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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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Tuesday, 25 August 20
INDIA'S IMPORTS FALL AS LOCKDOWNS IMPACT THE POWER AND INDUSTRIAL SECTORS - REPORT
India is the world’s second largest thermal coal consumer and importer, importing an estimated 211 million tonnes of thermal coal in 2019.&nb ...
Monday, 24 August 20
A COMBINATION OF DEVELOPMENTS DROVE THE FALLOFF COAL PRICES - CHIEF ECONOMIST’ OFFICE, AUSTRALIA
China, rising domestic production combined with subdued power demand;
India, a lockdown coupled with government directives that fav ...
Monday, 24 August 20
AUSTRALIA'S THERMAL COAL EXPORTS ARE FORECAST TO DROP FROM AN ESTIMATED $20 BILLION IN 2019-20 TO $16 BILLION IN 2020-21: REPORT
Thermal coal spot prices have fallen sharply as the impact of COVID-19 drives a contraction in seaborne trade for only the second time this century ...
Saturday, 22 August 20
REPORT SEES INDIA’S RELIANCE ON THERMAL POWER DROPPING TO 50% IN 2021, 43% IN 2026 - ET ENERGY | IEEFA
India’s dependence on thermal power will reduce to 50 per cent by 2021-22 and 43 per cent by 2026-27 on the back of renewable energy (RE) cap ...
Friday, 21 August 20
323 MILLION ELECTRIC VEHICLES WILL BE ON THE ROADS BY 2040 - WOOD MACKENZIE
Electric vehicle (EV) sales are expected to reach 45 million units per year by 2040, with a total global EV stock of 323 million, according to new ...
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- Africa Commodities Group - South Africa
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Chettinad Cement Corporation Ltd - India
- Barasentosa Lestari - Indonesia
- Metalloyd Limited - United Kingdom
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Simpson Spence & Young - Indonesia
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- Indian Oil Corporation Limited
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Vizag Seaport Private Limited - India
- Parry Sugars Refinery, India
- Sree Jayajothi Cements Limited - India
- Kumho Petrochemical, South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- Xindia Steels Limited - India
- Samtan Co., Ltd - South Korea
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- Maheswari Brothers Coal Limited - India
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Grasim Industreis Ltd - India
- Wilmar Investment Holdings
- Bahari Cakrawala Sebuku - Indonesia
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Economic Council, Georgia
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- IEA Clean Coal Centre - UK
- Port Waratah Coal Services - Australia
- European Bulk Services B.V. - Netherlands
- Directorate Of Revenue Intelligence - India
- Pendopo Energi Batubara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Romanian Commodities Exchange
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Sakthi Sugars Limited - India
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- Sindya Power Generating Company Private Ltd
- Siam City Cement PLC, Thailand
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Posco Energy - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- Manunggal Multi Energi - Indonesia
- Aditya Birla Group - India
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- PTC India Limited - India
- Riau Bara Harum - Indonesia
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Eastern Energy - Thailand
- Ambuja Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Goldman Sachs - Singapore
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Orica Australia Pty. Ltd.
- Indogreen Group - Indonesia
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Deloitte Consulting - India
- Planning Commission, India
- Baramulti Group, Indonesia
- Sical Logistics Limited - India
- Parliament of New Zealand
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Vedanta Resources Plc - India
- Cement Manufacturers Association - India
- Intertek Mineral Services - Indonesia
- Bharathi Cement Corporation - India
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- Maharashtra Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Eastern Coal Council - USA
- White Energy Company Limited
- India Bulls Power Limited - India
- MS Steel International - UAE
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- The University of Queensland
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Bangladesh Power Developement Board
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Global Coal Blending Company Limited - Australia
- Jindal Steel & Power Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Mercator Lines Limited - India
- GVK Power & Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Petron Corporation, Philippines
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Straits Asia Resources Limited - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Minerals Council of Australia
- Heidelberg Cement - Germany
- Kartika Selabumi Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Malabar Cements Ltd - India
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Thiess Contractors Indonesia
- Jaiprakash Power Ventures ltd
- Ind-Barath Power Infra Limited - India
- CNBM International Corporation - China
- Price Waterhouse Coopers - Russia
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CIMB Investment Bank - Malaysia
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Energy Development Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Wood Mackenzie - Singapore
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Singapore Mercantile Exchange
- Indonesian Coal Mining Association
- GN Power Mariveles Coal Plant, Philippines
- Borneo Indobara - Indonesia
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- LBH Netherlands Bv - Netherlands
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