Soybean oil….. “Prices sail along with the winds over harbor”

Soya bean oil is the second leading vegetable oil traded in the international markets after palm. Palm and Soya bean oils together constitute around 68% global edible oil trade volume, & Soya bean oil alone constitutes of 22.85% of the whole.

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Soybean Oil World Scenario –A SNAP SHOT

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•World Production: U.S. (38%) is the biggest producer of soybeans followed by Brazil (13-18%) and Argentina (27-37%).

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•World Imports: China, Japan, Mexico, Taiwan and South East Asia are major importers of soybeans while India, China, Pakistan, Bangladesh, South & Central American countries (Peru, Venezuela, Bolivia, Dominican Republic) and Africa (Egypt, Morocco) are major buyers of soya oil in world market.

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•World Exports: U.S. is the largest exporter of soybeans while Argentina is the biggest exporter of soy oil followed by Brazil.

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Hot talks………….. China, the world’s biggest user of cooking oils, and Argentina remain in talks about China’s embargo on imports of soybean oil from the South American nation.

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China imports all its soybean oil almost from Argentina and Brazil. India imports nearly 1 million tonnes of soya oil yearly from Argentina, Brazil and US. India imported 192649 tons of Crude Soya oil during June 2010. According to USDA, the country is estimated to import 1.19 million tonnes of soy oil for 2010-11, while China is estimated to import 2.15 million tonnes during the same period.

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China has frozen all Argentine soybean oil imports in retaliation for Buenos Aires decision to restrict imports of Chinese products. The Chinese blocking of Argentine soybean oil threatens a key hard currency earner for the South American nation, estimated at 2 billion US dollars for the current year.

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Domestic scenario: India is the sixth largest producer of soya oil with account of 4% of world production. In India, Madhya Pradesh produces estimated 53% of the country’s soybean followed by Maharashtra (34%) and Rajasthan (8%). It is sown during June-Jul period and harvested by October in India. The domestic production soyabeen is around 1.4 million ton in 2009-10. Almost 70 to 80% of total oilseed production is crushed for oil while the balance quantity goes for food, feed and seed use in the country.

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So total soya oil production is around 0.7-0-8 million ton in 2009-10, While annual consumption is around 2.0-2.2 million ton with a market value of `9000 crore.

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The above chart shows that during January-June 2010, imports of soya oil totalled almost 7.36 lt against 5.99 lt a year ago. According to the Solvent Extractors Association, the increased imports have resulted in inventories building up at the ports.

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Imports getting surge in December 2009 primarily in view of the kharif oilseeds crop hit by the erratic weather and the rupee’s rise against the dollar.

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Kharif production has been estimated at 161 lt against 178 lt last year. Rabi output, however, is seen marginally up at 101.31 lt against 99.11 lt a year ago.

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Spot markets of Indore and Mumbai serve as the ‘reference’ market for Soya oil prices.

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The prices in Indore reflects the domestically crushed soybean oil (refined and solvent extracted) while Mumbai price indicates the imported soy oil price.

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In exchanges….. Futures trading in soya oil essentially serve as the right tool for hedging against market-linked risk by all those in the value chain of the commodity- the soyabean producing farmers, processors, brokers, speculators, soyabean and meal traders, traders of other oilseeds and oils, etc.

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CBOT is the biggest exchange for soybean oil. In India, NCDEX and NBOT are the major exchanges for these commodities. Its contracts are traded with high liquidity. The domestic future prices of soya oil are largely influenced by the international edible price movements (especially Malaysian palm oil and soybean oil at CBOT), soybean availability in domestic markets, demand for meal and other associated supply-demand factors of soybean and its derivatives.

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Current scenario: Refined soyaoil futures is trading up with August and September contracts moving up by 0.45% and 0.54% respectively. August soyoil futures traded at `484.70 while September futures were at `487.50 per 10kg. Crude Soya oil import price is US$ 880 per ton at Mumbai port whereas Crude Palm oil import price is US$ 805 which indicates the difference of less than 10 percent between the two. There is zero import duty on crude soybean oil in India while it is 7.5% for refined oil.

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India on the Verge of Getting a Non-Permanent UNSC Seat

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With its sole competitor from Asia, Kazakhstan, backing out of the crucial race, India inched closer to getting a non-permanent seat on the 15-member UNSC.

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“We have done very well.  The kind of support that India commands is very substantial,” a senior diplomat said, with New Delhi enjoying extensive backing among UN member-states 10 months ahead of voting in the General Assembly.

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Even before Kazakhstan dropped out, diplomats here estimate that 122 votes were in the bag but now that it is the sole runner from Asia, more votes are expected.

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However, it is said that the kind of support that India commands is very substantial whereas to win, India needs two-thirds of the General Assembly vote.

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That adds up to about 128 member states supporting it while the voting for the term starting in 2011 will take place in October 2010.

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Meanwhile, Kazakhstan is a member of the Organization of Islamic Conference (OIC), an association of 56-Islamic states.

