The Railway Budget and Economic Survey 2008-09 have raised hopes of a reformist budget from Finance Minister Pranab Mukherjee on Monday. The Survey has favoured regulation of the commodity futures market by the Securities and Exchange Board of India (Sebi), lifting of ban on futures trading of rice, tur and urad, extension of spot commodity trading in electronic form to agricultural markets by involving APMCs and complete removal of the commodity transaction tax (CTT).
Since Commodity Futures also are part of the financial market, it should be regulated by SEBI, according to the Survey. The Survey hints at removal of commodity transaction tax (CTT) which was vehemently opposed by the industry when the concept was introduced in 2008 budget but not yet notified.
Last week, among the major exchange-related news include MCX launching futures in gasoline. There were also reports that Universal Commodity Exchange has approached the Forward Markets Commission (FMC) to set up India's sixth national level commodity exchange which is promoted by IT entrepreneurs.
Meanwhile, state-run MMTC Ltd, the country’s biggest importer of gold, said it will import 150 tonnes of the yellow metal during the 2009-10 fiscal, the same quantity it imported last fiscal.
Precious Metals
The overall Bullion pack was under pressure last week with Gold continuing to trade sideways whereas Silver witnessed a sharper fall. Weak US economic data and sharp fall in US stock markets made investors rush towards the safe refuge of the US Dollar. Earlier in the week, reports that China has asked to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy had supported the Bullion pack. Further, holdings in the world's largest gold-backed exchange-traded fund (SDPR) have been falling in the past few weeks as growing optimism about the global economy saps investors' appetite for the safe-haven asset. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,120.55 metric tons.
Spot Gold continues to trade in the range of $912 - $948 zone. Overall, gold has benefitted from persisting worries that heavy government borrowing could boost inflation. Physical demand from India has been weak with imports down 50% year-on-year in the first half of this year compared with the first six months of 2008, as per the Bombay Bullion Association. For the week, we expect Spot Gold prices to have immediate support at $920/$908 whereas resistance is seen at $944/$958. Spot Silver prices shall find support at $13.00/$12.70 whereas resistance is seen at $13.65/$13.95. MCX August Gold has support at 14350/14260 whereas resistance is seen at 14580/14710. MCX Sep Silver shall find support at 21220/20750 whereas resistance is seen at 21950/22410 levels.
Crude Oil
Crude Oil prices pared early gains and tumbled in the last week, reaching to their lowest level in one month and marking its third successive weekly loss, as bearish weekly inventory data and relatively strong dollar against major currencies exerted pressure on oil prices. Oil prices are also taking cues from equity markets and weak global equity markets dented risk sentiments in the market and weighed on oil prices. NYMEX May Crude Oil futures ended the week 5.10% lower than the previous week to close at $65.63 per barrel, the lowest closing level since 3rd June.
Crude Oil prices are facing downward pressure once prices reach above $70 mark, as recent economic data is still mixed and raising concerns in the mind of investors with regard to early economic recovery. With unemployment rates are at multi year high, consumers are unlikely to expedite consumption in the near term, which can certainly curb the energy demand. Global risk sentiment is on the edge and if equity markets peak off, then we can see fall in risk appetite, which can potentially reduce demand for higher yielding assets like commodities.
Weekly inventory data in US is showing that energy demand in world’s largest oil consuming nation is still more than 5% less than last year. Despite US summer driving season is underway, gasoline demand is not picking up, which is certainly not a positive sign. Traders will also have to look out for trend in dollar, as rising dollar can also weigh on oil prices. Rising geopolitical tension in the Nigeria is the only possible factor which can lend support to oil prices. Due to above mentioned factors; we expect that oil prices can face resistance near $70 levels and it can eventually head downwards towards $60-61 levels.
Soybean
Soybean (NCDEX Aug contract) prices opened the week at Rs 2550/quintal, initially fell sharply on account of lower export demand of soy meal from global livestock industry. However, it could not sustain at lower levels and prices moved slightly higher after making a low of 2462 levels and finally managed to close at 2490 levels on account of short covering, value buying, lower stock of soybean and delayed monsoon in major growing areas also provided support to bulls in the market.
Oil meal exports declined to 1,97,593 metric tonnes in June 2009, down 33% as compared to 2,95,204 metric tonnes in June 2008. While, during the first three months of financial year (April-June, 2009) total oil meal export was 6,14,528 metric tonnes, down 57% on corresponding period last year. India exported 1,09,923 metric tonnes of soy meal, 58, 805 tonnes of rape/mustard seed meal, 12580 tonnes of rice bran meal and 16046 tonnes of castor meal in June 2009.
