Archive for the ‘commodities production’ Category

Base metals – Lead trading

Lead is not a popular base metal. It has lost a number of its applications due to disastrous impact on human health (since 2000 the lead industry has sponsored over US$3 million of independent research into the health and environmental impacts of lead, trying to somehow counter that).

Before its negative effects has been realized it has been widely used,  going back as much, as an existence of Roman Empire, due to its very good metal properties.  Lead is characterized by high density, softness, ductility (ability to be stretched – for instance into a wire)  and malleability (in simple words – material’s ability to form a thin sheet by hammering or rolling),  poor electrical conductivity compared to other metals and high corrosion resistance. Such properties made it a perfect material for use in water pipes (long withdrawn from this application).  Nowadays, lead is applied in solder and paints, however due to changing environmental legislation it is being increasingly singled out from this role.

It is still widely employed however  in shot gun pellets, fishing weights and weights to balance car tyres. Despite certain institutional efforts to cut down on these applications, as well.  One would think that henceforth lead market must be in deep decline, almost on the verge of extinction…

In fact, hardly so. Lead’s fortune is strongly connected with batteries market which is doing well. Lead-acid batteries usage for starting car’s engines is strongly established and hence lead’s fate will be binded with fate of automotive industry for years to come.  At present Lead-acid batteries are used in over billion of vehicles. Even with advancement of hybrid technology in cars, future of lead batteries is not at risk.

lead usage

Despite the fact that nickel-metal hydride (NiMH) and Lithium-ion (Li-ion) systems are up to now the storage batteries of choice,  the best-selling hybrid electric vehicles, as the Ford Fusion, all use lead-acid batteries for SLI - starting, lighting and ignition functions. The Chevrolet Volt, one of the more prominent extended-range plug-in hybrids on the market, depends on its lead-acid battery not only for SLI functions, but also for the control of high voltage contactors.

Production

Despite the extended efforts to get rid of applications of lead by different legislative bodies, lead’s production and consumption is increasing worldwide. General industrialization growth in emerging markets does the same for lead as for other metals (or even commodities as a whole asset class I would dare to say). Total annual lead output is around 8 million tonnes; nearly half is produced from recycled scrap – making it the most recycled metal by absolute volumes. It is also not a wonder considering that 95 % of used lead batteries are eligible for recycling.  In the US more than 80% of lead in general comes from secondary production with Europe reporting over 60% market share.

The top lead producing countries are China, USA, India and Korean Republic. China, Australia and United States account for more than half of primary production. Mexico is a huge player in recycling. International Lead Association informs that lead ores are mined at a rate of more than three million tonnes a year with a market value of around US $1 billion and the world market for refined lead stands at about US $15 billion.

Lead production

lead miningGloom and doom inclined experts say at current use rates, the supply of lead is estimated to run out in 42 years. Some even say lead could run out within 18 years assuming on an extrapolation of 2% growth per year. Such assumptions are however ignored, considering increasing efficiency of recycling and continuous progress in cell technology, which makes a need for lead input scarcer. At present the global per capita stock of lead in use in society is 8 kg. The advantage of developed economies over developing ones is rather crushing 20–150 kg of lead per capita over 1–4 kg per capita.

 

lead recycling

Applications:

The principal application of lead is for lead-acid batteries which are used in vehicles ( 60 million petrol and diesel vehicles produced worldwide each year are equipped in lead based car batteries!), and in emergency systems (e.g. hospitals) as well as in industrial batteries found in computers and fork lift trucks. Lead is also used in remote access power systems and load levelling systems.

Defence industry:  small arms ammunition and shotgun pellets – can be produced with minimal tech requirements due to low melting point that makes casting of lead easy.

Marine industry:  the balast keel of sailboats and  scuba diving weight belts – due to its high density (implying higher weight – still maybe not the best weight-to-volume ratio of many heavy metals but cost effective) and corrosion resistance.

solder

Glass and plastics industry: as a compound

Medical industry: radiation shielding (in x ray rooms and et cetera)

Electronic industry: solder -  a fusible metal alloy used to join together metal workpieces with a melting point below that of the workpiece.

