We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
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
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Thursday, 09 November 23
GREEK AND CHINESE COMPANIES OWN 34% OF THE GLOBAL FLEET’S CARGO CAPACITY - BIMCO
“The global fleet of cargo carrying ships consists of around 61,000 ships with a deadweight capacity of about 2,200 million tonnes. The ships ...
Monday, 23 October 23
CHINA SEPT COAL OUTPUT HITS SIX-MONTH HIGH ON RISING POWER DEMAND - REUTERS
China’s September coal output rose 0.4% from August to the highest level since March, official data showed on Wednesday, on rising power dema ...
Monday, 23 October 23
INDIA COAL INVENTORIES DROP AT FASTEST PACE IN TWO YEARS, BOOSTING IMPORTS - REUTERS
Coal inventories at Indian power plants in the first half of October fell at their fastest rate in two years, an analysis of government data showed ...
Tuesday, 19 September 23
LNG SHIPPING STOCKS: THE ASIAN GROWTH UP-INDICES
Last week, the UP World LNG Shipping Index (UPI) gained 3.81 points or 2.51%, closing at 155.85 points. This index tracks the performance of LNG sh ...
Sunday, 10 September 23
GOLDMAN SACHS PREDICTS OIL PRICE TO HIT $100 ON OPEC CUTS - YAHOO FINANCE
Oil supply cuts by Saudi Arabia and Russia could lead to Brent crude jumping as high as $107 a barrel in 2024, Goldman Sachs Commodities Research h ...
|
|
|
Showing 81 to 85 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- McConnell Dowell - Australia
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vedanta Resources Plc - India
- AsiaOL BioFuels Corp., Philippines
- Kepco SPC Power Corporation, Philippines
- Eastern Energy - Thailand
- Indian Energy Exchange, India
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- Uttam Galva Steels Limited - India
- Oldendorff Carriers - Singapore
- Bangladesh Power Developement Board
- Chamber of Mines of South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- MS Steel International - UAE
- Eastern Coal Council - USA
- Aboitiz Power Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- ASAPP Information Group - India
- Ministry of Mines - Canada
- Gujarat Sidhee Cement - India
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- Simpson Spence & Young - Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Planning Commission, India
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- IEA Clean Coal Centre - UK
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Karaikal Port Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Indian Oil Corporation Limited
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- Heidelberg Cement - Germany
- GMR Energy Limited - India
- Coastal Gujarat Power Limited - India
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Indo Tambangraya Megah - Indonesia
- LBH Netherlands Bv - Netherlands
- Barasentosa Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Samtan Co., Ltd - South Korea
- Australian Coal Association
- Energy Development Corp, Philippines
- Marubeni Corporation - India
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Independent Power Producers Association of India
- Ministry of Transport, Egypt
- Vizag Seaport Private Limited - India
- Tata Chemicals Ltd - India
- San Jose City I Power Corp, Philippines
- Essar Steel Hazira Ltd - India
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- White Energy Company Limited
- Global Coal Blending Company Limited - Australia
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- IHS Mccloskey Coal Group - USA
- Kartika Selabumi Mining - Indonesia
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Economic Council, Georgia
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- GVK Power & Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Formosa Plastics Group - Taiwan
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Renaissance Capital - South Africa
- Straits Asia Resources Limited - Singapore
- Directorate Of Revenue Intelligence - India
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Sakthi Sugars Limited - India
- Xindia Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Parliament of New Zealand
- Orica Mining Services - Indonesia
- CNBM International Corporation - China
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Krishnapatnam Port Company Ltd. - India
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Toyota Tsusho Corporation, Japan
- Indika Energy - Indonesia
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Kohat Cement Company Ltd. - Pakistan
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indonesian Coal Mining Association
- Salva Resources Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Central Electricity Authority - India
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Wilmar Investment Holdings
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- Carbofer General Trading SA - India
- Aditya Birla Group - India
- Rashtriya Ispat Nigam Limited - India
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Energy Link Ltd, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Lanco Infratech Ltd - India
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- Merrill Lynch Commodities Europe
- London Commodity Brokers - England
- Dalmia Cement Bharat India
- Semirara Mining Corp, Philippines
- Riau Bara Harum - Indonesia
- Deloitte Consulting - India
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Edison Trading Spa - Italy
- VISA Power Limited - India
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kumho Petrochemical, South Korea
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Altura Mining Limited, Indonesia
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- International Coal Ventures Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Videocon Industries ltd - India
- Banpu Public Company Limited - Thailand
|
| |
| |
|
