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Transcript of Commodity Outlook Final
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8/6/2019 Commodity Outlook Final
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Annual Commodities Research Magaz(For private circulation o
C MMODITYO U T L O O K
WHAT'S NEXT IN COMMODITY?
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SMC
TAXTAX
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Dear Readers,
As 2010 sun has set, we are again here before you with our new edition commo
outlook 2011 for the third time in a row. It is your belief, love and affection which h
been acting as a driving force behind our success. Moreover your most valu
feedbacks are also valued. It is our endeavor to help you out in every step of y
investing. We believe both economy and your wealth to grow simultaneously.
No sooner had the world economy started reviving up after the global crisis, almost al
commodities and commodity based companies enjoyed wonderful gains. Only a
commodities did not perform well due to the supply glut situation. Fresh bu
stimulated by dollar weakness, improvement in economic activities, second roun
quantitative easing, increased public spending, currency dynamics etc. But what
more significant was investment demand, which gained huge acceptance all the
through 2010.
What happened is history, what's in store for 2011 is more important2011 may n
an easy year for investors. Right from mid 2009, we have seen spellbound recove
commodities on cocktail of factors. But it appears for sure; 2011 would be rememb
for its monetary tightening spree. Especially, some countries like Australia, China, In
New Zealand etc already have started tightening their monetary policies. The Ban
China celebrated Christmas Eve raising interest rates by 25 basis points; the second
in just over two months. This hike is expected to cap the upside of commodities.
prevailing rally in commodities is not purely based on demand supply equilibrium
also of investment demand. Now the major concern is to soak the liquidity from
market; if Government of major economies opts for monetary tightening then inves
worldwide would pull out money from the market which may result in some signifi
downside. But, on the brighter side, it will offer a buying opportunity at lower le
Moreover, it will be fortunate thing for the real recovery of world economy.
Climatic condition plays a major role; good monsoon is painting a buoyant pic
Constructive development in consumer durable, automobile and other important sec
boosted the confidence of commodities. In India, consumer durable market is likel
witness an annual growth of 40% in the next fiscal 2011-12 which may give posiimpact on commodities. However, risk associated with higher commodities prices ca
be ruled out, particularly on the situation when prices of many commodities move
weakness in tandem with other market to some extent rather than on their intrinsic m
Apart from monetary policy, demand supply equilibrium, currency play, investm
demand, US Dollar Index may pave the path of commodities bull-run. This time reco
is significantly different as it has started across emerging economies, BRIC (Brazil, Ru
India and China). If these economies maintain the pace of growth without reducing
dependency on commodities, then commodities are more likely to trigger fresh buyin
In nutshell, there is a considerable risk in both the directions. On one hand expe
tightening of monetary policies, lingering sovereign risk in European Union amid su
glut in few commodities may keep a check on bulls while on the other side, hea
growth in many emerging economies and higher liquidity in the market may invite b
to run a race.
Jagannadham Thunuguntla Head-Research
Commodity Fundamental TeamVandana Bharti Sr. Research AnalystSandeep Joon Sr. Research AnalystShitij Gandhi Research AnalystSubhranil Dey Research Analyst
Supportive TeamShivanand Upadhyay Content Editor (Hindi)Kamla Devi Content EditorPramod Chhimwal Graphic DesignerSimmi Chibber Research Executive
CORPORATE OFFICE11 / 6B, Shanti Chamber,Pusa Road, New Delhi 110005.Tel: 91-11-30111000, Extn. 6976, 6942, 6953Fax: 91-11-25754365
Printed and Published on behalf of
SMC Global Securities Ltd.11/6B, Shanti Chamber, Pusa Road,
New Delhi-110005Website: www.smcindiaonline.comInvestor Grievance : [email protected]
sclaimer : This report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to you. It is only for private circulation and use .The report is based upon information that we c
iable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of the report. The report should not be reproduced or redistributed to any other person(
rm without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its a ffiliates, associates, representatives, directors or employees shall be responsible
ss or damage that may arise to any person due to any action taken on the basis of this report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individua
a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain pe
me. The person should use his/her own judgment while taking investment decisions. Please note that we and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance if this material;(a) from time t
ay have long or short positions in, and buy or sell the commodities thereof, mentioned here in or (b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market make
mmodities discussed herein (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.
Page No.