Construction industry (lead sheets are used extensively in roofing material as indeed very durable solution)

lead application

 

 

 

Lead is also applied in underwater high voltage power cables as sheathing material to prevent water diffusion into insulation.

Future oriented usage of leads is quiet strongly connected with renewable energies. Underwater cables that transfer electricity  from wave farms and  near seashore located  wind farms, can not do without lead.

Lead batteries are also an efficient cost effective solution for wind and solar farm energy storage.

 

Prices

Lead price1

 

 

 

I really like this 6 years span chart from International Lead and Zinc Study Group, showing the price in relation to stock levels. In most of the time we can see a clear negative correlation here.

2007 was a peak year for a number of commodities. China, the world’s largest lead producer,  reduced its exports of refined lead, tightening the world’s supply. What supported with low inventory levels made prices shoot up. It was a 5 fold increase from the low lead prices of 2003. 2007 export reduction on the Chinese side was a result of government’s interventions. China withdrawn its vat refunds for lead exports and introduced export tax. Spokesman of import and export department of Anyang Yubei Gold & Lead Co. Ltd., the country’s second largest lead smelter, said (as reported by resourceinvestor.com) ”Governmental controlling policies raised export lead prices higher than international prices, which significantly reduced domestic smelters’ profitability. Currently, the only exports our company does are based on our long-term contracts with clients, and some of our clients can split the increase of export cost with us”.

But it was not only government policies that were to be blamed.  Domestic Chinese smelters often rely on imported lead concentrate. In 2007 lead concentrate peak prices rendered, importing concentrate, processing and exporting refined metal unprofitable.

Which was no harm to the domestic industry really, more of simple team-playing for a benefit of overall Chinese economy. Growth in lead production could not catch up to the country’s growth in demand on the side of lead acid storage battery manufacturing industry. Boom in downstream automobiles and electric bicycle production, which required a continuous supplies of lead batteries also played its part in maintaining high lead prices.

Bonanza did not last long due to global downturn of 2008. But lead prices recuperated quiet quickly, and China was careful about controlling its refining capacity, to keep supply and demand forces in balance, while withdrawing outdated facilities from production and turning into recycling as a method to keep its hands on lead.

led

 

 

 

As we can see from June 2013 volatility normalized. Cash settlement price for lead stays in  range USD 2000-2215 per tonne.

Lead-Zinc pair

Lead 3 months price

 

 

 

Fast forward to fall 2014. China still deals the cards.

Base metals prices tumbled, due to Chinese pessimism, this time due to the assessment of the country’s money supply growth. Shanghai traders are bearish and their moods spills to London, where subsequent sell-off is accelerated. One of the worst hit metals is lead.

(LME) three-month lead collapses from $2,200 per tonne to $2,104. In doing so, it traversed a good part of the  $2,000-2,300 range that has defined this market for over a year.

It also blows open the differential with “sister metal” zinc to almost $200 per tonne, the widest gap seen since 2010. Lead and zinc is traded as a relative value pair and has been called in Gulf Times article as one of the London Street’s favourite past-times.

Lead and Zinc is one of the most correlated pairs among metals, and perhaps one could say, one of the most correlated pairs among all traded commodities.  Lead has a history of higher volatility than Zinc, it moves in the wider corridor. If you take a look at the one year price chart of the pair, there are multiple instances where either of the commodity has signaled the early moves of the other.

Lead outlook

Last years price range will probably remain in place. Some of major Zinc mines are told to await closure. It will affect Lead supply naturally, but since huge chunk of lead output comes from recycling activity, it should be easily counterbalanced.The LMEs warehouses are comfortably supplied. The ratio of cancelled warrants to total tonnage is one of the lowest among main LME metals. Since the beginning of 2014 China became net exporter of lead, what means that thirsty demand of domestic industry from before the crisis has been long ago satisfied.

Is there any factor that could possibly shake that stable market in the near term? Well, yes, weather.

