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