Weekly Commodities Report 09-05-11

8/6/2019 Weekly Commodities Report 09-05-11

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09th May, 11

Way2Wealth Research is also available on Bloomberg (WTWL <GO>)

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WORLD of COMMODITIES I METALS, ENERGY & AGRI

Key Highlights

Increased silver volatility; look moretoward gold to hedge systemicfinancial risk

Mixed macro economic numbers creatingdoubts on US dollar index

Gold might be firm as concerns have notyet eased

Silver likely to be volatile; ratio wouldfavor gold in near term

Crude Looks to gains; as mkt.overreacted for US inventorynumbers

BMs seem to gain in short run, butmedium term depends on Chinesemonetary policy

Cancelled warrants is only major cue forthe BM’s now

CME Review: Investor shuffling hasresulted in sell off in agricommodities

Global edible oilseeds appreciationmight be capped by betterprospects of Argentina crop

Of Indian soy complex, Oil seems to beweaker as less import demand

Indian Oil price outlooks seems to be

weaker due to less buying inphysical mandies

Indian edible oil imports parities aregradually widening

Despite Arrivals, Strong off take Likely tokeep pepper strong

Rains damaged the harvesting crop ofchilly likely to keep prices firm

Turmeric Turns firmer; seems to recoverfrom current levels

Guar Complex Likely to Be Range BoundWith positive Bias Due to goodofftake

Mentha oil sentiment turns weak; Likelyto be weaken further in near future

First forecast of IMD’s Monsoon forcast is98 percent of normal

Commodity Indices

Indices Latest Previous WTD % MTD % YTD %

Roger 3982.57 4405.53 -9.60 -9.60 2.21

DJIA 12638.74 12810.54 -1.34 -1.34 9.17

Forex MovementCurrency Latest Previous WTD % MTD % YTD %

USD-INR 44.73 44.23 -1.12 -1.12 -0.04

USD-EURO 1.45 1.49 -2.19 -2.19 8.71

USD-JPY 80.22 81.33 1.38 1.38 1.37

DOLLAR IDX 74.91 72.93 2.72 2.72 -5.21

Performance of Equity Indices

Indices Latest Previous WTD % MTD % YTD %

INDIA

SENSEX 18518.81 18998.02 -2.52 -3.23 -9.70

NIFTY 5551.45 5701.30 -2.63 -3.44 -9.50

CNX 500 4460.45 4573.65 -2.48 -3.36 -9.72UNITED STATES OF AMERICA

DJIA 12638.74 12810.54 -1.34 -1.34 9.17

NASDAQ 2827.56 2873.54 -1.60 -1.60 6.58

S&P 500 1340.20 1363.61 -1.72 -1.72 6.56

EUROPE

FTSE 100 5976.77 6068.16 -1.51 -1.53 1.30

ASIA PACK

HANG SENG 23159.14 23805.63 -2.72 -2.37 0.54

NIKKEI 9859.20 9671.96 1.94 0.10 -3.61

Economic Release calendar (09/05/11 to 12/05/11)Cutry Economic Data

Exp-ected

PriorDuedate

Re-Marks

EC Sentix Investor Confidence - - 14.2 09/05 NA

US Wholesale Inventories 1.00% 1.00% 10/05 Unc

CH Ind. Prod. (YoY) 14.60% 14.80% 11/05 Dec

US Trade Balance -$47.0B-$45.8B

11/05 Inc

US Monthly Budget Statement -$65.0B -$188.2B 11/05 Dec

IN Ind. Prod.YoY 3.80% 3.60% 12/05 Inc

UK Ind. Prod. (YoY) 1.10% 2.40% 12/05 Dec

UK Manuf. Prod. MoM 0.40% 0.00% 12/05 Inc

EC Ind. Prod. (YoY) 0.50% 7.30% 12/05 DecUS Initial Jobless Claims - - 474K 12/05 NA

