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