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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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Thursday, 10 September 20
U.S. COAL PRODUCTION IN 2020 TO BE 511 MMST, 28 PER CENT LOWER THAN IN 2019 - EIA
EIA expects total U.S. coal production in 2020 to be 511 million short tons (MMst), 194 MMst (28%) lower than in 2019. Mitigation efforts related t ...
Thursday, 10 September 20
DRY BULK SHIPPING: CHINA'S DEMAND KEEPING THE DRY BULK MARKET GOING - PETER SAND | BIMCO
Overview
An impressive recovery in Chinese dry bulk imports has protected the industry from the effects of falling demand in the rest of the wo ...
Thursday, 10 September 20
TANKER SHIPPING: FREIGHT RATES BACK AT LOSS-MAKING LEVELS AFTER 12 VERY PROFITABLE MONTHS - BIMCO
Overview
A stunningly strong 12 months for the tanker shipping industry is now being replaced by lower freight rates, as lower oil product ...
Thursday, 10 September 20
INDIA'S COAL IMPORTS STUMBLE IN AUGUST, RAISING RISK OF SLOW RECOVERY - REFINITIV | BANCHERO COSTA
After posting a mild recovery in July, India's coal imports have stumbled in August as the South Asian nation battles to restart it ...
Thursday, 10 September 20
THE FIRST 8 MONTHS OF 2020, INDONESIA EXPORTED 217.4 MLN TONNES OF COAL BASED ON REFINITIV - BANCHERO COSTA
The coal market has been hit by a weaker global economy as a result of COVID-19 pandemic and falling industrial electricity demand ...
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- IEA Clean Coal Centre - UK
- Mjunction Services Limited - India
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Wilmar Investment Holdings
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhoruka Overseas - Indonesia
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Deloitte Consulting - India
- Petron Corporation, Philippines
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Parliament of New Zealand
- Commonwealth Bank - Australia
- Trasteel International SA, Italy
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- MS Steel International - UAE
- Ministry of Finance - Indonesia
- Essar Steel Hazira Ltd - India
- IHS Mccloskey Coal Group - USA
- Romanian Commodities Exchange
- Interocean Group of Companies - India
- Price Waterhouse Coopers - Russia
- PetroVietnam Power Coal Import and Supply Company
- LBH Netherlands Bv - Netherlands
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- CNBM International Corporation - China
- Rio Tinto Coal - Australia
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Iligan Light & Power Inc, Philippines
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Power Finance Corporation Ltd., India
- Mercuria Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- White Energy Company Limited
- International Coal Ventures Pvt Ltd - India
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- VISA Power Limited - India
- PNOC Exploration Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Chamber of Mines of South Africa
- PowerSource Philippines DevCo
- Borneo Indobara - Indonesia
- Medco Energi Mining Internasional
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Planning Commission, India
- Eastern Coal Council - USA
- Star Paper Mills Limited - India
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Africa Commodities Group - South Africa
- SMC Global Power, Philippines
- Aboitiz Power Corporation - Philippines
- Latin American Coal - Colombia
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Mercator Lines Limited - India
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Transport, Egypt
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Energy Development Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Xindia Steels Limited - India
- Sarangani Energy Corporation, Philippines
- Riau Bara Harum - Indonesia
- Madhucon Powers Ltd - India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- India Bulls Power Limited - India
- New Zealand Coal & Carbon
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Malabar Cements Ltd - India
- Larsen & Toubro Limited - India
- GVK Power & Infra Limited - India
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Aditya Birla Group - India
- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Thai Mozambique Logistica
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- Energy Link Ltd, New Zealand
- Globalindo Alam Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- Posco Energy - South Korea
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Asmin Koalindo Tuhup - Indonesia
- Meralco Power Generation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bangladesh Power Developement Board
- GAC Shipping (India) Pvt Ltd
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Singapore Mercantile Exchange
- Indian Energy Exchange, India
- Ministry of Mines - Canada
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Coal and Oil Company - UAE
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Minerals Council of Australia
- Kohat Cement Company Ltd. - Pakistan
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- Jorong Barutama Greston.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bhushan Steel Limited - India
- London Commodity Brokers - England
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Merrill Lynch Commodities Europe
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- CIMB Investment Bank - Malaysia
- Global Business Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Indonesian Coal Mining Association
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Straits Asia Resources Limited - Singapore
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- Intertek Mineral Services - Indonesia
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tamil Nadu electricity Board
- Thiess Contractors Indonesia
- Indogreen Group - Indonesia
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