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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, 30 September 20
MARKET INSIGHT - INTERMODAL
Spot rates for Capesize bulk carriers received a significant boost last week, however, there are certain reservations in the market regarding the p ...
Tuesday, 29 September 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.73 PCT - XINHUA
China Taiyuan coal transaction price index stood at 125.91 points Monday, up 0.73 percent week on week.
The index, released by China ...
Tuesday, 29 September 20
SHIPPING MARKET - ALLIED
Here we are, just a short breath before the final quarter of the year, and many are now debating to what extent we can really expect a firm dry bul ...
Tuesday, 29 September 20
INDONESIAN COAL COMPANIES' EARNINGS TO WEAKEN IN 2H20 - FITCH RATINGS
Rated Indonesian coal miners and contractors will have weaker operating and financial performances in the second half of 2020 than in the first, sa ...
Tuesday, 29 September 20
RUSSIA'S COAL PRODUCTION TO DROP BY 10.5% IN 2020, SAYS MINISTRY - TASS
Russia’s Economic Development Ministry projects a 10.5% decrease in coal production in the country in 2020 compared with last year to 395 mln ...
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- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Essar Steel Hazira Ltd - India
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement PLC, Thailand
- White Energy Company Limited
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- Ambuja Cements Ltd - India
- Siam City Cement - Thailand
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Malabar Cements Ltd - India
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Grasim Industreis Ltd - India
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- Renaissance Capital - South Africa
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Global Coal Blending Company Limited - Australia
- Intertek Mineral Services - Indonesia
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- Coal and Oil Company - UAE
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- GVK Power & Infra Limited - India
- Bharathi Cement Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- Manunggal Multi Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- IEA Clean Coal Centre - UK
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Indo Tambangraya Megah - Indonesia
- Vedanta Resources Plc - India
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- Meralco Power Generation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- Global Business Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Petron Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- Globalindo Alam Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Merrill Lynch Commodities Europe
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- South Luzon Thermal Energy Corporation
- The Treasury - Australian Government
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Star Paper Mills Limited - India
- Eastern Coal Council - USA
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- CNBM International Corporation - China
- McConnell Dowell - Australia
- SN Aboitiz Power Inc, Philippines
- Bangladesh Power Developement Board
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Bhushan Steel Limited - India
- Coastal Gujarat Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Coalindo Energy - Indonesia
- Power Finance Corporation Ltd., India
- Deloitte Consulting - India
- PNOC Exploration Corporation - Philippines
- Standard Chartered Bank - UAE
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Mjunction Services Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Dalmia Cement Bharat India
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Trasteel International SA, Italy
- Videocon Industries ltd - India
- Aboitiz Power Corporation - Philippines
- Carbofer General Trading SA - India
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- Planning Commission, India
- Anglo American - United Kingdom
- India Bulls Power Limited - India
- Indika Energy - Indonesia
- Uttam Galva Steels Limited - India
- Parliament of New Zealand
- European Bulk Services B.V. - Netherlands
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Africa Commodities Group - South Africa
- Indian Oil Corporation Limited
- Indian Energy Exchange, India
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- PowerSource Philippines DevCo
- Billiton Holdings Pty Ltd - Australia
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- The University of Queensland
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- Cement Manufacturers Association - India
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Sindya Power Generating Company Private Ltd
- PTC India Limited - India
- Formosa Plastics Group - Taiwan
- Lanco Infratech Ltd - India
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Indonesian Coal Mining Association
- Aditya Birla Group - India
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Romanian Commodities Exchange
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Agrawal Coal Company - India
- Timah Investasi Mineral - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Jindal Steel & Power Ltd - India
- Rio Tinto Coal - Australia
- Minerals Council of Australia
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- Sical Logistics Limited - India
- Kepco SPC Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thiess Contractors Indonesia
- Meenaskhi Energy Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- VISA Power Limited - India
- Singapore Mercantile Exchange
- Bhatia International Limited - India
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Australian Coal Association
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Asmin Koalindo Tuhup - Indonesia
- Oldendorff Carriers - Singapore
- Iligan Light & Power Inc, Philippines
- Port Waratah Coal Services - Australia
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