Oil, metal prices to trade lower this fortnight

Non-Agri Commodities  

The global equity markets traded mixed in the last fortnight with falling risk appetite in the earlier half due to news of Saudi Arabia and its Gulf allies launching airstrikes in Yemen against Houthi fighters who have tightened their grip on the southern city of Aden, which led to losses in Asian markets. Also, trading was soft ahead of a week's holiday on account of Easter. However, in the latter part, weak non-farm payrolls data from the US pushed back expectations of rate hike by the Federal Reserve and renewed the risk sentiments.

The rupee appreciated by 0.4 per cent as increased selling of the American currency by exporters coupled with a weakening dollar after the Fed dampened expectations for an early interest rate hike supported the currency. However, month-end dollar demand from importers along with cautious stance ahead of the end of financial year restricted sharp gains.

In the first half of the past fortnight, spot gold prices rose for most of the week on knee-jerk reaction to escalating tensions in the Middle East, which knocked stocks and drove investors into assets viewed as lower-risk, such as bullion and German bonds. Besides, Fed policymaker James Bullard said that a first rate hike "sometime in the summer" would still leave monetary policy extremely accommodative, and that market expectations should be better aligned with those of the Fed considering the current "boom time" for the US economy. In the second half, prices traded higher. They firmed in holiday-thinned trading, after data showing US employers added the fewest jobs in over a year in March fuelled speculation that a US interest rate hike may be delayed.  Overall, spot gold prices rose by 1.66 per cent.

International spot silver prices declined by around 0.12 per cent, while MCX silver lost its value by around 1.16 per cent. Weakening nickel prices, which lost its value by around eight per cent, also exerted downside pressure on prices.

LME copper prices fell by 0.8 per cent as data showed that Chinese manufacturing activity swung into contraction this month, underlining concerns over the health of the world's second-largest economy. However, sharp losses were cushioned as People's Bank of China Governor Zhou Xiaochuan said that China's government had to be "vigilant" against the risk of disinflation and suggested that policymakers had "room to act" to boost sluggish growth. Also, an unexpectedly strong rise in the US pending home sales during February overshadowed sluggish consumer spending and a significant decline in business activity in the Dallas Fed region supported gains. In addition, policymakers in China introduced measures to assist the country's slowing housing sector. The government announced steps to relax housing taxes and lending rules in an effort to support sliding house prices that have threatened economic growth. MCX copper prices plunged by 1.8 per cent owing to rupee appreciation.

WTI oil prices rose by 7.48 and while MCX oil prices rose by 3.02 per cent. There was speculation that a last-minute deal over Iran's nuclear programme would be reached that could allow more Iranian crude onto world markets. Talks between Iran and six world powers to settle a dispute around Tehran's nuclear programme extended beyond the deadline, as the parties edged towards a deal but failed to agree to crucial details such as the lifting of UN sanctions. Preliminary pact between Iran and global powers on Tehran's nuclear programme, even as officials set further talks in June while analysts questioned when the OPEC member will be allowed to export more crude.

Outlook

The non-farm payrolls data released last week showed dismal state of labour markets. However, the labour market additions in the past seven months have been good recording an average of 200,000 jobs per month. Hence, the latest data has to be factored out. This raises concerns over when the Fed will raise interest rates. We expect precious metals pack to trade lower in the coming fortnight.

In an already well supplied oil markets, ease of sanctions over Iran will release almost 30 million barrels of crude inventory from the nation. The major fundamentals still remain bearish for this commodity. Hence, we expect oil prices to trade lower in the coming fortnight.

We expect base metal prices to trade lower owing to estimates of weak inflation data from China. However, weakness in the DX coupled with expectations of broad-based stimulus measures from China to boost growth will prevent sharp fall in prices.
 

