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Global Economy Unfavorable for Commodities, Soybeans & Iron Ore Hurt

Commodity Inspector — Tue, 22 Nov 2011 09:32:07 +0000

The developments in the global economy continue to put downward pressure on commodities. As a result, soybeans touched the lowest level in 13 months today, while iron ore is expected to follow other commodities in decline.

The members of the US congressional debt-reducing supercommittee failed to reach agreement about budget cuts. Germany’s Finance Ministry admitted that the country’s economic growth became “noticeably slower”.

China may increase its imports of soybeans, supporting prices, but for now the negative fundamentals have upper hand. As for iron ore, even China isn’t going to support the commodity as demand in the Asian nation wanes.

Soybean settlement was at $11.5025 per bushel as of 9:24 GMT today on CBoT after falling yesterday from $11.7100 to $11.4575 per bushel and touching today $11.4100 per bushel — the lowest level since October 8, 2010.

Spot price for ore climbed to $147.40 per metric ton yesterday. Prices were up 24 percent this month, while ore dropped 31 percent in October and analysts predict it’ll resume its decline next month.
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Declining Iron Ore Prices in China; Cotton Falls on Low Demand

Commodity Inspector — Wed, 28 Apr 2010 19:15:13 +0000

Iron ore prices fell in China, the largest consumer in the world, over the past week on a speculation that a demand will decline as the government plans to cool the property market. The fastest economic expansion in almost three years and fast prices growth caused the Chinese government to cool its real estate market this month. These measures resulted in a drop of domestic prices for iron ore and may be followed by decline of import prices. A demand for iron and steel may fall because such measures can reduce construction. Domestic prices for iron ore dropped yesterday 6.4 percent to 1,310 yuan ($192) per metric ton from a record 1,400 yuan on April 20th in Tangshan, China’s largest spot market for the material.

Cotton futures dropped after the strengthening dollar decreased a demand for some raw materials as an alternative investment. The dollar rose as much as 0.7 percent against a basket of six major currencies. July delivery for cotton fell $0.0074 (0.9 percent) to $0.8446 per pound by 1:27 on ICE Futures U.S. in New York.
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Iron Ore Prices Reach Yearly Record

Commodity Inspector — Thu, 07 Jan 2010 22:19:00 +0000

The price of iron ore in China, the biggest buyer in the world, reached the highest level in more than a year as Chinese mills began “panic buying”. Spot price was pushed up by panic buying by steel mills on concern about availability of reduced spot cargoes from Australia at a time due to contractual commitments. Government’s stimulus spending boosted steel demand making Chinese mills to increase iron ore purchases.

Annual talks of iron-ore suppliers with steelmakers were carried out to fix benchmark contract prices for the 12 months from the start of the Japanese financial year, April 1st. The four-decade-old pricing system was broken last year, spurring demand for cargoes settled on the cash market, after steel mills failed to make agreement with the three largest suppliers.

Contract prices may go up 10 percent to 40 percent on increases in the cash price. The cash price is about 62 percent higher than contract price in the last year. Forecast for the average 2010 cash iron ore price, including freight costs, rose by 20 percent to $111 per metric ton.
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Will Texas Be Relieved from Drought? Pork Glut; New Price Mechanism of BHP

Commodity Inspector — Wed, 29 Jul 2009 17:51:40 +0000

Texas may be relieved from drought by El Nino. The worst drought in Texas for 90 years causing concerns for crop harvest may be ended by the return of an El Nino climate pattern to the Pacific Ocean, characterized by warming waters. Damage to orange groves in Florida by hurricanes can also be reduced. The concern for harvest of U.S. crops caused cotton to gain a 10-month high on July 21 on ICE Futures U.S. in New York, while prices for orange-juice have increased 39 percent this year.

Hogs decline as heavy animals may cause glut. Hog producers are trying to make money by overfeeding hogs and this cause concern about a pork glut leading to drop in hog futures. October futures for hog dropped $0.0055 (1 percent) to $0.5215 per pound by 9:48 on the Chicago Mercantile Exchange.

