U.S. LNG exports economical if oil holds
above $70 -Osaka Gas
Liquefied natural gas exports from the United States will remain
competitive versus supplies from traditional producers of the fuel until oil
prices fall to $70 a barrel, said a senior executive with Japanese gas utility
Osaka Gas Co.
Prior to crude prices tumbling a quarter from this year’s peaks in June,
several Asian buyers, including Osaka Gas , invested billions of dollars in
long-term, gas-linked LNG projects to secure cheap supplies from the United
States that would cut their fossil fuel import costs.
LNG contracts from producers in Australia, the Middle East and Asia have
usually been linked to oil prices, and Asia’s gas import costs have soared over
the last few years as global crude benchmark Brent held mostly above $100 a
barrel and demand rose after Japan’s Fukushima nuclear disaster.
“If you look at conventional LNG contracts from Far East Asia or Australia
to Japan, and crude oil becomes $70, then U.S.-based (gas-linked) export prices
will come closer to the traditional (oil-linked) contracts,” said Yasuo Ryoki,
senior executive officer of Osaka Gas’ commercial and industry energy business
unit, in an interview with Reuters at the Singapore International Energy
Week.
“At $80, no problem. Still, U.S. projects will have some merit,” he
said.
Osaka Gas is one of two Japanese companies to have signed a 20-year
liquefaction tolling agreement with U.S.-based Freeport LNG to process about 2.2
million tonnes of LNG a year each from Freeport’s first unit starting from early
2018.
Almost all of Osaka Gas’ existing contracts are linked to oil prices except
for some spot contracts, according to Ryoki.
Despite the 25 percent fall in crude prices, the company is still looking
for “good opportunities” to invest in exploration projects since U.S. gas prices
are still relatively cheap, he said.
Having a stake in a U.S. gas field would help the company hedge its fuel
expenses by offsetting the feedstock costs when Henry Hub prices rise.
U.S. investment bank Goldman Sachs on Sunday slashed its 2015 oil prices
forecasts and said U.S. oil prices could fall to $70 a barrel in the second
quarter next year and Brent crude as low as $80.
West Texas Intermediate crude is around $81 a barrel on Monday, just up
from a more than two-year low at $79.78 that it hit on Oct. 16. Brent is trading
around $85 a barrel, up from a four-year low of $82.60 touched the same
day.
SUPPLY GLUT FROM 2018
Thanks to a drilling boom, the U.S. is producing record amounts of natural
gas, and is expected to grow to become the third largest exporter of LNG by the
end of this decade.
First exports from LNG projects in the United States are expected next
year, but Ryoki said a global supply glut of the super-chilled gas might only
emerge after 2018.
“Until 2018, you might feel that LNG is in a glut because of supply
diverted from Europe to Asia. But only after U.S. supplies and other projects
come onstream then maybe there will be some real surplus,” said Ryoki.
Asia is an attractive destination for re-exports as its spot prices are the
highest globally.
As an initial surge in supply may not be met by sufficient domestic
Japanese demand, Osaka Gas has offered European firms five-year deals to offload
some LNG from the Freeport facility, Reuters reported earlier.
Ryoki declined to comment if there is any timeline to conclude any deals in
Europe, except to say that they would not limited to five-year deals.
“There is no reason we limit the possibility to five years,” Ryoki said.
“If the supply exceeds our domestic demand, then we will have trading. And if
someone would like to buy then that would be very good for us as it creates a
margin.”
With a market share of more than 20 percent, Osaka Gas is one of Japan’s
largest retail natural gas companies, according to information posted on its
website.
Japan, the world’s largest importer of LNG, takes about a third of the
liquid gas transported by ship, and brought in a record 87.73 million tons in
the fiscal year through March.
Source: Reuters (Editing by Tom Hogue)
Peabody Says Investors See Worst May Be
Over for Coal
Investors see that the worst may be over for the coal market after a series
of output cuts around the world, said the chairman and chief executive officer
of Peabody Energy Corp. (BTU), the largest U.S. producer.
“We’ve had essentially flat pricing now for about nine months,” Greg Boyce
said in an Oct. 24 phone interview. “All of the investors are encouraged that
that represents kind of a bottom to the commodities cycle, but they’re waiting
to see what happens in terms of the timing of that uptick.”
Peabody and most of its publicly traded domestic competitors have posted
losses amid the worst slump in the coal industry in decades. The price of
metallurgical coal used in steelmaking has fallen to a six-year low because of
slowing Chinese growth. Thermal coal used to generate electricity has also
dropped on tighter emissions regulations and competition from cheap natural
gas.
Shares of Peabody have fallen more than 9 percent since the start of
trading on Oct. 20, when it reported a third-quarter loss of 56 cents a share.
Boyce said Peabody’s stock declined because investors haven’t yet seen evidence
that the global oversupply of coal is abating.
