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Iran’s nuclear deal may not mean an oil boom

19 December 2015 Comments (0) Business, Featured, Middle East

iran oil

The prospect of western sanctions ending in Iran is an exciting prospect for international oil companies hoping to tap the fourth largest oil reserves in the world. According to Russia’s envoy to the U.N. nuclear watchdog, the historic Iran nuclear deal is expected to see sanctions lifted in Tehran in January 2016. The Joint Comprehensive Plan of Action (JCPOA), a deal brokered between Iran and the P5 + 1 nations (France, China, UK, Russia, US and Germany) in July 2015 after 20 months of negotiation, is ground breaking. In exchange for Iran reducing its nuclear program, including swapping non-enriched uranium to scale back its stockpile of low-enriched uranium, Europe and the US will lift international economic sanctions on Iran.

Despite concerns that the US Congress may block the deal, the prospect of oil markets opening up to international oil companies seems more likely come January 2016, with the IAEA (International Atomic Energy Association) expected to close a 12 year investigation into Iran’s nuclear program when the board meets in December 2015.

Hope for oil markets as sanctions lift

If the Iran nuclear agreement holds, western sanctions are due to begin winding back in early January 2016. Consequently, a Reuter’s poll comprising 25 oil analysts and economists predicted that as much as 750,000 barrels per day (bpd) of Iranian crude oil could enter the global market by mid-2016. International oil companies such as France’s Total, Italy’s Eni and Royal-Dutch Shell are understandably enthusiastic about the prospect of gaining traction in Iran’s emerging oil economy. With the promise of 50 new production projects in Iran’s extensive oil and gas reserves and flexible contracts on offer in 2016, the prospect of an oil boom seems tangible.

iran oilProgress on JCPOA nuclear deal

But how robust is this deal in reality? Will Iran deliver on its promise to scale back their nuclear program?

On the one hand there are promising signs that Iran is ratifying the agreement. As recently as November, 2015 the Iranian nuclear chief, Ali Akbar Salehi reported that work had begun to decommission centrifuges. This activity was additionally confirmed by complaints in Tehran from 20 MPs, claiming that dismantling work at Natanz and Fordow facilities was advancing too quickly.

Further progression of the JCPOA was evidenced by Iran granting permission for the head of the International Atomic Energy Agency to visit the sensitive military site Parchin in September, 2015. This was despite earlier parliamentary restrictions which declared the nuclear deal excluded such inspections.

However, in complete contrast to these acts of compliance, in October, 2015 Iran fired a long – range ballistic missile from a hidden military base in a seemingly confrontational act of defiance. Considering sanctions will only be lifted when Iran fulfils conditions within the nuclear agreement, this action sent confusing signals.

Political climate throws doubt on nuclear deal

There is also concern that the nuclear deal has not been ratified into local Iranian law. Rather the Iranian parliament has referred to the JCPOA as a “Plan of Action”, maintaining the agreement’s voluntary nature (according to the Iranian government). This avoids the Iranian parliament having to mandate the agreement as an international treaty or contract, which would require local governmental authorization into law.

Thus the nuclear deal, in reality, is an agreement accepted by the Rouhini agreement on the basis of good faith, but stands on shaky ground when considering the implications for future governments. Until the JCPOA deal is legislated into Iranian law it would arguably be unwise for international oil companies to leap into Iran’s oil and gas market without some serious caution.

Conditions too volatile to ensure oil market stability in Iran

Although some economists have predicted a significant global reduction in oil prices once the JCPOA “day of commencement” arrives, the shifting sands of Iran’s political and military conditions make this eventuality less likely. Even if Iran does comply with nuclear downsizing, discontinues weapons testing and demonstrates political willingness to conform to the agreement, there is still concern about the power of the military over commercial operations.

