Commodity Trends: Markets fall as China cools

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Commodity Online
Global commodity prices have begun to soften as China's economic juggernaut slows. The prices of steel, zinc and aluminium have fallen in the past three months. China's manufacturing sector growth rate has dropped to February 2009 levels, when global markets had just bottomed out after the Lehman impact. While absolute price levels still remain above the year-ago levels, the softening of commodity prices is expected to impact Indian companies in coming quarters.

FMC to join band of independent regulators
Will get powers to levy fines and penalties and allow options trading in commodities. The commodities futures market is poised to get an independent regulator. The government has decided to designate the Forward Markets Commission ( FMC ) as the regulator for this market, according to a top government official. This market is now bigger than its equities counterpart.

At present, FMC is part of the consumer affairs department, which will soon approach the Union Cabinet for approval to introduce a Bill to amend the Forward Contracts Regulation Act ( FCRA ) in a way that gives statutory backing to FMC.


Raw-Sugar futures slump
Raw-sugar futures declined, capping the biggest weekly drop since late May, on concern that India, the world's second-biggest producer, may boost exports as rain aids its cane crop.

India may be able to export about 1 million metric tons in the year starting in October, Macquarie Group Ltd. said in a report. India's monsoon, the main source of irrigation for the nation's 235 million farmers, was 16 percent above average last week, the meteorological department said yesterday.

Petroleum Ministry to support divestment in ONGC, IOC
The petroleum ministry will support disinvestment in two state-owned oil majors ONGC and Indian Oil Corporation only after there is clarity on the subsidy sharing formula even as the ministry is examining a proposal by the disinvestment department.

"IOC is bleeding due to the heavy subsidy burden and ONGC is also not sure about its contribution as upstream discount," an oil ministry official said, adding that the ministry is not in favour of disinvestment at this stage

FM gives more leeway to states on GST 
The Centre will rework the draft constitutional amendment as it bends backwards to accommodate states' concerns to ensure a timely rollout of the country's most ambitious indirect tax reform, goods and service tax ( GST ), from the next financial year.

Cutting across party lines, states have objected to the constitutional amendments suggested by the Centre to facilitate GST, which will replace a plethora of indirect taxes, saying that they impinged on their fiscal autonomy

India to invest in model farm in Zambia
Indian commercial farmers plan to invest in a new model farm in Zambia, according to the government, which seeks to diversify the economy by promoting agriculture as an alternative to copper and cobalt mining.

Zambia's ministry of foreign affairs said on Thursday that Indian farmers were interested in investing in the 155,000-hectare Nansanga model farm bloc, where the government had built roads and dams to attract investors to grow export crops.

"Indian commercial farmers, mostly specialising in sugar production, are expected in Zambia in December 2010 to explore prospects of investing in Nansanga farm bloc," the ministry of foreign affairs said in a statement.

Gold
For some time gold was hovering below $1200 per ounce as its safe haven demand seemed to weaken but towards weekend gold rebounded thanks to US data showed pay rolls fell for a 2nd straight month which eventually led dollar lower.

Spot gold rose to $1210.85 as against Thursday's close of 1193 while US Gold for December delivery rose close to $10 at $1209.20 levels. The US dollar approached 15 year low against Euro and stocks fell sharply. Traditionally gold and dollar share an inverse relationship with weakness in gold lifting gold appeal and making dollar priced commodities cheaper for holders of other currencies.

Other factors that support gold demand include China's decision to open up its gold trade and gains in physical demand for gold in India. Stronger rupee cushioned local buyers from the impact of the rising dollar prices. Festival season demand has begun in August ahead of Raksha Bandhan which will continue into Dhanteras in November.

MCX October Gold fell sharply by Rs 408 to end at Rs 17,937 with support levels at 17850, 17550

Base Metals
US copper hit a three-month high of $3.4105 on positive market sentiments bolstered ahead of US unemployment data but fell back towards weekend to $3.3430 per pound on lesser than expected US unemployment data raising concerns of economic recovery.

Copper losses were offset to an extent by market perception of stronger near term demand
prospects.

Copper inventories at Shanghai Futures Exchange rose 2% to 106,368 tonnes this week. Chile's Codelco expects China copper demand to grow 8% this year from last year. Comex Copper inventories fall to 99,970 short ones. LME Copper down by $30 at $7370. India's MCX Aug Crude contract rose to 3-month high of 344.90 last week but weakened to Rs 338. The contract gained Rs 6.75 for the week with support at 332 levels.

