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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, 14 August 20
EIA: COAL PLANTS UNECONOMICAL IN MOST REGIONS - IEEFA
U.S. coal power generation plunged by 30 percent in the first half of 2020 off an already-depressed base, shoved out by natural gas and renewables ...
Thursday, 13 August 20
INDIA SHOULD RECORD A SLIGHT DECREASE IN THERMAL COAL IMPORTS, REACHING A VOLUME OF 167 MILLION TONS BY THE END OF 2020 - ASSOCARBONI
Regarding 2020 thermal coal imports forecasts, Vietnam’s coal imports showed a very strong growth in the first half of 2020 and it is believe ...
Thursday, 13 August 20
INDONESIA REMAINS THE LARGEST EXPORTER OF COAL IN THE WORLD - ASSOCARBONI
According to the last Assocarboni data for 2019, Indonesia remains the largest exporter in the world. Thermal coal exports have in fact reached 456 ...
Wednesday, 12 August 20
VIETNAM WAS THE PROTAGONIST OF A SIGNIFICANT INCREASE IN COAL IMPORTS IN 2019 - ASSOCARBONI
The latest Assocarboni data for 2019 also provide a detailed picture on the trend of the global coal import.
According to Assocarbon ...
Wednesday, 12 August 20
THE COAL MARKET IN ITALY - ASSOCARBONI
Italy, which in 2019 reported a decrease in thermal coal imports, with a volume of 7,5 million tons (-32% compared to 11 million tons in 2018), whi ...
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- Chettinad Cement Corporation Ltd - India
- Indonesian Coal Mining Association
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- CNBM International Corporation - China
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Anglo American - United Kingdom
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- LBH Netherlands Bv - Netherlands
- The University of Queensland
- Electricity Authority, New Zealand
- Bukit Makmur.PT - Indonesia
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- The Treasury - Australian Government
- Oldendorff Carriers - Singapore
- Australian Coal Association
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- TeaM Sual Corporation - Philippines
- Sojitz Corporation - Japan
- Power Finance Corporation Ltd., India
- SN Aboitiz Power Inc, Philippines
- Renaissance Capital - South Africa
- Petron Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Savvy Resources Ltd - HongKong
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Siam City Cement - Thailand
- Kepco SPC Power Corporation, Philippines
- Bhushan Steel Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Electricity Generating Authority of Thailand
- Wood Mackenzie - Singapore
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- Semirara Mining and Power Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- Directorate Of Revenue Intelligence - India
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Central Electricity Authority - India
- MS Steel International - UAE
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- Interocean Group of Companies - India
- Dalmia Cement Bharat India
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- Metalloyd Limited - United Kingdom
- Tata Chemicals Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Maheswari Brothers Coal Limited - India
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Barasentosa Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Gujarat Sidhee Cement - India
- TNB Fuel Sdn Bhd - Malaysia
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Coal and Oil Company - UAE
- Trasteel International SA, Italy
- San Jose City I Power Corp, Philippines
- Latin American Coal - Colombia
- Asmin Koalindo Tuhup - Indonesia
- Coastal Gujarat Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Port Waratah Coal Services - Australia
- Ambuja Cements Ltd - India
- SMG Consultants - Indonesia
- Georgia Ports Authority, United States
- VISA Power Limited - India
- Orica Mining Services - Indonesia
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Makarim & Taira - Indonesia
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Central Java Power - Indonesia
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- PetroVietnam Power Coal Import and Supply Company
- Mintek Dendrill Indonesia
- Bangladesh Power Developement Board
- Sical Logistics Limited - India
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- Romanian Commodities Exchange
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Edison Trading Spa - Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- PowerSource Philippines DevCo
- Kartika Selabumi Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- Gujarat Electricity Regulatory Commission - India
- PTC India Limited - India
- Star Paper Mills Limited - India
- Sindya Power Generating Company Private Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Indogreen Group - Indonesia
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Minerals Council of Australia
- Standard Chartered Bank - UAE
- Sinarmas Energy and Mining - Indonesia
- Aboitiz Power Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- Lanco Infratech Ltd - India
- Indian Oil Corporation Limited
- Coalindo Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Madhucon Powers Ltd - India
- Semirara Mining Corp, Philippines
- Larsen & Toubro Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Malabar Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Australian Commodity Traders Exchange
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