US Adv. Retail Sales 0.60% 0.40% 12/05 Inc



09th May, 11





Gold Close* Close#

Open 1566.8

High 1577.4 22835

Low 1462.5 21641

Close 1491.6 21880

% Change -4.16 -3.30

OI 320462 12459

%Chg OI -8.07 -15.74

Vol 1243427 230846

% Chg Vol 264.24 35.22

• USD/Troy Ounce; # INR/10 gms

US dollar i ndex continued to be under pressure to

keep gold higher

600

800

1000

1200

1400

1600

1800

Apr-11Sep-10Feb-10Jul-09Dec-08May-08

70

74

78

82

86

90

Gold USD/Troy Ounce USD Index

Silver Close * Close#

Open 47.97 70000

High 48.09 70000

Low 33.54 51970

Close 35.28 54919

% Change -27.38 -19.07

OI 627.00 14338

%Chg OI -58.70 364.61

Vol 8050.00 137827

% Chg Vol -98.71 -79.42

• USD/Troy Ounce; # INR/Kg

Crude Close $ Close#

Open 113.89 5040

High 114.83 5097

Low 94.63 4219

Close 97.18 4416

% Change -14.70 -11.24OI 2183098 9376

%Chg OI 69.73 -39.43

Vol 331066 778916

% Chg Vol -3.09 44.65

• USD/bbl; # INR/bbl

Bullions & Energy

Gold Over all commodity sell off triggered over the week has taken prices lower and the preciousmetals are one of the more susceptible in the current selling pressure. Positive economicdata and rising margins in CME have resulted in margin triggers. As a result gold has fallen

by 4.16 percent over the week. Though continuous decline in USD has pushed the preciousmetals higher over couple of weeks, the recent sudden spurt in USD triggered the sell off ingold. US dollar index has improved by 2.72 percent over the week after continuous sell offrom the beginning of the year.

Despite silver become so volatile, gold is trading consistently as the issues like sovereigndebt crisis in EU and recovery issues in US are still intact. On the other hand, gold, whichhas not performed as much as silver retaining gains while, silver has become as volatile asexchange decisions to raise margins are denting the volumes trades. Precious metals markeseems to be more volatile in the next couple of weeks as the uncertainty in the form ogeo-political are looming over the market sentiment. Apart from this, the major concernfor the long term are still alive in the form of inflationary pressures mounting in emergingmarkets in coming year will support gold as large scale bar hording growth has beenwitnessed in Middle East and other South East Asian Countries.

The long term seems to be constructive for gold, as secular weakness in dollar is being themajor driving factor. On the other hand, Indian gold has ended at INR 21820, down by 3.30

percent over the week.

Outlook for Dollar/GoldWe are expecting the gold to trade in the positive zone in the near term as the dollar indehas been on a weakening mode again. However, for the longer term, concerns such asinflation in EM and even DM’s thereafter might offers support for precious metals again. Onthe other hand, INR seems to depreciate from current levels at least for a week’s timemight keep Indian gold firm.

SilverSilver CME active month contract has settled at $35.28 an ounce, after touching a low o$33.54 over the week with wow losses of 27.38 percent. Silver has relatively underdoneover the week.

Silver is trading in volatile conditions in huge volumes over last three weeks. Triggers fothe current volatility appear to be another round of margins increase by CME Group, which

might dampen the non-commercial net longs in commodity. At this juncture, market seemto be more volatile and likely to trade lower in coming weeks.

Though gold/silver ratio has shown a turnaround after a continuous relative appreciation ofsilver, it has proved short-lived and it seems the current relative appreciation of silveseems to halt in the near term. We are of the view to sell silver to gold as the ratio is onceagain favorable for gold to buy/silver to sell. Gold/Silver ratio has reached multi year lowsof 32 recently.

Crude oilCrude oil too weakened due to strong USD, along with rising inventories in US as reportedby the DOE. On the other hand, macro economic numbers emanated from US last week havesupported crude oil to major extent.

The Crude also retreated after the Energy Department reported May 4 that oil supplies inthe U.S., the world’s largest energy consumer, increased 3.42 million barrels, or 0.9

percent, last week to 366.5 million, a six-month high. Supplies are 1.7 percent higher thana year ago. Gasoline demand fell 2.2 percent in the period ended April 29 to 8.94 millionbarrels a day

Outlook for CrudeCrude oil is expected to consolidate from current levels with positive bias in the near termand on the other hand natural gas seems to fall as weather is no more a concern now



09th May, 11





• USD/Ton; # INR/10 Kg

0

5

10

15

20

25

Nov-08 Jun-09 Jan-10 Aug-10 M ar -11

%of Cancel led Warrants to Total 2 yr . AverageSource:Bloomberg,Way2Wealth Research

