Posts Tagged ‘commodity’

Weekly Update 13th – 17th December 2010

The fall in the domestic markets in the week gone by was really painful. The fall was seen across the board; both mid and small size company stocks were heavily punished. SEBI probed in some companies for price rigging reignited the concerns that there may be some cases which are yet to come.

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On the global front, thiswas the week when most of the major developed markets along with the emerging economies closed in positive. The disconnect reveals that overhand in the markets was more related to domestic issues only.U.S. economic data is continuing to point out that environment over there is improving. A consumer sentiment that reflects the strength of consumer spending rose six months high to 74.2 in the first half of December from 71.6 at the end of November.

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U.S. trade deficit in October shrank more that expected to $38.7 billion from a revised $44.6 billion shortfall the month before. Further more, the expected continuance of Bush tax for next two years which is likely to be cleared by U.S. senate in next two weeks will also help in improving sentiments. Japanese economy saw an annualized expansion of 4.5 percent for the quarter ended 30th September against expectations of 4.1 percent. In order to address inflationary pressures in the economy, China once again raised the reserve requirements for the third time in five weeks by 50 bps.

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The recent move takes reserve ratios requirement now to18.5 percent for the biggest banks. Chinese leaders have also indicated that the nation will shift to a tighter, “prudent” monetary policy for next year. Consumer and producer price index rose to 5.1 percent and 6.1 percent respectively for the month of November as against the expectation of 4.7 and 5.1 percent respectively. Moving ahead, we believe that the concerns pertaining to Indian Industrial growth and in turn overall growth of the economy would not be there after seeing the 10.8 percent growth in IIP for the month of October as compared to 4.4 percent last month. Moreover,we also believe that even for the month of November we could see the Industrial growth picking up close to 12 percent.

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The indicators like car sales growth of 20 percent,commercial vehicle sales growing by more than 18 percent and HSBC Manufacturing PMI rising to 58.4 in November from 57.2 in previous month give support to our belief.In the forthcoming days we believe we may continue to see bouts of volatility in the markets as nervousness is still there. In short term now we think the advance tax figures would help the markets in gauging the profitability of India Inc. as the result season is approaching. Nifty has strong support between 5900-5840 and Sensex between 19400-19000.In commodity section, bullions counter may trade on volatile path due to lack of clear direction on risk sentiment. Base metal counter will take cues from economic data from US. Crude oil further movement will depend on the demand from China, OECD countries and weather conditions in Europe.

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OPEC members are planning to increase output over the coming months. Copper will continue to make fresh high in near term as the global deficit will push its prices to new levels. The outcome of Central Economic Work Conference in China will further guide the movement in metal counter. In agro pack guar complex may remain on weaker side amid weak export demand. Jeera and peeper maytad lower on selling pressure on news of re-sowing. Mentha oil can tumble lower onarrivals. Soya will remain range tracking mixed movement in CBOT. CPO may trade on higher side tracking firm Malaysian CPO.

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Ace Derivatives & Commodity Exchange

Ace Derivatives & Commodity Exchange with over five decades of impeccable experience in commodity trading, has recently transformed itself and established an online multi-commodity platform with a pan-India presence. Kotak Group is the anchor investor in ACE Commodity Exchange with a 51 per cent stake, while Haryana”s Hafed has a 15 per cent interest and banks like Bank of Baroda, Union Bank and
Corporation Bank have an over 14 per cent stake. The remaining equity is held by Ahmedabad Commodity Exchange members.

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Products offered

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Ace offers futures trading the following commodity groups:

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Bullions: Gold, Silver

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Energy: Crude oil, Natural Gas

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Agri

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•Castor Seed (Ex-Warehouse Ahmedabad)

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•Mustard Seed (Ex-Warehouse Jaipur-inclusive of all taxes but exclusive of Sales tax/ VAT)

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•Soybean Ex-Warehouse Indore -inclusive of all taxes but exclusive of Sales tax/VAT)

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•Refined Soy Oil (Ex-Tank Indore-Inclusive of all Taxes and Levies)

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•Pulses

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•Chana

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•Spices

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•Turmeric

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The Kotak-anchored exchange started futures trading in soybean, soyoil, rape/mustard seed, chana and castor seed. With the launch, the first set of contracts will be available for trade for delivery on November 20, December 20 and January 20.

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The lot size of trading is fixed at 10 tonnes of each contract. According to the exchange data, the castor seed contract for December-expiry opened at `3,442 a quintal, chana at `2,440 a quintal, soyabean at `2,244 a quintal, mustard seed at `573 for every 20 kg and refined soy oil at`545.90 for every 10 kg.

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Trade Timings:

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Agri: 10:00 a.m. to 05:00 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Bullion/Metals: 10:00 a.m. to 11.30 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Risk Management

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The Exchange assumes the counter party risk by guaranteeing trade settlement. The Risk Management framework of the Exchange ensures timely settlement.

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More hands working on…..

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Haryana State Cooperative Supply and Marketing Federation (Hafed) is planning to set up spot exchanges of the recently launched Ace Derivatives and Commodity Exchange (ACE) in mandis soon. The association of Hafed with the ACE will help it in playing the role of an aggregator and a risk manager on behalf of thousands of farmers, who will be motivated to become participants of the ACE in the coming decade.

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In addition to its convenient trading platform, Ace provides a robust clearing & settlement infrastructure that supports the complete process of trade intermediation – including registration of trades, settlement of contracts and mitigation of counter party risk; giving traders the peace of mind in times of increased market volatility.

