Archive for the ‘commodity update’ Category

COMMODITY WEEKLY COMMENTARY 4th – 8th October

Once again international gold prices tested their new highs last week as prices breached the psychological level of $1300 and silver marked the 30 year high on COMEX division. However local gold prices were mostly remained sideways during the week amid stronger rupee and profit booking which limited the upside in prices.

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Nevertheless, silver once again overshadowed gold movements and surged high to claim 33000 mark on MCX. In base metal pack copper along with nickel, zinc and lead started the week with positive energy but dull economic data from U.S and Europe economies pressurized the prices in later part. However improved Chinese  manufacturing data once again underpinned the prices and supported copper and nickel to end the week in green zone.


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Earlier, shanghai copper dropped to its lowest in more than a month last week as China’s move to curb property prices dented sentiment, but losses were limited by improving demand prospects and ongoing weakness in the dollar. In energy counter crude oil settled up last week helped by data showing a drop in U.S. crude and product inventories.


Further fall in dollar index also helped the prices to move up. U.S. crude stocks fell 475,000 barrels last week, data from the Energy Information Administration showed. U.S. distillate inventories fell by 1.27 million barrels in the week to Sept. 24, counter to analyst expectations for a 300,000 barrel build.


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In agro commodities spices pack witnessed see saw moves during the week and remained volatile. Pepper futures ended the week with negative impression amid weak exports and low trading activity. As per Spices Board data, pepper exports from India have gone down by 5% in volume term during April-August 2010 as compared to same period last year. Jeera futures also traded on a negative note during the week on extended selling pressure backed by weak domestic and export demand. Expectations of rise in acreage under jeera crop this season have also supported the down side.

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In oil seeds section soya bean and mustard remained under pressure as factors like bumper soya crop expectation and pick up in fresh arrivals to the spot market led the market to show a negative trend. The chana futures traded on a positive note for most part of the week retreating from previous losses on fresh buying from retail sector.

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NATURAL GAS……….. THE FUEL OF THE 21ST CENTURY

Natural gas has emerged as the most preferred fuel and vital component of theworld’s supply of energy due to its environmentally cleanest, safest and most useful nature, greater efficiency and cost effectiveness among all energy sources.Natural gas is a mixture of hydrocarbon gases. In its purest form, such as the naturalgas that is delivered to your home, is almost pure methane.

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Growing importance: We require energy constantly, to heat and cook food, and generate electricity. Due to clean burning and lower emission levels of potentiallyharmful byproducts into the air as compared to other fossil fuels, the importance of natural gas in our lives is growing constantly. The demand of natural gas has sharplyincreased in the last two decades at the global level. In India too, the natural gas sector has gained importance, particularly over the last decade, and is being termedas the fuel of the 21st Century.The industrial and electricity sector accounts for the greatest proportion of natural gas use across the world. The US residential sector consuming the second greatestquantity of natural gas.

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Global Production: According to U.S. Department of Energy, globally total provedreserves of natural gas is 6,254.364 trillion cubic feet (tcf) in 2009 with an increase of0.68% as compared to 2008. Russian federation has largest reserve of 1,680.00 tcffollowed by Iran and Qatar with 991.600 and 891.945 tcf reserve respectively. Russiais largest producer of natural gas with 23 tcf followed by USA with over 20 tcf. Majorexporters of piped natural gas are Russia (154 bcm), Canada (103 bcm) and Norway(93 bcm), the major importers are US (104 bcm), Germany (87 bcm) and Italy (75bcm). The major exporters of CNG are Qatar (40 bcm), Malaysia (29 bcm), Indonesia(27 bcm) and the major importers are Japan (92 bcm), South Korea (36 bcm) andSpain (30 bcm.)

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Production in India: Natural gas production in India grows at averaging 11.7percent per year. Total production is estimated to grow from 1.1 trillion cubic feet in2007 to 2.7 trillion cubic feet in 2015. Most of the production of gas comes from theWestern offshore area. The on-shore fields in Assam, Andhra Pradesh and Gujarat States are other major producers of gas. Fertilizer (41%) and power (37%) are themajor users of natural gas in India.