Copper Inventory

0

100000

200000

300000

400000

500000

600000

Nov-08 May-09 Nov-09 May-10 Nov-10

Zinc Close $ Close

Open 2230 100.9

High 2269.75 102

Low 2048 91.75

Close 2140 96.8

% Change -4.46 -4.35

OI 3939 8479

%Chg OI 31.83 119.83

Vol 85700 96758

% Chg Vol -12.66 45.91

Base Metals & Steel

Base metals prices were not spared from the sell-off, although we believe the movewas currency and positioning related. While we think the heightened volatility will

persist near-term, we remain supportive toward the complex in the medium to longterm.

CopperThe recent Chinese tightening policy and less import of copper and strong dollar hasresulted in sell off in copper. On the other hand, percentage of cancelled warrants at LMEware houses has been declining and they are below 5 percent over the week. The recentChinese tightening monetary policy is throwing idea of expected inflation in EM countriesHowever, this is perceived to be detrimental to the manufacturing industry as the cost ocredit could be higher. Chinese inflation has been discounted to limited extent. Cancelledwarrants in copper are gradually moving up—which generally keeps the prices to escalate—to above 5 percent from a high of 9 percent reported a month back. Any spike above 9percent might pull prices strongly on the higher side.

Though Chinese imports of refined copper and alloy imports are stronger in January whencompared with the last couple of years, February imports have fallen significantly. Thoughthe imports numbers are generally picks up from January onwards till May, surprisinglyFebruary import numbers came on lower side by 26 percent M-o-M.This one of thedisappointing for copper in the near term.

LME third month active contract settled at USD 8830, down by 5.27 percent. On the othehand, domestic copper has ended relatively better when compared with LME. MCX nearmonth contract has settled at INR 399.9 over the week, down by 4.1 percent.

Outlook for CopperGiven the recent challenges facing the global markets, we were encouraged by the Aprimanufacturing PMIs released last week that showed global industrial growth still growingalbeit at a slower pace.

Inventories LME Comex SHFE Total Region wise Cancelled TonnagePrev. week* 376 65 132 574 Region Asia Europe USA

CurrentWeek*

381 65 130 577

Weighted %Chg 0.22 0.02 0.52 0.3

Weighted% Chg

2.69 12.42 3.80

* Thousand tons

Previous CurrentStocks of Weeks’

Cons.1.60 1.61

Cash-3Mth. 9 19Estimated Diff. 10 12

ZincZinc prices too got a hit after steel prices have fallen on the global front. However, zinc isone of the least selling affected commodities over the week. Zinc ended lower by 4.46percent from the previous week with LME prices zinc to settle at USD 2140 over the weekHowever, MCX Active Zinc prices settled at INR 96.8, down by 4.35 percent W-o-W.

Strong US dollar and weaker steel prices are expected to cap gains in zinc in next week.Zinc is the only base metals in which cancelled warrants are literally zero, which is the

major cause of concern for price downside risk.

Outlook for ZincGlobal zinc prices might face strong resistance in the absence cancelled warrants despite ofthe fact that there are supply problems associated with it.

Copper Close $ Close

Open 9239.5 415.9

High 9380 423.95

Low 8657.5 393

Close 8830 399.9% Change -5.27 -4.10

OI 5812 24890

%Chg OI 113.44 871.13

Vol 221106 528101

% Chg Vol 78.77 33.34



09th May, 11





Alum Close $ Close

Open 2766 122.2

High 2803 124.15

Low 2565.25 114.5

Close 2608 116.7

% Change -4.96 -4.27

OI 11490 2996

%Chg OI 257.72 42.60

Vol 189333 20417

% Chg Vol 100.99 29.48

4594000

4596000

4598000

4600000

4602000

4604000

4606000

4608000

4610000

4612000

4614000

5-May4-May3-May28-Apr 27-Apr 26-Apr

6000

4000

2000

0

2000

4000

6000

8000

NET STOCK CLOSE

0

1

2

3

4

5

6

7

8

2/23/2009 8/23/2009 2/23/2010 8/23/2010 2/23/2011

Cancelled Warrants to Total Stocks Average

Base Metals & Steel continues…..

