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