Commodity shortages are likely next year as output of metals and agricultural products potentially rises too slowly to match revival of demand, according to a Goldman Sachs Group study. The Reuters/Jefferies CRB Index of 19 commodities has added 17 percent this year, driven by energy and metals prices. Limits on production growth and swelling demand in developing nations will keep driving prices higher and probably curb usage in industrialized countries like the U.S., Goldman Sachs said.
Meanwhile, in India scanty rains are a cause for concern in some major crop growing regions and Finance Minister Pranab Mukherjee hinted that it would be damaging for economic growth which had begun to look up due to stimulus measures.
India's exports fell for ninth month in a row. Commerce Ministry said, exports in June dipped 27.7%. Imports also dropped by 29.3%, reflecting slowdown in domestic consumption and mainly because a 51% decrease in oil import.
As fall in imports is steeper than that in exports, the trade deficit in June 2009 has contracted to $6.2 billion from $9.1 billion in the same month of the last financial year. Exports dipped to $12.8 billion in June from $17.7 billion in the same month last year
A few major developments related to commodity exchanges last week. It was announced that commodity bourses such as MCX, NCDEX and NMCE can now hold equity stake in one another as the government has allowed cross-holding in national level commodity exchanges that have completed five years. The new guidelines on equity structure issued recently by the consumer affairs ministry, the stock and commodity exchanges can hold a maximum equity of up to 15% in commodity bourses that have completed five years.
Forward Markets Commission (FMC), India's commodity market regulator, has asked national-level commodity exchanges to ensure at least 10 percent of their stake is owned by government companies. Total stake by state firms, banks and warehouses together should be at least 26 percent, while only the original promoter of the exchange can hold upto 26 percent, it added.
The guidelines were aimed at better governance, transparency and investor confidence in the markets. Volumes in India's commodity futures, one of the fastest growing in the world, rose 29 percent in 2008/09 financial year ending March to 52.49 trillion rupees.
Precious Metals
The Bullion pack traded higher for the past week with Spot Gold trading above $935 levels. Silver prices also moved in tandem with gold prices trading higher. The sharp fall in the Dollar Index (the USD pegged against 6 major currencies) supported the rally in the bullion pack as assets traded in USD dollar terms appreciate in value terms when the Dollar weakens. A further sustained fall in the USD would lead to a sharp rally in the bullion pack. Investment/Fabrication demand shall continue to play a crucial role in coming weeks. Also, broad-based buying was also witnessed across the commodities pack is currently being witnessed as risk appetite of global investors is on the rise, which has been pressurizing the USD. Higher crude prices and overall improvement in sentiments have been supportive for the bullion pack. Spot Gold shall meet with resistance around $975 - $980 zone, and further trading above this level would lead prices towards the $1000 mark. Domestic gold prices breached the Rs.15,000 mark last week. For this week, we expect prices to trade higher with resistance seen at 15070/15220 whereas support is seen at 14750/14590.
Base Metals
The Base metals pack last week rallied sharply on the back of improving global economic sentiments & weakness in the US Dollar. In the last few days, the base metals market has been running on a very optimistic note due to a steady stock market recovery but, with only moderate seeds of consumer demand. The market also seems almost immune to any negative data. Despite slower summer physical conditions evidenced on the back of rising inventories and falling cancelled warrants, prices are witnessing an uptrend. However, we feel that base metals could come under pressure as prices are racing ahead of their fundamentals. Hence, prices may be due for a correction this week on account of profit-booking. Copper, the leader of the base metals pack, shall have crucial support around 281/273 levels whereas resistance is seen around 297/305 levels for this week.
Soybean
Soybean (NCDEX Sep contract) futures opened the week at Rs 2334 a quintal, and surged more than 5% during the last week as compared to previous week on account of short covering and strong movement of soybean futures at Chicago Board of trade (CBOT). Better demand from solvent extractors amid tight supply led to spurt in prices. Traders are resorting to hoarding, as there is a growing concern in respect with the paucity of rainfall.
Moreover, market participants are anticipating that the government may declare a drought. As per IMD report, the rainfall for the week to August 5 was 66% below normal. As per Agriculture Ministry of India, area covered under domestic kharif oilseeds is 141.79 lakh hectares till July 31, 2009, as compared with 144.66 lakh hectare during corresponding period a year ago. In this respect, area under Soybean is reported up at 90.74 lakh hectare against 87.75 lakh hectare a year ago. As per Brazil’s crop supply agency, soybean crop estimates for 2008/09 was about unchanged at 57.13 million tonnes compared to record 60.02 million tonnes in 2007/08. In the coming week, prices are expected to move higher on account of lower soybean stocks and better demand from solvent extractors. NCDEX September Soybean prices has a support at 2350/2300 and resistance is seen at 2510/2550 levels.
Chana
Chana futures gained over 5% during the last week due to weak rainfall in key pulses growing areas, which have led to the speculation that the Kharif output would be lower in the coming season. September contract recovered from its low of Rs. 2475 per qtl levels and settled at around 2600 levels on Friday. Chana output in Rabi 2008-09 stands at around 70 lakh tonnes. Thus, there are huge stocks of Chana or gram in the domestic markets. Despite this, Chana prices are not able to sustain at the lower levels due to the soaring prices of other Pulses.
