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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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- Kideco Jaya Agung - Indonesia
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Baramulti Group, Indonesia
- Coastal Gujarat Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Africa Commodities Group - South Africa
- European Bulk Services B.V. - Netherlands
- CNBM International Corporation - China
- TNB Fuel Sdn Bhd - Malaysia
- Straits Asia Resources Limited - Singapore
- Bhoruka Overseas - Indonesia
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Bukit Baiduri Energy - Indonesia
- Bhatia International Limited - India
- Maheswari Brothers Coal Limited - India
- Mercator Lines Limited - India
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- Bhushan Steel Limited - India
- Georgia Ports Authority, United States
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- MS Steel International - UAE
- Indika Energy - Indonesia
- Bharathi Cement Corporation - India
- Directorate Of Revenue Intelligence - India
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Thai Mozambique Logistica
- Orica Australia Pty. Ltd.
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Mines - Canada
- Global Coal Blending Company Limited - Australia
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- GVK Power & Infra Limited - India
- Indian Oil Corporation Limited
- Central Java Power - Indonesia
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Romanian Commodities Exchange
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- Miang Besar Coal Terminal - Indonesia
- SMC Global Power, Philippines
- Orica Mining Services - Indonesia
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- PNOC Exploration Corporation - Philippines
- Eastern Energy - Thailand
- Rashtriya Ispat Nigam Limited - India
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- GMR Energy Limited - India
- Tata Chemicals Ltd - India
- India Bulls Power Limited - India
- London Commodity Brokers - England
- Heidelberg Cement - Germany
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- Coal and Oil Company - UAE
- Sical Logistics Limited - India
- Therma Luzon, Inc, Philippines
- The University of Queensland
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- PTC India Limited - India
- Independent Power Producers Association of India
- Sree Jayajothi Cements Limited - India
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- PetroVietnam Power Coal Import and Supply Company
- Globalindo Alam Lestari - Indonesia
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Bahari Cakrawala Sebuku - Indonesia
- Edison Trading Spa - Italy
- Singapore Mercantile Exchange
- Binh Thuan Hamico - Vietnam
- Savvy Resources Ltd - HongKong
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Makarim & Taira - Indonesia
- Oldendorff Carriers - Singapore
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- Siam City Cement - Thailand
- White Energy Company Limited
- Bayan Resources Tbk. - Indonesia
- Manunggal Multi Energi - Indonesia
- Chamber of Mines of South Africa
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- SN Aboitiz Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Kepco SPC Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Larsen & Toubro Limited - India
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Carbofer General Trading SA - India
- Maharashtra Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Trasteel International SA, Italy
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Xindia Steels Limited - India
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Madhucon Powers Ltd - India
- Price Waterhouse Coopers - Russia
- Standard Chartered Bank - UAE
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- IHS Mccloskey Coal Group - USA
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Vedanta Resources Plc - India
- Power Finance Corporation Ltd., India
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Simpson Spence & Young - Indonesia
- Videocon Industries ltd - India
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Parliament of New Zealand
- Global Business Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
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