ECONOMY China Slowdown Risk Rising: Conference Board (Dec 14) A Chinese leading indicator fell, fueling concern

that the worlds second-biggest economy faces a deeper slowdown as Europes debt crisis hits exports and home sales slide. The index declined 0.1 percent to 160.1 in October, The Conference Board said in a statement today, citing a preliminary reading. The gauge captures prospects for the next six months, the New York-based research organization says. In September, it rose 0.4 percent. Chinas top officials have been meeting in Beijing this week to map out economic priorities for next year. The Politburo pledged last week to fine-tune policies as needed and seek stable and relatively fast growth. The central bank has already cut banks reserve ratios for the first time since 2008 to spur lending as growth in industrial output weakens. The risk of a more substantive slowdown in Chinas economic growth than anticipated so far is rising, Andrew Polk, an economist at The Conference Board, said in the statement. Targeted loosening of credit markets should give some help to companies but the pass through from previous policy tightening measures will continue to act as a brake on the economy, he said. Chinas expansion slowed to 9.1 percent in the third quarter, the least in two years, after the government raised interest rates, tightened credit and expanded property-market curbs. Housing transactions declined in 27 out of 35 cities during the week of Dec. 5-11, according to Soufun Holdings Ltd., the operator of the nations biggest real-estate website. The leading indexs components include loans, raw-material supplies, export orders, consumer expectations, and floor space started, from data released by the central bank and the statistics bureau. First published in May 2010, the gauge has successfully signaled turning points in Chinas economic cycle if plotted back to 1986, The Conference Board says. (Bloomberg) Fed: U.S. Economy Expanding Moderately (Dec 14) Federal Reserve policy makers said the U.S. economy is maintaining its expansion even as the global economy slows, while refraining from taking new actions to lower borrowing costs. The economy has been expanding moderately, notwithstanding some apparent slowing in global growth, the Federal Open Market Committee said in a statement at the conclusion of its meeting today in Washington. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Signs of an improving U.S. economy are giving officials led by Chairman Ben S. Bernanke leeway to keep policy unchanged as they discuss ways to improve how they communicate the likely future path of interest rates to the public. At the same time, unemployment at 8.6 percent and risks to global growth from the European debt crisis may prompt more easing in coming months. Any additional stimulus is greatly going to depend on what happens in Europe or any changes in the U.S. outlook, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North CarolinaThey will wait for a longer meeting, maybe in January, to come up with anything regarding communications. Todays statement reiterated the warning at the Feds two previous meetings that Strains in global financial markets continue to pose significant downside risks to the economic outlook. Bernanke said last month that the sentence refers to the European debt crisis.[] (Bloomberg) Most Economists Expect Another Global Recession (Dec 13) So acute are the risks that few economists are now willing to bet heavily against another global recession in 2012. By common consent, the world economic outlook is much darker today than it appeared in the early autumn. [] And that grim assessment is shared by economists in the private sector. As Goldman Sachs marked down its latest forecasts, Jan Hatzius, its chief U.S. economist, said that growth was being held back in many developed economies by higher taxes and efforts to pay back household and corporate debt. That combination is likely to see another two years of sub-par growth in the major advanced economies, extending into 2013, he argued. [] But as the forecasters fret about 2012, not all of the world is yet suffering. Even in Europe, German employment hit another post-unification high in October, highlighting the disconnect between its current prosperity and the pain in the eurozone periphery.

