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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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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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Showing 61 to 65 news of total 6871 |
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- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Planning Commission, India
- Global Business Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Commonwealth Bank - Australia
- TNB Fuel Sdn Bhd - Malaysia
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Deloitte Consulting - India
- Romanian Commodities Exchange
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- White Energy Company Limited
- Krishnapatnam Port Company Ltd. - India
- Singapore Mercantile Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- Barasentosa Lestari - Indonesia
- Meralco Power Generation, Philippines
- Port Waratah Coal Services - Australia
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Global Green Power PLC Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Authority, New Zealand
- Metalloyd Limited - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- International Coal Ventures Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Meenaskhi Energy Private Limited - India
- Edison Trading Spa - Italy
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Ministry of Finance - Indonesia
- Vizag Seaport Private Limited - India
- Electricity Generating Authority of Thailand
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Formosa Plastics Group - Taiwan
- Kapuas Tunggal Persada - Indonesia
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Gujarat Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Directorate General of MIneral and Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- Ambuja Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Minerals Council of Australia
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Sakthi Sugars Limited - India
- Power Finance Corporation Ltd., India
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Indian Energy Exchange, India
- Binh Thuan Hamico - Vietnam
- Mjunction Services Limited - India
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- Malabar Cements Ltd - India
- Bharathi Cement Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Bukit Makmur.PT - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Gujarat Sidhee Cement - India
- Bhatia International Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Cement Manufacturers Association - India
- PTC India Limited - India
- Holcim Trading Pte Ltd - Singapore
- TeaM Sual Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Central Electricity Authority - India
- Larsen & Toubro Limited - India
- Intertek Mineral Services - Indonesia
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Central Java Power - Indonesia
- ASAPP Information Group - India
- Ceylon Electricity Board - Sri Lanka
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Oldendorff Carriers - Singapore
- Altura Mining Limited, Indonesia
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Bhushan Steel Limited - India
- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
- Indogreen Group - Indonesia
- Orica Mining Services - Indonesia
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- Mercator Lines Limited - India
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Timah Investasi Mineral - Indoneisa
- Ministry of Transport, Egypt
- Straits Asia Resources Limited - Singapore
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- CNBM International Corporation - China
- Jindal Steel & Power Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Sree Jayajothi Cements Limited - India
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Goldman Sachs - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Star Paper Mills Limited - India
- Miang Besar Coal Terminal - Indonesia
- Energy Development Corp, Philippines
- Medco Energi Mining Internasional
- CIMB Investment Bank - Malaysia
- Wood Mackenzie - Singapore
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- PetroVietnam Power Coal Import and Supply Company
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- Chamber of Mines of South Africa
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Georgia Ports Authority, United States
- Indonesian Coal Mining Association
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
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