Base metals
In the last few weeks, base metals have traded on a volatile note as sentiments across global financial markets remains weak. Base metals pack has witnessed steep declines in the past few weeks. With prices going below their marginal cost of production, sentiments for the metals weakened. However, the Chinese stimulus package has come in as a rescue to the falling markets.

With the global economic recession in the picture, we feel that the overall trend in base metals remains down but this could change in the 1QFY2009 as we could witness a pick-up in physical buying from the Chinese market. China has announced a $586bn stimulus package that aims at expenditure on infrastructure and social projects. These projects will include construction of airports, subways, railroads and the most important being the re-development of earthquake affected areas of Sichuan. We expect a boost in base metals demand from China in the coming quarter and continue till the next year because most of the spending is earmarked for two years.

China has been the main driver of base metals demand and this upcoming stimulus package could help revive demand in times of a slowdown in global growth. On the back of huge re-development activities in China, we expect base metals demand to rise. Currently, metals are trading at their multi-year lows but the coming year could see a revival in prices which could be backed by rise in demand coupled with production cutbacks by miners. We maintain a bullish view on Copper, Aluminum and Tin as fundamentally these metals are strong, while we remain bearish on Zinc, Lead and Nickel from the long-term perspective.

Soybean
NCDEX December Soybean futures moved southwards on account of arrival pressure with record high production estimates of soybean. Soybean production at the All India Kharif Oilseeds Convention, Ahmedabad is estimated at 98.90 lakh tonnes, below initial estimates of 100.8 lakh tonnes. However, it is much higher as compared to 94.6 lakh tonnes last year. According to the USDA’s report, the US Soybean production estimate is at 79.5 million tonnes vs 80.0 million tonnes in Oct report and world’s soybean production estimates at 235.7 million tonnes vs 238.2 million tonnes.

As per Solvent Extractors’ Association Of India: India’s edible oil imports for the oil marketing year that ended Oct 31st , rose 19% to 5.61 million tonnes from 4.71 million tonnes in previous marketing year (Nov-Oct). In October, the country‘s edible oil imports totaled 7.87 lakh tonnes, sharply higher from 5.01 lakh tonnes imported in the same month last year. Imported edible oil increased mainly due to import duty reduction from government of India on a rise in global market prices.

Govt. of India had planned to import 10 lakh tonnes of edible oil during the year to improve supply in the market and sell at subsidized rates to lower income households. December soybean prices are expected to move down in coming week with strong support 1550/1525 and resistance 1665/1700.

Sugar
Despite lower Sugar production estimates, Sugar prices did not sustained at the higher levels during the last week as deliveries for the near-month contract almost doubled from the previous month, with more expected as millers clear old stocks for the new crushing seasons. December contract traded in the range of Rs. 1786-1825 per qtl. Total deliveries in the near-month contract, which expires on Thursday, touched 20,000 tonnes and traders expect a final figure of more than 25,000 tonnes, compared to 10,390 tonnes delivered last month.

Also, the government is pressing sugar mills to get rid of old stocks to accommodate new supplies. The global sugar deficit in 2008-09 may be smaller than the earlier forecast of 3.90 million tonnes as sliding crude oil prices may encourage many Brazilian mills to produce sugar than diverting the crop for ethanol. Sugar prices might remain weak during the initial days of the week due to rising deliveries at the exchange warehouses. However, overall trend remains bullish and thus buying on dips is suggested.

Black Pepper
The week began with high volatility in pepper futures market following heavy liquidation.Speculators holding long positions were liquidating their positions following reports of early crop this year and a weak export demand. This resulted in investors at exhanges buying back their sales and liquidating spot at prices below the November price. Domestic black pepper at the physical counter witnessed steady to firm activity in both terminal as well as upcountry market towards weekend.

The prices for all the varieties surged by Rs.100/qtl and the garbled varieties were offered at Rs.11600/qtl. Around 30 tonnes were sold for the arrivals of 25 tonnes. Domestic prices at the physical counter are trading in a narrow range. However domestic demand is reported to be good for prompt dispatches hinting low inventory levels at the upcountry markets.

Fresh overseas demand from the origin specific European buyers is sustained adding to this good buying interest for the new crop. Indian parity is most competitive at the international market at $2525/tonne f.o.b. Vietnam ASTA was offered at $2650/tonne 500 gl was offered at $2300/tonne. Indonesia is quoting at $2800/tonne f.o.b while Brazil is offering at $2350/tonne f.o.b. Under the prevailing conditions black pepper at the physical counter is likely to trade range bound to firm in a narrow range.

Guar
Guar prices have witnessed a recovery following expectations of a lower crop in Rajasthan coupled with good demand at lower levels. This led to profit booking by the market player son Friday.

Analysts said Western Rajasthan, where arrivals are at its peak during the first 2 weeks of November is very low in the current crop season due to low production in Jaisalmer, Badmer and Nagore etc. Overall weakness in global market also led to depressed sentiments in the domestic market. In the medium to long term, trend would depend on overseas demand for Guar gum which is currently at a very slow pace due to overall economic slowdown. Also, we have to keep a close watch on INR movement as it will impact the exports. In the short run however, prices are likely to remain stable.

Crude Palm Oil
Losses at BMD CPO Futures of Malaysia is bound to reflect on domestic palm oil Futures. At Multi-Commodity Exchange of India (MCX) CPO futures closed lower in tandem with overseas market on Friday. India imported 4.04 million tonnes of crude palm oil during the year ended October as compared to 2.99 million tonnes the previous year. According to United Nations FAO Palm oil’s share in the global vegetable oil trade is likely to exceed 40% in the marketing year till Sep 2009 at around 33.7 million tonnes.

However, share of global trade of soybean oil is expected to decline by 4% or 1 million tonnes.Crude palm oil futures are expected to trade lower on account of huge losses on BMD CPO futures, Malaysia and higher production and stock of palm oil in Indonesia as well as in Malaysia. Higher imports of crude palm oil owing to reduction on import duty are in favour of bears. (With analytical inputs from Angel Commodities,Mumbai)