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Factors affecting demand for Natural Gas: There are two primary drivers thatdetermine the demand for natural gas in the short term-Weather and Fuel Switching.Natural gas demand typically peaks during the coldest months for heating homes anddips during the warmest months, with a slight increase during the summer to meetthe demands of electric generators. Hurricanes and severe weather also disrupt the supply.

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While most residential and commercial customers rely solely on natural gas to meetmany of their energy requirements, some industrial and electric generationconsumers have the capacity to switch between fuels. For instance, during a periodof extremely high natural gas prices, many electric generators may switch from using natural gas to using cheaper coal, thus decreasing the demand for natural gas.

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Generally the state of the U.S. economy can have a considerable effect on thedemand for natural gas in the short term, particularly for industrial consumers. When the economy is expanding or declining, the consumption of natural gas fromindustrial sectors is generally increasing or decreasing at a similar rate.Long term demand factors reflect the basic trends for natural gas use into the future.The analysis of factors that affect long term demand across all sectors arecomplicated.

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Probably the most important long term driver of natural gas demand isfuture residential heating applications. Due to the retirement of old nuclear,petroleum, and coal powered generation plants leaves a significant requirement fornatural gas use for electric generation to meet the commercial demand forelectricity generation and transportation.

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Outlook: Currently the future prices of natural gas in MCX are trading in sidewaysmanner. It has strong support at `170. Seasonal demand from mid oct can support therecovery upto `220 in mid term.

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COMMODITY WEEKLY COMMENTARY 27th September – 1st October

Gold prices hover around its life time highs last week on international as well as on domestic bourses as European stock markets extended their losses and crude oil dropped below $75 per barrel. However domestic silver futures gain reclaimed a new life time high on MCX while U.S silver hit a 30-year high as precious and base metals were further aided by a weaker dollar along with new data meantime revealed a downturn in European services and manufacturing output.

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A further decline in U.K mortgage and business lending, plus higher-than-expected U.S jobless claims for last week also supported the bullion counter last week. Base metal prices which were mostly trading lower during the beginning of the week bounced back strongly in the later part as investors moved to buy dollar denominated commodities to take advantage of fall in the dollar index. US equity markets ended lower as data indicated that house prices fell in July marking the eighth consecutive decline. Fed bought $2.07 billion worth of bonds, thereby boosting treasury prices and dollar continued to lose ground. In energy counter crude prices witnessed see saw moves during the week on mixed fundamentals. Crude traded below $75 per barrel as jitters increased due to the rise in U.S inventories highlighting weak demand, in spite of the dollar’s continued drop against its major rivals.

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Yellow spice turmeric showed wonderful recovery on dip in arrivals amid lower level buying. Domestic demand is expected to be strong during the ongoing festival season. With the same reason of dip in arrival, chilli futures also spurt in both spot and future market. Pepper surrendered its strength on heavy selling pressure, weak export demand in the middle of sluggish spot market. Fresh arrivals put pressure on jeera and cardamom futures and they closed the week on negative note. Fresh buying noticed in chana futures. Indian oil seeds and edible oil futures were moving on their own fundamentals. Fall in dollar index supported the price. Comfortable stocks could not give much impact on the prices. Soyabean and crude palm oil moved northward. Refined soya oil and mustard seed also closed the week on positive note.

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Fear of yield loss due to excessive rain in producing areas lent support to the guar counter; however upside was limited on lack of aggressive fresh buying. Technical support zoomed up mentha oil. Furthermore, temporary supply propped up potato in both physical and future market.

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Weekly Update 27th September – 1st October 2010

Indian Markets posted fourth weekly consecutive gains led by rising optimism of growth and portfolio investments. The run up in the market was phenomenal and beyond expectations of market participants. Global investors seems to be going more anxious about India consumption and growth, complemented by continued monetary accommodation by developed nations in  order to propel growth. Indian Government recently raised the cap of foreign investments by $ 5 billion in federal and corporate bonds with a residual maturity of over five years. The step is viewed very positively in the sense that the ease of limit in federal bonds will take out interest rate pressure from the banks. The ease in corporate bonds issued by companies in the infrastructure sector will fill the estimated financing requirement of $1 trillion in the five years to 2017.


