Fighting complicates Ukraine crash probe, U.S., EU prepare Russia sanctions

 Fierce fighting in eastern Ukraine where a Malaysian airliner was downed further complicated an investigation on Sunday as Europe and the United States prepared economic sanctions on Russia over the conflict.

At least 13 people were killed in clashes between Ukrainian troops and pro-Russian rebels that raged in five areas around the wider region.

International monitors said they had abandoned plans to visit the crash site because of fears it was not safe, even though Malaysia said earlier that rebels had agreed to provide access.

Ukraine said it was trying to dislodge the rebels, but denied it was fighting near the crash site, saying the separatists had put the monitors off by falsely claiming that the army was operating nearby.

Russia dismissed U.S. allegations it was about to hand over more missiles to the separatists, who Western leaders say almost certainly shot the airliner down by mistake with a Russian-supplied surface-to-air missile.

The separatists deny any involvement and Moscow says it has not supplied them, suggesting Ukrainian forces were to blame.

"Kiev is trying to destroy the evidence of a crime by its army," separatist leader Aleksander Borodai said, referring to a Ukrainian army offensive some distance from the site on Sunday.

With European states trying to minimise the impact of any future sanctions against Russia on their own economies, the U.S. State Department sought to bolster the case for robust action by releasing images it said showed Russian forces had fired across the border at the Ukrainian military in the last week.

The images, which show marks on the ground at what the State Department said were launch sites and impact craters around Ukrainian military locations, indicated fire from multiple rocket launchers, the department said.

It also said the images offered evidence that Russia-backed separatists inside Ukraine had fired on Ukrainian forces using heavy artillery supplied by Russia.

The Russian Foreign Ministry said Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry had agreed on the need to ensure a swift ceasefire in what it described as an "internal conflict".

But the State Department said Kerry did not accept Lavrov's denial that heavy weapons from Russia were contributing to the conflict and urged him "to stop the flow of heavy weapons and rocket and artillery fire from Russia into Ukraine, and to begin to contribute to deescalating the conflict."

Kerry also underlined U.S. support for a mutual cease-fire verified by the Organization for Security and Cooperation in Europe and reaffirmed Washington's "strong support for the international investigation" into the downed airliner, the State Department statement added.


MORE MISSILES?

Washington said on Friday another transfer from Russia to Ukrainian separatists, this time of heavy-caliber multiple-launch rocket systems, appeared to be imminent and that Russian forces were slowly building up along the Ukrainian border.

Russia said recent international inspections had revealed no evidence of Russian military violations, without giving details.

Members of the European Union, spurred into action by the deaths of 298 people in the airliner, were expected to try to reach a final deal on Tuesday on measures including closing the bloc's capital markets to Russian state banks, an embargo on arms sales and restrictions on dual-use and energy technologies.

The EU added new names on Friday to its list of individuals and companies facing travel bans and asset freezes over their alleged involvement in Ukraine and could agree to extend the list further as early as Monday. 

Washington, which has taken the lead in imposing individual and corporate penalties on Russia, said on Friday it was likely to follow up on any new EU move with more sanctions of its own.

The Ukrainian government said its forces were advancing towards the crash site to try to free it from the rebels, who have impeded the work of international monitors and whom Kiev accuses of tampering with evidence pointing to who shot it down.

Only a few international experts have so far been able to get to the site, access to which is negotiated with the rebels.

"All our troops are aiming to get there and liberate this territory so that we can guarantee that international experts can carry out a 100-percent investigation of the site and get all proof needed to deduce the real reason for this tragedy," said Andriy Lysenko, a spokesman for Ukraine's Security Council.

International monitors said the fighting itself could affect the crash site, underlining the growing complexity of trying to establish who shot down Malaysia Airlines flight MH17.

In Donetsk, Alexander Hug, deputy head for the OSCE monitoring mission in Ukraine, said monitors would not visit the site on Sunday.

"The situation on the ground appears to be unsafe ... we therefore decided to deploy tomorrow morning," Hug, flanked by Dutch and Australian experts, told reporters. "Fighting in the area will most likely affect (the) crash site," Hug said.

An OSCE spokesman said the group would try again on Monday.

The separatists are still in control of the area where the plane was shot down earlier this month but fighting in the wider eastern regions of Donetsk and Luhansk has been heavy as Ukrainian government forces try to drive them out.

It was raging in at least five places on Sunday and Donetsk region health officials said 13 people were killed in fighting in the town of Horlivka, known as Gorlovka in Russian.

Lysenko said troops were advancing east from the town of Makievka towards Shakhtarsk, around 25 km (16 miles) from the crash site. Shakhtarsk residents said air strikes hit the town.

"Our military is advancing, fighting goes on every day, every night, they have already liberated two-thirds of the territory," Lysenko told a news conference in Kiev.

But Ukrainian Foreign Minister Pvalo Klimkin said the Ukrainian army was respecting a no-fight zone within 20 kilometres from the site. 


AGREEMENT

Earlier, Malaysian Prime Minister Najib Razak said an agreement reached with separatist leader Borodai would "provide protection for international crash investigators" to recover human remains and ascertain the cause of the crash.

The OSCE has provided a team to monitor the site in advance of an investigation, but Najib said a full team of investigators was needed to ensure any human remains left there were removed.

"We also need a full deployment of investigators to have unfettered access to the crash site so we can understand precisely what happened to MH17. I hope that this agreement with Mr Borodai will ensure security on the ground, so the international investigators can conduct their work," he said.

"Three grieving nations", Malaysia, Australia and the Netherlands, had formed a police group to secure the site, he said in a statement issued by his office. The Netherlands and Australia said the mission would not be armed.

Among the 298 people who died aboard the Boeing 777 on its flight from Amsterdam to Kuala Lumpur on July 17 were 193 Dutch nationals, 43 Malaysians and 28 Australians.

Malaysian experts have said they believe at least 30 investigators will be required to cover the full site of the crash, in addition to Dutch investigators and an expert from the United Nations' civil aviation body, the ICAO.

In the Australian capital, Canberra, Prime Minister Tony Abbott said an unarmed police mission led by the Netherlands and made up of about 49 officers would travel to the site. Officials said a total of 170 Australian police were deployed in Ukraine.