Although forecasts are being revised down by the week, economists still generally expect the world economy to grow by a little more than 3 percent in 2012 down only 1 percentage point from 4 percent in 2011, with a large majority of that expansion coming from emerging markets. [] Few expect the euro zone to recover quickly, with most forecasts now expecting contraction in the eurozone economy at the start of 2012 and near stagnation in countries, such as the U.K., surrounding the single currency area. The great concern is that an economic downturn will exacerbate the stresses in the sovereign debt and bank funding market, which are far from solved, creating a vicious downward spiral akin to 2008 and the potential collapse of the euro. With the money supply contracting at the fastest rate since early 2009, Neville Hill, of Credit Suisse, observes, that for institutions that set great store by monetary indicators the European Central Bank and the Bundesbank, for example that should be an alarming signal. Most observers still expect the euro to survive, but not because policymakers have solved the manifest problems. The most that many thought last weeks summit would change was to turn the crisis from what Gavyn Davies, of Fulcrum Asset Management, described as an acute crisis to a chronic phase. In the U.S., the worlds other huge advanced economic area, most economists still expect the country to enter election year in modest recovery mode. With unemployment falling and recent growth rates higher than in Europe on the back of higher consumer spending, recent survey data have pointed to continued growth at unexciting rates. But a quiet year is far from guaranteed as election season approaches, political brinkmanship rises and the U.S. is buffeted by the European storms. Willem Buiter, chief economist of Citi, argues that even with modest expansion, we do not expect that U.S. growth will be strong enough to pull unemployment materially lower in 2012-13. So long as Europe staggers along, most important to the continuing outlook, says Julian Callow, of Barclays Capital, is that Congress extends the payroll tax cut, scheduled to expire at the end of 2011. As the advanced world contemplates another year of disappointment, the engine of the global economy has moved ever more decisively to large emerging economies. Gerard Lyons, of Standard Chartered, says the western fundamentals are poor and confidence is shot. In contrast, across the emerging world, the fundamentals are good, the policy cupboard is almost full and confidence is likely to prove resilient. But even these emerging economies are not problem-free. China, by far the most important, accounting for over 40 percent of global growth in 2011, according to Nomura. No wonder we are so concerned about the risks of a hard landing in China, says Paul Sheard, its chief economist. It is feeling the slowdown in the rest of the world and the authorities are beginning to worry about their ability to sustain growth. At least, says Qu Hongbin, of HSBC, inflation is moderating increasing the scope for stimulatory policies. The major macro risk in China is quickly shifting from inflation to disinflation, calling for more aggressive easing in policy going into next year, Mr Hongbin said. Such policies worked in 2009 to increase infrastructure spending, investment by state-owned enterprises and housebuilding and are likely to work again, even if such capital spending does nothing for the longer-term aim of rebalancing the global economy. Elsewhere in the emerging world, growth is continuing but also at slower rates. Eastern Europe, including Turkey, is particularly vulnerable to the eurozone crisis and its banks are seeking to pull funds home. Growth in Latin America is slowing rapidly as the commodity boom levels off, while Africa, despite a hugely improved performance, is highly vulnerable to a global slowdown. In all, the world remains a dangerous place with advanced economies a long way from recovering from the 2008-09 crisis and huge uncertainty over the scope of the emerging world to generate self-sustaining growth. Following robust recovery in 2010, this year has been a huge disappointment. (Financial Times)

OIL Oil Round up 12.14.2011 WTI blatantly ignored all bearish sentiments, knocked down the $100 barrier to an intraday high of $101.25, while Brent leapt over its 100 SMA hurdle to high at $111.10. Analysts could only throw up a few suggestions to explain this baffling turn of events, citing mainly the possible closure of the key shipping channel, Strait of Hormuz, for military drills. However this rumor was quickly quelled by Irans Foreign Minister. More fears of supply disruption arose with the indefinite shutdown of another important oil transport route, Houston Ship Channel, after a tanker and cargo vessel collided. Iraqs oil pipeline exploded from a bomb attack. In the October attack, output had been slashed from 1.24 mil bpd to mere 530,000 bpd. Relieving also were news of Spains sharp drop in short-term