Commodity Trends:Markets subdued, volumes up

February 14, 2009

Commodity Online
Commodity markets in India seems to be gaining ground even as equities and other forms of investment fail to pick as economic downturn spreads deeper into the economy. The annual Wholesale Price Index-based inflation rose 4.39 per cent during the week ended January 31, way below the previous week’s yearly rise of 5.07 per cent. The year-on-year inflation rate was recorded at 4.74 per cent during the corresponding week a year ago.

Two positive developments on the commodity markets relate to increased trading activity in exchanges which has risen by 34% according to Forward Markets Commission and popularity of warehouse receipts. Contrary to popular belief, banks have shown interest in lending money to farmers against warehouse receipts and are disbursing about Rs 20,000 crore loan annually, which experts believe could grow to Rs 1,00,000 crore by 2015.

Except for gold most other commodities are on a bearish trend in Indian markets although globally sugar, rubber have seen upward movements last week.

Precious Metals
Bulls were in full charge of gold in the last week, as rising risk aversion amidst weakening global economy increased safe haven demand, leading to sharp rise in precious metal prices. Risk trend continues to guide movement in gold and silver prices. Pure Gold prices in Mumbai, the major gold hub in India, touched an all time high of Rs.14,770/10gm on Thursday. International gold prices also touched seven month high in the last week. SPDR gold trust, largest gold ETF increased its gold holding above 900 tons. Gold and silver prices are likely to gain further in coming days amidst growing economic troubles and increased risk aversion among traders. Market is still skeptical over the success of new stimulus package offered by US.

Approval of stimulus package can lead to change in risk trend, but uncertainty over the success of stimulus plan continues to provide support to gold prices. Trillions of dollars of government spending could spur inflation once economies start reviving, leading to further buying & boosting the metal’s appeal as a hedge against accelerating prices. Physical demand at these prices can remain subdued but investment demand will be robust. After breaching key resistance level of $932 per ounce, strong buying has emerged in gold. In the short term spot gold prices can face resistance around $955/980 levels, whereas crucial support is seen at $920/890. MCX April Gold can face resistance around Rs.14980/15350 levels, whereas support is seen at Rs. 14440/14070 per 10 gram.

Crude Oil
Crude Oil prices tumbled sharply in the last week, as rising inventory, strong dollar and weakening global economic outlook put prices under pressure. Oil prices fell to almost seven month low on Thursday. Crude oil prices have fallen on concern that inventories will rise further as demand drops. Continuous rise in crude oil stocks and fall in refinery utilization rate is signifying the fact that demand is falling dramatically amidst weakening economy.

With stocks at Cushing also rising, companies are running out of additional storage capacity, pulling near month oil prices lower. Crude oil market is trading in contango, where near month futures are trading at discount to next month contract, allowing companies to profit from hoarding of oil stocks. This puts pressure particularly on near month contracts, leading to further rise in spread. Final approval of stimulus package by US President Obama can improve market sentiments in the near term. NYMEX April Crude Oil prices are expected to trade in the range of $38 and $48 in the short term. MCX March Crude Oil futures have support at Rs. 1900/1780 and resistance is seen at Rs. 2250/2340 per barrel.

Rubber
Global rubber futures recovery did not have any impact on spot rubber prices as demand from consuming sectors continued to be depressed. Initially RSS4 grade improved slightly but towards weekend spot rubber continued to rule steady and traders were holding on to available stock with expectations of market recovery.

Last week, the natural rubber futures globally grew on speculation that Chinese would increase raw material purchases as part of Government’s stimulus package. In January, Chinese imports of natural rubber dropped 65 percent from a year earlier to 60,000 tons, In the beginning of the week Tocom lost ground on long liquidation. On Friday, Rubber for July delivery, the most-active contract, added 2.1 percent to settle at 143.6 yen a kilogram ($1,572 a metric ton) on the Tokyo Commodity Exchange. Weak crude oil also led to depressed sentiments in rubber prices as its alternative synthetic rubber is made from naptha, distilled from petroleum. In the near term, Indian rubber prices are likely to trade sideways with a downward bias as main consuming sector, automobiles is hit is by lower sales in the past few months.

Base metals
In the coming week, base metals may see a marginal upside on the back of the US stimulus plan. However, the overall economic situation remains weak and markets could remain volatile. On one hand there is hope of a rise in demand from China on the back of their stimulus package. But current import numbers reveal a different picture. Hence, markets will now wait and watch to see the implementation of the announced Chinese stimulus package of $586bn.