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Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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Weekly Update 25th – 29th October

Losses due to profit taking in the Indian markets during initial part of the week were recouped seeing the huge response for Coal India offering especially from the overseas investors. The issue attracted bids that exceeded the combined gross domestic product of Latvia and Iceland. However most of the Asian markets corrected in the week gone by after China unexpectedly raised interest rates to curb inflation and to prevent an asset price bubble in the economy on concerns over regions economic growth.

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The move indicates that the consensus has been reached for lower growth. Albeit past experience has shown that initial interest rate hikes does not give much harm to economic growth. China’s economy expanded by 9.6 percent in the third quarterless than the growth experienced in the prior quarter but higher than the median estimates of 9.5 percent.

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Results of companies from Europe to U.S. supported markets. According to Bloomberg data of the 132 companies in the S&P 500 that reported results since Oct. 7, more than 85 percent have topped analysts’ per- share earnings estimates.Whereas in Europe, of the 46 companies in the Stoxx 600 that have posted results since Oct. 7, 32 have beaten estimates for per-share income.

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The result season has so far been good in India. Banks have posted decent to strong earnings growth. In the Information technology sector TCS and Infosys surprised positively while Wipro surprised negatively. Auto companies are expected to deliver strong set of numbers on the back of higher volumes with price increase. Higher metal prices are likely to provide good earnings to manufacturer of base metals. Cement companies are likely to post bad set of numbers on the back of lower realization and good monsoon season.

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Market is eyeing over G-20 finance chiefs meet to try to resolve differences over countries that are devaluing their respective currencies in order to spur economic growth and to endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy. We may see some volatility in domestic markets on account of expiry week.

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Stock specific activity is likely to play out as the results season is still going on. Nifty has support between 5950-5870 and Sensex between 19640-19200.Good corporate earnings amid falling dollar index are offering opportunities to bulls to keep the momentum in their favour, especially in base metals. 19-commodity Reuters-Jefferies CRB index, which serves as a broad benchmark for commodities investors, was up for a ninth straight week since Aug. 22.

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Monetary tightening by China could not give much impact on base metals prices. In case of bullions, trend is little different. Bullions prices retreated across the board as dollar index grew stronger and investors opted to sell some of their holdings for aprofit. For the time being bullions should move in a range. Market players appears cautious to some extent ahead of next month’s decision from the Federal Reserve about whether to take steps to stimulate the economy. Even energy pack is moving in a range on mixed fundamentals. Bulls are more active in agricultural commodities owing to the ongoing festive fever.

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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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TR/J CRB INDEX

Overview: The CRB Index, founded by Commodity Research Bureau in 1957, is the most widely followed Index of commodities futures which measures the overall direction of commodity sectors and the index is calculated by Thomson Reuters/Jefferies (TR/J CRB). The name of the index changed to the Reuters CRB Index in 2001. Since 1961, The CRB Futures Price Index has been adjusted on a regular basis in order to maintain its relevance. The Index has had 10 adjustments with the last being in 2005. Over the years, commodities have been replaced by more liquid and significant contracts. The last (10th) revision set up monthly rebalancing and rollover schedules. Currently “RJ/CRB” Index takes into account the prices of 19 commodity futures contracts. ICE Futures U.S. is the exclusive marketplace for futures and options contracts on the Reuters Jefferies/CRB Index.

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Weighting Factors: A four tiered approach These 19 commodities are weighted on a 4- tiered grouping system designed to reflect the significance of each commodity.

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Group I Petroleum product : Group I includes only petroleum products –W.T. I . c r u d e o i l ,h e a t i n g o i l a n d unleaded gasol ine which are the most liquid, widely followed and economically significant commodities futures contracts traded globally and historically have contributed meaningful return

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Group II Highly Liquid Commodities:Group II in the Reuters/Jefferies CRB Index consists of seven highly liquid commodities.

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Group III Liquid Commodities: This group of four commodities is also highly significant and liquid but slightly lower level than those in Group II. These commodities help further the goals of diversification, broad representation and liquidity of the Index.

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Group IV Diversifying Commodities: This final group of five commodities provides meaningful diversification to the Index, bolstering the exposure to the Softs, Grains, Industrial Metals, Meats and Precious Metals markets.

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Rollover & Rebalancing Methodology: To maximize liquidity and simplicity, the Reuters/Jefferies CRB Index uses a four day rollover schedule for each commodity beginning on the first business day of the month and ending on the fourth business day.

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The Reuters CRB Index is continuously rebalanced through geometric averaging, .The Reuters/Jefferies CRB Index employs arithmetic averaging with monthly rebalancing.

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Monthly rebalancing helps maintain the stability and consistency of Index weightings.

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Importance

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?The CRB Index can be used as a leading indicator of inflation which causes commodities to increase in price. Therefore, an increase in the futures prices of a group of commodities indicates a potential increase in the general price level of an economy.

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?The CRB index is good indication of market sentiment because it is monitored and updated by market participants throughout the day.

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?The CRB Index can be used as an investment tool. Investors can invest in a commodity index such as the CRB index directly which would provide them exposure to a basket of commodities.

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?The CRB Index trades on theNewYork Board ofTrade at a contract size ofUSD500.

?Generally commodity prices move opposite to bond prices. This is because inflation causes commodities to increase in price while devaluating the price of bonds. This is one of the reasons that the CRB is so closely watched by both bond and commodity traders.

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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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