borrowing costs, near 1% below the 14-year high level struck in November. German investor sentiments surprisingly gained in December as well. US retail numbers faltered, at its slowest in 5 months at +0.2%. However small businesses confidence grew for a 3rd consecutive month. Yesterdays rally had neutralized the bearish technical indicators, where WTI may try to cross the high of $101.25, with a base established around $98.02. There are some lingering selling pressure that had not been dispelled fully where falling back below will once again stir up the sleeping support $95. Brent is facing a Neutral-Sell outlook at moment, with resistance set at $111.85 200 SMA. It has to prevent a cross below $108.90 in the next 5 hours, as that breach could trigger more selling down to $107.25 1st support. COAL Mozambique Ports Grow With Rio Tinto Appetite for Coal: Freight (Dec 13) Roads were little more than rubble and there was barely enough working equipment to load cargo at Maputo port in 2003. Then Mozambique brought in Grindrod Ltd. (GND) and DP World Ltd. (DPW) to operate the harbor. Since then, a coal-mining boom has fueled expansion at the southern African nations harbors. Rio Tinto Plc (RIO) bought Sydney- based Riversdale Mining Ltd. (RIV) for A$3.4 billion ($3.4 billion) in July to add 25 million tons of Mozambican coal to its annual output. Rio Tinto has been buying up a lot of assets in Mozambique, and they stand to be one of the significant beneficiaries there, Clinton Duncan, resource analyst at Avior Research (Pty) Ltd. in Johannesburg, said in a phone interview. The number of ships docking at Maputo has almost doubled to 1,030 a year since 2003, while coal exports have climbed from 1.5 million metric tons to more than 4 million tons and chrome shipments are set to reach about 2 million tons, a five-fold increase, said Ricardo Roberts, commercial manager of the port.Mozambique is attracting exporters, such as Rio Tinto and Sappi Ltd. (SAP), from neighboring South Africa, which is burdened with high port costs and a lack of rail capacity. Grindrod, Africas largest shipping company, has gained 9.5 percent since Aug. 15, paring its drop this year to 23 percent, compared with a 0.3 percent increase in the benchmark FTSE/JSE Africa All Share Index. The median estimate of four analysts surveyed by Bloomberg is for the shares to gain 5.5 percent to 15.40 rand in the next 12 months. Coal Boom If you look at the infrastructure development in Mozambique, Grindrod is directly involved and will benefit from any developments at the port and the area around it, said Patrice Rassou, head of equities at Sanlam Investment Management, in a phone interview from Cape Town. Sanlam, the countrys third-largest private money-manager, holds the stock. Exxaro Resources Ltd. (EXX) and Coal of Africa Ltd. (CZA) are bringing shipments from mines in northern South Africa to Maputo as the miners face restrictions in using South Africas Richards Bay port. A coal-mining boom is fueling development in the southern African nation after a 16-year civil war that ended in 1992 destroyed infrastructure. Durban, South Africa-based Grindrod is spending as much as $800 million to boost capacity by 20 million tons at the coal terminal in the next four years. Cargo-handling capacity at the Maputo port, 286 miles north of Durban harbor, is set to climb to 50 million tons by 2030 from about 13 million tons currently, according to David Rennie, Grindrods executive director of ports and terminals. Grindrod and DP World of Dubai have a 25 percent stake each in the port and the government owns the rest.

Unlock Potential Its important for Mozambique to maximize capacity at the ports to be trade enablers, Rennie said. If we do our job properly, it will unlock potential for exporters and generate economic growth and jobs. Rio Tinto and Rio de Janeiro-based Vale SA (VALE5) are investing in Beira and Nacala ports, north of Maputo, to serve their mines in the central region of the country. A former Portuguese colony, Mozambique has stabilized its economy since the end of a civil war that killed almost 1 million people, benefiting from debt relief and investment in large projects. The Mozal aluminum smelter, for instance, is 47 percent owned by BHP Billiton Ltd. (BIL), the worlds largest mining company. The economy has expanded an average 8 percent a year in the past decade and is forecast to grow 7.2 percent in 2011, according to the International Monetary Fund. China Power India and China are ramping up power and steel production to meet demands of growing populations, driving coal production in Mozambique. Annual output of the fuel in the southern African nation is forecast to reach 20 million tons by 2015, about 8 percent of South Africas output, from 35,700 tons last year, according to Frost & Sullivan, a San Antonio research firm. Foreign investment in mining is set to reach $14 billion in the next four years, $9.5 billion of which is earmarked for coal. Economic reforms, attractive mining sector policies