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Tuesday, 26 May 15
HOW HAS THE DROP IN OIL PRICES AFFECTED OTHER COMMODITIES? - CLYDE & CO
 KNOWLEDGE TO ELEVATE
The effects of the dramatic drop in the price of both Ice March Brent, the international oil marker, and its US counterpart Nymex March West Texas Intermediate, have been widespread. This is impacting not only the oil services industry, where many firms have cut their capital budgets as well as jobs, but also a number of markets across the world. The commodities market, in particular, has been widely affected with the prices of metals such as copper, lead and nickel dropping, albeit not as dramatically as oil, and the price of gold increasing.
In passing, it is worth noting that the death of King Abdullah in January 2015 prompted some investors to bet on a change in strategy as a result of the change in the leadership of Saudi Arabia, OPEC’s largest producer and de facto leader, with Crown Prince Salman succeeding King Abdullah. However, many analysts expect King Salman and Ali al-Naimi, Saudi Arabia’s oil minister, to stand by the existing Saudi oil policy, at least in the near term. That is, to allow market forces to determine the oil price and press ahead with unrestrained production of crude in order to eclipse more marginal producers and to not risk losing market share, despite the effects that this has had on the price of oil.
How has the drop in oil prices affected other commodities?
The sharp fall in oil prices amid deteriorating sentiment over the global economy has made investors weary of investing in other commodities.
Copper, in particular, has been hit very hard, slumping to its lowest price levels in nearly six years. This was triggered by aggressive selling by Chinese hedge funds earlier this month when the market was on the edge because of the collapse in the oil price and when physical demand in China was weak because of the approaching lunar New Year holiday. Other metals have also taken a hit, with nickel and lead experiencing recent sharp decreases.
As the price of oil has dropped, gold, on the other hand, has experienced its highest price level since August 2014 as many investors have sought to invest in the market to park their capital. With the Euro falling to an 11 year low as a result of a number of factors including the Swiss National Bank’s decision to decouple from the Euro and the European Central Bank’s quantitative easing measures, gold has risen very quickly.
On top of a growing trend for banks to dispose of their commodities businesses, there is a debate whether banks will continue to finance trading in commodities. Oil, at least in the near future, is likely to provide a low return with most commentators thinking that the price will not rise substantially for the foreseeable future, with some even going so as far as stating that the price will fall as low as USD20 per barrel. Therefore, the incentive for banks to finance this particular commodity would appear to have fallen away. This could see a space open for non-bank lenders to come into the market and play a much more active role in the financing of commodities. These entities are generally subject to less regulation and have access to a more diverse set of methods to inject capital into financings.
Impact on existing contracts
In the oil market, many, if not most participants will enter into hedging contracts against a price fluctuation. However, this is often a hedge against a rise in the oil price and some participants will, as a result of the current conditions, have found that they have been asked to make margin payments to hedge counterparties as they are ‘out of the money’ on the hedging contract.
Exit options?
Parties may find it difficult to remove themselves from their existing commodities contracts.
Force Majeure: A force majeure clause allows one party who has been subject to a pre-defined event to suspend performance under the contract, or , in a worst case scenario, allow one or both parties to terminate the contract. The key point to note is that performance by the affected party should be rendered impossible to perform (sometimes being severely hindered is also considered to constitute force majeure). Some parties may look to rely on this provision, however it is unlikely that the fall in oil prices will constitute a force majeure event under contracts.
Material Adverse Change clauses: There is a possibility that parties could look to material adverse change clauses in their agreements as a way of terminating their contracts. However, these clauses are usually drafted to concern the state of the individual contract participants (e.g. a party’s credit rating) rather than market realities. These provisions are also notoriously difficult to rely on in the event of a termination. Of course, if a party’s credit rating, for example, were to be affected because of the fall in oil prices, then this could provide an option for the other party to terminate under this type of provision.
What can parties do to counter the drop in oil prices?
It may be possible for parties to include, in future contracts, a clause which is effectively a ‘hedge’ to be triggered by a pre-determined event (for instance a defined rise or fall in the oil price, e.g. if oil drops below USDX per barrel). This could give parties the ability to re-price the contract in this event, to ensure the contract remains economically viable, or at least to be obliged to enter into good faith negotiations around re-pricing. Depending on the level of bargaining power between the parties, it may even be possible to incorporate such a fluctuation as a termination event.
Existing contracts could also be reviewed to see if there is the possibility of amending them to include such a clause, but re-negotiating an existing contract which does not have a contractual mechanism for this already built in would seem unlikely.