For instance the US insists sanctions will be maintained over the Iranian Revolutionary Guard Corps. Although this military corps was designed to respond to internal or external threats against Iran, it now has extensive influence in the Iranian oil and gas industry via control over hundreds of companies. Therefore, international oil companies may still find themselves hampered by sanctions if they partner with Iranian companies maintaining ties to the revolutionary guard.

When the long term political and military complexities are considered in Iran, it seems it may be some time before the Iran nuclear deal will make a significant impact on global oil markets.

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Ivory Coast produced 126,000 tonnes of robusta in 2014/15

18 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

ABIDJAN (Reuters) – Ivory Coast produced 126,000 tonnes of robusta coffee during the recently ended 2014/15 season and is targeting output of 130,000 tonnes this season as it seeks to revive the sector after years of decline, a government spokesman said on Friday.

Under reforms introduced in 2012, the West African country abandoned more than a decade of liberalisation in its coffee industry, which proved bad for farmers and production.

Now the Coffee and Cocoa Council (CCC) sells forward the bulk of the anticipated crop in order to fix a guaranteed price for farmers.

“Since the reform, coffee production hasn’t ceased to increase,” Bruno Kone said following a cabinet meeting in the commercial capital Abidjan.

Ivory Coast, the world’s biggest cocoa grower, set a government guaranteed farmer price of 670 CFA francs ($1.11) per kilogram on Friday’s opening day of the 2015/16 harvest, Bruno Kone said, up from 650 CFA francs/kg last season.

Ivorian green robusta coffee output peaked at 380,000 tonnes in 2000, statistics from the United Nations’ Food and Agriculture Organization show, before collapsing during a decade of political turmoil and a drop in world prices.

Before the reform programme was implemented, Kone said, annual output had fallen to around 90,000 tonnes. Ivory Coast is targeting production of around 400,000 tonnes by 2020.

 

(Reporting by Loucoumane Coulibaly; Writing by Joe Bavier. Editing by Jane Merriman)

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Moody’s downgrades Glencore’s ratings, keeps stable outlook

18 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

(Reuters) – Commodities trader Glencore’s credit rating was downgraded to one notch above junk status by Moody’s Investors Service on Friday which cited likely weak mining market conditions over the next two years.

Moody’s downgraded Glencore’s ratings by one notch to Baa3 from Baa2 and said the outlook was stable.

“Our decision … reflects our expectations that the pricing environment in mining will remain unfavourable in 2016-17, making a return to the previous level of earnings unlikely,” Moody’s lead analyst on Glencore Elena Nadtotchi said in a statement.

“However, we believe that Glencore has the capacity to adjust its balance sheet to a reduced earnings level in order to maintain its investment grade ratings.”

Glencore said last week it remained focused on preserving its investment grade ratings.

Glencore has a higher debt load than its mining company rivals in part because its trading business borrows money to take large positions that can generate tight profit margins.

Moody’s said last month it was reviewing its rating of commodity trader Noble Group for a potential downgrade, citing the company’s weaker than expected liquidity profile and its high leverage. Noble’s current Moody’s rating is Baa3.

Switzerland-based Glencore came under pressure this year from investors and ratings agencies to cut its net debt of around $30 billion, one of the highest in the industry, as prices for commodities such as copper and coal hit multi-year lows.

In September, Glencore said it would take action to cut net debt, including asset sales, reduced expenditure, a suspension of dividend payments and raising $2.5 billion of new equity capital to protect its investment grade ratings after its shares fell to record lows.

It said last week it was targeting net debt of $18 billion to $19 billion by the end of 2016, lowering a previous target of $20 billion, after commodity prices tumbled further.

Glencore had previously said the plan would allow it to withstand copper prices of $4,000 a tonne, and the revised debt target was expected to help the company cope with copper below that level, even at $3,500 a tonne.

Copper hit a six-year low of $4,443.50 a tonne on Nov. 23, but has since recovered and was trading at $4,658 a tonne as of 1410 GMT on Friday.