1. Performance of 2010 & Road ahead 2011 2
2. Chart Indicators explained 3
3. Commodity Performance 2010 4
4. Asset Class Comparison 2010 55. Span of price movement 6
6. Fundamental calls performance in 2010 7
7. Economic Indicators 8-9
8. Base Metal production graph 10
9. Production & Ratio comparison 11
8. Flashback 2010 & Outlook 2011
i. Ferrous and Non- Ferrous Metals 12-18
ii. Bullions 19-21
iii. Energy 21-23
iv. Spices 24-27
v. Other Commodities 27-30
vi. Oilseeds 30-32
(Vandana Bh
Contents
Happy Investing in commodities
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COMMODITY OUTLOOK 20ommodity Performance
Amazing facts of Metals and Energy
Energy
FWorld's First Oil Production: Way back in the year 327, Chin
engineers used bamboo pipelines to drill 240 meters below
surface to extract the earliest drops of oil.
FWorld's Largest Offshore Oilfield: Measuring 50 kilometers b
kilometers, the Safaniya field in Saudi Arabia is the world's lar
offshore oilfield. Discovered in 1951, Safaniya is estimate
hold 37 billion barrels of oil and 151 billion cubic kilomete
gas. That's enough oil to fulfill U.S. demand for nearly five yea
Bullions
FGold is edible, and is put into fruit, jelly snacks, coffee, and te
some Asian countries. Even Europeans are known to put gold
in bottles of liquor.
FOne cubic foot of gold weighs half a ton and the largest gold
weighs 200 Kg.
FIn every cubic mile of seawater, there are 25 tons of gold. T
are 10 billion tons of gold in the oceans and Only 88000 ton
gold have been mined from the earth since records were kept.
FSilver has been coined to use as money since 700 BC and Silv
harder than gold, but softer than copper. The copper tough
the silver and makes it possible to use silver 925 for decora
and fashionable jewelry.
FSilver is used in long life batteries. Billions of silver oxide-
batteries are in use everyday powering everything from qu
watches to digital cameras.
Ferrous and Non Ferrous Metals
FThe first known use of copper dates back 10,000 years
average home today contains about 400 pounds of copper
electrical wiring, water pipes and appliances, while
automobile you drive contains about 50 pounds.
FWhen zinc is alloyed with copper, brass is made. And when t
alloyed with copper, bronze is made. Both brass and bronze
stronger than pure copper and do not corrode in air or w
except for a small amount of tarnishing.
FThe Statue of Liberty contains 179,000 pounds of copper
Copper's recycle value is so great that premium-grade scrap
at least 95% of the value of primary copper from newly mined
FIntelligent people have more zinc and copper in their hair.
Chart Indicators
200 days simple moving average
In general, moving averages plot the average price of a commodity over
a period of time. This magazine has charts which includes 200 days
simple moving average trend line. The reason behind was to determine
overall health of the commodities, taking into consideration the data of
past price movement. The calculation goes like this; we add up all the
closing prices for the past 200 market days and divide by 200. A long
term analysis can be done tracking the price movement along the 200
SMA trend. When a commodity current price breaks below its average
price for the past 200 days, it is considered to have broken its long-term
trend. This is bearish because it means that every new buyer of the
commodity is willing to pay less than the average price paid for the past
200 days. It is just the opposite, when the commodity turns bullish. In a
bear market, the 200 Day Moving Average often works as a major
resistance level, however a break above it can lead to a sharp rise. In
other words, if the moving average indicator is sloping upwards then
the price is in an up trend, and if it's sloping downwards the price is
obviously in a down trend.
Volatility
As regards volatility which is also included in the charts given here, it
depicts the relative rate of percentage at which the price of a
commodity moves up and down. Volatility is found by calculating the
annualized standard deviation of weekly change in price. If the price of
a commodity moves up and down rapidly over short time periods, it has
high volatility. A higher volatility means that the price movement can
potentially be spread out over a larger range of values. This means that
the price of the commodity can change dramatically over a short time
period in either direction. A lower volatility means that a commodity
value does not fluctuate dramatically, but changes in value at a steady
pace over a period of time. It is very important to note that volatility
does not measure the direction of price changes.
