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Commodity Trends: Soymeal export slump worrying (25-01-2010)
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Soymeal exports have fallen by 50% in the first nine months of the fiscal putting severe downward pressure on soybean futures at NCDEX. Solvent extracting units face a tough period ahead with soyameal exports dropping over 50 per cent in the first nine months of this fiscal. According to the Solvent Extractors Association of India, 14.90 lakh tonnes (lt) of soyameal were exported in April-December against 30.56 lt during the same period, a year ago. Likewise, pepper, chana futures are also witnessing a bearish trend following weak demand and ample supplies.
Annual food inflation based on the Wholesale Price Index (WPI) eased marginally to 16.81 per cent for the week ended January 9, even as price rise in items such as potato and pulses continued to remain high. Food inflation for the previous reported week was recorded at 17.28 per cent on a year-on-year basis.
The Indian rupee hit its lowest level in more than two weeks on Friday morning, tracking a sharp drop in the domestic stock market, but some dollar selling emerged from exporters helping prevent a further decline.
India’s core infrastructure industries grew by 6 per cent in December 2009 against a meagre 0.7 per cent growth a year ago reflecting recovery in the industrial production.
Six key sectors -- crude, petroleum refinery products, coal, electricity, cement, finished steel -- showed a growth of 4.8 per cent in April-December 2009 against 3.2 per cent in the corresponding period last year. These sectors have a weight of 26.68 per cent in the country's total industrial output. Finished steel and crude oil turned the table, expanding by 9.6 per cent and 1.1 per cent respectively in December, against contraction of 8 per cent and 0.3 per cent last year.
Gold
Gold prices came under pressure in the last week as strength in the dollar pushed prices lower. The yellow metal slipped below the $1100/oz mark as selling pressure reeled in. The dollar is gaining strength as risk aversion in the financial markets coupled with poor investor sentiment has led to higher demand for the low-yielding dollar. Overall commodity prices also declined on concern that China will raise interest rates and banking curbs proposed by US President Barack Obama may dent the US economic recovery. If worries over the global economic strength continue to linger then the dollar could strengthen further and add downside pressure on dollar-denominated commodities.
Markets still remain concerned that the economic recovery may have been backed by the stimulus support measures by global policymakers and the impact may not be visible in the immediate future. These concerns in the financial markets may reduce risk appetite of investors and lead to selling pressure in higher-yielding and riskier investment assets. 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. MCX Feb Gold shall find a strong support at 16200/16000 levels and resistance at 16850/17200 levels for the coming week.
Base Metals
Base metal prices ended the last week in the negative territory as concerns over the strength of the global economic recovery coupled with monetary policy tightening in China put pressure on prices. Economic data from China indicated that the country’s GDP growth for the year 2009 was higher than expectations, reaching 8.7%. China’s fourth-quarter GDP for 2009 increased 10.7% and the country’s industrial output grew 11% for 2009. Though this data is positive, base metal prices may feel pressure on the downside as this sharp growth in GDP could demand further stringent monetary policy tightening by the Chinese government. This could be a bearish factor for base metals as China is the driver for base metals demand and curb in credit could affect demand for the commodities.
Nickel was the only exception as prices gained 0.6% in the last week on expected supply-related concerns. Currently, there are labour problems at Xstrata’s Sudbury operations and workers could strike by the end of this month. Concerns that a strike at Xstrata’s Nickel mine would further deplete the world’s nickel supply acted as a bullish factor for prices in the last week. But sharp gains in the commodity were capped on the back of strength in the dollar. In the coming week, Base metal prices could come under pressure if the dollar remains strong. Though Chinese data has come on the positive side concerns over lower lending in the world’s biggest base metal consumer may lead to downside pressure. MCX Feb Copper shall find a strong support at 330/322 levels and resistance at 346/354 levels for the coming week.
Crude Oil
Crude oil prices have slumped by 7% since it hit a one-year high of $83 on January 11 and looked set to go higher on winter chill intensifying in Europe, US and Asia. However, this week, crude oil fell to one month low on Friday as US President Barack Obama’s proposed restrictions on risk taking at financial institutions hurt commodity market and financial market sentiments. Both equities and commodities fell as a result.
U.S. crude fell $1.54 to settle at $74.54 a barrel, the lowest settlement since December 22, breaking below the 100-day moving average of $75.20.ICE Brent crude fell $1.75 to settle at $72.83.
Tighter monetary policy in China and speculation of increase in interest rates also fuelled bearish sentiments. Goldman Sachs had forecasted a demand growth of 625,000 barrels a day for China in 2010 but have expressed doubts following the tighter monetary policy in China. Crude oil is set to fall on fallind demand in USA and refineries ideling units. Last week, Energy Information Administration reported that US oil supplies have dropped to less than 500,000 barrels but gasoline stock piles have risen by 3.9 mn barrels.Meanwhile analysts have predicted crude oil to plunge toward $70 a barrel after failing to break resistance around $84 last week.
The global economic crisis is largely over and a modest recovery is under way but it could lose steam later this year as governments pull back some of the extraordinary liquidity they pumped into markets, according to World Bank. US crude prices may trade in a narrow range $72-78 with support at $71, resistance at $79.
Source: Commodity Online
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