“The stable outlook on the Baa3 ratings factors the expectation that Glencore will improve its leverage profile in 2016 and will continue to maintain strong liquidity,” Moody’s said.

The ratings agency also said an upgrade of Glencore’s ratings to Baa2 would be considered in the medium term once leverage was sustainably reduced.

Glencore makes about a quarter of its earnings from commodities trading, which had previously allowed it to withstand a steep fall in oil and metal prices slightly better than pure-play miners.

But the division came under the spotlight after it generated lower-than-expected earnings in the first half and the company cut its earnings forecast for the business.

Glencore has set guidance of $2.4 billion to $2.7 billion for the division’s earnings in 2016 and Moody’s said earnings below this target could place negative pressure on the Baa3 ratings.

 

(Reporting by Olivia Kumwenda-Mtambo; editing by Jason Neely and Jane Merriman)

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South Africa white maize at record high, drought concerns mount

18 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – Mounting jitters about a searing drought pushed South African white maize prices to record highs on Friday and traders said the ceiling had not been reached as farmers fail to plant in the Free State province.

The rand’s plunge to record lows has also spurred the rally, which has serious implications for the inflation outlook in Africa’s most advanced economy as white maize is the main source of calories for lower-income households.

South Africa’s central bank, which is in a tightening cycle, has repeatedly voiced concern about the drought and food prices.

The December white maize contract, which expires next week, was 0.6 percent higher at 4,140 rand a tonne after scaling a peak of 4,160 rand, according to Thomson Reuters data.

“Some relief rain fell yesterday and last night but it is still too little in the Free State and there are still farmers there who have not planted yet,” said Piet Faure, a trader at CJS Securities.

The weather forecast for the next two weeks in maize-growing areas of the Free State is also not good, traders said. Farmers who have not yet planted will soon run out of time to do so.

An El Nino weather pattern has exacerbated the drought and follows a bad last harvest when dry conditions shriveled the crop by a third to 9.94 million tonnes, the lowest since 2007.

 

(Reporting by Ed Stoddard; Editing by Ed Cropley)

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Nigeria says its oil refineries produce nothing

17 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

ABUJA (Reuters) – Nigeria, aiming to boost its crude output, is still grappling with decrepit refineries that fail to produce fuel, which it has to import, the head of state oil firm the Nigerian National Petroleum Corporation (NNPC) said on Thursday.

Oil production is forecast to reach 2.1 million barrels of oil per day (bpd) this year and should rise to 2.4 million bpd next year, Emmanuel Ibe Kachikwu told reporters, though none was being refined domestically.

“In October we had zero performance (from refineries), we didn’t produce anything,” Kachikwu said. “As of now the refineries are still not working. We are going to try and repair them.”

In an apparent attempt to lower fuel subsidy costs amid sharply lower oil revenues, Kachikwu said refined products would be sold in a band between 87 and 97 naira per litre that is adjusted based on crude prices. Prices are currently set at 97 naira per litre regardless of market prices.

“So it’s no longer subsidy as in the air, it’s not a static number,” he said. “Probably once in quarter we say what is the price of crude, how can we reflect (it) in the price of the product to make sure we don’t pass the ceiling of 97 (naira).”

In November, the country’s top refinery official told Reuters that Nigeria aimed to produce up to 30 percent of its domestic gasoline needs by the first quarter of 2016 following an overhaul of the refineries.

Kachikwu reiterated Africa’s top oil producer was trying to secure external funding to revamp the refineries before considering their sale. “We cannot sell the refineries in their present state. They will be worth nothing.”

President Muhammadu Buhari, also oil minister, has made refurbishing the country’s dilapidated refining system a priority as he seeks to reform an industry hampered by mismanagement and corruption.

