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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, 17 November 20
AUSTRALIAN COAL EXPORTS TO CHINA SLUMP, BUT PRICES ARE MIXED - REUTERS
China’s unofficial ban on coal imports from Australia is starting to take its toll on volumes, with departing cargoes down sharply so far in ...
Friday, 13 November 20
SHIPPING OUTLOOK TURNS STABLE ON EBITDA GROWTH, IMPROVING SUPPLY-DEMAND BALANCE - MOODY’S
Outlook revised to stable from negative.
The global shipping industry is on course to perform better overall than we had previously ex ...
Friday, 13 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 ...
Monday, 09 November 20
INDONESIA MAY CUT BIODIESEL USE TARGET AS SUBSIDY FUND DEPLETES - FITCH
The Indonesian government may rein in its push to increase use of biodiesel as it now comes at higher cost following a fall in crude oil prices and ...
Monday, 09 November 20
SOUTH AFRICA: COAL MARKET CONDITIONS HAVE ' DETERIORATED MATERIALLY' - IEEFA
The Asian seaborne thermal coal pool is drying out
Resource Generation Ltd’s proposed but long delayed Boikarabelo coal mine i ...
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- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Georgia Ports Authority, United States
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Maharashtra Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Energy Development Corp, Philippines
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Electricity Regulatory Commission - India
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- AsiaOL BioFuels Corp., Philippines
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Planning Commission, India
- SMG Consultants - Indonesia
- Standard Chartered Bank - UAE
- Bukit Baiduri Energy - Indonesia
- Heidelberg Cement - Germany
- Timah Investasi Mineral - Indoneisa
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Aditya Birla Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Eastern Energy - Thailand
- Medco Energi Mining Internasional
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- Lanco Infratech Ltd - India
- Uttam Galva Steels Limited - India
- Orica Australia Pty. Ltd.
- Electricity Authority, New Zealand
- CNBM International Corporation - China
- ICICI Bank Limited - India
- Parliament of New Zealand
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Rio Tinto Coal - Australia
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Makarim & Taira - Indonesia
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Kepco SPC Power Corporation, Philippines
- The University of Queensland
- Simpson Spence & Young - Indonesia
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- McConnell Dowell - Australia
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Kideco Jaya Agung - Indonesia
- Ind-Barath Power Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Mercuria Energy - Indonesia
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Minerals Council of Australia
- Deloitte Consulting - India
- Global Business Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Directorate Of Revenue Intelligence - India
- GVK Power & Infra Limited - India
- Jaiprakash Power Ventures ltd
- Aboitiz Power Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- PTC India Limited - India
- SMC Global Power, Philippines
- Sree Jayajothi Cements Limited - India
- Borneo Indobara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- Neyveli Lignite Corporation Ltd, - India
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Energy Link Ltd, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- International Coal Ventures Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Ministry of Mines - Canada
- Bulk Trading Sa - Switzerland
- Baramulti Group, Indonesia
- Australian Coal Association
- Ministry of Transport, Egypt
- Xindia Steels Limited - India
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- Cigading International Bulk Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Anglo American - United Kingdom
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Dalmia Cement Bharat India
- OPG Power Generation Pvt Ltd - India
- Thiess Contractors Indonesia
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Kapuas Tunggal Persada - Indonesia
- PowerSource Philippines DevCo
- Africa Commodities Group - South Africa
- Larsen & Toubro Limited - India
- Port Waratah Coal Services - Australia
- Meralco Power Generation, Philippines
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- MS Steel International - UAE
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Petron Corporation, Philippines
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Grasim Industreis Ltd - India
- Bangladesh Power Developement Board
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Latin American Coal - Colombia
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Kartika Selabumi Mining - Indonesia
- Oldendorff Carriers - Singapore
- Karaikal Port Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Marubeni Corporation - India
- CIMB Investment Bank - Malaysia
- Miang Besar Coal Terminal - Indonesia
- Renaissance Capital - South Africa
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