Archive for April, 2010

SOYABEAN “Influenced by ………..”

Double digit food inflation has become a nightmare for Indian economy. Hot discussion is still on. But the question is how oil seeds will contribute in food inflation,  which is the major part of it and the second largest import item of India. What will be the price behavior of oil seeds in futures? Let us have a look.

.

PAST YEAR MOVEMENT.

.

If we have a look at the price movements of soyabean in the year 2009, it had started its yearly rally at around Rs 1900 per quintal with recovery in international palm oil and energy prices; it touched a yearly high of Rs 2824 per quintal. Smart recovery in international demand mainly from China and India coupled with crop loss in Brazil and Argentina played crucial role in giving upside to the international oilseeds and edible oil prices. Zero import duty on crude edible oil and very nominal duty on refined palmolein have favoured the import over domestic oils at the expenses of Indian oilseed producers and crushers.

.

In the oilseeds complex, soybean futures gave the investors the second highest return of 21.86% after CPO at 28.03%.

.

However, by the end of 2009, prices cooled off significantly and glimpsed a downside of and respectively.

.

A ROAD TRIP TO CHINA………..

.

.

In a very short time, China has built up what is likely the world’s largest soybean processing sector to produce soymeal & soyoil. U.S. has become.one of the major beneficiaries to satisfy the insatiable demand of China. China is the main driver of global soybean prices. The increasing demand.for animal protein in China & competing demand for its farmland, the country will not be able to increase its production & will have to import the.commodity to retain its huge appetite. China accounted for 79 percent of U.S. soybean exports in the week ended April 8,2010 according to a U.S.

.

.

Department of Agriculture report. China is forecasted to account for 54 % of global imports of the oilseed, and 25% of purchases of the edible oil.this year, according to the U.S. Department of Agriculture.

.

EXIM SCENARIO

.

During FY09-10, the soy meal exports were lower as compared to previous year except the month of October due to higher export price. Soyabean oil imports may exceed last year’s 990,000 tonne as the premium for soyabean oil over palm oil contract., Soyabean oil costs $92.66 a tonne more than palm oil, according to Bloomberg data. The premium narrowed to $60.81 on March 31, the lowest since November 7, 2007, reducing the appeal of palm oil, its substitute.

.

SEMINAR OUTCOME

.

Based on the outcome of meeting at 31st All India seminar on rabi oilseeds & oil trade and industry on 12th March, 2010 at New Delhi, total soyabean production has been set lower for this year at 85 lakh tonnes. The marketable surplus for crushing is also estimated to be lower at 75 lakh tonnes. The peak oilseed crushing season is the second half of the financial year, in which mills sign most of their meal supply contracts with overseas agencies. The Advance estimates peg oilseed production at 26.32 million tonnes, as compared to 28.16 million tonnes in last year second advance estimate which is 1.84 million tonnes less than the earlier estimates for 2008-09. However, the resulting overall production of Rabi oilseeds is lower than the earlier year’s 2nd advance estimates of 2007-08 & 2008-09 respectively.

.

.

PRICE ANALYSIS of CURRENT SCENARIO

.

NCDEX soybean futures have always been tracking the futures at CBOT& BMD alongwith the oilseeds complex futures at both NCDEX & MCX. This year soybean futures prices have been trading downtrend to sideways, starting the year at 2382 levels to a contract low of 1966.00 levels registered a decline of 13.72 % at the NCDEX.

.

At CBOT soybean futures hit a three-month high, upbeat economic data from China strengthened the outlook for U.S. agriculture export demand & tracking firm crude oil market. The current status at the NCDEX & CBOT future market for soybean is in backwardation condition, where the prices of the forth-coming contracts are trading lower than the current month. This reveals that the overall trend is still bearish for this commodity. The factors supporting the bearish trend are:

.

•Lack of fresh fundamentals & poor export demand.

.

•Subdued trading activity.

.