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51.56
91.1
-1.31
-7.52
4.21
-7.87
-8.68
44.17
20.45
10.11
-11.20
1.22
28.75
-4.42
89.5-18.25
-11.00
-19.23
-40.00 -20.00 0.00 20.00 40.00 60.00 80.00 100
PEPPER
TURMERIC
CHILLI
CUMMINCARDAMOM
SOYABEAN
R M SEED
CRUDE PALM OIL
REFINED SOYA OIL
GUARGUM
GUARSEED
CHANA
MAIZE*
WHEAT
MENTHA OILCOTTON OIL SEED CAKE
POTATO**
GUR
S
PICES
OILSEEDSPACK
OT
HERS
% Chan
* upto 20th Sept. ,2010
** From 5th Jan. ,2010
Return of Agri Commodities from 1st Jan '10 till 15th Dec '10
COMMODITY OUTLOOK 20Commodity Performance
Source: Reuters and SMC Re
23.96
24.71
22.58
67.57
69.25
63.12
8.72
6.74
-28.25
-28.71
20.69
19.76
3.19
0.62
-12.97
-13.45
-3.06
-5.57
28.83
26.87
-7.29
- 40.00 -20.00 0.00 20.00 40.00 60.00 8
COMEX
LME Spot
MCX
COMEX
LME Spot
MCX
NYMEX
MCX
NYMEX
MCX
LME
MCX
LME
MCX
LME
MCX
LME
MCXLME
MCX
NCDEX
Gold
Silver
C
rude
Oil
Natural
Gas
Copper
Alumin
ium
Zinc
Lead
Nickel
Steel
Long
% ChReturn of Bullions, Metals and Energy from 4th Jan '10 till 15th Dec '10
Source: Reuters and SMC Re
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-34.81
15.32
-10.25
9.12
9.02
-3.24
-3.11
5.28
12.61
3.53
9.64
4.75
22.58
63.12
19.76
6.74
-28.71
-8.33
-8.97
-40.00 -20.00 0.00 20.00 40.00 60.00 8
Baltic Dry Index
LMEX
Shanghai Composite
Dow Jones
S&P 500
Nikkei
Bovespa
Hang Sang
Nifty
Dollar Index
RJ CRB
30 Year US Treasury
Gold
Silver
Copper
Crude Oil
Natural Gas
Euro
Japanese Yen
% CHA
Asset Class Comparison from 4th Jan'10 to 15th Dec'10
2010 has been tough year for all the asset classes as the euro zone debt concerns created ripple effect in various economies. And amid all this cr
precious metals like gold and silver reaped the maximum as investors flocked this asset class because both these metals are considered as frien
time of crises. White metal silver reaped the maximum and it gave the maximum return of more than 63% followed by yellow metal gold which g
22 percent. The base metals also performed satisfactorily as the LMEX grew by more than 15%. Copper which depicts the condition of the econ
also outperformed other base metals by giving return of more than 19 percent. Baltic dry index the key barometer of shipping movement dip
lower by 34% in 2010. Baltic Dry Index (BDI) has dropped 83% from its all-time-high of 11,700 in May 2008. Excess supply of ships and seas
factors affected BDI. While comparing global equity markets US Dow Jones gave 9 percent return in 2010 backed by quantitative easing w
Indian nifty gave nearly 12% return. Shanghai composite stock market tumbled more than 10% in 2010 owing to changes in tax norms
inflationary concerns. Japan Nikkei also gave negative return of more than 3%. On currency front euro dipped more than 8% in 2010 while do
index rose by nearly 3% as the euro zone debt concerns pressurized the euro dollar to greater extent.30 year US treasury bonds increased by 3%
energy front crude often known as black gold moved in range but gave positive return of nearly 6% on geopolitical tensions and weather conce
Natural gas performed badly and tumbled more than 28% owing to inventory pile up.
