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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, 06 July 20
INDONESIAN COAL PRICE REFERENCE IN FREE FALL
COALspot.com: The Ministry of Energy and Mineral Resources of the Republic of Indonesia has revised down again the benchmark price of Indonesian th ...
Monday, 06 July 20
SUPRAMAX: A 58,000-DWT FIXING DELIVERY VIETNAM TRIP VIA INDONESIA RE-DELIVERY WEST INDIA IN THE LOW $4,000S
Capesize
The Capesize market continues to go from strength to strength, as rates reach highs not seen since September last year. The rally is p ...
Thursday, 02 July 20
PRIVATE COAL MINING MAY SEE WEAK INVESTOR SENTIMENT: ICRA - LIVEMINT
The prospects of commercial coal mining in India may be dimmer than initially expected because of the expected shift in India’s energy mix fr ...
Wednesday, 01 July 20
THERMAL COAL OPTIONS TRADING LAUNCHED IN CHINA'S ZHENGZHOU - XINHUA
Thermal coal options started trading on the Zhengzhou Commodity Exchange (ZCE) in central China’s Henan Province Tuesday.
It i ...
Wednesday, 01 July 20
COLOMBIA'S COAL EXPORT VOLUMES HAVE STEADILY DECLINED IN RECENT YEARS - BANCHERO COSTA
Colombia is the world’s fifth largest seaborne exporter of coal, coming after Australia, Indonesia, Russia and the USA.
Export ...
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- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- GMR Energy Limited - India
- Essar Steel Hazira Ltd - India
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Carbofer General Trading SA - India
- Global Business Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Uttam Galva Steels Limited - India
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- ICICI Bank Limited - India
- Wood Mackenzie - Singapore
- Cement Manufacturers Association - India
- Heidelberg Cement - Germany
- Latin American Coal - Colombia
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Energy Development Corp, Philippines
- Minerals Council of Australia
- Sical Logistics Limited - India
- Krishnapatnam Port Company Ltd. - India
- Renaissance Capital - South Africa
- India Bulls Power Limited - India
- Banpu Public Company Limited - Thailand
- Power Finance Corporation Ltd., India
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Iligan Light & Power Inc, Philippines
- Lanco Infratech Ltd - India
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- OPG Power Generation Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Chamber of Mines of South Africa
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Barasentosa Lestari - Indonesia
- Thai Mozambique Logistica
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Planning Commission, India
- PNOC Exploration Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Economic Council, Georgia
- Orica Mining Services - Indonesia
- The University of Queensland
- The Treasury - Australian Government
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement PLC, Thailand
- Vedanta Resources Plc - India
- Sakthi Sugars Limited - India
- IHS Mccloskey Coal Group - USA
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Kobexindo Tractors - Indoneisa
- Coastal Gujarat Power Limited - India
- San Jose City I Power Corp, Philippines
- Meralco Power Generation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Indonesian Coal Mining Association
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- IEA Clean Coal Centre - UK
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- Marubeni Corporation - India
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- Indogreen Group - Indonesia
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Toyota Tsusho Corporation, Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- South Luzon Thermal Energy Corporation
- Meenaskhi Energy Private Limited - India
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Australian Coal Association
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Tata Chemicals Ltd - India
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Alfred C Toepfer International GmbH - Germany
- TeaM Sual Corporation - Philippines
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- Coalindo Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- SN Aboitiz Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Global Coal Blending Company Limited - Australia
- CNBM International Corporation - China
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Parliament of New Zealand
- Romanian Commodities Exchange
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Indian Energy Exchange, India
- Karbindo Abesyapradhi - Indoneisa
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Finance - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Salva Resources Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parry Sugars Refinery, India
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- PTC India Limited - India
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
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