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.
|
|
Wednesday, 21 June 23
CHINA'S MAY COAL IMPORTS FROM AUSTRALIA RECOVER TO PRE-BAN LEVELS - REUTERS
Australian coal sales to China increased in May, as trade resumed between them even as overall coal demand weakened against an uncertain macroecono ...
Monday, 19 June 23
DROUGHT-DEPLETED HYDROPOWER DRIVES CHINA TO TURN TO COAL - REUTERS
China has leant hard on coal-fired power plants as well as wind and solar generators to make up for a shortfall in hydroelectric generation as a re ...
Monday, 19 June 23
CHINA COAL OUTPUT UP 4.2 PCT IN MAY - XINHUA
China’s raw coal output posted steady growth in May, official data showed.
The country produced 390 million tonnes of raw coal ...
Wednesday, 24 May 23
AMMONIA-FUELLED BULK CARRIERS WITHIN FIVE YEARS - BALTIC EXCHANGE
Within five years, ships powered by clean ammonia could be a feature on the iron ore trade routes between West Australia and East Asia.
A study ...
Tuesday, 23 May 23
CHINA'S APRIL COAL OUTPUT LEAPS 11% ON YEAR, BUT DEMAND DOWNTURN LOOMS - REUTERS
China’s daily coal output in April jumped 11% from the same month a year earlier, boosted by Beijing’s order to increase supply to ensu ...
|
|
|
Showing 96 to 100 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Coastal Gujarat Power Limited - India
- IHS Mccloskey Coal Group - USA
- Carbofer General Trading SA - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Iligan Light & Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The State Trading Corporation of India Ltd
- Attock Cement Pakistan Limited
- Planning Commission, India
- Renaissance Capital - South Africa
- Eastern Coal Council - USA
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- Bhatia International Limited - India
- Intertek Mineral Services - Indonesia
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Banpu Public Company Limited - Thailand
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Electricity Authority, New Zealand
- International Coal Ventures Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Baramulti Group, Indonesia
- Meralco Power Generation, Philippines
- Indogreen Group - Indonesia
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Grasim Industreis Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Anglo American - United Kingdom
- Mercuria Energy - Indonesia
- Siam City Cement - Thailand
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- PTC India Limited - India
- Videocon Industries ltd - India
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- SMC Global Power, Philippines
- TeaM Sual Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Meenaskhi Energy Private Limited - India
- Kobexindo Tractors - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Antam Resourcindo - Indonesia
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Sical Logistics Limited - India
- Mercator Lines Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Australian Commodity Traders Exchange
- Alfred C Toepfer International GmbH - Germany
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Wilmar Investment Holdings
- Essar Steel Hazira Ltd - India
- Thai Mozambique Logistica
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Commonwealth Bank - Australia
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Tata Chemicals Ltd - India
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Barasentosa Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- CIMB Investment Bank - Malaysia
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Karaikal Port Pvt Ltd - India
- Medco Energi Mining Internasional
- Petrochimia International Co. Ltd.- Taiwan
- Vizag Seaport Private Limited - India
- Madhucon Powers Ltd - India
- Indonesian Coal Mining Association
- Directorate Of Revenue Intelligence - India
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- CNBM International Corporation - China
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Petron Corporation, Philippines
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Agrawal Coal Company - India
- Gujarat Mineral Development Corp Ltd - India
- Kideco Jaya Agung - Indonesia
- Indian Energy Exchange, India
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- White Energy Company Limited
- Mjunction Services Limited - India
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Sakthi Sugars Limited - India
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- London Commodity Brokers - England
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Jaiprakash Power Ventures ltd
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Makarim & Taira - Indonesia
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bayan Resources Tbk. - Indonesia
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Central Electricity Authority - India
- Bharathi Cement Corporation - India
- The Treasury - Australian Government
- Neyveli Lignite Corporation Ltd, - India
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- VISA Power Limited - India
- The University of Queensland
- Indo Tambangraya Megah - Indonesia
|
| |
| |
|