As U.S. kicks off crude exports, Iran casts a shadow in Asia

The United States faces an awkward rival in its first attempts in 40 years to export crude oil - Iran.

Iran, whose economy has been throttled by Western sanctions that have halved its crude shipments, is now selling higher quality and cheaper oil to China that leaves little room for the U.S. crude to enter the world's top energy consumer.

While buyers in Japan and South Korea have been willing to trial a U.S. grade of the super-light crude known as condensate, China has already locked in annual contracts with Tehran and is not expected to take any U.S. oil in the short-term.

With U.S. producers looking to open a trade route to sell surplus condensate from the U.S. shale boom, worries about quality and legal issues have added to doubts about how much of the oil the rest of Asia can take.

"China gets condensate from Iran, which is much cheaper than that from the U.S.," said a Singapore-based trader with a European trading company. "They might get involved at a later stage but they will not be at the forefront."

Condensate won export approval from U.S. officials in June as long as it has been minimally processed, softening a decades-old ban on selling U.S. crude abroad.

The light oil can be cracked in a processing plant called a splitter to make petroleum products and petrochemicals, or blended with heavier crude for use in refineries.

South Korea and Japan have purchased the first condensate from the United States. Mitsui & Co <8031.T> bought a cargo from Enterprise Product Partners for loading this month and has onsold it to South Korean refiner GS Caltex  sources said.
Refiner Cosmo Oil Co <5007.T> has also bought a cargo of U.S. condensate that will load in late August for arrival at the Yokkaichi refinery in Japan in October, a source said.

Japan and South Korea, which together account for just over half of Asia's 1.1 million-barrels-per-day (bpd) in condensate splitter capacity, are seen as more open to trying the United States as an alternative supplier.

Enterprise has also signed a short-term contract with another Japanese trader, Mitsubishi Corp <8058.T>, with a first loading likely in September.

IRAN COMPETITION

Asian buyers have been waiting to see if the U.S. oil is suitable and if exporters can price it competitively given it has to be shipped a further distance than competing grades from the leading regular suppliers Qatar and Australia.

"They are testing the waters so we're not expecting huge volumes this year," said Richard Gorry, managing director of energy consultancy JBC Asia.

Showing the competition U.S. exports face, Iran exports about 55 percent of its roughly 250,000 bpd of South Pars condensate output to two Chinese buyers at deep discounts under annual contracts.

Since U.S. and European Union sanctions were eased late last year in exchange for Iran curbing nuclear activities, Tehran's exports have risen about 30 percent to 1.25 million to 1.3 million bpd, much of this as South Pars shipments to China.

Some of the Iranian condensate could be sold as low as $5 a barrel below Dubai quotes or about $8 a barrel cheaper than Qatari grades.

U.S. condensate would likely have to be priced lower than the similar Qatari grades to attract buyers, traders said.

Qatar is the biggest supplier of condensate to Asia at about 450,000 bpd, followed by Iran. Australia and East Timor together produce nearly 170,000 bpd, with most of the output heading to Asian markets, according to trade sources.

Higher shipping costs compared with the short distance from the Middle East will deter India from buying U.S. condensate, according to sources at Indian refiners.


LEGAL, QUALITY CONCERNS

Another issue is uncertainty over the future of U.S. regulations on condensate exports.

Two U.S. senators have questioned the U.S. Commerce Department's approval, saying exports may violate a ban in place since the Arab oil embargo of the 1970s. Refined products, such as gasoline and diesel, are not restricted.

"What happens if some ruling appears and penalises the buyers?" asked a trader at a North Asian refiner. "Also, there's not much economics in it so why take the risk?"

Asian users are also concerned that U.S. condensates may vary widely in quality as they will be come from fields scattered across shale formations such as the Eagle Ford in southern Texas, from which Enterprise pulls its oil.

The U.S. oil is expected to be more commonly used as a blend stock by refiners, limiting the amount available for 350,000 bpd of new splitter capacity coming online in Asia this quarter.
Source: Reuters

WSJ: Asían Markets mostly higher on Monday

      The WSJ reports "Asian markets were mostly higher on Monday, with banks giving a boost to Shanghai, while Australia continued to be weighed down by continued geopolitical concerns.

The Shanghai Composite rose 1.4% on a strong performance by banking stocks.Industrial and Commercial Bank of China 601398.SH +1.99% added 1.7% on its plans to raise as much as $12.9 billion of preferred shares. Upbeat economic data showing that China's industrial profits picked up in June also provided support.

In Hong Kong, the Hang Seng Index was up 0.6% and the Hang Seng China Enterprises Index rose 0.5%.

The Nikkei rose 0.5% as the dollar maintained the 0.5% gain it made against the yen last week. The dollar was little moved in Asia, at ¥101.81.

Elsewhere, South Korea's Kospi added 0.4% as the market extended gains after last week's government announcement of a stimulus package.

A number of markets were trading at their highest levels in years. Hong Kong and Australian stocks hit multiyear highs last week and Japan ended Friday at its highest level in six months. In particular, upbeat economic data from China has supported gains in stocks.

Australia's S&P/ASX 200 lost 0.2% after Wall Street fell on disappointing corporate earnings. Geopolitical tensions continued to weigh on sentiment, with the continuing turmoil in Ukraine and the breakdown of a cease-fire in Gaza over the weekend".

Peking University report: Top 1% owns a Third of China's Wealth

Peking University has released a report on China's livelihood development. It details the massive breadth of China’s social inequality, which has become a widespread source of anger in the country.

The report, released late Friday, revealed that the richest one percent of Chinese households held more than one-third of the nation’s wealth. Meanwhile, at the other end of the spectrum, the poorest 25 percent of households owned only 1 percent of the country’s property value.

According to the study, Chinese households on average had a net worth of 439,000 yuan, equivalent to about $71,000 in 2012, up 17 percent from the level in 2010. The report also showed nearly 75 percent of Chinese household wealth came from owning real estate. It also said that China’s wealth inequality was fuelled largely by the disparity in wages in cities and rural areas.

Source: CCTV News

North China: Farming suffers severe drought

CCTV News

A drought of record proportions. In Shangnan county of Shaanxi province, the only local water source -- the Xianhe reservoir -- is experiencing a severe water shortage. It’s left some 60,000 residents in the county struggling to get make do.

