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