•According to the Solvent Extractors’ Association of India, the soybean stocks as on 1st April is at 4.5 million tonnes.

.

•Factors such as record output in Brazil and Argentina is limiting the rally.

.

SO, WHAT NEXT?

.

In short term, the soybean futures are expected to trade on a positive note due to short covering and fresh buying at lower levels. In medium term, the future market may get some initial strength, taking a support at 2000 levels & also from the lower dollar and higher crude oil prices. If crude oil prices continue to rise, production cost of soybeans likely will continue to rise, & these higher costs necessitate higher corn and soybean prices for farmers to be profitable. However, downside is expected to be limited based on recovery of soybean prices since the beginning of month of April.

.

.

We can expect the futures to witness the level of 2400 in the months to come.

.

JEERA………THE FLAVORING AGENT

Jeera is a flavoring agent of Indian food as well as commodity market. In India, Jeera is grown during the rabi season. India is largest producer, consumer and exporter of jeera. The country produces around 2 lakh tonnes of jeera. It contributes about 70% in the total world production. Rajasthan and Gujarat contribute more than 90% of the total production.

.

.

Production Scenario in India

.


In the current season year 2009-10, Jeera production is expected higher by 10-15% as compared to last year. India, world’s largest jeera producer, is expected to have a production of about 27 lakh bags (of 60 kgs) in the current season year 2009-10. In India, arrival starts in February. The peak arrival season runs from March to April and continues till early May. Currently the daily arrivals are around 24000-27000 bags. So prices are trading with downtrend bias.

.

Arrivals Pattern in Unjha Market (Daily average arrivals)

.


February to April – 25,000 t o 35,000 bags

May to August – 4,000 to 8,000 bags

September to November – 6,000 to 8,000 bags

.

Domestic Scenario

.


Despite a bumper yield in the current season year 2009-10, jeera prices are expected to go up by Diwali due to stronger domestic and overseas demand over next few months and lower carryover stocks than last year. Carry-forward stocks are estimated to be around 30000 tonnes. After end of April and early May the arrival would s l o w d o w n .

.

H o w e v e r , currently the daily arrival s have fallen from 30,000 bags a week back to 20,000 to 22,000 bags. Currently jeera prices are ruling in the range of Rs 11000-12000 but due to steep fall in the carryover stocks, higher domestic consumption and increased buying by traders for export, which would push prices higher from coming month. Jeera futures are trading in contango. The most active NCDEX April contract Jeera futures on NCDEX are trading in the range 11200-11400 and May futures quoting above Rs 11600.

.

International Scenario

.


Jeera prices also depend on the crop situation in Turkey, Iran and Syria. After India, Syria is the next biggest producer with an average production of 30, 000 tonnes. These countries influence the world jeera prices significantly. Countries like Turkey and Syria are expected to harvest their crop only by July and export demand would likely to shift to Turkey and Syria due to their competitive lower prices in world market. This may affect the movement of jeera prices at some content.

.

Export of Jeera

.

India exports about 140 countries including Singapore, Dubai, the US and Brazil. Last year, about five lakh bags were exported. Indian exports of Jeera declining on account of stiff competition from Turkey, Syria and Iran. They are capturing our export market by offering Jeera at lower prices and bulk of their production is reserved for export purpose. Jeera exports are expected to 14% decline to 42500 ton in April-February 2009-10 as compared to 49500 ton in 2008-09. In value term, it is expected to 8 % decline to Rs 47001.25 lacs in April-February 2009-10 as compared to Rs 51356.33 lacs ton in 2008-09.

ALUMINIUM… “PRICES ON ONE-WAY TRACK”

Aluminium is a silvery white and dull gray coloured, and the third most abundant element in the Earth’s crust after oxygen and silicon. In nature, it only exists in very stable combinations. Due to its strong affinity to oxygen, it is always found in the form of oxides or silicates. The chief source of aluminium is bauxite ore. Aluminum is lightweight, ductile and soft. Its density is only 1/3 of steel. Aluminum is resistant to weather, common atmospheric gases and a wide range of liquids.

