Posts Tagged ‘commodity prices’

CRUDE OIL…. “Black Gold …Key driver of Global Economy”

Crude oil is the key driver of every economy therefore it is known as “Life blood of Economy”. It has shown lot of volatile movements but has shown resilience despite below expectation US economic numbers and euro zone crises in May this year. Crude prices have more than doubled since dropping below $35 late in 2008, but are still significantly lower as compared to the record high near $147 a barrel in July 2008.

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Crude prices have been trading in wide range of $65 to $90 since last August 2009 .Crude prices have weathered the euro  zone crises very well as they did not break this wide range.

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In the month of June and July, the fall in the greenback and recovery in global equity markets have supported the prices higher. The pace at which crude oil is being used across the globe as fuel in transportation and its other byproducts in industrial applications, it is expected that prices will be well supported. Furthermore, the lack of major alternative fuel of crude and ever shrinking oil wells, coupled with lack of new exploration will give the bull’s upper hand in long run.

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But, as we have seen in the stunning run up to $147 in 2008 and then plunge from that high to below $37, it can be said that it is the speculative forces that run the crude oil more than the true fundamentals of supply and demand.

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The other energy source is natural gas and it’s available due to new found Shale gas supply in US but due to lack of proper infrastructure in place it is quite tough to presume natural gas to become a tangible replacement for oil any time soon.

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Today, China is the world’s largest consumer of energy. Continued demand of Chinese and Indian economies may support the crude prices in long term. But China’s crude oil imports in July fell 3.2 percent from a year earlier after record inbound shipments in June which has capped the upside.

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As the hurricane season in US is from 1 June to 30 November so hurricane premium also support the prices during this period. Recently hurricane premium has been seen in the crude prices as the prices did not see major sell off despite increasing stockpiles. Furthermore recovery in the global equity markets tends to be supportive for the prices.

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As the cost structure of drilling and exploration has gone up so the marginal cost of production has also increased. Companies are benefiting at present where crude oil prices hover between at $75 to $80, but if we do see upward pressure on the cost structure, again, over time we do see a rise in oil price.

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Recently contrasting economic data between the US and Euro zone as well as the earnings performances of the banking sector has been seen which continues to shore up the euro on the premise of broadening stabilization of interbank concerns and to a lesser extent robust recovery in Germany.

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OPEC opted for production cuts in earlier this year and 11 countries adhered to compliance except Iraq. OPEC countries boosted output from 24.845 million b/d by 80,000 b/d to 26.82 million b/d for the July 2010. This exceeded the OPEC 11 target by 1.975 million b/d and puts the group’s compliance rate at 53%.But in order to meet the growing demand OPEC produced an estimated 29.4 million b/d of crude oil in the second quarter of 2010 after remaining relatively steady for the past four quarters.

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US Distillate demand —-Pointer to industrial recovery

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The fall in the distillate demand in US is also a concerning factor as far as the demand scenario is concerned. The main driver of distillates demand is heavy use by industrial sector, which has been severely lacking in the second quarter. The U.S. actually had a year on year increase for distillate demand between 2009 and 2010 as high as 17.1% for the last week in May but it has cratered to +2.2% year on year in two months time.

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The stockpiles of distillate fuel in July month is at the highest level since the week ended Oct. 16. 2009. And this distillate inventory builds will cap the upside in the crude oil.

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Analysis:-The absolute change in the EIA crude inventories has shown fluctuation in wide range of -8 million barrels to +8 million barrels in the total weekly crude oil supply data.

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Current scenario

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Crude oil which often tracks events in the global economy is very much affected by the turbulences that take place in various key economic powerhouses. At present when the hysteria around the euro zone crisis began to subside, fears of US economic slowdown have begun to intensify. US recovery is still causing as indicated by its weak housing and labor markets.

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This slowdown is also captured in all the economic reports over the last two months, from housing and manufacturing, to employment and GDP. All these economic reports are below the expectations, and prior reports are being revised down. It appears the US economy really slowed down over the last two months in particular.

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The crude oil outlook going forward in rest of the quarter is quite bleak as the bulk of the summer driving season in US is over, and now we have less demand and inventory is rising at the same time in this commodity.

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Commodity Weekly Commentary 2nd – 6th August

Bullion counter hammered down last week as prices fell like nine pins after investors wind up their long positions in gold and silver. Gold slid nearly $100.0 from the historic record highs, recorded June 21 at $1265.30 an ounce, affected by traders reducing their stakes and investments in the SPDR Gold Trust, the world’s largest exchange-trade fund.

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The absence of fundamentals from Europe, led traders to turn to the US for signs of global recovery, but the disappointment came from US durable goods report which slumped in the month of June by 1.0 percent, compared with a revised -0.8%. Base metal pack extended their previous week gains as global inventory draw down and gains in the euro boosted the metals despite a surprise decline in U.S. orders for long-lasting
goods.