The world’s largest mining company, BHP Billiton Ltd., agreed to sell 30 percent of its iron ore under new pricing system putting an end for tradition of settling annual contracts in Asia. The ore will be sold through a mix of cash, quarterly and indexed pricing. BHP dropped 1.6 percent to $37.43 as of the 16:10 Sydney time close on the Australian stock exchange.
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Rio Agrees 33% Iron Ore Price Cut With Nippon Steel

enivid — Tue, 26 May 2009 07:19:53 +0000

Rio Tinto Group, the world’s second- largest iron ore exporter, agreed to a 33 percent cut in contract prices with Japan’s Nippon Steel Corp., the first decline in seven years as the global recession slashes demand.

Nippon Steel, the world’s second-largest steelmaker, agreed to pay Rio 97 cents a dry metric ton unit for its benchmark product in the year started April 1, London-based Rio said today in a statement. That’s about $61 a ton and compares with last year’s record of 144.66 cents for Rio’s Pilbara Blend fines.

The accord, the first major settlement this year, may be resisted by Chinese mills, the biggest producers, who’ve called for price cuts of as much as 50 percent. The worst recession since World War II has slashed demand for autos and building materials, cutting profits for steelmakers and ore producers.

“What looks like a pretty good deal might end up being a bit tougher when they come across the Chinese,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Historically you could say this is a done deal, when Rio strikes with Nippon, well everyone follows, but I get a feeling maybe the Chinese have got something else in store.” (...)
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Market Near Bottom, Says Fortescue Chief

Mario — Wed, 04 Feb 2009 22:54:25 +0000

Someone had to do it. Call the bottom of the market that is. Given he was briefly Australia’s richest man with a $12 billion fortune in Fortescue shares, it was fitting it was Andrew Forrest who has made the call.
The Fortescue chief told 620 mining types at a Melbourne Mining Club lunch at the Town Hall that while 2009 was set to be quiet in terms of growth, he was prepared to call that we are “at or around the bottom of the stockmarket”.
And on the more mundane issue of Fortescue’s iron ore business, Mr Forrest disclosed that Fortescue would today issue a clarifying statement on its exposure to freight contracts that it cancelled when freight rates collapsed. Analysts estimate the group’s exposure at more than $200 million.
It would be tempting to think that Mr Forrest’s call that the market has bottomed would be his hope given his personal stake in Fortescue is now worth a little less than $2 billion. But Mr Forrest has continued faith in the urbanisation and industrialisation of China to once again fuel good times.
While it might take a few more fiscal stimulus packages to get things moving — Fortescue reckons China has another another six in the pipeline if needed — the ”fundamental factors of the boom have not changed”. “The stockmarket is bumping along the bottom and financial crises come and go,” Mr Forrest said.
What’s more, it could take 12–18 months for the pessimism to pass. As a result, there will be “fabulous opportunities out there” in the time being.
Fresh from news that Rio was in talks with Chinese state-owned Chinalco on its own $US15 billion-plus ($A23.5 billion-plus) stimulus package, Mr Forrest said that the level of interest from China/Asia to get “involved in Australian resources businesses is without parallel right now”.
“So if you think everything is crook in Tallarook and nobody is investing, I would say think again,” he said.
He said that as a result of the global financial crisis, there was now an understanding in China that “assets that really weren’t for sale at any price just might be for sale”. “So they have crossed the first Rubicon that perhaps they can get in to these industries. That doesn’t mean that people are going to sell them cheaply,” Mr Forrest said.
His comments came as Rio is understood to be planning to sell Chinalco a minority stake in its prized Pilbara iron ore business to overcome its debt woes. Fortescue itself “would never say never” to a Rio-type deal.
“We would always look at opportunities, but at this point of time we are well capitalised. If an opportunity comes across out table which really locks in long-term customer supply and which really locks us further and deeper in to China, of course, we will look at it seriously,” Mr Forrest said.
He said talk of Chinalco’s possible deal with Rio has been around for months. “All of us have received very strong interest,” he said of the iron ore producers.