Peabody scaled back output of steelmaking coal at its Burton Mine in
Australia this year. Glencore Plc and Walter Energy Inc. are among other
producers that have made reductions. There have been 30 million tons of
metallurgical-coal cutbacks announced globally this year, Boyce said in an Oct.
20 statement.
Rebound ‘Inevitable’
Investors will spend the next couple of quarters looking for signs of a
recovery in coal prices, Boyce said. Given the industry’s reduction in new
capital investments, a rebound is “inevitable,” he said.
“There’s going to be a long lag where you’ve got less supply than demand,”
he said. “That’s going to have a strong, strong pull for the sector.”
Catalysts that coal investors are looking for include rising Chinese demand
and an improvement in U.S. railroad capacity to deliver from mining regions such
as Wyoming’s Powder River Basin, he said. Peabody, which produces most of its
thermal coal in the PRB, said last week rail bottlenecks there are limiting its
sales.
Boyce said Peabody will be “very well positioned” when the coal cycle does
eventually turn. He doesn’t expect the company to buy up competitors or
low-priced mining assets until coal prices start to rebound, he said.
“Right now, there are no tier-one assets on the market, because the people
that have them, they’re not interested in selling at the bottom of the cycle,”
he said.
Source: Bloomberg
Mongolia Coal Miners ‘Burning Cash’ as
Prices Drop, Moody’s Says
Mongolian coal producers are “burning cash” and face pressure in the next
12 months because low prices and weak demand from China will persist, according
to Moody’s Investors Service.
Coking coal at Queensland has declined 17 percent this year to $112.80 per
metric ton on Oct. 16, extending annual losses since 2010, according to Energy
Publishing Inc. At that level, producers may just break even until prices
recover to about $125 to $140 from the second half of next year, according to
senior credit officer Simon Wong.
“At current levels, many operators are not generating enough cash flow to
service their debt and capex,” Hong Kong-based Wong said by phone on Oct. 24.
“They are burning cash. Liquidity will continue to be under pressure for these
companies and they will need to conserve cash for the next 12 months.”
Mongolia’s economic growth is set to cool to 6.3 percent this year versus
11.7 percent in 2013, according to World Bank forecasts. The Asian nation is
becoming more dependent on volatile mining revenues amid rising government debt
and foreign-currency borrowing, Moody’s said in a report on Oct. 24.
The 2017 notes of Mongolian Mining Corp., an Ulaanbaatar-based miner listed
in Hong Kong, have lost 11.5 percent this year, according to Bloomberg-compiled
prices. The company had a $28 million net loss in the six months through June
30, following losses in 2013 and 2012.
Junk Debt
Moody’s rates the securities Caa2 (975), or eight levels below investment
grade. Standard & Poor’s ranks the debt CCC+, or the seventh-highest junk
rating.
Other Hong Kong-listed companies with coal operations in Mongolia have
shown signs of financial stress.
SouthGobi Resources Ltd. said in September it was seeking more funding
because it may run out of money by December to remain a going concern. Mongolia
Energy Corp. said on Oct. 24 it’s seeking to extend HK$3.45 billion ($444.8
million) of debt by five years under a restructuring to be voted by shareholders
on Nov. 12.
Hidili Industry International Development Ltd. bought back some of its
dollar-denominated notes this month, while Winsway Enterprises Holdings Ltd.
sold its stake in a Canadian coal unit to cut debt.
Apart from weak selling prices, land-locked Mongolia presents more
challenges because in-land producers are geared toward selling to the Chinese
market, compared with other seaborne producers that can ship to more countries,
Moody’s Wong said.
Source: Bloomberg
Copper still king, but Chile diversifies
China trade to tempt the palate
Some would call it a perfect commercial match: Chile, the world’s biggest
copper producer, and China, the biggest buyer of the metal. But bilateral trade
is more than just ore. It’s blossoming into foods. China has become Chile’s
largest trading partner since a free-trade agreement came into force in 2006,
and both sides are seeking to expand bilateral ties.
“It’s amazing that one of every four shipments from Chile goes to China,”
Diego Torres, head of the Asia and Oceania Department under Chile’s Ministry of
Foreign Affairs, said in an interview with Shanghai Daily. “The free-trade
agreement has been a cornerstone for our bilateral trade relationship. It has
shown very promising results.”
Since the pact came into effect, Chilean exports to China have grown at an
average 20.7 percent a year. China purchased some 25 percent of Chilean exports
in 2013. Despite the robust growth, Torres said he believes the Chile-China
trade relationship still has great potential to expand further.
“Copper products alone represent 79 percent of our exports to China,” he
said. “That leaves a huge room for growth in non copper-related goods.”
Chile is seeking that diversity by expanding exports of food and beverages,
especially farm products and seafood.
In 2013, China became the third-largest destination for Chilean food and
drinks. Notably, Chile provides China with 98 percent of its blueberries, 58
percent of its apples and 50 percent of its fresh grapes.
Chilean wine is also catching on in China. Chile now ranks second among
wine importers in China, where wine consumption is increasing rapidly.
