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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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Tuesday, 14 November 23
CHINA'S BELT AND ROAD INITIATIVE TURNS AWAY FROM COAL - WOOD MACKENZIE
Ambitious, contentious and big spending, China’s Belt and Road Initiative (BRI) is 10 years old. In that time, China has splashed more than U ...
Friday, 10 November 23
THE COMMODITIES FEED: OIL UNDER PRESSURE - ING
Energy – Brent plummets
The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and ...
Friday, 10 November 23
COAL USE AT U.S. POWER PLANTS CONTINUES DOWNWARD SPIRAL; FULL IMPACT ON MINES TO BE FELT IN 2024 - IEEFA
This year, the use of coal by the U.S.’s power producers has been so anemic that the fuel has not achieved a 20% market share in any month so ...
Friday, 10 November 23
INDIA: NATIONAL COAL INDEX RISES 3.83 POINTS IN SEPTEMBER AMID HIGHER DEMAND - LIVEMINT
The National Coal Index (NCI) rose 3.83 points to 143.91 in September amid growing demand for coal.
The union coal ministry on Tuesd ...
Thursday, 09 November 23
WE'RE PRODUCING TOO MUCH COAL, OIL AND GAS, REPORT SAYS - WSJ
World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change.
Now they are stepping up production ...
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- Merrill Lynch Commodities Europe
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- Meralco Power Generation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Global Business Power Corporation, Philippines
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Baramulti Group, Indonesia
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Indonesian Coal Mining Association
- Eastern Coal Council - USA
- Makarim & Taira - Indonesia
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Bayan Resources Tbk. - Indonesia
- Edison Trading Spa - Italy
- Larsen & Toubro Limited - India
- Kartika Selabumi Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Medco Energi Mining Internasional
- Trasteel International SA, Italy
- Mercuria Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- CNBM International Corporation - China
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- New Zealand Coal & Carbon
- Chettinad Cement Corporation Ltd - India
- Minerals Council of Australia
- McConnell Dowell - Australia
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- London Commodity Brokers - England
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Thai Mozambique Logistica
- Holcim Trading Pte Ltd - Singapore
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Sakthi Sugars Limited - India
- Kaltim Prima Coal - Indonesia
- Dalmia Cement Bharat India
- Orica Mining Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- Formosa Plastics Group - Taiwan
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- Ceylon Electricity Board - Sri Lanka
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Standard Chartered Bank - UAE
- Rio Tinto Coal - Australia
- Alfred C Toepfer International GmbH - Germany
- Bahari Cakrawala Sebuku - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Commonwealth Bank - Australia
- Renaissance Capital - South Africa
- Africa Commodities Group - South Africa
- Timah Investasi Mineral - Indoneisa
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Coal Association
- MS Steel International - UAE
- Wilmar Investment Holdings
- Indogreen Group - Indonesia
- Salva Resources Pvt Ltd - India
- Ministry of Transport, Egypt
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Jindal Steel & Power Ltd - India
- Interocean Group of Companies - India
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Simpson Spence & Young - Indonesia
- Bulk Trading Sa - Switzerland
- Sinarmas Energy and Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Marubeni Corporation - India
- Oldendorff Carriers - Singapore
- India Bulls Power Limited - India
- White Energy Company Limited
- Electricity Generating Authority of Thailand
- Sree Jayajothi Cements Limited - India
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Attock Cement Pakistan Limited
- Iligan Light & Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Globalindo Alam Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Energy Development Corp, Philippines
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- Semirara Mining Corp, Philippines
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- SMG Consultants - Indonesia
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- San Jose City I Power Corp, Philippines
- Power Finance Corporation Ltd., India
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Therma Luzon, Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- PTC India Limited - India
- Manunggal Multi Energi - Indonesia
- Tamil Nadu electricity Board
- Pendopo Energi Batubara - Indonesia
- Economic Council, Georgia
- Gujarat Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- Ambuja Cements Ltd - India
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- Kohat Cement Company Ltd. - Pakistan
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Baiduri Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- The University of Queensland
- GVK Power & Infra Limited - India
- The State Trading Corporation of India Ltd
- Uttam Galva Steels Limited - India
- Intertek Mineral Services - Indonesia
- Parry Sugars Refinery, India
- Coastal Gujarat Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Mercator Lines Limited - India
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Directorate Of Revenue Intelligence - India
- Kalimantan Lumbung Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- PowerSource Philippines DevCo
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