and increasing infrastructure development have generated sustained economic growth rates in Mozambique, Christy Tawii, research associate at Frost & Sullivan in Cape Town, said on its website. Rio Tinto declined to comment on its plans, Johannesburg- based spokesman Gugulakhe Lourie said in an e-mail. The stock has gained 13 percent in London since the beginning of October, paring its decline this year to 29 percent. Sappi Exports Coal production in landlocked Botswana and Zimbabwe is also helping to drive the expansion of Mozambiques harbors. Hwange Colliery Ltd. (HWANGE), Zimbabwes largest coal miner, plans to ship 30,000 to 50,000 tons of coal through Maputo early next year, Oliver Maponga, business development manager, said on Oct. 18. For South African coal miners, Maputo has become an alternative to get their exports to the east. South Africas Richards Bay Coal Terminal, Africas biggest export facility for the fuel, restricts access to smaller producers because its operated by shareholders including Anglo American Plc (AAL) and Xstrata Plc. (XTA) Recent developments with Grindrod for the future development of the Maputo port are encouraging and our volume growth is aligned to the planned expansion in the rail and portside capacity, Coal of Africa Chief Executive Officer John Wallington said in an email. The improvement at Maputo is not just benefiting miners. Johannesburg-based Sappi, the worlds largest maker of glossy paper, is considering using Maputo for shipments from its Nelspruit mill, located in South Africas northeastern Mpumalanga province bordering Mozambique. Thats cheaper and more efficient than South African ports, which are owned and operated by the government, Glenn Adriaanse, Sappis export manager, said in a phone interview from Durban on Nov. 21. We are seriously looking at ramping up production at our Nelspruit mill for export purposes, said Adriaanse. Mozambique is a serious option. (Reuters) Japan's Nippon Steel shuts 136-MW coal-fired plant (Dec 13) Japan's Nippon Steel Corp shut the 136 megawatt coal-fired plant at its Kamaishi works on Tuesday due to a problem with a coal conveyor system, said Tohoku Electric Power Co, which buys the power produced by the plant. Tohoku Electric, which serves the northeast regions that were hit by a magnitude 9.0 earthquake and tsunami in March, ruled out a possible power shortage despite the unplanned shutdown. Tohoku Electric has been meeting peak winter demand with assistance from Tokyo Electric Power and Hokkaido Electric Power Co. (Reuters) BHP Billiton Sells 8% of South African Coal to Black investors (Dec 14) Global miner BHP Billiton on Tuesday announced it had approved to sell a portion of stakes of 8 per cent in its South African coal arm to a consortium of black investors led by investment firm Pembani Group (Pty) Ltd. to help meet regulation requirements of black

ownership targets. Mine operators in South African are required to have 26 per cent black ownership by 2014 in an effort to reallocate wealth especially to those disadvantaged under apartheid. Mining rights awarded to operators could be revoked if they fail to meet the requirements. BHP Billiton Energy Coal South Africa (Becsa) said it had also consented to an arrangement that would extend a 2 per cent stake to participating employees, further boosting its black shareholders. South Africa's mining charter imposes a 26 per cent black ownership rule by 2014. Becsa, South Africa's second-biggest exporter of thermal coal, is "now in a position of more than meeting the transformation requirements" of South African law, the company said in a statement on its Web site. Pembani Group (Pty) Ltd., formerly known as Worldwide African Investment Holdings (Pty) Ltd., is an investment company with interests in mining and petroleum. BHP Billiton yielded 34 million metric tonnes of thermal coal in South Africa in the fiscal year to June 30. About 13 million tonnes were exported. (UK.IBTimes) Kowepo awards two 3-year coal contracts for Taean plant (Dec 14) Korea Western Power (Kowepo) was said to have awarded two three-year contracts for its Taean power station for February 2012 February 2015 delivery, a South Korean source said. Each contract involves one Capesize delivery annually for three years. The contract price is said to be linked to the globalCOAL Newcastle index at a discount estimated at between $2/mt $4/mt. The three-year contracts were awarded to Xstrata for Newcastle coal, ex-Abbott Point, and to a Korean national identified as Cho Soo Gook, the source said. The origin of Chos winning coal bid could not be immediately ascertained. A total of 11 Capesize shipments were offered in the Kowepo tender. The offers came from Total, Xstrata, Flame, Bulk Trading, Rio Tinto and from Cho. Kowepo closed November 29 two tenders for Taean, each of which involve coal with a minimum calorific value of 5,700 kcal/kg NAR. (Platts) India MMTC receives two bids for 3.73 mil mt import tender (Dec 12) Indias state-run trading firm MMTC has received