.

Global Scenario

.

Aluminium ore, bauxite, occurs mainly in tropical and sub-tropical areas – Africa, West Indies, South America and Australia. The leading producing countries are United States, Russia, Canada, the European Union, China, Australia, Brazil, Norway, South Africa, Venezuela, the Gulf States (Bahrain and United Arab Emirates), India and New Zealand. Together they constitute more than 90 percent of the world primary aluminium production. The largest aluminium markets are North America, Europe and East Asia.

.

Indian Scenario

.

India is the fifth largest producer of aluminium in the world with production capacity of about 3 per cent of the world. India’s reserves are estimated to be 7.5 per cent of the total deposits. India is self dependent for aluminium supply and exports about 82,000 tonnes annually. The primary Indian aluminium producers were BALCO, NALCO, HINDALCO and MALCO.

.

India’s per capita consumption of aluminium is 1 kg as against 30 kg in the developed world.

.

World Aluminium Markets

.

LME, TOCOM, SHFE and NYMEX are the important international markets that provide direction to the aluminium prices.In 2009, aluminium prices gained about 40% with the global combination of stimulus packages and the rapid recovery in demand in emerging markets. The prices and inventory level of metal in international market, such as LME and SHFE, influences the domestic market.

.

Facts & Figures

.

·World aluminum output in March rose 13% on the month to 2.045 million metric tonnes, according to figures released by the International Aluminum Institute.

.

·Primary aluminium stocks in China, the world’s top consumer and producer of the metal, have risen more than 45 percent from January on increased production.

.

·Brazil’s output of primary aluminum dropped 0.9% on the year in March to 131,700 metric tons.

.

·Global demand rose by 29% in January and February compared with the very depressed levels recorded a year ago.

.

Price Movement

Despite the poor news stemming from Euro weakness on Greek debt woes and monetary tightening in China, aluminium halted its downturn and traded sideways for most of last week.

.

Most other base metals also traded sideways to higher last week, and aluminium continues to be strongly correlated with copper. Swollen inventories are no longer a problem for the aluminium market, as global demand is helping to push up alumininum prices (arrow line).

Weekly Update 26th – 30th April 2010

Domestic markets started the week on a negative note on the back of the Greek debt issues and Goldman Sachs fraud issues, but managed to close in the positive terrain supported by firm US markets in line with less than expected hike in Policy Rates & Cash Reserve Ratio by RBI to tame the inflation; Policy rates and CRR increased by 25 bps each. The food price index rose 17.65% in the 12 months to April 10, marginally higher than an annual rise of 17.22% in the previous week. Moreover IMF announcement of India`s growth at 8.5% for the calendar 2011 boosted the sentiments.

.

.

Additionally, announcement of government recapitalization of PSU banks stimulated banking sector and banking stocks were among the major gainers of the week. Good corporate numbers, expectation of good monsoon together with buying by foreign institutions kept the momentum intact for the rest of the week. Going forward market participants globally would be closely watching G20 finance chiefs plan to withdraw economic stimulus as the recovery strengthens.

.

.

The IMF this week said that rising government debt is one of the biggest threats to the world economy.

.

Forecast of normal monsoon season by Indian Meteorological department may keep the sentiments positive in the coming week but volatility may rise ahead of the expiry. On the global front, the UK’s economy grew at a slower than anticipated pace in the first quarter. In US, sales of new homes surged by 27 percent in March and orders for most durable goods climbed, indicating the U.S. economy is speeding ahead into the second quarter. Greece troubles that kept the markets jittery especially for the payments approaching in the month of May came to an end after it said that it has sought a relief aid from the European Union to save it from a default.

.

.

US stock markets kept the rally intact which held the other world markets and did not let them fall.

.

