Friday, September 30, 2022

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Copper production to show “strong and consistent” growth for next decade

Copper production to show “strong and consistent” growth for next decade 

Underground mining equipment operators (L-R) Olivier Mwambay, Carpe Mbayo, Tshisoc Radio and Patrick Lutula working on twin declines providing access to Kamoa-Kakula’s Phase 3 areas. Image: Ivanhoe Mines August 2022.

A new study by Fitch Solutions Country Risk and Industry Research forecasts 7.3 million tonnes will be added to global copper production through 2031 as a raft of projects in Chile, China and Congo come online.

Fitch expects global copper mine production to increase by an average annual rate of 3.2% over 2022–2031, with annual output rising from 21.9mnt in 2022 to 29.2mnt by 2031 boosted by elevated copper prices and a positive demand outlook.


The market researcher says top producer Chile will show a slight decline in the short term due to ongoing drought affecting mines such as Anglo American’s Los Bronces and Antofagasta’s Los Pelambres operations, labour action at state-owned Codelco and unforeseen maintenance at Vale’s mines.

However, longer term the country, which is responsible for a quarter of global production, will experience strong growth led by large scale miners. BHP is adding substantially to Escondida’s output following the end of covid restrictions, Teck Resources’ Quebrada Blanca Phase 2 project is expected to complete construction around the end of 2022, while Codelco is undertaking a $1.6 billion project to overhaul its Salvadore mine and add 47 years to its mine life.

“Downside risks to long-term production stem from the possibility of a mining sector tax, which President Gabriel Boric is pursuing. Nevertheless, given significant opposition in Congress to the original proposals, we expect the impact on output to be limited,” says Fitch.


Fitch expects Chinese copper mine production growth to slow sharply from an average growth rate of 6.9% over the past decade to 1.0% through 2031 due to the shutdown of low grade mines and delayed capacity expansions.

Ramp ups at new projects, including Yunnan Copper’s Pulang mine and Zijin Mining’s Qulong complex will offset declines elsewhere. 


Fitch expects Peruvian output growth to slow dramatically in the near term from its earlier estimates due to community protests affecting key mines including MMG’s Las Bambas and Southern Copper Corp’s Cuajone mines.  The authors of the report do not anticipate that annual production will reach pre-covid levels until 2024.

China will play an increasingly important role in Peru’s copper sector, says Fitch, pointing to the country’s Ministry of Energy and Mines forecast of a total of $10.2 billion to be invested by Chinese firms in five mining projects over the next 10 years.


The Democratic Republic of the Congo, thanks mainly to Ivanhoe Mines and Zijin Mining’s giant Kamoa-Kakula mine expansion, will exceed annual production of 2 million tonnes for the first time next year and reach nearly 3 million tonnes in 2031.

Glencore’s restart of the Mutanda copper-cobalt mine and China Minmetals’ Deziwa project, held with state-owned Gecamines will further add to the central African nation’s strong growth.  

Price slump

The copper price has been in retreat since hitting all-time highs in March and was last trading at $3.28 a pound ($7,230 a tonne) in New York, a 10-week low.

Fitch expects prices to average $8,400 a tonne in 2023 and $11,500 a tonne by 2031 as a long-term structural deficit emerges due to the very strong long-term demand outlook.

Tankers to discharge Iranian crude, condensate at Venezuela's main port 

HOUSTON, Sept 26 (Reuters) - Tankers carrying about 1.22 million barrels of Iranian crude and 2 million barrels of condensate are scheduled to discharge at Venezuela's Jose terminal in the coming days, according to a document from state oil company PDVSA.

Thursday, September 29, 2022

Hurricane Ian Damage Report at the Freedom Factory & Our Shop/ Biblical Storm Surge / G's Sign 9/29/22

Gold price rallies as dollar pulls back

Gold price falls over 1% as uptick in risk sentiment drives haven selloff 

Gold rose by nearly 2% on Wednesday as a slight retreat in the dollar rekindled some of its safe-haven appeal, although prospects of sharp rate hikes are still keeping the precious metal near a 2-1/2-year trough.

Spot gold climbed 1.7% to $1,657.00 per ounce by 12:40 p.m. ET, touching its highest in a week and erasing some of the losses from an extended slide that dragged prices down to the lowest since April 2020. US gold futures also advanced 1.7% to trade at $1,664.60 in New York.

[Click here for an interactive chart of gold prices]

Meanwhile, the US dollar retreated after scaling a new two-decade high, making bullion less expensive for overseas buyers. Treasury yields also eased, adding more appeal to the non-yielding bullion.

A pullback in the dollar and yields have “seen gold move off those lows,” said David Meger, director of metals trading at High Ridge Futures, in a Reuters report.

“The factors in regards to Russia and the discussion of annexation… that probably gave a bid to the (gold) market from a safe-haven perspective,” Meger added.

Moscow was poised on Wednesday to annex a swath of Ukraine, releasing what it called vote tallies showing support in four partially occupied provinces to join Russia, after what Kyiv and the West denounced as illegal sham referendums held at gunpoint.

Moreover, “gold is seeing some relief as the UK’s plan to buy long-end Gilts sees yields weaken,” TD Securities said in a note. Still, bullion has failed to benefit from the recent rout in equities and faces headwinds from looming rate hikes, which would raise the opportunity cost of holding the metal.

“It’s all tied together — the same factors that have been weighing on gold have been weighing on equities,” Meger said.

(With files from Reuters)

Monday, September 12, 2022

No Enemies

By Charles Mackay

You have no enemies, you say?
Alas! my friend, the boast is poor;
He who has mingled in the fray
Of duty, that the brave endure,
Must have made foes! If you have none,
Small is the work that you have done.
You've hit no traitor on the hip,
You've dashed no cup from perjured lip,
You've never turned the wrong to right,
You've been a coward in the fight.

The Hidden Truth about Coal Mining | NACCO Natural Resources

China National Offshore Oil Corporation (CNOOC) on Wednesday announced the completion of the roofs of three 270,000 cubic meters LNG storage tanks designed and built solely by China in Yancheng City, east China’s Jiangsu Province.

Yokohama Japan 

Capable of holding the world’s largest volume of 270,000 cubic meters each, the three storage tanks are part of the CNOOC Yancheng “Green Energy Port” project, which involves the construction of 10 large-scale LNG storage tanks: four completed ones of 220,000 cubic meters and six to-be-completed ones of 270,000 cubic meters.

High-tech oriented project

Raising the roof is the most difficult phase of the construction process. The 1,200-tonne part of the roof structure needs to be lifted to a height of 60 meters. This is done with air pressure devices and requires about 500,000 cubic meters of air.

Li Deqiang, deputy commander-in-chief of the “Green Energy Port” roof construction project, told China Media Group (CMG) that “through balanced guidance, storage tank sealing, lifting power and smart monitoring, we precisely controlled the air pressure, speed and deviation ratio and other parameters of the storage tank during roof construction, so as to ensure the security and stability of the pressure lift comprehensively.”

Upon completion, each storage tank will be 60 meters high, equivalent to the

height of the National Stadium or the Bird’s Nest and will be able to accommodate three Boeing 747 simultaneously.