AluminumAluminium, which is stronger performance among base metals, too shed its earlier gainover the week. On the other hand sudden spurt in cancelled warrants over the week risinghopes of positiveness still intact. LME third month active contract closed down by 4.96percent to settle at USD 2565.25 per ton.

Though spike in cancelled warrants have supported aluminum in the recent past, market inow more looking on the recovery concerns in Europe, where the biggest aluminiumconsuming auto mobile is located. Once again the cancelled warrants have witnessed slowepace in American region, where the restocking has been witnessed due to positive macroeconomic numbers a couple of months earlier. In fact, global aluminium stocks have formeda saddle over the last couple of months, while cancelled warrants have droppedsignificantly to 3 percent from a high of 6-7 percent two month earlier. With the currenfall in cancelled warrants and marginal growth in global inventories would offer a ceiling tothe aluminium prices in the near term.

China said its aluminium industry faces severe overcapacity, with the total smeltingcapacity at about 20 million tonnes, exceeding demand by 7 million tonnes.The nonferroumetals industry will have to curb the excessive expansion in smelting capacity and phaseout outdated capacity.

Outlook for AluminiumThough good amount of cancelled warrants have pushed aluminium prices higher overcouple of weeks, again the same scenario seems to continue with a sudden spike incancelled warrants last week.

Inventories LME SHFE Total Region wise Cancelled TonnagePrev. week* 4435 434 4486 Region Asia Europe USA

CurrentWeek*

4532 430 4550

Weighted %Chg 0.12 0.0 1.1

Weighted% Chg 0.21 4.54 11.16

* Thousand tons

Previous CurrentStocks of Weeks’

Cons.

7.10 7.10

Cash-3Mth. -31.75 -31.75Estimated Diff. -42 -42

Lead Lead has slumped heavily over the week with over 8.73 percent fall over the week. Theactive third month contract has settled at USD2280, down by 8.73 percent. Huge built up ofinventories and strength in dollar has suppressed prices on lower side.

Rising lead inventories along with weakening cancelled warrants pressurizing lead pricesChinese demand for battery back up too reported positive gains over the week. The suddenrise in stocks to consumption levels of lead is exerting pressure over lead prices in the nearterm.

Outlook for LeadWe are expecting lead market to trade range bound to positive biased due to excess sell offin the recent couple of weeks.

Lead Close $ Close

Open 2505 112

High 2525 114

Low 2200 99.35

Close 2280 104.75

% Change -8.73 -7.67

OI 2685 3493

%Chg OI 115.84 30.82

Vol 42524 72193

% Chg Vol 41.89 53.02



09th May, 11





Soybean CME Ncdex#

Open 1391.00 2406

High 1402.50 2411

Low 1306.50 2253.5

Close 1326.00 2304.5% Change 5.13 -3.96

OI 262686 110630

%Chg OI -0.99 -26.82

Vol 441200 219170

% Chg Vol -22.17 6.93

• cents/Bushel; # INR/100 Kg

Argentina Basis Vs. Flat Prices of Soy Degum $/Ton

-350

-250

-150

-50

50

150

Jan-10 M ar-10 Apr-10 Jun-10 Aug-10 Nov-10 Jan-11 Feb-11 Apr-11

720

800

880

960

1040

1120

1200

1280

1360

Basis

2yr Avg Basis

FlatSource:way2wealth Research, Bloomberg

Argentina basis seems to be weaker till arrivals come

to an end in May;flat prices may weaken further as US

crop is al so progessing well

G seed Close

Open 3040

High 3226

Low 3000

Close 3181

% Change 0.03

OI 145540

%Chg OI -4.39

Vol 1164240

% Chg Vol -30.68

G gum Close

Open 8690

High 9350

Low 8589

Close 9286

% Change 1.74

OI 8345

%Chg OI -33.40Vol 48650

% Chg Vol -9.85

Agri Commodities

Edible oils & oilseeds:Global edible oils prices have shown mixed tendency over the week with global pricemoved up and down while the domestic traded soy complex has fallen significantlyCanadian farmers intend to boost oilseed and grain plantings by 3.5 Mn ha or 15% from lastyear. Planting intentions for canola are above average expectations at 7.78 Mln ha, the fiftconsecutive increase. The Canadian canola crop could reach a record 13.0-13.5 Mln T in2011. Argentine soya oil exporters recently faced a lack of demand from China and India.However, soya oil exports to North Africa were impressive at 0.35 Mln Ton so far thiseason, up 89% on the year. We expect sharp increases in sunflower plantings in Russia andUkraine to new record levels this year, creating the potential for a record crop of 7.0-7.5Mn T in Russia and of 8.1-8.5 Mln Ton in Ukraine US soybean crush declined 7% inSept/March 2010/11, resulting from reductions in domestic soya oil demand and exports ofsoya meal.

