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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, 02 February 24
DRY BULK MARKET: THE DOWNWARD REVISION IN THE GROWTH OF CAPESIZE TONNE DAYS IN JANUARY WITH THE BCI DROPPING - MARIA BERTZELETOU
In the last week of January, the dry freight market sustained weakness in the Capesize segment, while the number of ballasters in the Southeast (SE ...
Friday, 02 February 24
COAL INDIA ACHIEVES NEARLY 80% OF ITS FY24 PRODUCTION TARGET IN TEN MONTHS - CNBCTV18
For the month of January, the company’s production grew by 9.1% from the same period last year to 78.4 Million Tonnes (MT), from 71.9 MT last ...
Thursday, 01 February 24
CHINA'S WIND, SOLAR CAPACITY TO OVERTAKE COAL IN 2024 - INDUSTRY BODY, REUTERS REPORTED
China’s installed wind and solar capacity is expected to overtake coal for the first time this year, according to industry forecasts.
&nb ...
Thursday, 01 February 24
ANTI-DEDUCTION CLAUSES: CAN A CHARTERER WITHHOLD HIRE WITHOUT AN OWNER'S CONSENT? - SKULD
KNOWLEDGE TO ELEVATE
Summary
In The Anna Dorothea, the Court found that where a charterparty provides that no deduction from hire may be m ...
Thursday, 01 February 24
INDIA REBUILDS COAL STOCKS TO ENSURE ELECTRIC RELIABILITY - REUTERS
India’s electricity supply is much more comfortable at the start of 2024 than in either 2023 or 2022 as coal production has ramped up and the ...
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Showing 41 to 45 news of total 6871 |
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- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- MS Steel International - UAE
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Tata Chemicals Ltd - India
- Aditya Birla Group - India
- Petron Corporation, Philippines
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Latin American Coal - Colombia
- IHS Mccloskey Coal Group - USA
- Larsen & Toubro Limited - India
- Wood Mackenzie - Singapore
- Globalindo Alam Lestari - Indonesia
- Heidelberg Cement - Germany
- Bukit Asam (Persero) Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- Standard Chartered Bank - UAE
- McConnell Dowell - Australia
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Rio Tinto Coal - Australia
- Orica Mining Services - Indonesia
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Indika Energy - Indonesia
- Australian Coal Association
- Salva Resources Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Leighton Contractors Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Madhucon Powers Ltd - India
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- London Commodity Brokers - England
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Videocon Industries ltd - India
- Minerals Council of Australia
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- Timah Investasi Mineral - Indoneisa
- Directorate Of Revenue Intelligence - India
- Jindal Steel & Power Ltd - India
- VISA Power Limited - India
- Kobexindo Tractors - Indoneisa
- Singapore Mercantile Exchange
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Sinarmas Energy and Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Attock Cement Pakistan Limited
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- Economic Council, Georgia
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Essar Steel Hazira Ltd - India
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Anglo American - United Kingdom
- San Jose City I Power Corp, Philippines
- Barasentosa Lestari - Indonesia
- Central Electricity Authority - India
- Star Paper Mills Limited - India
- Gujarat Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Formosa Plastics Group - Taiwan
- Renaissance Capital - South Africa
- Pendopo Energi Batubara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Gujarat Mineral Development Corp Ltd - India
- Eastern Energy - Thailand
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Electricity Authority, New Zealand
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- CNBM International Corporation - China
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Altura Mining Limited, Indonesia
- Posco Energy - South Korea
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Siam City Cement PLC, Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Cement Manufacturers Association - India
- ICICI Bank Limited - India
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Tamil Nadu electricity Board
- Planning Commission, India
- European Bulk Services B.V. - Netherlands
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Karbindo Abesyapradhi - Indoneisa
- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- Romanian Commodities Exchange
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- IEA Clean Coal Centre - UK
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