Commodity Trends: No takers for India wheat

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

31 Jan 2010

Indian wheat products are finding no takers in the global market because of the high domestic prices, which has even prompted the Prime Minister to call a meeting of the state chief ministers to discuss ways to bring down prices. Food inflation reared up again, with the annual wholesale price index-based inflation in primary food products inching up to 17.40 per cent for the week ended January 16 against the previous week's annual rise of 16.81 per cent. Inflation in items such as potatoes rose as much as 58 per cent over the last year, followed by pulses, which jumped 47 per cent.
With sugar prices refusing to temper significantly in the last fortnight, Prime Minister Manmohan Singh on Wednesday endorsed the proposal to sell imported raw sugar stocks lying at the Mundra (JNPT) and the Kandla ports to boost domestic supply and temper prices.
Commodity exchanges started the year 2010 on a good note with total turnover surging by 55.24% to Rs 3,64,893 crore in the first fortnight of January. The exchanges had registered a total turnover of Rs 2,35,048 crore in the year-ago period. MCX clocked the highest turnover of Rs 2,86,953 crore (till January 15) among 23 commodity exchanges.
China’s $300 billion sovereign wealth fund is considering new investments in resource-related companies after bets on commodities producers from the U.S. to Kazakhstan paid off in 2009. China Investment Corp. increased spending on energy and minerals assets last year to profit as the global economy recovers. The Beijing-based fund avoided the worst of the credit crunch in its first full year in 2008 and may have had a return of more than 10 percent in 2009, said London-based Jan Randolph, director of sovereign risk, analysis and forecasting at IHS Global Insight.
Reserve Bank of India has hiked the cash reserve ratio by 0.75 basis points to 5.75 percent which will suck out Rs 36,000 cr of excess liquidity in the banking system but is not likely to adversely affect equities or commodities markets in the near term as lending rates will remain stable for the six months as there could be an upward movement in the sub-benchmark prime lending rates at which corporates borrow.
Gold
Gold prices moved southwards in the last week and hits an 11-week low of $1073.30/oz as the dollar’s strength continued to weigh on the bullion pack, but later managed to recover some lost ground after the dollar retreated when US President Obama softened his tone on bank restrictions in his State of the Union speech, lifting appetite for risk. Global markets still continue to be concerned about the economic recovery, thereby reducing risk appetite of investors and lead to selling pressure in higher-yielding and riskier investment assets. Spot gold prices moved in a range of $1104.50 to $1073.30 /oz during the last week. On the currency front, the Dollar Index hit a recent high of 79.07 as investors continue to flock to the low-yielding dollar as risk aversion set the tone in the financial markets.
Currencies are clearly guiding the immediate direction of the precious metals, especially after fresh trouble brewing in Portugal, Italy, Greece, and Spain, which threatens to undermine the health of the common currency. In the coming week, Gold prices could trade with a negative bias as strength in the dollar could weigh on prices. Though demand for gold as a traditional safe-haven asset may re-emerge, sharp gains in the commodity could be capped on account of a stronger dollar. Spot gold have a strong support at 1065/1054 levels and Resistance at 1120/1135 levels. MCX Feb Gold shall find a strong support at 16100/16000 levels and resistance at 16500/16700 levels for the coming week.
Base Metals
The dollar rally, tightening of China’s monetary policy to curb lending and demand concerns led to weakness in base metals complex with copper falling close to 9% this week. The greenback rose to a five-month high against a basket of major currencies after a report showed the U.S. economy expanded at the fastest pace in six years. Inventories of copper at major global exchanges are at their highest levels since 2004. On Friday, copper at New York Mercantile Exchange copper prices slid 4.55 cents to $3.0525 a pound, the biggest monthly decline since December 2008. On Friday, copper for three month delivery at London Metal Exchange fell $144 per metric tonne to $6745.50, a big fall from $7381 levels that prevailed at the beginning of the week. Aluminum, tin, zinc and lead prices also fell in London. Nickel rose.
Copper was weighed down by global economic recovery concerns and China’s monetary policies that curb credit growth. China accounts for 27% of the global consumption while US is the seonc major consumer. With USA reporting a better than expected fourth quarter GDP growth of 5.7% as against 4.7% forecasted, base metals did turn bullish but was pulled down by China credit curb that may limit imports. Shanghai Copper inventories rose 4% to 101210 tonnes. However, support for the commodity comes from India, the third largest producer with consumption predicted to rise 7% on investments in infrastructure, power m automobiles and construction. Copper is set for medium term weakness with New York prices likely to fall below $ 3 per pound.
Energy
Crude Oil turned bearish last week on strong dollar, weak demand and falling equity markets. Nymex crude for March delivery fell to $72.89 from close to $75 levels in the beginning of the week, the lowest level attained since December 21 when prices fell to $71.99. Oil consumption in developed countries are set to fall due to increased fuel efficiency and and use of alternative fuel, International Energy Agency Chief economist was quoted in news reports as saying. Oil is likely to fall next week due to increased US supplies, lack of fuel demand compared to previous years and US crude oil and gasoline line inventory which is 4% above that of last year. Support is seen at $69 while resistance is seen at $75 and most likely the commodity is likely trade in a narrow range with fundamentals not supportive of a rally.

Source: Commodity Online