Shanghai remained under pressure as commodities saw some pressure and profit booking at higher levels. Indian stocks are seeing more strength in cash stocks and banking stocks. Nifty has support between 5200-5100 levels and Sensex between 17400-17200 levels.

.

.

This week is full of event risk, especially from US economy side. Gradually, commodity is retreating from the higher levels but it will be too early to say that it is giving a clear indication for the approaching time. But yes, upside is limited.

.

.

Negative expectation of US GDP figure for the first quarter may hammer the prices. If dollar index trades above the level of 82 then it would keep gold to be in sideways territory. Copper saw three weeks nonstop downside and it is expected to see more downside. Range trading in crude oil is indicating the saturation at the higher levels and market needs big news to see further upside..

Commodity versus Dollar Index: The Myths and Facts

Dollar index has noticed terrific movements. The perfect time to sell commodities! Does this thumb rule always works?  Well, let’s find out the myths and facts …

.

.

The USDX is a trade-weighted basket of the US dollar versus other major currencies. Sometime volatility in dollar index can be attributed to the major movements in other currencies. Here lets go with an example.

.

.

USDX has seen around 23% rise in just over 4 months. It was the biggest move the USDX has ever made over such a short span in this index in entire history! For this the strength of USD is not counted rather the weakness of other major currencies amid some improvement in US data’s are taken into consideration. At the same time, commodities could not see steep fall in the prices due to seasonality. It happens many times. Yes, I agree that dollar index give impact on the prices, sooner or later, but, remember, as a secondary driver not as primary.

.

Return Of Various Commodities and Dollar Index From 2000-2010(In %age)


Chart 1 reveals the secondary nature of the dollar’s role in commodities prices. During the secular bull run between 2000 to 2010, commodities gave incredible performance. It gained between the wide ranges of 64% to 410%. On the contrary, dollar index lost around 23%. It is showing that supply and demand far outweighed the dollar.

.

Let’s find another answer to the question. Why to watch dollar index while trading in commodities?  What psychological impact does dollar index have on commodity?

.


It is in fact very complicated to synthesize fundamentals into tradable whole as in many commodities credibility of data is questionable and data comes on wide intervals. Other factors that give impact on the prices are not easily reachable to all traders. It is also true that commodities fundamentals develop gradually and cannot change overnight and thus it is unable to give massive moves in a short span of time. Many times  price movements in commodities is sentiment  news driven.

.

Here dollar index gain importance, as transaction of many commodities are done in terms of USD worldwide, hence any fluctuation in USD gives significant impact on the commodity prices. Moreover, the dollar’s levels are always available in real-time and consequently it is uncomplicated watching the movements of USD to game commodities rather than exploring into their fundamentals. However, we also cannot deny that in a particular period dollar index becomes the primary driver of commodity.

.

Price movements of CRB and Dollar index (2000-2010)


Source: SMC                                                          Chart 2

Chart 2 is showing negative correlation between USDX and CRB but percentage of volatility is more in CRB. Even in 2009, CRB recovered by whopping 20% whereas dollar index only fell by 5%.

.

.

As on whole USDX has proportionately negative correlation with commodities but it is not the main driver. Nevertheless, sometime relationship between dollar index and commodities are positive. For example; in the time period of December 1998 to September 2000 relationship between crude oil and USDX was positive for a long period. Many times commodities and USDX move in similar direction in perception of the health of the global economy. Fear and uncertainty surrounding the global economy stimulate safe haven buying in both.

.

.

Concluding with the view that each commodity has its own fundamentals, demand and supply profile, which drive its prices. Though, the secondary driver, dollar index often give impact on the commodity prices significantly. Hence, it is advisable that take it as a significant indicator, but rely on seasonality and own fundamentals of commodity before the investment of your money.

CRUDE OIL ECONOMIC RECOVERY IS HELPING CRUDE RALLY

Crude oil, the life blood of the economy, is rallying to highest levelssince 2008 highs, indicating that the global economy is back on track which is also supported by rise in key global equities markets. In the first quarter of 2010, front-month NYMEX crude prices rose 5.6%.

