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