Mark Latham Commodity Equity Intelligence Service

Wednesday 2nd November 2016
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    Now its a fight!

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    China official PMI reaches 51.2 in Oct

    The official Purchasing Managers' Index (PMI) rose to 51.2 in October, above the 50-point mark that separates growth from contraction on a monthly basis, compared with the reading of 50.4 last month, jointly announced by National Bureau of Statistics (NBS) and China Federation of Logistics & Purchasing (CFLP) in a statement on November 1.

    It indicated a robust strengthening of activity in China's manufacturing sector in October, and China's economy is stabilizing.

    A sub-index for small and medium-sized firms fell to 49.9 and 48.3, compared with 48.2 and 46.1 in September, while performance at large companies slightly fell to 52.5 compared with 52.6 last month.

    Factory output increased to 53.3 in October from 52.8 in September, and total new orders stood at 52.8, notably rising from September's 50.9, the PMI showed.

    The employment sub-index rose to 48.8, compared to 48.6 in September, signaling a slightly slower contraction of labors in manufacturing enterprises.

    Separately, the private Caixin/Markit purchasing managers' index released on the same day showed factory activity increased to 51.2 in October from September's 50.1.

    The official survey looks more at larger, state-owned firms, while the Caixin survey focuses on smaller firms.
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    China Hongquiao ordered to close half production: Aluminium BULL!

    China Hongqiao, which usurped state-backed Aluminium Corporation of China and Russian oligarch Oleg Deripaska-controlled Rusal in the space of two years to become the world’s largest aluminium smelter last year, has run afoul of Chinese environmental regulations on over half of its capacity.

    Shandong province-based Hongqiao, 81 per cent-owned by tycoon Zhang Shiping, has been ordered by the environmental protection watchdog of Zhouping county of Binzhou city, where its facilities are located, to cease production at production lines with combined annual capacity of 3.61 million tonnes.

    The reason given for the penalty was “failure to obtain environmental protection approvals before building and operating the facilities”.

    The firm was also ordered to stop construction of a 1.32 million tonne-a-year smelting plant, the watchdog said, citing Hongqiao’s failure to seek new environmental impact assessment approval before making major changes to a downstream processing plant.

    It was separately told to cease construction of a power plant with 4,800 mega-watts of generating capacity, shut down a 1,320 MW power-and-heat co-generation plant and an alumina refinery, due to failures to obtain environmental approvals.

    Alumina is the raw material of aluminium, and is refined from the mineral bauxite.

    These actions are according to 11 penalty announcements posted by the bureau on the county government’s website between May 27 and September 23, which said the company is also liable to unspecified fines.

    The company expanded its smelting capacity by 29.8 per cent to 5.89 million tonnes in the 12 months to June 30, and chief executive Zhang Bo told reporters in August that it plans to further expand it to 6.5 million tonnes by the end of the year.

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    Oil and Gas

    Nigerian oil output rises again


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    China's record gasoil exports may have created unforeseen squeeze

    China exported record volumes of gasoil in September, triggering a decline in domestic stocks and leading the market to believe that Asia's biggest oil consumer might have exported more than it should have, and therefore might be forced to limit overseas sales in October.

    September gasoil exports surged to a record high of 1.6 million mt, or 398,197 b/d, surpassing the previous high of 1.53 million mt, or 368,840 b/d, in July, according to data from the General Administration of Customs.

    On a daily average basis in barrels, exports in September were 44.4% higher year on year and up 55.4% month on month.

    "We expect gasoil exports in October to retreat from the highs to just above 1 million mt as good domestic demand is expected to keep the barrels at home," a Beijing-based analyst said.

    Sinopec, China's leading gasoil exporter, was estimated to have exported around 850,000 mt last month from its refineries in the southern and eastern coasts. It was a big jump from an estimated 440,000 mt exported in August.

    PetroChina was estimated to have increased gasoil exports significantly to around 428,000 mt in September from its refineries in northeast China, the southwest Yunnan province, as well as from Guangxi province.

    In August and July, gasoil exports from the regions were 343,000 mt and 385,000 mt, respectively.

    China's gasoil exports are mainly from state-owned refineries under Sinopec, PetroChina, CNOOC and Sinochem, as they are more experienced than the independent refiners in exporting the barrels.

    State-run refiners normally also have less flexibility in their export plans, which are usually made at least one month ahead of loading.

    This plan is seldom changed even if the situation of availability changes quickly.

    "This time, in September, the reason China sent out such big volumes of gasoil was not because of the surplus situation in the domestic market," a Shenzhen-based trader said.

    "High outflows, on the contrary, have created a situation of tight supply within the country."


    China produced 14.38 million mt of gasoil in September, edging down 0.3% from August and 1.4% lower year on year, data from the National Bureau of Statistics showed.

    Chinese refiners have been adjusting their units to maximize gasoline output as part of the country's nationwide drive to increase gasoline production, leading to lower gasoil output.

    "Therefore, gasoil supplies are tight and we now even have to wait for storage sites to be replenished, rather than waiting for storage sites discharging, as we saw in previous months this year," a trader from PetroChina's Guangdong sales arm said.

    "The tightness has encouraged buying since mid-September in the wholesale market. This has pushed up the price of gasoil Yuan 500/mt higher than gasoline. This is a rare market trend this year."

    Gasoil stocks end the of September were down 12.81% month on month, after falling 16.81% a month earlier, according to data from state-owned news agency Xinhua.

    Domestic buying of gasoil in September showed some recovery, buoyed by demand from the land and water transportation sectors.

    A ban on overloading of cargo trucks, which took effect September 21, had significantly raised the mileage needed to transport cargoes and therefore indirectly pushed up gasoil consumption by the commercial transport sector.

    Moreover, activity in the coal market has also increased since last month, requiring more trucks and vessels to ship the material from mines to users.

    In addition, seasonal fishing bans in the Yellow, East China and South China seas were gradually being lifted from August, boosting the fishing industry's demand for marine gasoil.

    Rising domestic wholesale prices were also encouraging local trading houses to rush to the market to secure stocks amid fears that prices could rise even further, an independent trading source said.

    "Stockpiling activity started in September and finished around mid-October," the PetroChina source added.

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    Nigeria's Buhari meets Niger Delta leaders, militants in Abuja

    Nigeria's President Muhammadu Buhari on Tuesday met leaders from the Niger Delta and representatives of militant groups who have been attacking oil facilities in the region.

    A Reuters reporter saw state governors and traditional rulers from the swamp lands meet Buhari and top security and army officials at the presidential villa in Abuja. A government official said militant groups had also sent representatives.

    There was no immediate word on the outcome of the talks.

    This is Buhari's first meeting with Delta leaders since militants started a wave of attacks on oil pipelines earlier this year to get a greater share of oil revenues.