Agri Commodities
 
Chana: Chana prices moved up on likely lower production due to unfavourable weather. The April contract closed 1.7 per cent higher at Rs 3,675 per quintal. Unseasonal rain in March brought a heavy loss to crops of pulses. As per the Union Agriculture Ministry reports, around 11.2 lakh hectares of pulse crops were damaged till March 26. Moreover, harvesting may delay in chana growing areas due to unseasonal rains recently.

Meanwhile, the government has extended duty-free imports of pulses, including chana till September 2015. As per Second Advance Estimates for 2014/15, chana production estimated at 8.28 million tonnes compared to 9.53 million tonnes last year. During April to December 2014, India imported 309.71 thousand tonnes chickpeas, up by about 12  per cent compared to last year.

Lower production estimates might keep the prices higher, but duty-free imports and fresh arrivals may keep pressure on chana prices at futures trade.

Oilseeds, edible oils: We have seen a positive trend for oilseeds and edible oils on rise in local demand and on firm international cues. In the domestic market, soybean traded on positive note as the government is planning export incentives to help export of soybean meal. In the world market, soybean is under pressure from ample global supplies and Oil World forecasting a drop in world soybean production next season may not be will not be enough to support prices. However, RM seed prices were on the upside on production concern due to unseasonal rain during March and closed 2.6 per cent higher.

Refine soy oil prices were also on uptrend on good domestic demand. CPO futures price traded positive mainly due to good demand and low import. India's overseas purchases of crude palm oil dropped 27 per cent to 423,284 tonnes in February from a month ago. The export of Malaysia's palm oil products during March increased 21.4 per cent to 1.157 million tonnes compared with 953,053?tonnes during February. Overall, demand strengthened from the US, India, China and Pakistan, while demand fell from the European Union (EU).

Reports on lower soybean planting in the world along with the good demand for soy meal might sustain the prices. Mustard seed will trade on positive note on lower production estimates. However, ref soy oil and CPO are expected to trade mixed in the coming fortnight.

Cotton, sugar: Among softs, cotton futures traded on mixed to positive note as cotton closed higher on good demand as supply diminished, but the kapas prices closed down on profit booking during the fortnight. Cotton price may edge higher on expectation of good export demand on reports of lesser planting next year.

Cotton production this year (October 2014 to September 2015) is revised down to 390 lakh bales. The estimates are 10 lakh bales less than the earlier estimate of 400 lakh bales, according to according to Cotton Advisory Board (CAB). State-run Cotton Corporation of India (CCI) has offloaded 2.7 lakh bales of cotton in the open market through e-auction so far this year. Earlier, CCI had procured 8.6 million bales so far in the current marketing year, a tad short of the record level of 8.9 million bales hit six years ago in 2008/09.

Indian sugar futures have recovered this fortnight after hit their lowest levels in more than 5-1/2 years to Rs 2438 per quintal on good local demand at lower prices. The government has pegged the sugar output at 26.5 million tonnes in the 2014-15 marketing year as against 24.3 million tonnes in the previous year.

India produced 247.2 lakh tonnes (lt) of sugar till March-end, about 11.5 per cent more than at the same time last season.

The cotton and sugar might trade on mixed to positive note on good domestic demand. However, there may be profit booking at higher prices for both commodities.

Spices: Spices complex traded on a positive note on good domestic demand and worries about lower output due to untimely rains for jeera (cumin) and coriander. Jeera prices jumped about 1.9 per cent, while turmeric closed higher at 1.1 per cent. Jeera exports have been 128,500 tonnes in the first nine months (April to December) of 2014/15, a rise of 28 per cent from the corresponding period of the previous year. For turmeric, the arrivals of quality crop are less as farmers are holding back their stocks in anticipation of better prices in the coming days.

Coriander price surged by more than two per cent on account of good demand. The reports of massive crop damage in Gujarat and Rajasthan due to unseasonal rains in March also supported the price.

We expect jeera and turmeric prices to trade on a mixed to positive note on expectation of good export demand against the lower output, but profit booking at higher levels are also expected. Reports on crop damage and good domestic demand will keep prices higher in case of coriander.