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U.S. central bank kept its benchmark interest rate in the range of zero to 0.25 percent .The bank said that they are prepared to provide additional accommodation in the light of slower economic recovery. The statement raised the speculation that the bank may buy more treasuries down the year. Weaker growth has still kept the unemployment at above 9 percent levels and reflects that companies are still cautious. The U.S. markets surged to highest level since May as the orders for durable goods rose the double of market expectations.

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Another happening that market is keeping an eye on is the political pressure building on Obama administration to take a stance on the China’s currency policy. The yuan has appreciated about 2 percent against the dollar since the central bank said it would pursue a more flexible exchange. However U.S. wants to see more rapid and “significant” rise in the yuan’s value.

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With the visible positivity across the globe, Indian markets are maintaining up move and managed to close above the psychological mark of 6000 levels on the weekly basis. The weakness in the dollar index clearly strengthens the equity markets and lead to the fresh breakout especially in US and European counterparts.

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One should maintain the stance of buying on dips. The Midcap stock may provide handsome return in the near future. Nifty has support between 5900- 5810 and Sensex between 19640-19200 levels.

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It appears that bullion counter is taking advantage of every opportunity and making new highs now and then on rock solid fundamentals. Weaker than expected growth in manufacturing and services industries of euro zone, sovereign debt crisis in Ireland, plummeting dollar index amid some poor economic releases fuelled rally in bullions. Negative tone of global economy capped the upside of base metals and energy  counter, even fall in dollar index could not give much impact and they appeared shy to break the resistance. Local currency appreciation locked the movement of commodities. This week is full of event risk. GDP data of US and UK, consumer confidence data and employment data of US may give further direction to  commodities. Crude oil is witnessing lackluster trading and thus moving in range on ambiguity in the world economy. Energy counter needs big news for further direction. Spices should revive in this week.

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Commodity Weekly Commentary 20th – 24th September 2010

Its seems that sky is the limit for bullion counter now a days, as prices surged high to their life time highs on domestic bourses. However, strong Indian rupee limit the upside movement in prices in both gold and silver. In international markets gold hit a record high above $1,280 per ounce last week, as currency market jitters and broader economic uncertainty enticed more investors towards the metal’s safe-haven credentials. The metal’s rise this year has been fueled largely by investor nervousness that stemmed from the fallout from the euro zone debt crisis and from economic data that has suggested global economic growth may be losing momentum.

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Base metals also surged high last week on weakness in dollar index and after reassuring comments from China’s central bank about its plans to keep monetary policy loose. In energy counter crude oil lost its esteem and traded down. Crude traded around $76 per barrel amid low U.S inventories, while Chicago pipeline leak continues weighing on prices as new Tropical Storm Karl threatens the Gulf of Mexican. The EIA report showed a drop in fuel demand by 1% to 19.5 MB. Gasoline also shed 694 thousand barrels to 224.5 MB. This comes at a time where imports have reached their lowest level in five months.

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Unlike metals, agro commodities fell like nine pin, even fall in dollar index could not supported them very much. It was not a good week for spices as sellers were more active than buyers in spot market. Future market reacted in the same fashion. Panic selling was continued in turmeric, jeera and chilli as well. Cardamom was also the victim of arrival pressure and closed down. Stockiest liquidation at higher levels dragged down chana futures on NCDEX as well. With declining prices of churi and korma, guarseed and guargum continuously traded southward.

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Wheat closed down on negative cues. Furthermore, traders preferred profit booking at higher levels in menthe futures. Strong crop projection of soya bean along with rise in crop projection of mustard seed crop in rabi season compelled oilseeds and edible oil futures to trade in negative zone. Higher domestic stocks, imports in the middle of arrivals in the domestic mandies further pressurized the oil seeds prices. As per expectation, the total crop size of soyabean in the current season is likely to be around 95 lakh tonnes, up 2% from last year.

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However there was a commodity which surprised the market with its nonstop three week upside on higher offtake amid tight supply and it was maize.