    The attacks, which put four key export streams under force majeure, led production to plunge to just 1.37 million barrels per day in May, the lowest level since July 1988, according to the International Energy Agency (IEA), from 2.2 million barrels in January 2016.

    Nigeria has held talks for months to end the violence but no lasting ceasefire has been agreed in the oil hub where many complain about poverty, even though the region provides much of Nigeria's oil exports.

    OPEC member Nigeria agreed on a ceasefire with major militant groups in 2009 to end an earlier insurgency. But previously unknown groups have since taken up arms after authorities tried to arrest a former militant leader on corruption charges.

    Under a 2009 amnesty, fighters who lay down their arms receive training and employment. However, of the

    $300 million annual funding set aside for this, much ends up in the pockets of "generals" or officials, analysts say - an endemic problem in a country famous for graft.

    Any ceasefire would be difficult to enforce as the militants are splintered into small groups of angry, young unemployed men even their leaders struggle to control.

    A major group, the Niger Delta Avengers, had initially declared a ceasefire in August but then claimed another attack last month.

    The group has threatened to step up attacks on oil facilities in the Niger Delta if the president pursues a military campaign, its spokesman Mudoch Agbinibo told Reuters in written responses to questions.
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    Statoil presents plan for Trestakk discovery (Norway)

    Norwegian oil major Statoil has submitted a Plan for Development and Operation (PDO) of the Trestakk discovery on the Halten Bank to the Norwegian minister for petroleum and energy Tord Lien in Bodø, Norway.

    The discovery, made in 1986, contains about 76 million barrels of recoverable oil equivalent, mainly oil. The project will be tied back to the Åsgard A oil production vessel, with planned production startup anticipated in 2019.

    Trestakk is located in production license PL091, block 6406/3 in the Norwegian Sea some 27 km southeast of Åsgard A platform.

    Statoil said on Tuesday that the capital expenditures for the project development are estimated at approximately 5.5 billion NOK ($667.5 million).

    Torger Rød, head of project development in Statoil, said: “Trestakk is a good example of what is possible to achieve through spending time on working toward the best concept selection.

    “By rethinking our concept along with license partners and suppliers, we have arrived at a solution that costs almost 50 percent less than the original concept. At the same time, we have been able to increase the recoverable resources significantly.”

    The company’s first investment estimates were around 10 billion NOK, which was reduced to 7 billion NOK when the concept selection was made in January 2016.

    Additional improvements and concept adaptations during 2016 further reduced the estimates to about 5.5 billion NOK.

    According to Statoil, the concept selection consists of a template structure and an attached satellite well, which will be tied back to Åsgard A. Three production wells and two gas injection wells will be drilled for a total of five wells.

    Siri Espedal Kindem, senior vice president for operations North in Statoil, said: “Volumes from Trestakk are an important contributor to ensure that operations on the Åsgard A production ship are extended toward 2030 and that more of the original volumes from the Åsgard field can be extracted.”

    Statoil is the operator of the Trestakk discovery with a 59.1 percent interest while the two partners, ExxonMobil Exploration and Production Norway and Eni, have a 33 and 7.9 percent interest respectively.
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    The Qatar LNG Backflip

    Look wherever you want, you are swamped by stories on the LNG wave that's about to hit Europe. After almost a decade of neglect, Europe becomes the powerhouse of global LNG trade again not because of its vanilla qualities but rather because its the last place where LNG exporters with no captive buyer can go.
    I kicked that issue to death in other articles and we will no doubt come back to the general topic many times as this will haunt us for a long while. For now, however, let's concentrate on one of the fundamental core drivers of this oversupply situation. Everyone is going to stare with his eyes wide shut at the US and Australia for clues on what is going to happen over the next months - years - decades maybe.
    However, really understanding the kernel of truth in this whole madness requires us to take off the velvet gloves and pick apart the position of the most glorious of all LNG players - the Qataris. Yes, you read alright. The superstars of the LNG trade are not at all bystanders in this game as their position is as precarious as many others. And they had it coming for a lot of years.

    Qatar is - for the time being - the biggest LNG seller. Soon they will be overtaken by the Aussies just like the Qataris overtook the Indonesians some couple of years ago. They will still remain one of the very large players for the foreseeable future so anything that happens to Qatar necessarily produces effect in the wider LNG world.
    Those with memories of more than the last quarter might remember the original Qatari LNG marketing strategy. More than 10 years ago, they lived in their marvelous world of LNG scarcity where everyone had beaten a path to their doors and showered them with cash. And they did what people in such a luxurious position do. They divided the world (the LNG consuming world) into 3 regions which should each receive roughly a third of all available Qatari LNG.
    A nice plan but then, something called the shale gas revolution made North America - once hailed as the El Dorado for LNG sellers - a dead land for them. With the onset of shale, the nice plan of the Qataris was mush.What came to the rescue was one of the biggest calamities we know of in the energy world - the Fukushima disaster. How that?
    Japan has been the biggest importer of LNG for many decades now. The island is entirely dependent on LNG when it comes to Natural Gas. It has no real Natural Gas production of its own and is separated from gas exporters by deep ocean trenches which make offshore pipelines unfeasible. Underground storage is also not possible for lack of geological structures that would welcome such activity so all of the flexibility Japan needed came from the storage tanks. That's why Japan overbuilt on them massively. They needed to be sure that there is always enough LNG in store to keep the massive Japanese economy humming on no matter what.
    Traditionally, Japan had organized its energy portfolio into baseload and peak. They had anointed nuclear and coal as baseload power and oil plus LNG as peak power. Makes a lot of sense as oil and LNG are the pricier options - usually. When Fukushima hit them in 2011, LNG already showed signs of weakening. Suddenly the entire nuclear generation park of the then second largest economy on earth screeched to a halt taking out a massive part of the baseload power picture. Japan maxed out on the rest of the generation portfolio in an emergency which means that lots of peak power production was going baseload.
    This, in turn, meant a lot more LNG was required and as the capacity was there (remember there was always overcapacity in storage and generation in order to be ready for any peak), Japan became the biggest devourer of freely available LNG in the world - at any price one must add. Their immediate energy security was more important than petty price considerations.
    This wiped out a looming global LNG glut (remember the LNG destined for the US but not needed anymore because of shale) in an instant and enabled producers to feast on super high prices for a while longer. Japan fattened those producers to the point where everyone believed that this is a 'happy ever after' party. Except that - it wasn't.
    The effects of this binge party were what we can observe today - projects mainly in the US and in Australia that took FID at obscenely high cost. I would guess that if the much smaller glut in 2011 would have allowed unfolding - which means that had Fukushima never happened - then most of those projects would not have seen the light of day. This also means that there would not be a tidal wave of LNG on our shores today and many of the issues we face today such as LNG to pipeline gas competition in Europe or the very vigorous push for LNG as the new bunkering fuel of choice would not bloom out in this intensity.
    Qatar's desire to mask its unhinged portfolio by gorging on the Japanese feast caused the biggest eruption in LNG history. This is how small things can go biblical if only one little Black Swan (Fukushima was not really predictable) materializes and the leading producers is in a tight corner.

