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TODAY’S MARKETS (Subscribers to 3000Xtra can click below to read the full report )

ENERGY Fire still burning at Shell Singapore refinery Venezuela delays Amuay refinery stoppage to Jan '12 AGRICULTURE Philippines' NFA head: Typhoon damage on rice

worrisome Cosan begins covering Santos sugar terminal Brazil could add 200 mln T cane in 2 yrs-Cosan Mexico will not open new sugar import quota in 2011 Brazil cocoa crop to ease back after 2010 surge India extends ban on vegoil exports - govt BASE METALS: Western Areas sees nickel tender sales locked in by

end Nov Japan Aug zinc exports rise 24 pct yr/yr ArcelorMittal discusses halting Spain steel plant Brazil's Votorantim to invest $3.2 bln in Peru-govt PRECIOUS METALS: Vietnam to allow more gold imports this week-

source Canada's Banro to start Congo gold mine in October

INSIDE COMMODITIES COMPILED ON THURSDAY, SEPTEMBER 29, 2011

Index (Total Return) Close Sep 28 Change YTD Thomson Reuters/Jefferies CRB 303.7654 -2.52% -8.73% S&P GSCI 4581.1 -2.66% -7.37% Rogers International 3633.35 2.97% -6.75% Dow Jones - UBS 143.2329 -2.61% -11.80%

Cont Commod Indx 577.09 -2.31% -8.33% Other Market Performance US STOCKS (DJI) 11010.9 -1.61% -4.89% US DOLLAR INDEX 77.731 0.45% -1.49% US BOND INDEX (DJ) 282.51 0.01% 5.43%

Contract (AS OF 0714 GMT) Price Change Net Change YTD NYMEX light crude $81.50 0.36% $0.29 -11.13% NYMEX RBOB gasoline $2.66 0.16% $0.00 8.05% ICE gas oil $894.75 -1.40% -$12.75 19.02% NYMEX natural gas $3.80 -0.11% $0.00 -13.76% Spot Gold $1,620.99 0.81% $13.05 13.28% LME Copper $7,056 -2.69% -$195.25 -24.47% LME Aluminium $2,214 -0.94% -$21.00 -9.51% CBOT Corn $6.33 0.32% $0.02 0.28% CBOT Wheat $6.42 0.47% $0.03 -19.58% Malaysia Palm Oil (3M) R2,875 -1.20% -R35 -23.18%

OIL: Brent crude fell to near $103 declining for a second day after a bigger-than-expected increase in U.S. stockpiles heightened concern that demand may slow and doubts over the eurozone rescue fund weighed on confidence. "A lot has been talked about but no agree-ment is in place," for the eurozone, said Alvin Liew, a senior economist at UOB Research in Singapore. "The uncertainty is out there."

METALS: Copper fell as investors worried over a German vote to beef up the euro zone's rescue fund. "Copper prices had been very high with very bullish news priced in, including the prospective significant re-stocking by China, which is not playing out at the moment," Citigroup analyst David Thurtell said.

PRECIOUS: Gold extended losses and dropped more than 1 percent as investors turned to the safety of the U.S. dollar on uncertainty about a resolution of Europe's debt crisis that has stirred up fears for global growth. "The dollar is likely to strengthen on a broad scale, at least short-term. That's definitely going to be weighing on performance. Closer to the 200-day daily moving average, we should find the bot-tom and I think that's still there," said Dominic Schnider, an analyst at UBS Wealth Management.

GRAINS: U.S. soy slid to a new 10-month low while corn lost more ground to drop to its lowest in three months as Europe's debt crisis continued to hammer the commodity markets. "I think the market is falling due to the economic pessimism. We still see that macroeco-nomic uncertainty is outweighing the fundamentals," said Lynette Tan, a grains analyst at Phillip Futures in Singapore.

GLOBAL MARKETS: Asian shares and commodities fell on growing worries that Europe's intractable debt problems will plunge the world into a second global financial crisis. "This is being driven by the clear realisation that while there are many plans as to how to deal with the Euro situation, the reality of getting agreement will be that much harder."

MARKET NEWS ( Click on the headlines below to jump to the story )

BEYOND THE HEADLINES

COLUMN-Taking a walk on the wild side: Andy Home

COLUMN-U.S. soybean exports primed for a boost: Gavin Maguire

At $80, oil shale slow-down closer than you think

Cocoa could defy bearish outlook with brief rally

Gulf Arab OPEC may tolerate oil below $90 India contracts to sell 400,000 T new season

soymeal China's iron ore imports seen soaring to 1 bln T

CLICK HERE TO SEE UPCOMING EVENTS AND CONFERENCES

EVENTS TO WATCH TODAY (GMT)

GERMANY UNEMPLOYMENT RATE SA SEP 2011 (0755) U.S. USDA AGRICULTURE EXPORTS WEEKLY (1230) U.S. EIA NATURAL GAS STOCKS WEEKLY (1430) S.KOREA INDUSTRIAL OUTPUT YY AUG 2011 (2300) JAPAN MANUFACTURING PMI SEP 2011 (2315) JAPAN CPI, CORE NATIONWIDE YY AUG 2011 (2330) JAPAN INDUSTRIAL OUTPUT PRELIM MM AUG 2011 (2350)

REUTERS FORECAST

CRUDE 341.0 MLN ↑ 1.9 MLN ↑0.8 MLN

DISTILLATE 157.7 MLN ↑ 0.1 MLN ↑0.6 MLN

GASOLINE 214.9 MLN ↑ 0.8 MLN ↑1.0 MLN

UTILIZATION 88.3 PCT ↓ 0.5 PT ↓0.6

ACTUALS

US OIL STOCKS FOR WEEK ENDED Sep 23

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Philippines' NFA head: Typhoon damage on rice worrisome MANILA, Sept 29 (Reuters) - The head of the Philippines'

grain procurement agency said on Thursday he was worried about the damage to rice crops by Typhoon Nesat and could not rule out the need to import rice soon to replenish reserves.

