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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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- Heidelberg Cement - Germany
- Georgia Ports Authority, United States
- India Bulls Power Limited - India
- Bharathi Cement Corporation - India
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- IHS Mccloskey Coal Group - USA
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- Riau Bara Harum - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Edison Trading Spa - Italy
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Karaikal Port Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Timah Investasi Mineral - Indoneisa
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dalmia Cement Bharat India
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Ministry of Mines - Canada
- Bhatia International Limited - India
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- SMC Global Power, Philippines
- McConnell Dowell - Australia
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- Energy Development Corp, Philippines
- Siam City Cement - Thailand
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Formosa Plastics Group - Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Oldendorff Carriers - Singapore
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- Electricity Generating Authority of Thailand
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- The University of Queensland
- Planning Commission, India
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asmin Koalindo Tuhup - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- GVK Power & Infra Limited - India
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Eastern Energy - Thailand
- Manunggal Multi Energi - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Baramulti Group, Indonesia
- Central Java Power - Indonesia
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Africa Commodities Group - South Africa
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Indo Tambangraya Megah - Indonesia
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Sree Jayajothi Cements Limited - India
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Deloitte Consulting - India
- Posco Energy - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Latin American Coal - Colombia
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- Aditya Birla Group - India
- Parliament of New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Chettinad Cement Corporation Ltd - India
- Ambuja Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- The State Trading Corporation of India Ltd
- Attock Cement Pakistan Limited
- Binh Thuan Hamico - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Xindia Steels Limited - India
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Mercuria Energy - Indonesia
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Straits Asia Resources Limited - Singapore
- Coal and Oil Company - UAE
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Economic Council, Georgia
- San Jose City I Power Corp, Philippines
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- Eastern Coal Council - USA
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Grasim Industreis Ltd - India
- Power Finance Corporation Ltd., India
- Petrochimia International Co. Ltd.- Taiwan
- Agrawal Coal Company - India
- The Treasury - Australian Government
- GMR Energy Limited - India
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Banpu Public Company Limited - Thailand
- Mercator Lines Limited - India
- Tata Chemicals Ltd - India
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Indian Energy Exchange, India
- TeaM Sual Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Orica Mining Services - Indonesia
- Cement Manufacturers Association - India
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