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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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Thursday, 06 August 20
SUPRAMAX MARKET CONTINUED SIDEWAYS TREND, AND LITTLE INSPIRING NEWS APPEAR - FEARNLEYS
Capesize
There is presently a small correction in rates, but overall levels are up from previous week mainly due to increased demand in the Eas ...
Thursday, 06 August 20
KOREA SOUTH-EAST POWER INVITING BIDS FOR MIN 3,600-MAX 3,800 NCV COAL
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) inviting bids for 80,000 Tons (MT) Min 3,600~Max 3,800 kcal/kg NCV coal f ...
Wednesday, 05 August 20
NO NEW MINING LICENSES - A REMINDER TO GOVERNORS IN INDONESIA - SSEK
Indonesia’s acting Director General of Mining and Coal (“DGMC”) has issued a letter to the country’s provincial Governors t ...
Wednesday, 05 August 20
AUGUST 2020 HBA HITTING ITS LOWEST LEVELS IN HISTORY
COALspot.com: The Indonesia Coal Price Reference for the month of August plunged 30.73% YoY, hitting its lowest levels in history and highlighting ...
Wednesday, 05 August 20
SLUMP IN OIL REVENUE CHALLENGES MIDDLE EAST OIL EXPORTERS - INTERMODAL
The Covid-19 pandemic has had far-reaching consequences on the global capital markets. Despite the US government’s efforts for a quick and de ...
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- Uttam Galva Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- Manunggal Multi Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kepco SPC Power Corporation, Philippines
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Kartika Selabumi Mining - Indonesia
- Indian Oil Corporation Limited
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Electricity Generating Authority of Thailand
- Toyota Tsusho Corporation, Japan
- Pendopo Energi Batubara - Indonesia
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- Karaikal Port Pvt Ltd - India
- Larsen & Toubro Limited - India
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Australian Coal Association
- Trasteel International SA, Italy
- Bhatia International Limited - India
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- VISA Power Limited - India
- Electricity Authority, New Zealand
- OPG Power Generation Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Aditya Birla Group - India
- Georgia Ports Authority, United States
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Green Power PLC Corporation, Philippines
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Commonwealth Bank - Australia
- The University of Queensland
- Kohat Cement Company Ltd. - Pakistan
- Romanian Commodities Exchange
- Ind-Barath Power Infra Limited - India
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- India Bulls Power Limited - India
- Deloitte Consulting - India
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Asmin Koalindo Tuhup - Indonesia
- Petron Corporation, Philippines
- Star Paper Mills Limited - India
- Coal and Oil Company - UAE
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Global Business Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Power Finance Corporation Ltd., India
- Parliament of New Zealand
- Mjunction Services Limited - India
- PowerSource Philippines DevCo
- Energy Development Corp, Philippines
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Jindal Steel & Power Ltd - India
- Tamil Nadu electricity Board
- Simpson Spence & Young - Indonesia
- Sarangani Energy Corporation, Philippines
- Coalindo Energy - Indonesia
- Cement Manufacturers Association - India
- Wilmar Investment Holdings
- Vizag Seaport Private Limited - India
- Straits Asia Resources Limited - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Goldman Sachs - Singapore
- LBH Netherlands Bv - Netherlands
- Metalloyd Limited - United Kingdom
- Bhoruka Overseas - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Java Power - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Global Coal Blending Company Limited - Australia
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- ASAPP Information Group - India
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- Agrawal Coal Company - India
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Binh Thuan Hamico - Vietnam
- The Treasury - Australian Government
- Bukit Baiduri Energy - Indonesia
- Altura Mining Limited, Indonesia
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- Siam City Cement - Thailand
- Medco Energi Mining Internasional
- Attock Cement Pakistan Limited
- Kideco Jaya Agung - Indonesia
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Indika Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Rio Tinto Coal - Australia
- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- Makarim & Taira - Indonesia
- San Jose City I Power Corp, Philippines
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Mercator Lines Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Edison Trading Spa - Italy
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- GVK Power & Infra Limited - India
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- CNBM International Corporation - China
- CIMB Investment Bank - Malaysia
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Sindya Power Generating Company Private Ltd
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bangladesh Power Developement Board
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- Alfred C Toepfer International GmbH - Germany
- IEA Clean Coal Centre - UK
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Planning Commission, India
- Maheswari Brothers Coal Limited - India
- Miang Besar Coal Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- Thai Mozambique Logistica
- Oldendorff Carriers - Singapore
- Leighton Contractors Pty Ltd - Australia
- Maharashtra Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kobexindo Tractors - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Gujarat Sidhee Cement - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Commodity Traders Exchange
- Jaiprakash Power Ventures ltd
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Xindia Steels Limited - India
- Cigading International Bulk Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Directorate General of MIneral and Coal - Indonesia
- Dalmia Cement Bharat India
- Renaissance Capital - South Africa
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- Standard Chartered Bank - UAE
- European Bulk Services B.V. - Netherlands
- Sical Logistics Limited - India
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