Lead-acid batteries tend to break down in too extreme temperatures (either too cold or too hot ones)

Heavy winter could spark demand for battery replacement and hence impact demand for lead.

As for mid term and long term outlooks,  alternative energy infrastructure is still under development. Wind and solar farms are being build world wide. Emerging markets are increasingly catching up on this trend and there is still so much to do in this regard in developed economies in order to fulfill tight carbon emission reduction goals. Green energy will need wires for transfers and batteries for storage.

Automotive industry will always do well, as a whole and on the global basis and there is no replacement for lead car batteries to be seen.

Physical Trader Blog

References

The Advanced Lead Acid Battery Consortium, INTERFAX-CHINA, LME,  MetalBulletin, Basemetals.com, International Lead Association, International Lead and Zinc Study Group, Gulf Times

Online marketing in commodities industry

pr online1Commodities industry is considered as conservative and traditional in terms of doing business. Even despite the fact that it adapts quickly to changing market environment and that it was a global business before the term ”globalisation” has been coined.

Main players have dominated the landscape and are known to each other. Network of personal contacts is as important as it always has been despite the thriving LinkedIN community. In spite of ubiquity of video conferences, it is a cliche to say that nothing can replace the face-to-face meetings and handshakes at least in the early stages of deal making and particularly in frontier markets, where opportunities for a big score may still exist.

However as precise contract formulation replaced legendary “dictum meum pactum” adage, organizations in commodities business may not any more rely on word of mouth marketing. They may also not afford to be seen as backward by their peers in industries they do business with. I am confident to assume that these banal realizations are the ones to be commonly accepted among commodities community. Nonetheless when we take a closer look at the state of online marketing on the side of commodities traders and producers, one would be shocked to observe that a vast number of companies lags behind in terms of application of web based solutions and advertising, not to mention the state of the design of their webpages that very often remain remarkably crude despite the means that these very organizations have at their disposal.

One could say, fine, maybe such is a signature of this business. After all, we deal here with crude materials, hence why not to extend this “crude” way of thinking into other areas, say marketing and online presence. Or even let us go furhter and claim that after all the business enjoys a “sexy” veil of secrecy and low profile, despite its remarkable impact on global economy.

But is that really true any more? I see the other tendency. Commodities trading increasingly comes out of the shadow and straight into the spotlight. Companies which will miss the opportunity to spend time and resources to build a proper brand image and brand recognition are going to suffer in terms of attracting clients, business partners and talent. While at the same time facing the increasing scrutiny of watchdogs, medias, ngos and regulators.

I mean please kindly have a look at financial industry, at your professional peers in hedge funds, asset management companies or private equity. This sector never cared about publicity, let alone online marketing. Nowadays asset managers hire social media specialists (that is a fact and it happens a lot). I am strongly convinced that commodities sector is going to follow the suite.

ANTHRACITE PR

The mission of ANTHRACITE PR is to deliver Public Relations services to companies involved in commodities trade, production, storage, transportation and processing by helping them to create and manage the positive and professional image.

 

 

 

Oil products specifications

oil products specificationsLet’s talk about oil products specifications and its main properties. Since within the main product groups, we can encounter literally hundreds of individual products, each tailored for a specific use and adjusted to environmental concerns, price level or a combination of those. Hence the quality of a physical oil products is described in product specification or product “spec” as we say in vernacular. A product specification is a list of properties deemed as acceptable for the customer or for the regulatory bodies of the given jurisdiction.

Such properties are defined either as opposite ends of the range (namely maximum and minimum results of the given tests) or as a range itself. More general, descriptive requirements for the tests are also in use, we often talk in such instances about “clear and bright” substance with an “acceptable odour” as a part of its specification. Some of the tests are also quiet complex, require advanced equipment and try to simulate an environment under which the product will be used. Please refer below to the key properties specified for in case of different products.

-Bitumen

Penetration (“pen test”)  measures the hardness of bitumen, low penetration indicator equals harder bitumen.

R&B softening determines the “conventional” temperature at which asphalt acquires a specific consistency (indicates bitumen properties at so called high service temperature).

