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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, 22 May 15
U.S WEEKLY COAL PRODUCTION STAYS FLAT AT 16 MMST
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.0 million short ...
Thursday, 21 May 15
PORT OF NEWCASTLE ACHIEVED ITS BEST EVER TOTAL COAL EXPORT TURNOVER OF 159 MILLION TONS IN 2014
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $900 million ...
Thursday, 21 May 15
ATLANTIC PANAMAX MARKET STARTED TO IMPROVE SLOWLY - INTERMODAL
COALspot.com: The Dry Bulk market closed off the week on the green last week, purely on the back of improved Capesize performance, while the rest o ...
Wednesday, 20 May 15
LOWER PRICES SEEN IN NEWBUILDING MARKET ON LOW DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Cash-rich ship owners, or at least, owners with substantial access to financing will be among the prime candidates, who will reap the benefits of t ...
Wednesday, 20 May 15
TANKER MARKET INSIGHT - JOHN N. COTZIAS
Since Early October 2014 the tanker market has been experiencing a very positive momentum and has continued its strong performance so far in 2015. ...
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- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Ind-Barath Power Infra Limited - India
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Kartika Selabumi Mining - Indonesia
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- GMR Energy Limited - India
- Bhoruka Overseas - Indonesia
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- Siam City Cement PLC, Thailand
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- South Luzon Thermal Energy Corporation
- Indonesian Coal Mining Association
- Eastern Energy - Thailand
- Ambuja Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- ICICI Bank Limited - India
- Mintek Dendrill Indonesia
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Timah Investasi Mineral - Indoneisa
- The State Trading Corporation of India Ltd
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Energy Link Ltd, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Karbindo Abesyapradhi - Indoneisa
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- India Bulls Power Limited - India
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Minerals Council of Australia
- Savvy Resources Ltd - HongKong
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Videocon Industries ltd - India
- Sojitz Corporation - Japan
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- Chettinad Cement Corporation Ltd - India
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Global Coal Blending Company Limited - Australia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Krishnapatnam Port Company Ltd. - India
- Cement Manufacturers Association - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Commodity Traders Exchange
- Pendopo Energi Batubara - Indonesia
- Kaltim Prima Coal - Indonesia
- Interocean Group of Companies - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Borneo Indobara - Indonesia
- Karaikal Port Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bayan Resources Tbk. - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- CNBM International Corporation - China
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Parry Sugars Refinery, India
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- ASAPP Information Group - India
- Indika Energy - Indonesia
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Economic Council, Georgia
- Tata Chemicals Ltd - India
- Globalindo Alam Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Makmur.PT - Indonesia
- Madhucon Powers Ltd - India
- Wilmar Investment Holdings
- Straits Asia Resources Limited - Singapore
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Price Waterhouse Coopers - Russia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- McConnell Dowell - Australia
- Indo Tambangraya Megah - Indonesia
- Salva Resources Pvt Ltd - India
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- IEA Clean Coal Centre - UK
- Planning Commission, India
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Mercator Lines Limited - India
- Electricity Generating Authority of Thailand
- Kalimantan Lumbung Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Xindia Steels Limited - India
- Anglo American - United Kingdom
- Merrill Lynch Commodities Europe
- Bahari Cakrawala Sebuku - Indonesia
- Barasentosa Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Sical Logistics Limited - India
- Coal and Oil Company - UAE
- Gujarat Sidhee Cement - India
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Ministry of Mines - Canada
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Mjunction Services Limited - India
- The University of Queensland
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Tamil Nadu electricity Board
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- Global Green Power PLC Corporation, Philippines
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Parliament of New Zealand
- Central Electricity Authority - India
- Bulk Trading Sa - Switzerland
- Grasim Industreis Ltd - India
- Australian Coal Association
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Bharathi Cement Corporation - India
- Sindya Power Generating Company Private Ltd
- Binh Thuan Hamico - Vietnam
- Toyota Tsusho Corporation, Japan
- Kapuas Tunggal Persada - Indonesia
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Oldendorff Carriers - Singapore
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Trasteel International SA, Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Ministry of Transport, Egypt
- Sree Jayajothi Cements Limited - India
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- The Treasury - Australian Government
- Iligan Light & Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
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