Commodity Online
The week beginning August 4 was eventful as globally commodity prices tumbled. Crude oil, corn, gold and silver tumbled to four month lows on a stronger dollar and slower economic growth which eroded demand for raw materials.
Crude oil fell to the lowest since May, corn tumbled to a four-month low and silver touched its cheapest since January. The dollar had its biggest increase in almost eight years against the euro after European Central Bank President Jean- Claude Trichet said economic growth will be ``particularly weak'' through the third quarter. Investors are already shifting money away from commodities.
In India the inflation rose to cross the 12 percent barrier, however, inflation could be contained as reports of higher crop area for kharif has been reported by the government.
Rice, the most important kharif foodgrain crop, has been planted in 251.1 lakh ha against 234.6 lakh ha by this time last year.
Total area under coarse grains is lower than that last year, but the gap has narrowed down this week because of rains in many parts of the country. Similarly, area under pulses has increased by over 7 lakh ha over the last week, though the area is still less than last year. Area under oilseeds is almost as much as the area under oilseeds at this time last year
Crude Oil
Oil prices have lost more than 20% or $30 from their all time high levels. Fuel consumption in the U.S., the world's biggest energy consumer, dropped 2.6 percent in the four weeks to Aug. 1 from a year ago, according to Energy Department data. Declining demand in US and European countries is weighing on prices. Crude Oil prices may get support from supply disruption caused in Turkey, but we don’t expect prices to move sharply higher.
There are signs that China will slow down on its oil imports after the Olympic. Adding to this, energy consumption in US is also expected to fall further in coming days, which may lead to further fall in oil prices. Oil prices are expected to find support at $110 a barrel. In the past we have seen oil prices are always susceptible to supply disruption news. Hurricane season in US is in progress and if we have active hurricane season, then there is potential threat to oil supplies. This can put a floor to falling oil prices. NYMEX Oil futures are expected to have support at $116/112 per barrel and can face resistance at $122/125 per barrel.
Sugar
The sugar prices were seeing a declining and firm trend initially but thereafter markets started looking up. However, towards the end of the week, sugar spot prices declined for the second day. Restricted demand in spot and weakness in futures market was generally visible.
Market watchers expect sugar prices to look up in the near future due to upcoming festival deand and lower sale quota fixed by the government. The government released free sale quota of 9 lakh tonnes for August, lower than the market expectations of 1.2-1.3 MMt. Besides, the sugarcane sowing is lagging behind at 4.4 million hectares, compared with 5.3 million hectares a year ago, as of August 08.
Therefore, the production may go down to 20-21 MMt in 2008-2009, far below estimated output of about 26.1 MMt in current year, industry sources said. But, the prices may remain under pressure as the millers are also required to sell around 3.50 lakh tonnes of sugar from their buffer stock, traders said.
Considerably higher volume as well as open interest support present market trend. Sugar futures are likely to trade up after a higher opening with possibilities of late downward movement. Recent thunderstorm activity has helped ease stress to sugarcane in north India. Southern India experienced less rain during the past few weeks, increasing stress during early growth period
Base Metals
Copper prices are trading weak. LME inventories have risen for straight nineteen days and this has changed the complete inventory trend. However, this trend of rising inventories could be seasonal and hence does not change the long-term view. From the long-term perspective we are bullish on copper but the short-term trend is bearish. The effect of summer slowdown is clear in the price trend of copper. Aluminum prices are expected to receive support on concern over a cut in aluminum production smelters by 10% from China.
A sudden rise in crude oil prices will also support prices. Zinc prices could face pressure on the back of reports that some zinc producers are facing losses at current price levels. More smelting capacity continues to be added in China with a number of expansions announced and commissioned in the past few days. The Zhuzhou smelter in Hunan province is expected to expand capacity by 100,000 tonnes to 500,000 tonnes by the end of the year. Hence, we expect zinc to face pressure on the downside as surplus builds up in the market. Overall, the base metals pack is expected to remain volatile in the coming week.
Guar
Guar futures fell drastically during the last week on the reports of rains in major Guar growing regions. Due to sufficient rains since last week in Rajasthan, sowing has taken place and it is expected that the sowing targets would be achieved. Rajasthan guar acreage stood at 1.648 million hectares as of August 4, lower from 1.654 million hectares the same time last year. Production is likely to remain same as the previous year. The actual production would depend on the next 2 spell of rains which would be needed by the end of August and the 2nd by mid September. The overall trend in Guar in the short as well as medium term would depend on the rainfall. Also, we have to keep a close watch on INR movement as it will impact the exports from India.