"We need to reuse the water from washing, cleaning and cooking just to flush the toilets," Local resident Yu Xia said.

The town’s tap water has been suspended for over a month. Instead, each day, the local government sends 30 trucks to fetch water from a river located 20 kilometers away, after treatment, the water is deliver to each home. But with still no precipitation expected in the near future, maintaining this routine could become an even more daunting task.

Meanwhile, Pingdingshan city in Henan province is seeing its worst drought in 30 years. Rainfall is down 90 percent from the previous year, making it the dryest year since 1975. Twenty-one reservoirs used for agricultural irrigation have dried up. And farmers are becoming desperate to save their crops.

Over 860,000 hectares of agricultural fields in Henan have been affected by the drought weather. Local authorities have launched an emergency response plan, using some 5,000 motor-pumped wells to irrigate the fields.

In Xinjiang Uygur Autonomous Region and Inner Mongolia Autonomous Region, parched grasslands have meant hungry and thirsty livestock.

"In order to make up for the lack of grass, we will buy grass from other parts of the country and make full use of our own agricultural straw. We need to provide 3 million tons of grass for our 6 million livestock animals," Niu Zhengfu, vice chief of Yili Autonomous Prefecture, Xinjiang, said.

In Inner Mongolia Autonomous Region, the local government is also mobilizing funds and personnel to dig up wells and build water pipelines to keep the water flowing until Mother Nature can take over again.

Xinhua: More Chinese Internet Companies should Go Abroad

Xinhua.
During his trip to Brazil last week, Chinese President Xi Jinping, together with his Brazilian counterpart Dilma Rousseff, witnessed the launch of the Portuguese version of China's Baidu search engine.
It is not the first time that a Chinese Internet company has launched a non-Chinese search engine, but it is the first time that a Chinese state leader has helped promote its services.
More Chinese Internet companies should compete internationally, as they now have the ability and can make the world's cyber environment more balanced and just.
Thanks to over three decades of rapid industrialization, China has become one of the biggest exporters, and its exports have upgraded from primary goods and light industrial products to mechanical and electrical products, and now high-speed railway systems and nuclear power plants.
During Xi's visit, China and Argentina agreed to build a heavy water reactor power station in the South American country. And earlier in Brazil, the two countries agreed to cooperate in high-speed railway construction.
But this time, Internet services are on the Chinese leader's marketing list. From products to services, it shows China's industrial structure is changing.
Recent years have witnessed rapid development in China's Internet sector and other high-tech emerging industries, which has pushed the number of Internet and mobile Internet users to over 600 million, the biggest number of netizens of any country. Among the top 10 websites in 2012, only one website was based in China, but in 2013, four China-based websites entered the top-10 list.
Not only Baidu.com, but also qq.com, sina.com and other websites, have won abundant users in China and other countries that are home to Chinese speakers. Alibaba.com and taobao.com are among the world's top B2B and B2C/C2C platforms in terms of trading volume and number of clients.
Chinese Internet companies are starting to get their voices heard worldwide, as they now have the capacity to provide services outside the country.
In addition, Chinese Internet service companies going abroad has strategic significance, as search engines are highly monopolized by a few websites and the international community is rightly concerned over cyber security after Edward Snowden's leaks about intelligence project PRISM.
Breaking the information monopoly and building a fairer and safer cyberspace have become the need and consensus of many countries, bringing new opportunities for Chinese Internet service providers.
However, these companies face a long journey to really internationalize. They must study the preferences, customs and interests of Internet users overseas, and they also have to face established Internet giants' advantages in brands, technology and customer groups.
A small step for Chinese Internet companies going abroad will probably have a big impact on the computerized world, and also provide an opportunity for cooperation between newly emerging markets.

Latest IMF projections for World Output

IMF Olivier Blanchard,Global Economic Recovery.Transcript of a Press Briefing on the World Economic Outlook (WEO) Update

SPEAKERS:
Olivier Blanchard
IMF Economic Counsellor and Director of Research Department

MR. BLANCHARD: Speaking about Global Economic recovery

"The recovery continues, but it remains a weak recovery, indeed a bit weaker than we forecast in April. The headline number, namely the revision of the forecast of world growth in 2014 from 3.7 percent in April to 3.4 percent today, makes things look worse than they really are. To a large extent, it reflects something that has already happened, namely the large negative U.S. growth rate in the first quarter. But it is not all due to that. It also reflects a number of small downward revisions, both in advanced and in emerging economies.

The overall story remains largely the same as before:

Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery. These brakes are coming off, but at different rates across countries.

Emerging markets are slowing down from pre-crisis growth rates. They clearly have to address some of the structural problems that they did not address earlier in time and have to take a number of structural reforms. And they have to do this in an environment which is a world environment which is changing due to the normalization of monetary policy in the United States, which has implications for the rest of the world.

So let me start with the U.S. Growth in the first quarter in the U.S., as currently reported, and I must say that the number is so surprising that I would not be surprised if it was revised up when the statistics are available, but the number as it was, was a large negative growth rate of the U.S., far worse than anybody, including us, had forecast. In retrospect, it looks very much like a one-off type of event, which is due to the undoing of eventual accumulation earlier, which is due to unusually harsh weather, so factors which do not have obvious implications for the future, but just explain why growth was so bad in that quarter.

Now to give you a more optimistic view of things, which is, as you know, we have a growth rate for 2014 for the U.S. of 1.7 percent, but if we look at the rest of the year, starting in the second quarter, we have an annual rate, a growth rate of about 3 percent, and for next year, a growth rate also of about 3 percent. So looking forward, growth in the U.S. is reasonably strong.

One of the main policy issues at this point are mostly on the monetary policy side. 

The main one is the speed of monetary policy normalization, and that’s a hard one because there is a lot of uncertainty about, for example, how to interpret the low level of labor participation, uncertainty about what the natural equilibrium unemployment rate is. For the moment, we think the current plans, which is the end of tapering later this year, and then an increase in the policy rate sometime in the middle of next year, are appropriate plans, based on what we know today. But there’s enough uncertainty that we should not be surprised if there was some adjustment which was made along the way—if the policy rate was increased a bit earlier, or a bit later. I think this is the kind of uncertainty that we’re clearly facing.