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VEGA IMPACT IN OPTION PRICING FINAL PART :)

The Vega is highest in ATM option and slightly less at OTM and ITM options. The change in Implied Volatility will impact the most on the price of ATM option ascompared to the ITM and OTM options. The Implied Volatility can only impact the time value not the intrinsic value of the option so while comparing in betweenthe OTM and ITM options the OTM option’s Vega will be higher.

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The Impact of the Theta (time decay) to the Vega is negative. As the time passes if other thingremain unchanged the Vega decrease near to the expiration. As stated above the Vega valueis the most at ATM options and near to expiration the time value get decreased so does theVega. This is also called as Vega decay.

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The graph display that keeping all factors same(Volatility, price of underlying) the ATM Strikeoption of nifty the Vega on decreasing mode as it comes near to the expiration. When thedays left for expiration is 24days the Vega is 5.521 and 4.366 when it only 15 days are leftwhereas it is only 1.128 on the last day.There are various volatility strategies which options traders execute at the times of high/lowvolatility.

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For example, during times of earnings, elections or other major events thevolatility generally raise and to capture this opportunity the trader or investor buy strangle/straddle which is Vega positive strategy.Many traders time to time require adjusting their position to reduce the risk exposure in the market. This can be done by various ways it can be either adjustingvega with decreasing theta or adjusting vega with increasing the theta. If there is a large movement expected in the market then a buy call or put, debit spread,long strangle and long strangle adds the vega to the position but there will be risk of theta decay whereas on sideways market long ATM butterfly and long ATMcondor decrease the Vega as well as theta in the position.

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If the goal is to increase the vega and theta then the calendar spread, double calendar and Iron condorstrategy should be added to the portfolio whereas the sell iron condor, ATM Calendar and sell call or put are vega negative and theta positive strategies.In nutshell, the option trader/investor should understand the risks involved in it before entering into the trade and how the volatility impacts the position.Before entering into a trade one must have view about the direction and volatility. If there is an expectation of rise in volatility then long strangle, long straddle,debit spread, ratio and calendar spread should be followed whereas in expectation of fall in volatility one should go for short straddle, short strangle, creditspread, backspread and butterfly spread.

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SILVER……GROWING AVENUE OF INVESTMENT

Recently silver, known as poor’s gold, is gaining not only against the dollar and other old world currencies but also outperforming gold. Due to high prices gold is loosing its own attraction from common man and importance of silver as precious metals is gaining momentum. The declining trend of gold/silver ratio indicate that silver become better destination for investment. Like gold, silver has retained rally momentum due to recent poor economic data that has caused investors to purchase Silver as a “safe haven” alternative investment. The pickup of silver industrial demand due to the emergence and growth of a number of new end uses, and continued strong investment demand is pushing silver prices sharply higher.

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Like all metals, London Bullion Market is the global hub for silver trading, while the New York’s Comex Futures dominate the solver fund activity. The world’s largest silver backed exchange-traded fund, the i Shares Silver Trust, said its holdings rose to 9,280.40 tonnes by Sept. 1 from 9,151.03 tonnes on August 5.

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Global demand- supply of silver According to World Silver Survey 2010 , global silver mine production rose last year, by almost 4%, its seventh straight annual increase to reach a record high of 22,072 ton.Peru is the world’s largest silver producing country followed by Mexico, China, Australia and Bolivia. GFMS is forecasting a further mine production rise of 3 per cent this year.

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According to GFMS, In the last ten years, the world jewellery demand was down 8 per cent and silverware as much as 38 per cent. And because of technology changes silver use in photography sector had suffered a major fall of 62 per cent. But as strengthening of belief in silver as a precious metal is the 145 per cent demand gain since 2000. The industrial application of silver is almost 48 per cent of total silver use.

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Indian demand- supply of silver Though India is generally believed to have a great appetite for gold, Indians also love to possess silver in their homes for jewellery. India is voluminous importer of silver. Of the 4,000 tonnes that India used to import annually, around 2,600 tonnes was used to make jewellery and ornaments. MMTC is the largest importer of gold in the country. The firm’s silver imports fell by more than 44% in the fiscal year to end March 2010, as high prices dented demand. More than 60% of India’s silver demand comes from farmers.

