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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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Wednesday, 25 November 20
MARKET INSIGHT - INTERMODAL
Over 90% of the world’s goods are transported by sea. LPG is a clean, energy efficient and portable fuel that is being marketed at an afforda ...
Friday, 20 November 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 ...
Thursday, 19 November 20
MARKET INSIGHT - INTERMODAL
As we are moving towards the end of the year, the overall deal landscape of the dry bulk sector corresponding to the second half of 2020 (up to dat ...
Tuesday, 17 November 20
COAL SQUEEZE INTENSIFIES - BALTIC EXCHANGE
The message from the top is clear: cut out coal. While the regulatory pressure has been evident for some time, the race to banish the black stuff s ...
Tuesday, 17 November 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.35 PCT - XINHUA
China Taiyuan coal transaction price index stood at 128.72 points Monday, up 0.35 percent week on week.
The index, released by China ...
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- CNBM International Corporation - China
- Orica Australia Pty. Ltd.
- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Thiess Contractors Indonesia
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Altura Mining Limited, Indonesia
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- Toyota Tsusho Corporation, Japan
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- SMC Global Power, Philippines
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- Metalloyd Limited - United Kingdom
- Samtan Co., Ltd - South Korea
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- Iligan Light & Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Carbofer General Trading SA - India
- Australian Commodity Traders Exchange
- Antam Resourcindo - Indonesia
- Africa Commodities Group - South Africa
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Jindal Steel & Power Ltd - India
- Coalindo Energy - Indonesia
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- CIMB Investment Bank - Malaysia
- GAC Shipping (India) Pvt Ltd
- Indogreen Group - Indonesia
- Siam City Cement PLC, Thailand
- Ambuja Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- Planning Commission, India
- Indonesian Coal Mining Association
- Goldman Sachs - Singapore
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- Kobexindo Tractors - Indoneisa
- Meenaskhi Energy Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Simpson Spence & Young - Indonesia
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- The University of Queensland
- Global Business Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Aditya Birla Group - India
- GMR Energy Limited - India
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- ICICI Bank Limited - India
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Videocon Industries ltd - India
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Mjunction Services Limited - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- SMG Consultants - Indonesia
- Bukit Makmur.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- TeaM Sual Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Gujarat Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- Anglo American - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Minerals Council of Australia
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Oldendorff Carriers - Singapore
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Independent Power Producers Association of India
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- International Coal Ventures Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Australian Coal Association
- Marubeni Corporation - India
- Bulk Trading Sa - Switzerland
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Electricity Generating Authority of Thailand
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Wilmar Investment Holdings
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Xindia Steels Limited - India
- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining and Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Petron Corporation, Philippines
- Uttam Galva Steels Limited - India
- Siam City Cement - Thailand
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- Cigading International Bulk Terminal - Indonesia
- Coal and Oil Company - UAE
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Star Paper Mills Limited - India
- Posco Energy - South Korea
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