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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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Friday, 18 September 20
INDIA'S COAL-FIRED POWER OUTPUT PICKS UP AS INDUSTRIAL USE RISES - REUTERS
India’s coal-fired electricity generation rose 9.4% in the first half of September, provisional government data showed, as demand from indust ...
Friday, 18 September 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, 17 September 20
LAST HOPES FOR DEMAND GROWTH SET TO DISAPPOINT THERMAL COAL EXPORTERS - IEEFA
Asian thermal coal exporters are fighting an uphill battle even in new markets
The world’s largest thermal coal exporter is eyeing new m ...
Wednesday, 16 September 20
MARKET INSIGHT - INTERMODAL
Another active week in terms of SnP has concluded in the dry bulk market with a diversified array of transactions recorded. Despite the correction ...
Friday, 11 September 20
IMO 2020: A REVIEW OF THE TRANSITION TO VLSFOS - GARD
KNOWLEDGE TO ELEVATE
Many predictions were made in the run up to the imposition of the MARPOL 2020 sulphur cap, none of which was that the tra ...
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- Sakthi Sugars Limited - India
- Banpu Public Company Limited - Thailand
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Bhatia International Limited - India
- Goldman Sachs - Singapore
- Eastern Energy - Thailand
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Tamil Nadu electricity Board
- Interocean Group of Companies - India
- Borneo Indobara - Indonesia
- Kideco Jaya Agung - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- LBH Netherlands Bv - Netherlands
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Mines - Canada
- Toyota Tsusho Corporation, Japan
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Pendopo Energi Batubara - Indonesia
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- Wilmar Investment Holdings
- The University of Queensland
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Riau Bara Harum - Indonesia
- Binh Thuan Hamico - Vietnam
- Star Paper Mills Limited - India
- Videocon Industries ltd - India
- Energy Link Ltd, New Zealand
- Bangladesh Power Developement Board
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Grasim Industreis Ltd - India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- GMR Energy Limited - India
- Attock Cement Pakistan Limited
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- GN Power Mariveles Coal Plant, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Salva Resources Pvt Ltd - India
- Orica Mining Services - Indonesia
- Altura Mining Limited, Indonesia
- Petron Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- IEA Clean Coal Centre - UK
- CNBM International Corporation - China
- Alfred C Toepfer International GmbH - Germany
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- TeaM Sual Corporation - Philippines
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Gujarat Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- Carbofer General Trading SA - India
- Directorate General of MIneral and Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Kaltim Prima Coal - Indonesia
- Central Electricity Authority - India
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- Kartika Selabumi Mining - Indonesia
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Medco Energi Mining Internasional
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Singapore Mercantile Exchange
- Aboitiz Power Corporation - Philippines
- Oldendorff Carriers - Singapore
- Indian Energy Exchange, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- Intertek Mineral Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Petrochimia International Co. Ltd.- Taiwan
- Coal and Oil Company - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Indonesian Coal Mining Association
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Eastern Coal Council - USA
- Cement Manufacturers Association - India
- Aditya Birla Group - India
- Jorong Barutama Greston.PT - Indonesia
- VISA Power Limited - India
- Formosa Plastics Group - Taiwan
- Malabar Cements Ltd - India
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Mercuria Energy - Indonesia
- Semirara Mining Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- Independent Power Producers Association of India
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- Globalindo Alam Lestari - Indonesia
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Indian Oil Corporation Limited
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Sindya Power Generating Company Private Ltd
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- Lanco Infratech Ltd - India
- Simpson Spence & Young - Indonesia
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Planning Commission, India
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Electricity Authority, New Zealand
- MS Steel International - UAE
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Standard Chartered Bank - UAE
- Ministry of Finance - Indonesia
- New Zealand Coal & Carbon
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
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