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    Iraq asks oil majors to downsize costly Dubai offices: sources

    Iraq has asked international oil companies (IOCs) to shut down prestige offices among the glittering towers of Dubai, through‎ which they used to run their oil operations in Iraq, as a way to rein in their budgets, three industry sources said.

    The move, which has been taken by some oil majors developing Iraq's vast southern oilfields, would mean that the companies will have to move hundreds of contractors in and out of the country every few weeks and leading to downsizing of companies' regional hubs based nearby in the United Arab Emirates.

    With its finances stretched, Iraq, OPEC's second biggest producer, asked foreign oil companies last year to spend less than they had proposed, and all but cut off investment entirely for the first half of this year to the major projects.

    Oil companies helping Iraq develop its massive fields have to clear their spending with Baghdad each year, including staffing costs. They are then repaid with income from Iraq's exports of crude produced from existing fields.

    The arrangement worked smoothly when oil prices were above$100 a barrel but the collapse in global crude prices meant Baghdad was paying the same fees in pricey Dubai while its revenue from oil sales is significantly lower.

    The emirate of Dubai, with its glitzy lifestyle and cosmopolitan culture, is one of the world's most popular financial hubs for regional and international companies for its safety and pro-investments approach.

    Oil majors such as Royal Dutch Shell, BP, Total, and Lukoil, who all operate Iraqi oilfields, have their regional offices in Dubai.

    "It is one of the measures taken by the ministry of oil by asking the oil companies to reduce the cost and the number of workers to the minimum level, and shut down the offices in Dubai," said an Iraqi oil industry source.

    "We don't see there is a benefit of having offices in Dubai, they can come to Iraq with lower cost, because all this are being paid out of the petroleum (service contract) cost."

    Two executives from international oil companies operating in Iraq confirmed.

    "We used to operate Iraq from our Dubai office and people used to commute in and out of the country. Now the Iraqis said 'no, you close the Dubai office and stay in the country for 6 weeks, then take 2 weeks out to the original destination'," said an oil industry source from one of the companies.

    Shell for example, which said in May it would cut 12,500 jobs, or about 12.5 percent of its workforce worldwide, was downsizing its office in Dubai and rearranging its operations there after the global employee cuts and closure of Iraq-linked office in the UAE.

    "The (Iraqi oil) ministry have been writing to the IOCs for the last four years on Dubai offices," said a foreign oil executive, adding that the ministry has probably been deducting the Dubai office cost from invoices paid to oil companies for the past year.

    Iraq has reached agreement with BP, Shell and Lukoil to restart stalled investment in oil fields the firms are developing, allowing projects that were halted this year to resume and crude production to increase in 2017, Iraqi oil officials told Reuters in August.

    Iraq relies on oil for nearly all its revenues and is spending heavily to fight Islamic State in its northern and western provinces.
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    Pakistan LNG to buy 240 shipments

    Pakistan LNG Ltd has launched a mid- and a long-term tender to purchase a combined 240 shipments of liquefied natural gas (LNG), the company said on its website.

    The mid-term tender covers a period of five years and calls for 60 shipments, while the long-term tender is for 15 years and 180 cargoes, according to information presented in the tender note.

    Suppliers must submit bids by Dec 20.
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    EIA: US shale flows to continue decline

    Oil flows from the Eagle Ford Shale, one of the three largest in the country, are projected to drop by 35,000 bpd to 947,000 bpd between October and November, according to the latest figures from the US Energy Information Administration (EIA).

    Eagle Ford natural gas production is expected to show a similar decline, falling 183 million cubic feet of natural gas per day to 5.625 billion cubic feet of gas per day.

    The Bakken tight oil play in North Dakota - currently the third largest in the US – is expected to decline by 21,000 bpd to 947,000 bpd and see gas production fall 23 MMcfd to 1.626 Bcfd.

    The red-hot Permian basin is the only US tight oil play where production is expected to increase. Operators have added dozens of rigs to their holdings there over the past four months.

    Permian oil production, which includes flows from both the Delaware and the Midland sub-basin, is expected to increase by 30,000 bpd to 2.012 MMbpd and natural gas production is expected to jump by 58 MMcfd to 7.43 Bcfd.

    Natural gas production from the largest US field – the Marcellus Shale - is projected to increase 73 MMcfd to 18.193 Bcfd but the additional production from the Marcellus and the Permian will not be enough to reverse the trend of declining US natural gas production, which the EIA expects to fall by 178 MMcfd nationwide between October and November.

    Production from the Haynesville shale, the second largest gas play in the country, is projected to decline 45 MMcfd to 5.790 Bfcd, contributing to a nationwide decline of 178 MMcfpd in US shale gas production for a total of 45.958 Bfcd.

    The declines come despite gains in the new production that can be created from each rig running for one month in the plays.

    Every single US tight oil play showed increasing efficiency, led by the Niobrara, where operators can now expect to create 1053 bpd of additional production from one rig – up 27 bpd.

    The Bakken saw its new-rig production increase by 23 bpd to 923 and the Eagle Ford posted a 16 bpd increase to 1201 bpd.

    Both the Marcellus and Haynesville plays showed flat new-production per rig per month.

    The EIA recently began tracking the number of wells that operators drill but do not complete immediately (DUC) in the major shale plays and found that the number of DUCs nationwide had declined by 27.

    The largest drop was seen in the Eagle Ford, which logged a decrease of 36 DUCs to a total of 1276.

    The Permian was the only play that saw an increase in DUCs, adding 52 for a total of 1378.
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    U.S. gasoline futures spike on Colonial pipe explosion in Alabama

    U.S. gasoline futures jumped over 11 percent on Tuesday after Colonial Pipeline Co  shut down its main gasoline and distillates pipelines on Monday after an explosion and fire in Shelby, Alabama, killed a worker.

    The incident was the second time in two months the company had to close the crucial supply line to the U.S. East Coast, prompting gasoline prices to spike on fears of shortages.

    Gasoline futures for December were up about 16 cents, or 11.1 percent, at $1.58 per gallon at 8:05 a.m. EDT (1205 GMT).

    Earlier in the session, the contract jumped as high as $1.6351, its highest since early June.

    A nine-man crew was conducting work on the Colonial pipeline system at the time of the explosion, Alabama Governor Robert Bentley told a briefing. Seven of the workers were injured, with two evacuated by air.

    The explosion occurred when the crew hit the gasoline pipeline (Line 1) with a track hoe, Colonial said an e-mailed statement late on Monday.

