Commodity Online
The sugar output may touch 16.5 mt next season as against earlier estimates of of 14.5 mn tonnes —gaining support from Maharashtra output which is not likely to be affected by slow monsoon progress.

Demand for potatoes is expected to surge as delayed monsoon could lead to a shortage of commodity. With potato already in short supply, traders are expecting prices to rise by Rs 200 to Rs 300 per quintal.

The Bombay Stock Exchange benchmark Sensex surged over 419 points on Friday on frantic buying as investors took cues from higher Asian and European peers.

Two edible industry association have come out with conflicting statements – Solvent Extractors Association of India urging the government to increase customs duty on edible oil to encourage domestic growers while Vanaspati Consultative Committee (VCC) has called for maintaining status quo to provide edible oil at reasonable prices for consumers and support the Vanaspati industry. Demand for allowing FIIs, mutual funds to trade in comexes are other measures proposed for consideration of Union Finance Ministry.

Base Metal
Overall, the base metals complex looks weak as the prices rally since the beginning of the year was backed by Chinese government stocking. But that has started to tail off with the narrowing LME/SHFE price arbitrage and a decline in LME cancelled warrants (the metal earmarked for removal). Another factor that could exert pressure on base metal prices is the production re-starts due to recent price surges. The advances in all financial markets have reflected expectations of a global economy that is on the road to recovery. However, there is uncertainty over how strong or fast this recovery is. There are also concerns over potential surging inflation down the line after central banks have sharply cut interest rates. The focus now is whether the sharp rally in commodities and equities over the last three months can continue through the summer months, when industrial demand in the northern hemisphere typically slows.

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Base metal producers are trying to take advantage of recent price rallies by re-starting production across most base metals. Re-starts are mainly seen in China and this factor could destabilize prices. If the strength in base metal prices continues then we could see more production come back on stream and this could hurt the price outlook for the second half of 2009. However, Copper prices are unlikely to suffer from production ramp-ups as the metal does not have huge surpluses at present. But other base metals like Aluminum, Zinc and Nickel may suffer as they already require significant output cuts.

In the coming months, around 2.1 million tonnes of aluminum per year, 500,000 tonnes of zinc per year and 400,000 tonnes of lead per year are set to come online in the coming months. Hence, prices could come under pressure in the second half if demand does not revive at a large scale during the same period. For the near term, we feel that base metals could remain choppy as markets are concerned about economic recovery but the weaker dollar is coming as a support. Hence, the downside will be cushioned but prices will continue to face a cap on the upside.

Precious Metals
Gold and silver began on a weak note in the beginning of the week as lack of buying interest was evident. This coupled with dollar strengthening led to spot gold trading at $925 in London an ounce while in Indian market the prices were Rs 4530 per 10 grams.Silver began the week on a dull note and fell to $13.87 an ounce from $14.19 the previous week.

What helped gold to climb towards one week high of $940 in the weekend was the continuing inflationary concerns created by oil rally. Silver also gained strength indomestic markets due to persistent demand from industrial users. Indian spot gold prices rose towards 15,000 rupees levels (per 10 gm) on Friday tracking firm demand, mostly for scrap gold, dealers said.

In London, gold hit a two-week high above USD 945.00 an ounce, continuing its gains at the dollar retreated broadly. Silver in domestic markets rose to 22760 per kilo.
Other factors that led to gains in gold was the suggestion by a researcher in China’s ruling party that the country would be better of buying more gold to hedge against the US dollar. The upside gains however, were limited by decline in ETF, fabrication demand and firm dollar. Inflationary concerns continue to support gold while near-term support $924 levels while resistance is seen at $945.

MCX August Gold has support at 14500 levels. MCX July Silver shall find support at 22230/21960 whereas resistance is seen at 22585/22790 levels

Soybean
Soybean (NCDEX July contract) prices opened the week at Rs 2465/quintal, initially fell sharply in tandem with overseas market and lower export demand of soy meal from global livestock industry and touched a low of 2377 levels. However, it could not sustain at lower levels and prices surged sharply higher and made a high of 2562 levels on account of short covering and lower stock of soybean, Delayed monsoon in major growing areas also provided support to bulls in the market. Finally soybean prices manage to close at Rs 2530/100 kg with a gain of 3.27% as compared to previous week. Plantation of soybean in major producing state (Madhya Pradesh) has not started yet. Traders are expecting sowing will start from first week of July. As per Agriculture Ministry’s Crop Weather Watch Report, domestic area under soybean is reported higher at 1.14 lakh hectare compared to 1.03 lakh hectare in the corresponding period a year ago.

The USDA’s weekly export sales figures considered favorable for soybean, Meal and Oil. Net Sales for soybeans were 250,700 metric tonnes. Sales need to average 17,000 tonnes each week to reach the USDA’s forecast for the current marketing year. Net soy meal sales were 202,100 metric tonnes. Sales need to average 88,000 tonnes each week to reach the USDA’s forecast. Net soy oil sales were 21,600 metric tonnes. Sales need to average 15000 tonnes each week to reach the USDA’s forecast.
In the coming week, prices are expected to move northwards on lower stock of soybean and delayed advancement of monsoon. NCDEX July Soybean has support at 2450/2330 and resistance is seen at 2610/2675 levels in this week.