Reports from local govern-ments of heavily-flooded provinces showed a bigger crop damage than the Agri-culture department's initial estimates, with damage to standing rice crop in Cen-tral Luzon region alone reaching more than 103,000 tonnes, National

Food Authority (NFA) Administrator Angelito Banayo told Reuters.

Central Luzon was expected to produce 1.4 million tonnes of unmilled rice in the fourth quarter, or about 22 percent of the forecast national output.

Western Areas sees nickel tender sales locked in by end Nov PERTH, Sept 29 (Reuters) - Western Areas , Australia's third-largest nickel miner, said on Thursday it expects to conclude a new round of tenders to sell its nickel concen-trate by the end of November.

"We have received expressions of interest from major par-ties and have set a deadline to convert those to commercial fruition by the end of November," Western Areas opera-tions director Daniel Lougher said at an industry confer-ence in Perth.

Lougher said with the company's current 25,000 tonne supply contract to sell nickel concentrate to China's largest nickel smelter, Jinchuan, due to expire in February next year, Western Areas has significant uncommitted nickel supplies available to smelters in 2012.

Vietnam to allow more gold imports this week-source HANOI, Sept 29 (Reuters) - The State Bank of Vietnam has granted quotas for gold companies and banks to import four to five tonnes of the precious metal this week in an effort to narrow the gap between domestic and world prices, an industry source said on Thursday.

The central bank gave importers quotas late on Tuesday and the gold would be delivered this week, said the source, who is familiar with the development. This is the fourth time that such imports have been authorised since August.

Japan Aug zinc exports rise 24 pct yr/yr TOKYO, Sept 29 (Reuters) - Japan's refined zinc exports rose 24 percent in August from a year earlier to 7,846 ton-nes, climbing year-on-year for the first time since January as output gradually recovered from the massive earth-quake in March.

Exports have been hit by the March 11 quake and tsunami, which shut nearly 65 percent of the country's production capacity for zinc, used in automotive steel sheet and con-struction materials.

But Japan's top zinc smelter, Mitsui Mining and Smelting Co , resumed operations at its Hachinohe zinc smelter in early June.

Fire still burning at Shell Singapore refinery SINGAPORE, Sept 29 (Reuters) - A fire continues to burn on Thursday at Royal Dutch Shell's largest refinery, its half a million barrels per day Singapore plant, but the blaze is under control, Singapore Civil Defence Force (SCDF) said in a statement.

The fire at the refinery on an island off Singapore's shores hit the refinery on Wednesday, forcing Shell to close down a hydrocracking unit that helps make diesel fuel as a safety measure.

"Fire fighting operations are still underway at the affected area," the SCDF said in the statement. "There are currently about 100 SCDF fire fighters fighting the fire with 6 fire engines and 13 support vehicles. About 250 essential Shell personnel are also on Pulau Bukom."

Cosan begins covering Santos sugar terminal SAO PAULO, Sept 28 (Reuters) - Cosan, The world's larg-est sugar exporter, has begun building a long-awaited rain shield over a bulk sugar terminal in Brazil's main port of Santos, the company's CEO said on Wednesday.

The cover, which is expected to be fully operational in April 2012 -- the start of the next Brazilian cane season -- should boost the flow of sugar through Cosan's terminal by allow-ing it to load in rainy weather.

"We lose on average 95 days every year due to rains in San-tos. We'll gain something close to 40 percent of capacity at the covered berth," CEO Marcos Lutz told Reuters on the sidelines of an event. The project spent months waiting for government clearance.

Venezuela delays Amuay refinery stoppage to Jan '12 PUERTO LA CRUZ, Venezuela, Sept 28 (Reuters) - Vene-zuela will delay a planned 70-day maintenance stoppage of key units at its 645,000-barrels-per-day Amuay refinery until January, a top official at the state oil company said on Wednesday.

The repairs at Amuay, which will include the facility's cata-lytic cracker and several smaller units, had originally been scheduled to take place later this year.

Amuay is part of the Paraguana Refining Center (CRP), one of the biggest oil refinery complexes in the world.

Jesus Luongo, PDVSA director and CRP general manager, told reporters at an oil conference in Puerto La Cruz the stoppage would now take place in January 2012.

"The big stoppage that we had planned for the last quarter of this year, the Amuay catalytic complex, is being post-poned until January ... to last for 70 days," he said.

MARKET NEWS

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Brazil could add 200 mln T cane in 2 yrs-Cosan SAO PAULO, Sept 28 (Reuters) - Brazil could add 200 mil-lion tonnes of cane to its crop in two seasons, simply through the recovery of existing cane yields, the chief ex-ecutive of the country's largest sugar and ethanol producer Cosan said on Wednesday.

Yields in Brazil have fallen dramatically this year due to aging cane fields that are overdue for replanting and unfa-vorable weather conditions during the crop development.

Brazil, the world's largest sugar producer and exporter, is expected to crush no more than 589 million tonnes of cane, down sharply from 642 million tonnes forecast in May at the start of the season, according to official estimates.

This is the first drop in output in more than a decade.

Canada's Banro to start Congo gold mine in October TWANGIZA, Democratic Republic of Congo, Sept 28 (Reuters)-Canadian gold mining company Banro will start producing gold at its Democratic Republic of Congo mine on Oct. 10, ramping up output to 120,000 ounces per year by January, the company said on Wednesday.

