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