsdropped 3 units to 83.

    The US offshore count dropped 3 units, including 2 in the Gulf of Mexico, to a total of 30. Offshore rigs are now down 31 year-over-year. Rigs drilling in inland waters decreased 2 units to 3.

    The US Energy Information Administration noted last week that the gulf rig count has fallen more rapidly in recent years compared with the rest of the world .

    In Canada, meanwhile, its rig count rose for the first time in 7 weeks, adding 3 units to reach a total of 179, still down 251 year-over-year. The oil-directed count posted its first gain in 9 weeks, up 4 units to 70, down 179 year-over-year. Gas-directed rigs edged down a unit to 109.

    Texas, Oklahoma lead losses

    Oklahoma led the major oil-and gas-producing states with an 8-unit drop to 97, down 115 year-over-year and its lowest total since Dec. 31, 2009. The Cana Woodford decreased 3 units to 37 while the Ardmore was cut in half to 2.

    Texas fell 6 units to 357, down 538 year-over-year and its lowest total since Aug. 14, 2009. The Permian dropped 5 units to 245, down 311 year-over-year, while the Eagle Ford dropped 3 units to 82, down 128 year-over-year.

    Despite the shrinking rig count, production in Texas during August totaled 110.5 million bbl, up 12.3% year-over-year, and remains on schedule to break the annual record set more than 40 years ago, according from data obtained by the Texas Association of Energy Producers (TAEP) (OGJ Online, Oct. 1, 2015).
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    Oil drillers bet choking wells will keep shale from going bust

    Encana Corp. wants to ensure the shale-oil boom keeps booming.

    The Canadian producer is among a growing number of companies that are restricting initial output—a process known as choking back—in basins from North Dakota to Texas. They’re conceding huge up-front gushers of crude in exchange for smaller production declines over time so that the wells ultimately generate more oil.

    The strategy sacrifices one of the biggest benefits from shale. The early gushers paid back investments fast, allowing companies to pour capital into new projects. Instead, Encana and others envision a future with a more stable flow from wells, so that they don’t always have to keep drilling simply to maintain output.

    “You’re losing a barrel today to get two or three barrels tomorrow,” said Allen Gilmer, CEO of consultant Drilling Info Inc. in Austin. “It’s not a zero-sum game.”

    Curbing initial production allows companies to maintain the pressure and integrity in their wells, which means output doesn’t fall as fast. Shifting to the technique can avoid steep declines, a phenomenon known in the oil world as the Red Queen, the character in Lewis Carroll’s “Through the Looking-Glass” who tells Alice, “It takes all the running you can do, to keep in the same place.”

    Choke management is among a number of strategies—including moving to richer parts of fields, completing wells with more sand and water, and refracing—that U.S. drillers have used to stave off a collapse in production. Output has fallen just 5% from its peak even though companies have shelved more than half their rigs amid a price slump.

    When Newfield Exploration Co. opened new wells in the Bakken formation in North Dakota, it found the pressure difference created flows so strong they would sweep along the sand meant to prop open cracks in the shale, said Danny Aguirre, the company’s head of investor relations. By using pressure control, Newfield gets more oil over the life of the well and can save money by not having to add as much artificial pressure, he said in an interview.

    “We choke wells back in the early time because we think it produces more production over the first 180 days and a bigger EUR,” Encana CEO Doug Suttles said last month at an investor conference in New York.

    The difference can be seen in Karnes County, Texas, the heart of the state’s Eagle Ford shale region. EOG Resources Inc. drilled there last fall, delivering an average 2,000 bopd in their first month. For its part, Encana wells produced about a third of the output in the equivalent period.

    EOG’s wells, though, declined 54% by the third month of production, while Encana’s dropped by 17%, according to analysis by Bloomberg Intelligence’s William Foiles and Andrew Cosgrove. Within nine months, Encana’s wells will be pumping faster than EOG’s and over five years they will have produced more, according to Bloomberg Intelligence modeling.

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    Sanchez Energy Appoints Eduardo Sanchez as President of Sanchez Energy Corporation

    Sanchez Energy Corporation today announced it has appointed Eduardo Sanchez as President of Sanchez Energy effective October 1, 2015. Eduardo Sanchez will provide operations oversight and will direct the execution of the Company's business plans.

    Eduardo Sanchez has over 15 years of experience in the exploration and production industry and has served as President and Chief Executive Officer of Sanchez Resources, LLC, a privately held oil and gas exploration company since 2010.

    Prior to his work at Sanchez Resources, LLC, he worked at Commonwealth Associates, Inc. focusing on private equity and debt placements in small and mid-cap businesses including those in the energy sector. Mr. Sanchez serves on the board of Cristo Rey Jesuit and the Good Samaritan Foundation among other charitable causes in the Houston area.

