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