.

Crude oil prices have negated the hike in dollar index and crude stockpiles in US. Traders have placed fresh bets on a rise in demand affirming a faster pace of economic recovery in the US. Crude prices have more than doubled since dropped below $35 late in 2008, but still significantly lower as compared to the record high neaar $147 a barrel in july 2008.

.

Positive economic indicators of US like PMI, home sales and employment data are showing that economic recovery is back on track and that will increase fuel consumption. Data showing an unexpected increase in pending home sales and a survey result indicating service sector growth added to investors’ confidence in the US economy .

.

The institute of supply management’s non-manufacturing index rose to 55.4 in the month from 53.0 in february, sharper than economists expectation for a modest increase to 53.6.

.

A report from the National Association of Realtors the pending home sales index rose 8.2% to 97.6 in february,  from a downwardly revised 90.2 in the previous month, countering consensus expectations for a 51 decline.

.

According to EIA “Projected economic growth this year is higher in this forecast, with U.S. real GDP growing by 208% and world oil consumption weighted real GDP growing by 3.4%”. Given expected oil demand growth in 2010, oil prices should continue to firm despite expected increase in both non- OPEC and OPEC production this year.

.

According to EIA” projected growth in domestic crude oil production is more moderate in 2010, increasing by about 210,000 bbl/d” Crude oil future outlook looks promising as it is driven mainly with global economic recovery. And summer demand in US will also keep the prices well supported.

INDIAN ECONOMY – GAINING STRENGTH Final Part :0

Thank you friends for viewing the first part. Now i am posting the final part here enjoy:)

4.Fresh Investments – Infrastructure being one of the key thrust areas on government agenda would continue to see large investments coming in going ahead. Even the corporate are expected to continue with the capacity additions in the light of huge anticipated demand.

.

.


After the sharpest decline in more than 70 years, world trade is set to rebound in 2010 by growing at 9.5%, according to WTO. Exports from developed economies are expected to increase by 7.5% in volume terms over the course of the year while shipments from the rest of the world (including developing economies and the Commonwealth of independent States) should rise by around 11% as the world emerges from recession. This strong expansion will help recover some, but by no means all, of the ground lost in 2009 when the global economic crisis sparked a 12.2% contraction in the volume of global trade – the largest such decline since world war II . Should trade continue to expand at its current pace, the economists predict, it would not take much of the time to surpass the peak level of 2008 in terms of the volume growth.

.

.

Coming back to India front, the continued demand revival in major markets such as the US and European Union, led exports to remain in the positive territory for the fourth consecutive month with shipments in February growing by 34.8% to $16.09 billion from $11.94 billion during February 2009. India’s Imports too saw a growth of 66.4% to $25.05 billion from $15.06 billion in the corresponding period. Cumulative value of imports for the period April, 2009- February, 2010 showed a degrowth of 13.5% to $248.04 billion from $287.09 billion in the corresponding period as a result of both lower international crude oil prices and slowdown in domestic economic activity.

.

India’s two-way trade (merchandize exports plus imports), as proportion of GDP is close to 35%. Now, with the expected improvement in the global trade it would further give a fillip to the economic growth.

.

The services sector contributes around 65% to GDP. The lead indicators of service sector activity show that, services such as tourist arrivals, cargo handled by seaports and airports, and passengers handled by international terminals which are dependent on external demand are showing recovery with the improvement in global climate. However, services dependent on domestic demand have exhibited a robust and steady growth during 2009-2010, so far.

.

In sum, the expected normal monsoon, buoyancy in industrial production & services suggests continuation of growth momentum. With the fiscal deficit being addressed by the government with large focus on infrastructure spending, improvement in corporate sentiments with respect to capital spending & RBI taking steps to withdraw monetary accommodations in a calibrated way is expected to take economic growth back to 9% levels.

.

Stay tuned for more update like this :)