    Mr. Sanchez received his Bachelor of Science in Business Administration degree from Babson College and his MBA from Columbia Business School.
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    Southwestern's Growth Slows, but Huge Inventory Remains

    Since discovering the Fayetteville Shale in 2003,  Southwestern Energy (SWN) has emerged as the dominant player in the region. It controls more than 880,000 net acres and accounts for almost half of the Fayetteville's production. Southwestern's inventory remains substantial, at about 5,000 net locations, or more than 10 years of drilling opportunities. In the near term, we expect a pullback in rigs as Southwestern focuses on its emerging plays, including the Marcellus. We forecast Fayetteville production to decline modestly over the next several years before returning to growth in 2018, with substantial free cash flow generation along the way.

    Through a series of acquisitions--including two transactions with Chesapeake and asset purchases from WPX and Statoil--Southwestern now controls more than 750,000 net acres in the Marcellus and Utica shales of Pennsylvania and West Virginia, making the company one of the region's largest leaseholders. Southwestern's acreage spans the dry and wet gas windows of the Marcellus and Utica and should help to diversify the firm's hydrocarbon mix in the years ahead; we forecast companywide liquids production increasing to 10% by 2019, up from essentially nothing in 2013. Southwestern's best Marcellus and Utica acreage is economically profitable at gas prices below $3 per thousand cubic feet, which implies that the Fayetteville has assumed the role of a marginal play in the company's portfolio. Ongoing drilling results should shed more light on the longer-term potential of this acreage, including the Upper Devonian formation. We forecast production across the Marcellus and Utica to increase to 3.2 billion cubic feet of equivalent per day by the end of 2019, with 71% from the dry gas northeast Pennsylvania Marcellus and the remainder from the company's liquids-rich and dry gas acreage across southwest Pennsylvania and West Virginia. Volumes should largely keep pace with firm transportation arrangements.

    Southwestern's New Ventures program is responsible for identifying growth opportunities. Among them are 304,000 net acres targeting the Lower Smackover Brown Dense and 376,000 net acres across Colorado targeting formations in the Sand Wash and D-J Basins. Testing continues across these exploratory projects.
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    Alternative Energy

    IEA sees renewables leading global power capacity growth with 700 GW added by 2020

    Global growth in renewable energy sources, which will see the addition of 700 GW of capacity over the next five years, will be driven by falling costs and strong expansion in emerging markets, but policy uncertainties could stall the momentum, the IEA said in a report released Friday.

    Renewable energy will represent the largest single source of power generation growth over the next five years, which holds great promise for affordably mitigating climate change and enhancing energy security, the IEA said in its Medium-Term Renewable Energy Market Report 2015.

    The IEA expects renewable capacity additions to account for almost two-thirds of net additions to global power capacity with wind and solar photovoltaic panels representing nearly half of the total global power capacity increase.

    Two-thirds of the renewable electricity expansion to 2020 will occur in developing countries, with China alone accounting for nearly 40% of total renewable power capacity growth, the report said.

    This will increase the share of renewable energy in global power generation to over 26% by 2020, up from 22% in 2013, the report said.

    The IEA said grid constraints, policy barriers, and macroeconomic conditions in emerging markets, coupled with scaling down thermal power plants in industrialized nations, which puts incumbent utilities under pressure, are some of the challenges to rapid growth in renewables sources globally.

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    Turbine maker Nordex to buy Acciona's wind power business

    German wind turbine maker Nordex is buying Spanish firm Acciona's wind power business for 785 million euros ($882 million) in cash and shares to create a global player in the wind energy market, it said late on Sunday.

    "In combining their activities Nordex and Acciona Windpower will create a truly global company and in doing so reduce exposure to demand swings in individual markets," Nordex said in a statement.

    In early Monday trading, Nordex shares were up 7.4 percent at 26.8 euros per share while Acciona's were up 9.3 percent at 69.13 euros.

    Nordex said the two businesses were complementary, with Nordex strong in Europe and specialised in complex projects, while Acciona Windpower was focused on the Americas and emerging markets, primarily in large-scale wind farms.

    Nordex will pay Acciona 366.4 million euros in a one-off cash payment and the rest by issuing 16.1 million new Nordex shares, equivalent to 16.6 percent of its capital, at an issue price of 26 euros per share. Its shares closed at 24.955 euros on Friday.

    Meanwhile, Acciona is buying more existing shares in Nordex from Skion-Momentum, an investment vehicle belonging to the Quandt family, for 335 million euros, to take its total stake in the German firm to 29.9 percent.

    Skion-Momentum will retain a 5.7 percent stake in Hamburg-based Nordex.

    "Acciona Wind Power growth prospects were somewhat limited within Acciona. The deal allows Acciona to get a relevant stake in one of the largest wind turbine generation players worldwide, maintaining the exposure to the turbines business," BPI said in a note.

