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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, 22 May 15
U.S WEEKLY COAL PRODUCTION STAYS FLAT AT 16 MMST
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.0 million short ...
Thursday, 21 May 15
PORT OF NEWCASTLE ACHIEVED ITS BEST EVER TOTAL COAL EXPORT TURNOVER OF 159 MILLION TONS IN 2014
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $900 million ...
Thursday, 21 May 15
ATLANTIC PANAMAX MARKET STARTED TO IMPROVE SLOWLY - INTERMODAL
COALspot.com: The Dry Bulk market closed off the week on the green last week, purely on the back of improved Capesize performance, while the rest o ...
Wednesday, 20 May 15
LOWER PRICES SEEN IN NEWBUILDING MARKET ON LOW DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Cash-rich ship owners, or at least, owners with substantial access to financing will be among the prime candidates, who will reap the benefits of t ...
Wednesday, 20 May 15
TANKER MARKET INSIGHT - JOHN N. COTZIAS
Since Early October 2014 the tanker market has been experiencing a very positive momentum and has continued its strong performance so far in 2015. ...
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- Anglo American - United Kingdom
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Commonwealth Bank - Australia
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Madhucon Powers Ltd - India
- Kaltim Prima Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Rio Tinto Coal - Australia
- Jindal Steel & Power Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Posco Energy - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Star Paper Mills Limited - India
- Kumho Petrochemical, South Korea
- Thai Mozambique Logistica
- Romanian Commodities Exchange
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Goldman Sachs - Singapore
- Borneo Indobara - Indonesia
- Economic Council, Georgia
- Petrochimia International Co. Ltd.- Taiwan
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Krishnapatnam Port Company Ltd. - India
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- Xindia Steels Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Mercator Lines Limited - India
- The Treasury - Australian Government
- LBH Netherlands Bv - Netherlands
- Power Finance Corporation Ltd., India
- Indonesian Coal Mining Association
- Bangladesh Power Developement Board
- Singapore Mercantile Exchange
- Bayan Resources Tbk. - Indonesia
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Kepco SPC Power Corporation, Philippines
- Interocean Group of Companies - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- European Bulk Services B.V. - Netherlands
- GAC Shipping (India) Pvt Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Sindya Power Generating Company Private Ltd
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Petron Corporation, Philippines
- Tata Chemicals Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Uttam Galva Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- VISA Power Limited - India
- Coal and Oil Company - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Bhatia International Limited - India
- The University of Queensland
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Australian Coal Association
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- ICICI Bank Limited - India
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
- London Commodity Brokers - England
- ASAPP Information Group - India
- Carbofer General Trading SA - India
- Trasteel International SA, Italy
- India Bulls Power Limited - India
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Neyveli Lignite Corporation Ltd, - India
- Riau Bara Harum - Indonesia
- Salva Resources Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Siam City Cement - Thailand
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- Globalindo Alam Lestari - Indonesia
- Minerals Council of Australia
- Latin American Coal - Colombia
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- GVK Power & Infra Limited - India
- Parry Sugars Refinery, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Altura Mining Limited, Indonesia
- GMR Energy Limited - India
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Vedanta Resources Plc - India
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Central Java Power - Indonesia
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Meralco Power Generation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
- IHS Mccloskey Coal Group - USA
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Sakthi Sugars Limited - India
- Semirara Mining Corp, Philippines
- Antam Resourcindo - Indonesia
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- Tamil Nadu electricity Board
- Simpson Spence & Young - Indonesia
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The State Trading Corporation of India Ltd
- Savvy Resources Ltd - HongKong
- CNBM International Corporation - China
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
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