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Last year silver demand dipped because the country experienced one of the worst monsoon seasons in over four decades. However, with much better monsoon this year, the situation is set to reverse and India’s appetite for silver has also been boosted because gold has become too expensive at current prices. According to official data, India’s silver imports in the first six months of 2010 are up 579%.

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From April this year, India has also started hallmarking of the white precious metal to ensure purity. With increasing amounts of impurities in jewellery being sold across the country, public sector trading major, Minerals and Metals Trading Corporation (MMTC) is banking on its branded jewellery, silverware gift items and coins to push up its market share.

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Like gold, silver has not enjoyed equal recognition from hedge funds, pension and retirement funds, insurance companies, and sovereign wealth funds– but this is likely to change as fund managers recognize silver’s relative value and simply wish to diversify their precious metals exposure.

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Outlook

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Good monsoon, high gold prices and global trends may help silver outperform the yellow metal in India. Better harvesting will underpin demand from the farming community this year. Since gold prices are trading over `19,000 per 10 gm, many rural families are now switching to silver.The weakening of rupee also supporting the prices.

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More and more people here are using silver as a speculative commodity play as many others are looking at it as a safe haven asset. The overall market sentiment is bullish for silver. So it could be a more decisive silver price breakout before the year ends to touch the level of `33500.

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COMMODITY WEEKLY COMMENTARY 13th – 17th September 2010

Silver along with gold once again shoot up last week as international prices tested $20 and $1255 respectively on COMEX division. Each time a rise in gold hits the headlines, it steals the limelight from silver. But this time silver has not only followed rallies in gold, but usually out performed, as can be seen in a fall in the gold/silver ratio. Prices went towards north last week as global stocks tumbled and the euro slipped on renewed fears about the health of the global economy.

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Base metals witnessed see saw movements as highly volatile currency market is rolling the prices in both direction. However, bias remained down side as fresh concerns about the health of the European banking sector fed a wave of risk reduction in the broader market and helped drag red metal (copper) prices away from four-month highs. Energy counter also remained under pressure as investor’s eye U.S economic strength and demand on fuel, while the dollar gains against a basket of foreign currencies amid the jittery sentiment. In other related news the dull hurricane season also limiting the upside in prices. The U.S. National Hurricane Center was monitoring three tropical systems in the Atlantic basin, one approaching the Caribbean Sea and two near Africa’s west coast. The NHC said cloudiness and showers over the Leeward Islands and northeastern Caribbean Sea were associated with Gaston’s remnants, but the system had just a 20 percent chance to become a tropical cyclone.

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Despite holiday’s shortened week, agro commodities witnessed active trading. After a noteworthy decline, oil seeds and edible oil counter was somehow able to cap the downside on the news of better soyameal export amid short covering in overseas market. Crude palm oil was also trading up. On the other hand upside was limited on the absence of fresh demand.

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Favourable weather and better outlook of crop shed the gain of wheat futures. Northward journey of maize futures supported by multi month’s higher prices in CBOT surprised the market players. Spices counter traded with downside bias moreover. Chilli, jeera, turmeric and cardamom were down on lower offtake in physical market. Turmeric futures were in complete grip of bears on lower demand in spot market. It touched multi week lows on NCDEX as well. It was only pepper in spices counter which propped up on fresh buying. Mixed sentiment in guar compelled guarseed to trade in slim spread whereas guargum was rangebound with upside bias.

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Chana continued to witness downtrend following lower demand in the domestic market.

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Weekly Update 13th – 17th September 2010

The Indian markets saw good gains in the week gone by, as foreign investors continued to put money in search of growth which is lukewarm in major part of the world. According to the latest FED beige book finding, the U.S. economy has shown “widespread signs of a deceleration” in mid-July through the end of August. The Beige Book showed that within manufacturing, weakness was largely related to construction while strength was in auto-related production, including production of steel indicating that the FOMC may consider stimulus package in the September meeting.