Being a member there, it was viewed by Indian as a serious competitor since it stood a good chance of getting the votes of a hefty number of Arab and Muslim nations in the General Assembly.

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On the other hand, there is no guarantee that all nations that promise to vote, will end up voting while a late entry in the coming months can also split the votes.

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The Security Council is made up of 15 states – five permanent members who have the veto power and 15 non-permanent seats elected for a two-year term.

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The last time India had a seat at the Council was in 1992.

In 1996, Japan won with India trailing behind with approximately 40 votes.

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Global Market Outlook 2009 and 2010 :)

SMC Market Outlook

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With markets giving returns on investment more than 79% in 2009 and showing a strong sign of recovery from mid 2009 on the back of strong domestic demand, policy reforms and stimulus packages, 2009 calendar year emerged as the best year for investors since 2000.

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FII’s have once again proved to be the front runners in terms of the inflow, pumping more than Rs 82,000 crore in the Indian market this calendar.

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But 2010 promises to be another testing year as fiscal and monetary stimulus in many of the world’s major economies begins to wane.

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After being in consolidation for most of the month, in the week gone by the domestic markets suddenly jumped back to life and closed at their highest in 19 months as investors rushed to buy stocks on renewed optimism, after foreign direct investment into the nation jumped 60% in the first eight months of this fiscal year.

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The FM`s comments on GDP growth and encouraging cues from global markets also boosted the market.

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Both the indices, Sensex and Nifty made a new high for 2009 on the eve of Christmas, rekindling the festive spirit.

Bulls were in a mood of rejoice as Christmas took Nifty to a new high of 5,197.90.

The year ends with more than a spark of hope, and next year seems to be a stable and profitable one.

However, we believe that markets would continue to be volatile and hence it is important to manage risk in the coming year too.

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For the forthcoming week, markets may remain volatile as traders will roll their positions in the derivative segment from December 2009 series to January 2010 series ahead of the expiry of the near month December 2009 contracts on Thursday, 31 December 2009.

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On the flip side higher advance tax figures by India Inc which suggests better Q3 December 2009 results, may support the market.

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Corporate advance tax payments for the quarter were up 44% to Rs 48,300 crore against a 3.7% decline in April-June quarter and a 14.7% increase in July-September quarter.

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The global developments also need to be seen for any further directions.

Furthermore, food price index data for the year to 19 December 2009 will be closely watched which is going to release on Thursday, 31 December 2009.

The high food price inflation is a major worry for the policymakers as they contemplate a right approach to tame hike in inflation which seems to be more of a supply side issue.

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The next quarterly review of monetary policy is scheduled on 29 January 2010 which may also give some direction to the markets.

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On the global economic front, the US economy grew at a revised annual growth rate of 2.2% in the third quarter, much slower than initially projected.

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Japan’s unemployment rate rose to 5.2 percent from 5.1 percent in October, for the first time in four months in November, an indication job growth may not be strong enough to support the economy’s recovery from its deepest postwar recession.

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The world stock markets are not ready to react on the downside and after every consolidation they are moving up only.

4960 on nifty is strong support as was mentioned in last week magazine and the nifty touched there and moved up sharply.

Even the base metals and stocks are not reacting to the strong dollar.

Till the trend of stock markets is up, one should be playing from the long side of it.

Nifty has support between 5050-4970 and Sensex between 17100-16700 levels.

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New Year celebration may result in thin trading this week.It may impact domestic bourses as well.

Regarding outlook, dollar index will give next direction to precious metals. If it notices a pause in its rally then precious metals may trade in a range or vice a versa.

Base metals will remain volatile.

Gap between lead and zinc should shrink gradually.

Fresh buying in steel may keep nickel at higher side.

If US crude and other inventories continue to decline then fresh buying will stimulate in crude oil.

However, it already saw spiky moves hence upside is limited.

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India and China Inked a Global Climate Co operation Pact

India and China Inked a Global Climate Co operation Pact

In order to cooperate in the fight against climate change, India and China inked a broad agreement and also underlined a common position on controversial talks for a tougher global climate deal.

However, the agreement covers cooperation for action to reduce planet-warming greenhouse gases, transfer of technology and in areas of energy efficiency and renewables, etc.

Further, it is said that China is the world’s top greenhouse gas emitter and India the fourth largest whereas the deal is among many that India is sealing with rich and developing nations to prove its commitment towards sealing a new climate pact to expand or replace the existing Kyoto Protocol.

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Additionally, this agreement holds good for 5 years and was signed by India’s Environment Minister Jairam Ramesh and Xie Zhenhua, vice minister at China‘s National Development and Reform Commission.

Similarly, India signed a deal with Japan this week and has also spoken of cooperation with South Korea, Brazil and the United States.

On the other hand, the India-China agreement stated that developed countries should take the lead in fighting climate change by reducing emissions and providing finance and technology to poorer nations.

Nifty, Sensex at New Peak Ahead of Diwali :)

Nifty, Sensex at New Peak Ahead of Diwali

As China’s economy showed more signs of revival and weak dollar raises commodity stocks,  Global Stock Markets increased while the Sensex Index gained 204 points to close at 17,231.