The other issue that comes from the accomodative monetary policy is the potential for excessive risk taking, due to very low interest rates, the argument being that when safe rates are very low, there is a reach for yield, there is excessive risk taking and the BIS has worries quite a bit about this. So we have looked and we come to a different conclusion which is that it is true that we see, in some financial markets, valuations which are, we think, fairly optimistic.

The reason we are not that worried is that this is happening in an environment where the leverage of the principal actors, the investors, is not very high. So that even if there was an adjustment, say in stock prices, it would not be catastrophic in the sense of leading to bankruptcies of financial actors. It would look a bit like what we saw in 2001 with the bursting of the tech bubble. We don’t have such a bubble, but what happened then is that there was a bursting of the bubble. 

Let me turn to the Euro Area. The numbers are not great. The recovery remains weak and inflation remains far below the implicit target of the ECB, so our forecast for the Euro Area are roughly unchanged from April. It’s 1.1 percent for 2014. It’s 1.5 percent for 2015. These numbers hide a number of differences across countries and not always in the way that you would have predicted them. So for example, we have revised the forecast for Germany on the upside. We have revised the forecast for France on the downside. We have revised the forecast for Spain up, for Italy down. So there is a lot of diversity in the evolution of these different countries. Now this being said, it’s clear that the job is not done in the Euro Area, and that there is a lot more to do, both on the demand and the supply side.

So if you look at most Euro countries at that stage, it is clear that the unemployment rates far exceed reasonable equilibrium rates so that there is a lot of unemployment slack, there is a lot of output slack. Typically you’d have two instruments, fiscal policy, monetary policy. Fiscal space is very limited. Debt levels are high, so the norm would still be fiscal consolidation at the slow rate with fiscal consolidation. So the help has to come from monetary policy. The ECB has taken a number of steps and has introduced a number of measures in the last month, which strike us as potentially very good for demand. It’s too early to tell how these measures are going to work and it may be that if inflation remains very low, more measures should be considered. There’s still a bit of margin to play with.

The point to make here is that monetary policy cannot do the job alone. This is something that central bankers keep repeating, that is correct. In the case of Europe, there are many more things which need to be done in order to increase demand and then increase supply. One thing which is crucial is the asset quality review, which is now in train and run by the ECB to look at the balance sheet of banks and do whatever has to be done in order to make them healthier. That’s a very important process. It will repair the financial intermediation part of the economy, which is playing a central role in slowing down the recovery. And then looking beyond this, there are clearly structural reforms to be taken. The potential growth rate in the Euro Area is very low. It has to be increased. The reforms will vary from country to country. It may be reforms to re-enfranchise the youth; the unemployment rate of the youth is extremely high in many of these countries. It may be to increase competition in the non-tradable sector. It may be in some countries to increase infrastructure spending which could be done and help both demand in the short run and supply in the longer run.

Japan

We have revised our forecasts for Japan to 1.6 percent in 2014. That’s a revision upwards. This reflects I think the success of economics so far. We’re seeing increases in consumption, partly due to the VAT shifts but we’re also seeing increases in investment, which we were not seeing before so there is some reason for optimism here. The fundamental challenge of Japan remains how to both decrease the level of public debt, which is, as you know, extremely high, and increase growth, not only in the short run, through demand measures, but also in the longer run with structural measures.

A glimpse of the difficulty that Japan is facing is reflected in the forecast that we have for Japan in 2015, which is 1.1 percent only and that reflects the fact that one of the factors which is going to lead to lower growth we think is the increase in the consumption tax, which is going to come at the end of the year, showing the difficulty of taking measures to make debt sustainable while maintaining growth. So, so far, so good, but one has to watch out.

Let me turn to emerging market and developing economies. So our forecast for growth for emerging markets and developing economies is 4.6 percent in 2014. That’s a small revision down, and 5.2 percent for 2015, a small revision down, but again, let me emphasize that these are fairly high numbers in the first place and aren’t quite as good as the forecast we had last April, but they are still fairly strong.

Let me not go through the whole set of countries, but just through the largest downward revision relative to the April WEO forecast, is Russia, where we have revised growth for 2014, from 1.3 percent, 2.2 percent, 0.2 percent and for 2015 from 2.3 percent to 1 percent. Some of these revisions actually have been announced earlier, after the April WEO, but before today, but those are revisions relative to the April WEO. What does this reflect? For the moment it reflects a deterioration of business confidence. There is nearly a freeze in investment decisions by domestic investors. There is near freeze in terms of FDI. There are large capital outflows. All this I think is easily explained by the geopolitical uncertainty which affects Russia at this point.

Let me turn to China. So what we have seen there is a slowdown in housing investment. And we think this is going to go on for a while and it's going to have an impact on growth in China. However, the government seeing this slowdown has taken a number of measures, stimulus measures such as railway investment, social housing. In the recent months we have seen an increase in credit flows. We have seen an increase in infrastructure investments, so the government is taking measures to partly offset the effect of the decreasing housing. The result is that our forecast for China is more or less the same as it was in April, around 7.5 percent, so we do not see a major increase in growth in China, in the short run.

This being said, the challenge of China remains the same. They have an economy in which the share of investment is very very large, the share of investment in consumption is small. They have to rebalance and this rebalance is still to come. The plan is to do it, but it really hasn't started on a visible scale. Let me end my presentation by talking about the challenges that face emerging markets and developing economies more generally and I’ll take two.

The first one is to implement structural reforms, to rebalance the economies and re-strengthen their growth.

The second challenge, my last point, facing emerging market countries, is the changing world environment, which comes from the recovery in the U.S. and the normalization of policy. That’s mixed news. On the one hand, recovery in the U.S. implies higher exports from emerging market countries and clearly Mexico is the prime beneficiary of what happens in the U.S. But it also implies that the normalization of monetary policy is going to lead some of the capital flows which had gone to emerging market countries because of very low rates in the U.S. to actually, at least in part, go back to the U.S. And what this means is we are likely to see a tighter financial environment in a number of emerging market countries.

If everything goes well, this will be a relatively smooth process and everybody's hoping that it will be, but given what I said about the complexity of the exit from unconventional monetary policy in the U.S., the uncertainty about the exact timing of the increase in the policy rate, I think you have to expect that there will be bumps in the road, of a type and of a magnitude that we saw in May of 2013. But I think we have to be ready for periods of volatility much higher than what we are now seeing.

