We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
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
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Friday, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
Friday, 23 February 24
RUSSIAN COAL SHIPMENTS FALL 14% AS SANCTIONS BITE - BIMCO
During the first seven weeks of 2024, Russian coal shipments have fallen 14% y/y. Volumes have gradually declined since October 2023 when logistica ...
Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
BIMCO has published two standard Quiet Enjoyment Letters (QELs), the first standard form QELs available to the industry, to offer a tool that can e ...
Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
|
|
|
Showing 31 to 35 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- TNB Fuel Sdn Bhd - Malaysia
- Bhatia International Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- Ceylon Electricity Board - Sri Lanka
- PetroVietnam Power Coal Import and Supply Company
- VISA Power Limited - India
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Intertek Mineral Services - Indonesia
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- Savvy Resources Ltd - HongKong
- Global Coal Blending Company Limited - Australia
- Mjunction Services Limited - India
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Trasteel International SA, Italy
- ICICI Bank Limited - India
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Eastern Coal Council - USA
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- Heidelberg Cement - Germany
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Sidhee Cement - India
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Link Ltd, New Zealand
- MS Steel International - UAE
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Singapore Mercantile Exchange
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- The University of Queensland
- Electricity Generating Authority of Thailand
- Rio Tinto Coal - Australia
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bhoruka Overseas - Indonesia
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Bukit Makmur.PT - Indonesia
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- McConnell Dowell - Australia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- Kumho Petrochemical, South Korea
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Videocon Industries ltd - India
- Ministry of Transport, Egypt
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Parry Sugars Refinery, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- London Commodity Brokers - England
- Australian Commodity Traders Exchange
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Cement Manufacturers Association - India
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Commonwealth Bank - Australia
- AsiaOL BioFuels Corp., Philippines
- Larsen & Toubro Limited - India
- Metalloyd Limited - United Kingdom
- Riau Bara Harum - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Meralco Power Generation, Philippines
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Bangladesh Power Developement Board
- Pipit Mutiara Jaya. PT, Indonesia
- Coal and Oil Company - UAE
- Central Electricity Authority - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- SN Aboitiz Power Inc, Philippines
- Africa Commodities Group - South Africa
- Mercuria Energy - Indonesia
- Posco Energy - South Korea
- Alfred C Toepfer International GmbH - Germany
- Deloitte Consulting - India
- Mercator Lines Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Indian Energy Exchange, India
- Semirara Mining and Power Corporation, Philippines
- Romanian Commodities Exchange
- Borneo Indobara - Indonesia
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Sindya Power Generating Company Private Ltd
- Ind-Barath Power Infra Limited - India
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Petron Corporation, Philippines
- The State Trading Corporation of India Ltd
- New Zealand Coal & Carbon
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Renaissance Capital - South Africa
- Globalindo Alam Lestari - Indonesia
- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Planning Commission, India
- CNBM International Corporation - China
- Orica Australia Pty. Ltd.
- Latin American Coal - Colombia
- Holcim Trading Pte Ltd - Singapore
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Kobexindo Tractors - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Bayan Resources Tbk. - Indonesia
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Minerals Council of Australia
- Banpu Public Company Limited - Thailand
- Barasentosa Lestari - Indonesia
- The Treasury - Australian Government
- Kalimantan Lumbung Energi - Indonesia
- Parliament of New Zealand
- Oldendorff Carriers - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement - Thailand
- Kideco Jaya Agung - Indonesia
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Maheswari Brothers Coal Limited - India
|
| |
| |
|
