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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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Wednesday, 12 August 20
U.S. COAL PRODUCTION IN 2020 WILL DECREASE BY 29% FROM 2019 LEVELS TO 502 MMST - EIA
U.S. coal consumption, which dropped to its lowest point since April, totaled 95 MMst in the second quarter of 2020.
EIA expec ...
Tuesday, 11 August 20
BHP COAL ASSETS WORTH A BILLION LESS THAN JUST TWO YEARS AGO - IEEFA
Another global investor, the UK’s biggest public pension fund NEST, has withdrawn funds from BHP this week because the company is profiting & ...
Monday, 10 August 20
COAL IMPORT DROPS 43% IN JULY OWING TO HIGH STOCKPILE AT PITHEADS, PLANTS - PTI
“The market participants seem to have adopted a wait and watch approach and are currently looking for a direction. We do not expect to see an ...
Saturday, 08 August 20
GLOBAL COAL POWER PUZZLE - BALTIC EXCHANGE
Global Energy Monitor’s latest Global Coal Plant Tracker has put another nail in the coffin for the coal-carrying fleet with its finding that ...
Friday, 07 August 20
PEABODY'S $1.42 BILLION WRITE-DOWN CONCEDES COAL MINES HAVE LITTLE VALUE AND DIM FUTURE - IEEFA
Trouble at biggest mine in Powder River Basin speaks volumes about state of industry
Peabody Energy, the world’s largest priva ...
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- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Global Coal Blending Company Limited - Australia
- Kobexindo Tractors - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Eastern Energy - Thailand
- Indogreen Group - Indonesia
- Madhucon Powers Ltd - India
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- Directorate General of MIneral and Coal - Indonesia
- GVK Power & Infra Limited - India
- Altura Mining Limited, Indonesia
- Australian Coal Association
- Manunggal Multi Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- OPG Power Generation Pvt Ltd - India
- Rio Tinto Coal - Australia
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Vijayanagar Sugar Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Parry Sugars Refinery, India
- Africa Commodities Group - South Africa
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- Petrochimia International Co. Ltd.- Taiwan
- New Zealand Coal & Carbon
- South Luzon Thermal Energy Corporation
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- Bhatia International Limited - India
- Antam Resourcindo - Indonesia
- India Bulls Power Limited - India
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- Bayan Resources Tbk. - Indonesia
- Coalindo Energy - Indonesia
- Thai Mozambique Logistica
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Dalmia Cement Bharat India
- CIMB Investment Bank - Malaysia
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Cigading International Bulk Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Mercuria Energy - Indonesia
- Malabar Cements Ltd - India
- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- GMR Energy Limited - India
- IHS Mccloskey Coal Group - USA
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Maheswari Brothers Coal Limited - India
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Ind-Barath Power Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Parliament of New Zealand
- Sarangani Energy Corporation, Philippines
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- PTC India Limited - India
- Singapore Mercantile Exchange
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Sojitz Corporation - Japan
- Indonesian Coal Mining Association
- Pendopo Energi Batubara - Indonesia
- Orica Australia Pty. Ltd.
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Gujarat Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- Carbofer General Trading SA - India
- Bangladesh Power Developement Board
- Grasim Industreis Ltd - India
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Krishnapatnam Port Company Ltd. - India
- Energy Link Ltd, New Zealand
- Commonwealth Bank - Australia
- ASAPP Information Group - India
- Kumho Petrochemical, South Korea
- Port Waratah Coal Services - Australia
- The University of Queensland
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Oil Corporation Limited
- Siam City Cement - Thailand
- Minerals Council of Australia
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Orica Mining Services - Indonesia
- White Energy Company Limited
- Marubeni Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
- Eastern Coal Council - USA
- ICICI Bank Limited - India
- Chettinad Cement Corporation Ltd - India
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- IEA Clean Coal Centre - UK
- Bahari Cakrawala Sebuku - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Ceylon Electricity Board - Sri Lanka
- Riau Bara Harum - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Deloitte Consulting - India
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- Vedanta Resources Plc - India
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Semirara Mining Corp, Philippines
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- Banpu Public Company Limited - Thailand
- Coastal Gujarat Power Limited - India
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Holcim Trading Pte Ltd - Singapore
- European Bulk Services B.V. - Netherlands
- Romanian Commodities Exchange
- Leighton Contractors Pty Ltd - Australia
- Edison Trading Spa - Italy
- Medco Energi Mining Internasional
- Central Java Power - Indonesia
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- Mintek Dendrill Indonesia
- Tamil Nadu electricity Board
- London Commodity Brokers - England
- Cement Manufacturers Association - India
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