So let me conclude. I think in short, the recovery continues. There is no stalling here. But it remains weak and it is still in need of I would say tender and loving care, namely policies to help both on the demand and on the supply side". 

Eyeing Freeport's Indonesia copper exports, China smelters freeze spot buys

 Chinese copper smelters are holding off on spot purchases of raw material concentrate, betting they can charge higher processing fees on imports once Freeport-McMoRan Inc resumes exports from Indonesia, sources at smelters and traders said.

Indonesia said on Friday it expects to sign a memorandum of understanding with U.S. miner Freeport on Friday that would allow it to ship 756,000 tonnes of copper concentrate in the second half of the year. A resumption of the exports has been anticipated by the copper market.
Chinese smelters, the world's biggest importers of copper concentrate, buy up to half of their requirements in the spot market, and a postponement of purchases will force trading houses and other sellers to find alternative buyers.

The sellers will also have to fork out more to the smelters in spot processing fees once Freeport's concentrates from Indonesia hit the market.

Sellers of concentrate pay treatment and refining charges

(TC/RCs) to the smelters to convert the raw material into refined metal, with the charges deducted from the smelters' sale prices. The charges rise or fall in line with concentrate supply.

"Freeport's resuming exports would have a big impact. TC/RCs could jump to $110/11 cents immediately after the Freeport restarting," said an executive at a state-backed copper smelter in China, who declined to be named because he was not authorised to talk to media.

The executive said his firm was going to put purchase of spot concentrate on hold while waiting for Freeport's exports from Indonesia to resume. It was not immediately clear when the exports would restart.

A trading manager at a large state-owned smelter also expects spot TC/RCs to rise to about $110 per tonne and 11 cents per pound shortly after Freeport's restarting. Those levels of the processing fees were last seen in March.


ASIAN BUYING

Chinese smelters had already started reducing purchases of spot concentrate since late May, betting on Freeport resuming exports in the third quarter and on a rise in TC/RCs. But TC/RCs have continued to fall since then because of strong spot buying by other Asian smelters, traders and the smelter sources said.

Sellers this week offered to pay TC/RCs of $84-$90 per tonne and 8.4-9 cents per pound for spot standard, clean copper concentrates to China, compared to around $100 and 10 cents in late May.

The offers were also lower than the $95.5 and 9.55 cents paid by Anglo-Australian miner BHP Billiton to at least one large Chinese smelter for term concentrate shipments in the second half of 2014.

The trading manager at the large state-owned smelter said the firm was likely to buy two to three shipments of spot concentrate imports if TC/RCs rose to $100-$110 and 10-11 cents.

China's copper concentrate imports surged 47 percent on-year to nearly 1 million tonnes in June, the third-highest monthly number ever.
The jump in June imports was due to increased arrivals of term shipments, the smelter sources said.

Source: Reuters

Freeport set to resume Indonesian copper exports

Freeport-McMoRan Inc clinched a deal with the Indonesian government on Friday allowing the miner to resume copper concentrate exports from the country, effectively ending a six-month tax dispute and paving the way for more miners to follow suit.

Freeport, which is expected to export 756,000 tonnes of copper concentrate in the second half of this year, received its permit from the trade ministry on Friday after signing a memorandum of understanding (MoU) with the government, Freeport Indonesia CEO Rozik Soetjipto said.

With its export permit in the bag, Indonesia's top copper miner said it will resume full operations immediately, with concentrate shipments expected to resume next month from Grasberg, one of the world's largest copper mines.

"In terms of permitting, everything is OK," Soetjipto said.

"We still have to load the ship, and this may take a few days."

Freeport shares were up 1.79 percent on the New York Stock Exchange on Friday.

The company will now be subject to higher royalties, which will increase to 4 percent for copper and 3.75 percent for gold, up from 3.5 percent and 1 percent respectively, and the U.S.-based miner will also have to pay export duties on shipments until it builds a smelter in the Southeast Asian nation.

In January, the government introduced a controversial escalating tax on metal concentrates that climbed to 60 percent by 2017. Under a revision of the tax, Freeport will pay a 7.5 percent duty on its copper concentrate exports, but that rate falls as it spends on its smelter, hitting zero once investment in the project exceeds 30 percent of total cost.

The deal is expected to take some of the pressure off President-elect Joko Widodo, who has said resolving the dispute, which has sapped government mining revenues, would be one of his top priorities when he takes power in October.

The export tax was meant to force miners to develop local mineral processing facilities, allowing the government to derive bigger returns from Indonesia's mineral resources.

But rather than pay it, most miners stopped exporting from Southeast Asia's biggest economy, resulting in $1.3 billion in lost copper concentrate shipments. It also led Indonesia's second-biggest copper producer, Newmont Mining Corp, to file for international arbitration earlier this month over the new export rules it said were in breach of its contract.

A spokesman for Newmont Mining Corp , which owns the Batu Hijau mine on the Indonesian island of Sumbawa, said it is in talks with the government on a separate MoU that would allow it to resume operations at its massive copper mine.

"We are encouraged by the news about Freeport, which we hope will pave the way for construction of a copper smelter and lead to an economically sustainable resolution of the export ban," Newmont spokesman Omar Jabara said.

Freeport currently smelts some 30 to 40 percent of its output from its Grasberg mine at a copper smelter in Gresik, East Java. The company has previously said it plans to work with Indonesia's state-owned miner Aneka Tambang (Antam) to build the country's second copper smelter.

It is not clear whether that project will be ready before Indonesia's ban on concentrate exports begins in less than three years time.

Source: Reuters

Copper under pressure from Indonesia supply prospects

Copper slipped on Wednesday, under pressure from the prospect of increased supplies from Indonesia, but further falls were limited by encouraging economic data from top consumer China.

Benchmark London Metal Exchange copper dipped after news that supply could improve with Indonesia potentially exempting some shipments of concentrate from its export ban.

Copper hit an intraday high of $7,198.25 per tonne, not far from a 4-1/2 month high of $7,212 hit in early July, before trading at $7,132 a tonne at 1418 GMT, down 0.4 percent.