Banro's Twangiza mine, in the eastern province of South Kivu where rebel groups operate, is the first new gold min-ing project in Congo for more than half a century.

Twangiza, high in the hills of eastern Congo, is the first of four mines the company plans to open on a 200 km gold belt, with a total production target of 400,000 ounces per year by 2014, Gary Chapman, the company's vice president of operations, told Reuters during a presentation at the site.

Mexico will not open new sugar import quota in 2011 MEXICO CITY, Sept 28 (Reuters) - Mexico does not need more sugar imports beyond the 150,000-tonne quota opened earlier this year, since there is enough supply to cover national demand, the government said on Wednes-day.

"There is one (import quota) for 150,000 tonnes which is in process and right now we don't see a need for another one," Lorenza Martinez, the deputy economy minister, told Reuters.

In August, the economy minister said the government was mulling doubling the quota to stabilize prices, but Marti-nez said prices are trending down eliminating the need for more imports. ArcelorMittal discusses halting Spain steel plant LONDON, Sept 28 (Reuters) - ArcelorMittal is in talks with trade unions over a temporary shutdown of its Sestao steel plant in Spain, the world's top steelmaker said on Wednes-day.

Since early September ArcelorMittal has already an-nounced it will idle two blast furnaces, one in Germany and one in France, as well as one electric arc furnace and two rolling mills in Luxembourg, due to weaker steel de-mand in Europe.

The ArcelorMittal Sestao plant includes two electric arc furnaces and seven rolling mills and has a capacity of 1.8 million tonnes of hot rolled steel coils and 600,000 tonnes of pickled coils per year.

Brazil's Votorantim to invest $3.2 bln in Peru-govt LIMA, Sept 28 (Reuters) - Brazil's Votorantim, the world's

No. 3 zinc producer, plans to invest $3.2 billion in Peru in the next five years, Peru's prime minister said on Wednesday.

The government also expects to announce an investment in a large hydroelectric

plant in the jungle region between the Apurimac and Ene rivers, Salomon Lerner, President Ollanta Humala's prime minister, said without giving details.

Investors have warmed to Humala, a leftist who once scared them with anti-capitalist rhetoric. He was elected in June after campaigning as a moderate and appointed a centrist cabinet to be run by Lerner, a wealthy business-man.

Brazil cocoa crop to ease back after 2010 surge BRASILIA, Sept 28 (Reuters) - Brazil's main crop cocoa harvest, which officially starts next week, will be of a fairly typical size but fall far short of last year's stellar harvest, local cocoa analyst Thomas Hartmann said on Wednesday.

Hartmann, who is based in Brazil's top cocoa state Bahia and has worked in the sector for four decades, said pod counter estimates showed the state would produce 800,000-900,000 60-kg bags compared with 1.26 million bags in 2010's main crop.

"It will be within the the norm of the previous few years," Hartmann said. He said no estimates were yet available for Brazil's other, smaller cocoa states but he guessed output would be around the usual 380,000 bags (22,800 tonnes).

The main crop runs from October until the end of April. Despite its name, the main crop is usually smaller than the May-September mid-crop, the second harvest each year. The mid-crop is set to end well above initial forecasts.

India extends ban on vegoil exports - govt NEW DELHI, Sept 28 (Reuters) - India has extended a ban on exports of vegetable oils by a year to Sept. 30, 2012, a government statement said on Wednesday, continuing its cautious approach in farm trade to ensure local supplies at moderate prices.

India, the world's biggest cooking oil importer, used to ex-port tiny quantities of coconut and groundnut oils before the ban was imposed in early 2008.

The government would not restrict exports of edible oils in branded consumer packs of upto 5 kilogrammes, with a cap of 10,000 tonnes, until Oct. 31, 2012, the statement said.

MARKET NEWS

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MONTH AHEAD EVENTS CALENDAR

Date Events/Indicator (Times in GMT)

Energy

Today IAEA Board of Governors meet. BEIJING - Clean Coal China Congress 2011 (CCCC 2011) (to September 29) ;VIENNA

Oct-02 The 19th Annual Middle East Petroleum and Gas Conference (to Oct. 4). Link: http://www.cconnection.org/conference/MPGC/2011/MPGCHome.html, DUBAI, UAE

Oct - 12 Gas Introductory and Advanced course, 12-12 October in Dusseldorf (http://www.pointcarbon.com/events/trainingcourse/ )

Oct-17

IAEA International Conference on the Safe and Secure Transport of Radioactive Ma-terial: The Next Fifty Years of Transport - Creating a Safe, Secure unable Framework (to t. 21); VIENNA

Oct-31 The 10th (WWECC) World Wind Energy Conference & Renewable Energy Exhibition: Greening Energy: Converting Deserts into Powerhouses (to Nov. 2);CAIRO

Nov-07 CA - 4th CLSA AsiaUSA Forum 2011 (to Nov. 9); SAN FRANCISCO

Nov-14 IAEA Technical Assistance and Co-operation Committee meeting (to Nov. 16); VI-ENNA

Nov-14 IAEA International Conference on Research Reactors: Safe Management and Effec-tiveUtilization (to Nov. 18); RABAT

Nov-17 IAEA Board of Governors meet (to Nov. 18) ; VIENNA

Nov-29 Refining and Petrochemicals in Russia and the CIS Countries, 15th Annual Roundta-ble (toDecember 2) ; GENEVA

Metals

Today 11th China International Steel & Raw MaterialsConference (to Sept. 29) ; QINGDAO - CHINA (http://www.ironoreconference.com/en/home.asp )

Today 4th International Stainless Steel Symposium (to Sept. 29);BIRMINGHAM, UK

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COLUMN

Taking a walk on the wild side: Andy Home (Andy Home is a Reuters columnist. The opinions expressed are his own)

LONDON, Sept 28 (Reuters) - The LME industrial metals are currently showing their "wild" side, registering huge intraday movement and historically high levels of volatility.

