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