Ductility being the property of bitumen that makes it possible to undergo considerable deformation or elongation, specified as the distance in cm., to which a standard sample is elongated without breaking.

-Diesel

Flash point, the lowest temperature at which diesel may vaporize and form an ignitable mixture. Requires an ignition source to be measured.

Cold filter plugging point (CFPP), important especially in the colder, northern hemisphere, gives an estimate for the lowest temperature at which fuel will still flow through standardized filtration system in the engine.

Cetane number, diesel uses cetane numbers as a measurement of how well it combusts, literally  cetane number  tests the period of delay of ignition after the fuel enters the combustion chamber.

Sulphur content, a range of oil products tend to contain small amounts of sulphur. Sulphur can be harmful as a corrosive and when it burns produce sulphur oxides. Health and environmental concerns made regulatory bodies to specify its maximum allowed amounts in fuels.

-Gasoline

Octane number, specifies how much the fuel can be compressed before it spontaneously ignites.

Vapour Pressure, as discussed before (RVP).

Benzene content, regulations set limits for the amount of benzene in gasoline and for the benzene emissions number, a calculated parameter that relates gasoline composition to predicted emissions of benzene from vehicles. Benzene is also a natural constituent of oil and an elementary petrochemical and as a component of gasoline it increases its octane number. On the other hand it is carcinogenic, hence the limitations on its amount.

Lead content, most jurisdictions banned leaded fuel, lead component has been implementing to increased octane number.

Oxygenates, typically used as additives to reduce CO and soot, created during burning of fuel.

-Jet kerosine (Jet Fuel)

Flash point, as previously described

Freezing point, the lowest temperature at which the fuel is still free of solid hydrocarbon crystals that can restrict its flow.

Aromatics, inclusion of aromatics compund in jet fuels have its pluses and minuses. Aromatics when burning increase a polution level. However, at the same time aromatics compund in jet fuel cause some types of elastomers used in aircraft fuel systems to swell. Lack of aromatics in alternative jet fuels, cause industry concerns, that elastomers may shrink and lead to fuels leakage (more research is underway).

Thermal Stability, one of the most important properties since fuel also serves as a heat exchange medium in the engine and airframe of the aircraft. Jet fuel is used to get rid of heat from engine oil, hydraulic fluid, and air conditioning equipment.

Heating of the fuel speeds up gum and particulate formation, gums and particles may deposit on fuel filters and heat exchangers of the aircraft and lead to reduction of fuel flow. It all leads to operational issues of the aircraft and increase maintenance costs. Here is a link to an excellent article on this important property of jet fuel, published by Australian Department of Defence: http://www.dtic.mil/dtic/tr/fulltext/u2/a431064.pdf

-Naphta

PONA number determines quality of Naphta. Various grades of naphtha are produced depending on PONA specification  (65/12, 70/10)  and so on. First digits signifies the minimum allowable total parafins percentage and the second a maximum allowable aromatics percentage. Pona number is directly correlated with pricing.

(No)lead, content as discussed

-Heating oil/gasoil

Pour point, the temperature at which gasoil loses its flow characteristics. High pour point generally equals  a high paraffin content.

Flash point, as discussed

Sulphur content, as discussed

Independent, third party organizations as the Institute of Petroleum (IP) and the American Society for Testing Methods (ASTM) set industry wide recognized standarts for testing methods and acceptable (or not) outcomes.

Physical Trader Blog

What’s new with Polish refineries

OrlenIt has been an old Polish decision makers dream to build vertically integrated oil companies with its own upstream operations. It sparked the decision of Polish oil companies to get involved in search for shell gas deposits in Poland along much more experienced (at least in upstream business) competitors from abroad. PKN Orlen with its Orlen Upstream subsidiary registered in Holland was particularly active in pursuing this opportunities. It became quiet deeply engaged in search for Polish gas deposits, while American giants as Exxon, Marathon or Talisman stepped back from the competition. Lotos on the other hand has been continuing a search for Oil on the North Sea despite the fact that the defeat of its previous project of similar profile on the Yme field, costed a company around a billion PLN. However this time Lotos bought shares of the fields which are much more likely to yield expected results. Lotos is also taking steps into direction of developing B8 fields on the Baltic Sea, which has been in dire need of investments since some years already. Reportedly Polish Investments for Development S.A. government institution created to support pursuits of domestic companies will extend a helping hand. Lotos is also considering along with Azoty Group to invest in development of petrochemical installations, also with a possible governmental backing.