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However, on the NSE, the Nifty advanced 64 points to end at 5,118, its highest level since 16 May 2008 when it closed at 5,157.

Moreover, the BSE metal index increased 5.2%  while Sesa Goa rose nearly 14% and JSPL rose 8%.

Additionally, the BSE capital goods index was up 2.4% and the BSE auto index gained 2.3%.

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In the Capital goods space, Punj Lloyd advanced 7.3%, Praj Industries rose 5.7% and Themax ended 4% higher.

Similarly, among the auto stocks, M&M, Bharat Forge and Exide Ind gained over 5% each.

In the Sensex pack, 25 stocks increased while 5 counters decreased.

M&M surged 6.1% to Rs 971 and Sterlite Ind, Hindalco and JP Associates were up over 5% each.

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Moreover, RCom emerged as the top loser while the stock declined 6.5% to Rs 231 in the midst of reports that special auditor has pointed out that the company inflated revenues by
Rs 2,915 crore in 2007-08 financial year.

Further, Bharti Airtel shed 3.2% while Reliance Infra fell 2.6% and previously, in Asia, China’s Shanghai index jumped 1.2% enhancing more by expectations for better corporate earnings for Q3.

On the other hand, Hong Kong’s Hang Seng rose 2% while Japan’s market was the region’s only major laggard with the Nikkei 225 stock average shedding 0.2% to 10,060.21 in the midst of a stronger yen.

In the meantime, the dollar resumed its slide, falling to a 14-month low against the euro pushing prices for commodities like oil and gold ever higher.

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Dollar Supremacy to End? New Global Reserve Currency to Set In ?

UN called for a new global reserve currency to end dollar supremacy. Is dollar Supremacy at risk?

The United Nations has called on for a new global reserve currency to end dollar supremacy, which has allowed the United States the “privilege’’ of building a huge trade deficit.

“Important progress in managing imbalances can be made by reducing the reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity,’’ UN undersecretary-general for economic and social affairs, Sha Zukang, said.

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Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he explained:

“It is timely to emphasis that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity.’’

Greater use of a truly global reserve currency, such as the IMF’s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes,’’ he said.

The SDRs are the asset used in IMF transactions and are based on a basket of four currencies—the dollar, euro, yen and pound—which is calculated daily.

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China had called in March for a new dominant world reserve currency instead of the dollar, in a system within the framework of the Washington based IMF.

Beside this another worrying news for Dollar lovers is floating around that Arab states had launched secret moves with China, Russia, Japan and France to stop using the dollar for oil trades, though denied by many of arab states.

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ECONOMIC INDICATORS WITH A FOCUS ON STOCK MARKETS – Part 1

An economic indicator is simply any economic statistic which indicate how well the economy is doing and how well the economy is going to do in the future.

An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future.

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Investors use all the information at their disposal to make investment decisions.

If a set of economic indicators suggest that the economy is going to do better or worse in the future than they had previously expected, they may decide to change their investing strategy.

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Economic indicators can be categorized on the basis of Timing

Economic Indicators can be leading, lagging, or coincident which indicate the timing of their changes relative to how the economy as a whole changes.

Leading:

Leading economic indicators are indicators, which change before the economy changes.

Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession.

Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future.

Coincident:

A coincident economic indicator is one that simply moves at the same time as the economy does.

The Gross Domestic Product is a coincident indicator.

Lagged:

A lagged economic indicator is one that does not change direction until a few quarters after the economy does.

The unemployment rate is a lagged economic indicator, as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve.

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Relationship Between Stock Markets and other economic indicators

We have observed the relationship between stock markets and different categories of economic indicators such as :

1) GDP (It’s a measure of Total Income, Output and Spending of the economy)

2) Industrial Production and Capacity Utilization (It indicates the Production and Business Activity in the economy)

3) Stock markets

All these economic indicators are procyclic (or procyclical) economic indicators.

A procyclic indicator is one that moves in the same direction as the economy.

So, if the economy is doing well, this number is usually increasing, whereas if we’re in a recession, this indicator is decreasing.

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Stock market is also a procyclical and a leading indicator.

We have studied the correlation between the GDP growth rate and stock price movements of Japan, Germany, UK and USA and India.

All the data indicates that there is a positive correlation and real share prices changes leads the GDP growth rate.

However, there is time lag ranging from at least 6 months to 1 year.

Lower the correlation between the two, higher is the time lag.

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Real share price movements appeared to have the best predictive ability on GDP growth and lead the changes in economic activity.

Therefore, we can say that, stock markets are the reflection of the future performance of the country’s corporates.

So if the corporate performance is expected to improve, the markets account for the upside in advance.

This implies stock markets are leading indicators of the economic growth of the country.

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Next Blog we would touch upon issues like what current economic indicators reflect about the state of Indian and global economy in coming months 🙂

Moreover what are the general effects of the stock maket indices on the economic performance of the country.

Stay Tuned for more and more on this 🙂

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