This is not new, as my colleague John Kemp pointed out in a column earlier this week.

Commodity markets have always been prone to sudden shifts from well-behaved volatility to a "wild" state and back, to coin the expression used by French mathematician Benoit Mandelbrot.

Indeed, with the benefit of that most useful of analytical tools, hindsight, the current bout of wildness can be at least partially explained both in terms of trigger and me-chanics.

The problem is that investor strategies are shifting to ac-commodate this volatility, a development that risks bring-ing with it ever more frequent bouts of wildness.

A ONE-DIMENSIONAL NARRATIVE

As ever with the LME industrial metals it is copper that of-fers the greatest insight into what has changed since the current rout started last Thursday.

Prior to then, three-month copper had been trading side-ways around the $9,000 per tonne level.

This, let us remind ourselves, is a very high price level by any historical yardstick. Graphic on copper market volatil-ity: http://graphics.thomsonreuters.com/ce/CU-VOL.pdf

The narrative constructed into that price was appealingly simple.

It was predicated first and foremost on supply or rather, in copper's case, the lack of it.

The well-documented combination of low ore grades at many of the world's biggest mines and systemic disruption due to labour unrest led most analysts to believe that global mine supply growth would be close to zero, maybe even negative, this year.

On that basis any demand-side growth, however sluggish, could mean only one thing, namely a deficit market, a drawdown on already low stocks and higher prices.

The only issue was one of timing with China, the world's largest buyer of copper, stubbornly refusing to play to the script and aggressively de-stocking rather than sucking in more metal.

Bull believers were undeterred, arguing that after almost a year the de-stocking cycle was fast approaching an end, meaning previously hidden market deficit would become tangible deficit in the form of draws on visible exchange stocks.

It was a one-sided narrative since by its nature it focused far more on the supply side than the demand side.

The upshot was a collective denial that slowing global growth could derail prices. Indeed, until very recently some analysts were bemoaning the macro "noise" that they felt was interfering with the supply-defined "bullish" narrative for copper.

Moreover, apparently forgetting what happened to the risk assets universe in the tail end of 2008, too few, if any, commentators factored in what renewed stress in the wholesale funding markets would mean.

This is particularly relevant to the LME-traded metals. Since the LME is not cash-cleared but rather structured as a forwards market, it is as much about credit as metals.

Copper demand may be partly immunised from renewed recession in the euro zone just as long as China keeps growing but trading the stuff on the LME is directly af-fected by the credit market stress caused by the prospect of euro zone default.

WARNING SIGNS

What triggered the collapse in copper and other base met-als was the steady accumulation of negative macro "noise" to the point that the previous bull narrative collapsed.

And there were warning signs that if it did, it was always going to be a wild affair.

One of the little-noted features of the copper market in recent months was the emergence of a volatility "skew" in the options market.

In essence the options market was placing a premium on downside exposure (puts), reflecting the steady accumula-tion of open interest on options such as the December $8,000 strike (10,495 lots).

It was a signal of market-maker nervousness about the likely ramifications of a sudden dramatic downside move.

Those $8,000 put options, for example, were safely "out of the money" when copper was trading at $9,000. But as the price fell towards that level, selling by options delta-hedgers added to the downside momentum.

Incidentally, that options-derived momentum works both ways. If copper were to accelerate back up to the $8,000 level, options players will unload their delta cover, again exacerbating the underlying move.

Another warning sign came from the collective positioning of the "black box" CTA traders, who feed off technical sig-nals, most pertinently momentum.

Fund-watchers on the LME estimate the systematic com-munity went from collective long to collective neutral some time in early August.

It then started to shift into collective short territory around the middle of last month, meaning that it was poised to capitalise on any downside acceleration.

Collective CTA selling on last Thursday's break lower fu-elled market momentum, which in turn triggered more selling from the momentum-trackers.

Over the course of the last week the CTA systematic com-munity has lifted its short exposure from around 50 per-cent of effective capacity to somewhere close to 100 per-cent. In tonnage terms that's equivalent to around 700,000 tonnes of sales.

In other words wildness created more wildness, both from options delta-hedging and from systematic momentum trackers.

(Continued on page 6)

BEYOND THE HEADLINES

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MORE WILDNESS PLEASE?

Both parts of the wildness mechanics are "known knowns" in the LME market-place, although they are both easy to forget when the market is being "well behaved".

What is a "known unknown" is to what extent other bigger investors are now also seeking to exploit bouts of market wildness.

At last week's S&P GSCI Commodities Seminar speaker after speaker lined up to argue that passive investment in commodities has run its course.

A new generation of indexes with enhanced roll strategies may have helped eliminate some of the negative roll prob-lems that have undermined index performance in recent years.

But that doesn't address the two bigger issues facing insti-tutional investors with passive long exposure.

Negative correlation with other asset classes, a foundation stone of the whole commodities-as-investment-class the-ory, has been conspicuously absent in recent months.

And being passively long doesn't do the investor much good when commodity prices stop rising and start falling.

As analysts at Barclays Capital noted in their September issue of "Commodity Cross Currents", passive indexes per-formed well last year, when commodities were generally rising across the board.

But they have been the worst sector performers this year, which has been characterised by increased volatility and high degrees of divergence between individual compo-nents of the indexes.

Barclays' advice to institutional investors is to get more active, incorporating strategies that try and exploit move-ments in spreads, the shape of forward curves and indeed outright direction.

It is not alone.