    The CEO of the German company Lars Bondo Krogsgaard said on Monday the company had agreed to a three year lock up period with Acciona, during which time the Spanish company has agreed not to raise its stake further in Nordex.

    Nordex said it expected to complete the purchase, including the capital increase, by the first quarter of 2016.

    The deal would bring Acciona synergies worth over 95 million euros as of 2019, and would strengthen research and development and product development capabilities, the Spanish company said in an presentation on Monday.

    Acciona also said that combining Nordex and its wind power business, which designs and manufactures turbines, would give the resulting company an estimated order backlog of about 2.8 gigawatts in 2015.

    Acciona said it would make an estimated 675 million euros in capital gains from the sale of Acciona Windpower. During a conference call on Monday, director of corporate development at the Spanish company Juan Muro Lara said the company had no further short-term plans for its energy business.
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    Potash Corp withdraws offer for German peer K+S amid weakening China demand

    Potash Corp of Saskatchewan said it had withdrawn its 7.9 billion euro ($8.9 billion) offer for German potash producer K+S, citing a decline in global commodity and equity markets and a lack of engagement by K+S management.

    The acquisition would have given Potash Corp an opportunity to realize savings from selling potash within North America from its own Western Canada mines jointly with potash from K+S's Legacy mine, which is under construction in the region.

    But senior K+S executives dismissed Potash Corp's bid as too low and refused to negotiate. Since Potash Corp made its offer to K+S privately at the end of May, shares of K+S peers have dropped around 40 percent amid concerns over weakening demand from China, the world's largest consumer of potash.

    "In light of these (challenging) market conditions and a lack of engagement by K+S management, we have concluded that continued pursuit of a combination is no longer in the best interests of our shareholders," Potash Corp Chief Executive Jochen Tilk said in a statement early on Monday.

    Potash Corp had offered K+S 41 euros per share in cash. This reflected a 59 percent premium to the volume-weighted average of K+S's share price during the prior 12 months. K+S shares ended trading on Friday at 31.34 euros.

    Potash Corp had no problem financing the offer despite debt markets becoming pricier, according to people familiar with matter who asked not to be identified as the matter remained confidential. Potash Corp now plans to focus on its growth strategy, the people added.

    Tilk said on Sept. 16 that Potash was not actively discussing its takeover proposal with K+S but remained interested in a combination of the fertilizer producers that would aid North American potash sales and offer new access to Europe.

    K+S had voiced fears that Potash Corp could dismantle the company and eliminate jobs, and that its pledges to the contrary were too vague. Potash Corp argued that its proposal was not based on closing mines, curtailing production, selling K+S's salt business or cutting jobs.
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    Precious Metals

    Goldcorp reports work stoppage at newest mine in Argentina

    A work stoppage led by a local labour union has been reported at Goldcorp's newest gold mine Cerro Negro, in Argentina. 

    The miner, the world’s largest gold producer by market capitalisation, advised that the work stoppage by miners represented by the Asociacion Obrera Minera Argentina, started on September 30. The company had now approached the Ministry of Labour for support at the federal level to request a conciliation period of 15 working days, during which time the parties would expect to negotiate and work towards a resolution. 

    Assuming the request was granted, the workers would be expected to resume work in short order, while the parties met, the company said. Goldcorp affirmed that it was committed to working cooperatively with employee representatives and government officials to resolve this dispute quickly.
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    Kinross working with U.S. investigators on Africa allegations

    Kinross Gold Corp. said it’s cooperating with U.S. authorities investigating allegations of improper payments government officials at its West Africa mining operations.

    In a statement Friday, the Toronto-based miner said it received subpoenas from the U.S. Securities and Exchange Commission as recently as July and similar requests for information from the Department of Justice in December.

    In August 2013, Kinross received information regarding allegations of improper payments and “certain internal control deficiencies” at its West Africa operations, it said.

    An internal investigation since then “hasn’t identified issues that Kinross believes would have a material adverse effect on the company’s financial position or business operations,” it said. “Kinross is committed to operating in accordance with the highest ethical standards and conducting business in an honest and transparent manner that is in compliance with the law.”

    The Canadian company has mines and projects in the U.S., Brazil, Chile, Ghana, Mauritania and Russia.
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    Base Metals

    Aurubis' European copper premiums down 16%, hit by slow demand

    Aurubis, the world's largest copper recycler, will reduce its refined copper premiums charged to buyers for 2016 to $92/mt, a drop of $18/mt from 2015, spokeswoman Michaela Hessling said in an email Friday.

    The premiums are paid as a differential to prices on the London Metal Exchange and represent a 16% drop, following a year hit by sluggish Chinese demand and overproduction in mines.

    The announcement comes 10 days before LME week, when Codelco, the largest global producer of copper, is expected to release its premiums.

    Most of Europe's copper supply comes through long-term contracts.