Pursuit of clean energy

To be put into full operation by the end of 2023, the project, with an annual LNG processing capacity of 6 million tonnes (equivalent to 8.5 billion cubic meters of natural gas), will meet the natural gas demand of all residents in Jiangsu Province within 28 months.

It will offset carbon dioxide by 28.5 million tonnes and nitrogen oxide emission by 232,500 tonnes, providing greater impetus for the green development of China’s Yangtze River Economic Belt and further boosting clean energy supply capacity to achieve China’s carbon peak and neutrality targets.

Next, CNOOC is mapping out the second phase of the Yancheng “Green Energy Port” project, aiming for another 10 LNG storage tanks of 270,000 cubic meters to increase the annual LNG receiving capacity to 10 million tonnes.

Wednesday, September 7, 2022

Copper price: Chile, Codelco face another lost decade of output growth

 Copper price: Chile, Codelco face another lost decade of output growth

Tunnel vision. Chuquicamata mine, Chile. Credit: Codelco. 

After an early jobs-report bump on Friday in New York, the copper market turned negative by lunchtime, marking its sixth straight session of losses. December contracts for the orange metal are now trading down 8% for the week. 

The carnage was evident among copper stocks, with the top producers suffering double digit losses over the last week of trading: Freeport-McMoRan gave up 12%, Southern Copper declined 11%, First Quantum Minerals fell by 18%, Antofagasta lost 11%, Teck Resources –10%, Glencore –12% while KGHM has lost 18% on the Warsaw exchange.  

Disappointing manufacturing data in China was behind the recent pullback after PMIs from the country, responsible for 55% of global copper consumption, unexpectedly slipped into contractionary territory

But worries about global growth, inflation and interest rates, and an energy crisis in Europe have been hounding the metal for months. The copper price has now fallen by one third since hitting all-time highs early in March above $5 per pound.

No fun in fundamentals 

Amid all the economic gloom and doom, a bombshell announcement this week by the world’s number one copper producer appears to have gone largely unnoticed or ignored by large-scale speculators on futures markets who’ve been net short on copper for the last seven weeks

Chile’s state-owned Codelco last week said it expects output to reach between 1.49 million and 1.51 million tonnes this year, down from a previous forecast of 1.61 million tonnes. 

On Wednesday, Codelco chairman Maximo Pacheco told a newspaper 2023 guidance is 1.45m tonnes, but significantly, there is no prospect of an improvement.

“For the five-year period between 2023 and 2027, the best forecast we have is 1.5 million tonnes on average.

“Structural projects [to maintain output levels] are effectively behind schedule and over budget.” 

Copper price: Chile, Codelco face another lost decade of output growth

The “best forecast” would constitute the lowest output in at least a decade and compares to average attributable output of 1.74m since 2010 according to data from sister company Miningintelligence

Codelco’s output next year, would more than 400,000 tonnes below its 2015 peak. A 400ktpa mine would be the world’s fifth largest according to 2021 production tables

Two lost decades

Codelco’s struggles are Chile’s struggles: water scarcity, declining grades, depletion rates, skinny project pipelines, industrial action, taxation increases and regulatory uncertainty and ever-expanding capex budgets.   

In 2021 Chile produced a quarter of the world’s primary copper output of 21m tonnes, according to the US Geological Survey. On a proportional basis that makes Chile’s position in the world of copper on par not with Saudi Arabia’s in crude oil, but the combined output of the 13 members of Opec.

Copper price: Chile, Codelco face another lost decade of output growth
Source: BMO Global Commodities Research – Chile’s Perennial Copper Production Problems

In a recent report, BMO Capital Markets says Chile is now heading towards two “lost decades” in terms of copper output growth: 

“Following the steady ramp-up in the 1990s and early 2000s, output levels have stagnated, with the projections of 6Mtpa-plus of output never coming to pass. 

“And this is not for a lack of investment, with a number of large new mines coming to market over this period. Rather, it is a function of decline at existing assets.”

BMO notes that in particular, SX-EW production in Chile “continues to trend inexorably lower” and is now roughly 500,000 tonnes below peak levels seen in 2009.

Iron ore price climbs after selloffs spurred by China covid woes

 iron ore price 

Iron ore futures rebounded on Monday after last week’s selloffs, as traders bet the bottom has been reached despite lingering concerns about intensified covid-19 restrictions in top steel producer China.

The most-traded January iron ore on China’s Dalian Commodity Exchange ended daytime trade 4% higher at 692 yuan ($99.85) a tonne.
On the Singapore Exchange, the steelmaking ingredient’s most-active October contract was up 4.5% at $98.75 a tonne, as of 0702 GMT.

On Friday, Dalian iron ore hit a five-week low of 652 yuan a tonne, while SGX iron ore slumped to a contract low of $92.75 a tonne amid mounting worries about demand as fresh covid-19 outbreaks prompted China to ramp up restrictions.

“Iron ore lacks short-term upward momentum, but the space below is also limited,” Zhongzhou Futures analysts said in a note.

Currently, 33 cities are under partial or full lockdowns, affecting more than 65 million residents, according to an estimate by Chinese financial magazine Caixin.

A property sector downturn in China and widespread lockdowns ahead of the ruling Communist Party’s once-every-five-years Congress starting on Oct. 16 are widely expected to dull domestic demand for iron ore and steel during the September-October peak construction season.

Offering some relief, a spokesperson for China’s central bank said on Friday there was room to adjust monetary policy as stimulus measures have been restrained while consumer inflation remains under control.

But for as long as China’s strict zero-covid policy exists, “any stimulus measures are unlikely to gain traction amid a challenging time for the Chinese property market and the economy in general,” said National Australia Bank economist Tapas Strickland.

Rebar contract on the Shanghai Futures Exchange rose 1.9%, while hot-rolled coil advanced 1.5%. Stainless steel gained 2%.

Other steelmaking inputs also rebounded, with Dalian coking coal up 3.1% and coke rising 2.4%.

(By Enrico Dela Cruz; Editing by Uttaresh.V and Rashmi Aich)

Tuesday, September 6, 2022

Chuck DeVore on California's Gas Vehicle Ban

India coal baron becomes world’s third richest trailing only Musk, Bezos

the Indian businessman, a college dropout who first tried his luck as a diamond trader before turning to coal, has become the world’s third-richest person. 

Few outside of India had heard of Gautam Adani just a few years ago. Now the Indian businessman, a college dropout who first tried his luck as a diamond trader before turning to coal, has become the world’s third-richest person.

It’s the first time an Asian person has broken into the top three of the Bloomberg Billionaires Index — fellow citizen Mukesh Ambani and China’s Jack Ma never made it that far. With a $137.4 billion fortune, Adani has overtaken France’s Bernard Arnault and now trails just Elon Musk and Jeff Bezos of the US in the ranking.

Adani, 60, has spent the past few years expanding his coal-to-ports conglomerate, venturing into everything from data centers to cement, media and alumina. The group now owns India’s largest private-sector port and airport operator, city-gas distributor and coal miner. While its Carmichael mine in Australia has been criticized by environmentalists, it pledged in November to invest $70 billion in green energy to become the world’s largest renewable-energy producer.