The recent US Crush census report has indicated that biodiesel production has increased by69 percent M-o-M in Jan. As a result of this premiums are improving whereas Argentina basishas been softening as the harvesting starts in a couple of weeks ahead. The crop statureport from Argentina is almost good and the crop size is expected to be as high as 50 mlntons. Soybean would be under a bit pressure in the short run with the better crop fromArgentina.

Overview of Argentina Spot Market:It was a week with weaker flat prices following weaker CBOT. Still the heavy pressure onnear months is continuing when compared with the far months. The weak lineup for themonth of April has disappointed the market. June traded down to -315N for about 25K tons.

Though harvest has been delayed over the week due to poor weather, good yields arereported in few areas. As a result of which, Argentina crop is expected to as high as 50 mlntons. On the other hand, Soy meal market remains dull over the week. Orders are in such away that hand to mouth situation. At the same time supplies in the form of offering are alson the side.

OutlookIndian soy complex is also under weaker trend as there are no major cues for the market aof now. And crushers are reluctant to buy at current levels due to limited crush margins. Sothere are fewer chances for soybean to make any further gains at this point of time.

Guar ComplexGuar futures ended higher over the week with Guar seed/gum reported gains of 0.03/1.74percent over the week. Arrivals in the Physical mandies have fallen to 10K bags. Arrivals arelower in Rajasthan and Haryana while the off take is still on the higher side. According totraders, enquiries for guar gum are still strong enough as major demand is coming from oiland gas sector, which has been showing strong performance over the last couple of months.There are reports that 84 percent of the guar seed crop has already been sold to the extentof 90 percent. The only cause of concern would be as high as 93K tons of stocks are still laidin Exchange warehouses with the intension of delivery. Though the IMD weather report isfavorable for higher production in 2011, there are studies that farmers are more likely to gofor cotton plantation instead of guar as this has fetched higher remuneration this year. Theguar gum /seed ratio has reached 2.86 percent from last weeks 2.82 percent.

Outlook for GuarOur view on Guar complex as a whole is positive as there is good off take in the physical

markets amid strong demand for guar gum from the overseas players.



09th May, 11





Temperature Levels

Rainfall Activity

Rabi(Winter) Sowing Figures 2010-11(in lakh hector) 28-01-11

Comdty 2011 2010 Abs

Wheat 291 282 8.9

Tot Cerea 370 368 2.2

G. Nut 7.0 7.97 -1.0

Sunflower 5.1 8.4 -3.3

RM Seed 72.4 65.2 6

Oilseeds 94.0 90.8 3.2

Weather Watch

• For the country as a whole, the rainfall for the season (June-September) was 102%of its long period average (LPA) of 89 cm.

• Seasonal rainfall was 112% of its LPA over Northwest India, 104% of its LPA oveCentral India, 118% of its LPA over south Peninsula and 82% of its LPA oveNortheast (NE) India.

• Monthly rainfall over the country as a whole was 84% of LPA in June, 103% of LPAin July, 106% of LPA in August and 113% of LPA in September

The kharif crop has shown mixed trend of huge fluctuation in terms of productionParticularly edible oils production dropped significantly due less acreage covered undeGround nut and sunflower. Since we are ahead of key Rabi crop plantation season,increased moisture due to season end heavy rains would increase the plantation, howeverRape plantation is still under moisture concern.

Groundnut and sunflower, the highest oil yielding seed varieties, were down by 1.2 and 3.3lakh hectares Y-o-Y. Soybean is marginally lower from the previous year by 0.2 percent.

Source: IMD & Agri Ministry for this page.

Crop Progress



09th May, 11





RESEARCH TEAM

K.N.Rahaman Deputy Research Head Equities & Commodities [email protected]

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Contact 022-40192900

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Weekly Commodities Report 09-05-11

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Transcript of Weekly Commodities Report 09-05-11