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