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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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Wednesday, 12 June 24
CHINA ACCOUNTS FOR 16.3% OF AUSTRALIA'S COAL EXPORTS, FOLLOWED BY INDIA 14.4% - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels says Banchero Costa in its latest report.
...
Wednesday, 12 June 24
LNG NEWBUILDING VALUES AT RECORD HIGH: 78 NEWBUILD ORDERS PLACED IN 2024, DOUBLING 2023 - VESON NAUTICAL
The number of LNG newbuilding orders have more than doubled from the same period last year where 34 orders were placed, compared to 78 in the first ...
Monday, 10 June 24
CHINA'S MAY COAL IMPORTS RISE 11% ON LOWER DOMESTIC OUTPUT - REUTERS
China’s imports of coal rose 11% in May from a year earlier, customs data and Reuters records showed on Friday, as lower domestic output this ...
Tuesday, 04 June 24
HOW DO WESTERN SANCTIONS ON RUSSIA IMPACT THE GLOBAL METALS, MINING AND COAL MARKETS - WOOD MACKENZIE
The geopolitical landscape for Russia, as a major supplier of various commodities, has undergone a dramatic transformation since the invasion of Uk ...
Friday, 22 March 24
CASE STUDY: DANGERS OF COAL CARGO - SKULD
Recently, a bulk cargo vessel carrying coal from South Africa to Singapore suffered a fatal accident, resulting in the deaths of three crew members ...
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Showing 21 to 25 news of total 6871 |
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- Commonwealth Bank - Australia
- Medco Energi Mining Internasional
- Altura Mining Limited, Indonesia
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- Meralco Power Generation, Philippines
- Sarangani Energy Corporation, Philippines
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- TeaM Sual Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- ICICI Bank Limited - India
- White Energy Company Limited
- Georgia Ports Authority, United States
- Uttam Galva Steels Limited - India
- Sree Jayajothi Cements Limited - India
- SMG Consultants - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- Australian Coal Association
- GMR Energy Limited - India
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Global Business Power Corporation, Philippines
- London Commodity Brokers - England
- Kartika Selabumi Mining - Indonesia
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining and Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Bangladesh Power Developement Board
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Indian Oil Corporation Limited
- Binh Thuan Hamico - Vietnam
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- CNBM International Corporation - China
- Bank of Tokyo Mitsubishi UFJ Ltd
- Attock Cement Pakistan Limited
- Bulk Trading Sa - Switzerland
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- Kumho Petrochemical, South Korea
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Maheswari Brothers Coal Limited - India
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Parliament of New Zealand
- Independent Power Producers Association of India
- Siam City Cement - Thailand
- Indogreen Group - Indonesia
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- New Zealand Coal & Carbon
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Samtan Co., Ltd - South Korea
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- PTC India Limited - India
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Aboitiz Power Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- AsiaOL BioFuels Corp., Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Wood Mackenzie - Singapore
- Metalloyd Limited - United Kingdom
- The State Trading Corporation of India Ltd
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Interocean Group of Companies - India
- Meenaskhi Energy Private Limited - India
- Straits Asia Resources Limited - Singapore
- Energy Development Corp, Philippines
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Siam City Cement PLC, Thailand
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Planning Commission, India
- Electricity Authority, New Zealand
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Thiess Contractors Indonesia
- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- SMC Global Power, Philippines
- Formosa Plastics Group - Taiwan
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Mintek Dendrill Indonesia
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chamber of Mines of South Africa
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Energy Link Ltd, New Zealand
- Bharathi Cement Corporation - India
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Latin American Coal - Colombia
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- Savvy Resources Ltd - HongKong
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- Sical Logistics Limited - India
- Economic Council, Georgia
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Petron Corporation, Philippines
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Makarim & Taira - Indonesia
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- IEA Clean Coal Centre - UK
- Africa Commodities Group - South Africa
- Essar Steel Hazira Ltd - India
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Coalindo Energy - Indonesia
- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Sindya Power Generating Company Private Ltd
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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