Oil

Domestic steel producers have filed new anti-dumping petitions against eight countries, charging them with unfairly subsidizing steel exports into the US. Also, the Senate Energy Committee has advanced a bill that would lift the 40-year US oil export ban but it faces a tough road with the full Senate.

Domestic Producers File New Steel Anti-Dumping Cases

AK Steel Corp., ArcelorMittal USA LLC, Nucor Corp., Steel Dynamics, Inc., and U.S. Steel Corp. – filed petitions recently with the Department of Commerce and the US International Trade Commission charging that unfairly-traded imports of cold-rolled steel flat products from Brazil, China, India, Japan, South Korea, Netherlands, Russia and the United Kingdom are causing material injury to the domestic industry.

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The petitions allege that producers in each of the eight countries are dumping cold-rolled steel in the US market at substantial margins, all above 42% government subsidy.

Bill to Lift US Oil Export Ban Advances

The US Senate Energy Committee on Thursday narrowly passed a bill to lift a 40-year-old ban on the export of crude oil, but the measure faces an uphill battle in getting passed by the full Senate, Reuters reported. The bill would allow the US to export oil and boost state revenue-sharing for offshore oil and gas drilling. It passed along party lines by a vote of 12-10.

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A historic deal on nuclear and atomic energy between Iran and several nations is causing havoc with oil markets this morning.

Iran Deal Reached

Crude oil prices initially fell by as much as 2.3% to $50.98 a barrel as investors reacted to the freshly-inked deal between Iran and six world powers which would open Iranian oil up to new markets. However, oil bounced off those levels as investors weigh the details of the agreement and whether or not it will overcome deep skepticism in Congress. Oil was recently trading unchanged at $52.20 a barrel.

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Experts have warned that the deal could lead to a flood of new oil supply from Iran – the Islamic Republic has 30 million of barrels of crude in storage and ready for sale, according to FACTS Global Energy, an industry consultancy.

End of China’s Untaxed Aluminum Semi Industry?

Alcoa CEO Klaus Kleinfeld said it was his “strong assumption” that the Chinese authorities will soon try to shut down China’s untaxed semi-finished aluminum exporting industry.

“I’ve last been in China four weeks ago or so, and had a lot of conversations also with high level folks. They are very clear that this is not in line with their policy, and that they are deeply looking into this,” Keinfeld told Reuters’ Andy Home.

This would make sense because not only do semis skirt China’s aluminum 15% primary metal export tax but they also qualify for a rebate of China’s value-added tax.

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Silver came close to breaking a key low on Friday and an Iran deal could exacerbate the oil surplus.

Silver Close to $15/Ounce

US silver finished the day at $15.39 per ounce on Friday and it flirted with numbers close to $15 several times in the trading day.

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It is currently trading at $15.62/ounce.

Iran Deal Could Add to Oil Surplus

Any nuclear deal between Iran and six world powers loosening sanctions against Tehran has the potential to flood an oversupplied oil market with more fuel. Other commodity sectors such as cement and steel would see a rise in demand as Iran works to revitalize its economy. Officials said on Sunday they were close to a deal that would bring sanctions relief in exchange for curbs to Tehran’s nuclear program.

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Oil and gas take center stage today in MetalCrawler as the US makes gains in total production and refinery capacity.

US Beats Russia as Top Oil and Gas Producer

The US has topped Russia as the biggest oil and natural-gas producer in a demonstration of the seismic shifts in the world energy landscape emanating from America’s shale fields.

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US oil production rose to a record last year, gaining 1.6 million barrels a day, according to BP’s Statistical Review of World Energy released recently. Gas output also climbed, putting America ahead of Russia as a producer of the hydrocarbons combined.

The data showing the U.S.’s emergence as the top driller confirms a trend that’s helped the world’s largest economy reduce imports, caused a slump in global energy prices and shifted the country’s foreign policy priorities.

US Refinery Capacity Up, Too

US operable atmospheric crude distillation (CDU) capacity increased by 0.2% in 2014, reaching 18 million barrels per day (b/d) according to the Energy Information Administration‘s recently released annual Refinery Capacity Report. This was the second consecutive year of modest capacity growth following the 2.9% increase in 2012 that resulted from the restart of East Coast refineries that had closed in 2011.

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After a flurry of interest in the price of oil as levels bounced back up to $65/barrel from below $50 at the turn of the year, most of us have been quietly content to fill up for less at the gas pumps and patiently wait for the heralded but still unseen benefit to the economy of lower oil and natural gas prices.

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Political events may be about to change that cozy situation as Iran nears its crucial end of June deadline to reach a binding agreement on its nuclear program, the Telegraph reports.