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Iron Ore Prices May Fall 50% on China Slowdown, Rinehart Says

Mario — Fri, 23 Jan 2009 20:23:31 +0000

Iron ore contract prices may fall as much as 50 percent this year amid a slowdown in China, the world’s biggest consumer of the raw material, according to Australia’s richest woman and mining magnate Gina Rinehart.

“We’re hearing 30 percent, 40 percent, 50 percent discounts to last year’s contract price,” Rinehart, who controls closely held Hancock Prospecting Pty, said in an interview with Bloomberg Television. That compares with the average forecast of a 30 percent cut in a Bloomberg survey of 11 analysts last week.
Chinese steelmakers are likely to win their first cut in contract prices in seven years as a global recession curbs demand for commodities. Rinehart’s partner, Rio Tinto Group, the world’s second-biggest exporter of the ore, and Baosteel Group Corp. began talks this month to set prices from April 1, according to two company executives who asked not to be identified.
“The economy in China is very sad right now,” Rinehart said. China’s economy may rebound soon and ”ultimately, prices will rise,” she said. Hancock isn’t party to the talks.
Hancock Prospecting is partner with Rio in the Hope Downs iron ore project in Western Australia. Hancock is also seeking to develop the Roy Hill iron ore mine in Western Australia.
Rio, BHP Billiton Ltd., and Brazil’s Cia. Vale do Rio Doce, which handle three-quarters of traded iron ore, sell the steelmaking material under long-term contracts to China’s 20 biggest mills and traders at agreed annual prices.
China may be asking for a price cut of between 40 percent and 45 percent, Macquarie Group Ltd. analysts led by London-based Jim Lennon said in a Jan. 12 report. UBS AG analysts have forecast a decline of 40 percent. A 30 percent cut would still be the second- highest price on record.

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Steel Demand Won’t Recover Before Second Half, Fitch Predicts

Mario — Tue, 06 Jan 2009 05:12:29 +0000

Steel demand won’t recover before the second half and annual contract prices for iron ore will decline 20 to 40 percent, Fitch Ratings said.
Prices for steel and the raw materials used to make it may improve before then, Monica M. Bonar and Sean T. Sexton, analysts at Fitch in New York, wrote in a research note dated Jan. 2. Metallurgical-coal contract prices will fall about 20 percent, they said.
“Demand for steel should improve following the aggressive expansion of central bank liquidity provisions since early September,” the analysts wrote. A recovery would be led by China, they said.
Steelmakers are cutting output, jobs and investment as the world tips into recession. Luxembourg-based ArcelorMittal, the biggest steelmaker, plans to eliminate as many as 9,000 jobs and slash production by more than 30 percent.
“Earnings will generally be down substantially for the next 12 months from 2008, which benefited from a robust first- half,” the analysts said.

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Commodity Prices – July 7, 2008

Mario — Tue, 08 Jul 2008 01:50:37 +0000

Gold N.Y. Spot $ 921.10
Silver N.Y. Spot $ 17.96
Lead LME Cash $ 0.7094
Copper LME Cash $ 3.8848
Zinc LME Cash $ 0.8056
Nickel LME Spot $ 9.31
Aluminum LME Spot $ 1.4452
Platinum N.Y. Spot $ 1982.00
Palladium N.Y Spot $ 447.50
Oil WTI Cushing $ 141.80
Natural Gas (Henry Hub)($/MMBtu) $13.01

USD-AUD $ 1.0474
AUD-USD $ 0.9547
CAD-USD $ 0.9847
USD-CAD $ 1.0155
EUR-USD $ 1.5667

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Commodity boom spurs Russia’s iron belt

