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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, 29 July 20
2019 U.S. COAL PRODUCTION FALLS TO ITS LOWEST LEVEL SINCE 1978 - EIA
In 2019, U.S. coal production totaled 706 million short tons (MMst), a 7% decrease from the 756 MMst mined in 2018. Last year’s production wa ...
Wednesday, 29 July 20
MARKET INSIGHT - INTERMODAL
The dry bulk sector is beginning to recover from reduced SnP activity recorded in the first quarter of 2020. The table below illustrates that appro ...
Tuesday, 28 July 20
DEUTSCHE BANK TO END GLOBAL BUSINESS ACTIVITIES IN COAL MINING BY 2025 - REUTERS
Deutsche Bank, in a revamp of its policies for fossil fuels, said on Monday that it would end business activities worldwide related to coal mining ...
Monday, 27 July 20
IEEFA ENERGY FINANCE CONFERENCE 2020: COAL, LNG, PETROCHEMICAL SECTORS FACE POOR OUTLOOK AND UPHILL BATTLE FOR INVESTORS
Fossil fuel industries were becoming less financially attractive even before the global coronavirus pandemic
Three major fossil fuel ...
Friday, 24 July 20
IPA: THERMAL COAL IMPORTS AT MAJOR PORTS DECLINE 35 PC TO 17.71 MT IN APR TO JUNE - ECONOMIC TIMES
These ports had handled 27.13 MT of thermal coal and 14.95 MT of coking coal in the April-June period of the previous financial year
...
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- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Salva Resources Pvt Ltd - India
- Eastern Energy - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Price Waterhouse Coopers - Russia
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- Siam City Cement - Thailand
- Bhatia International Limited - India
- Iligan Light & Power Inc, Philippines
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Samtan Co., Ltd - South Korea
- Attock Cement Pakistan Limited
- Chamber of Mines of South Africa
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Barasentosa Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Antam Resourcindo - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- PTC India Limited - India
- Deloitte Consulting - India
- Bahari Cakrawala Sebuku - Indonesia
- Maheswari Brothers Coal Limited - India
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Thai Mozambique Logistica
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- Kartika Selabumi Mining - Indonesia
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Parliament of New Zealand
- Coalindo Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- Parry Sugars Refinery, India
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- Medco Energi Mining Internasional
- Tamil Nadu electricity Board
- Trasteel International SA, Italy
- Posco Energy - South Korea
- Renaissance Capital - South Africa
- Indian Energy Exchange, India
- Toyota Tsusho Corporation, Japan
- Timah Investasi Mineral - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- The University of Queensland
- The State Trading Corporation of India Ltd
- Malabar Cements Ltd - India
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Marubeni Corporation - India
- Jaiprakash Power Ventures ltd
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- IEA Clean Coal Centre - UK
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- Altura Mining Limited, Indonesia
- Larsen & Toubro Limited - India
- Star Paper Mills Limited - India
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Bukit Makmur.PT - Indonesia
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- GVK Power & Infra Limited - India
- Coal and Oil Company - UAE
- Xindia Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- Baramulti Group, Indonesia
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Romanian Commodities Exchange
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- The Treasury - Australian Government
- Globalindo Alam Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- AsiaOL BioFuels Corp., Philippines
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Global Green Power PLC Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Port Waratah Coal Services - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meenaskhi Energy Private Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Ministry of Finance - Indonesia
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
- Indo Tambangraya Megah - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Electricity Generating Authority of Thailand
- New Zealand Coal & Carbon
- GAC Shipping (India) Pvt Ltd
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Indian Oil Corporation Limited
- Aditya Birla Group - India
- Videocon Industries ltd - India
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Anglo American - United Kingdom
- India Bulls Power Limited - India
- MS Steel International - UAE
- GMR Energy Limited - India
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Petron Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Indogreen Group - Indonesia
- Bharathi Cement Corporation - India
- Ind-Barath Power Infra Limited - India
- Riau Bara Harum - Indonesia
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