two bids for its tender to import 3.73 million mt of steam coal, a source close to the process said Thursday. The bids are from Adani Enterprises and Knowledge Infrastructure Systems, the source said. MMTC floated the tender for the state-run utility Damodar Valley Corporation in the state of West Bengal, seeking 6,300 Kcal/kg GCV coal with a total moisture of 16% on a received basis, ash content of 10% on an air dried basis and sulfur content of 0.80%. DVC, which needs the coal for 2011-12 and 2012-13, wants it to be delivered to its power stations in Koderma, Mejia and Durgapur through the Paradip or Haldia ports on Indias east coast. Separately, MMTCs tender to import 1.365 million mt of steam coal for the Aravali Power Company Private Limited (APCPL) for 2011-12 and 2012-13 received three bids. APCPL wants the coal for its 1,500 MW Indira Gandhi super thermal power plant in Jhajjar, in Haryana state. Adani Enterprises, Knowledge Infrastructure Systems and Coastal Energen are the bidders, the source said. The specifications for the coal are gross calorific value on an air dried basis of 5,800-6,500 Kcal/kg; total moisture on a received basis of 10-20%, ash content on air dried basis of 8-20% and sulfur of 0.70-0.90% on an air dried basis. The closing date for both tenders was December 7, 2011 with price bids for both due to be opened next week. (Platts) Indonesia Set to Pass Land Law, Boosting Growth (Dec 14) Indonesias parliament may approve this week a land-acquisition law that will allow the government to accelerate road, port and airport projects, bolstering President Susilo Bambang Yudhoyonos efforts to boost growth. Lawmakers will probably approve the bill on Dec. 16, Taufik Hidayat, vice chairman of the Land Procurement Parliamentary Special Committee, said in a telephone interview yesterday. After Yudhoyono signs it into law, the government will be empowered to take over land for development while owners will be guaranteed adequate compensation, he said. The legislation that had been debated in parliament since March may reinvigorate Yudhoyonos push to double spending on roads, ports and airports to $140 billion by the end of his term in 2014. Gains made by Southeast Asias largest economy under the presidents seven-year rule

have been undermined by corruption scandals and project delays caused by land disputes, which have hampered efforts to lure investment. The door will open for infrastructure projects, which have so far been stagnant because theres no certainty of land acquisition, said Destry Damayanti, chief economist at PT Bank Mandiri in Jakarta. This bill will give positive impact to infrastructure stocks such as PT Jasa Marga, PT Wijaya Karya, PT Adhi Karya. Development Plan Indonesias 2011-2025 development plan seeks 4,012 trillion rupiah ($440 billion) of investment, with about 1,786 trillion rupiah assigned to items such as highways, harbors and power plants. Yudhoyono is seeking to improve Indonesias roads, bridges and ports to spur annual economic growth of as much as 9 percent, closing the gap to Chinese and Indian rates of expansion. PT Citra Marga Nusaphala Persada surged the most in 11 weeks in Jakarta trading yesterday on expectation parliament will approve the law this week, accelerating toll-road projects, according to Adrianus Bias Prasuryo, an analyst at PT Samuel Sekuritas Indonesia. The toll-road operator rose 7.6 percent to 1,710 rupiah at the close, the steepest increase since Sept. 27. We are optimistic that after this bill, most big infrastructure projects will run, especially toll roads, Bambang Brodjonegoro, head of fiscal policy at the ministry of finance, said in Jakarta Dec. 12. This bill will boost the economy as investments gain. Rating Upgrade While fiscal stability under Yudhoyono has put the economy on the verge of its first investmentgrade credit rating since the 1990s and foreign direct investment jumped almost 173 percent to $13.3 billion in 2010 from a four-year low of $4.9 billion in the previous year, projects including a six-lane highway in Java island have been hobbled by disputes over the price the government should pay owners for the land it needs. During the presidents first five-year term, only 125 kilometers (78 miles) of toll roads were built, compared with Chinas 4,719 kilometers of toll roads in 2009 alone. A 1961 law says that only the president can seize land if owners refuse to sell. The land-acquisition bill may come into effect next year if the president signs it within 30 days after being approved by the plenary session, Hidayat said. The law will set a deadline of 74 working days to resolve all legal issues in the event of objections to any land acquisition for infrastructure projects, he said. An independent appraiser will decide on compensation in the form of money or land relocation for people giving up the property for development, he said. (Bloomberg) Land acquisition hampers Bukit Asams railway project (Dec 13) The slow process of land acquisition has hampered the construction