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