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Western world unwrought aluminium stocks fell to 1.192 million tonnes in June from a revised 1.306 million tonnes in May, industry data showed. Moreover, gains in equity market also supported the prices as investors anticipate robust demand in near future. In energy counter crude oil prices wiped out its previous week gains and just fell from the level of $80 after the U.S Energy department reported a surge in inventories in the US. However, crude oil prices managed tom conquer some part of the lost territory mainly on the back of the softer US dollar index.

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However, natural gas futures ended higher last week, backed by firmer cash prices and a government report
showing another light weekly inventory build despite ongoing concerns about too much supply.

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As regards agro commodity, the week gone by majorly known for profit booking at higher levels in many commodities. Traders preferred profit booking in most of the spices as they became overbought in the market. Cardamom futures caught the attention of traders as they traded in lower circuits throughout the week, supported by weak spot market.

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After trading in positive territory for many weeks, finally jeera, turmeric and pepper saw pause in the rally as stockiest released some stocks at higher levels. Good monsoon and improved sowing in producing area dragged down guar counter in both spot and future market.

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What surprised the market was the upside move oil seeds. R M seed, refined soya oil and crude palm oil witnessed nonstop four week rally on confident move in CBOT amid fall in dollar index.

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Maize futures ignored the positive sentiments of CBOT and moved down on profit booking. Additionally, soyabean saw good short covering. Good export demand supported mentha futures to recover from its week low. Weak sentiments in spot market continuously hammered the potato futures.

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Commodity Weekly Commentary 28th June – 2nd July

Last week we have experienced a profound volatile session in bullion section. On COMEX division gold August future contract notched another all-time high of $1266.50 on Monday and traded as low as $1225.20 during the Wednesday session. This volatility is a direct result of the continued uncertainty with the fiscal crisis in the European Union as well as the growing geo-political tensions world –wide. Silver also tracked moves in gold and equity markets and settled in red territory.

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However mixed economic data from U.S front kept the base metal pack sideways during the week. U.S. data last week has been a mixed bag so far with Thursday’s data showing weekly jobless claims falling last week and a bounce in U.S. durable goods orders in May helping offset poor new home sales data and the Federal Reserve’s subdued assessment of the economy on Wednesday.

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Once again, with a weakening economic outlook, some terrible housing numbers and a not so inspiring Energy Information Agency report, crude oil prices remain under pressure in early trades of the week but on Friday prices get underpinned and ended up to hit a seven-week high as odds increased that an Atlantic storm would form and head to the Gulf of Mexico, where oil production may be disrupted.

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Turmeric futures rebounded on fresh buying. Once again jeera and pepper followed the same direction as they did in past. They have seen continuous three week jump in the prices. It was a good short covering in jeera futures. Even lower level stimulated fresh buying despite fragile fundamentals.

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The overseas demand is weak due to the higher prices of Indian Cumin seed over Syrian and Turkey cumin seed prices. Pepper was up on good overseas demand. Good export demand propped up cardamom futures, however the upside was limited on improving arrivals and rains.

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Export of spices and spice products from India has crossed 5,00,000 metric tonnes for the first time in the history of spice trade this year. It was not a good week for chilli and again it marched towards it support of around 4600 on absence of buyers and profit booking at higher levels. Very uncertain movements were witnessed in oil seeds complex which kept investors aside throughout the week. Guar complex moved gradually as support came from lower level buying and fear of fall in acreage. There is a fear in market that farmers may switch to barley and other crops which are enjoying good MSP. Maize shot up on short covering.

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COMMODITY Weekly Commentary 24th – 28th May

Once again blood bath was witnessed in metal section with global financial markets in turmoil. This time both, gold and silver took a sign of relief after witnessing their all time highs on future bourses. Bearish signs were continuously seen in the markets when traders continued to sell the yellow metal to cover their losses in other markets. Equities continued to weaken amid fears that global economy may sink immediately after the nascent recovery from the recent recession.

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In base metal section, apart from nickel and copper all other metals settled in red zone. Some recovery was seen in later part of the week when France and Germany pledged to work together to solve the European debt crisis and support the euro. According to the World Steel Association, global crude steel production jumped by 31.8 percent year-on-year in the first four months of the year to 467.8 million tonnes.

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Energy section got hammered down as U.S. crude futures fell below $70 a barrel on fears that Europe’s sovereign debt crisis will harm economic recovery and weaken crude oil demand. Oil inventories at the key U.S. Cushing, Oklahoma crude oil hub rose by 500,000 barrels in the week to May 18 to 39.46 million barrels, according to a report from energy industry data provider Genscape released on last Thursday.