 

Physical Traders Blog

Coal conquering German energy market

germany

The evolution of German energy market may surprise considering the country’s effort to invest in green technologies and promote/export them abroad. Brown coal became a basis for satisfying Germany’s energy needs, taking over a nuclear energy. Brown coal consumption in this country is highest in its history, while Germany stays its biggest producer.  Coal stone which Germany is supposed to stop using as an energy source according to ambitious plans of politicians, increasingly replace natural gas in domestic energy industry.

One of the reasons for such development is a cheap price of American coal on the global markets, and a capacity of coal/green energy mix supply to react fast to changes in demand for energy on the German market.

 

 Physical Trader Blog

Molybdenite trade

On the world’s market molybdenite concentrate, ferro molybdenum, molybdenum oxide and molybdenum metal is being actively traded. Data related to molybdenum products trade is quiet obscure. However with a degree of certainty we can conclude that molybdenum products are mostly traded in between, Europe, China, Chile, USA and Canada. Overall trade volume is estinmated in the range of 250 000 tonnes, and is growing quiet steadily since beginning of year 2000 (by over 30% to date). Producing countries who extract molybdenite and supply molybdenum products on the market are mainly Chile, US, China, Peru, Canada and Mexico. Concentrates are most actively traded with a share of over 60% in the whole market structure.  Around one quarter of market for molybdenum products is reserved for ferro molybdenum. Both molybdenum oxide and molybdenum metal constitutes each below 10% of market structure. In recent years China quiet substantially decreased output of their molybdenite products on a global market, consuming more  directly on the domestic market.

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Fluorite (fluorspar)

More on fluoriteFluorite (fluorspar) (in other words mineral form of Calcium Fluoride CaF2) is used in chemical industry, metalurgy, nuclear energy,
production of ceramic, glass and cement. One of the interesting characteristics of fluorite is its ability to decrease a temperature of melting point of metals. It is particularly widely applied in metalurgy in the process of steel production, because of this very quality. Fluorite is also employed in the production of various compounds applied later in the process of aluminium smelting. One cannot talk about industrial applications of fluorite without mentioning its role in obtaining of HF – Hydrogen Fluoride, gas extensively used in petrochemical industry, whose acquisition process can be crudely described as the implementation of sulfuric acid on pure grades of the mineral fluorite.The grade of fluoride used in the gas production is called acide grade fluoride and consist over 97% of CaF2. The process of alkylation in oil refineries can not do without it as a catalyst. 70 % of world’s Calcium fluoride reserves are located in China, South Africa, Russia, Mexico and Mongolia. It is also worth taking a note that 23 % of world’s reserves controlled by China, are in 90 % included in the deposits located in Chinese Inner Mongolia region. This way of thinking gives us even a clearer picture on the geographical localization of fluorspar. Speaking of fluorite it is hard not to mention a Bayan Obo Mining District, extremely valuable deposit of rare earths and also reportedly world’s biggest deposit of fluorite amounting to the volume of 130 million tonnes. However according to informations available fluorite is not being extracted from there. In South Africa considerable deposits can be found in Transvaal region in North-Western provinces. Witkop, Doornhoek Mines particularly deserves attention. In Mexico, Las Cuevas constitutes the biggest fluorspar mine in the world. For the future of fluorite extraction industry, key moves take place in China, due to its ongoing ecological survey on the wide scale. However informations acquired are rarely published to public attention. Foreign companies are also forbidden to extract fluorite in China.