of a new railway track linking PT Bukit Asams mining site in Tanjung Enim, South Sumatra to coal terminal in Tarahan, Lampung. "The land acquisition hampers the railway project, Bukit Asams corporate secretary Achamd Sudarto said during a hearing with the Commission VII of the House of Representatives (DR) on Monday. He said China Development Bank (CDB) would provide loans up to about US$1.3 billion to finance the 307-km railway track. There is no problem with the funding for the project, he said. The railway which will be used to transport Bukit Asams coal from its mining areas in Tanjung Enim to the coal terminal in Tarahan will be built and operate by PT PT Bukit Asam Transpacific Railway (BATR), a joint venture between Rajawali Group through its subsidiary of Rajawali Asia Resources which holds 80 percent of share with PT Bukit Asam Tbk and China Railway Group Limited holding 10 percent each of the remaining. The railway project was expected to start operation at the end of 2015 or April 2016. The project will increase the capacity of the existing railway by 25 million tonnes a year to 47 million tonnes from 22 million tonnes at present. (Petromindo) TIMAH PLANS TO BOOST ITS COAL PRODUCTION TO TWO MILLION TONS PER ANNUM SOURCES (Dec 13) Timah plans to boost its coal production to two million tons per annum. The company also expects to acquire coal concession with minimum reserves of 50 million tons, according to corporate secretary of Timah. According to Kontan, online publication of Kontan business paper, PT Timah Tbk has secured financing commitment from banks of up to Rp 3 trillion to acquire coal concessions.

Kontan further reported that, "We have secured commitment from domestic and offshore banks between Rp2 and Rp3 trillion," said Abrun Abubakar, corporate secretary of Timah. The company expects to acquire coal concession with minimum reserves of 50 million tons. Timah currently owns one coal concession in South Kalimantan with annual production capacity of 1 million tons. (CS) BORNEO RESOURCE INVESTMENTS LTD. FINALIZES ACQUISITION OF INTEGRA PRIMA (Dec 13) Borneo Resource Investments Ltd., announced that it has finalized the acquisition of an additional 1,300 hectare coal mining concession in the south Kalimantan, Indonesia. According to GLOBE NEWSWIRE, through an agreement with PT Integra Prima, Borneo Resource has acquired full exploration, mining and production rights to 100% of the property, which is estimated to contain 8 million tons of high-quality steaming coal. As quoted by media, Nils Ollquist, Chairman and CEO of Borneo, commented, "This transaction marks the beginning of our 'roll up' strategy to build our reserves in Kalimantan. The Integra Prima property is worldclass, with an initial mining feasibility report from PT Geoservices which indicates high levels of surface distribution and shallow depth reserves of high thermal output and low ash/moisture steaming coal, suitable for use in power generation facilities in both India and China." He added, "We are already in discussions with a select number of end-users in India on possible joint ventures to bring the property into production, or sale of part or all of the concession. We believe that this property is an excellent asset for our portfolio, and is indicative of the types of concessions we look to add going forward." (Petromindo) Indonesia to Map Coal Mines to Avoid Overlapping Claims (Dec 14) Indonesia will start mapping all its coal mines to ensure there are no overlapping licenses issued for the same area, in a bid to improve its reputation with investors following several disputes. The move comes after one of the world's biggest mining firms threatened to take the country to international arbitration over a dispute, in a high-profile case that highlights the risks of doing business here. There have also been cases of foreign investors winning million-dollar compensation payouts from the Indonesian government over projects that failed to take off. This week, the director-general for coal and minerals at the Energy and Mineral Resources Ministry said the ministry is mapping mining areas in the hope of uncovering licenses that have not been reported to the central authority. "There are several disputes over overlapping licenses, not just Churchill's," said Thamrin Sihite. "Our aim... is to provide more legal certainty to businesses." Analysts note that the expansion of the mining industry went out of control after the authority to regulate it was taken out of the hands of the federal government and delegated to regional authorities in 2001. Economist Winarno Zain believes that more than 8,000 mining licenses have been issued to "unworthy and unqualified" investors. Resource-rich Indonesia is the world's largest supplier of thermal coal, but critics say that poorly regulated licensing has resulted in much pollution and even land-grabbing, affecting villagers. Experts say more has to be done to clean up the industry. "Mapping the areas alone does not mean an end to this issue," said