As his empire has expanded to one of the world’s largest conglomerates fueling the remarkable wealth gains, concerns have grown over the rapid growth. Adani’s deals spree has been predominantly funded with debt and his empire is “deeply over-leveraged,” CreditSights said in a report this month.

Some lawmakers and market watchers have also raised concerns over opaque shareholder structures and a lack of analyst coverage at Adani Group companies. Yet the shares have soared — some of them more than 1,000% since 2020, with valuations hitting 750 times earnings — as the tycoon focused on areas that Prime Minister Narendra Modi deems crucial to meeting India’s long-term goals.

Shares of Adani Enterprises Ltd., the group’s flagship, climbed 1.7% on Tuesday to close at a record high.

The pivot to green energy and infrastructure has won investments from firms including Warburg Pincus and TotalEnergies SE, helping Adani enter the echelons previously dominated by US tech moguls. The surge in coal in recent months has further turbocharged his ascent.

All told, Adani has added $60.9 billion to his fortune in 2022 alone, five times more than anyone else. He first overtook Ambani as the richest Asian in February, became a centibillionaire in April and surpassed Microsoft Corp.’s Bill Gates as the world’s fourth-richest person last month.

Adani was able to move past some of the world’s richest US billionaires partly because they’ve recently boosted their philanthropy. Gates said in July he was transferring $20 billion to the Bill & Melinda Gates Foundation, while Warren Buffett has already donated more than $35 billion to the charity.

The two, along with Gates’s ex-wife Melinda French Gates, started the Giving Pledge initiative in 2010, vowing to give away most of their fortunes in their lifetimes. The billions of dollars spent on philanthropy has pushed them lower on the Bloomberg wealth ranking. Gates is now fifth and Buffett is sixth.

Adani, too, has increased his charitable giving. He pledged in June to donate $7.7 billion for social causes to mark his 60th birthday.

(By Alexander Sazonov, with assistance from Pei Yi Mak)

Chilean market ends sharply higher after voters reject new constitution

Chile's Nov. copper output falls amid drops from Codelco and Escondida - Cochilco

BHP’s Escondida copper mine in Chile. (Image: Wikimedia Commons) 

Chile’s stock market staged a strong rally before paring gains at the close on Monday, a day after Chileans rejected a proposed new constitution, while the top copper-producing nation’s peso firmed as its government prepares to draft a likely more moderate text.

Chileans voted overwhelmingly on Sunday to reject what would have been one of the world’s most progressive charters and a sharp shift from its market-friendly constitution dating back to the Augusto Pinochet dictatorship.

The local stock market rose more than 6% to an all-time intraday high of over 6,000 points, but finished up 2.16%, just shy of 5,800 points, with strong gains in the shares of LATAM Airlines, retailer Cencosud and ferromining company CAP.

Chile’s peso rose more than 4% against the dollar as local markets opened to touch 838.20, a level last seen on June 10, Refinitiv pricing data showed, but it closed up 0.23% at 880.50.

“The outcome may force a more moderate and gradual reform impulse,” said JPMorgan’s Diego Pereira in a note to clients, adding that he expected positive market momentum, thanks to less uncertainty and lower risk premiums ahead.

“We believe both real and financial investors would prefer that if the current constitution has to be reformed, it’s done by the Congress or a committee of notables.”

Shares of London-listed miner Antofagasta rose 3.4% on Monday, outpacing gains in the STOXX Basic Resources Index, which was up 1%.

Chile is home to global copper giants including Codelco, BHP, Anglo American and Glencore as well as Antofagasta.

Chile’s peso has fallen some 3% since the start of the year, making it an outlier in the Latin America region, where currencies from Brazil’s real and Peru’s sol to Mexico’s peso have chalked up solid gains in 2022.

The referendum was also seen as an evaluation of the government, which is struggling with buoyant inflation, an economic slowdown and an internal security crisis, according to experts.

Experts say financial markets’ initial gains may not last as constitutional uncertainty remains a concern.

“As uncertainty hovers over the country, capital flows could slow and ratings downgrades should materialize,” said Brendan McKenna, a strategist at Wells Fargo.

“As those dynamics unfold, the Chilean peso should weaken over the longer term, ultimately getting up towards all-time lows against the dollar.”

Chile’s central bank is expected to raise the benchmark interest rate again this week in the face of persistent inflationary pressures.

After acknowledging defeat, President Gabriel Boric pledged to make adjustments in his government team and work with Congress to draft a new text. Center-left and right-wing parties have also agreed to negotiate.

(By Karin Strohecker, Alexander Villegas, Devik Jain, Valentine Hilaire and Sarah Morland; Editing by Matthew Lewis, Andrea Ricci and Richard Chang)

It’s Happening Now

Thursday, September 1, 2022

Trump Was Right, World Leaders Were Wrong: Russia Just Cut Off Germany’s Fuel Supply. Who’s Laughing Now?

 Jesco Denzel /Bundesregierung via Getty Images 

As the Ukrainian war rages on, Europeans across the continent are appalled to discover that the man they found shockingly repulsive, Donald Trump, correctly warned that over-reliance on Russia’s energy would cripple their entire way of life.

On Wednesday, Russia announced that it would be cutting off Germany’s gas supply via Nord Stream 1 for the next three days. According to German officials, all they can do is “trust” that they can handle the decrease in natural gas.

“I assume that we will be able to cope with it,” Klaus Mueller, the president of Germany’s network regulator, told Reuters after the announcement. “I trust that Russia will return to 20% on Saturday, but no one can really say.”

If I’m a German and I’m hearing that, the first thing I’m doing is starting to knit an extra thick Wintermantel.

The second thing I’m doing is wondering why the German leaders didn’t heed Trump’s prophetic words.

German leaders in particular literally laughed out loud at America’s 45th president at the United Nations when he criticized their energy relationship with Russia, claiming that they were totally dependent four years ago.

Instead, Germany opted to listen to folks like Greta Thunberg — a teenager fully indoctrinated by climate change charlatans —  and push green energy.

“Germany will become totally dependent on Russian energy if it does not immediately change course,” Trump said before the U.N. in 2018.

“Here in the Western Hemisphere, we are committed to maintaining our independence from the encroachment of expansionist foreign powers,” he added

The Left-leaning NowThis Twitter account claimed at the time that “Trump made some outrageous claims about German energy at the UN — and the German delegation’s reaction was priceless.”

Trump also stated that Germany was “totally controlled by Russia” because of its energy dependence.

Former German Chancellor Angela Merkel rebutted Trump, saying,  “I wanted to say that, because of current events, I have witnessed this myself, that a part of Germany was controlled by the Soviet Union. And I am very happy that we are today unified in freedom as the Federal Republic of Germany.”

Merkel maintained that her nation was free, despite not having reliable forms of fuel.

At the same time, Merkel praised Thunberg for climate activism and encouraging kids to ditch school on Fridays. In 2020, Germany even began closing down its coal plants and instead promised to create a green energy utopia. In the interim, they would rely on Russia.

Germany was forced to reactivate coal plants in July 2022 precisely because they could not get green energy up to speed quickly enough.

Contrary to what the Left claimed, Trump’s U.N. claims were not outrageous. They were prescient.

