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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, 05 June 15
U.S PRODUCED 15.1 MMST OF COAL THIS PAST WEEK; LESS 20.7% COMPARED TO SAME PERIOD IN 2014
COALspot.com – United States the second largest coal producer in the world has produced approximately totalled an estimated 15.1 million shor ...
Thursday, 04 June 15
DRY BULK MARKET FAILED TO OFFER ANY POSITIVE SURPRISES - INTERMODAL
COALspot.com: This has been another week that the Dry Bulk market failed to offer any positive surprises, while the BDI, which is still faring belo ...
Wednesday, 03 June 15
SHIPPING MARKET INSIGHT - VASSILIS LOGOTHETIS
For some time now the Dry Bulk market has been severely affected by China’s slowing GDP growth rate that occurs in the background of increase ...
Tuesday, 02 June 15
FOB INDONESIA COAL Q3 SWAP ADVANCED 1.73% MONTH OVER MONTH
COALspot.com: Indonesian coal swap for delivery Q3 2015 gains month on month and lost week over week, this past week.
The Q3 swap was climbed ...
Tuesday, 02 June 15
FOB RICHARDS BAY COAL SWAPS; Q3'15 CLOSED HIGHER THAN Q1'16
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 up month over month and week over week.
The Q3 swap was up US$ 0.80 (1 ...
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- Siam City Cement - Thailand
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Bhushan Steel Limited - India
- Bangladesh Power Developement Board
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Sree Jayajothi Cements Limited - India
- Sojitz Corporation - Japan
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Altura Mining Limited, Indonesia
- Timah Investasi Mineral - Indoneisa
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Dalmia Cement Bharat India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Deloitte Consulting - India
- San Jose City I Power Corp, Philippines
- Barasentosa Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Kapuas Tunggal Persada - Indonesia
- Marubeni Corporation - India
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Commonwealth Bank - Australia
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- McConnell Dowell - Australia
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- SN Aboitiz Power Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Jorong Barutama Greston.PT - Indonesia
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Chettinad Cement Corporation Ltd - India
- MS Steel International - UAE
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Price Waterhouse Coopers - Russia
- The University of Queensland
- VISA Power Limited - India
- Independent Power Producers Association of India
- Global Green Power PLC Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Ambuja Cements Ltd - India
- Madhucon Powers Ltd - India
- South Luzon Thermal Energy Corporation
- CNBM International Corporation - China
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- Cement Manufacturers Association - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Makarim & Taira - Indonesia
- Oldendorff Carriers - Singapore
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Mjunction Services Limited - India
- Georgia Ports Authority, United States
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Baramulti Group, Indonesia
- Power Finance Corporation Ltd., India
- International Coal Ventures Pvt Ltd - India
- Indian Oil Corporation Limited
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- Latin American Coal - Colombia
- Australian Commodity Traders Exchange
- Medco Energi Mining Internasional
- Pipit Mutiara Jaya. PT, Indonesia
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Bulk Trading Sa - Switzerland
- Eastern Energy - Thailand
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- SMC Global Power, Philippines
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- PowerSource Philippines DevCo
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Bhatia International Limited - India
- ASAPP Information Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Indo Tambangraya Megah - Indonesia
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Pendopo Energi Batubara - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Wilmar Investment Holdings
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
- Port Waratah Coal Services - Australia
- Posco Energy - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Electricity Authority, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- India Bulls Power Limited - India
- Kumho Petrochemical, South Korea
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Economic Council, Georgia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Mines - Canada
- PetroVietnam Power Coal Import and Supply Company
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Minerals Council of Australia
- Planning Commission, India
- Rashtriya Ispat Nigam Limited - India
- Coalindo Energy - Indonesia
- Wood Mackenzie - Singapore
- Thiess Contractors Indonesia
- Africa Commodities Group - South Africa
- Goldman Sachs - Singapore
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- Borneo Indobara - Indonesia
- Coal and Oil Company - UAE
- Vizag Seaport Private Limited - India
- Attock Cement Pakistan Limited
- Therma Luzon, Inc, Philippines
- Star Paper Mills Limited - India
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- Electricity Generating Authority of Thailand
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- Meralco Power Generation, Philippines
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