Commodity Review: Weak trend likely in spices

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

29 Jun 2008

Domestic inflation rates rising to 11.42 percent, soaring global crude oil prices, political uncertainty had its effect on the markets. Natural rubber prices rose to an all time him in Tokyo. This week also saw bears tightening their grips in Indian equity market. Gold prices are expected to remain firm on account of strength in oil prices. Adding to this, weakening dollar will underpin bullion prices. On macroeconomic front, US inflation data will have an impact on US dollar. Unprecedented rise in oil prices will lead to higher inflation in coming months, which will lead to further rise in precious metal prices. Gold prices can reach up to $930/oz in coming weeks.
The Fed held key U.S. interest rates steady at 2.0 percent, and said that it expects inflation to moderate later this year and next year, but the uncertainty about the inflation outlook remained high, due to rising energy and commodities prices. Amidst weakening economy and rising inflationary pressures, it will be difficult for Fed to hike interest rates and this will definitely help Gold. Silver prices are expected to follow Gold in the near term. On the International front, Spot Gold is meeting with stiff resistance at $935/oz levels, where as support is seen at $870 and then at $848/oz levels. MCX August Gold support stands at Rs.12340/11930 & resistance at Rs.12970/13190 per 10 gram.
Crude Oil
Crude Oil prices were at all time high in the last week, amidst short term supply concern and weakening US dollar. Crude Oil futures surged to a record high on Thursday, extending a rally spurred by news, that Libya was considering a production cut and a weakened dollar. A comment by the OPEC president that prices could rise as high as $170 per barrel in the coming months also helped fuel the rally early. Bulls are strongly in hold of Crude Oil and in coming days we may see oil prices making new highs.
With some of the OPEC members are still showing disinterest in rising production, we are heading for much higher prices. In the short term, we may see correction on account of profit booking, but overall trend looks bullish. Surging oil prices, up nearly 40 percent this year to a record near $140 a barrel, have weighed on the economies of consuming nations. Many Asian countries, including China, have moved to cut fuel subsidies, prompting worries of a sharp slowdown in oil demand.
Despite fall in demand, instability in Nigeria and simmering tensions between Israel and Iran over Tehran's nuclear programme would continue to offer support to oil prices. Prices are expected to trade in the range of $135 to $150 per barrel. For this week, MCX July contract is expected to face resistance at Rs. 6350 and support is seen at Rs. 5450 per barrel on the lower side.
Base metals
Base metals complex is pretty firm across the board, and it is a combination of the weaker dollar, a leap in the oil price and technicals. For base metals like Copper, Aluminum and Tin we maintain a bullish view on the back of supply-related constraints. However, short-term price correction cannot be ignored as metals are susceptible to various kinds of influential factors. Metals like Zinc, Nickel and Lead look weak and there is currently no strength from the fundamental ground which could act as a support factor. Hence, we are bearish on these three metals unless there is news on some sudden supply crunch in any of these three metals. In the case of Aluminum, inventories are highest since late-May 2004, indicating an over supply in the market in times of rising energy costs. The market's downside, however, is seen restricted by the current high oil price, which will impact on the production of the energy-sensitive metal by raising the break-even level for producers. Aluminum prices are expected to trade in the range of Rs 130-138 in this week.
Rubber
Spot rubber made a smart come back on the weekend taking cues from the Tocom where rubber futures prices recorded a 28 year high. The domestic supply concerns also fuelled the sentiments during the week.
RSS 4 moved up to Rs 130 a kg from Rs 128 a kg as covering groups remained extremely aggressive on the grade during the session. Major manufactures were active buyers on sheet rubber up to Rs 128 a kg but they couldn’t procure sufficient quantities as it was traded much above their preferred levels.
Market analysts said that exporters were also active in almost all grades chasing the sparse arrivals. ”We expect the market to break the previous life time high as fundamentals strongly support a firm trend ahead”, a trader said. Higher crude oil prices will support spot rubber and rubber futures in the short term.
Sugar
With demand matching supply sugar spot prices observed a steady trend this week in India. Most of the traders are looking forward to the July-to-September quota. For the September quarter, traders expect the government to allow sales of more than 4.4 MMt of sugar as government tries to control rising inflation, which touched a 13-year high at 11.42%. Monsoon rains led to lower demand from bulk consumers such as ice-cream and beverages makers, millers were in a hurry to sell off their inventory.
The government has decided to sell the buffer stock of 2 MMt during the May-September 2008 period. But, the prices may go up on hopes of better export prospects following the estimation of higher export of 4.2 MMt in the crop year to September due to rising international sugar prices and rising demand for ethanol.
Traders expect expect a surge in demand during the festival months of October and November In addition, lower acreage of sugarcane lent some support to sugar prices. Technical analysis reveals that bearish trend may continue in the beginning of next week. Sugar futures are likely to remain range -bound with weak bias after a firm opening.

Source: Commodity Online