Mario — Wed, 02 Jul 2008 00:38:11 +0000

Soviet geologists were looking for oil when exploring this region 500 kilometres south of Moscow.
Instead, they unearthed Europe’s largest iron belt. Legend has it the pit blasted into the fertile soil is big enough today to fit the world’s population twice over: it has certainly helped make billionaires of its three Russian owners.
Global prices for iron ore, a crucial ingredient in steel, have quadrupled in the last five years as China — producer of a third of the world’s steel — devours ever more raw materials.
Russia, second only to Saudi Arabia as an oil exporter and supplier of a quarter of Europe’s gas needs, also holds some of the world’s largest metals reserves. It produces a fifth of the world’s nickel, and only South Africa has more gold reserves.
Russia is the world’s fifth-largest iron ore miner, with a 6 per cent share of global production. While its output lags China and top exporters Australia and Brazil, Russia’s reserves outrank them all, promising a long future for iron mining.
Rio Tinto this week secured the highest annual price rise in a decade when it agreed to sell its ore to China’s largest steel maker, Baosteel, at up to 96.5 per cent more than a year ago.
“The margins in this industry are certainly enough to encourage existing producers to expand and new producers to come in,” said Jon Bergtheil, head of mining equities at JPMorgan in London.
Although most of Russia’s iron ore is for local use, its largest mines have some capacity for export and there’s plenty more ore in the ground to feed expansion plans.
“We have enough left for more than 100 years. In principle, our reserves are unlimited,” Nikolai Dronov, the chief engineer at the Lebedinsky mine, said at the edge of the pit.
Nearly half a kilometre below, a fleet of 28 trucks built by U.S. firm Caterpillar Inc. and Russia’s Kamaz fills up with rocks for the long, winding drive to the surface.
Lebedinsky is part of the metals empire of Alisher Usmanov, one of Russia’s 20 richest men and owner of a stake in English soccer club Arsenal. Metalloinvest, the firm he founded and half-owns, plans a public share offering in either New York or London this year.
The UK mining index, which includes most major mining groups, rose 50 per cent last year compared with 4 per cent for the FTSE 100 as a China-fuelled boom pushed commodity prices to records. It is up over 15 per cent this year.
Mr. Usmanov and Vladimir Potanin, part-owner of Norilsk Nickel, are in talks to swap assets in a move to create a Russian mining champion on the scale of global leader BHP Billiton.
Metalloinvest would contribute the iron: its two mines supply 40 million tonnes of iron concentrate per year, or about 40 per cent of Russian production, and the company plans to increase this by 50 per cent within the next seven years.
Most Russian iron mines exist to serve the steel companies that own them: Russia is the world’s fourth largest steel producer with a 5.3 per cent share of world production last year.
Metalloinvest’s steel mills consume some of the ore from Lebedinsky in-house, but the mine has large amounts of spare ore to process into higher-value products for export to the steel furnaces of Asia and Europe.
Lebedinsky today produces over 20 million tonnes from a pit stretching 5 kilometres across. When Mr. Usmanov and Metalloinvest co-owners Vasily Anisimov and Andrei Skoch acquired it in 1999, the mine had already been operating for more than 30 years.
Gubkin, the town of 120,000 people that grew up around it, was founded in 1967. The flat land near the Ukrainian border was hitherto best-known as the site of one of World War Two’s biggest tank battles, in the nearby village of Prokhorovka.
Ivan Gubkin, the Soviet geologist after whom the town is named, is best remembered as an oil expert — Russia’s state oil and gas university, which counts billionaire Roman Abramovich among its alumni, is named in his honour.
But Mr. Gubkin also helped uncover the reserves of the Kursk Magnetic Anomaly, the belt of iron slicing through Russia’s fertile Black Earth region that hosts its main iron mines.
A sign on the edge of town hails Gubkin as the ”first town of the KMA” — an area where the underlying rocks alter the Earth’s magnetic field.
Some of the wealth from this iron is now filtering through to its residents. Oleg Semyonov, managing director at Lebedinsky, said the average monthly salary for the 10,000 workers at the mine and associated plants was 21,000 roubles ($887.2 U.S.), about 30 per cent above the national average.
New amenities have accompanied growing prosperity in Gubkin. Children flock to a privately held amusement park known locally as Disneyland, and the mine helped fund construction of Russia’s biggest church outside Moscow — built on two levels to accommodate services underground, where it’s cosier in winter.
“In the last five years they’ve built a skating rink, sports complex and shopping centres,” said Svetlana Tyrkalova, who sells newspapers from a street-corner kiosk in the town.
“My relatives visited from St Petersburg recently and were amazed. It was never like that when they lived here.”
With iron ore demand showing no signs of slowing, more investment is planned. Chief Executive Maxim Gubiyev says Metalloinvest will devote part of a $10-billion-plus capital expenditure program to boosting output at its Lebedinsky and Mikhailovsky mines to a combined 60 million tonnes by 2015.
The company will consume some internally but is also eyeing a bigger role as exporter of high-value iron products.
“There’s no global shortage geologically of iron ore. There is a shortage in the ability to move it from the supplier to the consumer, primarily China,” said JPMorgan’s Mr. Bergtheil.
Russia’s abundant iron ore and natural gas reserves, plus easy access to transport links, makes it ideal for processing iron into higher-value pellets or hot-briquetted iron, said Stephen Montague, vice-president of U.S. plant supplier Midrex Technologies Inc.
Charlotte, North Carolina-based Midrex supplied the second hot-briquetting plant at Lebedinsky and will find out this summer whether its bid to supply the third has been successful.
“Russia is the right place to make iron,” says Mr. Montague.