The full impact and the duration of the drop in oil prices remains to be seen; but what is certain is that this is a worrying time for the commodities market. Parties will have to consider the terms of their existing contracts as well as continuing to consider ways to mitigate risk when embarking on transactions in the future. This could include a renewed reliance upon derivatives as a way of protecting against price and foreign exchange risk.
Source: Clyde & Co | Hellenic Shipping News
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Friday, 05 June 15
U.S PRODUCED 15.1 MMST OF COAL THIS PAST WEEK; LESS 20.7% COMPARED TO SAME PERIOD IN 2014
COALspot.com – United States the second largest coal producer in the world has produced approximately totalled an estimated 15.1 million shor ...
Thursday, 04 June 15
DRY BULK MARKET FAILED TO OFFER ANY POSITIVE SURPRISES - INTERMODAL
COALspot.com: This has been another week that the Dry Bulk market failed to offer any positive surprises, while the BDI, which is still faring belo ...
Wednesday, 03 June 15
SHIPPING MARKET INSIGHT - VASSILIS LOGOTHETIS
For some time now the Dry Bulk market has been severely affected by China’s slowing GDP growth rate that occurs in the background of increase ...
Tuesday, 02 June 15
FOB INDONESIA COAL Q3 SWAP ADVANCED 1.73% MONTH OVER MONTH
COALspot.com: Indonesian coal swap for delivery Q3 2015 gains month on month and lost week over week, this past week.
The Q3 swap was climbed ...
Tuesday, 02 June 15
FOB RICHARDS BAY COAL SWAPS; Q3'15 CLOSED HIGHER THAN Q1'16
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 up month over month and week over week.
The Q3 swap was up US$ 0.80 (1 ...
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- Minerals Council of Australia
- Mercator Lines Limited - India
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- Kepco SPC Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Medco Energi Mining Internasional
- Jorong Barutama Greston.PT - Indonesia
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Sakthi Sugars Limited - India
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- SMC Global Power, Philippines
- Indo Tambangraya Megah - Indonesia
- The Treasury - Australian Government
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- GMR Energy Limited - India
- Essar Steel Hazira Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- ICICI Bank Limited - India
- Pendopo Energi Batubara - Indonesia
- Aboitiz Power Corporation - Philippines
- Deloitte Consulting - India
- Meralco Power Generation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petron Corporation, Philippines
- Orica Mining Services - Indonesia
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Merrill Lynch Commodities Europe
- Kobexindo Tractors - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Ministry of Transport, Egypt
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Holcim Trading Pte Ltd - Singapore
- Planning Commission, India
- Mjunction Services Limited - India
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Jaiprakash Power Ventures ltd
- Malabar Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- PetroVietnam Power Coal Import and Supply Company
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- Videocon Industries ltd - India
- SN Aboitiz Power Inc, Philippines
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Parliament of New Zealand
- Sical Logistics Limited - India
- Uttam Galva Steels Limited - India
- Dalmia Cement Bharat India
- Formosa Plastics Group - Taiwan
- Trasteel International SA, Italy
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Vijayanagar Sugar Pvt Ltd - India
- New Zealand Coal & Carbon
- Indian Oil Corporation Limited
- Xindia Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Chamber of Mines of South Africa
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Parry Sugars Refinery, India
- IHS Mccloskey Coal Group - USA
- Oldendorff Carriers - Singapore
- TeaM Sual Corporation - Philippines
- Rio Tinto Coal - Australia
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Vizag Seaport Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Siam City Cement PLC, Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Metalloyd Limited - United Kingdom
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Kapuas Tunggal Persada - Indonesia
- Australian Coal Association
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Port Waratah Coal Services - Australia
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- Grasim Industreis Ltd - India
- Bukit Baiduri Energy - Indonesia
- White Energy Company Limited
- Wilmar Investment Holdings
- Miang Besar Coal Terminal - Indonesia
- VISA Power Limited - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- SMG Consultants - Indonesia
- Eastern Coal Council - USA
- PNOC Exploration Corporation - Philippines
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Salva Resources Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Barasentosa Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Standard Chartered Bank - UAE
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- Central Electricity Authority - India
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Electricity Generating Authority of Thailand
- Tamil Nadu electricity Board
- Edison Trading Spa - Italy
- Interocean Group of Companies - India
- GAC Shipping (India) Pvt Ltd
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Attock Cement Pakistan Limited
- Georgia Ports Authority, United States
- Global Green Power PLC Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining and Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- GVK Power & Infra Limited - India
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Singapore Mercantile Exchange
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Agrawal Coal Company - India
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