COMMODITY OUTLOOK 20Asset Class Comparison
Source: Reuters and SMC Re
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COMMODITY OUTLOOK 20The Olden Days
Span of price movement (Agro commodities)
Span of price movement (Metals & Energy)
COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2010 HIGH* 2010 LOW
COMEX 1431.10 252.50 1431.10 1045.20Gold
MCX 20924.00 5600.00 20924.00 15950.00
MCX 45735.00 7551.00 45735.00 23610.00Silver
COMEX 5035.00 194.50 3069.00 1482.30
MCX 6333.00 1626.00 4077.00 3229.00Crude Oil
NYMEX 147.27 9.75 90.76 68.01
MCX 591.80 118.60 279.40 144.70Natural Gas
NYMEX 15.78 1.04 5.76 3.21
MCX 421.40 117.60 421.40 284.10Copper
LME 9596.00 1323.00 9596.00 6037.00
MCX 151.50 62.20 110.00 85.90
Aluminium LME 3380.00 1290.00 2500.00 1828.00
MCX 208.30 49.90 123.20 74.35Zinc
LME 4580.00 759.00 2638.00 1577.00
MCX 154.40 40.50 122.00 72.55Lead
LME 3890.00 414.00 2650.00 1535.00
MCX 2253.90 442.30 1224.70 795.50Nickel
LME 51800.00 4310.00 27590.00 16975.00
Steel Long NCDEX 37500.00 15550.00 29650.00 22710.00
Source: Reuters and SMC Re
COMMODITY LIFE TIME HIGH LIFE TIME LOW 2010 HIGH* 2010 LOW*
SPICES
Turmeric 16350.00 1666.00 16350.00 6600.00
Cummin 16599.00 4877.00 15915.00 10170.00Chilli 8034.00 1731.00 8034.00 3833.00
Pepper 23338.00 5350.00 23338.00 12447.00
Cardamom (MCX) 2097.00 218.20 2097.00 868.00
OTHER COMMODITIES
Chana 3345.00 1427.00 2563.00 2066.00
Wheat 1461.00 662.00 1461.00 1111.20
Mentha Oil (MCX) 1305.80 342.00 1305.80 553.60
Guar Seed 2872.00 1015.00 2804.00 1928.00
Guar Gum 6550.00 3235.00 6550.00 4348.00
Gur 1221.00 361.40 1179.80 897.00
Maize 1211.00 500.00 1211.00 845.50OILSEEDS
Crude Palm Oil (MCX) 535.50 228.50 535.50 344.20
Soybean 2826.00 1104.00 2408.00 1878.00
RM Seed 675.00 317.25 618.00 463.80
Ref. Soy Oil (NCDEX) 729.20 337.70 596.30 437.50
Ref. Soy Oil (MCX) 725.70 337.05 596.00 436.00
* till 15 December 2010
* till 15 December 2010Source: Reuters and SMC Re
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COMMODITY OUTLOOK 20
Date Commodity Name of Analyst Name of Reports Name of Commodity Trend Given Levels Targets % Retu
05.04.10 Metals & Energy Shitij Gandhi &
Sandeep Joon Energy report April 2010 Target m
12.04.10 Oilseeds Subhranil Dey Special report on Oilseeds Soyabean(NCDEX) Buy 2000 2200 Made
high of 2
12.04.10 Oilseeds Subhranil Dey Special report on Oilseeds CPO(MCX) Buy 370 390 5.41
19.04.10 Lead Sandeep Joon Trading opportunity
report in Lead Lead(MCX) Sell 100 93-88 12.00
27.04.10 Pepper & Cummin Subhranil Dey The Move of Pepper & Cummin Pepper(NCDEX) Buy 16500 18000-18500 12.12
27.04.10 Pepper & Cummin Subhranil Dey The Move of Pepper & Cummin Cummin(NCDEX) Buy 12900 14500-15500 20.16
03.05.10 Bullions & Energy Shitij Gandhi Special Bullions & Energy
report May 2010 Gold(MCX) Buy 17100 17350-17550 2.63
04.05.10 Base Metal Sandeep Joon Special Base metal
report April 2010 Zinc(MCX) Sell 101-102 95-93-90 11.76
02.06.10 Base Metal Sandeep Joon Special Base metal Aluminium 10.41 (
report June 2010 (MCX) Sell 95-96 86-83-82 Target m
03.06.10 Bullions & Energy Shitij Gandhi Special Bullions & Natural Gas 20.00 (
Energy report June 2010 (MCX) Buy 200 220-230-240 target m
05.07.10 Bullions & Energy Shitij Gandhi Special Bullions & Made