Removal of the US- and EU-led sanctions against Iran could pave the way for an immediate relaxation of sales restrictions and opening of the country’s massive oil and gas reserves to development by International Oil and Gas Companies (IOCs). Iran is reported to be scoping a new contract termed the Iranian Petroleum Contract designed to allow major international oil companies a revenue-sharing deal in return for financial and technological investment in the country’s oil and gas sector. Iran holds the world’s fourth-largest oil reserves and the second-largest natural gas reserves. Production of both has fallen sharply since sanctions as this graph shows.

Source: Telegraph.com

Source: Telegraph.com

But this could be reversed over time with western expertise and technology. According to Energy Information Administration data quoted by the Telegraph, Iran could achieve an additional 1 million barrels per day of production in short order, rising over time as investment re-opened old fields and increased flow rates from existing fields.

According to the Telegraph “Iran’s exports of crude oil and condensate dropped from 2.6 million BPD in 2011 to almost 1.3 million BPD in 2013 as a result of sanctions and only marginally recovered by nearly 150,000 BPD to 1.4 million in 2014 as the political situation thawed.

Source: Telegraph.com

Source: Telegraph.com

At its peak before the Islamic revolution in the 1970s, Iran was producing anywhere between 5 million BPD and 6 million BPD of oil and has the potential to return to this level with sufficient investment. Iran’s oil minister is suggesting they could reach output of 4 million BPD next year if an agreement is achieved next week.

That would have a dramatic effect on an already oversupplied oil market and may provoke Saudi Arabia to yet again open the taps and further flood the market to maintain its market share. Most major OPEC producers are hurting at the current oil price, not because their cost of production is above $65 per barrel but because oil revenues make up the vast majority of their export revenues.

Budgets were set at a price of around $100/B and depressed prices leave them running at a deficit. Those with large reserves, like Saudi Arabia’s $700 billion one, can weather such a storm for some time to come. Others, such as Bahrain, are already going cap in hand to fellow Persian Gulf states asking for support.

Ironically, the worst off is probably Venezuela, although it is sitting on the world’s largest proven reserves, production has collapsed due to mismanagement and, with it, government revenues have fallen. Further falls could put the economy in a perilous state. A substantial increase in Iranian oil output would potentially put the Middle East’s two political heavyweights, Iran and Saudi Arabia, at loggerheads economically as well as politically in the second half of the decade.

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Steel production fell worldwide last month as Russia’s top oil producer, Rosneft, expanded exploration to Venezuela and ArcelorMittal USA has lost nearly $300 million since it was created via a merger in 2006.

WSA: Steel Production Fell Last Month

Global crude steel production fell 2.1% in May from the same month a year ago, as output declined in most major producer regions including China, figures from the World Steel Association (Worldsteel) showed on Monday.

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Global crude steel output fell to 139 million metric tons in the month while output in China, which produces half the world’s steel, fell 1.7% to 70 million mt.

Russia’s Rosneft Signs Exploration Deal With Venezuela

Venezuelan state oil company PDVSA said this week it has signed investment agreements with top Russian oil producer Rosneft, including a plan to create a joint venture to produce natural gas in the South American country.The venture would include the fields of Mejillones, Patao and Rio Caribe – all part of the large offshore Mariscal Sucre gas project.

ArcelorMittal USA Lost $1.5 Billion

ArcelorMittal – forged through an international merger of steel companies in 2006 – has pumped a huge amount of money into its US operations, but hasn’t seen a profit from it, ArcelorMital USA Flat Carbon President and CEO Andrew Harshaw told the Times of Northwest Indiana.

“Our USA business is not getting a return on its investment,” he wrote in a blog post. “Since 2010, the company has invested an average $1.5 billion per year into our USA facilities in both capital investment and the long-term maintenance of our assets. During those same five years, our USA business lost nearly $1.5 billion dollars, an average loss of $293.8 million per year.”

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There is a close linkage between emerging markets and commodity prices. This connection becomes stronger for net commodity exporters. The two most notable examples are Russia and Brazil, both of which are commodity and energy exporters. These two countries have been two of the hardest hit among emerging markets.

Russia market vectors (Black). Brazil iShares (Orange)

Russian market vectors (Black). Brazilian iShares (Orange) since 2012. MetalMiner analysis with data from Stockcharts.com.

These markets have historically moved with commodity prices. When commodities fall, exporters of commodities make less money which is bad for their economy. In many cases, the movement of these markets helps to give clues to future moves in commodities.

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As we can see in the chart above, Russian (in black) and Brazilian (in orange) stock markets have been in bearish mode since 2011. Both, however, rallied this year but we can see that the rally is falling short of their previous peaks. The recent drop also coincided with falling commodity prices worldwide since April.

