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BW Businessworld

Non-Agri Commodities Under Pressure

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The European Union Summit held on 28 and 29 June definitely came out with solutions to solve the Euro zone debt crisis. However, the implications and the procedures to solve the crisis are still awaited. This caused prices of commodities to rise initially. But the prices declined thereafter owing to concerns of slowdown in some of the major economies of the world particularly the US and China. Prices of non-agri commodities witnessed selling pressure in the last fortnight except for the energy pack. The inherent fundamentals led the energy complex to trade in a positive territory. Overall, global markets ended on a negative note on concerns of a global slowdown.  
Spot Gold prices declined 0.6 per cent in the last fortnight due to weak global market sentiments. Strength in the Dollar Index (DX) also pressurized prices. The DX strengthened by 2 per cent in the last fortnight. In the Indian markets, MCX Gold prices declined due to rupee appreciation. Indian rupee appreciated by 0.64 per cent in the above mentioned period.

Spot Silver prices also witnessed a bearish trend in the last fortnight, taking cue from the decline in gold prices along with weakness in the base metal prices. Further, slowdown in the some of the major economies of the world along with strength in the DX also led prices of this industrial metal to witness a decline.

The entire base metals pack traded on a bearish note owing to weak global market sentiments except for lead which gained marginally by 0.3 per cent in the last fortnight. Strength in DX also led to a price fall in the above period.  

Nickel witnessed a sharp fall of around 3.6 per cent and closed at $16,200 per tonne on Friday owing to weak global market sentiments along with rise in the LME inventories of the metal. LME inventories of Nickel rose by 2 per cent. Copper, the leader of the base metals, however, declined marginally by 0.3 per cent. In the domestic markets also prices declined due to appreciation in the Indian rupee.

Nymex Crude oil prices extended gains of the previous fortnight on the back of threat of strike from the labourers in Norway to halt all offshore oil and gas production. Further, a more-than-expected decline in the US crude oil inventories and supply concerns from Iran led prices to find support and strengthen. In the domestic markets, prices of crude Oil rose by more than 2.5 per cent and settled around Rs 4,795/bbl on 13 July.

Precious metals, base metals and crude oil prices are expected to trade sideways with upward bias on back of optimistic market sentiments along with weakness in the Dollar Index (DX) in last few days. Expectation of some stimulus measures by major economies of the world might also provide support to the prices.

Appreciation in the Indian rupee in the domestic markets may, however, cap sharp gains due to measures taken by the RBI.

Agri Commodities
Agri commodity prices across the globe witnessed a huge volatility during the last fortnight caused by weather disruptions, in the form of poor monsoons in India, dry weather or heat wave conditions in the US, heavy rains in Brazil and floods in Russia. With southwest monsoons in India being 22 per cent below the long period average and the distribution of rainfall being very uneven, sowing of most of the agri commodities have been affected adding fuel to already sky-rocketing prices. Although rains during the last week helped narrow the deficit in monsoon, the gap in Kharif sowing continued to widen with total Kharif crop acreage reported lower by 19 per cent at 351 lakh hectares.  Oilseeds, pulses, coarse cereals and paddy witnessed a drop in acreage by 22 per cent, 37 per cent, 46 per cent and 19.6 per cent, respectively, while that of cash crops like sugarcane and cotton acreage is reported higher by 4 per cent and 10 per cent, respectively. 

Oilseeds complex extended the rally for the fifth consecutive week with soybean gaining the most in the last fortnight by 12.8 per cent followed by mustard seed by 6.8 per cent and soy oil by 3.2 per cent backed poor monsoon and lower sowing in India, tight supplies in the global and domestic markets and on concerns over next year's US soybean output. However, CPO was the only exception that settled in the red on account of seasonally higher yield in Malaysia and comparatively low festive demand this season.

Among spices, turmeric posted a whopping 28 per cent gain on expectations of lower acreage and below normal rains so far in the turmeric growing regions of Nizamabad and Erode, While jeera settled 12.9 per cent on export demand amidst lower supplies from Syria and Turkey. With respect to pepper, gains were comparatively lower on expectations of fresh arrivals.

Grains complex also witnessed a significant jump in prices on account sharp drop in US corn output amid heat wave conditions. NCDEX Wheat prices gained around 16 per cent followed by Maize by 11.9 per cent. A sharp drop in Kharif maize acreage also supported prices.

Despite of increase in the acreage under cotton so far by 10 per cent, Kapas prices gained 9.7 per cent taking cues from the firm international markets and poor monsoons India. Sugar performed exceptionally well and settled 9.2 per cent higher on expectations of lower output next season as a result of below normal rains that may hamper yield of cane crop which is in the growth phase. Further, with festive demand ahead we expect sugar prices to remain firm in the coming weeks.

Chana, prices gained more than 6.2 per cent on account of lower supplies of the pulses crop, festive season demand and 37 per cent drop in area under Kharif Pulses cultivation.

Agri commodity prices particularly, cotton, sugar chana and spices would continue to move upward in the coming weeks. However, oilseeds and grains may witness some correction in the   prices expecting US weather condition to improve. Although, light rains over the next week will fall far short of ending the drought, plaguing the corn and soybean crops in the US. Midwest, it would bring some stability in prices. Monsoon advancement and the progress have to be watched closely in the coming days to get a clearer picture of the crop prospects for the coming season 2012-13. 

(The author is Associate Director, Commodities and Currencies, Angel Commodities)