 

Physical Trader Blog

Zinc concentrate

The word “zinc” derives from latin and means a white thin layer on the object. Zinc is particularly renowned for its resistance to corossion. Application of zinc to steel elements increases their resistance from three to even four times. Naturally steel can be also covered with chrome or nickel to reduce its propensity for corrosion, but technologies which make it happen are more expensive. Hence in crucial industries as construction or automotive industry (car’s bodies production) zinc is being applied as anti-corrosive. Zinc is also used as an alloy with copper to increase qualities of copper’s key mechanic characteristics. The most widely spread mineral ore of zinc is Sphalerite. 95 % of world’s zinc reserves are contained in sphalerit. 72 % of world’s zinc reserves are located in 9 jurisdictions: China, Australia, Russia, Canada, Peru, USA, Kazakhstan, Mexico and India. For China falls 14% of world’s zinc reserves. Most of it is located in provinces of Yunnan, Gansu, Guandong, Sichuan and in region of Inner Mongolia. Australia occupies second place as world’s reservoir of zinc’s ore with estimated resources of 83 millions tonnes (proved resources amounts to one quarter of this number). It is estimated that it’s enough to
proper the countriy mining industry for the next 35 years. As it was hinted before, zinc is extracted from sulfidic ore deposits, in which sphalerite is mixed with the sulfides of copper, lead and iron. In the post-minig process zinc’s concentrate is obtained. Zinc’s concentrate producing has been growing worldwide for the last 20 years. The only thin years have been in between 2001 and 2002, when due to zinc’s price fall on the global markets the industry production volume stopped growing and even slightly fall. However quickly resuming an upward trend shortly after. In 2008 total zinc concentrate output was at the level of 11676,7 thousands tonnes. Therefore since the “thin days” output had grown by 31,3%! Naturally major role here has been played by China, but also countries as Sweden, Ireland, Namibia or Brazil increased their outputs. China, Peru and Australia are the main players on the concentrate’s market. China’s zinc concentrate producers market is quiet fragmented. It is worthwhile to note that most of Chinese plants have capacities to produce not more than 10 thousands tonnes of concentrate per year. Because of its fragmentation Chinese zinc concentrate industry is sensitive to price changes on the world’s metals markets. Peru’s industry for zinc concentrate is noticing a rather spectacular growth, major companies on these market being: Compania Minera Antamina SA (deriving its ore from the local – Antamina mines) and Volcan Compania Minera S.A.A. Produced concentrate is transported from the sites 300 kilometres to the coast of Pacific Ocean, where it is being despatched worldwide.

Physical Trader Blog

Bauxite reserves and extraction.

