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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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Tuesday, 26 May 15
FOB INDONESIA COAL SWAP; UP WEEK OVER WEEK
COALspot.com: Indonesian coal swap for delivery Q3 2015 gains week over week and lost month on month, this past week.
The Q3 swap was declined ...
Monday, 25 May 15
FOB NEWCASTLE COAL SWAP Q1'16 CLOSED LOWER THAN Q3'15 CLOSING
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery gained US$ 0.92 per MT (2.07%) month over month and US$ 0.70 week on week. ...
Monday, 25 May 15
CFR SOUTH CHINA COAL SWAP : Q3, Q4'15 & Q1'16 INCREASED M-O-M AND W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery up US$ 1.55 (3.09%) per MT month over month and US$ 0.72 (1.41%) pe ...
Sunday, 24 May 15
INDONESIA TO INDIA PANAMAX CHARTER RATES WERE RATING AT AROUND US$ 5500
COALspot.com: The freight market softened in all segments this past week.
The BDI was dropped 7.57 percent week over week and closed at 586 po ...
Friday, 22 May 15
FOB INDONESIA COAL Q3'15 SWAP FINISHED THE WEEK UP 38 CENTS TO $43.65 PER MT
COALspot.com: Indonesian coal swap for delivery Q3 2015 gains week over week and lost month on month, past week.
The Q3 swap was declined US$ ...
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- Economic Council, Georgia
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kobexindo Tractors - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Posco Energy - South Korea
- Neyveli Lignite Corporation Ltd, - India
- SN Aboitiz Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Minerals Council of Australia
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Kohat Cement Company Ltd. - Pakistan
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- Independent Power Producers Association of India
- Billiton Holdings Pty Ltd - Australia
- Indogreen Group - Indonesia
- Dalmia Cement Bharat India
- Africa Commodities Group - South Africa
- Pendopo Energi Batubara - Indonesia
- Central Electricity Authority - India
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Meralco Power Generation, Philippines
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Binh Thuan Hamico - Vietnam
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- Latin American Coal - Colombia
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Formosa Plastics Group - Taiwan
- Renaissance Capital - South Africa
- Metalloyd Limited - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coalindo Energy - Indonesia
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Attock Cement Pakistan Limited
- Commonwealth Bank - Australia
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Energy Development Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Antam Resourcindo - Indonesia
- GVK Power & Infra Limited - India
- Simpson Spence & Young - Indonesia
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Aboitiz Power Corporation - Philippines
- Malabar Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Planning Commission, India
- Medco Energi Mining Internasional
- Iligan Light & Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Price Waterhouse Coopers - Russia
- Ind-Barath Power Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Orica Mining Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- IHS Mccloskey Coal Group - USA
- Australian Coal Association
- Parliament of New Zealand
- Aditya Birla Group - India
- Wood Mackenzie - Singapore
- White Energy Company Limited
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- Maheswari Brothers Coal Limited - India
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Pipit Mutiara Jaya. PT, Indonesia
- Coastal Gujarat Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Larsen & Toubro Limited - India
- Power Finance Corporation Ltd., India
- Semirara Mining and Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- The University of Queensland
- Star Paper Mills Limited - India
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- London Commodity Brokers - England
- Directorate General of MIneral and Coal - Indonesia
- Central Java Power - Indonesia
- Sical Logistics Limited - India
- Grasim Industreis Ltd - India
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Goldman Sachs - Singapore
- Gujarat Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Oldendorff Carriers - Singapore
- Leighton Contractors Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Standard Chartered Bank - UAE
- Essar Steel Hazira Ltd - India
- Bhatia International Limited - India
- Indian Oil Corporation Limited
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- Merrill Lynch Commodities Europe
- Electricity Generating Authority of Thailand
- Ministry of Finance - Indonesia
- Port Waratah Coal Services - Australia
- Bahari Cakrawala Sebuku - Indonesia
- CNBM International Corporation - China
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- PowerSource Philippines DevCo
- Jaiprakash Power Ventures ltd
- Indonesian Coal Mining Association
- Carbofer General Trading SA - India
- Thai Mozambique Logistica
- Semirara Mining Corp, Philippines
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Deloitte Consulting - India
- Mercuria Energy - Indonesia
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Trasteel International SA, Italy
- Mercator Lines Limited - India
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