Other big investment banks are urging the same, layering active management over passive positions, or, to use the fund industry's terminology, mixing alpha with beta strate-gies.

Panellists at last week's seminar, most of them from the asset management side of the banking business, mused on whether a natural progression for commodity markets would be to use some of the tool-kit available in other as-set classes such as momentum and volatility strategies.

Which starts to sound a lot like the way the systematic CTA community views market "wildness" as a way of generat-ing profits.

If the previously passive investment sector decides to take a walk on the wild side, it will do so with huge fire-power. BarCap estimates total index investment in commodities at the end of June totaled $157 billion.

The clear danger is that such weight of money becoming active will only accentuate commodities' existing "wild" side.

COLUMN-U.S. soybean exports primed for a boost: Gavin Maguire (Gavin Maguire is a Reuters market analyst. The views ex-pressed are his own. To get his real-time views on the mar-ket, please join the Global Ags Forum)

CHICAGO, Sep 28 (Reuters) - The sharp decline across commodity markets has reset global soybean prices and should help make U.S. soy exports more competitive in coming months.

For much of 2011, U.S. soybeans tended to trade at a pre-mium to crops in other regions, keeping U.S. soy exports in check. But with U.S values much more closely aligned with those of South America, U.S. exporters should see a nota-ble pick-up in export activity over the remainder of 2011.

GLOBAL RESET

While heavy price pullbacks proved harrowing for produc-ers and sellers, the upside was that shakeout served to re-draw the global landscape for soybean values by better aligning prices from North and South American origins.

The sharp slump in soy values through most of September drove U.S. soy export values to below those of Argentina and within 1 percent of Brazilian values for October ship-ment.

Graphic: http://link.reuters.com/dyw93s

The recent price tumble occurred just as U.S farmers com-menced the 2011 crop harvest while South American grow-ers weigh which crops to sow for their upcoming growing season.

For much of 2011, corn's impressive price performance and U.S. crop issues have kept that grain in the limelight. Anec-dotal evidence suggests the high global value of corn has spurred South American farmers to consider boosting corn acreage at the expense of soybeans and other crops.

But with corn and soybean values suddenly 10-12 percent cheaper than they were at the beginning of the month, market focus looks set to shift from production to demand, with special attention paid to any signs of wholesale bar-gain hunting by major consumers.

Traders will be particularly alert for any hints that China may surface as a strong buyer, given that country's need for major crops and deep pockets required to pay for them.

CHINA'S SOY IMPORT DEPENDENCE

Given that China's own corn harvest is set to get underway, it is unlikely Chinese traders will be particularly active in the corn export market any time soon.

But the country's almost total reliance on the import mar-ket for its extensive soybean needs makes it likely that it will engage in strong bursts of soy import purchases as the U.S. soy harvest gets underway.

Historical data shows China sources a majority of its soy-bean requirements from the United States between Octo-ber and March, then shifts origination to South America as harvest gets underway in Argentina and Brazil.

(Continued on page 7)

BEYOND THE HEADLINES

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So given the newly competitive status of U.S. soy prices, and reports that South American growers are contemplat-ing dialing down soy acreage in favor of corn, Chinese buy-ers may be prepping for aggressive soy import purchases over the coming weeks as fresh soy supplies emerge from U.S. fields.

Graphic: http://link.reuters.com/fyw93s

Given China's dominance as the top destination for U.S. soybeans - accounting for more than 60 percent of all U.S. soy shipments in recent years - U.S. soy exporters will be keenly aware of the potential scale Chinese buyers can op-erate at should the right conditions present themselves. Graphic: http://link.reuters.com/gyw93s

With the U.S harvest less than 10 percent complete, it re-mains to be seen whether Chinese buyers will wait until more of the crop has been cut before it steps in to lock down acquisition deals. But with U.S. values as competitive as they've been all year, it seems only a matter of time be-fore U.S. soy exporters get tapped for more China-bound deals.

At $80, oil shale slow-down closer than you think By Selam Gebrekidan

NEW YORK, Sept 29 (Reuters) - As commodity markets unravel, oil traders looking for signs of a floor in oil prices would do as well to watch producers in North Dakota as closely as they watch officials in Saudi Arabia.

Just as the boom in oil shale production in places like the northern Bakken and Eagle Ford, Texas, has shocked ana-lysts with its speed and breadth, a sharp slowdown in growth if U.S. oil prices tip below $70 a barrel may also come as surprise.

While some producers like Hess Corp. call regulation the biggest threat to shale oil, the latest downturn in oil prices may prove the first real test of producers' resolve in these new "tight oil" plays.

During the last oil price collapse in 2008, shale regions were focused on natural gas. Since then, however, compa-nies have poured cash into oil developments, leading to a 10 percent hike in total U.S. crude production.

And though the size of each shale well is minuscule next to the multibillion-dollar projects that dominate the oil indus-try, the impact of slowing investment may be felt far more quickly adding to oil companies' angst about plummeting oil prices.

"They're worried. They're not changing their behavior yet but as prices come down, the question is where is this go-ing to stop," said David Pursell, managing director of con-sultancy Tudor, Pickering, Holt & Co. in Houston.

U.S. oil prices have dropped 33 percent from peaks of $114.83 this year, dragged by recession fears in the United States and the euro zone crisis.

VARYING APPRAISALS

Estimates of U.S. shale oil break-even economics -- the cut-off price below which companies' rates of return drop below 10 percent of their investment -- vary widely, from $35 a barrel to $85, depending on the complexity of the

geology, the regional drilling costs, and the output of a well.

"It's like a nursery where everyone thinks their baby is pret-tier than the others. Each company assumes its assets are better and this perception matters more than actual well results," Pursell said.

