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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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Friday, 21 August 20
BHP COMMITS TO SELLING ITS THERMAL COALMINES WITHIN TWO YEARS - THE GUARDIAN
Move follows pressure from investors but company stops short of full exit from coalmining
BHP has announced it plans to sell off its ...
Thursday, 20 August 20
MINER BHP CONFIRMS PLANS TO EXIT THERMAL COAL SECTOR - THE SYDNEY MORNING HERALD
The head of mining giant BHP has laid out plans for a reshaping of its global operations by seeking to quit thermal coal mining, offload some cokin ...
Thursday, 20 August 20
LONDON RETAINS ARBITER CROWN - BALTIC EXCHANGE | HFW
Fears that the UK’s decision to leave the European Union would dent the reputation of the nation’s capital as the leader in maritime ar ...
Wednesday, 19 August 20
U.S. COAL STOCKPILES STEADILY INCREASE AFTER REACHING LOWEST LEVEL IN A DECADE IN 2019 - EIA
After reaching their lowest level in more than a decade in March 2019, U.S. coal stockpiles steadily increased to 152 million tons in April 2020, r ...
Wednesday, 19 August 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.26 PCT - XINHUA
China Taiyuan coal transaction price index stood at 124.92 points Monday, down 0.26 percent week on week.
The index, released by Chi ...
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- Mercuria Energy - Indonesia
- Africa Commodities Group - South Africa
- Meenaskhi Energy Private Limited - India
- Parry Sugars Refinery, India
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Gujarat Sidhee Cement - India
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- The University of Queensland
- New Zealand Coal & Carbon
- TNB Fuel Sdn Bhd - Malaysia
- Standard Chartered Bank - UAE
- Vizag Seaport Private Limited - India
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Videocon Industries ltd - India
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Renaissance Capital - South Africa
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- Electricity Generating Authority of Thailand
- Semirara Mining Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Xindia Steels Limited - India
- Riau Bara Harum - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- Altura Mining Limited, Indonesia
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Lanco Infratech Ltd - India
- Bharathi Cement Corporation - India
- Jaiprakash Power Ventures ltd
- Simpson Spence & Young - Indonesia
- Chettinad Cement Corporation Ltd - India
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Mintek Dendrill Indonesia
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Kumho Petrochemical, South Korea
- Neyveli Lignite Corporation Ltd, - India
- Global Business Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Kapuas Tunggal Persada - Indonesia
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Therma Luzon, Inc, Philippines
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Uttam Galva Steels Limited - India
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- Malabar Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Sinarmas Energy and Mining - Indonesia
- Rio Tinto Coal - Australia
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Ambuja Cements Ltd - India
- PTC India Limited - India
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- The Treasury - Australian Government
- Trasteel International SA, Italy
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Sree Jayajothi Cements Limited - India
- Samtan Co., Ltd - South Korea
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Indogreen Group - Indonesia
- Petron Corporation, Philippines
- Star Paper Mills Limited - India
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Vedanta Resources Plc - India
- Interocean Group of Companies - India
- Ind-Barath Power Infra Limited - India
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Kepco SPC Power Corporation, Philippines
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Jindal Steel & Power Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- CIMB Investment Bank - Malaysia
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- SN Aboitiz Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Dalmia Cement Bharat India
- Planning Commission, India
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- Wilmar Investment Holdings
- Price Waterhouse Coopers - Russia
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Larsen & Toubro Limited - India
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- Maheswari Brothers Coal Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Coal Council - USA
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Thai Mozambique Logistica
- Ministry of Transport, Egypt
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Alfred C Toepfer International GmbH - Germany
- Rashtriya Ispat Nigam Limited - India
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
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