Pepper
Pepper prices have been affected by the news of weak monsoon progress. Towards weekend, pepper prices gained marginally after witnessing a steady trend from the beginning of the week. However, rains in the past few days have reversed the trend. Pepper imports in May has shown an increase in May. Reports of imports have led to liquidation by growers. Pepper ended weak on Thursday on reports of sufficient rainfall in key growing areas. Internal demand continues to be firm which limited the losses for traders.

Spot prices in the Kochi market rose over 46 rupees to 12,891.95 rupees per 100 kg. NCDEX July Contract traded at Rs 12,812, while August Futures was trading at 12,970 levels. Activity in upcountry markets were were low. Good demand featured from the origin specific buyers for immediate shipments. In the international market, Indian parity continued to remain out priced at $2,700 a tonne (f.o.b). VAsta was quoted at $2600/tonne. Indonesian asta was quoted at $2450 tonne and BASTA at $2400/tonne f.o.b. Black pepper at spot markets likely to trade steady to firm. Pepper production in Indonesia and Brazil in 2009, their carry forward stocks of pepper and demand from the overseas may determine the pepper prices in long term (July end onwards).

Prices in the near term are expected to trade in range of Rs.12650- Rs.13150/qtl with no immediate fundamentals to drive the prices.

Turmeric
Spot prices at the domestic markets were quoted at steady to slightly higher rates due to lower availability of turmeric and delayed advancement of monsoon in the interior parts of India. Farmers in the domestic markets are not ready to sell at lower levels. This may support the prices in the short term. Prices at Nizamabad and Erode are quoting around Rs.5,300/qtl and Rs.5,400/qtl respectively. However, better advancement of monsoon to the interior parts of the nation may cap the upside in the turmeric prices at the domestic market and the impact may be witnessed in futures. Futures over the past few days are quoting in the range of Rs.4,990/qtl – Rs.5,280/qtl. Prices may find initial support at Rs.5,150/qtl and thereon at Rs.5,050.Resistance may be seen initially at Rs.5,270/qtl and thereon towards Rs.5,400/qtl.

Crude Oil
Crude oil which began trading lower at $67 per barrel on Monday picked up momentum thanks to news about Nigerian rebels who blew up a wellhead in a Royal Dutch Shell oilfield. On Friday, crude oil rose to $70 and equity rally on perceptions of recession easing was also supportive.

In the coming days, crude Oil prices are expected to trade on positive note as renewed concerns over unrest in Nigeria. Economic data has shown some signs of improvement and equity markets are also resilient; this can limit the downside in oil prices in the short term. If risk appetite remains strong then we can higher demand for risky assets, leading to rise in demand for commodities like crude oil. Trend in dollar will be important to watch, as strong dollar can cap the upside in oil prices

Crude oil is expected to be steady with a strong bias with support for NYMEX August Crude Oil seen at $69.75/$68.50 level & resistance at $71.40/$72.55 levels. MCX July contract has major support at Rs. 186.80/183.45 & resistance at Rs.195.80/198.30 levels.

Rubber
Rubber market was more or less range-bound to steady although it looked weak in the beginning of the week. NMCE Futures was also steady on sustained rains over the plantation areas towards weekend. Sheet rubber ended firm at Rs 100 a kg amidst extremely dull volumes. There were no revised quotes from major manufacturers. The July futures for RSS 4 ended at Rs 98.16 (98.18), August at Rs 95.14 (95.34) , September at Rs 92.56 (92.98) and October at Rs 91.60 (91.66) a kg on National Multi Commodity Exchange (NMCE). Quotes from Tyre industry continues to be weak.

India's tyre industry will continue to push for a reduction in customs duty on natural rubber, as the duty charged on it is double than the finished product, an industry body said ahead of the union budget. "As in the past we are looking forward to the correction of the inverted duty structure. That is the first and foremost demand," said Rajiv Budhraja, director-general of Automotive Tyre Manufacturers Association (ATMA).

Natural rubber, which makes up 42 percent of the cost of a tyre, attracts customs duty of 20 percent, while duty on the finished product is around 10 percent.

This week the global rubber futures were supported by speculation that China, the world’s largest consumer of the commodity would increase purchases. Car sales in China rose 47 percent in May, the biggest jump since February 2006, helped by tax cuts and government grants. Key Tokyo rubber futures rose 1 percent on Friday, extending gains into a second day as sentiment improved with oil prices recovering to more than $70 per barrel. But gains were limited at around 160 yen per kg by selling from traders aiming to lock in profits from a rally from a three-month low of 150.5 yen hit on Wednesday. TOCOM's then benchmark November contract briefly topped 176 yen in early June, helped by optimism about the global economy. (With inputs from Angel Commodities, Mumbai)