Commodity Online
After a gap of 21 weeks, India’s inflation rate eased to single digit at 8.98 percent for the week ended November 1. Meanwhile, Finance Minister P Chidambaram has said that the government is yet to measure the full impact of the global financial crisis. “But we are confident that given the underlying strengths of the Indian economy, we can weather the crisis and still return a decent growth rate for 2008-2009,” he said. Indian economy is likely to expand by 7.4-7.8 percent during 2008/09 fiscal year, slower than 9 percent of last year, as credit crunch and global downturn trims growth, industry bodies said on Friday.
Recession has hit the European shores and EU admitted that the 15 Eurozone countires are in recession for the first time ever. The recession has hit the growth of mining, base metals and crude oil even as gold prices strengthened and witnessed range-bound movements.
Gold Spot gold prices continue to trading range-bound and we expect the trading range as $680 - $780 levels (this week) that continue to hold for the past 15 trading sessions. The presence of mixed trends in the bullion pack is indicative of indecisiveness in the markets. The Bullion prices are primarily being affected by currency movements and to some extent by crude prices.
The Dollar Index still maintains its uptrend though it appears to be losing its steam. Also, bullion pack is being impacted by the global economic weakness which isn’t appearing to help the bullion pack much. There's still is a push to hold cash amongst the investors community. Technically speaking, gold is range-bound with the overall-trend still remaining down unless we see a daily close above $772/oz.
Crude Oil Crude Oil prices fell for second week in a row amidst falling global oil demand. Prices touched a 22 month low on Wednesday. Weak macroeconomic data from US and Europe is renewing concern over slow economic growth and weak energy demand. Last week inventory data showed no change in oil stocks, but gasoline and distillates inventory rose more than expected.
Crude Oil prices have closed below its key support level of $60 a barrel, as slumping energy demand is weighing on prices. Due to the economic slowdown in US, Japan and Europe and its spill-over effects on emerging economies, oil demand is expected to contract in coming months. OPEC has decided to cut output, to curb the downside in oil prices. But currently market is more worried about demand destruction than any supply related issues. Factors like stronger dollar, weakening global economy and rising inventory can weigh on oil prices. Oil prices are expected to remain range bound with resistance seen at $64 a barrel in the near term.
Rubber Natural rubber prices were showing weak to mixed trends throughout the week. It turned weak on Tuesday while global Futures market trend was mixed and there was heavy selling pressure at Tokyo Commodity Exchange.Towards weekend RSS 4 was quoted at Rs 82 for tyre sector while it closed at Rs 82.50 on Tuesday. . Domestic rubber prices turned weak on Tuesday. RSS 4 declined to Rs 84.50 from Rs 85.50 a kg on moderate selling from dealers and growers. The sentiments were hit mainly by a weak closing in global indices.
The revised quote from the tyre sector was further below at Rs 84 a kg for sheet rubber. The trend was mixed. Rubber Futures at Tokyo Commodity Exchange witnessed liquidation during Friday afternoon.The market was better followed by short covering and fresh buying at the opening. Sentiments were firm on early trades amidst gains in oil and precious metals futures coupled with Yen’s decline against dollar.
The Automotive Tyre Manufacturers Association (ATMA) has appealed to the government to reduce the customs duty on natural rubber – the principal raw material of tyre industry – from 20 per cent to 7.5 per cent, lower than the duty on finished product – tyre. The customs duty on tyre is 10 per cent. In fact, tyres can be imported at lower rates under various Regional Trade Agreements. For instance, under the Asia Pacific Trade Agreement, tyres can be imported from China and South Korea at a customs duty rate of 8.6 per cent.
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.
SugarDespite 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)