consultant Noke Kiroyan, a former mining executive. "The purpose should be about putting order in this jungle." The government's latest move comes amid an ongoing dispute between London-based Churchill Mining and local company Nusantara Group in East Kalimantan province. In 2008, Churchill discovered a 2.8billion tonne coal reserve worth about US$1.8billion (S$2.3 billion), making it the world's seventh largest. It estimated that the East Kutai project would have earned it a pre-tax cash flow in excess of US$500 million annually over 20 years. But the Nusantara Group, which is controlled by opposition political leader and possible presidential candidate Prabowo Subianto, later managed to renew a lapsed license that overlaps with Churchill's. The two firms took the case to a local court, which ruled in favor of Nusantara. Churchill appealed to the Supreme Court in September, but the case could drag on for years.

In a 10-page letter it sent late last month to President Susilo Bambang Yudhoyono and several ministers, including those in charge of forestry and mining, and which was seen by The Straits Times, the company warned that it might take the matter to international arbitration. "If an amicable resolution cannot be achieved, we regret that Churchill will have no other choice than to initiate international arbitration against the Republic of Indonesia, thus putting Indonesia's reputation as a reliable country for foreign investment at risk," it said. Thamrin told Bisnis Indonesia that Churchill had every right to pursue arbitration, but added: "Once the courts issue a verdict, we will follow the procedure, we should not be scared." Last week, Churchill's executive chairman David Quinlivan told The Straits Times he hopes for a response from the Indonesian government within six months - failing which the company will go to the Washington-based International Centre for Settlement of Investment Disputes. A lawyer familiar with the matter said Churchill had a strong case at the international courts, but was unsure it would get its mining licenses reinstated, even with valid documents. "They have to be prepared for the long haul," he said. The case has put the spotlight not only on the risks of investing in Indonesia - which analysts say is fraught with obstacles such as red tape, corruption and political interests - but also on the issuing of mining licenses from the regional authorities. They say this opens the system to more corruption and disorder. But consultant Kiroyan said it is unlikely the central government will want to reclaim this right, as it would undermine the political authority of district heads and counter efforts to boost regional autonomy. He said: "What the government should do is allow the right of the licenses to be decided on by the district heads, but verified by the central authority to give it more certainty." Government told to make use of brown coal reserves [AUSTRALIA] A mining company has told a parliamentary committee Victoria needs to make more productive use of its coal reserves. Exergen is lobbying the State Government for the right to mine one billion tonnes of coal in the Latrobe Valley. It has plans to dry the brown coal and export it to India or use it for power generation. Exergen chief executive Jack Hamilton says the Government can create thousands of jobs and generate billions of dollars in revenue if it makes more coal available. "We want to have confidence that if we do what we say and the technology proves out, that we are able to develop a commercial project," he said. "We need to understand that coal will be available to us in commercial quantities." Mr Hamilton says the company is only seeking a small portion of what's available in the Latrobe Valley. "That's only a small amount of the 33 billion tonne of developable resource that the Government does actually hold in the valley," he said. Environment Victoria spokesman, Mark Wakeham, says the allocation Exergen is seeking would create the biggest coal mine in Victoria. He says the State Government should focus on renewable energy sources rather than granting mining licences to companies like Exergen. "Their proposals to clean up brown coal only get it to a similar standard to black coal," he said. "So it would still be an incredibly polluting product and its not in our interests to be developing an export industry based on this product." (ABC) INDUSTRIES Iron ore inventories dip in China (Dec 14) Inventories of iron ore at 25 major Chinese ports dipped 0.75 percent week-on-week to 99.6 million metric tons in the week ending on December 12, according to the Xinhua-China Iron Ore Price Index released on Tuesday. It was the first time in a month for iron ore supplies to fall below 100 million metric tons, with last week's inventories down by 750,000 metric tons, according to the index. The price index for 63.5-percent-grade imported iron ore dropped 1.36 percent to 145 points in the week, while 58-percent-purity iron ore imports remained unchanged at 119 points.