Energy report July 2010 Natural Gas(MCX) Buy 210-220 240-250-260 high of 2
05.07.10 Base Metal Sandeep Joon Special Base metal No targ
Report July 2010 Lead(MCX) Sell 82-84 78-73 met(NA
22.07.10 Zinc Sandeep Joon Trading opportunity report 5.50 (1
in Zinc ZINC(MCX) Buy 90-91 96-98 Target m
04.08.10 Gold Shitij Gandhi Trading opportunity
report in Gold Gold(MCX) Buy 18000- 18250-
18100 18300-18400 2.22
20.10.10 Aluminium Sandeep Joon Trading opportunity report
in Aluminium Aluminium(MCX) Sell 104-106 102-100-98 4.24(Fi
target m
03.12.10 Copper Sandeep Joon Monthly Base metal report Copper(MCX) Buy 396-400 310-318-325 7.3(Al
target m
13.12.10 Steel long Sandeep Joon Trading opportunity
report in Steel long Steel long(NCDEX) Buy 25400 26000- 6.2(Al
-25700 26500-27000 target m
Special Bullions & Nickel (MCX) Buy 1100 1225-1260 11.36 (
Fundamental calls performance in 2010
Fundamental Calls Performance 2010
* Investors can read the special and trading opportunity reports on our website www.smctradeonline.com in research section
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COMMODITY OUTLOOK 20Economic Indicators
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
%Change
U.S Existing Homes Sales (SA)
Source: Reuters and SMC Re
1-Jan
-05
1-Mar-05
1-May
-05
1-Jul-
05
1-Sep
-05
1-Nov
-05
1-Jan
-06
1-Jan
-07
1-Jan
-08
1-Jan
-09
1-Jan
-10
1-Mar-06
1-Mar-07
1-Mar-08
1-Mar-09
1-Mar-10
1-May
-06
1-May
-07
1-May
-08
1-May
-09
1-May
-10
1-Jul-
06
1-Jul-
07
1-Jul-
08
1-Jul-
09
1-Jul-
10
1-Sep
-06
1-Sep
-07
1-Sep
-08
1-Sep
-09
1-Sep
-1
1-Nov
-06
1-Nov
-07
1-Nov
-08
1-Nov
-09
-300000
-200000
-100000
0
100000
200000
300000
400000Initial jobless claim U.S
14-Jan-0
5
14-Jun-0
5
14-Nov
-05
14-Ap
r-06
14-Feb-0
7
14-Jul-0
7
14-Dec-07
14-M
ay-08
14-O
ct-08
14-M
ar-06
14-Au
g-09
14-Jan-1
0
14-Jun-1
0
14
Source: Reuters and SMC Re
Inthousand
Purchasing Manager Index
Absolutevalue
Source: Reuters and SMC Re
25.00
30.00
35.00
40.00
45.00
50.00
55.00
60.00
65.00
Monthly PMI (U.S) Monthly PMI (EU) Monthly PMI (China)
1-Ap
r-05
1-Ju
n-05
1-Au
g-05
1-Oc
t-05
1-De
c-05
1-Feb-06
1-Ap
r-06
1-Ju
n-06
1-Au
g-06
1-Oc
t-06
1-De
c-06
1-Feb-07
1-Ap
r-07
1-Ju
n-07
1-Au
g-07
1-Oc
t-07
1-De
c-07
1-Feb-08
1-Ap
r-08
1-Ju
n-08
1-Au
g-08
1-Oc
t-08
1-De
c-08
1-Feb-09
1-Ap
r-09
1-Ju
n-09
1-Au
g-09
1-Oc
t-09
1-De
c-09
1-Feb-
10
1-Ap
r-10
1-Ju
n-10
1-Au
g-1
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COMMODITY OUTLOOK 20Economic Indicators
US non farm payroll has shown stunning recovery from Economic Indicators commentary 20102009 to last quarter 2010 which show's creation of job
The PMI of various key countries like US, Japan, China and Indiamanufacturing sector.
performed very well from late 2008 to second quarter of 2010.
The housing data in US has not seen the kind of recoverReading above 50 indicates expansion.expected. Existing home sales data recovered drastically f
US Jobless condition also improved in the year 2010 due to focusfirst quarter 2008 to last quarter of 2009 but there after plun
by Obama government on job creation. Jobless situationlower.
increased at rapid pace in the 2007-08 and peaked in beginningCPI (consumer price index) of U.S and China Consumer pof 2009.But during last quarter of 2010 jobless condition also
index fluctuated nearly zero.started creeping up.
