Commodity Online MUMBAI: Is liquidity crisis fear dogging the commodities sector also. It seems the cash crunch is hurting the commodity sector across the globe.
Even though commodity sector is gearing up to cash in on the rising demand following the US Congress’s decision to clear a $700-billion bailout package, the cash flow has come to a grinding halt, which is troubling the commodity sector.
To add to this scene is that this situation has come at a time when commodity sector was looking to reap rich dividends from the huge rise in demand from developing nations like India and China.
A fall in prices and credit shortages have also forced several companies to unwind their stock positions.
In the melee, the worst hit is the edible oils industry, which lost $500 million in 15 days flat. Again, pulses importers are losing Rs 24 crore on each ship.
The case of spices and grain merchants is no different. The cereal sector is also suffering from the same problem.
According to media reports, wheat is selling below the April price of Rs 10/kg due to fears of further fall in prices.
The global meltdown has hit merchants so hard that they did not get time to recover from the shock. And every day was an eventful day for commodities and stock markets for the past few weeks.
Prices crashed like nine-pins during the past months and traders in India could not keep pace with the developments abroad.
Imported commodities such as vegetable oils and pulses are losing value before reaching the Indian shores, making it difficult for companies to find new buyers or sustain the existing contracts.
Moreover, the crashing world market has dented India’s cost advantage in cotton, coffee and spices. According to newspaper reports, the sharp fall in the global freight rates has further eroded the competitiveness.
Holding physical commodities requires huge investments of working capital. Traders who have lost money in equities are under great pressure to liquidate their holdings.
Again banks are shying away from lending money against commodities as they expect the inventory values to drop rapidly.