As we speak, Germans are facing unprecedented energy prices before winter has even started.

“This is not normal at all. It’s incredibly volatile,” Fabian Rønningen, a senior analyst at Rystad Energy, said of high energy prices throughout Germany on Tuesday. “These prices are reaching levels now that we thought we would never see.”

The Europeans might not have seen those high prices coming, but those who believe in a true all-of-the-above energy solution that maximizes fossil fuels and clean energy, as well as energy independence, certainly predicted it.

For some reason, the Trump presidency made the entire world lose its mind. Leaders listened to children instead of taking an honest look at their vulnerabilities. Now, their people are paying the price.

The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.

Wednesday, August 31, 2022

California Asks Residents To Avoid Charging Electric Vehicles Due To Blackout Risk Days After Unveiling New Gas Car Ban

Power Lines at Sunset Photograph by David and Carol Kelly 

Days ago, officials in California unveiled a plan to phase out new gas-powered cars. Now, officials are asking residents to avoid charging their electric vehicles in the interest of not overwhelming the power grid.

The western United States is facing a likely “prolonged and record heat wave” that could lead to temperatures as high as 115 degrees Fahrenheit, according to the National Weather Service. As a result, the California Independent System Operator is seeking to bring all available resources online to handle higher electricity demand and expects to issue “voluntary energy conservation” notices over the Labor Day weekend.

“The top three conservation actions are to set thermostats to 78 degrees or higher, avoid using large appliances and charging electric vehicles, and turn off unnecessary lights,” according to the American Public Power Association. During a “Flex Alert,” residents are encouraged to reduce energy consumption from 4:00 pm to 9:00 pm — the hours in which “demand for electricity remains high and there is less solar energy available.”

California also experienced a round of blackouts during last year’s Labor Day weekend. The state issued Flex Alerts because grid operators predicted “an increase in electricity demand, primarily from air conditioning use” related to extreme temperatures.

The warnings of low grid capacity come days after the California Air Resources Board issued new rules requiring 35% of new vehicles to produce zero emissions by 2026 — a standard that will rise to a 68% benchmark by 2030 and a 100% level by 2035. Yet experts have warned that the state’s electric grid will require significant upgrades to manage a rapid transition away from internal combustion vehicles.

“Today, most people charge their electric cars when they come home in the evening — when electricity demand is typically at its peak,” according to researchers at Cornell University’s College of Engineering. “If left unmanaged, the power demanded from many electric vehicles charging simultaneously in the evening will amplify existing peak loads, potentially outstripping the grid’s current capacity to meet demand.”

The legislatures of Massachusetts, Washington, and Virginia have previously passed laws conforming their states to standards approved by the California Air Resources Board. However, officials in Virginia have denounced the state’s laws — greenlit last year when Democrats controlled the General Assembly — and are seeking to repeal them.

“In an effort to turn Virginia into California, liberal politicians who previously ran our government sold Virginia out by subjecting Virginia drivers to California vehicle laws,” Governor Glenn Youngkin (R-VA) wrote. “Now, under that pact, Virginians will be forced to adopt the California law that prohibits the sale of gas and diesel-fueled vehicles. I am already at work to prevent this ridiculous edict from being forced on Virginians. California’s out of touch laws have no place in our Commonwealth.”

On a national level, Democratic officials have been similarly eager to phase out internal combustion vehicles while incentivizing the purchase of electric cars. The Inflation Reduction Act, which President Joe Biden signed earlier this month, greenlit $7,500 tax credits for the purchase of new electric vehicles — even as Ford and GM raised their electric vehicle prices by approximately the same amount.

Tuesday, August 30, 2022

‘Civilization will crumble’ if the world doesn’t continue using oil and gas, Elon Musk, co-founder and CEO of electric car giant Tesla, says 

Tesla CEO Elon Musk at the Offshore Northern Seas 2022 (ONS) meeting in Stavanger, Norway on August 29, 2022.

Mankind must rely on oil and gas “in the short term” or “civilization will crumble,” Elon Musk told reporters Monday at an energy conference in Norway—a striking statement from the co-founder and CEO of top electric car maker Tesla.

He’s said as much before, noting that an increase in oil and gas output would negatively affect the company, worth nearly $900 billion.

“Hate to say it, but we need to increase oil & gas output immediately,” he wrote on Twitter in March, the month following the war in Ukraine and the sanctions placed upon Russia.

“Extraordinary times demand extraordinary measures,” he added.

Musk’s comments, made at the conference and reported by Reuters, come as Europe’s energy crisis grows. After Russia’s February invasion of Ukraine, the country was hit with sanctions from countries around the world. It retaliated by limiting the availability of its natural gas supply to outside entities, causing costs to spike. Much of Europe depends on the country’s supply.

In July, the European Union agreed to reduce its overall consumption of gas by 15% from August to March, with countries going to extremes to limit use of gas. Some have cut off hot water in public buildings, set air conditioning temperature limitations, and turned off the lights at certain times of the day.

When asked if Norway should continue to drill for oil and gas, Musk said additional exploration is warranted, Reuters reported.

Musk also suggested that offshore wind power—a form of renewable energy that creates electricity through the force of winds at sea—generation in the North Sea, in combination with stationary battery packs, could become a solution for the country.

“It could provide a strong, sustainable energy source in winter,” Musk said, per Reuters.

“One of the biggest challenges the world has ever faced is the transition to sustainable energy and to a sustainable economy,” he added. “That will take some decades to complete.”

However, it’s one he’s partially taken upon himself, as Tesla’s mission is to accelerate the world’s transition to sustainable energy.

The billionaire isn’t new to the renewable energy conversation. And although he said he sees global warming as a major risk to civilization, he argues that a population collapse resulting from low birth rates is a much bigger threat—a stance he reaffirmed last week on Twitter.

Monday, August 29, 2022

Tanker Trackers: After Iraqi Oil Blending Scheme, Iran Found Better way to Evade US Sanctions


Two vessels identified by as Iranian state-owned Polaris 1 (smaller tanker) and Rhine Shipping DMCC-operated Babel (larger tanker) engage in a ship-to-ship-transfer in waters off Iraq's Al-Faw peninsula, March 19, 2020 (Planet Labs) 

An apparent scheme by Iran and its shipping industry allies to blend U.S.-sanctioned Iranian oil with Iraqi oil in 2020 was short-lived, according to tanker trackers who say Tehran dropped it in favor of a more efficient way to evade sanctions on its oil exports.

TheWall Street Journal reported last month that a UAE-based businessman and several companies he either owns or is connected to via common email and corporate addresses were engaged in blending Iranian and Iraqi oil on tankers through ship-to-ship transfers of crude and refined oil products in the Persian Gulf as recently as 2020.

It said the scheme enabled those involved to disguise the blended oil’s Iranian origin and brand the product as Iraqi in order to avoid U.S. sanctions targeting Iranian oil.

The news report cited one example of the operation in which an Iran-owned tanker named Polaris 1 transferred Iranian fuel oil, a refined product, onto another tanker carrying Iraqi oil in March 2020. The second tanker was named the Babel and was operated at the time by Rhine Shipping DMCC, a company run by UAE-based businessman Salim Ahmed Said, an Iraqi-born British citizen.

