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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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Tuesday, 23 May 23
INDIA: COAL OUTPUT UP 8.9%, SUPPLY RISES 11.7% IN APRIL - FINANCIAL EXPRESS
India’s coal production jumped 8.85% to 73.14 million tonne (MT) in April 2023 and the total coal despatch during the month went up 11.66% to ...
Tuesday, 23 May 23
CHINA COAL OUTPUT UP 4.5 PCT IN APRIL - XINHUA
China’s raw coal output posted stable expansion in April, official data showed.
The country produced 380 million tonnes of raw ...
Saturday, 20 May 23
NON-OPEC OIL SUPPLY DEVELOPMENT - OPEC
In 2022, non-OPEC supply is estimated to have increased by 1.9 mb/d y-o-y. Out of this, US liquids production increased by 1.2 mb/d, mainly on the ...
Saturday, 20 May 23
GLOBAL COAL TRADE HAS REALLY PICKED UP PACE IN RECENT MONTHS, NOW FULLY BACK TO PRE-COVID LEVELS - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels. In Jan-Apr 2023, total global seaborne coa ...
Saturday, 20 May 23
MARKET INSIGHT - INTERMODAL
India is one of the world's largest coal producers and one of the world's largest importers of coal. The country uses coal mainly for power ...
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Showing 101 to 105 news of total 6871 |
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- Sree Jayajothi Cements Limited - India
- Cement Manufacturers Association - India
- Makarim & Taira - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Energy Development Corp, Philippines
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Vedanta Resources Plc - India
- PNOC Exploration Corporation - Philippines
- Indian Energy Exchange, India
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- Mercuria Energy - Indonesia
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Holcim Trading Pte Ltd - Singapore
- OPG Power Generation Pvt Ltd - India
- Central Java Power - Indonesia
- Meralco Power Generation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Tamil Nadu electricity Board
- Petron Corporation, Philippines
- Simpson Spence & Young - Indonesia
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Independent Power Producers Association of India
- Attock Cement Pakistan Limited
- Mercator Lines Limited - India
- Ministry of Finance - Indonesia
- Oldendorff Carriers - Singapore
- Interocean Group of Companies - India
- Jindal Steel & Power Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Edison Trading Spa - Italy
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Power Finance Corporation Ltd., India
- Chettinad Cement Corporation Ltd - India
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Indonesian Coal Mining Association
- Meenaskhi Energy Private Limited - India
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- International Coal Ventures Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Coastal Gujarat Power Limited - India
- Latin American Coal - Colombia
- Intertek Mineral Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Coal and Oil Company - UAE
- Mjunction Services Limited - India
- Videocon Industries ltd - India
- Pendopo Energi Batubara - Indonesia
- New Zealand Coal & Carbon
- Chamber of Mines of South Africa
- Globalindo Alam Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thai Mozambique Logistica
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- Bhushan Steel Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mintek Dendrill Indonesia
- Australian Coal Association
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Posco Energy - South Korea
- Borneo Indobara - Indonesia
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- Standard Chartered Bank - UAE
- SN Aboitiz Power Inc, Philippines
- CNBM International Corporation - China
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Manunggal Multi Energi - Indonesia
- Bayan Resources Tbk. - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- PowerSource Philippines DevCo
- Karaikal Port Pvt Ltd - India
- Singapore Mercantile Exchange
- Malabar Cements Ltd - India
- London Commodity Brokers - England
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Electricity Authority, New Zealand
- Riau Bara Harum - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Indogreen Group - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dalmia Cement Bharat India
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Eastern Energy - Thailand
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Central Electricity Authority - India
- Wilmar Investment Holdings
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- The Treasury - Australian Government
- GVK Power & Infra Limited - India
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Krishnapatnam Port Company Ltd. - India
- Minerals Council of Australia
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Planning Commission, India
- Directorate General of MIneral and Coal - Indonesia
- GMR Energy Limited - India
- Timah Investasi Mineral - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- Maharashtra Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Thiess Contractors Indonesia
- Australian Commodity Traders Exchange
- Anglo American - United Kingdom
- Formosa Plastics Group - Taiwan
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