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
%Change
U.S Monthly Non Farm Pay Roll (SA)
Source: Reuters and SMC Re
1-Jan
-05
1-May
-05
1-Sep
-05
1-Jan
-06
1-Jan
-07
1-Jan
-08
1-Jan
-09
1-Jan
-10
1-May
-06
1-May
-07
1-May
-08
1-May
-09
1-May
-10
1-Sep
-06
1-Sep
-07
1-Sep
-08
1-Sep
-09
1-Sep
-10
Consumer Price Index
Consumer Price Index, U.S China Monthly CPI Source: Reuters and SMC Re
Jan-0
5
Jun-0
5
Nov-0
5
Apr-0
6Jul-0
7
Oct-0
8
Jan-1
0
Sep-0
6
Dec-07
Mar-0
9
Feb-0
7
Aug-0
9
- 5
- 4
- 3
- 2
- 1
0
1
2
3
%Change(Periodonp
eriod)
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COMMODITY OUTLOOK 20Economic Indicators
Zinc Production in World Nickel Production in World
Copper Production in World Lead Production in World
Source: Reuters Source: Reut
Source: Reuters Source: Reut
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0.00
5.00
10.00
15.00
20.00
25.00
Crude & Gold Ratio
0.00
5.00
10.00
15.00
20.00
25.00
Crude & Natural Gas Ratio
Source: Reuters & SMC Research Source: Reuters & SMC Re
Source: Reuters Source: Re
Gold Production in World U.S. NatGas Demand
COMMODITY OUTLOOK 20Economic Indicators
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
he year 2010 witnessed roller coaster ride for the entire base Aluminum traded on extreme volatile path in 2010 in wide rang
metals pack except copper which showed steady upside 85-110. Strike concerns also supported the prices higher. Tmomentum. In the year gone by base metals has affected by a Billiton's aluminum smelter in South Africa went on stseries of adverse developments in EU, China and US. The European demanding on better wages, this sent prices higher. Japanese bu
debt crisis returned to the forefront while China only hiked its were able to get a deal with cut in premiums for fourth consecureserve requirement moved to tighten policy in response to a quarter. Premiums, which are charged over the LME price
growing inflation problem and North Korea made an aggressive include freight and other costs, are set at $112/tonne as aga
military strike against South Korea. In the U.S. the Fed was under $116 to $118/tonne.
attack raising questions about the fate of its quantitative easingIn the month of October the rate of expansion in euro-z
program and tax policy in 2011 remains unknown.manufacturing production accelerated for the first time in th
The fed reserve second round of quantitative easing played the key months which gave the indication that economy is back on t
role in recovery of base metals in 2010. The belief that Federal again. In US the job data also gave some hope of recovery
Reserve's injection of $600 billion to shore up the economy will showed increase in payroll data. U.S. auto sales attained the
accelerate inflation and increase demand for raw materials pushed monthly rate of the year in October which gave demand for
copper prices to life time highs. metals.
The EU crisis affected the global financial markets in 2010 but During the end part of the year some positive economic data from
European central bank also took many steps to support the and other emerging economies supported the base metals segm
respective countries to come out of debt crunch. In an effort to Also the decision of not hiking interest rates and just hiking res
prevent the contagion from spreading to other peripheral requirements also gave boost to the base metals in December mon
countries such as Portugal and Spain, the European Central BankChina hiked its reserve requirement by 50 basis point, which loc
(ECB) intervened to buy the bonds of countries that are shunned by350 billion Yuan. Increasing reserve requirements is a more di
the private markets. Supply concerns and labor disputes continuedapproach to absorbing the excess liquidity that has been spur
to support the copper in 2010.Chinese inflation. Shanghai Futures Exchange has increased mar
Copper showed the good jump in 2010 as its prices jumped by one and daily price limits in the latest move by China to curb specula
third from 300 to above 400 mainly attributed to global deficit, and cool inflation which only gave knee jerk reaction to base me
falling inventories and robust demand. Recently imports of copper The activities from China's State Reserves Bureau (SRB) also m
and products by China rose by 29 percent to 351,597 tonnes from impact on the prices. The periodically selling by China
273, 511tonnes in October 2010. China's monthly production of pressurized the prices which it bought during the price collapse
refined copper rose 10.8 percent in November due to an increase in accompanied the Great Contraction of late 2008 and early 2009.