Bauxite mineAluminium, one of the most wide spread metals in the earth crest. For the first time extracted in 1825 with aluminium industry coming into existence not earlier than half century later. In 1888 first aluminium producer employing electrolysis has been established in Switzerland. In the beginning of the XX century, industry obtaining aluminium through electrolisis has been already functioning in 6 countries (namely in Switzerland, USA, France, Germany, UK and in Austria). In 1941 through production of aluminium by electrolysis, worlwide output exceeded  1 million tons/per annum for the first time, in 1971 production reached a level of 10 millions tons/per annum and in 2005 over 30 millions tons/per annum. Therefore only after 100 years of the first amounts produced, aluminium became second metal in production by volume, right after iron. This growth has been accelerated by its unique characteristics . Its high conductivity, high immunity to corrosion and high plasticity. Nowadays application of aluminium can be well observed in automotive, aircraft and ship industries, packing industry, construction, electronic industry and in consumer goods. One could argue that application of aluminium permeated all areas of human activity, hence the correlation can be derived between the growth of world’s gdp and a growth of aluminium’s demand, while its average consumption per head might be treated as an indicator of quality of living conditions in the given country. Bauxite, an aluminium ore secures almost 98 % of aluminium production world-wide. The deposits of bauxite has been spread around the world (as is the case with many commodities) unevenly. Huge deposits might be found in tropical and subtropical areas. Identified resources of bauxite can be found in 44 countries and amount to approximately 49,3 billions tonnes. The countries  richest in bauxite reserves are Guinea (19% of world’s reserves), Australia (18%), Vietnam (10%) and Brazil (9%). Considerable reserves of Bauxite can be also found in China, Jamaica and Russia. In Guinea, Futa Jallon–Mandingo province is definitely the best endowed, with resources economically viable for extraction, amounting to 7,1 billion tons. Bauxite from Guinea is also of high quality, some of its ore consist high levels of aluminium oxide reaching a level of 69%. To illustrate that, in Vietnam for instance the level of aluminium oxide  (alumina) on average reaches 35%. In Jamaica the bauxite is spread on around 30% of the terrain and considering today’s outputs, the country has enough to go for the next 100 years.  Russia’s bauxite reserves are located in the European part of the country and in Ural. 95 % of bauxite that might be used industrially is located in Russia over 700 metres below the ground, while 50% stays on the level of 1000 to 1200 meters below the ground. In Russia, majority of available bauxite is of lower quality with high levels of chrome, what is a cause of the situation when only 10% of extracted ore is applied in production of aluminium. In China, 375 sites with resources have been identified. They were situated mostly in Eastern and Southern part of the country.  Bauxite in China is usually of lower quality. What might add to the reason why China, with its growing aluminium industry became world’s biggest importer of bauxite. The resources of high quality Bauxite located in African countries seem very attractive at this stage, however issues  with undeveloped infrastructure, low density of industry requiring aluminium in their relative proximity, as well as risky environment for investment, make them remain unused. Nonetheless opportunities for the future remain, especially considering recent rebirth of business opportunities on this continent.

98% of bauxite in the world is being strip mined and only in Russia and China some of the sites operate as subterranean mines. In 2008 220 millions tonnes of bauxite has been extracted hence bauxite extraction increased over two folds from the 80′s. One-third of world’s bauxite output is extracted in Australia.

Physical Trader Blog

Physical Traders: Fiscal regimes for international petroleum agreements (IPAs)

Law OilMost of the jurisdictions posses a set of legal tools to deal with responsibilities of the oil field developer (further designated as lesee) and the owner of mineral rights (lessor), as mentioned in previous post usually a government. Agreements, as a whole called fiscal regimes for international petroleum agreements (IPAs) became synonymous with the financial “split” between the two parties over the life of the oil project. We can discern following most typical categories of international petroleum agreements:

Concession (Royalty Tax system)

With the oldest history reaching a XIX century. The lessee is guaranteed to produce and trade the oil in any way he wishes in exchange for a royalty paid to the lessor. Lessee remains liable for corporate income taxes and sometimes special oil and gas taxes. Oil company takes a title to the wellhead, provides capital for exploration, development and production. Royalty being paid by an oil company to the lessor (typically government in a given country) is usually a percent of a revenue (price for which physical oil is being traded).

Production Sharing Agreement (PSA)

Also described as production sharing contract (PSC). For the first time introduced by Indonesia in the 60’s. The difference from Royalty Tax System is that the lessor (typically government) retains partial ownership in the physical oil produced. The PSA divides oil produced to cover the costs of development and production (cost oil) first and allocates remaining residual oil (profit oil) to be split between the lessor and the lessee. These contracts tend to have a very complex structure, concentrating on covering all aspects of costs, rates of cost deduction, and et cetera that limit the compensation of the company before the lessor gets his share (so-called takes).

-company has property shares title
-leese splits exploration, production, development capital with a lessor
-oil company pays no or low royalty
-there are usually limits on amount of capital and operating cost deemed deductible per year
-company pays government CIT and special oil taxes

Risk service contract

Could be classified as transactional services agreements. In short, oil company provides development, production and transportation services to the lessor in return for an agreed upon dollar per barrel rate.

- oil company remains only a contractor with no rights and title to physical oil and provides little or no capital.
-pays no royalties
- but still pays taxes 

Acquiring and managing the rights to exploration has become a business in itself. Very often, the real value lies in the information and knowledge about the given physical oil properties. Many title owners have monetized this value through exploration lease auctions.

Physical Trader Blog