Delayed monsoon and thereby delay in the sowing of Kharif Pulses like Tur, moong and Urad has led to the speculation that there might be supply shortage in the coming months. Chana is the only pulses crop which is such available at such lower prices. Thus, sellers are not ready to sell Chana at the current prices, thereby restricting the supplies. On the other hand, demand is vibrant from the processors and millers ahead of the festive season. The government measures to control the rising pulses prices might pressurize Chana prices to some extent. However, any significant decline should be treated as a good buying opportunity. We expect September Chana contract to trade in the range of Rs. 2530-2700 per qtl in the coming week.
Pepper
Spot pepper prices at Kochi surged due to buying by the stockists and increase in the pepper parity of various origin. There are reports that the pepper crop in Brazil is expected to be lower due to heavy rains in Para state, which is major producing area of pepper in Brazil. Fresh arrivals of pepper in the Brazil will commence in the month of September. Vietnam has lower stocks of pepper to sell, as it has already exported around 65000 tonnes of pepper from its fresh crop of 110000 tonnes during this year. Thus it would not aggressively sell pepper. Indian pepper in the international market is quoting at $3075/tonne (C&F). Strong demand from the overseas and domestic market is expected in the coming days. Pepper futures have touched a high of Rs.14,750/qtl, breaking an important resistance level of Rs. 14,400/qtl. Prices may trade in sideways to upward trend in the coming days. Technically prices may have a strong support at 14,400/3,800 levels. Resistance may be seen at 15080/15,600 levels.
Rubber
Rubber spot market witnessed weak to mixed trends throughout the weak despite bull rally in TOCOM futures. Absence of quantity buyers in main marketing centres was responsible for sudued sentiments. Spot prices which had improed to Rs 101 in the beginning of the week later weakened to Rs 100.
The physical rubber prices were weak on Thursday. According to observers there were no quantity buyers in the main marketing centres to keep the market firm though the domestic and international futures were in a bullish mood. Sheet rubber declined to Rs 100 from Rs 100.50 a kg on buyer resistance.
The August futures for RSS 4 firmed up to Rs 102.10 (101.28), September to Rs 99.73 (98.66), October to Rs 97.05 (96.63) and November to Rs 97 (96.52) a kg on National Multi Commodity Exchange (NMCE) on Thursday.
Despite rising imports, prices of natural rubber have remained buoyant throughout the past few months on the back of a shortfall in the global production.
The import of rubber by tyre companies has touched about 79,573 tonnes during April to August 4, 2009 as compared to 24,264 tonnes during the same period of the year-ago period, growing at a rate of 228%. Stocks of natural rubber now stands at 1.8 lakh tonnes, against 1.2 lakh tonnes during the same period of last year. Lower exports also added to the stocks.
Despite such a major increase in import and stocks, the rubber price has not seen a downturn. After hovering around Rs 98 to Rs 99 per kg in the past one month, the price touched Rs 100 per kg-mark on August 1. On Thursday, the price stood at Rs 100 per kg.
AT TOCOM, prices slipped 2.5 percent on Friday after reaching a nine month high on Tuesday, booking its first weekly decline in five weeks, on speculation a U.S. jobs report may revive concern that worsening unemployment will curb consumer spending and cap demand for the commodity. Investors are cutting long positions on doubts about fall in spending.
January-delivery rubber fell as much as 4.8 yen to 191 yen a kilogram ($2,003 a metric ton) on the Tokyo Commodity Exchange before settling at 191.9 yen. The decline was fast as investor resistance was stiff above 200 yen.
Rubber gained 21 percent in July, the most since December 2006, and have jumped 44 percent this year as global equities rallied and exporters, including Thailand, curbed shipments. Rubber is expected to exhibit weakness and range-bound trading close to Rs 100 levels is likely next week.
Crude Oil
Crude oil began the week on a rosy note and hit a one-month high of $71 on Monday as positive Chinese data and firm equities signaled economic recovery and higher energy demand. US Crude hit a intra-day high of $71.95 before settling at $71.50.
Brent crude was getting close to resistance levels and continued support from equities were required to stabilize prices.
On Friday, Crude oil fell below to$71 per barrel on the New York Mercantile Exchange after attaining a 5-week high although equities fared well in Wall Street. Light, sweet crude traded lower, losing $1.01 to reach $70.86 per barrel. Heating oil prices lost 0.0163 cents to $1.9145 per gallon. Reformulated gasoline prices fell 0.0524 cents to $2.003 per gallon. Natural gas prices lost 0.0866 cents to $3.70 per million British thermal units.
The dollar gaining against euro reduced the appeal of commodities, a forecast showing a weaker Atlantic hurricane season offset an upbeat US job report. The U.S. National Oceanic and Atmospheric Administration (NOAA) said that it now expects a near- to below-normal hurricane season, as the effect of the El Niño weather pattern continues to develop. Meanwhile US weekly employment data was supportive and prevented sharp fall in oil prices. The four-week average of new claims dropped to 555,250, the lowest level since January.
Oil Futures have so far gained 59% this year. The speed of the oil price surge in recent times also made it susceptible to correction. In the near term, weakness is likely in the oil segment with possibility of prices declining to $60 and then rebounding.
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