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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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Sunday, 30 August 20
PANAMAX - THIS WEEK THE DEMAND HAS PICKED UP, BUT THE TONNAGE LIST IS INCREASING DAY BY DAY - FEARNLEYS
Cape Size
More or less flat from previous week, with cape rates moving from US$ 19,500 to 18,900 on average. West Australia however being more ...
Saturday, 29 August 20
COAL INDIA'S FUEL SUPPLY TO POWER SECTOR DROPS ABOUT 20% IN APR-JUL: PTI
State-owned Coal India”s fuel supply to the power sector registered a decline of 19.5 per cent to 126.30 million tonnes (MT) in the April-Jul ...
Saturday, 29 August 20
SOUTH KOREAN BROKERAGE FIRM KOREA INVESTMENT & SECURITIES TO STOP ALL COAL BUSINESS - KOREA HERALD
South Korean brokerage firm Korea Investment & Securities has decided to stop its investments in coal, in line with the Moon Jae-in administrat ...
Thursday, 27 August 20
KOREAN GENCOS INVITED BIDS FOR TOTAL 985,000 TONS OF BITUMINOUS COAL FOR NOVEMBER 2020 LOADING
COALspot.com: Korea Midland Power Co., Ltd (KOMIPO) on behalf of EWP, KOSPO, KOSEP and KOWEPO has issued an international tender for total 985,000 ...
Thursday, 27 August 20
SOUTHEAST ASIAN NATIONS SET REGION-WIDE RENEWABLE ENERGY GOAL OF 23 PERCENT BY 2025 - ASEAN POST
The Association of Southeast Asian Nations (ASEAN) has set an ambitious target of securing 23 percent of its primary energy from renewable so ...
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- Energy Development Corp, Philippines
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- Planning Commission, India
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- Sojitz Corporation - Japan
- Bhatia International Limited - India
- ICICI Bank Limited - India
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Singapore Mercantile Exchange
- Rio Tinto Coal - Australia
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Manunggal Multi Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Mercator Lines Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Formosa Plastics Group - Taiwan
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Aboitiz Power Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Interocean Group of Companies - India
- Eastern Coal Council - USA
- PowerSource Philippines DevCo
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- Parliament of New Zealand
- Bulk Trading Sa - Switzerland
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- GMR Energy Limited - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- AsiaOL BioFuels Corp., Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Directorate Of Revenue Intelligence - India
- OPG Power Generation Pvt Ltd - India
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Makmur.PT - Indonesia
- London Commodity Brokers - England
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
- Siam City Cement - Thailand
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Kaltim Prima Coal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Global Coal Blending Company Limited - Australia
- SN Aboitiz Power Inc, Philippines
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Australian Coal Association
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- Grasim Industreis Ltd - India
- Toyota Tsusho Corporation, Japan
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Mjunction Services Limited - India
- Georgia Ports Authority, United States
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Wood Mackenzie - Singapore
- IHS Mccloskey Coal Group - USA
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- Uttam Galva Steels Limited - India
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Cement Manufacturers Association - India
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- Latin American Coal - Colombia
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Mintek Dendrill Indonesia
- SMC Global Power, Philippines
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Gujarat Mineral Development Corp Ltd - India
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- Neyveli Lignite Corporation Ltd, - India
- The University of Queensland
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Chettinad Cement Corporation Ltd - India
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- The State Trading Corporation of India Ltd
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- Commonwealth Bank - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- Tamil Nadu electricity Board
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Gujarat Sidhee Cement - India
- Orica Mining Services - Indonesia
- ASAPP Information Group - India
- CNBM International Corporation - China
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
- Oldendorff Carriers - Singapore
- Port Waratah Coal Services - Australia
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- Videocon Industries ltd - India
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Therma Luzon, Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Globalindo Alam Lestari - Indonesia
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- PTC India Limited - India
- MS Steel International - UAE
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
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