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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, 28 June 24
INDIAN POWER STATIONS STOCKED WITH BUMPER COAL SUPPLY AS TRANSPORT WOES EASE - BUSINESS STANDARD
Even as power demand has touched a historic high of 250 gigawatts (Gw) amid sweltering heat this June, India’s power stations are stocked wit ...
Friday, 28 June 24
INDIA'S CY23 COAL USE LARGER THAN NORTH AMERICA, EUROPE COMBINED - THE HINDU
For the first time, India’s coal consumption surpassed that of North America and Europe combined in the calendar year 2023, said Energy Insti ...
Monday, 24 June 24
PLN'S FINANCIAL SUSTAINABILITY RESTS ON ACCELERATED COAL RETIREMENT AND RENEWABLES DEPLOYMENT - MUTYA YUSTIKA
On 28 May 2024, Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), released its financial report for 2023. Althoug ...
Monday, 24 June 24
INDIA'S COAL-BASED POWER DEMAND AT ALL-TIME HIGH, GOVERNMENT SAYS - REUTERS
India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, the government said in a statement on Wednesday.
...
Monday, 24 June 24
CHINA'S COAL INDUSTRY TURNS GREENER THROUGH INNOVATIVE APPROACHES - PEOPLE'S DAILY
At an opencast mine operated by Inner Mongolia Pingzhuang Coal Group Co. Ltd., a subsidiary of CHN Energy Investment Group (CHN Energy), a 14-meter ...
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Showing 11 to 15 news of total 6871 |
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- ICICI Bank Limited - India
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- The State Trading Corporation of India Ltd
- Leighton Contractors Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- Bhoruka Overseas - Indonesia
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- The Treasury - Australian Government
- Indika Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Malabar Cements Ltd - India
- White Energy Company Limited
- Mjunction Services Limited - India
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- Holcim Trading Pte Ltd - Singapore
- Independent Power Producers Association of India
- Meenaskhi Energy Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parliament of New Zealand
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Indian Oil Corporation Limited
- Sical Logistics Limited - India
- SMG Consultants - Indonesia
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Agrawal Coal Company - India
- Bhatia International Limited - India
- Latin American Coal - Colombia
- Banpu Public Company Limited - Thailand
- Xindia Steels Limited - India
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Rio Tinto Coal - Australia
- Eastern Coal Council - USA
- Carbofer General Trading SA - India
- GAC Shipping (India) Pvt Ltd
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Cement Manufacturers Association - India
- Baramulti Group, Indonesia
- Larsen & Toubro Limited - India
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Altura Mining Limited, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Central Java Power - Indonesia
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Orica Mining Services - Indonesia
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Deloitte Consulting - India
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Africa Commodities Group - South Africa
- SMC Global Power, Philippines
- Jaiprakash Power Ventures ltd
- Essar Steel Hazira Ltd - India
- IEA Clean Coal Centre - UK
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Siam City Cement PLC, Thailand
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Renaissance Capital - South Africa
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Iligan Light & Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Gujarat Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
- Kartika Selabumi Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Electricity Generating Authority of Thailand
- Australian Coal Association
- MS Steel International - UAE
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- Barasentosa Lestari - Indonesia
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Commonwealth Bank - Australia
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Power Finance Corporation Ltd., India
- European Bulk Services B.V. - Netherlands
- Petron Corporation, Philippines
- Posco Energy - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Karbindo Abesyapradhi - Indoneisa
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Kobexindo Tractors - Indoneisa
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- Australian Commodity Traders Exchange
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- Orica Australia Pty. Ltd.
- New Zealand Coal & Carbon
- PTC India Limited - India
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- Alfred C Toepfer International GmbH - Germany
- Sojitz Corporation - Japan
- India Bulls Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- Tamil Nadu electricity Board
- Directorate General of MIneral and Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Ministry of Finance - Indonesia
- Coal and Oil Company - UAE
- Asmin Koalindo Tuhup - Indonesia
- Globalindo Alam Lestari - Indonesia
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- London Commodity Brokers - England
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Maheswari Brothers Coal Limited - India
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