A decline in crude steel output dampened buying enthusiasm among most steel manufacturers and iron ore traders, who are still waiting to make a move in light of possible price fluctuations in the future, according to Xinhua analysts. According to customs data, China's steel exports stood at 45.16 million metric tons between January and November, up 13.8 percent from a year earlier, while steel imports fell 4.2 percent year-on-year to 14.39 million metric tons. Currently, China's domestic iron ore is cheaper than imports, putting Chinese steelmakers in a position to limit their purchases of raw materials, particularly from overseas. (China Daily) FREIGHT Boomtime buys lead to bust Two-thirds of shipping lines report deficits, shipyards fight for orders (Dec 14) For the world shipping industry, this year has been a grand hangover after a bender in 2010. Industry data show that two-thirds of the world's shipping companies reported deficits. Meanwhile, shipyards fought for diminishing orders, and ports - while still making profits - were busy with further investments. There are many causes of the industry's woes, especially the fragile global economic recovery. High unemployment rates and a weak housing market have caused US consumers to tighten their purse strings. European consumers have also watched their spending amid the region's debt crisis. Even emerging economies cannot be relied on, as governments battle against surging inflation rates. Weak demand, combined with an excess supply of vessels and rising fuel costs, worsened the situation. Analysts said that too many vessels had been ordered during the optimistic years before the 2008 global downturn. "The shipping industry as a whole has made a mistake by ordering too many vessels," said Nils Andersen, partner and group chief executive officer of the Copenhagen-based AP Moller-Maersk Group, the world's largest container ship operator by capacity. As a consequence, freight rates were depressed. Container rates declined to about $500 each on the Asia-Europe route, the major route for world trade, less than half of the peak last year. The Baltic Dry Index (BDI), a measure of shipping rates for bulk goods such as coal, iron ore and grain, peaked at 2,200 in October, having an average of about 1,600 for the year. That's a far cry from the level of 12,000 that was reached in 2008. Among the three large shipping sectors, containers and product tankers are more likely to recover, said Torben Skaanild, secretary-general and chief executive officer of the Baltic and International Maritime Council (BIMCO), the world's largest association of shipowners. "The product tanker sector has left an excessive inflow of tonnage behind and container shipping is likely to see strong demand once the wheels start turning," he said. For the BDI, "we foresee freight rates to hover around current levels throughout the remaining part of the year and well into 2012", Skaanild said. Difficult market conditions were expected to persist "until 2014 or even longer", said Yudhishthir Khatau, BIMCO president and board chairman. Amid a dull market, shipping lines ordered new fleets of larger vessels as a way to survive and become better competitors, especially with comparatively low vessel prices. In February, Maersk Line, the container division of AP-Moller Maersk Group, ordered 20 of the largest-ever container carriers. Scheduled for delivery in 2013, the vessels are designed to carry 18,000 containers each. The new ships would be deployed on the China-Europe route, and China's robust trade growth was expected to shore up the shipping business. "China is the biggest container shipping market and it is very important for us. In a way, these new ships are specifically planned for China," said Soren Karas, vice-president of Maersk Line North Asia Region. During the first 11 months of this year, China's total trade rose 23.6 percent year-on-year to $3.31 trillion. Exports surged 21.1 percent to $1.72 trillion while imports increased 26.4 percent to $1.59 trillion, data from the General Administration of Customs show.

"China needs to establish a larger domestic market in the future to cushion itself from external shocks like the current crisis. Until then, Chinese imports of dry bulk commodities remain vital to an oversupplied market," said Skaanild. "But during the current crisis, China has stayed buoyant and provided strong world trade to the benefit of the shipping industry," he added. (China Daily)