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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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Wednesday, 12 August 20
U.S. COAL PRODUCTION IN 2020 WILL DECREASE BY 29% FROM 2019 LEVELS TO 502 MMST - EIA
U.S. coal consumption, which dropped to its lowest point since April, totaled 95 MMst in the second quarter of 2020.
EIA expec ...
Tuesday, 11 August 20
BHP COAL ASSETS WORTH A BILLION LESS THAN JUST TWO YEARS AGO - IEEFA
Another global investor, the UK’s biggest public pension fund NEST, has withdrawn funds from BHP this week because the company is profiting & ...
Monday, 10 August 20
COAL IMPORT DROPS 43% IN JULY OWING TO HIGH STOCKPILE AT PITHEADS, PLANTS - PTI
“The market participants seem to have adopted a wait and watch approach and are currently looking for a direction. We do not expect to see an ...
Saturday, 08 August 20
GLOBAL COAL POWER PUZZLE - BALTIC EXCHANGE
Global Energy Monitor’s latest Global Coal Plant Tracker has put another nail in the coffin for the coal-carrying fleet with its finding that ...
Friday, 07 August 20
PEABODY'S $1.42 BILLION WRITE-DOWN CONCEDES COAL MINES HAVE LITTLE VALUE AND DIM FUTURE - IEEFA
Trouble at biggest mine in Powder River Basin speaks volumes about state of industry
Peabody Energy, the world’s largest priva ...
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- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Antam Resourcindo - Indonesia
- Makarim & Taira - Indonesia
- Altura Mining Limited, Indonesia
- GAC Shipping (India) Pvt Ltd
- Sarangani Energy Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Indian Energy Exchange, India
- Global Business Power Corporation, Philippines
- Australian Coal Association
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Dalmia Cement Bharat India
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- ASAPP Information Group - India
- Holcim Trading Pte Ltd - Singapore
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- McConnell Dowell - Australia
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Intertek Mineral Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Madhucon Powers Ltd - India
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Indika Energy - Indonesia
- Sakthi Sugars Limited - India
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- Indogreen Group - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Simpson Spence & Young - Indonesia
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- SN Aboitiz Power Inc, Philippines
- Lanco Infratech Ltd - India
- Sree Jayajothi Cements Limited - India
- Rashtriya Ispat Nigam Limited - India
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Bhatia International Limited - India
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- The Treasury - Australian Government
- Interocean Group of Companies - India
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Directorate General of MIneral and Coal - Indonesia
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Posco Energy - South Korea
- Jindal Steel & Power Ltd - India
- Uttam Galva Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- Commonwealth Bank - Australia
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Meenaskhi Energy Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Thai Mozambique Logistica
- Indo Tambangraya Megah - Indonesia
- SMC Global Power, Philippines
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Samtan Co., Ltd - South Korea
- Energy Development Corp, Philippines
- Indonesian Coal Mining Association
- Georgia Ports Authority, United States
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Goldman Sachs - Singapore
- Oldendorff Carriers - Singapore
- Sinarmas Energy and Mining - Indonesia
- Economic Council, Georgia
- Mercator Lines Limited - India
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Borneo Indobara - Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- Indian Oil Corporation Limited
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Planning Commission, India
- Globalindo Alam Lestari - Indonesia
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Jaiprakash Power Ventures ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Bayan Resources Tbk. - Indonesia
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Therma Luzon, Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Trasteel International SA, Italy
- Bhoruka Overseas - Indonesia
- Salva Resources Pvt Ltd - India
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Banpu Public Company Limited - Thailand
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- New Zealand Coal & Carbon
- Global Coal Blending Company Limited - Australia
- Star Paper Mills Limited - India
- Toyota Tsusho Corporation, Japan
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Kideco Jaya Agung - Indonesia
- Anglo American - United Kingdom
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Africa Commodities Group - South Africa
- Orica Australia Pty. Ltd.
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- TeaM Sual Corporation - Philippines
- Vizag Seaport Private Limited - India
- CIMB Investment Bank - Malaysia
- Riau Bara Harum - Indonesia
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- Merrill Lynch Commodities Europe
- PTC India Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Minerals Council of Australia
- Grasim Industreis Ltd - India
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- GMR Energy Limited - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- Jorong Barutama Greston.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- European Bulk Services B.V. - Netherlands
- Kumho Petrochemical, South Korea
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Bangladesh Power Developement Board
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Maheswari Brothers Coal Limited - India
- Power Finance Corporation Ltd., India
- Wilmar Investment Holdings
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