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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, 13 February 24
WHAT IS THE OUTLOOK FOR THE NATURAL GAS SPOT PRICE IN 2024 AND 2025? EIA
We expect the U.S. benchmark Henry Hub natural gas spot price to average higher in 2024 and 2025 than in 2023, but to remain lower than $3.00 per m ...
Monday, 12 February 24
US THERMAL COAL EXPORTS HIT 5-YEAR HIGHS AND TOP $5 BLN IN 2023 - REUTERS
United States exporters of thermal coal earned more than $5 billion in 2023 as they shipped out more than 32.5 million metric tons of the high-poll ...
Tuesday, 06 February 24
NEW E-FUELS PROJECT TO MAKE INTERNATIONAL SHIPPING CLIMATE-NEUTRAL - RINA
Transport and trade on the ocean blue must be made much greener. This is the goal of the new €17 million European GAMMA project, where compani ...
Tuesday, 06 February 24
INDIA SEES ANNUAL COAL OUTPUT UP 10.9% IN 2024/25 - REUTERS
India expects domestic coal output to increase by 10.9% to 1.13 billion metric tons in the fiscal year ending March 2025, a senior government offic ...
Tuesday, 06 February 24
INDIA'S COAL PRODUCTION INCREASES BY 10.3% TO 99.73 MILLION TONNE IN JANUARY - PTI
The country’s coal output rose 10.3 per cent to 99.73 Million Tonne (MT) in January, over the same month in the previous fiscal.
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- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- Riau Bara Harum - Indonesia
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- Borneo Indobara - Indonesia
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Sojitz Corporation - Japan
- Grasim Industreis Ltd - India
- Central Java Power - Indonesia
- Aboitiz Power Corporation - Philippines
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- Thiess Contractors Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bhushan Steel Limited - India
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- Electricity Authority, New Zealand
- Maheswari Brothers Coal Limited - India
- Independent Power Producers Association of India
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- McConnell Dowell - Australia
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- Tamil Nadu electricity Board
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Power Finance Corporation Ltd., India
- PetroVietnam Power Coal Import and Supply Company
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Tata Chemicals Ltd - India
- Africa Commodities Group - South Africa
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Ind-Barath Power Infra Limited - India
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Orica Mining Services - Indonesia
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- Antam Resourcindo - Indonesia
- VISA Power Limited - India
- Planning Commission, India
- White Energy Company Limited
- Marubeni Corporation - India
- AsiaOL BioFuels Corp., Philippines
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Renaissance Capital - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Dalmia Cement Bharat India
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Sree Jayajothi Cements Limited - India
- Cement Manufacturers Association - India
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Deloitte Consulting - India
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- Siam City Cement PLC, Thailand
- IEA Clean Coal Centre - UK
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Attock Cement Pakistan Limited
- Global Coal Blending Company Limited - Australia
- Aditya Birla Group - India
- Eastern Energy - Thailand
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Singapore Mercantile Exchange
- Bhatia International Limited - India
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- CNBM International Corporation - China
- Interocean Group of Companies - India
- Barasentosa Lestari - Indonesia
- PowerSource Philippines DevCo
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Sidhee Cement - India
- Gujarat Mineral Development Corp Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Mercator Lines Limited - India
- Xindia Steels Limited - India
- The University of Queensland
- Commonwealth Bank - Australia
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Kartika Selabumi Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Malabar Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Sical Logistics Limited - India
- Energy Link Ltd, New Zealand
- Carbofer General Trading SA - India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Energy Development Corp, Philippines
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- Kalimantan Lumbung Energi - Indonesia
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Indo Tambangraya Megah - Indonesia
- Bhoruka Overseas - Indonesia
- Sarangani Energy Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Australian Commodity Traders Exchange
- Banpu Public Company Limited - Thailand
- Gujarat Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Indonesian Coal Mining Association
- Videocon Industries ltd - India
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- Indian Oil Corporation Limited
- Semirara Mining and Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Minerals Council of Australia
- Cigading International Bulk Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Indian Energy Exchange, India
- Kapuas Tunggal Persada - Indonesia
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Rio Tinto Coal - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- European Bulk Services B.V. - Netherlands
- International Coal Ventures Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- OPG Power Generation Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Kumho Petrochemical, South Korea
- GVK Power & Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- Agrawal Coal Company - India
- MS Steel International - UAE
- New Zealand Coal & Carbon
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
- Siam City Cement - Thailand
- Wood Mackenzie - Singapore
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
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