A privileged geography contributes to Chile’s prosperous food industry.
Stretching 4,300 kilometers from north to south, Chile lies in a narrow strip
between the Andes and the Pacific Ocean, possessing a diversity of climates that
allows production of a wide range of farm crops.
Chilean officials cite human resources as a major factor in the nation’s
success.
“Through the years, we have developed generations of highly skilled people,
ranging from engineers to business experts,” said Rafael Sabat, International
Deputy Director of ProChile, the Trade Commission of Chile. “They have
contributed to the creation of a service-oriented food industry chain that
encompasses not only food production but also packaging, branding, marketing and
logistics. They also have developed expertise in finding new markets.”
Due to Chile’s relatively small size compared with international
food-exporting giants, Chilean exporters know how to spot and develop niche
markets.
“Being small actually is our greatest advantage because it makes us very
flexible in meeting customer demands,” said Juan Miguel Ovalle, president of
ChilePork. “That’s the only way we can survive.”
ChilePork is a country brand that represents all export companies of
Chilean pork in the Asian market. In 2011, Chile started to tap into China’s
pork market, where it has been competing against larger exporters from Germany,
Denmark, the US and Canada.
“Big producers usually have big production lines that can’t be easily
changed to meet the specific requirements of different clients,” said Ovalle.
“We don’t have massive production. We aim for niche markets with high
value.”
Looking to build long-lasting relationships with clients, ChilePork
exporters meet with their Chinese customers once a year to introduce
improvements in the pork industry. This kind of personal service allows
suppliers to better understand customers’ needs and provide tailor-made
products.
At a time when Chinese are spooked by a series of domestic food-safety
scandals, Chilean exporters reaffirm their commitment to quality products that
Chinese customer can trust.
Food safety
All companies under the ChilePork umbrella operate under an integrated
system of food-safety management, which includes a set of government-controlled
programs covering quality monitoring and tracking systems that prevent and
control possible contamination.
Similarly, the production of healthy, safe-to-eat products extends to
Chile’s avocado industry, which aims to become a major supplier to China.
Avocados, a popular food in Chile, are relatively new to Chinese palates.
According to ProChile, the Chinese mainland imported only about US$2,374 worth
of avocados in 2012, leaving a big potential market to fill.
“We have built up a distribution network in China after many years of
experience in exporting grape and other fruits,” said Juan Enrique Lazo, general
manager of Chile Avocado Committee. “Thus, everything is set for Chilean
avocados to explore a new market,”
An avocado orchard operated by Desarrollo Agrario SA, a local fresh fruit
company, shows the attention to detail and quality that the industry is banking
on for more orders.
Before being crated, each fresh avocado goes through meticulous procedures
of cleaning and sorting. An electronic classification system weighs and
photographs 15 pictures of every avocado, sorting them according to levels of
ripeness.
Chile now is in talks with Chinese authorities over market access for a
variety of other foodstuffs, including walnuts and some livestock products,
according to Chile’s Ministry of Agriculture.
“Chile has a huge diversity of products to offer,” said Agriculture
Minister Carlos Furche.
Geographic distance is never a hurdle for the China-Chile relationship.
Indeed, the split between hemispheres allows each country to supply the other
with out-of-season foods.
“Chile is seeking to double its exports in the next 10 years, and China, a
rapidly growing market, is absolutely a priority for us,” Furche said.
Source: Shanghai Daily
China’s nickel ore, concentrate imports
to taper or stay flat: analysts
China’s imports of nickel ore and concentrate in the coming months are
expected to taper or remain flat due to the start of the monsoon season in parts
of Southeast Asia, weak nickel ore prices and slow demand, analysts said.
“Monthly imports may stay at around 4 million mt,” a Beijing-based nickel
analyst said.
Philippine exporters would also be discouraged from exporting due to the
current weak nickel ore prices, he said.
In September, China’s imports of nickel ore fell 30.5% year on year and
14.4% month on month to 4.64 million mt, according to data released last week by
the General Administration of Customs.
Imports from the Philippines, China’s largest supplier of nickel ore and
concentrate, rose 27% on the year but fell 15.1% on the month to 4.52 million mt
in September.
“Imports will continue to fall due to the monsoon. Current demand is also
not good,” a Shanghai-based nickel analyst said, noting that shipments from
Southeast Asia are typically affected by monsoon at least until March.
Nickel ore and concentrates are imported for use in the Chinese nickel pig
iron industry, which has recently seen prices fall as a result of lower global
nickel metal prices, ample supply and slow demand from the local stainless steel
sector.
China’s total imports of nickel ore and concentrates in the first nine
months of the year fell 22.8% year on year to 38.2 million mt. in the same
period, imports from the Philippines rose 27.3 % to 27.1 million mt while those
from Indonesia fell 61.9% to 10.6 million mt.
Indonesia implemented an export ban on nickel ore exports in January.
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