The Wall Street Journal attributed its report to corporate documents, shipping data and people familiar with the matter. It also published a statement from Said in which he denied that his companies shipped Iranian oil in violation of U.S. sanctions.

VOA has found additional evidence for the claim that the Polaris 1 and the Babel engaged in the ship-to-ship transfer from March 17-19, 2020, in waters about 30 kilometers from Iraq’s Al-Faw peninsula.

Two vessels resembling the Polaris 1 and the Babel appear side by side in satellite photos that were taken on those dates and provided to VOA by U.S. company Planet Labs. co-founder Sam Madani, a researcher based in Sweden, told VOA that the physical appearances of the vessels in the photos match the images of the two tankers in his database.

Two vessels identified by as Iranian state-owned Polaris 1 (smaller tanker) and Rhine Shipping DMCC-operated Babel (larger tanker) engage in a ship-to-ship-transfer in waters off Iraq's Al-Faw peninsula, March 17, 2020 (Planet Labs)
Two vessels identified by as Iranian state-owned Polaris 1 (smaller tanker) and Rhine Shipping DMCC-operated Babel (larger tanker) engage in a ship-to-ship-transfer in waters off Iraq's Al-Faw peninsula, March 17, 2020 (Planet Labs)

Greece-based maritime analytics provider MarineTraffic also told VOA that data from the Babel’s Automatic identification System (AIS) transponder show that the vessel was at the location seen in the Planet Labs photos on the dates the photos were taken. It said the Polaris 1’s transponder had been switched off from August 2019 until being reactivated on March 20, 2020, when the data showed the vessel was about 380 kilometers southeast of where the reported transfer with the Babel took place in the preceding days.

Tankers often have switched off their AIS transponders in recent years to hide their activities from scrutiny.

Tehran has long refused to comment on how it uses tankers to export its oil to avoid tipping off enforcers of U.S. sanctions and researchers advocating stronger enforcement of those sanctions.

Madani and tanker tracker Claire Jungman, chief of staff at U.S. advocacy group United Against Nuclear Iran (UANI), told VOA they have seen no signs of regular ship-to-ship transfers involving the blending of Iranian and Iraqi oil in the Persian Gulf since 2020. Both researchers said they believe Iran focused on other tactics because the blending scheme was too cumbersome for its relatively small financial reward.

“These shipments involved a refined oil product and were very small,” Madani said in reference to the 2020 blending operations. The Wall Street Journal said the amount of Iranian fuel oil involved in the March 2020 Polaris 1-Babel transfer was worth $9 million.

UANI said last month it estimated Iran’s revenue from crude oil and gas condensates was $37.7 billion from March 2021 to May 2022.

The 2020 oil blending operations also had started to attract public attention by the end of that year, apparently prompting some of those involved to back out of the scheme.

One sign of that scrutiny was an October 23, 2020, Wall Street Journal news report citing unnamed U.S. officials as saying Iranian tankers were regularly transferring crude oil to other ships just kilometers from Iraq’s Al-Faw port as part of an oil blending operation. The report did not name any of the tankers.

UANI later named one of the tankers in a December 2020 blog post. It said a tanker that UANI had been tracking for two years in the Persian Gulf, then-named the Najaf, was acting as a “giant stationary ‘mixer,’ blending different oils in order to obscure Iranian origin, while other tankers collected the new illegal blend for onward export.”

Jungman told VOA that the Najaf’s operator since February 2018 had been Al-Iraqia Shipping Services & Oil Trading FZE (AISSOT), a UAE-based company that The Wall Street Journal’s July 31 article said shares email and corporate addresses with businessman Said’s firms.

AISSOT was formed in 2017 as a wholly owned subsidiary of Arab Maritime Petroleum Transport Company (AMPTC), which is controlled by the governments of nine members of the Organization of Arab Petroleum Exporting Countries. AMPTC’s website says AISSOT was set up to help the Iraqi government export its oil.

On September 13, 2020, AISSOT published a statement asserting that neither it “nor its affiliated companies, vessels or personnel are involved in any sanctioned trade, including trading Iranian oil."

But on November 25, 2020, the Iraqi government’s State Oil Marketing Organization, said it had stopped using the Najaf as a floating tanker for storing Iraqi fuel oil on October 31 of that year. It said anyone purchasing oil from the Najaf after that date could face “legal consequences arising from trading in a smuggled oil product.”

AISSOT itself ceased to be listed as a ship manager of the Najaf on December 30, 2020, according to Jungman.

In an August 1 statement issued in response to The Wall Street Journal’s most recent report, AMPTC said it had “no knowledge” of smuggling of Iranian oil by AISSOT.

In another statement issued on the same day, AISSOT noted that Iraq remains a member and shareholder of AMPTC.

“There was too much talk about [the blending scheme] and a lot of oversight going on at the time,” Madani of said. “Also, I don’t think it was yielding the kind of result that the Iranians were hoping for. So they just changed things up and experimented with new configurations of vessel movements and oil loadings.”

In the past two years, that experimentation led to Iran setting up shell companies to significantly expand its tanker fleet under foreign flags to obscure Iranian ownership and avoid U.S. sanctions targeting vessels of the National Iranian Tanker Company, according to Jungman and Madani.

Iran also has equipped its enlarged tanker fleet with AIS-spoofing devices that can transmit false data about a vessel’s location to make it harder to track. Spoofing for sanctions evasion now is used to export a majority of Iran’s oil, the researchers said.

Jungman and Madani said Iran has more than 200 oil tankers under its control. The most active of them are 20 to 30 very large crude carriers with a capacity of 2 million barrels that move Iranian oil every other month, Jungman added.

In one recent spoofing example shared with VOA, Madani said the tanker formerly named Babel, now called “Molecule,” sent AIS data on August 10 indicating that it was berthed at Iraq’s offshore Al-Basrah Oil Terminal.

This graphic shows that two oil tankers, Ephesos and Molecule, emitted AIS location data indicating they were occupying the same berth (red image) at Iraq's offshore Al-Basrah Oil Terminal on Aug. 10, 2022 (MarineTraffic)
This graphic shows that two oil tankers, Ephesos and Molecule, emitted AIS location data indicating they were occupying the same berth (red image) at Iraq's offshore Al-Basrah Oil Terminal on Aug. 10, 2022 (MarineTraffic)

But Madani shared an August 10 European Space Agency (ESA) satellite photo of the Iraqi offshore terminal showing what he said was another tanker named Ephesos berthed at the same spot as the Molecule’s AIS-indicated location, with no sign of the latter vessel.

This satellite photo shows what says is oil tanker Ephesos (northernmost of three pictured tankers) occupying a berth at Iraq's offshore Al-Basrah Oil Terminal on Aug. 10, 2022 (ESA)
This satellite photo shows what says is oil tanker Ephesos (northernmost of three pictured tankers) occupying a berth at Iraq's offshore Al-Basrah Oil Terminal on Aug. 10, 2022 (ESA)

Instead, another ESA satellite photo that Madani shared from the same date showed what he said was the Molecule loading fuel oil at the Iranian port of Bandar e-Mahshahr, about 100 kilometers to the northeast.

