Commodity Trends: Gold & Crude Oil will be stars

March 14, 2009

Commodity Online
The meltdown hasn’t drowned the investor sentiments and they remain positive about commodities over the long-term, according to a survey report released by Barclays Capital. Of those surveyed, a third expect the average benchmark commodity index return over the next five years to be 5-10 per cent, with 35 per cent expecting over 10 per cent.

Meanwhile, 79 per cent plan to initiate or increase direct exposure to commodity markets over the next three years. Investors expect gold and crude oil to be the two best performing commodities in 2009.

India’s inflation is nearing near zero levels. Vegetable oil prices have plummeted to a third of what was a peak at $1,300-1,700 per tonne in the second half of 2008 while rubber prices are expected to maintain the status quo and move in a narrow range throughout 2009.

Precious Metals
Gold prices witnessed strong bounce back in the last week, after prices closed below $900/oz for the first time since 10th February, as renewed investment demand from GOLD ETF supported yellow metal rise. Sharp rise in oil prices also boosted gold prices. Early in the week, international spot gold prices touched a low of $890/oz, as gains in the equity markets and sudden reduction in demand from ETF weighed on gold prices. Investment demand is likely to remain a key to the higher Gold prices.

Receive $25 free with a Forex Micro account

One of the factor which supported gains in gold was heavy buying from Gold ETFs during this year. Assets in the SPDR Gold Trust, the biggest fund backed by bullion, advanced 0.3 percent to a record 1,041.53 metric tons on Thursday. The SPDR fund’s holdings are now larger than the 1,040.1 tons held by Switzerland in January, according to Swiss National Bank data. Movement in equity markets can also impact gold prices in the short term, as it affects the risk trend in the market.

Silver prices will take cues from gold prices in the short term. The overall changing global economic scenario shall continue to play a key role in determining bullion prices, as investors evaluate various asset classes to channel their funds. Gold prices are likely to consolidate in the range of $900 and $945 in the short term, and only sustained trading above $945 can lead to further rise in gold prices. In the short term spot gold prices can face resistance around $950 levels, whereas crucial support is seen at $890. MCX April Gold can face resistance around Rs.15600 levels, whereas support is seen at Rs. 14850 per 10 gram.

Crude Oil
Crude Oil traded higher for third week in a row amidst high volatility. There was a tug of war between bulls and bears. More than expected rise in crude oil inventory and fall in energy demand in US favored bears, but bulls came strongly on expectation of production cut by OPEC in their meet. Weekly inventory data showed that crude oil inventory increased by 0.7 million barrel against the expected rise of 0.2 million barrels. Demand for energy products in US averaged 19.3 million barrels in the past four weeks, down by 2.1% from a year ago.

Difference between NYMEX near month and mid month contract reduced to less than $1 a barrel, after inventory at Cushing, NYMEX delivery center, reduced for third successive week. Market sentiments were dominated by OPEC meet of 15th March. Market is expecting 0.5 million barrel cut, as group wants to support oil prices. We believe that after OPEC’s decision on oil production, market will once again shift its focus to bearish fundamentals. Due to this oil prices can find it difficult to sustain near $50 levels. During this week, NYMEX May Crude Oil prices are expected to trade in the range of $38 and $50. MCX April Crude Oil futures have support at Rs. 2290/2140 and resistance is seen at Rs. 2580/2725 per barrel.

Base metals
Base metal prices are expected to remain under pressure in the coming week as economic concerns continue to dominate market sentiments. Especially Copper, as China’s imports of copper and products jumped by 42% in February to 329 tonnes , their highest level since 2003. This rise is mainly on the back of continued buying from China’s State Reserve Bureau and an arbitrage supporting imports. But a drop in scrap imports suggests that demand is grim.

Scrap imports are down 56% on a year-on-year basis in January indicating that there is tightness in the scrap market due to lower imports and low level of scrap generation from domestic construction activity. February trade data from China showed that exports declined under $5bn from around $40bn in January. This factor could cap the upside in base metals. With a decline in scrap imports in China we feel that underlying demand conditions are poor but lower prices are attracting buying from China.

It may not be necessary that China’s demand is huge. Once the re-stocking is done then we may not find consistent rise in demand as even China faces the pain of economic recession. Other than that, markets are expected to be wary as statement by IMF General Director Dominique Strauss_Kahn revealed that global growth could fall below zero this year as the continuing de-leveraging of financial institutions coupled with fall in consumption and confidence is pressing down demand. Base metal prices are expected to remain volatile due to the concerns mentioned above.

Rubber
Rubber prices looked steady to weak and in domestic markets, sentiments did not lift in tune with movements in Tocom as consuming industries stayed away from making major purchases. Sheet rubber finished flat at Rs 73.50 a kg amidst widespread rains all over the plantation areas. The volumes were dull. The March contract for RSS 4 improved to Rs 73.30 (72.66), April to Rs 74.98 (73.93), May at Rs 76.02 (75.09) and June at Rs 76.61 (75.56) a kg on National Multi Commodity Exchange (NMCE).

During the midweek sentiments got better with certain major manufacturers turning active buyers. The grade firmed up to Rs 73. 50 from Rs 73 a kg on fresh demand.