Currently demand is a major concern as inventories are rising steadily indicating that demand is poor. Inventories for base metals have touched 15-year highs and going forward only a pick-up in demand and decline in inventories could help boost prices. Even if demand from China on the back of the Chinese stimulus package picks up, we feel that the upside could be limited as the world economies are witnessing a slowdown. Hence, we expect base metals to remain volatile.

Soybean:
Soybean prices moved slightly down during the first 4 days of the last week on profit booking after a sharp rally during the first week of February. However, prices moved slightly higher on Friday i.e. Feb 13,2009 on account of bullish USDA weekly export sales figure. The USDA’s export’s sales were above expectations in both soybean and oils. Net sales for soybeans were 1068760 metric tonnes for the current marketing year and 500 for next year for a total 1069260 metric tonnes. As per WASDE (US Dept of Agriculture), Global oilseed stocks are projected at 61.60 million tonnes, down 3.8 million tonnes. Global oilseed production for 2008-09 is projected at 408 million tonnes, it is down by 8.3 million tonnes from last month.

Argentina’s soybean crop projection has been lowered by 5.7 million tonnes to 43.80 million tonnes. Brazil’s soybean crop was lower by 2 million tonnes to 57 million tonnes. Soybean prices are expected to move range bound with positive sentiments on declined soybean production estimates in Argentina. NCDEX Soybean (March Contract) has a support at 2430/2480 and resistance is seen at 2265/2190 levels in this week.

Jeera
Spot prices at the benchmark Unjha markets in the previous week were quoted in a range at Rs. 11,400- 11,300/qtl. Lower stocks with the stockists as well as farmers may support the prices to strengthen in the coming days. Demand from the overseas market and domestic market is present in good quantity. Farmers are harvesting the unripe seeds of Jeera and bringing it in the market. Stockists are flocking in the markets to purchase the commodity as the production of Jeera is lower in 2009. Futures after making a high of Rs. 12,275/qtl is witnessing selling by the market participants. Prices have support at around Rs. 11,400/qtl and thereafter at Rs. 11, 135/qtl. Resistance can be seen at Rs. 11, 680/qtl and thereafter at Rs.11,970/qtl.

Pepper
Pepper Futures are on a bearish trend with the possibility of prices coming down to 11,485 as the commodity lost over 7% since the beginning of the week. Short coverings contributed to the downfall in prices.

Factors contributing to bullishness are the sluggish export demand and higher domestic output in some states like Karnataka. Demand for pepper from Vietnam was also reportedly high. In the physical market, subdued activity witnessed. Towards weekend at Kochi markets the prices remained unchanged and it was offered at Rs.11300 per quintal for garbled variety and Rs.10800 per quintal for ungarbled, down. Arrivals at 32.5 tonnes were completely sold. Declining Futures also impacted the physical markets sentiments.

The upcountry markets witnessed weak demand and supply Indian parity declined globally and was offered at $2350/tonnes, down by $50/ttonne, is most competitive at the international market while the Vietnamese origin was offered at $2400/tonne f.o.b. Pepper at the physical counter is likely to trade range bound to weak during the days ahead.

Sugar
News about India’s production and import of sugar continues have impact on the global markets while the sentiment in the country is subdued on reduced demand as against good supply from mills. Moreover, Indian market sentiment for sugar prices remained subdued on the domestic market on reduced demand from the stockists and buyers against good supplies from the mills. State-run trading firm MMTC on Friday invited bids on behalf of private companies for import of 35,000 tonnes of cane raw sugar to be delivered by March. This is the second tender the trading firm has floated for cane raw sugar. Last month, it has invited bids for 22,000 tonnes. The cane raw sugar will be imported under the Advanced Licencing Scheme (ALs). Under the scheme, raw sugar is imported at zero d uty and reprocessed it into white (refined) sugar for exports within two years of the license being issue

Globally, two factors have led to rise in sugar futures—the falling dollar and a recovery in crude oil prices which has widened the appeal for ethanol made from cane. In the weekend, raw-sugar futures for May delivery gained 0.08 cent, or 0.6 percent, to 13.57 cents a pound on ICE Futures U.S. in New York. The most-active contract gained 3.4 percent this week. Sugar has advanced in seven of the past eight weeks and is up 15 percent this year.

India’s sugar production is forecast to fall by around 17.5-18 MMt in 2008-09 from 26.3 MMt a year earlier, while country’s domestic consumption is around 22 MMt. However, the government recently allowed mills to buy raws at zero duty for domestic sale on condition producers export a similar quantity of refined sugar within 24 months. The country is expected to import about 4.5 MMt of raw sugar in the next 12 months,Because of a delay in implementing new tariff rules, imports by the South Asian nation this year may be less than projected.

(With analytical inputs from Angel Commodities, Mumbai)

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