Graphics on shale play economics:

(http://link.reuters.com/jac24s)

Oil companies are unlikely to shut existing wells unless prices fall to an unthinkable $20 a barrel but the nature of shale production means any disruption to the pace of growth will have rapid repercussions.

Unlike big offshore, conventional oil fields that can pro-duce steadily for years or decades, the "fracking" process used to produce from shale reserves incurs steep output declines of individual wells in the first few years of produc-tion. Some estimates say well output in the Bakken can drop 50 percent after the first year.

This forces oil companies to regularly add new wells to maintain current rates of output.

Meanwhile, fracking and other production costs in North Dakota have surged by a third, raising the break-even cost that can spell the difference on decisions to make new in-vestments.

Drilling costs in the Bakken and Eagle Ford have gone up by 35 to 40 percent from January 2010 to the end of the second quarter this year, according to a new index by en-ergy analyst IHS CERA, and companies may have to rethink their strategies as they devise budgets for 2012 and be-yond.

BAKKEN BREAK-EVEN

The impact of the shale oil hit markets early this year. U.S. crude slumped to a record discount versus global bench-mark Brent when a glut of crude -- from Bakken and Cana-dian oil sands -- piled up in the mid-continent, unable to reach the premium Gulf Coast market due to a lack of pipe-lines.

Output from shale prospects in unconventional sources from North Dakota to Texas could reach 1.5 million to 2 million barrels-per-day (bpd) in the coming five to seven years, twice as much as the 700,000 bpd currently pro-duced, John Hess, CEO of Hess Corp told an energy confer-ence Tuesday.

That is if drilling stays lucrative. A Reuters survey of com-pany data and analysts' reports shows those drilling in Bakken, where output topped 420,000 bpd in July, can walk away with reasonable returns if oil stays above $60 a barrel.

The break-even estimates for Bakken crude ranges from $40 in northwest North Dakota and Eastern Montana to just under $70 east of the Nesson anticline, the geological fold where most of the region's oil reserves reside, analysts' estimates show.

The North Dakota Industrial Commission, which regulates the prospect's production, says companies spend between $7.5 to $9.2 million on a well, on average, and will con-tinue to add more wells if oil stays above $60 a barrel.

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That break-even price also depends on the markets pro-ducers can reach. Crude sold in Oklahoma, where prices are tied to U.S. futures, get less than barrels that reach the Gulf Coast, where crude sells at a differential to Brent.

EAGLE FORD BREAK-EVEN

There is even more variation in return estimates for wells in the Eagle Ford play, where production reached 272,000 bpd in June, according to energy consultancy Bentek. More risks exist in the newer frontiers like the Eagle Ford or the Niobrara in Colorado since drilling there is a mere two years old.

In the Eagle Ford, south-central Texas wells with higher mix of methane and the best output are lucrative if oil stays above $40 a barrel, while those in the eastern-most reaches of the prospect will lose money if oil dips below $80.

"Places like Bakken have a lot of momentum and they're pretty far along there. But how much motivation is there going to be to spend a lot of money in the new oil plays if oil goes to $60 or $65," asked Christopher Miller, manag-ing director of Energy Investment Banking at Citigroup in Houston.

"So I think (low prices) are going to start to back some of that stuff out," he added.

Others say output can crest even without the addition of new and expensive drilling rigs so long as producing wells stay in business. Companies have learned to manage de-cline rates better and drill more wells more quickly in re-cent years.

Yet, decisions to drill in emerging shale plays are rarely based on current well economics, according to some ana-lysts.

"At this point, they're drilling to do research and develop-ment. These are science experiments," says Tom Driscoll, E&P analyst with Barclays Capital in New York.

Cocoa could defy bearish outlook with brief rally By Sarah McFarlane

LONDON, Sept 28 (Reuters) - Cocoa prices have the poten-tial to rise for a short period in coming weeks, even while analysts predict a record 2010/11 surplus, as speculators move to cover a record short position.

West Africa is awash with cocoa after a bumper 2010/11 crop, which along with improving crop prospects for 2011/12 has helped drive New York cocoa futures down almost 30 percent from their 32-year high in March.

"It's hard to see how rallies are going to be sustained, but I do think we'll have one," said Jonathan Parkman, joint head of agriculture at brokerage Marex Spectron, adding that prices looked fair value around current levels.

Estimates for the 2010/11 global cocoa surplus are balloon-ing. Earlier this week Singapore-listed Olam International said it expected a surplus of close to 450,000 tonnes.

And while it's early to estimate 2011/12 output, recent weather forecasts for a return of the La Nina phenomenon, which helped boost West African production to record lev-els the previous crop, have shown the potential for a huge output.

Last week the International Cocoa Organization bucked the market consensus view of a small global cocoa deficit in 2011/12, to predict either a balanced market or slight sur-plus.

Compounding the ample supplies is a weakening demand picture that could also weigh on prices. Cocoa demand growth is closely correlated with global economic growth, which is seen slowing.

"At the moment we have (forecast) 2.5 percent demand growth for 2011/12. That could easily fall to 1 percent," said Kona Haque, an analyst at Macquarie bank.

As fundamentals have looked increasingly bearish, specu-lators in the New York-based ICE futures market have raised short positions in cocoa futures and options by 70 percent to the biggest on record, according to Commodity Futures Trading Commission (CFTC) data.

They are hoping to capitalise on any price falls, but if prices rise, they may want to close positions by buying futures. That could trigger a rally in the futures market.

"Massive short positions do anticipate a price reversal," said Lysu Paez Cortez, an analyst at Natixis.

EVEN A SMALL RISE

Even a small price rise in cocoa triggered by anything from a change in weather to technical factors could still prompt shorts to cover.

