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Tuesday, 26 May 15
HOW HAS THE DROP IN OIL PRICES AFFECTED OTHER COMMODITIES? - CLYDE & CO
 KNOWLEDGE TO ELEVATE
The effects of the dramatic drop in the price of both Ice March Brent, the international oil marker, and its US counterpart Nymex March West Texas Intermediate, have been widespread. This is impacting not only the oil services industry, where many firms have cut their capital budgets as well as jobs, but also a number of markets across the world. The commodities market, in particular, has been widely affected with the prices of metals such as copper, lead and nickel dropping, albeit not as dramatically as oil, and the price of gold increasing.
In passing, it is worth noting that the death of King Abdullah in January 2015 prompted some investors to bet on a change in strategy as a result of the change in the leadership of Saudi Arabia, OPEC’s largest producer and de facto leader, with Crown Prince Salman succeeding King Abdullah. However, many analysts expect King Salman and Ali al-Naimi, Saudi Arabia’s oil minister, to stand by the existing Saudi oil policy, at least in the near term. That is, to allow market forces to determine the oil price and press ahead with unrestrained production of crude in order to eclipse more marginal producers and to not risk losing market share, despite the effects that this has had on the price of oil.
How has the drop in oil prices affected other commodities?
The sharp fall in oil prices amid deteriorating sentiment over the global economy has made investors weary of investing in other commodities.
Copper, in particular, has been hit very hard, slumping to its lowest price levels in nearly six years. This was triggered by aggressive selling by Chinese hedge funds earlier this month when the market was on the edge because of the collapse in the oil price and when physical demand in China was weak because of the approaching lunar New Year holiday. Other metals have also taken a hit, with nickel and lead experiencing recent sharp decreases.
As the price of oil has dropped, gold, on the other hand, has experienced its highest price level since August 2014 as many investors have sought to invest in the market to park their capital. With the Euro falling to an 11 year low as a result of a number of factors including the Swiss National Bank’s decision to decouple from the Euro and the European Central Bank’s quantitative easing measures, gold has risen very quickly.
On top of a growing trend for banks to dispose of their commodities businesses, there is a debate whether banks will continue to finance trading in commodities. Oil, at least in the near future, is likely to provide a low return with most commentators thinking that the price will not rise substantially for the foreseeable future, with some even going so as far as stating that the price will fall as low as USD20 per barrel. Therefore, the incentive for banks to finance this particular commodity would appear to have fallen away. This could see a space open for non-bank lenders to come into the market and play a much more active role in the financing of commodities. These entities are generally subject to less regulation and have access to a more diverse set of methods to inject capital into financings.
Impact on existing contracts
In the oil market, many, if not most participants will enter into hedging contracts against a price fluctuation. However, this is often a hedge against a rise in the oil price and some participants will, as a result of the current conditions, have found that they have been asked to make margin payments to hedge counterparties as they are ‘out of the money’ on the hedging contract.
Exit options?
Parties may find it difficult to remove themselves from their existing commodities contracts.
Force Majeure: A force majeure clause allows one party who has been subject to a pre-defined event to suspend performance under the contract, or , in a worst case scenario, allow one or both parties to terminate the contract. The key point to note is that performance by the affected party should be rendered impossible to perform (sometimes being severely hindered is also considered to constitute force majeure). Some parties may look to rely on this provision, however it is unlikely that the fall in oil prices will constitute a force majeure event under contracts.
Material Adverse Change clauses: There is a possibility that parties could look to material adverse change clauses in their agreements as a way of terminating their contracts. However, these clauses are usually drafted to concern the state of the individual contract participants (e.g. a party’s credit rating) rather than market realities. These provisions are also notoriously difficult to rely on in the event of a termination. Of course, if a party’s credit rating, for example, were to be affected because of the fall in oil prices, then this could provide an option for the other party to terminate under this type of provision.
What can parties do to counter the drop in oil prices?
It may be possible for parties to include, in future contracts, a clause which is effectively a ‘hedge’ to be triggered by a pre-determined event (for instance a defined rise or fall in the oil price, e.g. if oil drops below USDX per barrel). This could give parties the ability to re-price the contract in this event, to ensure the contract remains economically viable, or at least to be obliged to enter into good faith negotiations around re-pricing. Depending on the level of bargaining power between the parties, it may even be possible to incorporate such a fluctuation as a termination event.
