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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, 29 May 15
COAL PRODUCTION IN THE U.S. ALMOST FLAT THIS PAST WEEK
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.1 million short ...
Friday, 29 May 15
SOUTH KOREAN STATE-OWNED UTILITY KOREA MIDLAND POWER INVITES BIDS FOR 780K MT OF COAL FOR H2' 15
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 780K Metric Tons (MT) of HCV and LCV ...
Thursday, 28 May 15
TIMEBAR FOR DEMURRAGE CLAIMS - SKULD
KNOWLEDGE TO ELEVATE
English law has traditionally had a strict approach to contractually agreed time bars between commercial parties as well ...
Wednesday, 27 May 15
MARKET INSIGHT - TIMOS PAPADIMITRIOU
Earlier in the year I looked at how the market was reacting to the prolonged fall of the price of oil. Back then it was still unclear if the fallin ...
Tuesday, 26 May 15
MINING ASSOCIATION PERHAPI PUSHES FOR 35,000 MEGAWATT ELECTRICITY PROGRAM - JG
The Indonesian Mining Professionals Association, or Perhapi, has announced its support for a 35,000-megawatt national electricity program, saying i ...
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Showing 3001 to 3005 news of total 6871 |
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Aditya Birla Group - India
- OPG Power Generation Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- PowerSource Philippines DevCo
- Directorate Of Revenue Intelligence - India
- Formosa Plastics Group - Taiwan
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Chamber of Mines of South Africa
- Neyveli Lignite Corporation Ltd, - India
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- Indo Tambangraya Megah - Indonesia
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Antam Resourcindo - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- SMC Global Power, Philippines
- Thiess Contractors Indonesia
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Interocean Group of Companies - India
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Wood Mackenzie - Singapore
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Coalindo Energy - Indonesia
- Electricity Authority, New Zealand
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Karaikal Port Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Leighton Contractors Pty Ltd - Australia
- Bhatia International Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Kartika Selabumi Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Meenaskhi Energy Private Limited - India
- Energy Link Ltd, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Global Business Power Corporation, Philippines
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Indika Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Independent Power Producers Association of India
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Videocon Industries ltd - India
- ASAPP Information Group - India
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Kumho Petrochemical, South Korea
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Minerals Council of Australia
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Energy Development Corp, Philippines
- Gujarat Sidhee Cement - India
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- The State Trading Corporation of India Ltd
- Agrawal Coal Company - India
- Sical Logistics Limited - India
- Global Coal Blending Company Limited - Australia
- Bulk Trading Sa - Switzerland
- Semirara Mining Corp, Philippines
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Port Waratah Coal Services - Australia
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Binh Thuan Hamico - Vietnam
- Indogreen Group - Indonesia
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Miang Besar Coal Terminal - Indonesia
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- Uttam Galva Steels Limited - India
- VISA Power Limited - India
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- New Zealand Coal & Carbon
- Australian Coal Association
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Mercator Lines Limited - India
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- Altura Mining Limited, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Central Java Power - Indonesia
- Tamil Nadu electricity Board
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Siam City Cement - Thailand
- Carbofer General Trading SA - India
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- IEA Clean Coal Centre - UK
- White Energy Company Limited
- Banpu Public Company Limited - Thailand
- Sarangani Energy Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
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