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BW Businessworld

Risk Appetite Boosts Prices

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Global equities traded on an upbeat note in the last fortnight taking cues from a rise in risk appetite in the global markets. The upbeat mood followed the expectations of stimulus measures from China coupled with expectations that the German government will back the bond buying plan by the European Central Bank (ECB). However, in the beginning, markets remained subdued on Fed statements and failure of European policymakers to take any immediate measures to solve the euro zone debt crisis. This also affected spot gold prices which declined 0.2 per cent in last fortnight. 

However, sharp downside in the prices was cushioned on account of weakness in the US dollar index (DX). In the Indian markets, prices gained around 1 per cent taking cues from depreciation in rupee.

Spot silver prices, however, gained 1.3 per cent taking cues from weakness in the DX. However, sharp upside in the prices was restricted on back of falling gold prices along with a downside in the base metals. On the MCX, silver September contract gained 0.6 per cent on account of marginal depreciation in the rupee.

The base metals pack traded on a negative note on the back of unfavorable outcome from US Federal Reserve and European policymakers meeting which failed to arrive at measures to boost the economy which is reeling under recessionary pressure. However, sharp downside in the prices was cushioned on account of upbeat global market sentiments along with weakness in the DX.   

Copper prices declined by around 1 per cent on fortnightly basis on the back of escalating euro zone debt crisis along with a slew of unfavorable macroeconomic data from major economies particularly China and US. However, further downside in the prices was prevented on account of decline in LME copper inventories by 3.6 per cent and stood at 241,250 tonnes coupled with weakness in the DX. In the Indian markets prices declined by 1.3 per cent and closed at Rs 414.90/kg on Friday. However, depreciation in the rupee cushioned sharp fall in the prices on the MCX.

Nymex crude oil prices gained around 3 per cent taking cues from more than expected decline in US crude oil inventories coupled with weakness in the DX. Additionally, Tropical Storm Ernesto which fifth largest storm of Atlantic hurricane season was expected to enter in the Gulf of Mexico also supported upside in the prices. In the domestic bourses, prices increase by around 2 per cent on the back of depreciation in the Indian Rupee.

In the coming fortnight, precious metals, base metals and crude oil are expected to trade sideways with upward bias on speculation that central bankers may take steps to revive the economies. However, strength in the DX may cap sharp gains in the prices. Any unfavorable data with respect to the Euro zone area may also create negative market sentiments thereby exerting pressure on the commodities.

In the domestic markets depreciation in the Indian rupee may however support an upside in the prices on MCX.

Agri Commodities
With forecast of near normal rains in the current month and thereby improved rainfall activity in the past 2 weeks led to downward pressure on most of the agri commodities during the last fortnight. Sowing has progressed in the last one week, however, acreage is lagging behind in Pulses and some of the oilseeds amid scanty rains in Rajasthan and Gujarat. In its second half Long range forecast, IMD has predicted rainfall at 96% of the LPA in August while for the August and September is likely to be below normal.    In the international markets too, recent rains in the US Midwest have also helped ease some pressure on the agricultural commodities. With rising volatility in the most of the agricultural commodities, the FMC has been more aggressive, dynamic and proactive and is taking various measures to curb the rising prices.

Oilseeds complex declined last fortnight with ref soy oil accounting for most losses amid sharp decline in the BMD palm oil futures. Malaysian palm oil board increased the estimates of production and stocks for July on the back of lower exports. Further, improved rains in the major growing areas and thereby 5 per cent increases in area under Soybean cultivation led to further losses in the domestic markets. Soy oil declined by 8.4 per cent followed by CPO by 2.4 per cent and soybean by 1.3 per cent.

Spices observed mixed trend, with turmeric witnessing gains of 5.9 per cent while pepper and Jeera posting losses of around 4.8 per cent and 0.7 per cent respectively.   Turmeric gained on account of lower acreage amid below normal rains. While Jeera and Pepper observed dull overseas demand at higher levels and thus witnessed profit booking.

Grains complex extended the losses of the previous fortnight with wheat prices declining 2.3 per cent amid sufficient stocks while maize declined 0.6 per cent on fears government may intervene to curb the rising prices of agri commodities. Prices may remain under downside pressure in the coming week on improved rains that would improve prospects of kahrif maize.

Kapas prices that remained firm in the initial week of the fortnight witnessed sharp correction towards the end taking cues from the international markets. Sentiment for the coming weeks remain firm on account of lower ending stocks and concerns over next year‘s output.  

Sugar futures witnessed correction initially on fears government might release additional sugar to increase supplies and ease prices. However, prices bounce back amid ongoing concerns over lower output next season caused by below normal rains and lower yield.

Chana futures declined 12.7 per cent last fortnight on fears government may take some measure to curb the rising prices of Agri commodities.  Also improved rains have eased concerns over soil moisture which will be crucial at the time of sowing in October.

Agri commodity prices have already discounted the fact of below normal rains in the last two months. Now, with forecast of normal rains in the current month and thereby improved sowing is expected to keep agri commodities under down pressure. Edible oil complex in particular may witness further downward pressure on account of weak international palm oil prices coupled with improved area under soybean cultivation.