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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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Friday, 21 August 20
BHP COMMITS TO SELLING ITS THERMAL COALMINES WITHIN TWO YEARS - THE GUARDIAN
Move follows pressure from investors but company stops short of full exit from coalmining
BHP has announced it plans to sell off its ...
Thursday, 20 August 20
MINER BHP CONFIRMS PLANS TO EXIT THERMAL COAL SECTOR - THE SYDNEY MORNING HERALD
The head of mining giant BHP has laid out plans for a reshaping of its global operations by seeking to quit thermal coal mining, offload some cokin ...
Thursday, 20 August 20
LONDON RETAINS ARBITER CROWN - BALTIC EXCHANGE | HFW
Fears that the UK’s decision to leave the European Union would dent the reputation of the nation’s capital as the leader in maritime ar ...
Wednesday, 19 August 20
U.S. COAL STOCKPILES STEADILY INCREASE AFTER REACHING LOWEST LEVEL IN A DECADE IN 2019 - EIA
After reaching their lowest level in more than a decade in March 2019, U.S. coal stockpiles steadily increased to 152 million tons in April 2020, r ...
Wednesday, 19 August 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.26 PCT - XINHUA
China Taiyuan coal transaction price index stood at 124.92 points Monday, down 0.26 percent week on week.
The index, released by Chi ...
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- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Uttam Galva Steels Limited - India
- Directorate Of Revenue Intelligence - India
- MS Steel International - UAE
- Ministry of Transport, Egypt
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- Thai Mozambique Logistica
- Bhushan Steel Limited - India
- The Treasury - Australian Government
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- Indogreen Group - Indonesia
- The State Trading Corporation of India Ltd
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bharathi Cement Corporation - India
- Australian Coal Association
- Mintek Dendrill Indonesia
- Leighton Contractors Pty Ltd - Australia
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Sree Jayajothi Cements Limited - India
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Merrill Lynch Commodities Europe
- Barasentosa Lestari - Indonesia
- Interocean Group of Companies - India
- PowerSource Philippines DevCo
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Dalmia Cement Bharat India
- Altura Mining Limited, Indonesia
- Heidelberg Cement - Germany
- Coalindo Energy - Indonesia
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Banpu Public Company Limited - Thailand
- Sical Logistics Limited - India
- Jindal Steel & Power Ltd - India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Goldman Sachs - Singapore
- Planning Commission, India
- Georgia Ports Authority, United States
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- New Zealand Coal & Carbon
- IHS Mccloskey Coal Group - USA
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Rio Tinto Coal - Australia
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- South Luzon Thermal Energy Corporation
- AsiaOL BioFuels Corp., Philippines
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Neyveli Lignite Corporation Ltd, - India
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- European Bulk Services B.V. - Netherlands
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Tata Chemicals Ltd - India
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Kumho Petrochemical, South Korea
- Malabar Cements Ltd - India
- Posco Energy - South Korea
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Agrawal Coal Company - India
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- PTC India Limited - India
- Central Java Power - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Larsen & Toubro Limited - India
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Toyota Tsusho Corporation, Japan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- Trasteel International SA, Italy
- Vijayanagar Sugar Pvt Ltd - India
- Parliament of New Zealand
- Africa Commodities Group - South Africa
- Iligan Light & Power Inc, Philippines
- The University of Queensland
- Siam City Cement - Thailand
- Renaissance Capital - South Africa
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Bangladesh Power Developement Board
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Thiess Contractors Indonesia
- Sakthi Sugars Limited - India
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Baramulti Group, Indonesia
- Bhoruka Overseas - Indonesia
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- GAC Shipping (India) Pvt Ltd
- GN Power Mariveles Coal Plant, Philippines
- Singapore Mercantile Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Borneo Indobara - Indonesia
- ASAPP Information Group - India
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Independent Power Producers Association of India
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Vizag Seaport Private Limited - India
- GVK Power & Infra Limited - India
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