Rubber market will continue to be sluggish as India’s consumption slid further, heading into a negative growth for the present fiscal. Consumption grew just 0.03 per cent growth at 7.87 million tonnes during April-February period of 2008-09. Rubber Board data shows that the overall stock by the end of February was 224,600 tonne which is one of the highest in recent times, against 198,000 tonne in February, 2008. There is a diametrically opposite correlation between the stock and prices in natural rubber market. The poor growth in consumption, coupled with an upsurge in production naturally led to a heavy carryover stock. This may lead to the plummeting of prices once the summer season is over.

Soybean
Soybean prices moved in a narrow range amidst subdued trading activity, because traders/participants were busy in Holi festival during the last week. The USDA released its latest Supply/Demand Report on Wednesday (March 11, 2009), Global oilseed production for 2008-09 is projected at 407.7 million tonnes, down 0.3 million tonnes from last month. Global soybean production is reduced 0.9 million tonnes to 223.3 million tonnes.

The reduction is due to South America crop which has been affected by hot, dry weather during critical parts of the growing season. US 2008-09 soybean ending stocks lowered to 185 million bushels from 210 million bushels last month. World ending soybean stocks were revised slightly higher despite a projected decline in Argentina production to 43 million tonnes from 43.80 million tonnes last month and 46.2 million last year. USDA weekly exports sales released on Thursday, net sales of soybean were 8,37,000 metric tonnes, noticeably up from previous week and 26% up from the prior 4 weeks average.

Net sales of soy meal were 1,47,400 metric tonnes, it is up by 26% from previous week, but down by 2% from the prior 4 week average. Some traders report a growing reluctance on the part of buyers to originate soybeans in Argentina and this may be helping to keep US export sales strong. In the coming week, prices are expected to move slightly higher due to declining arrivals of soybean and depreciation of INR against US $ may boost up soy meal export. NCDEX Soybean (April Contract) has support at 2240/2190 and resistance is seen at 2400/2470 levels in this week.

Jeera
Jeera prices in the previous week were quoted at steady rates in the previous week with slow participation at domestic market. Market participants were busy with the preparation for the holi festival and the weeklong mela in Rajasthan. Thus, the overall arrivals at the markets declined from 18000 bags daily to around 9000 bags in previous week. Demand from the domestic and overseas market has declined marginally but is expected to improve in the coming days. Arrivals are expected to decline by last week of March.

Prices may find support and strengthen once the demand from domestic and overseas is placed in good quantity. Sowing of jeera in Syria and Turkey has commenced and fresh crop will be harvested in June. Exports from Indian surged to about 43% in the period of April 2008 to January 2009. During the period April 2008 to January 2009, exports of Jeera totaled to 29,750 tonnes (valuing at Rs.309.88 crores) as against 20,835 tonnes in the same period last year. Prices may find support initially at Rs.11,600/qtl and thereafter at 11,300/qtl. Resistance can be seen at 11,920/qtl and thereafter at 12,050/qtl.

Sugar
Sugar prices fell more than 6 per cent during the last 2 weeks as Government of India has taken various measures to curb rising prices like imposition of stock limits of 200 tonnes, extending re-export period of Raw Sugar up to 3 years, etc. Government of India is planning to import 20 lakh tonnes of duty free white sugar in the next 6 month. Due to frequent intervention by the Indian government to curb rising Sugar prices, Sugar market will remain under pressure in the short term. However, in the long term, we expect Sugar prices to remain bullish as Indian sugar output estimate is lowered to 165-170 lakh tonnes, down 35% as compared to last year. Internationally, Sugar prices are trading firm on expectations that India will import more Sugar this season so as to meet their requirement. In the coming week, prices are expected to move southwards on account of stock limits and duty free white sugar import by government agencies in the next 6 month to control sugar prices in the domestic market. NCDEX Sugar (April Contract) has support at 2020/1990 and resistance is seen at 2130/2170 levels in this week.

Pepper
Pepper Futures and spot markets continue to remain weak although the Futures recovered towards weekend due to lower supplies in the market. March contract moved up by Rs 79 on NCDEX to close at Rs 10,500 a quintal. April and May increased by Rs 77 and Rs 80, respectively, to close at Rs 10,629 and Rs 10,700 a quintal. During mid-week, lack of buying interest due to festive mood sidelined further with the weakening prices at the futures counter. At the benchmark Kochi markets it was offered at Rs.10000/qtl for the ungarbled variety and 10500/qtl for the garbled variety, down by RS.200/qtl respectively. Sales declined to 19 tonnes for the arrivals of 35 tonnes. Internationally demand for Vietnamese origin continued to remain slow at the peak arrivals season further pulled down prices by $50/tonne.

ASTA grade was offered at $2050/tonne f.o.b. Indian parity also declined by $50 and is offered at $2125/tonne f.o.b. Brazil and Indonesia remained steady at $1950/tone f.o.b and $2250/tonne f.o.b. respectively. Overseas enquiries continue to be dull. In the international market, buyers were trying to pressurise Vietnamese farmers by creating a fear that if they failed to sell now others such as Indonesia, Brazil and India would sell at reduced prices.Black pepper at the physical counter is likely to trade range bound to weak amidst limited activity. 

(With analytical inputs from Angel Commodities,Mumbai)

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold to find out more. You may Sell Gold to us too.

[ Back To Home ]