"I think they (funds) will cover some of their position as we start to challenge key levels over head," said Luis Rangel, vice-president of commodity derivatives with ICAP North America.

A short-covering rally could be matched, however, by si-multaneous selling by producers, which is due to start shortly as West Africa's main crop harvest is imminent.

"There's less chance of a big change in the speculative po-sition having such an impact in October, November and December, because you get more origin selling at that time of year," said a European commodities fund analyst.

Shifts in the speculative position at other times of year can lead to more volatility.

Nonetheless, dealers held that the market has potential for a brief rally due to the fact that funds tend be more nimble than producers in the market.

"The issue is always that the speed with which the system and managed money funds move is much quicker than the speed with which cocoa gets hedged," Marex's Parkman said.

As long as the new West African crop has not yet hit the market, there remains a window for a rally.

"We are not seeing enough origin pressure just yet to pro-tect the neophyte spec shorts, so they may be exposed in the next week or so amidst this macro rally in asset prices," Rangel said.

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He cited key levels likely to spur short-covering in the ICE December cocoa futures contract at $2,753 per tonne, then $2,787 and then $2,850. Benchmark December ICE cocoa futures traded at about $2,661 on Wednesday.

Gulf Arab OPEC may tolerate oil below $90 By Amena Bakr and Alex Lawler

DUBAI/LONDON, Sept 28 (Reuters) - Oil prices may be $20 off April's $127-a-barrel peak but there is no panic in Riyadh, Kuwait City or Abu Dhabi. Far from it.

Oil policy officials in the capitals of OPEC's Gulf Arab price doves Saudi Arabia, Kuwait and the United Arab Emirates are relaxed and won't be losing sleep if prices fall further.

One senior official in the region told Reuters those produc-ers are unlikely to reduce supplies to try to stem a decline in oil prices unless crude falls below $90 a barrel for a sus-tained period.

Others did not specify an ideal price range but said they would maintain high output and could tolerate a further decline in prices.

Brent crude , trading around $107 on Wednesday, has fallen some $15 since the start of August as the economic outlook darkened and following the release of strategic consumer reserves and extra supplies from Gulf OPEC pro-ducers in June.

The prospect of Libyan oil returning to the market after a first post-war cargo shipped on Tuesday is also beginning to weigh on prices. Libya is hoping to restore full output in 12-15 months.

"The price has come down but it is still above $100," said an official from one Gulf Arab OPEC member. "$90 is still high," the official said.

The three Gulf producers lifted supply sharply in June after failing to convince the rest of the Organization of the Petro-leum Exporting Countries, at a bad-tempered meeting, to back a proposal for a formal increase.

Despite forecasts for a double-dip recession , Gulf Arab supplies remain high and Saudi and its Gulf allies do not appear ready to intervene and prop up prices by withdraw-ing supplies any time soon.

"I don't see Gulf countries cutting back too much from their production. This will be more of a gradual process and I really don't think Libya will be back in the timeframe that was given," an official from a second Gulf OPEC producer said. "As for the price, it's still high for now."

OPEC's Gulf members are typically the 12-member organi-sation's most moderate on prices because they do not want high energy costs to restrict economic growth and long-term demand for their main source of export revenue.

Others like Iran, Venezuela and Algeria, who opposed the call for more oil from OPEC in June, have lesser oil reserves and bigger populations and prefer to keep prices as high as possible.

SAUDI FINANCES FLUSH

The fall in price towards $100 a barrel has raised specula-tion in oil markets about what price level might cause Saudi Arabia to step in to protect its revenues.

Many oil analysts have said that Riyadh now needs a higher price to balance its budget and pay for the extra social spending by the Saudi government to insulate its population from the Arab Spring.

Saudi finances, though, remain strong. Riyadh is on course to earn nearly $300 billion in oil revenue this year, $50 bil-lion more than planned and has $550 billion in foreign re-serves, former Saudi intelligence chief Prince Turki al-Faisal said in a speech on Tuesday.

"They're sitting pretty at the moment." said oil consultant Bill Farren-Price of Petroleum Policy Intelligence of the Gulf Arab group. "Anything above $90 is fine. They want to support the economy and they appear to have no appetite for re-engaging with the rest of OPEC until December."

"Given the Kingdom's interests in satisfying fiscal require-ments and maximizing over time the revenues from its massive oil reserves, we think a price range of between $70 and $90 per barrel is currently a 'sweet spot' for Saudi Ara-bia," said Jadwa Investment, a company founded by Saudi royalty, in a report on Saudi finances.

Demand, driven by economic growth or lack of it, will de-termine the pace at which Saudi, the UAE and Kuwait dial back supplies.

"We are looking closely at demand figures and this is what will determine how much and when to cut," said the sec-ond Gulf official.

OPEC OUTPUT AT 30 MILLLON BPD, 3-YEAR HIGH

Oil output from OPEC hit a 3-year high in August above 30 million bpd, a Reuters survey found.

It indicated no sign of Saudi or its Gulf allies cutting back the output they provided to offset missing Libyan oil.

Having provided extra barrels without a formal OPEC deci-sion in June, they may choose to reduce their output quietly through the monthly sales process if demand weaken s.

Although concern about the U.S. economy and Europe's sovereign debt problems have weighed on oil prices, de-mand remains robust in faster-growing regions such as Asia and the Middle East.

"If you look at the non-OECD, yes it is slower than last year but it is still strong," another OPEC member country official said.

OPEC's next scheduled meeting to set formal policy is in December and, delegates say, it is highly unlikely to gather before then.