    The 5,500-mile (8,850-km) Colonial Pipeline is the largest U.S. refined products pipeline system and transports gasoline, diesel and jet fuel from the U.S. Gulf Coast to the New York Harbor area.


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    Occidental Petroleum's loss larger than expected as output falls

    Occidental Petroleum Corp reported a larger-than expected quarterly loss on Tuesday as the company produced fewer barrels of oil and gas and commodity prices remained low.

    The Houston-based company's production from ongoing operations, including its international business, fell 12.2 percent to 605,000 barrels of oil equivalent (boe) per day.

    The company said its average worldwide realized crude oil prices were $41.49 per barrel, down 13.2 percent from a year earlier.

    Occidental said its daily production in Texas' Permian Basin rose by 5,000 boe, but was offset by lower production of natural gas and related liquids.

    Occidental said on Monday it acquired 35,000 acres (14,164 hectares) of West Texas acreage for $2 billion in cash, boosting its position in the oil-rich Permian Basin.

    The company's quarterly net loss narrowed to $241 million, or 32 cents per share, from $2.61 billion, or $3.42 per share.

    The year-earlier quarter included a $2.6 billion after-tax charge related to scrapped projects and a sharp decline in oil and gas prices.

    Adjusted loss of 15 cents per share was larger than the average analyst estimate of 11 cents, according to Thomson Reuters I/B/E/S.

    Revenue fell 15.8 percent to $2.73 billion, but came in above expectations of $2.69 billion.
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    Pioneer Natural profit misses Street despite output jump

    Pioneer Natural Resources Co posted a lower-than-expected quarterly profit on Tuesday as an increase in the average selling price and sales of its oil failed to offset higher expenses.

    Pioneer boosted its 2016 production forecast slightly and increased its hedging program for 2017, highlighting executives' optimism that the oil market has reached a kind of equilibrium after more than two years of uncertainty.

    The company posted a third-quarter net income of $22 million, or 13 cents per share, compared to $646 million, or $4.27 per share, in the year-ago period, which included a one-time gain from asset sales.

    Analysts expected earnings of 16 cents per share, according to Thomson Reuters I/B/E/S.

    Average sales volumes rose 13 percent to 238,878 barrels of oil equivalent per day. Pioneer exported 610,000 barrels of oil from the Permian Basin of West Texas to Europe during the quarter, executives said.

    The average price Pioneer received for its oil and natural gas rose 2 percent to $29.24 per barrel of oil equivalent.

    Still, the company's expenses rose about 1 percent during the quarter.

    Scott Sheffield, Pioneer's outgoing chief executive, said he expects the company to be cash flow neutral by 2018 if oil prices stay near $55 per barrel.
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    Noble Energy posts smaller-than-expected loss as costs fall

    Oil and gas producer Noble Energy Inc posted a much smaller-than-expected loss in the third quarter as lower expenses helped offset the impact of weak oil prices.

    Noble, which said in May it expects to spend less the $1.5 billion it had budgeted for the year, said total operating expenses fell 9.8 percent to $1.16 billion in the quarter.

    The company's sales volumes rose 12 percent in the three months ended Sept. 30, while lease operating expenses fell 14 percent to average $3.37 per barrel of oil equivalent.

    The net loss attributable to Noble narrowed to $144 million, or 33 cents per share, in the quarter, from $283 million, or 67 cents per share, a year earlier.

    Excluding items, Noble's loss was 7 cents per share.

    Analysts on average were expecting a loss of 23 cents, according to Thomson Reuters I/B/E/S.

    Noble's total revenue rose 11.1 percent to $910 million, but fell short of analysts' expectations of $980.6 million.

    Noble's shares closed up nearly 2 percent at $35.15 in regular trading on Tuesday. They were unchanged after the bell.
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    Devon posts better-than-expected profit

    US oil producer Devon Energy reported a better-than-expected quarterly profit as cost savings cushioned the impact of weak oil prices.

    Devon has cut its lease operating expenses, including labor and supply costs, to offset a more than 55% slide in oil prices since mid-2014.

    The company, which expects cost savings to reach $1 billion this year, said total operating expenses fell 69.4% in the third quarter ended 30 September.

    Total production, net of royalties, fell 15.1% to 577,000 barrels of oil equivalent per day.

    Devon said it expects to increase its rig activity in the United States from five rigs running in the third quarter to as many as 10 by the end of this year.

    Net earnings attributable to Devon was $993 million, or $1.89 per share, in the third quarter, compared with a loss of $3.51 billion, or $8.64 per share, a year earlier.

    The year-ago quarter included a non-cash, asset impairment charge of $5.85 billion.

    Excluding items, it earned 9 cents per share for the latest quarter, beating the average analyst estimate of 5 cents per share, according to Thomson Reuters.

    Total revenue rose 17.6% to $4.23 billion in the three months ended 30 September, boosted by a $1.35 billion gain from asset sales.
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    Anadarko sells East Texas for over $1bn

    Anadarko Petroleum sold a large package of assets in east Texas and north Louisiana in the Haynesville shale and Bossier trends for upwards of $1 billion.

    The US independent brought in “more than $1 billion” for its assets around the Carthage and Elm Grove fields and the transaction is expected to close at the end of the year.

    The asset package included 195,000 acres with net production of 325.8 million cubic feet of natural gas equivalent per day that had been split into two packages — Carthage and Elm Grove.

    The Carthage package was comprised of almost 105,000 net acres mostly in Rusk, Harrison and Panola counties in Texas in what Anadarko considers the heart of the Cotton Valley, Haynesville Shale and liquids-rich Bossier trends, The acreage was producing almost 275 MMcfd.

    The Elm Grove package included 90,000 net acres in Cass and Marion counties in Texas and Bossier and Caddo parishes in Louisiana in what Anadarko called the core of the dry gas Haynesville fairway.

    Bids on the packages, which comprise Anadarko’s entire Haynesville and east Texas position, were due in late June according to marketing materials seen by Upstream.

    The roughly $1 billion valuation is in line with what analysts had predicted for the sale.
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    TransCanada sells U.S. Northeast Power unit to fund Columbia deal

    TransCanada Corp, Canada's No. 2 pipeline operator, said on Tuesday it will sell its U.S. Northeast Power business and do a bought deal common share offering to help fund its acquisition of the Columbia Pipeline Group earlier this year.

    The Calgary-based company bought Columbia for $10.3 billion, transforming TransCanada into one of North America's largest natural gas transmission businesses and easing concerns over the its growth outlook, which had been hindered by regulatory challenges on crude oil pipelines.

    "The actions announced today build on the transformational acquisition of Columbia... which provided us with a new platform for growth," TransCanada chief executive Russ Girling said in a conference call.