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In case of agro commodities, we can say that it was a week of recovery in most of the commodities. Expiry of May contract added more volatility in agro commodities at NCDEX. Firm sentiments in spice complex amid improved physical buying resulted in fresh buying and short covering in jeera.

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Well built fundamental further stimulated buying in pepper. Chilli took a sigh of relief, and it saw spellbound recovery in the prices after a fall of seven week. Yellow commodity turmeric fell for second consecutive week after a stellar run in past. It touched the low of 13640 (June contract) in NCDEX.

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Chana futures somehow managed to consolidate at lower levels. It saw marginal lower level buying. Talk of export in wheat gave much awaited rise in wheat futures whereas supply is still smooth in the market. Sharp upside move in maize surprised the market participants. Despite expectation of higher crop, maize prices jumped on the news of some export enquiries from South Korea. Uncertainties created a state of confusion in guar complex, as guarseed was trading in a range while guar gum was weak, which generally do not happen.

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Firm CBOT and BMD gave some support to soya counter; however, upside was limited on the expectation of normal monsoon.

ZONEWISE AGROMET ADVISORIES

Monsoons are needed to nourish crops and supplywater for farming communities. The quantity of monsoons in India has increased in the last 50 years. This year the much awaited South-WestMonsoon has reached the Indian territorialwaters. Below written are presented some Zonewise Agromet Advisories by taking the major crops into consideration.

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NORTH WEST INDIA [J & K, H. P., UTTARAKHAND, PUNJAB, HARYANA, DELHI, UP, RAJASTHAN]

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•Weather conditions are favourable for sowing of summer green gram and black gram in Delhi, select varieties for – Green gram– Pusa Ratna, Pantmung 1, Samrat, SML-668, Pusa Vaisakhi, Pusa Vishal, Pusa 105, PDM-11, SML-32; for Black gram – Pusa 1,AjadUrd 2,NarenderUrd-1,T-9, P.D.U.-1.

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•Harvesting of the already matured mustard is advised in Haryana, Punjab, Uttar Pradesh, Uttarakhand, Rajasthan and Delhi & Immediate threshing after drying is advised.Attack of painted bugwill bemore if crop is kept in the field for long time after harvest. Farmers are advised to plough the field deep in hot summer to destroy the various stages of pest under heat.

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EAST INDIA[ JHARKHAND, BIHAR , ORISSA ,WEST BENGAL & SIKKIM ]

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•In view of prevailing dry weather condition during last few weeks and also during next fewdays alongwith persisting high temperature, farmers are advised to apply light and frequent irrigation to the standing rabi crops in Bihar and Jharkhand.

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•As therewas excess rainfall during last twoweeks in Sikkim, farmers are advised to postpone irrigation to large cardamom, potato andmaize.

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•Due to high humidity and increased temperature in the flowering and fruiting stages, chilli may be infested with blight and die. Black depressed small black, circular spots are appeared on the skin of fruits. Two spraying any one of the fungicides like Carbendazim 50WP @ 1g or Saaf @ 2g / litre of water at 10 days intervals,when the disease symptoms are appeared.

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NORTH EAST INDIA[ARUNACHALPRADESH,NMM&T,ASSAM,MEGHALAYA]

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•Utilizing the recent pre-monsoon showers and expected rain, undertake sowing of the crops likemaize, jute,mesta and summer vegetables.

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•Fieldmust be ploughed and get ready for planting of ginger and turmeric inAssam.

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•To prevent Black Heart Disease in potatoes in Assam, it should not be stored and transit at high temperature (above 320C). The storage rooms should be well ventilated and bags should not be piled up very high.

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SOUTH INDIA[TN,AP, KERALA, KARNATAKA, LAKSHADWEEP,ANDAMAN&NICOBAR ISLANDS]

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•Light rainfall is expected in Brahmavar region; hence farmers are advised to take precautions in drying of pulse crops like green gram, black gram, cow pea and cashewnut etc.

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•Farmers in Central Dry zone of Karnataka are advised to apply irrigation to areca nut and coconut and pepper as temperature is increasing and to avoid sun scorching.

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WEST INDIA[GOA,MAHARASHTRA,GUJARAT]

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•Due to increase in temperatures summer chilli is likely to be infested by thrips & mites inMaharashtra, sprayMethyl dimeton 25 EC@15ml or Dimethoate 30 EC2 16 ml + Sulphur 80 %@20 g in 10 litreswater.

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•As dry weather prevailed during last week over the State and dry weather is likely to prevail during next fewdays, apply protective irrigation to the standing crops of Maharashtra. In view of persisting high temperature in East Vidarbha, farmers are advised to apply light and frequent irrigation to the standing crops.

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CENTRAL INDIA [M.P.,CHHATTISGARH]

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•Weather conditions are favourable for proper germination of maize to be grown for green cobs in Chattisgarh Plain zone.Hence, the farmerswho have assured irrigation facility are advised to complete the sowing of summer maize at the earliest.

