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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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Monday, 20 July 20
OIL PRICE OF $40-43 PER BARREL MORE OR LESS BALANCED - NOVAK | TASS
The Russian Ministry of Energy considers the current oil price of $40-43 per barrel more or less balanced and does not expect price changes after t ...
Monday, 20 July 20
SUPRAMAX: A 63,000 OPEN NORTH CHINA FIXING AN AUSTRALIAN ROUND IN THE LOW $10,000S - BALTIC BRIEFING
Capesize
The capesize market showed some resistance this week to recent losses as all routes saw a small uptick in value to end the week. With ...
Friday, 17 July 20
MISC MALAYSIA ENTERS INTO PURCHASE AGREEMENTS AND TIME CHARTER PARTIES FOR SIX VLECS
MISC Berhad (MISC) has entered into Memorandum of Agreements (MOAs) with six indirect wholly-owned subsidiaries of Zhejiang Satellite Petrochem ...
Wednesday, 15 July 20
HOW MEANINGFUL ARE SOME ESTIMATES FOR INDIA’S COAL CONSUMPTION DATA? - IEEFA
In recent years, BP's estimates for India have contained what appears to be a record of over-optimistic projections
BP’s a ...
Wednesday, 15 July 20
CHINA'S JUNE COAL IMPORTS FALL 6.7% Y/Y ON PORT CURBS - REUTERS
China’s coal imports dropped 6.7% in June from the same period last year, as stringent import restrictions at ports impeded purchases by trad ...
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- Romanian Commodities Exchange
- Central Electricity Authority - India
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- Xindia Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Essar Steel Hazira Ltd - India
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Krishnapatnam Port Company Ltd. - India
- Formosa Plastics Group - Taiwan
- Mjunction Services Limited - India
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Vizag Seaport Private Limited - India
- Barasentosa Lestari - Indonesia
- Indika Energy - Indonesia
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Agrawal Coal Company - India
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Indian Energy Exchange, India
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Lanco Infratech Ltd - India
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- Gujarat Sidhee Cement - India
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Samtan Co., Ltd - South Korea
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Rio Tinto Coal - Australia
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMC Global Power, Philippines
- Iligan Light & Power Inc, Philippines
- Anglo American - United Kingdom
- White Energy Company Limited
- Interocean Group of Companies - India
- Asmin Koalindo Tuhup - Indonesia
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- Salva Resources Pvt Ltd - India
- Central Java Power - Indonesia
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Bhushan Steel Limited - India
- Alfred C Toepfer International GmbH - Germany
- Cigading International Bulk Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Manunggal Multi Energi - Indonesia
- Coalindo Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Tata Chemicals Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- CNBM International Corporation - China
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Sree Jayajothi Cements Limited - India
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Kideco Jaya Agung - Indonesia
- Independent Power Producers Association of India
- MS Steel International - UAE
- Siam City Cement - Thailand
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Karaikal Port Pvt Ltd - India
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Madhucon Powers Ltd - India
- Cement Manufacturers Association - India
- Billiton Holdings Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Goldman Sachs - Singapore
- Globalindo Alam Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- Indo Tambangraya Megah - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- IEA Clean Coal Centre - UK
- Mintek Dendrill Indonesia
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Timah Investasi Mineral - Indoneisa
- LBH Netherlands Bv - Netherlands
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- Parliament of New Zealand
- The University of Queensland
- Latin American Coal - Colombia
- Indogreen Group - Indonesia
- Energy Development Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Global Green Power PLC Corporation, Philippines
- GVK Power & Infra Limited - India
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Australian Coal Association
- Planning Commission, India
- OPG Power Generation Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Petron Corporation, Philippines
- Siam City Cement PLC, Thailand
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Economic Council, Georgia
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- South Luzon Thermal Energy Corporation
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Aboitiz Power Corporation - Philippines
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Heidelberg Cement - Germany
- Sinarmas Energy and Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Sakthi Sugars Limited - India
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- Indian Oil Corporation Limited
- Renaissance Capital - South Africa
- Indonesian Coal Mining Association
- SMG Consultants - Indonesia
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Thiess Contractors Indonesia
- Global Business Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- The Treasury - Australian Government
- ICICI Bank Limited - India
- Simpson Spence & Young - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- European Bulk Services B.V. - Netherlands
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