    TransCanada will sell four power assets to Helix Generation an affiliate of LS Power Equity Advisors for $2.2 billion. The TC Hydro business will be sold to Great River Hydro an affiliate of ArcLight Capital Partners for $1.065 billion.

    Together the two sales are expected to realize approximately $3.7 billion, and will be used to repay a portion of the $6.9 billion loan used to help finance the Columbia deal.

    TransCanada also said it expects to raise around C$3.2 billion ($2.39 billion) from the bought deal common share offering with a syndicate of underwriters led by BMO Capital Markets, TD Securities and RBC Capital Markets.

    The underwriters have the option to purchase an extra 5.475 million common shares at C$58.50 each for up to 30 days after the closing of the offering.

    The company has decided against selling any share of its natural gas pipeline portfolio in Mexico, where it owns two pipelines and is investing $3.8 billion in building four more.

    TransCanada on Tuesday reported a quarterly loss in part because of a C$656 million after-tax goodwill impairment charge related to its U.S. Northeast Power business.

    The company recorded a third-quarter net loss attributable to shareholders of C$135 million or 17 Canadian cents per share. That compared with a net income of C$402 million, or 57 Canadian cents, in the year-ago period.

    Adjusted earnings, which exclude most one-time items, rose to C$622 million, or 78 Canadian cents per share, from C$440 million, or 62 Canadian cents, in the same period in 2015.
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    Alternative Energy

    Tesla says SolarCity would add $1 billion to 2017 revenue

    Tesla Motors Inc said on Tuesday its $2.6 billion merger with SolarCity Corp would add over $500 million in cash to the electric carmaker's balance sheet over the next three years, while contributing over $1 billion to revenue in 2017.

    Shares of Tesla fell another 2 percent in after-hours trade after tumbling 4 percent in afternoon trade to close at $197.73. Similarly, shares of solar panel installer SolarCity fell another 3.5 percent after falling 2.7 percent during regular trading at $19.07.

    Tesla, whose shares had fallen 10 percent since the deal was made public in June, used an eight-page document posted on its blog and investor relations website after the market closed to convince skeptical shareholders in advance of a Nov. 17 vote on the deal.

    Tesla Chief Executive Elon Musk, who is chairman of SolarCity and the largest shareholder in both companies, has described their combination as a "no brainer."

    The document pitched the deal as part of Tesla's mission to combat the "catastrophic impact" of greenhouse gases on the environment by accelerating the world's transition to clean energy.

    "The acquisition will enable us to transform into a truly integrated sustainable energy company," it said, referring to the promise of a unique provider of carbon-free energy, transportation and power storage.

    Naysayers of the deal - whom Musk called out during a conference call with analysts, saying they had never accurately predicted Tesla's success - have said the merger is short on synergies and amounts to a Tesla bailout of money-losing SolarCity.

    Tesla highlighted in the document what it said was expected improvement in SolarCity's GAAP revenue and profitability due to less reliance on leasing and more on purchases. Tesla said that nearly one-third of residential bookings in September were purchases, a four-fold improvement over the first quarter.

    Fewer leases would create "a healthier mix of upfront and recurring revenue," Tesla said.

    SolarCity has $6.34 billion in liabilities, including debt. It is the biggest player in the U.S. residential solar market and has expanded dramatically in the last five years, but it has relied heavily on borrowing money to finance its no-money-down residential solar installations.

    Tesla reiterated that the combined Tesla-SolarCity could generate at least $150 million in cost savings in the first full year, helped by combined sales forces, and consolidating manufacturing and key technologies.

    Pointing to more synergies, Musk told analysts SolarCity had 300,000 installed customers, while Tesla had about 180,000 car owners, creating an ability to cross-sell services such as a solar panel roof unveiled last week.

    "It's a massive upsell opportunity," said SolarCity co-founder and Chief Technology Officer Peter Rive of the company's existing customers. "It's a very simple retrofit procedure to go back to the customers and upsell them."

    Tesla said SolarCity increased its cash balance in the third quarter from the second, although it did not disclose the sum. SolarCity will announce third-quarter results on Nov. 9, SolarCity Chief Executive Lyndon Rive said, indicating that further details about SolarCity performance could not be disclosed until then.

    Tesla's offer, which represents about half of SolarCity's value a year ago, values SolarCity at $25.37 a share.

    SolarCity's stock has fallen 63 percent so far in 2016.

    Tesla itself burned through $759 million in cash in the first three quarters of 2016, and plans to increase spending this quarter in order to fund the launch of its mass-market Model 3 sedan, along with a massive battery factory in Nevada and other plans.

    The company posted its first quarterly net profit in more than three years last week, announced a leaner capital spending plan for 2016, and said it could turn a profit again in the fourth quarter.

    Musk - who owns 19 percent of Tesla and 22 percent of SolarCity - said last week Tesla will not need to raise additional funds in 2016 and said it was possible SolarCity could be a cash contributor in the fourth quarter.

    Tesla faces shareholder lawsuits alleging board members breached their fiduciary duty in approving the deal.

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    Daily uranium spot price tumbles to $18.75/lb, lowest since 2004

    The daily spot price of uranium at the end of Monday trading was $18.75/lb U308, down $1.25 week on week and the lowest daily price since around mid-2004, with buyers and sellers continuing to conclude deals at progressively lower prices, as they have since mid-October, sources said.

    The price is 45.2% below the $34.10/lb daily spot price that price reporting company TradeTech reported January 1. The price reported Monday is down 15.7% since October 14, when TradeTech put the price at $22.25/lb. Since September 1, when TradeTech reported a U3O8 daily spot price of $25.50/lb, it has tumbled 26.5%.

    The price slide was spurred by talk among participants at the Nuclear Energy Institute's October 17-19 International Uranium Fuel Seminar in Naples, Florida, that "there are several million pounds that need to be placed by year end," one market source said Friday.

    "This made people uneasy, especially the traders," he said, adding: "The feeling was, among them, that they'd better be aggressive enough on price to place material, because the supply may outstrip demand."

    "This led the price down and is still doing so. This is the psychological factor that's come into play," he said.

    A second market source said: "There's some talk about looming utility buying, but whatever demand there is, is very weak. You'll see the bid prices continuing down, and the ask price will follow the bids down."

    TradeTech, in a report Monday, said: "Sellers are facing a rise in financial pressure and the need to generate cash, along with year-end sales objectives."

    "Utilities are generally well covered in the near term and unwilling to make purchase commitments without an adequate price incentive. As a result, sellers are faced with holding inventory or slashing prices in order to conclude sales," it said.

    Another factor depressing the spot price, according to sources, is the continuing abundance of material available for sale. TradeTech said on Monday there was 4.4 million lb U3O8 "available for sale" and 2.7 million lb of "inquiries to purchase" material.