Crude Oil
Crude oil prices weakened after a rally last week on weaker than forecast growth in US company payrolls and raising concerns of slowing of US economy-biggest consumer of energy. US Crude Oil for Sept delivery fell to $80.70. An August 4 report showed that US fuel supplies increased last week as demand dropped. US fuel consumption dropped 2.5% to 19.3 mn barrels a day. Brent Crude for September delivery at ICE Europe Futures fell to $80.16.

Meanwhile, cooling down of the Chinese economy is sure to impact oil demand with demand for oil products falling to 4% from 14% in the first half of 2010. Crude oil doesn't have any favourable factors to stage another upside rally although rising equities and weaker dollar helped in recent times. OPEC is expected to reduce oil shipments while Euro-dollar movements will have its impact on prices next week.

Support levels for US crude at $78, $80; MCX August crude is down Rs 66 at Rs 3654 Rubber
Rubber prices continue to be bullish on weather concerns in major producing nations of Thailand and Indonesia hampering supplies and emerging market demand from automobile sector pushing up prices. TOCOM January contract gained 3.5% on the week on bullish sentiments.

India's spot rubber prices rose to Rs 189 from Rs 184 for RSS 4 grade while NMCE August contract rose from 186.40 to Rs 190.50 while September contract rose from 173.12 to Rs 176.95.

Production of natural rubber in India increased close to 15 per cent to 57,500 tonnes in July against 50,250 tonnes in the same period a year ago. Although on a year-on-year basis, consumption has remained more or less stable, it was 35 per cent more than production in July. Consumption for the month was 77,500 tonnes.

The production-consumption difference continued to be wide due to the lower tapping on account of the rains and decreased arrivals.

Imports fell by half to 14,906 tonnes (29,702 tonnes) in July mainly on account of the high international prices. While the gap between domestic and international prices widened to Rs 30, the high customs duty was the principal reason why imports have plunged.

NMCE August has support at Rs 182 levels while September has support at Rs 170 levels, bullish trend to continue.

Pepper
Pepper futures and spot markets were hit by lacklustre overseas demand and profit booking at higher levels. Indian parity continued to rule high thereby weakening its demand in global markets.

Vietnam production has fallen by 5% in 2010 while India's pepper exports fell by 5% to 4650 tonnes from April-June 2010. At Kochi spot prices rose to 19900 levels only to fall back to Rs 19576 levels.

NCDEX August Futures fell sharply from Rs 19537 to Rs 19127 while September contract fell from Rs 19751 to Rs 19335.

Bargain buying and festival demand may prop up pepper with squeeze in supplies providing additional support. NCDEX Aug has support at Rs 19000, while September contract has support at Rs 19400.

Chana
Chana market has weakened on good rains in kharif pulses growing regions and higher sowing which offset lower level buying of the commodity. As on August 5th, area under kharif pulses stood at 8,84 mn hectares, compared to 7.654 mn hectares a year ago.

NCDEX August futures fell from Rs 2302 to Rs 2261 while September contract fell from 2346 to Rs 2308 last week.

Chana may make gains on lower level buying but underlying fundamentals continue to be bearish. NCDEX Aug has support at Rs 2300 while September has support at Rs 2250 with festival demand supportive.

Soybeans
India's oilseeds market received a boost from global cues and rise in soymeal exports in July which recovered after eight months of weakness. US soybean rose last week on increased demand from China which threatened to erode stockpiles in USA.

US sold 336,000 metric tonnes of soybeans to China for delivery after September, US Department of Agriculture said. Soybean for September delivery at CBOT rose to $10.335 a bushel.

India's soybean futures spurted to fresh contract highs on robust spot demand and gains in global crude palm oil prices. Festival demand is supportive of oilseeds while rains in Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan have dampened the bullish sentiments to an extent.

NCDEX Sept Soybean rose from Rs 2093.5 to Rs 2144 while Sept soyoil rose from Rs 496 to Rs 507.15 while NCDEX RM seed traded steady at Rs 563 levels.

India is likely to have produced 6.41 mn tonnes of rapeseed oil in 2009-10 as against 7.2 mn tonnes a year ago

NCDEX Sept Soybean has support at Rs 2100 levels, Soyoil at Rs 500 levels.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Commodities

Referenced Stocks: FCRA , FMC , GST

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