This satellite photo shows what says is oil tanker Molecule (easternmost of three pictured tankers) berthed at Iran's Bandar e-Mahshahr port on Aug. 10, 2022 (ESA)
This satellite photo shows what says is oil tanker Molecule (easternmost of three pictured tankers) berthed at Iran's Bandar e-Mahshahr port on Aug. 10, 2022 (ESA)

With AIS spoofing and forged bills of lading, shippers who load oil at Iranian ports can claim that it came directly from ports in Iraq or Oman, Jungman said. Unlike blending Iranian and Iraqi oil through ship-to-ship transfers, AIS spoofing means Iran can ship its oil without having to deal with Iraqi customs or owners and operators of tankers carrying Iraqi oil, she added.

“The Iranians basically are cutting all of those people out, and, I assume, cutting the costs of involving Iraq, so they can accumulate the revenue themselves,” Jungman said.

A June report by UANI urged the international maritime industry to tighten regulations against tankers and shipping companies engaged in deceptive behaviors like spoofing. Iran has vowed to keep exporting oil however it can and its top customer, China, has kept importing in defiance of U.S. sanctions, which lack U.N. Security Council approval.

Since June, the Biden administration has imposed three rounds of sanctions against companies that it accuses of helping Tehran to deliver and sell sanctioned Iranian oil. The latest sanctions were announced August 1.

Jungman welcomed the actions but said targeting the owners and operators of vessels is not enough.

“They have a way around the sanctions. They can create a new company and just continue the activity,” Jungman said. “Targeting additional tankers that move Iranian oil would be a better way to crack down, by making it much harder for ports to allow those vessels to dock and offload the oil,” she added.

Asked by VOA whether the Biden administration plans to sanction more oil tankers under Iran’s control, the State Department cited the August 1 sanctions announcement that did not specifically address the issue and directed further questions to the Treasury Department. There was no immediate response from the Treasury Department to the same VOA question.

Jungman also said that oil blending is a tool that Iran could use at its disposal at any moment. “Therefore, it’s important that violators for this sanctionable activity, whether it be past, present or future, are held accountable,” she said.

U.S. officials routinely decline public comment on plans for sanctions prior to official announcements.

Lynn Davis contributed to this report.

Wednesday, August 24, 2022

China lithium prices near record as power cuts squeeze market

 Tianqi Lithium Ends Flat in Biggest Hong Kong Debut of 2022

Zhangjiagang production plant. (Image courtesy of Tianqi Lithium. 

Prices of lithium in China are close to a record high as a power crisis in the nation’s major hub for the vital electric-vehicle battery ingredient threatens an already-tight market.

Sichuan, home to more than a fifth of China’s lithium production, extended industrial power cuts this week amid the most intense heat wave in more than a half-century. The supply disruptions in the province are set to add fuel to the battery metal’s stunning rally in the past year, with lithium carbonate prices on Monday reaching the highest level since April at 484,500 yuan ($70,610) a ton.

“We are estimating the lithium price momentum will last for a while, and the spot price for lithium carbonate will climb to 500,000 yuan per ton shortly,” said Susan Zou, an analyst at Rystad Energy. “Automakers and the battery manufacturers have to deal with this high cost.” 

Meanwhile, Leah Chen, an analyst at S&P Global Commodity Insights, said the power cuts could tip the market into a bigger imbalance.

The lithium sector, critical in the clean-energy transition, is one of the industries that’s most exposed to Sichuan’s electricity curtailments. The near-record prices may also have ripple effects for downstream players, with EV battery prices already expected to tick up this year for the first time in more than a decade, according to BloombergNEF.

“Should the power cuts be extended, then that could lead to more obvious supply concerns and possibly drive lithium prices higher,” Chen said.

Tianqi Lithium Corp., headquartered in Sichuan’s Chengdu with a production plant in Shehong city, said in a post on an online investor forum last week that it would strictly abide by the requirements of the local government and organize production in a “reasonable and orderly manner.” Chengxin Lithium Group Co. said on the same forum Monday that it would prepare for production resuming by adjusting its maintenance plan.

“If the lithium production disruption continues for the whole of August, with the low inventories at some lithium plants, the deliveries for committed orders for September might be impacted,” Rystad Energy’s Zou said. “Some cathode producers might be forced to scale back their production because they cannot get enough lithium on time. In the worst-case scenario, it may also affect the battery makers.”

(By Annie Lee)

Thursday, August 18, 2022

BHP sees copper market “take-off” by mid-2020s “if not earlier”

 BHP sees copper market “take-off” by mid-2020s “if not earlier”

BHP forecasts production from Escondida in its 2023 fiscal year of 1.08m to 1.18 million tonnes, an 8% – 18% increase. Image: BHP 

After falling to 20-month lows in July, copper fought its way back to the $8,000 a tonne last week on hopes the worst of the slowdown in China was behind it. But now the bellwether metal is flirting with a bear market again with a nearly 20% decline so far in 2022. 

In its outlook accompanying full year results released Tuesday BHP, the world’s number four copper producer based on 2021 attributable production of just over 1 million tonnes, warned of further price weakness over the medium term. 

Coinciding supply spike

Additional tonnage from new projects and expansion in central Africa, Peru, Chile and Mongolia coming on stream through 2024 will keep the market well-supplied, said BHP, the world’s number one mining company by revenue.  

BHP’s own guidance is for a 4% to 16% increase in company production over the next 12 months and the Melbourne-based company said rising primary supply is set to “coincide” with greater levels of scrap “supported by the increasing size of the end–of–life pool in China”.

However, from the mid-to-late 2020s prospects are significantly better according to Huw McKay, Vice President, Market Analysis & Economics. That is due to what BHP calls the “electrification mega-trend:       

“A “take–off” of demand from copper–intensive easier–to–abate sectors (renewable power generation, the electrification of light duty transport, and the infrastructure that supports them both) is expected to be a key feature of industry dynamics from the second half of the 2020s forward: if not earlier. 

“Rapid growth in renewable power generation and EVs in China are already making a material contribution to growth, at the margin.”

Timid response

Further out, BHP sees a number of factors supporting elevated copper prices including “grade decline, resource depletion, water constraints, the increased depth and complexity of known development options and a scarcity of high–quality future development opportunities”:

“It is notable that while there has been some activity in the project space, the response has been timid when you consider both the very strong prices we have observed and copper’s future–facing halo effect. 

“That underscores the idea that the collective option set of the industry is constrained. It may also reflect policy and political uncertainty, with both Chile and Peru (together about two–fifths of world mine supply and one–third of reserves) presenting a fluid regulatory picture to would–be explorers, project developers and asset owners.”

Capex disconnect

BHP also points to a “very substantial disconnect” in the market when it comes to demand expectations and capital spending. 

The company’s internal estimates show that in a plausible upside case for demand, the cumulative industry wide capex bill out to 2030 could reach $250 billion.

But the report also draws attention to data compiled by analysts at S&P Global which sees total outlays in 2024 for majority copper producers among the 80 largest miners (excluding diversified miners) roughly half of the peak spending levels of calendar 2014. 

