Commodity Trends: High GDP growth raises hopes

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

30 Nov 2008

The Commodity Futures market could not work in full swing last week on account of Mumbai terrorists attack. It was closed for a day and even when markets resumed, trading was thin as many couldn’t reach their offices. Except perhaps, gold, cocoa and sugar most commodities including crude oil are badly affected by global recessionary trends. In the near term, crude oil prices may exhibit a weaking trend due to OPEC postponing its decision to cut production. India’s inflation has marginally fallen to 8.84 percent while the second quarter GDP data released by Central Statistical Organisation (CSO) showed that economy had grown by 7.6% even as agriculture, forestry and fishing sector continues to lag behind manufacturing and services sectors.
Precious Metals
Spot Gold continues to meet with stiff resistance around $830 levels. The Dollar Index (DI) is showing signs of weakness with resistance seen at 86.40 whereas support seen at 84.70. As a safe-haven asset, investors have chosen to retain their exposure to gold as a physical asset rather than maintain paper exposure which could provide a firmer base for gold to build price gains from, particularly if we see a continuation of the weaker dollar. Also, with central banks adding more liquidity to unfreeze credit markets could spur inflation and boost the appeal of the precious metal. Gold demand in China rose 18 percent in the third quarter of this year, the World Gold Council said Nov. 19 whereas demand increased 29 percent in India and 15 percent in the Middle East in the third quarter.
The earlier sharp move witnessed in gold prices last Friday i.e. 21st November, reinforces gold’s appeal as a safe haven for investors in such times of grave financial crisis. In currency market, the Euro continues to trade range-bound with crucial support seen at 1.2328 levels whereas immediate resistance is seen at 1.3079 levels. As stated in our earlier reports, the overall trend for the Euro remains bearish unless we see a close above 1.3079 (its intermediate – term trend).
The low of 1.2328 made on 28th October shall continue to act as strong support. In the coming week, we see crucial resistance for Spot Gold in a zone of $837/$858 whereas crucial support is seen at $790/$766 with the short-term uptrend remaining intact. MCX Feb Gold shall find strong resistance at 13345/13555 whereas support is 12840/12540 levels.
Crude Oil
Crude oil prices declined towards weekend on weaking oil demand growth and a the strengthening of the dollar. In US markets trading was thin on account of Thanksgiving holiday. Nymex January West Texas Intermediate lost $0.01 to $54.43 a barrel, while ICE January Brent dropped $0.36 to $53.49 a barrel which largely reflected the market hopes that OPEC may not cut production in view of falling crude prices.
The only strengthening factors for crude was the cut in interest rates in Chain, the largest oil consuming industry in the world which led Nymex Crude for January delivery to climb $2.67 or 5.3% to $53.44.
On Friday, OPEC Daily Basket price stood at 47.38 dollars as opposed to $45.47 the previous day. The Opec decided on Saturday to defer any decision to further cut its output in order to boost prices. OPEC postponed the decision to take stock of previous cuts and its impact.
An announcement regarding production cut may come on December 17 when the group meets again at Oran, Algeria. Crude prices have fallen from a high of $147 to less than $50 on global recessionary trends and weakening demand. Reduced speculative activity is evident in futures markets worldwide leading to outflow of investments from the oil derivatives. Near term prospects of crude oil strengthening appears weak.
Base metals
Base metal prices have declined sharply on the back of financial uncertainty across the globe. With underperformance in equity stocks, there are concerns over demand for raw materials from companies. Base metals are therefore taking cues from global equity markets as the demand factor is highly important. The US Dollar has also affected prices and continues to play a crucial role in determining base metal prices. Going forward, demand for base metals from China could pick up in 1HFY2009 and this could provide relief to base metals. However, this is not expected in the short-term and hence prices continue to remain under pressure. Since economic data suggests that the financial problem is grave, equities are continuously under pressure.
With that the performance of base metals gets affected. Copper prices are managing to sustain above their marginal cost of production of $3,100 but the metal could slide lower if volatility continues. Zinc prices could find support as production cutbacks are having an impact on prices. The metal could trade higher in the coming days.
Aluminum prices are facing the pressure of falling crude oil prices and rising inventories. If crude oil prices come down further then the metal could decline further. Overall, the trend in base metals remains down as global uncertainties have made markets volatile. However, short-covering on the back of some positive news could lead base metals higher. But this could be a temporary rise and every rally in this time could get attacked by a bout of selling pressure.
Crude Palm Oil
MCX December crude palm oil (CPO) futures moved slightly up during the past week. Farm minister, Mr. Sharad Pawar said that Govt. of India is unlikely to impose duty on crude palm oil as long as market prices of oilseed rule above the state set support price. Heavy rains occurring over several provinces in peninsular Malaysia may cause floods along rivers and low lying areas, the Malaysian Meteorological Department (MMD) said Wednesday. Heavy rains have been taking place at regular intervals over Kelantan, Terengganu, Pahang, Kedah and Perlis, and the MMD has issued an alert saying that they are likely to continue throughout the week.
Other provinces such as Sabah in eastern Malaysia and Johor are also experiencing heavy rains. Sabah, Johor and Pahang are major oil palm growing regions in Malaysia. Ongoing rains and possible localized floods are expected to slow Malaysia's palm oil production during the next several weeks. According to SGS (a cargo surveyor), palm oil export in first 25 days of November increased by 15% to 1.08 million tonnes as compared to same period in October. MCX December CPO prices are expected to move range bound in coming week with strong support 245/238 and resistance 280/290.

Source: Commodity Online