 

(By Camillus Eboh. Reporting by Camillus Eboh; Writing by Ulf Laessing; Editing by David Holmes and William Hardy)

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Mali produces 2.45 mil tons of rice

17 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

BAMAKO (Reuters) – Mali has produced 2,451,321 tonnes of rice as it approaches the end of the 2015/16 harvest, up 13 percent from last season but short of an initial forecast, government statistics showed on Thursday.

The landlocked country, the second-largest rice producer in Africa behind Nigeria, will largely finish harvesting this month and continue marketing its production next year.

The remaining harvesting is unlikely to add significantly to the season’s total output.

“The increase this year is generally explained by good rain, an increase in planted land, new strains like ‘Nerica’, the use of more fertiliser especially with the help of subsidies,” said Balla Keia, head the rural development ministry’s statistics division.

Last season, the West African country produced 2,166,830 tonnes of paddy rice and had projected a record 2,599,450 tonne rice crop, with a surplus of 285,000 tonnes above expected domestic consumption.

 

(Reporting by Tiemoko Diallo; writing by Makini Brice; editing by Joe Bavier and Jason Neely)

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South Africa’s rand eases after U.S rate hike, stocks rise

17 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s currency weakened on Thursday after the United States central bank raised its key lending rate, while Moody’s decision to change its outlook on Pretoria’s credit rating to negative also pressured local assets.

By 0700 GMT the rand had weakened 0.27 percent to 14.9750 per dollar, giving up some of the gains of the previous two sessions sparked by the naming of Pravin Gordhan as finance minister.

Government bonds firmed, with the yield on the benchmark paper due in 2026 shedding 12 basis points to 9.4 percent.

On the equities market, the benchmark Top-40 index opened up 1.3 percent at 44,305 points.

While markets had anticipated the 25 basis points rate hike by the U.S. Federal Reserve, emerging market assets still suffered, put under pressure by the hawkish tone of Fed Chair Janet Yellen’s speech.

“After knee-jerk weakness the dollar has gained significantly,” Rand Merchant Bank currency analyst John Cairns said in a note. “We suspect this will pressure USD/ZAR to the upside through the course of the day.”

Yellen said further monetary tightening would be gradual and data-dependent, while pointing out an improved economy and labour market, raising the likelihood of more hikes in 2016.

Moody’s cut its outlook on South Africa to “negative” from “stable” late on Tuesday, citing structural challenges in the mining industry and increasing political pressures on the budget.

In local data, South Africa’s statistics agency publishes producer price inflation data for November at 0930 GMT.

 

(Reporting by Mfuneko Toyana; Editing by Ed Cropley)

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Sinochem signs 10-year deal to buy oil from Angola’s Sonangol

16 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

BEIJING/LONDON (Reuters) – China’s state-run Sinochem Group said on Wednesday it had signed a deal with Angolan state-owned producer Sonangol to buy crude oil for more than 10 years.

The statement on the Chinese company’s website did not give details of the supply amount or other financial details, but trading sources said the agreement was for four or five cargoes per month, which would make the company one of the largest holders of monthly contracts to buy Angolan crude.

There are currently around 15 cargoes given to these so-called term buyers each month from Angola’s export programmes of roughly 55 cargoes.

The deal is a coup for Angola, as OPEC members fight for market share, particularly in China, the world’s largest energy consumer.

While payment terms were not disclosed, sources said the deal directly related to loans that the Chinese government has given to Angola as its commodity-reliant economy struggles with the more than 60 percent drop in crude oil prices over the past year.

Along with the chairman of Sonangol, Angola’s financial minister, Armando Manuel, was present at the signing of the deal, as was Zheng Zhijie, president of China Development Bank.

A year ago, China agreed to lend Sonangol $2 billion to expand oil and gas projects, and Angolan President Jose Eduardo dos Santos was in China in June seeking a two-year moratorium on debt repayments along with financing for a variety of projects, including a $4.5 billion hydropower scheme.

But the deal is also likely to push out another term contract holder, sources said. Sonangol has to trade some of its oil on a spot basis in order to establish prices for term agreements.

