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