Grade decline, depletion

BHP estimates that grade decline could remove approximately –2 million tonnes per annum of mine supply by 2030, with resource depletion potentially removing an additional –1½ and –2¼ million tonnes per year by this date depending on among other things, price expectations and the regulatory environment at the time decisions about extending a mine life are made. 

“Our view is that the price setting marginal tonne a decade hence will come from either a lower grade brownfield expansion in a lower risk jurisdiction, or a higher grade greenfield in a higher risk jurisdiction. 

“Neither source of metal is likely to come cheaply.”

Iron ore price tumbles as China power shortages hit steel mills

Iron ore price 

The iron ore price fell on Wednesday as electricity rationing in parts of China has led to steel mill shutdowns.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $100.19 a tonne Wednesday morning, down 4.2%
Iron ore price

Iron ore’s most-traded January 2023 contract on China’s Dalian Commodity Exchange tumbled as much as 4.4% to 683.50 yuan ($100.87) a tonne, its lowest since July 28.

A heatwave gripping several regions in China since mid-July has caused power shortages, forcing authorities to ration electricity.

Nearly 20 steel mills in China’s southwest regions had suspended operations as of Wednesday, according to steel industry data provider SMM.

The power rationing is expected to continue for a week, according to SMM.

“Our base case is that the power rationing this time around should be milder than that seen last year in terms of duration and scale,” J.P. Morgan analysts said in a note, adding that it will likely be confined to few provinces.

Rising iron ore supply in China also weighed on prices.

Stocks of imported iron ore at Chinese ports have steadily risen over the past seven weeks, hitting 138.6 million tonnes as of Aug. 12, the highest since mid-May, according to data from Mysteel consultancy.

(With files from Reuters)

Tuesday, August 16, 2022

Coal giants are making mega profits as climate crisis grips the world

 Coal giants are making mega profits as climate crisis grips the world 

The globe is in the grips of a climate crisis as temperatures soar and rivers run dry, and yet it’s never been a better time to make money by digging up coal.

The energy market shockwaves from Russia’s invasion of Ukraine mean the world is only getting more dependent on the most-polluting fuel. And as demand expands and prices surge to all-time highs, that means blockbuster profits for the biggest coal producers.
Commodities giant Glencore Plc reported core earnings from its coal unit surged almost 900% to $8.9 billion in the first half — more than Starbucks Corp. or Nike Inc. made in an entire year. No. 1 producer Coal India Ltd.’s profit nearly tripled, also to a record, while the Chinese companies that produce more than half the world’s coal saw first-half earnings more than double to a combined $80 billion.

The massive profits are yielding big pay days for investors. But they will make it even harder for the world to kick the habit of burning coal for fuel, as producers work to squeeze out extra tons and boost investment in new mines. If more coal is mined and burned, that would make the likelihood of keeping global warming to less than 1.5 degrees Celsius even more remote.

Coal giants are making mega profits as climate crisis grips the world

It’s a remarkable turnaround for an industry that spent years mired in an existential crisis as the world tries to shift to cleaner fuels to slow global warming. Banks have been pledging to end financing, companies divested mines and power plants, and last November world leaders came close to a deal to eventually end its use.

Ironically, those efforts have helped fuel coal producers’ success, as a lack of investment has constrained supply. And demand is higher than ever as Europe tries to wean itself off Russian imports by importing more seaborne coal and liquefied natural gas, leaving less fuel for other nations to fight over. Prices at Australia’s Newcastle port, the Asian benchmark, surged to a record in July.

The impact on profits for the coal miners has been stunning and investors are now cashing in. Glencore’s bumper earnings allowed the company to increase returns to shareholders by another $4.5 billion this year, with the promise of more to come.

Gautam Adani, Asia’s richest person, capitalized on a rush in India to secure import cargoes amid a squeeze on local supply. Revenue generated by his Adani Enterprises Ltd. jumped more than 200% in the three months to June 30, propelled by higher coal prices.

US producers are also reaping bumper profits, and the biggest miners Arch Resources Inc. and Peabody Energy Corp. say demand is so strong at European power plants that some customers are buying the high-quality fuel typically used to make steel to generate electricity instead.

The wild profits threaten to become a political lightning rod as a handful of coal companies cash in while consumers pay the price. Electricity costs in Europe are at record highs and people in developing nations are suffering daily blackouts because their utilities can’t afford to import fuel. Earlier this month, United Nations Secretary-General Antonio Guterres lashed out at energy companies, saying their profits were immoral and calling for windfall taxes.

Coal’s advocates say the fuel remains the best way to provide cheap and reliable baseload power, especially in developing countries. Despite the huge renewable rollout, burning coal remains the world’s favorite way to make power, accounting for 35% of all electricity.

Coal giants are making mega profits as climate crisis grips the world

While western producers cash in on the record prices — with companies such as Glencore committed to running mines to closure over the next 30 years — top coal consumers India and China still have growth on the agenda.

The Chinese government has tasked its industry with boosting production capacity by 300 million tons this year, and the nation’s top state-owned producer said it would boost development investment by more than half on the back of record profits.

Coal India is also likely to pour a large chunk of its earnings back into developing new mines, under government pressure to do more to keep pace with demand from power plants and heavy industry.

China and India worked together at a UN conference in Glasgow last year to water down language in a global climate statement to call for a “phase down” of coal use instead of a “phase out.”

At the time, few would have predicted just how expensive the fuel would become. Just a year ago, the biggest international mining companies — excluding Glencore — were in a full retreat from coal, deciding the paltry returns were not worth the increasing pressure from investors and climate activists.

When Anglo American Plc spun off its coal business and handed it over to existing shareholders, one short seller, Boatman Capital, said the new business was worth nothing. Instead the stock — known as Thungela Resources Ltd. — skyrocketed, gaining more than 1,000% since its June 2021 listing, with first-half earnings per share up about 20-fold.

Glencore itself snapped up a Colombian mine from former partners Anglo and BHP Group. The nature of the deal, and rising coal prices, meant Glencore essentially got the mine for free by the end of last year. In the first six months of this year, it made $2 billion in profit from that one mine, more than double its entire coal businesses earnings in the same period last year.

The earnings look set to keep rolling in, as analysts and coal executives say the market will remain tight.

“As we stand today, we don’t see this energy crisis going going away for some time,” Glencore Chief Executive Officer Gary Nagle said.

(By Thomas Biesheuvel, Dan Murtaugh and Rajesh Kumar Singh, with assistance from David Stringer and Will Wade)

Glencore cuts off Chinese trader caught up in missing copper scandal

 Glencore cuts off Chinese trader caught up in missing copper scandal 

Global commodity traders including Glencore (LON: GLEN) and IXM have halted shipments to Chinese metals merchant Huludao Ruisheng after nearly half a billion dollars’ worth of copper went “missing” at a storage site in the country’s north.

Thirteen Chinese trading companies —12 of which are state-owned — were financing the storage site in Qinhuangdao, which was found to hold only one-third of the 300,000 tonnes of copper concentrate.

The firms are facing potential losses of as much as 3.3 billion yuan ($490 million) from the missing concentrate and have sent a team to Qinhuangdao to investigate and determine appropriate legal action, the Financial Times reported on Friday.