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Fortescue Says Iron-Ore Prices May Increase as Much as 50%

Mario — Thu, 14 Feb 2008 02:35:51 +0000

Fortescue Metals Group Ltd., building a A$2.7 billion ($2.4 billion) iron-ore project in Australia, said prices of the steelmaking material may rise as much as 50 percent from April because of higher demand.
“China and India are booming and demand from other countries in Asia is growing,” Russell Scrimshaw, executive director, said in an interview in Mumbai yesterday. “There is strong upward pressure.”
Rising demand from China, the world’s largest steel user and Fortescue’s largest customer, pushed iron-ore prices higher for the past five years. Citigroup Inc. said Feb. 6 that contract prices may rise 60 percent from April.
Fortescue, which plans to ship its first ore to China in May, has secured long-term sales agreements with 35 Chinese steelmakers to sell 55 million metric tons of iron ore annually for a minimum of 10 years, Scrimshaw said.
Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., which account for three quarters of global iron-ore trade, in November began talks to set benchmark contract prices for 2008 with global steelmakers.

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BHP-Rio Merger Will Push Up Metals, Ore Prices

Mario — Thu, 07 Feb 2008 03:39:01 +0000

Metals markets could see longer-term prices move up if BHP Billiton Ltd.’s (BHP.AU) sweetened $147.7 billion takeover bid for rival global miner Rio Tinto Ltd. (RIO.AU) proves successful.
The key synergy and future money spinner for the merger is still iron ore, where longer-term prices are likely to rise, but there is also upside potential for alumina and copper on a regional basis, analysts said.
A takeover would create a $336 billion mining giant with a leading position in iron ore, copper, coal, alumina and aluminum.
When BHP announced its initial and informal bid proposal back in November, commodity consumers led by China cried foul fearing consolidation would give the company unprecedented pricing power in iron ore and other raw material markets.
A merged entity would control 36% of the global seaborne iron ore market, coming in just behind Brazil’s CVRD, the global number one with a 300-million-ton annual production.
This is indeed a worrying development for Asian and European steel mills, but BHP on its part has been on a charm offensive since then, talking to Chinese steel mills among others and placating at least some.
More importantly, Aluminum Corp. of China, or Chinalco, along with U.S-based Alcoa Inc., has taken 9% stake in Rio Tinto which it bought from the open market for $14.5 billion.
State-owned Chinalco has said it doesn’t plan to make an offer for the whole of Rio Tinto, or seek a seat on the company’s board, but the stake has effectively given the Chinese a seat at the negotiating table as well as more say in pricing matters.
That has put the focus back on BHP’s offer price, rather than the bigger market share it would command, should the merger goes through.
Interestingly, BHP’s Chief Executive, Marius Kloppers has said the latest offer represented the best price based on information currently available, hinting the miner could sweeten the offer if it saw greater synergy in the deal.
The implication is that if Rio wants more money, it will need to open its books and share information with BHP to allow the identification of further synergy, said ABN Amro analyst Warren Edney.
It was also significant that Kloppers said the miner could have necessary regulatory approvals by the second half of this year. “Following detailed analysis, we believe that any regulatory concerns can be addressed without meaningfully impacting the benefits of the combination,” he said.
While competition issues will be “a reason why there won’t be a quick deal,” concern over antitrust issues “appears to be overdone,” said ANZ Commodity Strategist Mark Pervan.
Many see Chinalco Rio Tinto buy as an admission that fighting the merger from a regulatory angle to prevent further consolidation in the already highly concentrated iron ore market won’t be easy.