    "Europe is driven by these long-term contract premiums," said one trader. "They determine a lot of what happens in the spot market."
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    The ugly metal sisters

    lead and zinc, often called sister metals because they tend to be found in the same deposits and are as often as not mined in tandem.

    Zinc's "supercycle" price peak of $4,580 per tonne, basis three-month metal on the London Metal Exchange (LME), came in November 2006 while lead's peak of $3,890 followed a year later in October 2007.

    Neither made it back to those lofty heights in the Chinese infrastructure-fuelled boom that followed the Global Financial Crisis of 2008-2009.

    And since then the two sisters have done little more than trudge sideways in well-worn ranges until joining in this year's broader sell-off.

    Such an uninspiring price performance has left the two being dubbed the ugly sisters, to be played off against each other in one of the LME Street's favourite relative-value plays.

    That relative value trade has recently been turned on its head with lead re-establishing a premium over zinc for the first time since June of last year.

    The premium itself is still small and tentative. As of Thursday's closing evaluations zinc ($1,687.50) was once again just out in front of lead ($1,649.00).

    And the relationship looks set to remain confused and confusing since the turnaround has been driven by confused and confusing visible stock movements.

    Image title


    In large part the collapsing zinc premium over lead has reflected collapsing sentiment towards the galvanising metal relative to its battery-dependent sister.

    The new negativity has been caused by a rapid build in LME zinc stocks from 430,800 tonnes at the start of August to 617,325 tonnes in the middle of September.

    That was thanks to the "arrival" of 228,225 tonnes of zinc at LME warehouses in New Orleans, long the black hole for surplus zinc stocks.

    Suggestions that some of this metal may have been offloaded by Glencore as part of a broader debt-reduction strategy has reinforced the apparently bearish message that there is a lot of zinc inventory around.

    But in truth these "arrivals" are almost certainly not "arrivals" at all but rather metal that was moved earlier this year to off-exchange storage now coming back into LME-registered sheds.

    The zinc market is paying the collective price for taking at face value the steady drawdown in stocks in the first half of this year, driven by 286,500 tonnes of "departures" from New Orleans.

    Sentiment, in other words, is being driven by what is largely storage arbitrage, irrespective of whose metal it is.

    LME lead stocks, by contrast, seem to paint a more bullish picture. Over the same six-week period that zinc stocks ballooned lead stocks fell by around 50,000 tonnes and they are still sliding.

    Moreover, the ratio of cancelled lead stocks, meaning those that are earmarked for load-out, stands at 25.6 percent. The ratio in LME zinc stocks is just 10.4 percent.

    Alas, however, lead stock movements are no more "real" than those of zinc.

    Rather, they denote nothing more than the latest skirmishing in the ongoing LME warehouse wars, the fight for inventory between different warehouse operators.

    A mass raid on lead stocks earlier this year saw some relocated to South Korea and some to the Dutch port of Vlissingen with the apparent beneficiaries Metro and Worldwide Warehouse Solutions respectively.

    Attached Files
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    Steel, Iron Ore and Coal

    South African coal miners begin strike

    South African coal miners began a strike on Sunday after wage talks collapsed last week, disrupting the sector that produces the country's electricity and exports coal to Europe and Asia.

    The National Union of Mineworkers (NUM), which organised the strike, said last week that it would begin from 1800 local time (1600 GMT). About 30,000 workers could take part.

    "The strike has just started. As expected our workers have downed tools," NUM spokesman Livhuwani Mammburu told Reuters.

    Two smaller unions which mostly represent skilled workers and supervisors accepted the coal companies' offers last week. NUM's arch rival, the Association of Mineworkers and Construction Union (AMCU), has not accepted the offer but its membership levels are small.

    The Chamber of Mines, which represents Glencore, Anglo American Coal and Exxaro, said last week that the coal producers had raised their offer to increase wages by up to 8.5 percent for the lowest-paid workers, from 8 percent previously.

    South Africa's inflation rate is 4.6 percent.
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    Chinese crude steel output in 8 months dip by 2% YoY

    Image Source: wikimediaXinhua reported that China's crude steel output continued to decline in August. According to the National Development and Reform Commission, Crude steel production dipped 3.5 percent year on year to 66.94 million tonnes in August, compared with a 1 percent increase in the same period last year

    In the first eight months of 2015, output fell 2 percent year on year, after the first seven months dropped 1.8 percent year on year, and the January-June period posted the first half-year drop in nearly 20 years, earlier figures showed.

    China's once sizzling steel industry has cooled as the economy shifts gear from double-digit growth to 7 percent expansion in the first half of this year, hurting industry profits and forcing factories to close.

    In the first half of the year, medium- and large-sized steel producers suffered losses of 21.7 billion yuan (3.4 billion U.S. dollars) in their main businesses, losing 16.8 billion yuan more than the same period of last year, according to data from the China Iron and Steel Association.
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