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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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Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
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Showing 86 to 90 news of total 6871 |
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- Miang Besar Coal Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Baramulti Group, Indonesia
- Holcim Trading Pte Ltd - Singapore
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Chamber of Mines of South Africa
- Renaissance Capital - South Africa
- Straits Asia Resources Limited - Singapore
- Price Waterhouse Coopers - Russia
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Coastal Gujarat Power Limited - India
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- CIMB Investment Bank - Malaysia
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Karbindo Abesyapradhi - Indoneisa
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Trasteel International SA, Italy
- Manunggal Multi Energi - Indonesia
- Indian Energy Exchange, India
- SMG Consultants - Indonesia
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Coalindo Energy - Indonesia
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- Ministry of Finance - Indonesia
- Planning Commission, India
- ASAPP Information Group - India
- PTC India Limited - India
- Borneo Indobara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Merrill Lynch Commodities Europe
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- VISA Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sakthi Sugars Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- European Bulk Services B.V. - Netherlands
- Cement Manufacturers Association - India
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Global Green Power PLC Corporation, Philippines
- Grasim Industreis Ltd - India
- Intertek Mineral Services - Indonesia
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Heidelberg Cement - Germany
- IHS Mccloskey Coal Group - USA
- Leighton Contractors Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Semirara Mining Corp, Philippines
- Wilmar Investment Holdings
- Siam City Cement - Thailand
- Kartika Selabumi Mining - Indonesia
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Electricity Authority, New Zealand
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- AsiaOL BioFuels Corp., Philippines
- GVK Power & Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Timah Investasi Mineral - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Minerals Council of Australia
- Semirara Mining and Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Jaiprakash Power Ventures ltd
- Eastern Energy - Thailand
- McConnell Dowell - Australia
- Sojitz Corporation - Japan
- Maheswari Brothers Coal Limited - India
- Aditya Birla Group - India
- TNB Fuel Sdn Bhd - Malaysia
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Edison Trading Spa - Italy
- Pendopo Energi Batubara - Indonesia
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- India Bulls Power Limited - India
- The State Trading Corporation of India Ltd
- Indo Tambangraya Megah - Indonesia
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Indian Oil Corporation Limited
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Rashtriya Ispat Nigam Limited - India
- Vizag Seaport Private Limited - India
- Directorate Of Revenue Intelligence - India
- Thiess Contractors Indonesia
- Sarangani Energy Corporation, Philippines
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Australian Coal Association
- SMC Global Power, Philippines
- Bukit Baiduri Energy - Indonesia
- Economic Council, Georgia
- Africa Commodities Group - South Africa
- Iligan Light & Power Inc, Philippines
- MS Steel International - UAE
- The University of Queensland
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- Port Waratah Coal Services - Australia
- Singapore Mercantile Exchange
- Kaltim Prima Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Georgia Ports Authority, United States
- Gujarat Mineral Development Corp Ltd - India
- Salva Resources Pvt Ltd - India
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Sidhee Cement - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Simpson Spence & Young - Indonesia
- Bangladesh Power Developement Board
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Ministry of Transport, Egypt
- Kohat Cement Company Ltd. - Pakistan
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Business Power Corporation, Philippines
- Mjunction Services Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- International Coal Ventures Pvt Ltd - India
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
- Therma Luzon, Inc, Philippines
- Uttam Galva Steels Limited - India
- Romanian Commodities Exchange
- PowerSource Philippines DevCo
- Malabar Cements Ltd - India
- Riau Bara Harum - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- Ind-Barath Power Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Makmur.PT - Indonesia
- Vedanta Resources Plc - India
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Latin American Coal - Colombia
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
- Ambuja Cements Ltd - India
- Petron Corporation, Philippines
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