supply of raw materials and strong metal prices.Furthermore European Union finance ministers agreed to an
Nickel remained volatile throughout 2010 as its prices jumped billion-euro ($115 billion) rescue package for Ireland which w
higher in first quarter from 900 to 1200 but plunged sharply lower help safeguard financial stability in the euro zone. But the fears
in May and June while again recovered in remaining part of the year. the crisis in Ireland will spread to its neighbors despite the fact
Strike concerns in Vale Sudbury have given support the prices to Ireland accepted an EU-IMF bailout capped the upside in base me
some extent in the first quarter of 2010. China steps to shut the polluting smelters also limited the supplythus supported the prices.
Lead and zinc tumbled like nine pins in the first half of 2010 as
prices tumbled from 120 to below 80 which was fall of more than one
third due to surge in greenback and Greece debt concerns .But both
lead and zinc have given recovered smartly in the second half of the
year.
12
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
LME SHFE Arbitrage
LME-SHFE arbitrage also has impacted on the prices of copper, zinc
and aluminum. In 2010 copper prices on the LME mostly traded at a
premium to Shanghai prices since August, some traders re-exported
copper to take advantage of arbitrage opportunities. SHFE have
changed rules that would allow the delivery of material from bonded
warehouses against commodities traded on Shanghai's Future
Exchange, a move that should bolster arbitrage trading between the
Chinese bourse and LME. The ability to deliver bonded stocks would
increase flexibility for traders, as they could keep the material in
Shanghai, but ship it out easily if domestic prices fall below
international prices. China's move to allow commodities in bonded
warehouses to be delivered against SHFE contracts without paying
the 17% VAT up front, would potentially ease tightness at the frontChina and emerging nations need copper because it is the m
end of the SHFE copper forward curve and reduce the incentive to re- important metal for a rapidly industrializing nation. Globally aveexport stockpiles. Less potential for re-exporting has positivesingle family home uses 439 pounds of copper in construction, aimplications for LME prices in the short term, but it also means moreconditioner uses 52 pounds and a refrigerator uses 4.8 poumaterial remaining in China, which could also suggest a slower paceWhile average vehicle contains more than 50 pounds of copperof imports related to restocking in the next few months.booming auto sales will support the prices. Cochilco, Chile's cop
With the SHFE-LME copper arbitrage now having to cope with a think tank is predicting a 3% growth in copper demand for 2dynamic Yuan, the rules of the game appear to have changed while supply is only going to grow by 0.7%. This deficit is the prdramatically. Econometric analysis on the latest SHFE-LME arbitrage reason which is driving the copper prices higher. COMEX gdata (from the beginning of July to November 10th) suggests that copper ratio has declined to 3.35 from 4.40 in June indicating currently, a 1% moves in the Yuan vs. the dollar, results in a 0.98% copper has risen at faster pace than gold. Meanwhile launcmoves in the arbitrage ratio. In other words, the SHFE-LME arbitrage
copper ETF in western countries may also create the investmcan essentially be regarded as a pure Yuan play at the moment. demand. Recently on December 10th, 2010 ETF Securities launc
world's first copper base metal physically backed exchange tra
product. Meanwhile strike concerns which can crop anytime will
support the prices any time. On 6 December 2010 workers atCOPPER.....
The star performer to shine more
The stupendous bull run in copper that started in 2009 and 2010 will
continue in 2011. But in second half of 2011 one can see some profit
booking. In 2010 global supply crunch can be stated by the LME
forward curve in backwardation. Meanwhile China's role in the
copper market rebound can't be overstated. World consumption of
copper has increased 14.9 percent from 2003-2009. But if we
exclude China from the equation and world copper consumption
swings in the opposite direction to a 14 percent decline over the
same time period. Meanwhile, the other BRIC countries (Brazil, India
and Russia) combined have seen their copper consumption to grow
15 percent since 2003.
