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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, 27 August 20
BANGLADESH POWER MINISTRY SEEKING AUTHORITY TO CANCEL 13,000 MW OF PROPOSED COAL-FIRED CAPACITY - BUSINESS STANDARD
In a bid to move away from dirty energy, the Ministry of Power, Energy and Mineral Resources is seeking the prime minister’s approval to conv ...
Wednesday, 26 August 20
ASIAN COAL PRICES LIKELY TO REMAIN DEPRESSED SAY TRADERS, ANALYSTS - REUTERS
Asian coal prices, which have fallen around 25% this year as power demand slumped due to the coronavirus outbreak, are unlikely to move higher befo ...
Wednesday, 26 August 20
WORLD COAL EXPORTS: INDONESIAN THERMAL COAL EXPORTS HAVE COME UNDER PRESSURE AS THERMAL COAL PRICES WEAKEN - REPORT
Indonesia’s exports to decline sharply from record highs
Indonesia is the world’s largest thermal coal exporter, sellin ...
Wednesday, 26 August 20
JAPAN'S COAL IMPORTS ARE BEING AFFECTED BY COMPETING INFLUENCES - REPORT
Japan is the world’s third largest thermal coal importer, importing an estimated 135 million tonnes of thermal coal in 2019. The country&rsqu ...
Wednesday, 26 August 20
PENDING SOUTH KOREA LEGISLATION COULD FORCE HALT TO COUNTRY’S COAL PLANT EXPORT DEALS - KOREA ECONOMIC DAILY
South Korea’s parliament looks set to pass new legislation to ban financing on foreign coal power projects, putting all overseas coal-fired p ...
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- Tata Chemicals Ltd - India
- Star Paper Mills Limited - India
- IHS Mccloskey Coal Group - USA
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Central Java Power - Indonesia
- The State Trading Corporation of India Ltd
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- PNOC Exploration Corporation - Philippines
- Economic Council, Georgia
- Wood Mackenzie - Singapore
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Kobexindo Tractors - Indoneisa
- European Bulk Services B.V. - Netherlands
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- Vizag Seaport Private Limited - India
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- White Energy Company Limited
- ICICI Bank Limited - India
- Xindia Steels Limited - India
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Merrill Lynch Commodities Europe
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Altura Mining Limited, Indonesia
- Ambuja Cements Ltd - India
- Jindal Steel & Power Ltd - India
- Petron Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Oldendorff Carriers - Singapore
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- CNBM International Corporation - China
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- Indika Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Directorate Of Revenue Intelligence - India
- Indogreen Group - Indonesia
- SMG Consultants - Indonesia
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bangladesh Power Developement Board
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Samtan Co., Ltd - South Korea
- Interocean Group of Companies - India
- Electricity Authority, New Zealand
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- Formosa Plastics Group - Taiwan
- Metalloyd Limited - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- Leighton Contractors Pty Ltd - Australia
- SMC Global Power, Philippines
- Power Finance Corporation Ltd., India
- Anglo American - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement - Thailand
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- India Bulls Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- Asmin Koalindo Tuhup - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Singapore Mercantile Exchange
- Eastern Energy - Thailand
- Sojitz Corporation - Japan
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
- Parry Sugars Refinery, India
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Krishnapatnam Port Company Ltd. - India
- Coastal Gujarat Power Limited - India
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Orica Australia Pty. Ltd.
- Riau Bara Harum - Indonesia
- GMR Energy Limited - India
- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Cement Manufacturers Association - India
- Dalmia Cement Bharat India
- CIMB Investment Bank - Malaysia
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- The University of Queensland
- Planning Commission, India
- Borneo Indobara - Indonesia
- Semirara Mining Corp, Philippines
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- Barasentosa Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- Bhatia International Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Price Waterhouse Coopers - Russia
- Kartika Selabumi Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- GVK Power & Infra Limited - India
- Romanian Commodities Exchange
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Deloitte Consulting - India
- Trasteel International SA, Italy
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
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