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Deficit concerns pertaining to European countries also waned when Portugal managed to clock bids for 2.6 times the amount offered for sale of bonds due in 2021 compared to 1.6 times in the March sale. The better response to the bond sale gave relief to the investors over the health of European nations. Chinese government would continue to take measures in order to curb down speculation in property market and U.S. may call for protection against China imports are some of the concerns that are playing out in the market. Agovernment report showed that the manufacturers in Japan were optimistic for the fifth consecutive quarter. Japanese government is expected to revise up its estimate for the second quarter economic expansion as the companied have cut spending at the slowest pace since 2007.

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Going ahead, market will keep an eye on the RBI move in its monetary review due next week. There is a chance that RBI may leave policy rate unchanged for a while or tinker with Repurchase (Repo) rate by hiking it by 25 basis points. The expectations of good growth especially in the industrials have been built as the companies are now more confident about their expansion plans. The expected uplift in the manufacturing in the third quarter is likely to provide the gains in materials like cement and steel companies in terms of better realization of the products.

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Despite mixed cues from the global indices, Indian markets traded with the positive bias throughout the week. It almost tested the upper trend of the weekly channel so one should be careful for the week ahead and wait for the sustainability above that zone for confirmation of breakout before initiating fresh investment. Nifty has support between 5540-5475 and Sensex between 18300- 18000 levels.

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It was a truncated week for Indian market. Upside in bullions dazzled the eye of investors. Gold is trading near the mark of all time high as investors increased their long position in gold futures on safe haven buying. Mighty commodity crude, lost its shine on end of driving season in US amid comfortable stocks. Increasing short position in gasoline is adding further pressure on prices. Crude may trade in a range of $71-$76 dollar per barrel. Investors should keep a tight vigil on the data of US Michigan Confidence, advance retail sales etc, which is likely to provide further direction in commodities. As regards agro commodities it should be a good week for oil seeds and edible oil complex where investors may see some lower level buying. However, ample of stocks may cap the upside.

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COMMODITY WEEKLY COMMENTARY 6th-10th September 2010

International gold prices rose back above $1250 an ounce for the second time in a week, as government bonds ticked lower together with energy prices. Silver prices also touched a new 16-week high at $19.57 an ounce on international bourses while it made a life time high on MCX.

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Apart from bad economic news globally, a weak Rupee is also pushing up prices in India. Base metal pack also ended higher last week on positive manufacturing and improved jobless data from both China and US which pushed prices higher. However, lower dollar index also supported prices. After being top performer for many days, Nickel has marginally underperformed other base metals as inventories on LME increased. In energy counter, crude oil futures got jiggled in hands of both bulls and bears. Prices remained volatile for the week amid mixed fundamentals.

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On one hand, prices got support from improved economic data but upside was offset by building inventories. The positive sentiment was offset by the effect of the abysmal inventory status report.

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U.S commercial crude oil inventories increased by 3.4 million barrels from the previous week; at 361.7 million barrels. U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.2 million barrels last week, and are above the upper limit of the average range.

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It was an action pack week for agro commodities in which they agro commodities saw big movements. Most of the spices closed on negative note bearing in mind the overseas weakness coupled with arrivals in some spices. Dip in Brazilian and Vietnamese pepper parity put pressure on Indian pepper as well and hence we saw two week continuous weakness. Similar to pepper, jeera futures also dragged down on dull spot trading. There was no respite for turmeric futures and they fell like nine pins for straight seven week on low stock buying amid the news of increase in acreage in Andhra Pradesh.

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Cardamom was sideways, while chilli was marginally up on short covering tracking the firm spot markets. Due to strong arrivals in major mandies coupled with beginning of fresh sowing of kharif pulses, chana futures surrendered their previous gain to some extent. Timely arrival of monsoon in southern and western regions has improved the sowing activity. Selling intensified in oil seeds and edible oil on the back of better crop estimate together with weakness in overseas market. Damaged crops in Russia, Europe and Canada, boosting demand for U.S. supplies to make animal feed, food and fuel revived maize futures. Guar counter was up on lower level buying.

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