(source: Indian Meteorological Department)

Commodity Weekly Update

Fearing the worst, investors were heading their bets and turning to gold. Last week gold futures hit arecord high of $1,249.70 an ounce on COMEX division, a gain of nearly 20 percent since early February2010, as investors sought safety from turmoil in government bond markets and the risks of Greece’s debt crisis spreading to other countries.

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Domestic silver also kissed the crucial level of Rs.30, 000 per kg tailing the gains in international market. In base metals section, copper along with nickel and zinc slide in later part of the week as the investors continued to fret about China’s growth profile.

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Demand concerns within China, as world’s top copper consumer may try to curb inflation and cool its economy after data this week showed consumer inflation climbed to 18-month high in April. Also, gains in dollar index remain intact which capped the upside in future prices. In energy counter crude oil prices once again dragged down last week by economic concerns and rising U.S. petroleum inventories.

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The front month contract on NYMEX division had tested the lowest level since Feb. 12, 2010 and has erased more than $14 from a high of $87.15 hit on May 3, 2010, the highest in almost 19 months. Crude oil inventories at U.S. Cushing, Oklahoma hit a fresh record of 39 million barrels in the week to May 11, according to Genscape, an energy industry data provider. However natural gas witnessed some gains last week backed by short-covering after a government report showed a smaller-than-expected weekly inventory build.

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The U.S. Energy Information Administration report showed total domestic gas inventories rose 94 billion cubic feet to 2.089 trillion cubic feet for the week ended May 7.

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Most of the agro commodities caught up in the negative mood. Despite steep fall in production, guar complex surrendered its previous gain on the news of normal monsoon amid dull demand. Even spices were sideways to downwards on profit booking at higher levels, except pepper. The king of spices, pepper saw a smart recovery on raising quality issue by US for Vietnam pepper. Now Indian pepper has taken the center stage worldwide and demand has shifted towards India. Rally in turmeric appeared tired and traders preferred profit booking. Similarly, after witnessing a whopping rise in thecardamom prices last to last week, prices cooled down on profit booking.

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On the back of steady supply together with restricted supply propped up gur prices in both spot and future market. Range trading with downside bias noticed in oil seeds complex on mix fundamentals. Total vegetable oil imports in India during the April period were down 22% to 5.43 lakh tonnes on the account of ample stocks of vegetable oil at major ports. After making new contract low in recent trade chana futures were just trying to consolidate at lower levels. After a steep fall, mentha oil futures recovered marginally on short covering.

Weeekly Update 17th – 21st May

Global markets saw a sigh of relief with the start of new week after the European Union unveiled a 750 billion-euro ($949 billion) financial assistance program backed by European Central Bank bond purchases aimed to prevent a broader sovereign-debt crisis in the region. But thereafter could not build onto the gains as it was felt that the rescue plan may not help in averting a slowdown in the region. The concerns from developed nations to developing nations like china continued to cast a dark shadow on the investors mind. Chinese market went into a bear market on the concerns that the government will make borrowing dearer to check spiraling inflation & growth.

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With the fallout of European crisis it is widely believed that the central banks may not adopt tighter monetary policies with the fragile recovery. Chief of Indian central bank said that he plans to raise interest rates in a calibrated way given the risks to global growth. The belief led to a rally in the interest rate sensitive’s like Realty, auto & consumer durables in the domestic markets.

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Whereas the growth concerns continued to punish sectors like metal & oil.

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However safe heavens like gold & bond markets continued to see money coming in with investors seeking for safe shelters.

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Continued double digit growth i.e. 13.5% in march in Industrial production for the sixth consecutive month has mirrored one clear thing that India per se is on strong footing if compared to any part of world. Planning commission chief Montek singh ahluwalia saying that government is working out a 500 billion rupee fund to improve the infrastructure, is making our belief strong that infrastructure sector will see a robust growth in India over the long period.

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Trend of all world stock markets is still down and even a strong rally of Monday could not bring much relief as the markets gave up the rally in later part of the week on the back of weaking Euro and uncertainity in Europe. Neither the base metal commodities nor Crude is able to rally which shows lack of strength in the rally in stock markets. Nifty faces resistance between 5100-5200 levels and Sensex between 17000-17500 levels.

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The underlying unease over health of EU economy has room for more buying in bullions. At the same time bullions are paying no attention to dollar index the way they used to in general. Inflation in China, which is on 18 months highs, is indicating further monetary tightening, which may weigh on commodity prices in future. Overall trend of base metals and energy may remain weak, however, lower level buying cannot be denied in between. Important data from Japanese economy front may also give further direction to base metals and energy. On agro commodities front, they may remain volatile before expiry.