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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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Tuesday, 04 August 20
KOEN INVITED BIDS FOR TOTAL 900K MT OF MIN 5600 NCV COAL FOR 3 YEARS
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 260,000 to 300,000 Tons (MT) min. ...
Tuesday, 04 August 20
THE WORLD’S FLEET OF COAL-FIRED POWER STATIONS HAS GOT SMALLER FOR THE FIRST TIME ON RECORD, WITH MORE CAPACITY RETIRED IN THE FIRST HALF OF 2020 THAN THE AMOUNT OPENED - IEA
This is according to the latest Global Coal Plant Tracker (GCPT) results by Global Energy Monitor (GEM), which we completed last month and report f ...
Monday, 03 August 20
U.S. COAL CONSUMPTION, WHICH HAS DECLINED SINCE ITS 2007 PEAK, FELL TO ITS LOWEST POINT IN APRIL 2020 - EIA
According to the U.S. Energy Information Administration’s (EIA) most recent Monthly Energy Review, the United States consumed 6.5 quadrillion ...
Monday, 03 August 20
LOW OIL PRICE AND CORONA VIRUS HIT SUB-SAHARAN AFRICA OIL PRODUCERS - FITCH RATINGS
The collapse in oil prices and the coronavirus shock is worsening the fiscal and external balances of sub-Saharan African oil producers, Fitch Rati ...
Saturday, 01 August 20
SHIP SHAPE - OUCH: FIS
Thursday afternoon saw a report that US GDP in Q2 shrank by 32.9%. Now this may have beaten expectations, but it’s a bit like saying that you ...
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- Makarim & Taira - Indonesia
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Essar Steel Hazira Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Energy Development Corp, Philippines
- Coalindo Energy - Indonesia
- The University of Queensland
- White Energy Company Limited
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Merrill Lynch Commodities Europe
- Therma Luzon, Inc, Philippines
- Orica Mining Services - Indonesia
- Independent Power Producers Association of India
- Australian Coal Association
- Semirara Mining and Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- European Bulk Services B.V. - Netherlands
- Bukit Baiduri Energy - Indonesia
- Standard Chartered Bank - UAE
- Minerals Council of Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Lanco Infratech Ltd - India
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- Globalindo Alam Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Petron Corporation, Philippines
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Meenaskhi Energy Private Limited - India
- Altura Mining Limited, Indonesia
- Orica Australia Pty. Ltd.
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- Kepco SPC Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Economic Council, Georgia
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Edison Trading Spa - Italy
- Riau Bara Harum - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Port Waratah Coal Services - Australia
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Sindya Power Generating Company Private Ltd
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Simpson Spence & Young - Indonesia
- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Baramulti Group, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Power Finance Corporation Ltd., India
- Xindia Steels Limited - India
- Trasteel International SA, Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dalmia Cement Bharat India
- Holcim Trading Pte Ltd - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- ICICI Bank Limited - India
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- Bukit Makmur.PT - Indonesia
- Borneo Indobara - Indonesia
- Antam Resourcindo - Indonesia
- The Treasury - Australian Government
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Africa Commodities Group - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
- Larsen & Toubro Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Kapuas Tunggal Persada - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Samtan Co., Ltd - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- Cement Manufacturers Association - India
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- London Commodity Brokers - England
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Electricity Authority, New Zealand
- Latin American Coal - Colombia
- SMC Global Power, Philippines
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Indika Energy - Indonesia
- Energy Link Ltd, New Zealand
- PTC India Limited - India
- Tata Chemicals Ltd - India
- Wilmar Investment Holdings
- McConnell Dowell - Australia
- Carbofer General Trading SA - India
- Parliament of New Zealand
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Electricity Generating Authority of Thailand
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- Vedanta Resources Plc - India
- VISA Power Limited - India
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Videocon Industries ltd - India
- Iligan Light & Power Inc, Philippines
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Bhoruka Overseas - Indonesia
- Metalloyd Limited - United Kingdom
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Bharathi Cement Corporation - India
- Meralco Power Generation, Philippines
- PNOC Exploration Corporation - Philippines
- South Luzon Thermal Energy Corporation
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