"We had a good day yesterday on the back of Chinese PMI data, which boosted all the base metals. Today is about consolidating gains for copper," said Vivienne Lloyd, base metals analyst at Macquarie.

China's factory activity expanded at its fastest in 18 months in July, data showed on Thursday, reinforcing confidence over the demand outlook from the world's top copper consumer.

"Copper had a strong day yesterday but is more muted today. It's encountering resistance just below $7,200/t currently and I'm not sure the fundamentals are strong enough to push it through that line."

Freeport-McMoRan Inc and Indonesia reached a deal over a contract dispute that is expected to pave the way for a resumption of copper exports after a six-month stoppage, a company executive said on Friday.
After signing the memorandum of understanding, Freeport Indonesia CEO Rozik Soetjipto told reporters he hoped copper concentrate exports could resume as early as August.

"If they are able to resume output at full capacity, this could provide modest near-term downside to the copper price over the next few months," Matthew Kates at Nomura said in a daily note.

Goldman Sachs said it expects copper to underperform other base metal prices over the next 12 months, citing the metal's heavy exposure to China's property sector, which it expects to remain bearish this year and next.

LME lead rose to its highest since December at $2,279 a tonne on Friday as investors bought the contract that has underperformed its peers on growing economic optimism over China. It later pared gains to trade at $2,267, up 1.4 percent.

LME zinc traded at $2,395 a tonne, up 0.3 percent on Thursday's close to hit a fifth consecutive three-year top.

Source: Reuters

Oil slips below $107 as ample supply outweighs risk premium

Oil fell below $107 a barrel on Friday as plentiful supply outweighed concerns over conflicts in the Middle East and Ukraine.

Brent crude for September delivery traded 18 cents lower at $106.89 a barrel by 1400 GMT. The contract had closed 96 cents lower on Thursday.

"There is ample prompt supply of crude oil, but the geopolitics in Ukraine, Gaza, Iraq and Libya is providing support," said Olivier Jakob, an analyst at Petromatrix in Zug, Switzerland.

He added that poor refining margins in Europe pointed to slack demand in the region.

U.S. crude for September delivery underperformed, falling 87 cents to $101.14 a barrel, after settling $1.05 lower.

Traders said that higher-than-expected gasoline stocks at the U.S. oil hub in Cushing, Oklahoma had led to lower refinery margins and an expectation that currently robust demand from U.S. plants would dry up.

German business sentiment fell for a third consecutive month in July, suggesting firms in Europe's largest economy are worried about global political crises.

In Libya, oil production has risen to 500,000 barrels per day, but there is no progress on reopening its Brega oil port after an agreement to end a protest there, a spokesman for state-run National Oil Corporation said.

Authorities in Gaza said Israeli forces shelled a shelter at a U.N.-run school on Thursday, killing at least 15 people as the Palestinian death toll in the conflict exceeded 760 and attempts at a truce remained elusive.

Members of the European Union on Thursday considered proposals targeting state-owned Russian banks vital to Moscow's faltering economy in what would be the most serious sanctions so far over the Ukraine crisis. 

U.S. ECONOMY, OIL INVENTORIES

Oil prices were also supported by U.S. Labor Department unemployment data, which suggested the economic recovery remained on track with initial weekly jobless claims at their lowest since February 2006.

However, the International Monetary Fund cut its 2014 forecast for global economic growth to take into account weakness early in the year in the United States and China, the world's two biggest economies.
Oil inventories in Cushing fell another 163,000 barrels over the four days to July 22, data from Genscape Inc showed on Thursday, deepening a slump that had already dragged stockpiles to their lowest in six years.

Drawdowns at Cushing - delivery point for West Texas Intermediate contracts - have dropped stocks there to near what traders consider to be minimum operating levels, fuelling a sharp rise in prompt U.S. crude oil prices.
Source: Reuters

EU reaches preliminary deal on economic sanctions against Russia

European Union ambassadors reached a preliminary agreement on Friday to push ahead with hard-hitting economic sanctions against Russia over the Ukraine crisis but details remained to be worked out, diplomats said.

The 28-nation EU has toughened its stance towards Moscow since last week's downing of a Malaysian airliner in an area of eastern Ukraine held by Russian-backed separatists.

After a discussion that lasted all day Thursday and part of Friday, ambassadors asked the EU's executive Commission to draw up a legal text setting out economic sanctions that the EU would impose for possible agreement next week.

Key measures suggested by the Commission included closing EU capital markets to state-owned Russian banks, an embargo on arms sales to Moscow and restrictions on the supply of energy and dual-use technologies. They would not affect current supplies of oil, gas and other commodities from Russia, diplomats said.

One EU official said there was "an overall preliminary agreement on the concept" but ambassadors would hold more discussions next week on the basis of the legal text.

Maja Kocijancic, spokeswoman for EU foreign policy chief Catherine Ashton, said there was still work to be done.

"The direction of travel here is very clear but we are still travelling," she told reporters.

It was not immediately clear if the legal text would include all the options identified by the Commission. But EU officials said it would cover all four areas where sanctions have been proposed - restrictions on Russian access to European financial markets, defence and energy technology and equipment useful for both defence or civilian purposes.

Separately, the EU was due to publish later on Friday the names of 15 individuals and 18 entities, including companies, subject to asset freezes for their role in supporting Russia's annexation of Crimea and destabilisation of eastern Ukraine.


"STOP ARMING SEPARATISTS"

Member states will scrutinise the draft legal text over the weekend and give their feedback to the Commission on Monday, one diplomat said. A revised draft may be adopted on Tuesday, he said.

Remaining stumbling blocks were over issues such as existing contracts as well as on a so-called "off-ramp" - how to scale back sanctions if Russia began to play a more constructive role in de-escalating the situation in Ukraine, the diplomat said.

Dutch Prime Minister Mark Rutte, whose country is seen as having a key role in shaping the EU response because it lost 194 citizens in the plane crash, said he would back sanctions unless Moscow halts weapons supplies to the rebels.

"We want as a country that has acquired a certain moral obligation as a result of this tragedy to promote Europe taking a common line on this," he told a parliamentary committee in The Hague.

"All indications are that Russia is continuing to arm the separatists," Rutte said, telling lawmakers he had spoken six times to Russian President Vladimir Putin since the disaster.