“There’s no international regulatory body for the Chinese to turn to,” said Commodity Analyst Tom Price at Merrill Lynch.
Regulatory concerns at the ACCC, the Australian Competition and Consumer Commission, will be limited as the body focuses on domestic issues, and the vast majority of Australia’s iron ore is for export.
Complaints by European steel mills lack teeth because they import iron ore from Brazil rather than Australia.
Iron Ore Prices To See The Biggest Impact
Despite lower first-half profits of $6.02 billion, down 2.4% on year, BHP Wednesday said it was positive about the outlook for its products while Asian economies showed little sign of slowing.
Even amid mounting concerns about the U.S sliding into a recession and the International Monetary Fund downgrading its forecast for global economic growth, BHP in January announced it signed a revised iron ore sales agreement with Chinese steel maker Boasteel, to supply 10 million tons a year for the next ten years, up from an earlier agreed 6 million tons a year.
However, many forecasters have scaled back expectations for Chinese growth, with Barclays Capital cutting its 2008 growth forecast to 8.85 from 10.2% earlier.
But for commodities, that slowdown will have little impact, analysts such as Yingxi Yu at Barclays Capital say. Even in single digits, China’s growth is still far stronger than elsewhere and large-scale Chinese infrastructure projects that are independent from export markets will still go ahead.
While the fundamental outlook in the industry hasn’t substantially changed since BHP first announced its intention to buy Rio, a merger could also act as a hedge, should there be a slowdown.
If demand does weaken from current levels, this new generation of mining giants may use their size to fight off lower prices, said Peter Richardson, a commodity analyst at Melbourne-based resource fund Craton Capital, which has assets worth around $350 million under its management.
Steel mills may not see an immediate impact, but in the long run, BHP will have the ability to squeeze production to support prices, despite Kloppers’ assurances that BHP/Rio would raise raw material production, and make it cheaper.
“BHP is pushing for an iron ore index as a proxy for spot prices rather than (have) annual contracts. They would only do this if they believe they have sufficient control over supply,” said Merrill Lynch’s Price.
Alumina, Copper Pricing To Change Too
Rio’s own $38.1 billion acquisition of Canada’s Alcan in November would mean a combined BHP-Rio would have a stranglehold on much of the world’s supply of alumina, the raw material used in the production of aluminum.
Alumina prices are currently linked to metal prices on the London Metal Exchange but that may change.
BHP wants to dismantle that linkage, favored by integrated producers such as U.S-based Alcoa Inc. Kloppers has argued that, like previously with iron ore and steel prices, the current pricing for alumina doesn’t reflect the market’s supply and demand fundamentals.
“In iron ore, spot markets trade at a sizable premium to contract prices, and act as a bellwether for contract prices,” said Pervan. “Delinking alumina from the aluminum price would be bullish for alumina and would pressure high-cost smelters,” he said.
In copper, BHP/Rio’s potential control of 13% of global copper mines wouldn’t be of concern given Chile’s state-owned copper giant Codelco claims a similarly dominant position. But the merged entity would control around half of copper concentrate imports into Asia, potentially worrying smelter costumers there, said Price.
BHP and Rio co-own Chile’s Escondida mine, the world’s largest copper mine with a capacity of 1.2 million tons and producing about 9% of global copper consumption. “That doesn’t sound like much but Escondida accounts for about half of copper concentrate supply into Asia,” said Price.
BHP owns 57.5% of Escondida and Rio 30%. The remainder is held by a Japanese consortium led by Mitsubishi Corp. which has 10% and the International Finance Corp. which has 2.5%.

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