What This Mean For Metal Buyers

Weakness in emerging markets validates weakness in commodity prices. The dollar is still strong while commodities and emerging markets fall. It’s hard to become bullish on commodities until we start seeing some divergences.

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There is a real divergence developing in the oil market which makes predicting future price direction quite challenging. On one side of the Atlantic the market is awash with oil.

According to a Reuters report vessels are sitting off the west coast of Africa and in the North Sea holding millions of barrels of oil for which there are no buyers. Worse, so many vessels are tied up essentially in this floating storage that VLCC (very large crude carrier) freight rates are rising because there aren’t enough vessels available to carry the cargo that is moving under longer-term contracts.

Effects of Floating Storage

This has the effect of making new production more expensive to sell in the Far East and Europe, exacerbating the problem faced particularly by Nigerian producers. According to Reuters, there are around six million barrels of crude from Nigeria’s May program available – some already loaded onto vessels.

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That joins more than 65 million barrels left in June and July for Nigeria alone. Meanwhile in the North Sea, only one VLCC booking has been made to Asia for June, leaving Europe to absorb almost the entire production of the UK Forties field. As mentioned above, the floating storage is putting a stranglehold on new booking rates. May freight rates on the key West Africa to Asia route are up more than 10% Reuters says, roughly 40 cents per barrel higher than April.

Not surprisingly, this has weighed heavily on prices. UK Forties traded at the lowest differential to dated Brent Crude since December 2008 this week, while Norwegian Ekofisk traded at a nine-year low, the paper said.

Prices Actually Going Up in the US

On the other side of the pond, prices are moving in the opposite direction. For the first time in six months, the US oil market is flirting with backwardation, where the spot price is higher than one- or three-month dated delivery – a sign of a tightening market and. potentially. a shortage.

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ast week UGI Energy Services announced plans to build a liquefied natural gas production facility in Wyoming County, Pennsylvania.

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The facility will draw Marcellus Shale gas from UGI’s Auburn gathering system, then chill it to produce up to 120,000 gallons per day in liquid form. While we have regularly reported the slowdown in both new shale oil and LNG projects in the US this year — and the subsequent cutbacks in oil country tubular goods production — investments are still being made, in the US and overseas, in drilling.

Plants, Projects Planned

Bloomberg Business reported this week that Anadarko Petroleum Corp. selected a group of developers including Chicago Bridge & Iron Co. for a potential $15 billion LNG project in Mozambique.

CBI’s joint venture with Japan-based Chiyoda Corp. and Saipem SpA, based in Italy, will work on the onshore project that includes two LNG units with 6 million metric tons of capacity each, Anadarko said Monday. Construction plans also include two LNG storage tanks, each with a capacity of 180,000 cubic meters, condensate storage, a multi-berth marine jetty and associated utilities and infrastructure, according to Texas-based Anadarko, which says it will make a final investment decision by the end of the year.

Last week, the Department of Energy gave Cheniere Energy Inc. final approval for the nation’s fifth major export terminal at Corpus Christi in Texas, which will ship the fuel from 2018.

What’s Driving Infrastructure Investment?

While oil prices have bounced back from lows seen earlier this year, it’s certainly not the market that’s driving these investments. While high-cost projects, such as those in Canada’s oil sands, have been canceled by oil exploration companies, relatively inexpensive projects with a quicker path to payback, such as these LNG projects, are still being funded.

The payback is diverse and not confined to domestic home heating. LNG has been priced at a fraction of diesel prices for the last four years. Domestic trucking (18-wheelers and other heavy consumers of diesel) have yet to make a large-scale commitment to LNG, and most places where fuel is dispensed have yet to put in expensive infrastructure to handle the product, but there has been enough success for UGI to justify committing resources to its adoption.

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MetalCrawler is covering the labor issues beat today and they might affect your metal purchases.

Century Hints at Lockout

Century Aluminum will invoke a lockout of unionized workers at its Hawesville, Ky., smelter starting on May 11 if the union does not approve a final offer on a labor deal, according to a letter posted on Century’s website on Friday.

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United Steelworkers Local 9423 is set to vote on the proposed contract today, according to a post on the union website. If workers go on strike, it would be the first industrial action at a US aluminum smelter in more than a decade.

Train Drivers Strike in Germany

A seven-day strike by German train drivers could cost the German economy €500 million ($556.70 million), Germany’s DIHK Chambers of Commerce said on Monday.

The strike, the eighth in a dispute between the GDL train drivers union and state-owned Deutsche Bahn over work conditions, began today for freight trains and will be extended to passenger trains from Tuesday.

BP Refinery Strike Could Soon End

Workers and management at BP have reached a tentative agreement that would end a months-long strike at the multinational’s refinery in Whiting, Ind.

The United Steel Workers employees must still ratify the contract, and officials expect a vote to occur in the next few days.

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