OPEC Compete for Prized Chinese Oil Markets
Crude import data from China show that competition for a share of Asia’s biggest oil market is intensifying, even after the OPEC's production cut agreement started taking effect in January.
While OPEC and its non-member allies have had some success in ensuring a high level of compliance with the deal, Chinese customs data highlight how the primary petroleum exporting nations are not giving up market share in this high-growth market.
China’s imports from Saudi Arabia are 1% higher in the first two months of 2017 from the same period last year, while those from Russia are up 18.9%, from Angola 5.1%, from Iraq 26.2%, Iran 9.4%, and Venezuela 39.6%. These figures do not show a concerted effort to restrict supplies to China, which has overtaken the US to be the world’s largest importer of crude
Libya Forced to Reduce Output, Again
Armed factions have once again blocked production at the Sharara and Wafa oilfields in western Libya, reducing output by 252kbpd. The reduction accounts for roughly 35% of National Oil Corporation (NOC) production rate, which had recovered to around 720kbpd this year. NOC has declared force majeure on crude loadings from those oilfields.
Markets reacted to the restriction of supply. Brent crude prices rose by 1.14% and settled at US$51.33/bbl this Tuesday.
Browse Project (Brecknock, Calliance, Torosa): Woodside's New Proposal for Browse Gas Field Development
Woodside Petroleum wants to develop its offshore Browse gas field through its existing North West Shelf processing plant in Karratha.
In 2013, the company abandoned plans to build a new onshore plant at James Price Point in the Kimberley region, and it has recently dropped plans for a design concept using a Floating LNG. Escalating costs and a lower price environment were the main reasons behind the successive change of plans.
Woodside now needs to convince its joint venture partners to back the proposal, which it believes to be the most economical solution for developing the field. Shareholders include Shell, BP, Japan Australia LNG and ​PetroChina.
Moranbah North: Anglo American Expected to Hold Coking Coal Assets for Now
Anglo American is unlikely to re-offer its Queensland hard coking coal assets for sale again while prices remain high. Last year, Anglo had had gone as far as retaining Bank of America Merrill Lynch (BAML) to advise on the sale, with an Apollo-backed consortium coming close to a deal to acquiring the assets before spiking coal prices torpedoed the sale. The two mines in question, the 5.8Mtpa Moranbah North and 5Mtpa Grosvenor mines, are among the lowest cost hard coking coal mines in Queensland. AME estimates the NPV of these mines to be over US$2bn each with Anglo owning 100% of Grosvenor and 88% of Moranbah North. We expect that the long-term plan for Anglo to move away from coal is unchanged and the mines will be put up for sale in the next few years if coal prices weaken. In the meantime, Anglo will be happy to make use the highly profitable mines to continue paying down debt.
Coal India: Coal India Production Set to Rise Just 2.5% in 2016, Well Short of Target
Coal India’s director of marketing, S.N. Prasad, has advised that Coal India Limited (CIL) is expected to produce around 552Mt of coal in the 2016-2017 Indian Financial Year, up just 2.5% year on year. The original target for this financial year was 599Mt, up 11.1% year on year. AME anticipates that CIL will significantly lower its 2017-2018FY target from 660Mt down to 600–610Mt, as a production growth of 19.6%, or 108Mt in a single year is extremely unlikely.
Separately, CIL has been fined INR5.91tn (US$90.8m) by the Competition Commission of India (CCI) for indulging in unfair and discriminatory conduct in the supply of thermal coal to power plants. CIL was found guilty of using its dominant position to impose additional costs on electricity producers, which was passed on to consumers.
Other USA (CL): B&N Coal to Start Production at Whigville Mine in Ohio This Year
Private US coal producer, B&N Coal, is expected to commence operations at its new Whigville open-cut mine in the June Quarter of 2017 in Noble County, Ohio. Initial production is expected around mid-way through the year, ramping up to around 150ktpa. The mine will produce a high-sulphur thermal coal for use by its existing domestic customers. Production from the mine is expected to replace that from a nearby mine with is close to exhausting its reserves. B&N Coal produces around 500ktpa of thermal coal from four mines in Ohio, all of which is sold domestically. B&N is awaiting some final approvals, including those from the US Army Corp of Engineers and the US Environmental Protection Agency. The company is expecting all outstanding approvals to be confirmed imminently.
Iron Ore
Maogong: China Hanking Reports Production Results for December Quarter of 2016
China Hanking Holding reported that it produced 1.7Mt of iron ore concentrate in 2016, 14% lower than 2015. Iron ore sales were 11.5% lower year on year at 1.8Mt. The company's lower production in 2016 was due to the suspensions of Xingzhou and Shangma mines in 2016, as well as the disposal of equity interest in Benxi Mining. Despite lower production, the company achieved an average cash operating cost of RMB260/t (US$39/t), a decrease of 18% from 2015. As of the end of 2016, the company owned 231Mt of iron ore resources at an average iron grade of 28.7%. Iron ore reserves was at 155Mt with an average iron grade of 23.7%.