India contracts to sell 400,000 T new season soymeal By Rajendra Jadhav

MUMBAI, Sept 28 (Reuters) - India, Asia's top soymeal ex-porter, has so far struck deals to export 400,000 tonnes of new season soymeal, down by almost half the amount it usually sells around this time, due to uncertainty over de-mand and falling prices, a senior trade official said on Wednesday.

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"People are not sure about prices. Everyone is going very cautiously and slow on exports front due to volatile prices," Rajesh Agrawal, chief co-ordinator at the Soybean Proces-sors Association of India, a top trade body, told Reuters.

The deals for 400,000 tonnes were signed at free on board (FOB) price of $365 to $400 per tonne, mostly to Asian buyers for shipments by January.

Indian soymeal is preferred by Asian buyers over Latin American supplies as it is derived from non-genetically modified soybean. Geographical proximity also makes In-dian soymeal less expensive for Asian importers.

India has been selling soymeal on discount to prices from Argentina and Brazil, he said.

FOB soymeal price fell over 10 percent in September to about $360 per tonne, and those levels are likely to fall further in October when the new supplies rise.

But a sharp drop in prices are unlikely for a long time, Agrawal said.

"Even if they will go down, it will be temporary because we are very competitive at the current price ... there is good demand from Japan, Pakistan and Bangladesh," he said.

A drop in prices is unlikely to hurt Indian exporters much as the Indian rupee is weakening against the U.S. dollar along side sliding domestic soybean prices, Agrawal said.

The partially convertible rupee has slipped nearly 10 per-cent from its strongest point late July, primarily on dollar outflows out of emerging economies like India to safe ha-vens.

NEW SUPPLIES

Soybean arrivals have started in the top two producing states of Maharashtra and Madhya Pradesh and supplies are likely to rise substantially in October, Agrawal said.

Oil millers crush soybean to produce oil and meal, used mainly as an animal feed.

India is the world's fifth-biggest soybean producer after the United States, Brazil, Argentina and China, and it contrib-utes about 5 percent to global output.

Domestic demand for soybeans in India, fueled by a grow-ing population and economic wealth in Asia's third-largest economy, will result in the country becoming a net im-porter by 2015, a global producers' lobby has said.

Japan, Vietnam, Thailand and Iran are key buyers of Indian soymeal.

"Even if soymeal price goes down, exports will not go down. They will rise. Soymeal availability will rise due to a bumper soybean crop," Agrawal said.

He refused to provide the output number as the association is doing a farm survey, the result of which is likely to be released this week.

Atul Chaturvedi, chief executive of farm business Adani-Wilmar on Saturday said the country could produce more than 11 million tonnes of soybean in 2011/12 against 10 mil-lion tonnes a year ago.

India's soymeal exports are seen at more than five million tonnes in 2011/12, compared to 4 million tonnes in 2010/11 year ending in September, Chaturvedi said.

The most-active soybean October contract on India's Na-tional Commodity and Derivatives Exchange ended 2.01 percent lower at 2,164 rupees per 100 kg on Wednesday, the lowest close for the near-month contract nearly in a year.

China's iron ore imports seen soaring to 1 bln T By Ruby Lian and Fayen Wong

QINGDAO, China, Sept 28 (Reuters) - China's iron ore im-ports may surge to 1 billion tonnes by 2015, up around 60 percent from last year, with the world's biggest steel pro-ducer able to cope with a potential recession in developed economies, miners said on Wednesday.

China is the biggest buyer of the steel-making raw material and firm Chinese demand has been largely behind the strength in spot iron ore prices which, at above $170 a tonne, have trebled from late 2008.

Australian miner Fortescue Metals Group Ltd , which sells nearly all of its iron ore to China, forecast a rise in Chinese imports to 1 billion tonnes by 2015 at an industry confer-ence in China's northeastern city of Qingdao.

That will be more than 60 percent higher than China's im-ports last year of nearly 619 million tonnes. Fortescue Chief Executive Neville Power said global prices are expected to remain high next year before additional capacity comes online between 2013 and 2015.

Brazil's Vale , the world's No. 1 iron ore miner, said China's robust demand will keep global supplies tight.

"Vale is still confident in the market fundamentals," said Jose Carlos Martins, Vale executive director for sales and marketing.

"Besides China, several emerging regions with large popu-lation also have strong growth potential. Emerging coun-tries still have a significant gap in housing and infrastruc-ture requirements, indicating strong potential for steel consumption growth in the long run."

China iron ore imports http://link.reuters.com/tyv63s

China steel output http://link.reuters.com/dam83s

Iron ore spot and contract prices:

(http://link.reuters.com/wur93s)

CHINA STRENGTH NOT ENOUGH?

Vale Chief Executive Murilo Ferreira told Reuters earlier this month that the miner was not seeing any slowdown in the global iron ore market despite a crippling sovereign debt crisis in Europe and a weak U.S. economy.

But analysts say China's strength may not be enough to hold up prices.

"If Europe turns around to Vale and says 'we want 20 per-cent less ore this month' then that tonnage finds its way to China...so you have China sucking up all the weakness from everywhere," said Graeme Train, commodity analyst at Macquarie in Shanghai.

"The risk though is even if China is buying iron ore and the situation ex-China gets really bad, not even China's strength can hold the price up at where it is."

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Already, spot iron ore prices have fallen nearly 11 percent from a record high of $193 a tonne in mid-February, weighed down by signs of slower Chinese steel demand and a cloudy outlook for the global economy.

Vale, together with fellow global miners Rio Tinto and BHP Billiton , control more than two thirds of the global seaborne iron ore market.

Rio has not received any requests from Chinese buyers to delay iron ore shipments, Alan Davies, president of inter-national operations for Rio Tinto, told reporters on the sidelines of the conference.

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ANALYTIC CHARTS

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