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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, 25 August 20
INDIA'S IMPORTS FALL AS LOCKDOWNS IMPACT THE POWER AND INDUSTRIAL SECTORS - REPORT
India is the world’s second largest thermal coal consumer and importer, importing an estimated 211 million tonnes of thermal coal in 2019.&nb ...
Monday, 24 August 20
A COMBINATION OF DEVELOPMENTS DROVE THE FALLOFF COAL PRICES - CHIEF ECONOMIST’ OFFICE, AUSTRALIA
China, rising domestic production combined with subdued power demand;
India, a lockdown coupled with government directives that fav ...
Monday, 24 August 20
AUSTRALIA'S THERMAL COAL EXPORTS ARE FORECAST TO DROP FROM AN ESTIMATED $20 BILLION IN 2019-20 TO $16 BILLION IN 2020-21: REPORT
Thermal coal spot prices have fallen sharply as the impact of COVID-19 drives a contraction in seaborne trade for only the second time this century ...
Saturday, 22 August 20
REPORT SEES INDIA’S RELIANCE ON THERMAL POWER DROPPING TO 50% IN 2021, 43% IN 2026 - ET ENERGY | IEEFA
India’s dependence on thermal power will reduce to 50 per cent by 2021-22 and 43 per cent by 2026-27 on the back of renewable energy (RE) cap ...
Friday, 21 August 20
323 MILLION ELECTRIC VEHICLES WILL BE ON THE ROADS BY 2040 - WOOD MACKENZIE
Electric vehicle (EV) sales are expected to reach 45 million units per year by 2040, with a total global EV stock of 323 million, according to new ...
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- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- VISA Power Limited - India
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Australian Coal Association
- Sakthi Sugars Limited - India
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- Indonesian Coal Mining Association
- Star Paper Mills Limited - India
- Merrill Lynch Commodities Europe
- Global Coal Blending Company Limited - Australia
- Bhushan Steel Limited - India
- Mjunction Services Limited - India
- Indogreen Group - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sarangani Energy Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- Port Waratah Coal Services - Australia
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
- Bahari Cakrawala Sebuku - Indonesia
- Bulk Trading Sa - Switzerland
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Rio Tinto Coal - Australia
- Meenaskhi Energy Private Limited - India
- White Energy Company Limited
- Iligan Light & Power Inc, Philippines
- Meralco Power Generation, Philippines
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- Bangladesh Power Developement Board
- Maheswari Brothers Coal Limited - India
- LBH Netherlands Bv - Netherlands
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- AsiaOL BioFuels Corp., Philippines
- SMC Global Power, Philippines
- Kapuas Tunggal Persada - Indonesia
- Grasim Industreis Ltd - India
- SN Aboitiz Power Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Posco Energy - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sindya Power Generating Company Private Ltd
- Orica Mining Services - Indonesia
- CIMB Investment Bank - Malaysia
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Dalmia Cement Bharat India
- Cement Manufacturers Association - India
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Sree Jayajothi Cements Limited - India
- Mercator Lines Limited - India
- Gujarat Electricity Regulatory Commission - India
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Mercuria Energy - Indonesia
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- Bharathi Cement Corporation - India
- Straits Asia Resources Limited - Singapore
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- Electricity Authority, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- McConnell Dowell - Australia
- ICICI Bank Limited - India
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Agrawal Coal Company - India
- Indian Energy Exchange, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PTC India Limited - India
- India Bulls Power Limited - India
- Videocon Industries ltd - India
- Anglo American - United Kingdom
- Heidelberg Cement - Germany
- SMG Consultants - Indonesia
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Central Java Power - Indonesia
- Independent Power Producers Association of India
- Coalindo Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Wilmar Investment Holdings
- Minerals Council of Australia
- Barasentosa Lestari - Indonesia
- GMR Energy Limited - India
- Aboitiz Power Corporation - Philippines
- Central Electricity Authority - India
- Energy Development Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Transport, Egypt
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Interocean Group of Companies - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Directorate General of MIneral and Coal - Indonesia
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Toyota Tsusho Corporation, Japan
- GAC Shipping (India) Pvt Ltd
- Thiess Contractors Indonesia
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
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