“It’s not the first time we’ve had the problem with material going missing in China,” Colin Hamilton, managing director of commodities research at BMO Capital Markets wrote. “Onshore financing in China for any foreign bank or trading house will become harder.”

Glencore transferred some of its existing metal stocks from Qinhuangdao to alternatives such as Qingdao in an effort to avoid similar problems, FT reported, citing a trader.

The source added that Western companies’ exposure to Huludao Ruisheng was limited.

Tuesday, August 2, 2022

Gold investors face bind over bars from tarnished Russia

Petropavlovsk’s Russian Bank Asks Gold Miner for Its Money Back

Image courtesy of Bullion Trading LLC 

Some investors want Russian gold off their books but it’s not that easy to remove.

A de facto ban on Russian bullion minted after Moscow’s invasion of Ukraine — instigated by the London market in early March — does not apply to hundreds of tonnes of gold that has been sitting in commercial vaults since before the conflict started.

Fund managers looking to sell the metal to avoid the deepening reputational risk of holding assets linked to Russia in their portfolios could trigger a costly scramble to replace it with non-Russian gold, according to bankers and investors.

“This would only serve to damage investors. It doesn’t damage the (Russian) regime,” said Christopher Mellor at Invesco, whose fund has around 265 tonnes of gold, 35 tonnes of it produced in Russia with a market value of around $2 billion.

The dilemma facing investors reflects Russia’s heft in the global bullion trade and its hub, the London market, where gold worth around $50 billion changes hands daily in private deals.

A rapid selloff of gold from Russia — a top three supplier — would potentially disrupt that trade by undermining the principle that all bars in the London trading system are interchangeable regardless of their origin, according to three senior bankers at major gold trading banks.

To buttress the market, two of the bankers told Reuters they contacted clients and rival banks to tell them they would not dump Russian bullion minted before the war.

The bankers said they advised their customers and other traders that they should do the same. They declined to be named due to the confidential nature of the conversations.

“I made an effort to call clients. I told them, if you demand that your Russian metal is swapped out, you’ll create a problem for yourself. You don’t want to create a scramble,” one said.

He said his phone lit up with calls after the London Bullion Market Association (LBMA), a trade body that sets market standards, removed all Russian refineries from its accredited list on March 7, meaning their newly minted bars could no longer trade in London or on the COMEX exchange in New York, the biggest gold futures trading venue.

“There was utter confusion. Funds were saying they didn’t want any Russian bars in their holdings,” the banker said.

The Bank of England

Russia invaded Ukraine on Feb. 24 in what it has called a “special military operation” aimed at demilitarising Ukraine and rooting out dangerous nationalists. Kyiv and the West call this a baseless pretext for an aggressive land grab.

The Bank of England, which operates Britain’s largest gold vault, said it considered Russian gold bars made before the conflict in Ukraine eligible to trade because they are still on the LBMA’s accredited list, known as the Good Delivery List.

“As far as the Bank of England is concerned, any Russian refined gold produced after 8th March is not London Good Delivery. Any bars produced before that remain acceptable, and we told all our customers this was the case. That’s just a point of fact, so we don’t have any comment on this,” the Bank of England said in an emailed statement.

To hammer home the point that pre-invasion Russian gold was meant to be treated the same as gold from other places, some banks told clients for whom they stored gold that they would have to pay extra to offload Russian bullion because it would breach their existing contracts, the two bankers, a third banker and two gold-owning investment funds said.

The bankers’ conversations with clients and rivals, which have not previously been reported, highlight the role played by a handful of players in the London gold market, where trades happen in bilateral deals.

Twelve banks dominate trading in the London gold market and four of them — JPMorgan, HSBC, ICBC Standard Bank and UBS — operate vaults. Anyone trading bullion relies on their services, directly or indirectly, to settle trades.

JPMorgan, HSBC, ICBC Standard and UBS declined to comment when asked about how they handled investor requests to sell their holdings of Russian gold.

The LBMA, which is made up of gold refiners, traders and banks, is not a regulator, and relies on market participants to uphold its rules.

The large quantity of Russian gold in the London market and Russia’s rapidly emerging pariah status in the wake of the Ukraine invasion, however, put the banks in a difficult spot, according to lawyers and market experts.

“I think you’re seeing the banking community trying to navigate a very complex situation,” said Peter Hahn, emeritus professor at the London Institute of Banking & Finance.

“The Financial Conduct Authority (FCA) should question the practice to understand whether the actions were, generally, for the benefit of market participants … and whether the practice was transparent to market participants.”

The FCA is the British regulator responsible for overseeing banks where they trade financial products or instruments in the London gold market. It declined to comment.

A spokesman for the LBMA said the association was “anecdotally” aware that some owners and traders of Russian gold have wanted to swap it out or not to deal with Russian gold in the future.

Asked what the LBMA thought of this, the spokesman said that it “maintains a neutral stance provided the efficient operation of the market is unaffected.”

The spokesman declined to comment on bankers’ efforts to prevent a sell-off of Russian gold. He said that the LBMA “does not distinguish between different types of good delivery gold”.

Potential losses

The bankers’ actions appear to have worked.

Good delivery gold bars minted in Russia before the invasion have not traded at a discount to the rest of the market, according to traders. Larger investors — including some exchange traded funds (ETFs) with Russian gold worth more than $1 billion — do not appear to have sold up.

“Our ETFs are not able to get all Russian metals off their books at short notice,” said a spokesperson for Zürcher Kantonalbank.

“The potential losses would not be compatible with our fiduciary duty to our clients and its sale is currently not possible due to the current situation.”

Zürcher Kantonalbank’s current ETF stock of about 160 tonnes of gold comes mainly from Swiss refineries and the share of Russian gold is negligible, according to the spokesperson.

A widespread and rapid clearout of Russian gold from investor portfolios could push its price down by anywhere from $1-$40 an ounce compared to non-Russian gold, people in the industry said.

At least $12 billion worth of Russian gold is stored in vaults in London, New York and Zurich, according to a Reuters analysis of data from 11 large investment funds. The total amount is likely significantly larger but there are no publicly available figures to quantify it.

If Russian gold traded at a discount of $5 an ounce, the cost to funds of replacing $12 billion worth of metal would be around $34 million.

A Reuters analysis of investment data shows that the share of Russian gold in eight large ETFs actually rose to 7% on average in mid-July from 6.5% in mid-March.

Some gold market participants have pushed ahead with selling their Russian holdings but they have tended to have less to offload.

Britain’s Royal Mint, for example, said it had Russian bars worth around $40 million in its ETF and got rid of them by mid-March.

Others are trying to reduce their Russian holdings over time, asking the banks which store their gold to gradually cut their allocation or refusing to accept Russian gold bars in new deliveries.

Asset manager Abrdn said it had asked its bank to reduce its Russian holdings. In mid-March, Russian gold accounted for 10% of the roughly 45 tonnes held in its Aberdeen Standard ETF. By mid-July, that proportion had fallen to 9.8%.

Those seeking a faster exit, meanwhile, have been left in a bind.

“Everyone has the same problem. Everyone wants to solve it, no one knows how,” said a source at a major investment fund.

(By Peter Hobson and Elisa Martinuzzi; Editing by Veronica Brown and Carmel Crimmins)