    A third source interviewed Friday said U3O8 supplies are being inflated by fourth-quarter transfers of US-owned uranium to private contractors in lieu of payment to clean up the US Department of Energy's now-shuttered Paducah and Portsmouth gaseous diffusion uranium enrichment plants.

    Under a secretarial determination, DOE can transfer up to 900 mt, or just under 2 million lb, of the material in Q4. The contractors monetize the U3O8 received from DOE by placing the material with commodity trading firms that sell the U3O8, generally on the spot market.

    "When you have this much material coming up against a very limited demand, there's no surprise that the spot price keeps falling," this source said in an October 20 interview.

    TradeTech on Friday reported a $19.75/lb weekly spot price, down 25 cents from October 21.

    Its fellow price reporting company Ux Consulting's market report for the week that ended Monday put the weekly spot price at $18.75/lb, down $1.25 week on week.

    Ux reported a Broker Average Price Monday of $18.81/lb, down 78 cents compared with Friday. It said the bid-offer spread on Monday was $18.50/lb-$19.12/lb, with the bid down 88 cents and the offer down 68 cents. The BAP is based on information from Evolution Markets and Numerco Ltd., according to Ux.
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    Mosaic profit beats on higher potash sales

    Mosaic Co (MOS.N), the world's largest producer of finished phosphate products, reported an adjusted quarterly profit that handily beat estimates as the company sold more potash than it had expected.

    The Plymouth, Minnesota-based company sold 2.2 million tonnes of potash in the three months ended Sept. 30, compared with its forecast of 1.8-2.1 million tonnes, and up from 2.1 million tonnes last year.

    Still, the average realized price of $160 per tonne of potash, was much lower than $265 per tonne a year earlier.

    Fertilizer prices have fallen steeply, triggered in part by weak currencies in importing countries such as Brazil, and excessive supplies.

    Larger rival Potash Corp of Saskatchewan Inc (POT.TO) last week reduced its profit guidance for the year, saying that a recovery of the potash market would take more time, and recorded higher than expected quarterly earnings.

    Mosaic said it sold 2.5 million tonnes of phosphate in the third quarter, at an average price of $326 per tonne of diammonium phosphate, compared with 2.1 million tonnes at $451 per tonne a year earlier.

    Mosaic's net earnings fell to $39.2 million, or 11 cents per share, from $160 million, or 45 cents per share, a year earlier.

    Excluding items, profit was 33 cents per share, much higher than analysts' average estimate of 10 cents per share, according to Thomson Reuters I/B/E/S.

    The U.S. fertilizer company said net sales fell 7.3 percent to $1.95 billion, but beat estimates of $1.92 billion.
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    Archer Daniels Midland's profit beats estimates

    The world's largest corn mill of global grain company Archer Daniels Midland is pictured in Decatur, Illinois March 16, 2015. REUTERS/Karl Plume

    U.S. agricultural products trader Archer Daniels Midland Co (ADM.N) reported a far better-than-expected third-quarter profit on Tuesday as higher U.S. exports of corn and soybeans boosted volumes and margins.

    U.S. farmers have nearly completed what is expected to be the largest corn and soybean harvests on record, which should benefit ADM again in the current quarter.

    "With improving market conditions and a large U.S. harvest, combined with the team's solid execution capabilities, we feel good about the remainder of the year and a stronger 2017," Chief Executive Juan Luciano said in a statement.

    Chicago-based ADM makes money buying, selling, storing, transporting and processing grains and oilseeds around the world. Margins are typically thin, but volumes are massive when crop supplies are abundant and prices are low, as they are now.

    Export sales of corn and soybeans from the United States were well ahead of the normal pace in the third quarter, although volumes shipped from South America declined.

    ADM, whose shares were up 3.9 percent at $45.25 in premarket trading, said net earnings attributable to the company rose to $341 million, or 58 cents per share, in the quarter ended Sept. 30, from $252 million, or 41 cents per share, a year earlier.

    Revenue fell 4.4 percent to $15.83 billion.

    Excluding items, ADM earned 59 cents per share, beating the average analysts' estimate of 46 cents a share, according to Thomson Reuters I/B/E/S.
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    Base Metals

    Red Kite head warns LME fees, high-speed trading hit volumes

    The London Metal Exchange should further cut fees and review rules that may give high-speed traders an unfair advantage, the founding partner of Red Kite Group, Michael Farmer, said on Tuesday.

    Farmer, who has earned the nickname Mr. Copper for his long experience in industrial metals trading, warned that rising fees and high-frequency trading will further cut liquidity on the LME, which has suffered sliding volumes this year.

    High-frequency trading (HFT) uses super-fast computers and connections to place large numbers of orders at lightning speeds.

    "High-frequency trading appears to have no other purpose than to make money from the trading of other participants by jumping ahead of them," Farmer said during metal industry gathering LME Week in London.

    "This does appear to me to be an unfair advantage and could be described as front running," he said in a keynote speech at the LME Week dinner.

    In front-running, which is illegal, a broker or trader places their own orders in front of those from incoming clients that are expected to impact the price.

    The Red Kite Group, which has hedge funds, physical trading and mining finance, has $2.3 billion of assets, surviving in a sector that has seen many other participants close down during a tough period of falling prices.

    Farmer said the LME's rules and regulations might "unwittingly give some users unfair advantage over others, particularly in the brave new world of electronic platform trading".

    He added: "This will without doubt reduce liquidity, volumes on the LME."

    The LME has sought to boost electronic trading to lure more speculators and boost volumes, but this has sparked a battle with some members who worry about perceived threats to the traditional LME structure based on physical business, including from miners and fabricators.

    The LME, however, has shelved plans to make it cheaper and easier for speculative funds to trade to avoid fuelling further conflict with traditional members, sources told Reuters this week.


    Farmer, also a member of the British House of Lords, urged the LME to take another look at its fees, which caused a backlash from many customers when they were hiked.

    LME volumes have been tumbling since the exchange imposed a hefty 31 percent increase in average trading fees in January 2015.

    The exchange, the world's oldest and largest market for industrial metals, relented, cutting fees by 44 percent for short-term trades, but said in August it planned no further fee cuts.

    Farmer warned the LME, owned by Hong Kong Exchanges and Clearing Ltd., competitors were waiting in the wings to grab its business.

    "If costs of trading on the exchange are prohibitive, it will drive customers away and the golden goose will die of malnutrition," he said.

    "Many users will still find the cost of trading to be high and I would strongly recommend the LME to consider further reductions to attract liquidity back."
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    Steel, Iron Ore and Coal

    China's coal imports surge again

    China's imports of coal from the seaborne market surged again in October, thereby justifying the jump in prices but also raising questions as to how much more of the fuel the world's top buyer can suck in.

    Seaborne coal imports were 20.03 million tonnes for October, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

    This is the highest monthly total since Thomson Reuters stated assessing the data in January 2015, and shows that China's appetite for imports remains undiminished in spite of a spike in the prices of both thermal and coking coal.