"There's an easy way out for Russia: to distance themselves from the separatists, and stop arming them."

The issue of upholding existing contracts with Russia is sensitive for France, which has agreed to sell Mistral helicopter carriers in a 1.2 billion euro ($1.61 billion) deal.

Another difficulty is balancing the pain of imposing the sanctions among EU member states. Britain is strong in financial services, Germany in technology and machinery, France in arms sales, while Italy is heavily dependent on Russia for energy.

"To a degree everyone is reverting to trying to protect their own national interests from harm," a senior European diplomat said.

It remains to be decided whether a special summit of EU leaders will be needed to approve the proposals. European Council President Herman Van Rompuy is expected to contact leaders to consult them on the way forward, an EU source said.

European Commission spokesman Jonathan Todd said the economic sanctions would require a "political level decision" but it was up to member countries to decide "whether or not the heads of state or government would actually physically have to come to Brussels and sit in a room to give their agreement."

Under proposals put forward by the Commission, the EU would target state-owned Russian banks vital to financing Moscow's faltering economy.

Under the proposal, European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half their 15.8 billion euro ($21.29 billion) capital needs on EU markets last year.

The EU is also weighing restricting exports of technology for deep-sea drilling, shale oil and Arctic energy exploration.

Source: Reuters

The European equity markets are moving mostly to the downside in afternoon action

The European equity markets are moving mostly to the downside in afternoon action, following a disappointing read on German business sentiment, while geopolitical concerns continue to fester and the International Monetary Fund lowered its global growth outlook. The German Ifo Business Climate Index-a survey of 7,000 executives-declined for a third-straight month to 108.0 in July, from 109.7 in June, and compared to the 109.4 rechwaading that economists had anticipated.
The U.K. FTSE 100 Index is dipping 0.1%, Germany's DAX Index is declining 0.5%, France's CAC-40 Index is decreasing 0.8%, Italy's FTSE MIB Index is moving 0.3% lower, and Switzerland's Swiss Market Index is trading 0.4% to the downside, while Spain's IBEX 35 Index is increasing 0.5%.

Source: Schwab

Orders for durable U.S. goods rose 0.7% in June

 Orders for durable U.S. goods rose 0.7% in June amid gains in most categories, the Commerce Department said Friday. Economists surveyed by MarketWatch had expected durable-goods orders to rise 0.2%. Stripping out defense, orders rose 0.7%. Bookings excluding the volatile transportation sector were up 0.8%. Orders for core capital goods - a measure of business investment - climbed 1.4% in June after a revised 1.2% decline in May. Shipments of core capital goods, a category used to calculate quarterly economic growth, fell 1% in June.

Source: Marketwatch

Brent crude dipped below $108 a barrel on Thursday

Brent crude dipped below $108 a barrel on Thursday as unseasonably weak demand from European refiners and plentiful supplies offset strong Chinese factory data.

Brent for September delivery was down 30 cents at $107.73 a barrel by 1117 GMT, after closing 70 cents higher on Wednesday. U.S. crude was down 28 cents at $102.84 a barrel, after gaining 73 cents in the previous session.

"Oil is moving in a small range. It opened relatively high and was supported in Asia on the back of the Chinese/HSBC data," said Ole Hansen, senior commodity strategist at Saxo Bank.

"But Brent is in contango, reflecting weak demand from European refiners," Hansen added. Contango is a situation in which the price of oil for near-term delivery is cheaper than that for delivery further into the future.

China's factory activity expanded at its fastest in 18 months in July as new orders surged, a preliminary HSBC survey showed.  China is the world's second-biggest oil consumer, so the data is positive for demand.

However, the picture in Europe is more sobering as refiners remain under pressure due to an influx of oil products from the United States. European refiners have been cutting runs at what should be one of the busiest times of the year, or idling plants altogether.

"The market is comfortably supplied with seasonal demand in Europe still slackening despite a slight improvement to refinery margins," said Andrey Kryuchenkov, oil analyst at VTB Capital.

Physical crude prices are under pressure as a result, with West African and North Sea barrels selling slowly even at bargain levels.

These weak fundamentals filtered through to the futures market earlier this month, triggering heavy liquidation of hedge funds' long positions. Analysts and traders said the market was now in a consolidation phase, moving sideways.

"The longs liquidation in London drove the market to three-month lows earlier this month and it is only natural for the market to take a breather," Kryuchenkov said.

Prices had pushed higher on Wednesday after data from the U.S. Energy Information Administration showed that U.S. crude stocks fell by 4 million barrels last week. Analysts had expected a decrease of just 2.8 million barrels. [EIA/S]

Crude stocks at the Cushing, Oklahoma delivery hub for U.S. benchmark oil fell by 1.5 million barrels.


NO SUPPLY CONSTRAINTS

Conflicts in Eastern Europe and the Middle East are also keeping a floor under prices, but crude supply from Iraq remains unaffected by fighting in the country.

Analysts foresee no sustained gains in oil prices unless supply is disrupted, but some believe the market has become complacent about the risks.

"When the battle for Baghdad starts, then Iraq will be back as a price input," Olivier Jakob, an oil analyst at Petromatrix, told Reuters' Global Oil Forum. "Right now it is too low on the radar screen."

In another supply development, South Korea and Japan have purchased the first condensate cargoes to be exported from the United States since the easing of a 40-year ban on U.S. crude exports.

"It means very little in itself, but because of current events it takes on a more political or symbolic importance," said Alex Yap, a senior oil analyst at FG Energy.

"If the U.S. wants its allies to be less dependent on the likes of Russia and Iran, it has to show some willingness to step up as a supplier instead of keeping the bounty from shale production within its own market."
Reuters

Copper, zinc gain as China's factory growth rebounds

Copper climbed to its highest in 10 days and zinc hit a near three-year peak after better-than-expected Chinese factory data calmed fears about economic growth in the world's biggest metals consumer.

News that China's factory sector grew at the fastest clip in 18 months in July prompted investors to shrug off news that Indonesia may soon resume copper concentrate exports that could smooth out kinks in supply. 

"This is a good number and the market reaction is saying that the worst is over of the slowdown and we're not headed for a hard landing," said Stephen Briggs, metals strategist at BNP Paribas in London.