 

(By Chen Aizhu and Libby George. Editing by Christian Schmollinger and David Holmes)

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South Africa markets extend relief rally on new finance minister

16 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South African assets remained in favour on Tuesday with local markets extending the previous session’s rally after Pravin Gordhan was named as finance minister, which stemmed last week’s sell-off.

The rand firmed to well below the 15 mark against the dollar, while banking stocks climbed again after surging almost 9 percent on Monday.

By 1500 GMT, the rand had gained 0.9 percent to 14.9595 per dollar, just off its firmest since Nhlanhla Nene was unexpectedly axed as finance minister by President Jacob Zuma last Wednesday, a move that triggered a market meltdown.

Investors were deeply troubled by Zuma’s appointment of the untested David van Rooyen to the crucial Treasury post, forcing an abrupt U-turn on Sunday when the president gave the job to Gordhan, who was finance minister from 2009 to 2014.

The rand also benefited from greenback selling as local traders sought to unwind long-dollar positions ahead of a meeting of the U.S. Federal Reserve, whose policy committee (FOMC) is expected to raise interest rates on Wednesday.

“The local markets definitely don’t want to run the massive risks over the holiday and the FOMC, so we’re seeing large profit-taking from long-dollar positions today,” said the chief trader at Bidvest Bank’s currency desk, Ion de Vleeschauwer.

South African markets will be closed on Wednesday for a public holiday.

The dollar slipped to a seven-week low against a basket of currencies on Tuesday amid growing jitters over the message the Fed will seek to send on interest rates on Wednesday, buoying most emerging market currencies.

South African government bond yields fell across the curve on Tuesday, extending the previous session’s rally. At 1500 GMT, the yield on the benchmark paper due in 2026 had shed 45 basis points to 9.55 percent.

On the equities front, banking stocks added another 2.94 percent, bringing the Banks’ Index to 5,966.64. It remains about 9 percent below the levels it had reached before Nene’s shock sacking last week.

The banking rally helped pull the benchmark Top-40 Index up 0.66 percent to 43,701 while the wider All-share index added 0.72 percent to 48,429. Trade was robust with around 322 million shares changing hands.

 

(Reporting by Mfuneko Toyana and Ed Stoddard; Editing by Tom Heneghan)

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Zimbabwe platinum mines seek lower royalty fees amid low prices

15 December 2015 Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Zimbabwe should reduce the royalty fee levied on platinum producers from the current 10 percent to help mining firms offset the impact of low prices, the country’s mining chamber has said.

Zimbabwe has the world’s second largest known deposits of platinum after South Africa but mines have struggled with low prices, a black empowerment law forcing mines to sell more than 50 percent of the business to locals, and power shortages.

In a commentary on the 2016 budget presented to parliament in November, the Chamber of Mines said royalty fees charged on the local divisions of Anglo American Platinum and Impala Platinum should be cut.

“The platinum sector requires support in the form of royalty reduction to restore viability, especially during this period of depressed prices,” the mining chamber said in a statement seen by Reuters on Tuesday.

Platinum prices are near seven-year lows of about $850 an ounce, hobbled by slowing demand in top consumer China and as the Volkswagen’s emissions-cheating scandal weighs on market sentiment.

Zimbabwe charges the 10 percent royalty rate on gross platinum sales. The government expects platinum production to increase to 468,791 ounces next year from 423,288 this year.

A 15 percent platinum levy on raw exports was deferred to January 2017 to allow mines to build smelters and base metal refineries, a move the mining chamber welcomed.

“In 2016, the sector will continue to be weighed down by depressed commodity prices, power shortages, inadequate capital and an unsustainable cost structure, compounded by high electricity tariffs, high cost of funding and sub-optimal royalty,” the chamber said.

 

(Reporting by MacDonald Dzirutwe; editing by Ed Stoddard and David Clarke)

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