    The seaborne data doesn't exactly match Chinese customs data as it excludes shipments from North Korea and overland from Mongolia, as well as coal that arrives on small vessels or barges. It may also be revised slightly in coming days as more data becomes available on when ships discharged cargoes.

    However, seaborne imports are what matters from a market pricing perspective, as cargoes from North Korea and Mongolia tend not to affect the regional price benchmarks.

    The seaborne imports for October are almost 3 million tonnes above the 17.06 million assessed for September, which represents a significant jump and will no doubt have contributed to a tightening of the market.

    The benchmark Australian thermal coal price, the Newcastle weekly index, rose to $105.81 a tonne in the week ended Oct. 28, the most in 4-1/2 years and 109 percent higher than at the end of last year.

    Australian premium hard coking coal .PHCC-AUS=SI, the regional benchmark for coal used in steel-making, rose to $257.70 a tonne on Monday, more than three times the $78.20 it fetched at the end of last year.

    Despite these stellar gains, it's becoming harder to see how they can be sustained, especially since history shows that any spectacular rally is normally followed by a collapse.

    While China's decision to cut its domestic coal output has no doubt been the driver of coal's gains this year, the question is how quickly can the Chinese reverse course, and how rapidly can coal exporters ramp up output to meet Chinese demand?

    China's total coal output dropped 10.5 percent to 2.46 billion tonnes in the first nine months of the year compared to the same period in 2015, while imports have gained 15.2 percent to 180.18 million tonnes.

    In volume terms, China's production is down by about 300 million tonnes in the first nine months of 2016, while imports are up by about 23 million tonnes.

    This shows that higher imports have only compensated for about 7.6 percent of the drop in domestic output.


    What this means is that what China does with domestic output will have a far bigger bearing on the future of coal prices than anything coal exporters such as Australia, Indonesia and South Africa can do.

    China has asked miners to quickly ramp up output ahead of the northern winter, and to cap prices at or below current spot market levels.

    For thermal coal with a heating value of 5,500 kilocalories per kilogram, this implies a price of around 660 yuan a tonne, equivalent to about $97.48 a tonne, which is slightly below the current free-on-board price of Newcastle coal, which is of similar quality.

    This implies that as soon as China can ramp up domestic coal output, the price of seaborne coal will likely fall to a level where it can compete, once freight and taxes are added.

    Attached Files
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    China's coal price fever chills power plants

    North China has been caught by sudden cold snap with temperatures already sub-zero, but local power plants have been feeling the chill for a long time as soaring coal prices stripped their profits away, state-run media Xinhua News Agency reported.

    China's five largest power companies saw their combined coal-fired business lose 300 million yuan ($45 million) in September, the first group loss since August 2012.

    GD Power Development saw revenue shrink in the first nine months, with net profits down about 4% in the third quarter year on year. Shanghai Electric Power saw its profit fall by 10.3% in the third quarter.

    "The high coal price is eating away our profit and there are worries that a short-term shortage might push the price higher," said Liu Shenghan, sales manager of a power company in Shanxi Province, where 30 of 52 coal-fired power plants made losses in the first nine months.

    On October 31, the Fenwei CCI Thermal index assessed 5,500 Kcal/kg NAR coal at 678 yuan/t FOB including 17% VAT, a rise of 312.5 yuan/t from the start of the year, showed data from China Coal Resource (, a China-focused coal information portal.

    Coal supply fell short of demand from utilities following rapid price increases in the past few weeks, as hydroelectric generation is falling with the end of rainy season.

    While rising prices, and profits along with them, might tempt some faltering enterprises to expand production, the policy of cutting overcapacity is not negotiable and a long-term structural overhaul remains the primary objective, according to Sheng Laiyuan of the National Development and Reform Commission (NDRC).

    Since the end of September, the NDRC has called a number of industry-wide meetings, striving to cool price fever while ensuring stable supplies in the last quarter of the year. At one of those meetings last week, medium-to-long-term supply and price contracts were on the agenda, as a win-win solution -- rationalizing the supply chain and securing demand.

    Attached Files
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    Glencore restarts Australia coking coal mine

    Glencore plans to restart mining activities at the Integra underground coking coal mine, in the Hunter Valley, as the price of metallurgical coal continues to rise.

    Glencore acquired the Integra mine, then known as Glennies Creek, from major Vale last year. The mine has been on care and maintenance since July 2014.

    Glencore said on Tuesday that the Integra mine would produce 1.3-million tonnes a year of high fluidity saleable coking coal in 2017, to meet a specific need identified in the metallurgical coal market.

    However, with a number of the company’s thermal coalmines having recently closed, or reaching the end of their scheduled mine life, production at Integra was not expected to increase Glencore’s overall coal sales from Australia.

    The company is hoping for an early 2017 restart.
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    Mongolia Jan-Sep coal exports soar 58.8pct on year

    Coal-rich Mongolia exported 16.7 million tonnes of coal over January-September this year, soaring 58.8% from 10.51 million tonnes the same period last year, showed data from the Mineral Resources Authority of Mongolia.

    In September, coal exports of the country reached 2.55 million tonnes, sliding 6.7% from 2.73 million tonnes in August, the data showed.

    Exports of washed coking coal decreased 19.6% on month to 0.13 million tonnes in September, while that of raw coking coal dropped 13.4% from August to 1.08 million tonnes.

    The country exported 0.47 million tonnes of thermal coal in the month, falling 36.3% on month.

    In the first three quarters, Mongolia produced 20.72 million tonnes of coal, with output in September gaining 12.5% on month to 3.07 million tonnes.

    Its coal output stood at 24 million tonnes last year, down 1.64% year on year.

    Over January-September, Mongolia sold 21.33 million tonnes of coal, with domestic sales at 4.63 million tonnes or 21.71% of the total.

    In September, coal sales edged up 1.09% on month to 3.17 million tonnes, with domestic sales down 54.7% on month to 0.62 million tonnes or 19.6% of the total.
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    South32 suspends production at NSW coal mine

    Diversified miner South32 expects to lose about 500 000 t of output at its Appin coking coalmine, after elevated gas concentrations forced the temporary suspension of production at the New South Wales mine.

    Longwalls 7 and 9 were suspended to enable an investigation to be completed, with South32 telling shareholders this week that the elevated gas concentrations resulted from the failure of a ventilation fan. The issue has been rectified.

    However, having restarted operations at the longwall Area 9, it became apparent that the outage had exacerbated challenging ground conditions, and the company took the decision to suspend production to complete remedial work.

    The work is expected to take four weeks to complete.

