Commodity Trends: Agri-futures awaiting revival

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

31 Aug 2008

The most significant event in the derivatives markets was the launch of currency derivatives by the National Stock Exchange on Friday. Inflation marginally eased to 12.40 percent for the week ended August 16 as against 12.63 percent the previous week. According to the Ministry of Agriculture, the area under rice has increased to 344.8 lakh hectares (lh) as on August 28 from 329.5 lh the corresponding period a year ago. The rise in acreage could see a record rice production but whether it will touch the magical figure of 100 million tonnes has to be seen. This along with governmental measures to curb inflation could have a dampening effect on inflation which could be brought down to single digit levels by November.
However, with South West Monsoon losing momentum towards its final stage, concerns about its impact on certain crops is worrying for the sustained growth of the economy. The fact that India Government has not yet given a firm indication on resuming futures trading till September in four suspended commodities continues to affect sentiments in NMCE and NCDEX which are more dependent on agri-futres.
Gold
In the last week Gold futures closed at their highest level in almost two weeks, lifted by strength in oil prices and strong physical demand ahead of festive season in Asia. Strong physical demand helped yellow metal prices to stay above $830 per ounce. Gold prices are showing strength amidst strong physical demand and strength in oil prices. Gold prices will remain susceptible to the movement in dollar.
If US economic data shows better than expected, then dollar may strengthen against major currencies, and cap the upside in precious metals. In the near term, we expect Gold prices to trade in the range of $805 and $850 per ounce. Long term outlook for precious metals looks bullish, as rising geopolitical tension, increasing physical demand and concerns over rising inflation can support bullion prices.
Platinum prices have fallen steeply and prices may rise on account of short covering. We do not expect Platinum prices to sustain at higher levels amid lack of demand from Auto Sector. On the International front, if Spot Gold prices closed above $850 mark, then prices will be heading towards $880 per ounce. Gold prices can have short term support at $800, closing below that can take yellow metal up to $770 per ounce.
Crude Oil
Crude Oil prices had a nice rally in the last week; on fear of supply disruption caused by tropical storm Gustav in the Gulf of Mexico. Oil prices bounced back from the weekly low of $112.36 to touch high of $120.50 per barrel on Thursday. Energy companies operating in the Gulf began shutting production and evacuating personnel ahead of the storm, the biggest threat to the region's oil infrastructure since hurricanes Katrina and Rita in 2005. Gustav is expected to strengthen into a hurricane, as it comes near to the Gulf of Mexico, producing 25% of U.S. crude oil production and 15 percent of its natural gas output.
Crude Oil prices are expected to remain volatile in coming weeks, as there is a lot of uncertainty about the impact of tropical storm over oil production. US hurricane season is at its peak during September and October. Active hurricane season can support oil prices. Adding to this, rising geopolitical tensions between US and Russia can also support oil prices. Adding to this, if OPEC member does cut down production during their September 9th meet, then we can see substantial rise in oil prices. NYMEX Oil futures are expected to have support at $110 per barrel and can face resistance at $125/132 per barrel.
Base Metal
Base metals over the current week have traded range-bound except lead. Prices are currently reacting to the currency and the oil market. It has been seen that a rise in crude oil prices pushed the base metals higher as it boosts sentiments overall. Whereas, a decline in oil prices pulls the metals lower. This is because rising crude oil prices depress the dollar movement and hence make base metals look attractive, while falling crude oil prices boost the dollar and make base metals look expensive for holders of other currencies.
Lead prices could trade higher in the coming months as strong imports of lead into China are expected to continue in the fourth quarter on the back of growing demand for lead-acid batteries. Depressed exports of the metal will provide support to the metal at higher levels. Copper prices are trading higher on expectations of increased buying from China post the Olympics as industrial activity is expected to re-start. This factor is providing major support to copper in times of rising inventories and overall slowdown in demand. Also, copper prices appear to be strongly supported around $7000 - $7100 levels.
Sugar
Sugar market witnessed a mixed trend while prices are likely to improve due to festival demand following the Ganesh Chathurthi celebrations beginning from September 3. Prices improved in Maharashtra on higher demand due to Ganesh Chaturthi while the prices were down in U.P. on lower demand and steady prices seen in Delhi on stable demand supply. Expectation of higher demand during upcoming festivals and after a trade official forecast production may drop sharply next crop year in a key growing region underpinned the market sentiment.
News of additional stocks being released by the government in the local markets restricted the upward movement. Meanwhile, the government, initially allowed millers to sell 9 lakh tonnes in September but later released an additional 3 lakh tonnes for the month. Besides, the Finance Minister said that the subvention given for sugar exports must now come to an end. Therefore the demand from the exporters is likely to remain soft in near future, traders said. With festival demand, sugar prices could move up in the beginning of the week with later downward movement.
Palm Oil
Edible oils such as palmolein and crude palm oil suffered a setback and lost up to Rs 300 per quintal in the national capital during the week under review on selling by stockists influenced by weakening trend in Malaysian futures. Market sentiment turned bearish on reports of palm oil falling in Malaysia, as investors remained concerned about demand for the commodity amid a global economic slowdown. Meanwhile, India's edible oil imports are likely to rise by eight per cent in 2008-09 in volume, with palm oil becoming a preferred choice of importers, said a US report.
The report by the United States Department of Agriculture (USDA) revised upwards its estimates of edible oil imports by India to 5.4 million tons in 2008-09 from the previous forecast of 5 million tons Palm oil traded mostly steady to weak except slight firmness in Mumbai market.
Firmness in BMD CPO futures had spill over impact on the domestic market. Anticipation of bullish Malaysian palm oil exports and the widening spread between soy oil and palm oil lent support. Currently the spread is above $400/ton. According to industry sources, the output of kharif oilseeds in 2008 –09 could be around last year’s level of 18 million metric tons. Prices are likely to notice slight recovery during the weekend.

Source: Commodity Online