Commodity Trends:Fuel price hike to stoke inflation

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India's inflation is set to zoom with the announcement by the Manmohan Singh government on the freeing up of petrol and diesel prices. The announcement has raised hopes of a further decontrol of the oil sector over the next few years, which could help balance public finances and let private companies challenge state-run firms' decades-old retailing monopoly.

Prices of cooking gas and kerosene, the biggest component of subsidies, were raised lower than recommended by a panel of experts, to avoid burdening poor people and ward off opposition within the coalition.

Meanwhile, India's annual monsoon rains, key to farm output and economic growth, are expected to be better than previously forecast, raising prospects of good harvests and possibly helping cool double-digit food inflation. Monsoon rains, which deliver 75-90 percent of India's rainfall, are expected to be at 102 percent of the long-period average for the June-September season, the weather office and government officials said on Friday.

POINTERS
Mangalore key port for coffee exports
Mangalore has emerged the key port for export of coffee. If reports from exporters turn out to be true, it has become the leading port for the commodity's exports this fiscal. With Maersk stopping its direct line service to Chennai from the US east coast, the Karnataka port has turned out to be the favourite of the exporter. "C/offee is exported in green and soluble or instant forms. Chennai is the port for export of instant," said Mr Milan Shah, an exporter based in Bangalore.

FMC may allow sugar futures by October
The commodity market regulator, the Forward Markets Commission ( FMC ) plans to allow sugar futures trading by October. The trading in the commodity is banned till September 31 due to a rapid rise in the commodity's prices in the recent past.
"Earlier, we had planned to wait till September to have a better view about crop prospects. However, as the crop acreage is higher this year with a better production estimate, we will not extend the ban beyond September 31," B C Khatua, chairman, FMC, said on the sidelines of a consumer awareness programme organised by the National Multi Commodity Exchange here.(

Europe crisis hits India coffee exports
The impact of Europe's economic crisis on India's coffee exports has started to show, in the form of weak demand for the robusta parchment variety. Major exporters have expressed concern that despite the spurt in robusta and arabica prices on the London and New York coffee exchanges over the last month, sales have not picked up to the anticipated level.

India produces 15,000-20,000 tonnes of robusta parchment, all of which is exported. While the latest crop was expected to be above 25,000 tonnes, growers said there were feeble inquiries for the same. The debt-hit countries -
Greece, Italy, Spain and Portugal - account for 34 per cent of India's coffee exports.

MCX gets approval for IPO
India's largest commodity bourse, Multi Commodity Exchange ( MCX ), has got unconditional approval from regulator Forward Market Commission ( FMC ) to launch an initial public offer ( IPO ).

On April 22, FMC had granted a no-objection certificate ( NOC ) to MCX for its proposed IPO, subject to the condition that the exchange sells a 10 per cent stake to public sector firms and agri-co-operatives.However, the exchange could not find any buyers for its offer last month and hence approached the FMC for exemption of this condition.

NSEL to launch 15 commoidities under E-Series
National Spot Exchange Ltd. ( NSEL ) has announced its plan to launch 15 commodities under E-Series for developing a full-fledged "cash" or "investment" segment in commodities. This is happening for the first time in the history of the commodity market in India, according to an NSEL release.

Commodity exchanges are generally known for providing a hedge instrument for protection against price risks. But they do not provide an instrument for investment where retail investors can park their funds with a view to enjoying price appreciation. In order to cater to this need, the market has to develop and launch investment products in commodities. This will give birth to a niche segment of commodity market investors, who wish to diversify their portfolio by parking part of their surplus funds in commodities, the release said

BSE Sensex steady
The benchmark index of the Bombay Stock Exchange ( BSE ), the Sensex, closed barely changed for the week, but dropped 0.9% on Friday, in tandem with world markets on worries of global economic recovery and expectations of tighter financial regulation ahead of a summit of the Group of 20 nations in Toronto.

However, losses were capped as investors cheered a new gas supply agreement between the recently reconciled Ambani brothers and as the government approved market-determined petrol prices. The 30-share BSE Index declined for the second session as it closed down 0.88% or 155.71 points, to finish at 17,574.53.

Bullion
Spot Gold prices declined in the first half of the week but wiped out major losses towards the end of the week as risk aversion in the financial markets increased demand for the yellow metal. Spot gold prices touched a record high of $1265/oz in the previous week. China's indication to end its currency peg against the dollar led to risk appetite in the financial markets in the initial part of the week. But the positive sentiments faded away on concerns over the European crisis. Credit ratings agency, Standard and Poor's, slashed its economic growth forecast for Spain to the average of 0.7 percent a year through 2016 in the last week. The Federal Reserve left interest rates unchanged below 0.25% last week.

The FOMC committee said that the financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Economic data from the US since the last week has been very poor indicating signs of a fragile recovery. Gold prices have gained around 14% on a year-to-date basis. Even the major central banks of the world are adding gold to their reserves to stay insulated in times of financial uncertainty. The Central Bank of Russia bought another 26.6 tonnes of gold over the past quarter, the World Gold Council reported. The official gold holdings of the central bank now accounts to 668.6 tonnes or 5.5% of its total reserves.

The Philippines central bank bought 9.5 tonnes of gold, taking its gold holdings to 164.7 tonnes or 13.7% of total reserves. For the coming week, Gold prices will continue to gain in the medium term as the Euro-zone concerns still persist. Fears over the sovereign debt crisis in the Euro-zone will continue to haunt the investor sentiments. Moreover, economic data released from the US is indicating signs of a fragile recovery in the world's largest economy. This will help the gold prices to gain as the yellow metal is treated as a traditional safe-haven investment in times of financial uncertainty. For the coming week, Spot gold has a strong support at $1222/$1205 levels and resistance at $1270/$1290 levels. MCX August Gold has a strong support at Rs.18500/Rs.18440 levels and resistance at Rs.19200/Rs.19300 levels.