Maogong: China Hanking Achieves Higher Concentrate Output and Grade at Maogong Mine
China Hanking reported that iron ore production from its Maogong mine was up 30.4% year on year to 0.85Mt in 2016. Following completion of the phase one technology improvement in 2015, the mine increased its annual concentrate output from its processing plant from 0.3-0.4Mtpa to 0.85Mtpa. The grade of iron ore concentrate improved to 68% Fe while silicon content has been reduced to about 4%. The company also implemented the phase two technology improvement to further improve the output and quality of iron ore concentrate produced. The main work for phase two development was completed in 2016. Average iron grade for concentrate produced in 2016 was at 68.3%.
Other - United States: US Steel Producers File Petition for Antidumping Duties on Imported Wire Rod
On the 28th March, four major US steel producers, Gerdau Ameristeel US Inc., Nucor Corporation, Keystone Consolidated Industries Inc. and Charter Steel, filed a petition for anti-dumping duties on carbon and alloy wire rod products imported from ten countries. The ten countries include Belarus, Italy, South Korea, Russia, South Africa, Spain, Turkey, Ukraine, United Arab Emirates and the United Kingdom. The petition alleged that the dumping margins are ranging from 21.6% to 821%, which is particularly high for Russia 216.5–821.4%, Belarus 179.07–304.94%, and South Africa 159.35–164.08%. The filing is in response to the surging volumes of low priced imported wire rod products from the ten countries since 2014 which is reportedly causing harm to the local industries. The US imported 1.62Mt wire rod in 2016 and about 40% came from above ten countries.
Nucor Hickman: Nucor Steel Places Order With ANDRITZ to Supply Turn-key Production Line
North California based technology group ANDRITZ has received an order from US steel producer Nucor to supply turn-key production lines for its new mill complex in Hickman, Arkansas, USA. The new mill is scheduled to start in the December quarter of 2018 and this project aims to expand Hickman’s current specialty rolling capacity by 590ktpa, leading to an increase in the production of third-generation, advanced high-strength steels, high-strength low-alloy steels and high-efficiency electrical steels. Nucor, with headquarters in Charlotte, North Carolina, is the largest steel producer and material recycler in North America.
Michiquillay: Peru to Offer Michiquillay Project for Tender After Milpo Withdraws
Peru’s Agency for the Promotion of Private Investment (ProInversión) and the Ministry of Mines and Energy intend to offer the Michiquillay project in Cajamarca for public tender in 2017. This follows the decision by Votorantim subsidiary Milpo to withdraw from a private initiative process. Milpo came to its decision after evaluating proposed modifications and extensions to the process, including the project valuation methodology. Anglo American held Michiquillay from 2007 and completed a concept study for a 222ktpa copper mine in 2012. However, Anglo withdrew from the project in December 2014, returning Michiquillay to the Peru government.
Other China Zinc: Chinese Imports of Concentrate Fall in February
According to data released by Chinese Customs, Chinese imports of zinc concentrate fell in February 2017. Imports for the month totalled 182kt, a decline of 22% month on month or 9% year on year. Major importers for the month included Hunan Zhuzhou (26.7kt), Henan Yuguang (22.5kt) and Huludao Zinc (18.2kt). The decline in imports is partly the result of Chinese New Year, as a number of smelters reduced production. The lower imports may also reflect the low spot treatment charges seen in the month (US$30-40/t). Despite the drop in imports, AME is forecasting China’s refined production in the March Quarter of 2017 to be only 1% lower year on year at 1.45Mt.
Ity: Endeavour Poised to Increase Stake in Ity Gold Mine to 80%, Côte d'Ivoire
Endeavour Mining has announced that the president of Côte d'Ivoire has approved an in-principal agreement for the company to increase its ownership of the Ity mine from 55% to 80%. State-owned miner SODEMI would sell 25% of its shareholding to Endeavour with the remaining 20% interest evenly held by Drogba Group and the government.
Endeavour has issued 2017 guidance for Ity of 75–80koz of gold, an increase from the 75.8koz produced in 2016. All-in sustaining costs for 2017 are forecast to be US$740–780/oz, in-line with 2016.
US - Economics: President Trump Signs Executive Order to Unwind Obama Climate Policies
President Trump has signed an executive order to undo Obama-era climate change policies. The “Energy Independence” order reverses a ban on coal leasing on federal lands, removes rules to curb methane emissions from oil and gas extraction and reduces the weight of climate change and carbon emissions in future policy and infrastructure permitting decisions. These rules were implemented by the Obama Administration as key policies in the US’s ability to meet the goals of the Paris Accord of 2015, which was signed by 200 countries. AME notes that the US never ratified the Paris agreement as all treaties must be approved by Congress. While news agencies are reporting that President Trump has remained silent on whether the US will stick to the Paris Accord, we see the signing of this executive order as the end of US participation.