China accounts for about 40 percent of global copper demand, but slowing growth in manufacturing and property has dragged on the demand outlook for the metal while a surplus is expected to seep into the market in the second half of the year.

Three-month copper was the top gainer on the London Metal Exchange, climbing as high as $7,166.50 a tonne, its loftiest since July 14.

It failed to trade in official midday open outcry activity and was last bid up 1.3 percent at $7,140 after closing little changed in previous session.

The most-traded copper contract on the Shanghai Futures Exchange closed up 1.5 percent at 50,650 yuan ($8,200).


"Copper is particularly exposed to the property sector in China, which has been the worry area, and copper has clearly underperformed the sector over the past few weeks so it was more due an upside correction," Briggs said.

The market also absorbed more upbeat news from the euro zone, where surveys showed the private sector expanded at the fastest rate in three months in July.
There was also support from production issues at the world's biggest copper producer, Codelco, which admitted for the first time that its newest mine was behind schedule because of problems with its roaster.
But investors shrugged off a looming resumption in concentrate shipments from miners in major exporter Indonesia.

"Consensus was that they would probably resume exports this year. There just wasn't a lot of clarity over when," said analyst Joel Crane of Morgan Stanley in Melbourne.

A senior Indonesian official told Reuters that Jakarta will revise its rules on mineral export taxes next month, paving the way for the country's multi-billion dollar mining industry to resume full production. Freeport-McMoRan said it was close to signing a deal to resume exports.

ALUMINIUM, ZINC

LME zinc edged to a fourth consecutive near three-year top of $2,394 a tonne, before slightly paring gains in official rings to $2,390, a rise of 1.1 percent.

Aluminium failed to trade in official rings and was last bid up 1.0 percent at $2,035.50 a tonne, recovering some losses from Wednesday when it shed 1.3 percent.

The metal had gained about 10 percent since the start of the month until touching a near 17-month peak on Tuesday, as investors expected a deficit to hit the market after several years of surpluses.

But Paul Adkins of Beijing-based consultancy AZ China said the high prices were vulnerable since they were spurring Chinese smelters to restart production that had been closed.

"We still doubt the price surge phenomenon will be sustained, since most restarting plants are being backed by government subsidies. And overall, we are still concerned that fundamental demand drivers are not backing the current surge," he told the Reuters Global Base Metals Forum.

"Over-supply is still a concern, with more than 1 million tonnes due into the (Chinese) market by year-end."

Tin edged up 0.2 percent to $22,275 a tonne in official trading and lead climbed 0.9 percent to $2,227. Nickel failed to trade in official rings and was bid at $19,150, up 0.5 percent.

Reuters

European stocks rise on euro zone factory data

 European stocks hit 2 1/2-week highs and the euro rallied from eight-month lows against the dollar on Thursday after the region's private sector expanded at its fastest rate in three months in July.

Russian debt insurance costs rose after European Union leaders proposed sanctions on Russian banks which are majority-owned by the government. Those measures were proposed after a Malaysian Airlines plane was downed over Ukraine last week, killing 298, possibly by a missile furnished by Russia.

European stocks <.FTEU3> rose 0.4 percent and the euro hit the day's highs at $1.3484, pulling off eight-month lows, after Markit's Composite Purchasing Managers' Index (PMI) of companies across the euro zone, a good early indicator of overall growth, rose to 54.0 in July from 52.8, its highest since April. Any number above 50 indicates expansion.

The services sector across the 18-member bloc performed better than any of the 39 economists polled by Reuters had forecast. Manufacturers also reported a stronger month than the median Reuters forecast had predicted.

"The activity data offsets some of the weakness we saw last month and that has helped the euro," said Geoff Yu, a currency strategist at UBS.

The dollar index <.DXY> dropped from an earlier six-week peak, although the U.S. currency hit a one-week high against the yen at 101.64 .

Russia's five-year credit default swaps rose 17 basis points to 214 bps from earlier on Thursday, according to Markit, following the EU sanctions proposals, which the EU said were likely to be adopted next week.

That means it costs $214,000 a year for five years to insure $10 million of Russian debt against default. Russian government bonds fell.

"If the Europeans do manage to pass some of the new sanctions that are being talked about, and it's a big if, then it really would be a big step for Europe," said Viktor Szabo, portfolio manager at Aberdeen Asset Management.

Emerging-market stocks  rose 0.25 percent to 17-month highs after stronger-than-expected HSBC flash PMI data for China, the world's second-largest economy.

The index came in at 52.0 for July, well above forecasts and the highest reading in 18 months. There was also good news on the outlook, with a sub-index of new orders reaching 53.7.
U.S. stock futures were indicating a higher open on Wall Street after the S&P 500's record close on Wednesday. Those gains were powered by Apple Inc , while late trading was dominated by Facebook Inc , whose shares rose 5.5 percent after hours when its results beat forecasts.

A better-than-expected U.S. earnings season is helping sentiment generally. Barclays estimates that of the 22 percent of S&P 500 companies that have reported quarterly results since July 1, 64 percent beat earnings expectations and 65 percent beat revenue estimates.

The prospect of more sanctions against Russia over the Ukraine crisis maintained a safety bid for high-rated bonds.

For U.S. Treasuries, investors were buying more liquid shorter-dated paper, nudging two-year yields below 0.48 percent. But German Bund yields , which have been trading near record lows, edged up on the euro zone data to 1.170 percent.

Gold eased to 1,298.30 an ounce, close to earlier one-week lows.

Crude oil prices ran into renewed selling after a bounce on Wednesday. Brent crude for September delivery fell 26 cents to $107.77 a barrel. U.S. crude lost 28 cents to $102.84.

Reuters

Jobless claims lowest in more than eight years

The number of unemployed workers applying for jobless benefits tumbled in the most recent weekly data to the lowest level in more than eight years, signaling that employers are letting go of very few workers.

Applicants for regular state unemployment-insurance benefits in the week that ended July 19 dropped by 19,000 to 284,000 — the lowest level since February 2006, the U.S.Labor Department reported Thursday. Economists surveyed by MarketWatch had expected initial claims of 310,000 in the most recent weekly data.

The yield on the 10-year Treasury   edged higher, indicating traders growing slightly more confident in the economy.

Source: Marketwatch