    The Appin Area 7 longwall will run at a reduced rate before ramping up to full capacity once the necessary test confirmed that methane gas concentrations could be maintained at safe levels.
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    China Oct steel sector PMI rebounds to 50.7

    The Purchasing Managers Index (PMI) for China's steel industry rebounded to 50.7 in October, compared with 49.5 in the previous month, showed data from the China Federation of Logistics and Purchasing (CFLP) on November 1.

    It hit a five-month high, indicating a strengthened steel industry, and the industry is expected to continue the upward trend in the coming slack season.

    In August, the steel industry output sub-index was 50.7, gaining 0.5 from 50.2 in September, posting the fourth consecutive reading above the 50-point mark that separates growth from contraction on a monthly basis.

    Meanwhile, the new orders sub-index reached 54.6, compared with 49.2 in the previous month, encouraged by rising steel prices amid the national capacity cut drive.

    Besides, the purchase price index bounced up from 56.6 in September to 68.3 in October, the highest level in recent six months, indicating robust demand for steel-making materials from steel mills.

    China's steel prices have been on the increase since this year, yet the profit of steel makers is gradually eroded by rallying prices of steelmaking material, which was mainly caused by China's capacity cut policy at coal mines.

    However, steel mills tend to maintain high furnace operating rate in the short run despite narrowing profit.
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    Severstal says exports Chinese cold rolled steel to EU on low duties

    Severstal, one of Russia's largest steelmakers, said it was exporting Chinese cold rolled steel to the European Union, instead of Russian steel, because EU anti-dumping duties on the Chinese product are much lower.

    That is likely to rile European steelmakers who have long argued duties on Chinese steel are not high enough to prevent the products from coming into the EU and undercutting them.

    "We've started buying Chinese cold rolled for our steel service centres. There are very low duties on Chinese (cold rolled) so we're better off bringing (the steel) in from China," said chief executive Vadim Larin.

    The EU in August imposed duties of up to 22.1 percent on Chinese cold rolled steel and of up to 36.1 percent on the equivalent Russian product, used in the construction and the automotive industries.

    The duties were the latest in a long line of EU trade defences in steel set up over the past two years to counter what EU steel producers say is a flood of steel sold at a loss due to overcapacity.

    Larin said cold rolled steel sales to the EU accounted for around 2 percent of Severstal's total sales, while hot rolled EU steel sales accounted for about 6 to 7 percent of the company's total sales volumes.

    The European Commission is also investigating alleged dumping of hot-rolled steel by producers in Brazil, Iran, Russia, Serbia and Ukraine. That could lead to duties imposed by April next year.

    "If the (hot rolled steel) duties are imposed it will affect us. We will have to move volumes from Europe to farther regions and we will lose margins," said Larin.

    Severstal, controlled by Russian billionaire Alexei Mordashov, sells just a third of its steel in Russia. It reported a rise in third quarter core profits last week, helped by lower costs and a global recovery in steel prices.

    Larin said he sees demand for steel in Russia rising some 2 percent next year versus a fall of some 6 percent this year, as the Russian economy should emerge from two tough years to record marginal growth.

    Russia is the world's fifth largest steel producer and exporter while China is the world's largest.
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    In surprise move, Japan's Nippon Steel retains annual profit outlook

    Nippon Steel & Sumitomo Metal Corp posted a plunge in profits for the six months to September, but the top steelmaker of Japan defied estimates by retaining its annual outlook at a time when higher raw material costs have led to a cut by others.

    Japan's second- and third-biggest steelmakers, JFE Holdings Inc (5411.T) and Kobe Steel Ltd (5406.T), halved their forecasts for the year to March 2017, citing a three-fold rally in prices of coking coal - a key steelmaking ingredient. But Nippon Steel held its earnings target steady on hopes of passing on costs to buyers and more-than-expected contributions from overseas units.

    "We are strongly committed to seek an increase in product prices from our customers as the price rise levels of coking coal are too much for us to absorb on our own," said Nippon Steel's executive vice president, Toshiharu Sakae.

    "Looking at the recent orders from customers, we see solid demand in auto and construction segments in Japan while an overall demand in Southeast Asia, our mainstay overseas market, is also strong," he said at a news conference on Tuesday.

    Analysts, however, were not so sure as indicated by the fact that over the past 30 days, six analysts trimmed their annual earnings estimates for Nippon Steel by 29 percent on average, according to Thomson Reuters.

    While Nippon Steel is seeking an increase in product prices of about 10,000 yen ($95.2) per ton, analysts such as SMBC Nikko Securities' Atsushi Yamaguchi believe it will not be easy to pass on the whole burden given a glut in Asia - home to China, the world's biggest producer and consumer of steel.

    Nippon Steel expects 130 billion yen in recurring profit for the year to March, exceeding an average estimate of 96 billion yen by the six analysts.

    For the first half, Nippon Steel's recurring profit fell 78 percent from a year ago due to lower product prices, slack demand in high-margin seamless pipes used for drilling oil fields and the yen's rise against the dollar.

    JFE posted a recurring loss while Kobe Steel booked a 63 percent slide in recurring profit for the period. Costly coking coal is now expected to pressure their results in the second half.

    Premium hard coking coal prices .PHCC-AUS=SI in Australia, which dominates global exports, rose to over $257 a ton this week, bringing the rally in 2016 to more than 200 percent after China moved to cut overcapacity in its coal sector.

    "Things may change in a year or so, but given China's effort to tackle the overcapacity issue, coking coal prices may stay at high levels at least until March," JFE Executive Vice President Shinichi Okada said on Friday, pointing to the steelmaker's assumption of prices at $200 for the October-March half.

    Steel prices SRBcv1 in China have spiked 50 percent this year amid Beijing's efforts to reduce a crippling overcapacity in the sector, but Okada said the market was not in a real recovery phase yet due to excess supply
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    China's major steel city sees lower furnace operation amid costlier coal

    Tangshan city in Hebei province, a major steel producing city in northern China, saw the operating rate of steelmaking furnaces down to only 80%, compared with some 90% in previous months, local media reported.

    The surveyed small and medium-sized steel makers reported furnace operating rate at 88.94% by October 27, falling sharply from the 90.82% on September 22, data showed.

    The price rally of coking coal, a major steelmaking material and accounting for nearly 40% of steel production cost, has been dragging down steel makers' profit closer to the break-even point, driving steel mills to suspend operation of some furnaces to avoid losses.

    Hebei Metallurgical Industry Association data showed that the steel sector PMI in Hebei stood at 49.1 in October, up from 47.8 in September, mainly attributed to the rising new order sub-index. Yet steel enterprises' profitability did not notably improve under pressure of higher cost.

    Meanwhile, a large number of furnaces have started maintenance, as Hebei province began to speed up in completing its capacity cut target by end-November.

    The domestic steel market is likely to see both weak demand and supply in the rest months, as furnace maintenance may increase and steel mills will pick up pace in slashing surplus capacity.
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