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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, 14 August 20
EIA: COAL PLANTS UNECONOMICAL IN MOST REGIONS - IEEFA
U.S. coal power generation plunged by 30 percent in the first half of 2020 off an already-depressed base, shoved out by natural gas and renewables ...
Thursday, 13 August 20
INDIA SHOULD RECORD A SLIGHT DECREASE IN THERMAL COAL IMPORTS, REACHING A VOLUME OF 167 MILLION TONS BY THE END OF 2020 - ASSOCARBONI
Regarding 2020 thermal coal imports forecasts, Vietnam’s coal imports showed a very strong growth in the first half of 2020 and it is believe ...
Thursday, 13 August 20
INDONESIA REMAINS THE LARGEST EXPORTER OF COAL IN THE WORLD - ASSOCARBONI
According to the last Assocarboni data for 2019, Indonesia remains the largest exporter in the world. Thermal coal exports have in fact reached 456 ...
Wednesday, 12 August 20
VIETNAM WAS THE PROTAGONIST OF A SIGNIFICANT INCREASE IN COAL IMPORTS IN 2019 - ASSOCARBONI
The latest Assocarboni data for 2019 also provide a detailed picture on the trend of the global coal import.
According to Assocarbon ...
Wednesday, 12 August 20
THE COAL MARKET IN ITALY - ASSOCARBONI
Italy, which in 2019 reported a decrease in thermal coal imports, with a volume of 7,5 million tons (-32% compared to 11 million tons in 2018), whi ...
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- Marubeni Corporation - India
- Thai Mozambique Logistica
- MS Steel International - UAE
- TNB Fuel Sdn Bhd - Malaysia
- IHS Mccloskey Coal Group - USA
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Bhushan Steel Limited - India
- Electricity Authority, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Singapore Mercantile Exchange
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Mintek Dendrill Indonesia
- Eastern Coal Council - USA
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Edison Trading Spa - Italy
- Coastal Gujarat Power Limited - India
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Makarim & Taira - Indonesia
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Sindya Power Generating Company Private Ltd
- Gujarat Sidhee Cement - India
- PetroVietnam Power Coal Import and Supply Company
- Essar Steel Hazira Ltd - India
- Deloitte Consulting - India
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- CNBM International Corporation - China
- White Energy Company Limited
- Jindal Steel & Power Ltd - India
- Bharathi Cement Corporation - India
- Medco Energi Mining Internasional
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Kumho Petrochemical, South Korea
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Independent Power Producers Association of India
- Karaikal Port Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- VISA Power Limited - India
- Uttam Galva Steels Limited - India
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- South Luzon Thermal Energy Corporation
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Meralco Power Generation, Philippines
- Aboitiz Power Corporation - Philippines
- Madhucon Powers Ltd - India
- Xindia Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Wilmar Investment Holdings
- Mjunction Services Limited - India
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- SMG Consultants - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aditya Birla Group - India
- Price Waterhouse Coopers - Russia
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Rio Tinto Coal - Australia
- International Coal Ventures Pvt Ltd - India
- Agrawal Coal Company - India
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- Salva Resources Pvt Ltd - India
- Mercator Lines Limited - India
- Semirara Mining Corp, Philippines
- London Commodity Brokers - England
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- Dalmia Cement Bharat India
- Karbindo Abesyapradhi - Indoneisa
- Chamber of Mines of South Africa
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Bhoruka Overseas - Indonesia
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- Meenaskhi Energy Private Limited - India
- GMR Energy Limited - India
- Kohat Cement Company Ltd. - Pakistan
- New Zealand Coal & Carbon
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- Georgia Ports Authority, United States
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- Interocean Group of Companies - India
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Parliament of New Zealand
- Leighton Contractors Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Indika Energy - Indonesia
- Australian Coal Association
- Ministry of Mines - Canada
- Videocon Industries ltd - India
- Eastern Energy - Thailand
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- SMC Global Power, Philippines
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- TeaM Sual Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Straits Asia Resources Limited - Singapore
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- Krishnapatnam Port Company Ltd. - India
- Vizag Seaport Private Limited - India
- Wood Mackenzie - Singapore
- India Bulls Power Limited - India
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- IEA Clean Coal Centre - UK
- SN Aboitiz Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Port Waratah Coal Services - Australia
- PowerSource Philippines DevCo
- Power Finance Corporation Ltd., India
- Parry Sugars Refinery, India
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Formosa Plastics Group - Taiwan
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- The University of Queensland
- Mercuria Energy - Indonesia
- Commonwealth Bank - Australia
- Directorate General of MIneral and Coal - Indonesia
- PTC India Limited - India
- PNOC Exploration Corporation - Philippines
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Larsen & Toubro Limited - India
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- Economic Council, Georgia
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