Plantation of soybean has started during the first week of July in major producing state (Madhya Pradesh). Area covered under kharif oilseeds is 6.63 lakh hectares, down by 65% as compared to 19.23 lakh hectares in corresponding period a year ago, due to delayed monsoon this year. Domestic area under soybean is reported lower at 1.63 lakh hectare compared to 8.11 lakh hectare in the corresponding period a year ago.
USDA’s planted Acreage Report released on Tuesday, which shows soybean acreage number was only 77.43 million acres, about 500,000 acres below trade expectations. However, this was still up from 76.024 million acres on the USDA’s March 31st report, it is largest soybean acreage number on record. In the coming week (NCDEX Aug Soybean), prices are expected to move range bound with a support at 2450/2350 and resistance is seen at 2550/2620 levels.
Black Pepper
Black Pepper prices in the spot markets quoted in the range of Rs.12,500 – Rs.12,900/qtl in the past 15 days. Prices witnessed strength in the beginning due to poor monsoon rains and supportive sentiments that production could reduce in the year 2010 but declined at the end of the previous week. Indonesia fresh crop arrivals have started and they are offering it at lower levels at $2,325 a tonne (f.o.b).
Pepper prices in the international market of Indian origin are being quoted at higher levels of $2,750/tonne. Pepper imports in May showed a substantial increase into the nation. Imports of black pepper were 2,265 tonnes (May) through the Kochi port alone against export of 1,750 tonnes. Demand from the overseas and domestic continues to be lackluster. Prices at the futures after making a high of Rs.13,150/qtl dipped to lows of Rs.12,188/qtl. Prices may dip further if the support level of Rs.12,130 is breached and may touch Rs.12,050/qtl and thereafter Rs.11,600/qtl. Prices may find resistance initially at Rs.12,540/qtl and thereafter at 12,890/qtl.
Rubber
Rubber is witnessing steady to mixed trend in domestic and overseas markets. Buyer resistance is visible which is not allowing prices to go beyond Rs 98-102 range. July Futures in NMCE concluded the weekend session at Rs 96.69 while the August contract traded at Rs 93.47.
In the early part of the week, Rubber exhibited weakness and quantity buyers stayed away from spot markets. Major consumers seemed comfortable with imports rather than buying from domestic markets. The Automotive Tyre Manufacturer’s Association has urged the government bring down the customs duty on natural rubber from 20 to 10% on par with finished rubber products which is levied at 10 %.
Weakness was visible in Asian rubber futures despite the fact that International Tripartite Rubber Council members Thailand, Indonesia and Malaysia announced a decision to remove 9,15,000 tons from the market in 2009 to bolster prices. At TOCOM a steady to high trend was visible in rubber futures while Shanghai technical selling led to decline in prices.
Rubber is likely to witness steady or range-bound trading as there is no bullish factors alive with China buying the only saving grace while US and European markets appear quiet.
Base Metals
It was a rather dull weak for base metals although some recovery was visible during weekend on Chinese data.Copper exhibited weakness on concerns of a weakening US labour market. Payrolls in the U.S., the second-biggest consumer of copper after China, declined by 467,000 in June. The jobless rate climbed to 9.5 percent, the highest since August 1983. This has raised concerns about demand for industrial metals falling.
Copper for three-month delivery slid $65, or 1.3 percent, to $4,970 a metric ton. Analysts expect weaker demand and rising inventories to pull down prices to $4000 in July-September period.
Towards weekend there was a gain from economic data from China which indicated that official purchasing manager’s index for June rose to 53.2 from 53.1 in May, the fourth straight month in which the manufacturing sector has showed signs fo expansion. Nickel prices gained more than 8% to $16,600. The week ahead, expect choppy trade with some profit booking as most of the commodities are trading higher compared to fundamentals.
Last week, MCX August copper prices opened the week at 246.50 initially moved higher and as expected found good resistance at 250.45 levels. Later prices fell sharply lower breaking the initial support marginally made a low of 239.25 and finally ended the week with a loss of Rs.3.8 to close at 241.85. This week market is expected to find good resistance in the range of 243.50-245.50 levels and then strongresistance is seen at 249.50-250.50.
(With analytical inputs from Angel Commodities, Mumbai)
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