Existing contracts could also be reviewed to see if there is the possibility of amending them to include such a clause, but re-negotiating an existing contract which does not have a contractual mechanism for this already built in would seem unlikely.
The full impact and the duration of the drop in oil prices remains to be seen; but what is certain is that this is a worrying time for the commodities market. Parties will have to consider the terms of their existing contracts as well as continuing to consider ways to mitigate risk when embarking on transactions in the future. This could include a renewed reliance upon derivatives as a way of protecting against price and foreign exchange risk.
Source: Clyde & Co | Hellenic Shipping News
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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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Showing 51 to 55 news of total 6871 |
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- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Eastern Coal Council - USA
- Directorate General of MIneral and Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kaltim Prima Coal - Indonesia
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Vizag Seaport Private Limited - India
- Sindya Power Generating Company Private Ltd
- McConnell Dowell - Australia
- Karaikal Port Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Timah Investasi Mineral - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- White Energy Company Limited
- Salva Resources Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- India Bulls Power Limited - India
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Economic Council, Georgia
- Sojitz Corporation - Japan
- PowerSource Philippines DevCo
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Ministry of Transport, Egypt
- Binh Thuan Hamico - Vietnam
- OPG Power Generation Pvt Ltd - India
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- Tata Chemicals Ltd - India
- Kepco SPC Power Corporation, Philippines
- Borneo Indobara - Indonesia
- IHS Mccloskey Coal Group - USA
- CNBM International Corporation - China
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Interocean Group of Companies - India
- The University of Queensland
- San Jose City I Power Corp, Philippines
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
- Meralco Power Generation, Philippines
- Renaissance Capital - South Africa
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- London Commodity Brokers - England
- Minerals Council of Australia
- Leighton Contractors Pty Ltd - Australia
- Billiton Holdings Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Australian Coal Association
- GVK Power & Infra Limited - India
- Indonesian Coal Mining Association
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Baramulti Group, Indonesia
- Siam City Cement - Thailand
- Planning Commission, India
- SMC Global Power, Philippines
- Eastern Energy - Thailand
- Trasteel International SA, Italy
- Lanco Infratech Ltd - India
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Independent Power Producers Association of India
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Bhushan Steel Limited - India
- Marubeni Corporation - India
- Tamil Nadu electricity Board
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Xindia Steels Limited - India
- Carbofer General Trading SA - India
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Indian Energy Exchange, India
- GN Power Mariveles Coal Plant, Philippines
- Bukit Baiduri Energy - Indonesia
- Medco Energi Mining Internasional
- Grasim Industreis Ltd - India
- Singapore Mercantile Exchange
- Meenaskhi Energy Private Limited - India
- Toyota Tsusho Corporation, Japan
- Parry Sugars Refinery, India
- Jindal Steel & Power Ltd - India
- New Zealand Coal & Carbon
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- IEA Clean Coal Centre - UK
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Holcim Trading Pte Ltd - Singapore
- Anglo American - United Kingdom
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Iligan Light & Power Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Essar Steel Hazira Ltd - India
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Edison Trading Spa - Italy
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indian Oil Corporation Limited
- Sical Logistics Limited - India
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Vedanta Resources Plc - India
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- Cigading International Bulk Terminal - Indonesia
- Sree Jayajothi Cements Limited - India
- Banpu Public Company Limited - Thailand
- Maheswari Brothers Coal Limited - India
- Commonwealth Bank - Australia
- Indogreen Group - Indonesia
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- LBH Netherlands Bv - Netherlands
- PTC India Limited - India
- GMR Energy Limited - India
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- Metalloyd Limited - United Kingdom
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Savvy Resources Ltd - HongKong
- Kideco Jaya Agung - Indonesia
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Georgia Ports Authority, United States
- Mjunction Services Limited - India
- Orica Mining Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Heidelberg Cement - Germany
- Kapuas Tunggal Persada - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- The Treasury - Australian Government
- Straits Asia Resources Limited - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhoruka Overseas - Indonesia
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Makarim & Taira - Indonesia
- Bayan Resources Tbk. - Indonesia
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- Simpson Spence & Young - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Price Waterhouse Coopers - Russia
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Romanian Commodities Exchange
- Star Paper Mills Limited - India
- Central Electricity Authority - India
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Thiess Contractors Indonesia
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