Base Metals
Base metal prices gained on the LME in the later part of the week on the back of the weakness in the US dollar index ( DX ). The weakness in the DX made the metal prices more attractive for holders of other currencies. Copper prices gained more than 2.5% on the LME last week. Weakness in the DX coupled with positive data from Japan helped the red metal prices to gain. Japan's output of rolled copper product increased by 50.4 percent to 72,627 tonnes from a year earlier. Another factor that supported copper prices was the declining inventories at the LME warehouse. Inventories reached 454,250 tonnes, the lowest level in this year. We expect the DX to strengthen as risk aversion in the global financial markets will lead to higher demand. The G20 summit which begins on Saturday is a close watch as the financial ministers of the major economies would discuss on economic and financial reforms. Metal prices may wipe out gains and come under pressure taking cues from the movement in the DX. MCX June Copper shall find a strong support at 295/290 levels and resistance at 313/318 levels for the coming week.

Energy
Crude oil prices came under pressure last week after the US energy department reported that crude stockpiles rose 2.02 million barrels to 365.1 million in the week ended June 18. Concern over rising inventories in the US is denting the outlook for crude oil. Moreover, the International Energy Agency ( IEA ) said in its report that growth in world oil demand will slow in the next five years as the pace of Chinese consumption moderates. Consumption will climb 1 percent to 91.93 million barrels a day in 2015, down from 1.5 percent growth in 2010. The National Hurricane center said on Thursday that Hurricane Celia strengthened to a Category 5 storm but it did not pose a threat to land. Crude oil prices will trade with a negative bias taking cues from the movement in the DX. The stronger DX will keep the crude oil prices under check. But, any news from the hurricane front could provide support to the prices. MCX July Contract shall find a strong support at 3450/3400 levels and resistance at 3680/3730 levels for the coming week. NYMEX August Crude has support around $73/$70 levels whereas resistance is seen around $80.50/$84.20 levels.
Soybean
Last week, NCDEX July Soybean prices opened the week at Rs 1907/quintal and touched a high of Rs 1916/quintal on first day of the week aftermath it fell slightly on account of weak fundamentals of oilseeds (domestic as well as global). But found good support at Rs 1892/quintal and finally closed at Rs 1908/quintal with a gains of Rs 4/quintal as compared to previous week's close of Rs 1988/quintal. Prices moved in a narrow range of Rs 1892-1916 per quintal in the last week on lack of fresh fundamentals. Higher carry-over soybean stocks this year as compared to last year and progress of monsoon. In the coming weeks, higher global soybean production estimate this year as compared to last year and poor export demand of domestic soy-meal may drag price down. The Solvent Extractors' Association of India has compiled data of oil meals export for the first two months of financial year i.e. April and May 2010, it is reduced to 3.78 lakh tonnes as compared to 4.17 lakh tonnes in April 2009 i.e. down by 9%. It is only due to lower crushing and disparity. NCDEX July contract shall find a strong support at 1870/1850 levels and resistance at 1925/1960 levels for the coming week.

Pepper
Black pepper prices surged in the last week on account of thin arrivals i.e. 30-40 metric tonnes. There are reports that the Indonesian crop is expected to be lower this year as compared to last year. Demand from the local stockists is present in good quantity in anticipation of higher prices in near term. Prices at the spot market surged by 4.53 percent and touched a high of Rs. 17, 144/qtl. In the coming week, prices are expected to be firm. NCDEX July contract shall find a strong support at 16750/16300 levels and resistance at 17800/18100 levels for the coming week.

Rubber
Physical rubber prices have zoomed to Rs 177 per kg for RSS 4 grade thereby recording an all-time high supported by bullish cues from global markets. Natural rubber prices gain last week on fears that heavy rains will lhurt output in Thailand, the largest producer of rubber.

A monsoon is dumping heavy rains on many parts of Thailand, the world's largest NR producer, and rains are not expected to dissipate soon. NR for November delivery increased by 4.3 yen to 285.2 yen/kilogram ($3,184/metric ton) before settling at 284.7 yen on the Tokyo Commodity Exchange.

India's spot rubber prices zoomed from Rs 170 per kg levels to Rs 177 even as supplies were limited at higher prices.NMCE July contract zoomed from Rs 168.48 to Rs 177.85 while August contract rose from Rs 163.50 to Rs 170.50. TOCOM June futures contract expired higher indicating growth in global demand,

Analysts said that China, the world's biggest importer of natural rubber, is expected to increase its imports of NR to 1.68 million tons this year, up from 1.59 million in 2009. Inventory levels there are said to be "worse than expected," Bloomberg reported. As a result, analysts expect rubber prices to potentially increase 26% next year.

In the near term, NMCE July has support at Rs 170 and August has support at Rs 168, the undertone will continue to be bullish with profit taking likely to weaken prices.

Chana
After exhibiting weakness for some time, chana prices have gained last week thanks to rising spot market demand and squeezed supplies. Production of chana in 2009-10 is estimated to be 7.38 mn tonnes as against 7.05 mn tonnes last year. Monsoon months favour chana as vegetable supplies are affected due to rains raising the demand for pulses such as chana and its cheaper substitute yellow peas. Chana has a major bearish factor in higher output hopes although demand in spot markets from dal millers is gaining momenturm. The July Contract at NCDEX rose from rs 2165 to Rs 2220 while August contract rose from Rs 2207 to Rs 2280 suggesting near term demand for chana is good and spot market demand is supportive of futures. (With analytical inputs from Angel Commodities, Mumbai)



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


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