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Wednesday, 19 August 20
MARKET INSIGHT - GEORGE LAIOS | INTERMODAL
 Since the Covid-19 outbreak, governments and central banks around the globe have been using their ammunition and stimulus packages to keep their economies running. Trillions have been injected into global economies to fight unemployment and minimize recession. Apart from the central banks of EU, Japan, Switzerland, Sweden and Denmark, who have been offering negative rates for the past five years – a handful of central banks have now reduced their policy rates to near-zero values. Regardless of how successful or not the above mentioned five banks’ “experiment’’ has been, negative rates have undoubtedly made hedging strategies more complicated.
When it comes to the US Dollar, the Fed Chair has made it clear that negative rates are not part of its policy tools for the time being and that it is highly unlikely that rates will be pushed below zero. However, the US President has openly expressed that he views such a tool favourably. Although market experts do not expect negative Libor rates in the imminent future, no one can rule out the possibility of this happening.
These developments have had numerous effects on shipping companies who typically borrow using USD-Libor floating loans. The first and obvious outcome of lower Libor is the reduced borrowing cost. Whilst average 3-month LIBOR rates were 0.69%, 0.74% and 0.95% during the 2009, 2016 and 2020 (to date) recessions respectively, the 3-month LIBOR rate in July closed at 0.3% and has decreased approximately 6-fold since January (0.25%, as of 17/8). USD Libor loans have a zero lower bound limit which is incorporated by banks in their loan documentation (LMA) language: if Libor is less than zero “it will be deemed to be zero’’. This wording is also included in proposed documentation by the Alternative Reference Rates Committee, who is responsible for the development of Libor’s successor.
Low interest rates have also resulted in increased enquiries from bank clients who want to exploit their interest rate hedging options. Most shipping borrowers have decided not to hedge owing to the consensus that USD interest rates will not increase significantly over the next couple of years. Nevertheless, the number of shipping companies (mainly listed) that have engaged in hedging derivatives remain significant.
Under “normal” circumstances, a Cap or a SWAP for protection against an upward movement of interest rates would be the norm. However, nowadays it is essential to provision for negative interest rates. The borrower who hedges should bear in mind that USD Libor can also turn negative. Some banks even “encourage” clients to include a Floor in their SWAPS which will prevent base rates on their loans from dropping below zero. This limits the extent to which their derivatives can fall “out of the money”. Such protection comes at a premium. Indicatively, a 5 year SWAP is priced at 0.37 %, while the cost of a Floor is [10-30] bps. With rates expected to remain close to zero, the SWAP protection premium will continue to rise for as long as there are statements in favour of negative rates such as that of President Trump. However, whether the cost of protecting of a company’s future cash flows through the xyz premium is high or not is also a matter of perception and is reflective of one’s risk profile.
By George Laios
Deputy CEO, Intermodal Group
Compiled by:
Intermodal Research & Valuations
Analysts:
Ms Eva Tzima
Mr.George Panagopoulos
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no reproducing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Tuesday, 08 December 20
MARKET ANALYSIS - ALLIED SHIPPING
It is now undisputed that oil consumption for 2020 will post a considerable drop, as demand for several petroleum products has plummeted since the ...
Tuesday, 08 December 20
PANAMAX: THE OVERALL MARKET SEEMS TO BE UNDER NEGATIVE PRESSURE - ALLIED
Capesize
A rather indifferent week for the Capesize market, with BCI 5TC figure finishing the week with slight losses of 0.8%. The Atlantic enj ...
Friday, 04 December 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Friday, 04 December 20
THE INDONESIA COAL PRICE REFERENCE REACHES THREE MONTH HIGH ON IMPROVING DEMAND OUTLOOK
COALspot.com: The Indonesia Coal Price Reference reaches three month high on improving demand outlook . The Indonesia Coal Price Reference rose by& ...
Wednesday, 02 December 20
GLOBAL MINING SECTOR OUTLOOK STABLE DUE TO CHINA'S RECOVERY - FITCH RATINGS
China’s post-pandemic economic recovery and sizeable infrastructure-focused government stimulus boosted global metals and mining prices, help ...
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- IHS Mccloskey Coal Group - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Australian Commodity Traders Exchange
- Coal and Oil Company - UAE
- Commonwealth Bank - Australia
- Standard Chartered Bank - UAE
- Port Waratah Coal Services - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- Oldendorff Carriers - Singapore
- Heidelberg Cement - Germany
- Thai Mozambique Logistica
- Rashtriya Ispat Nigam Limited - India
- Videocon Industries ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Global Green Power PLC Corporation, Philippines
- Indian Oil Corporation Limited
- Timah Investasi Mineral - Indoneisa
- Metalloyd Limited - United Kingdom
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- Vizag Seaport Private Limited - India
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- Sree Jayajothi Cements Limited - India
- Larsen & Toubro Limited - India
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Altura Mining Limited, Indonesia
- White Energy Company Limited
- India Bulls Power Limited - India
- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- Africa Commodities Group - South Africa
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- Ministry of Transport, Egypt
- Dalmia Cement Bharat India
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Kumho Petrochemical, South Korea
- Australian Coal Association
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- The Treasury - Australian Government
- Eastern Energy - Thailand
- PTC India Limited - India
- Power Finance Corporation Ltd., India
- Simpson Spence & Young - Indonesia
- Star Paper Mills Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Krishnapatnam Port Company Ltd. - India
- Carbofer General Trading SA - India
- Pendopo Energi Batubara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Siam City Cement - Thailand
- MS Steel International - UAE
- GN Power Mariveles Coal Plant, Philippines
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Rio Tinto Coal - Australia
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Vijayanagar Sugar Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Bukit Baiduri Energy - Indonesia
- Tamil Nadu electricity Board
- Semirara Mining Corp, Philippines
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Straits Asia Resources Limited - Singapore
- LBH Netherlands Bv - Netherlands
- Bukit Makmur.PT - Indonesia
- IEA Clean Coal Centre - UK
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Indogreen Group - Indonesia
- Lanco Infratech Ltd - India
- Bhatia International Limited - India
- Thiess Contractors Indonesia
- ASAPP Information Group - India
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Renaissance Capital - South Africa
- Vedanta Resources Plc - India
- Kohat Cement Company Ltd. - Pakistan
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- London Commodity Brokers - England
- Eastern Coal Council - USA
- Formosa Plastics Group - Taiwan
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- Therma Luzon, Inc, Philippines
- Antam Resourcindo - Indonesia
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- CNBM International Corporation - China
- Electricity Authority, New Zealand
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Karaikal Port Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Sarangani Energy Corporation, Philippines
- ICICI Bank Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Sakthi Sugars Limited - India
- Deloitte Consulting - India
- Cigading International Bulk Terminal - Indonesia
- Interocean Group of Companies - India
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Central Electricity Authority - India
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- Attock Cement Pakistan Limited
- Wilmar Investment Holdings
- Parliament of New Zealand
- Jindal Steel & Power Ltd - India
- Coalindo Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Edison Trading Spa - Italy
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- Madhucon Powers Ltd - India
- McConnell Dowell - Australia
- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
- Planning Commission, India
- Chamber of Mines of South Africa
- Trasteel International SA, Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Mjunction Services Limited - India
- Central Java Power - Indonesia
- VISA Power Limited - India
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Meenaskhi Energy Private Limited - India
- Mercator Lines Limited - India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Barasentosa Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indika Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
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