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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, 07 October 20
U.S. COAL PRODUCTION TO DECREASE BY 26 PERCENT IN 2020 COMPARED TO 2019 - EIA
EIA expects total U.S. coal production in 2020 to be 525 million short tons (MMst), compared with 705 MMst in 2019, a 26% decrease.
COVID-19 a ...
Wednesday, 07 October 20
MARKET INSIGHT - INTERMODAL
The challenges brought forward in 2020 proved to be very different from what we could have ever imagined. Together with placing a significant strai ...
Tuesday, 06 October 20
KOSPO TO IMPORT 80,000 MT OF 3,800 NCV COAL FOR 2H NOV
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for 80,000 MT Min.3800 kcal/kg NCV coal 2H November, 2020 l ...
Friday, 02 October 20
THE INDONESIA COAL PRICE REFERENCE RISE AFTER HISTORIC CRASH TO US$ 49.42
COALspot.com: The Indonesia Coal Price Reference for the month of October Rise to US$ 51.00 after historic crash to US$ 49.42 in September 2020.
...
Friday, 02 October 20
SRI LANKA MUST LEARN LESSONS FROM AROUND ASIA TO AVOID FURTHER ELECTRICITY CRISES - IEEFA
Overcommitment to fossil-fuelled power generation is leading to excess capacity and rising capacity payments, subsidies, and tariffs around the con ...
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- Xindia Steels Limited - India
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Essar Steel Hazira Ltd - India
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Meralco Power Generation, Philippines
- CNBM International Corporation - China
- GMR Energy Limited - India
- Bhoruka Overseas - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- New Zealand Coal & Carbon
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- Price Waterhouse Coopers - Russia
- South Luzon Thermal Energy Corporation
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Simpson Spence & Young - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Central Java Power - Indonesia
- Timah Investasi Mineral - Indoneisa
- Savvy Resources Ltd - HongKong
- Africa Commodities Group - South Africa
- Goldman Sachs - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Kobexindo Tractors - Indoneisa
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Posco Energy - South Korea
- OPG Power Generation Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Planning Commission, India
- Kaltim Prima Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- Sarangani Energy Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- McConnell Dowell - Australia
- Altura Mining Limited, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Directorate General of MIneral and Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Bukit Baiduri Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Miang Besar Coal Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Malabar Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Sojitz Corporation - Japan
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Medco Energi Mining Internasional
- Economic Council, Georgia
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Trasteel International SA, Italy
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Ministry of Transport, Egypt
- Commonwealth Bank - Australia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Interocean Group of Companies - India
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Bhatia International Limited - India
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
- Ministry of Mines - Canada
- Ambuja Cements Ltd - India
- The University of Queensland
- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- PowerSource Philippines DevCo
- Deloitte Consulting - India
- Mercator Lines Limited - India
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Iligan Light & Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- PTC India Limited - India
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
- Maharashtra Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Sinarmas Energy and Mining - Indonesia
- Coastal Gujarat Power Limited - India
- Parliament of New Zealand
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- India Bulls Power Limited - India
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Australian Coal Association
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Carbofer General Trading SA - India
- Karaikal Port Pvt Ltd - India
- Independent Power Producers Association of India
- Riau Bara Harum - Indonesia
- Rio Tinto Coal - Australia
- Indo Tambangraya Megah - Indonesia
- GAC Shipping (India) Pvt Ltd
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Minerals Council of Australia
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Global Coal Blending Company Limited - Australia
- VISA Power Limited - India
- Banpu Public Company Limited - Thailand
- Indika Energy - Indonesia
- Lanco Infratech Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Power Finance Corporation Ltd., India
- Bhushan Steel Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Therma Luzon, Inc, Philippines
- Antam Resourcindo - Indonesia
- LBH Netherlands Bv - Netherlands
- Parry Sugars Refinery, India
- Meenaskhi Energy Private Limited - India
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petron Corporation, Philippines
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Port Waratah Coal Services - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GVK Power & Infra Limited - India
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Semirara Mining and Power Corporation, Philippines
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