Range: 350-550
0.0
20
40
60
80
10
100
150
200
250
300
350
400
450
Price&SMA
Weekly price, volatility & 200 SMA
chart of Copper futures (MCX)
Weekly Close Price 200 SMA Volatility (%)
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Ap
r-08
18-Jun-0
8
18-Aug
-08
18-O
ct-08
18-Dec-08
18-Feb-0
9
18-Apr
-09
18-Jun-0
9
18-Au
g-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Apr
-10
18-Jun-1
0
18-Aug
-10
18-Oct-10
340000
365000
390000
415000
440000
465000
490000
515000
540000
565000
590000
Tonn
es
Weekly warehouses stocks of Copper (LME)
Source: Reuters and SMC Re
4-Jan
-10
20-Jan-1
0
5-Feb
-10
21-Feb-1
0
9-Mar-10
25-M
ar-10
10-Ap
r-10
26-Ap
r-10
12-M
ay-10
28-M
ay-10
13-Jun-1
0
29-Jun-1
0
15-Jul-1
0
31-Jul-1
0
16-Au
g-10
01-Sep-1
0
17-Sep-1
0
03-Oct-10
19-Oct-10
04-Nov
-10
20-Nov
-
0 6
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
world's No.3 copper mine, Chile's Collahuasi, agreed to end the
longest ever strike at a major private mine in the top producing
country, which had stoked supply fears.
In order to meet its ever increasing demand for copper supply, China
has looked beyond its borders for new sources and China state
reserve bureau imported copper at brisk pace after Beijing
announced the $586 billion stimulus plan in November 2008. And in
the last year Chinese copper imports left copper in short supply for
everyone else, just as demand in the developed world is beginning to
turn around. It is expected that consumption in the U.S. is up by 5
percent in 2010 versus the same time period last year, with the
European Union up 12 percent and Japan up 37 percent. Rise in
demand coupled with a weak supply response will keep the supply
tight in 2011.Even if the recent round of quantitative easing has
acted as a catalyst for the rise in commodities, the rebounds of many 280,000 tonnes of nickel a year. The plant, as well as Norilsk's o
base metals and specifically copper presents a bullish outlook for the Australian units, was mothballed in 2009, as the global finan
rest of the economy. With copper and the stock market being lead crisis cut demand for metals. Production is scheduled to begin in
indicators of a very possible economic recovery, a continued rise in first half of 2011. In 2008 the enterprise produced 8,900 tonne
the metal's price will prove bullish. And considering the economic nickel in concentrate. According to London based Commo
realities of emerging market economies, and their continuous Research Bureau Nickel production may fall behind demand
appetite for commodities, it is clear that the BRIC countries and their year for the first time in four years on increased usage by
peers will continue to push up copper prices. stainless steel industry. Also nickel deficit is expected to be 20
metric tonnes this year after a surplus of 45,000 tonnes last year.
China's decision to raise production output of nickel in the comNICKEL..... year since it has more cost advantage than other regions may re
in oversupply of the metal. The weak global economic outlook, riRobust steel demand to lift Nickel prices
inventory, increasing output and declining demand from stain
steel industry may put downward pressure on prices. FurthermNickel which was truly been a underperformer in the base metals
pack in the past two years due to oversupply and feeble demand can
show steady recovery in 2011.Nickel prices the key ingredient of
stainless steel and steel prices depend upon the pace of global
economic recovery. The China's apparently insatiable hunger for
nickel will support the nickel prices. Vale Sudbury periodic strike
concerns also affect the supply. Meanwhile VALE is on the edge of
shipping its first nickel out of its long-delayed Goro mine in New
Caledonia. Initial plans are to sell 4,000 tonnes of nickel concentrate,
but by 2013 the facility could be producing 58,000 tonnes of pure
finished metal every year.
Nickel is an unusually difficult metal to work with, forcing producers
to process ore at very high temperatures, high pressure, extremely
caustic chemicals or a combination of the three. On mining front at
the moment, Russian nickel giant Norilsk is unlikely to feel the sting
of added competition for some time. Norilsk currently produces
Range : 900-1500
0400
600
800
1000
1200
1400
1600
Price&SMA
Weekly price, volatility & 200 SMA
chart of Nickel futures (MCX)
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Ap
r-08
18-Jun-0
8
18-Au
g-08
18-Oct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Aug
-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-O
ct-10
100000
105000
110000
115000
120000
125000
130000135000
140000
145000
150000
155000
160000
165000
170000
Ton
nes
Weekly warehouses stocks of Nickel (LME)
Source: Reuters and SMC Re
4-Jan
-10
20-Jan-1
0
5-Feb
-10
21-Feb-1
0
9-Mar-10
25-M
ar-10
10-Ap
r-10
26-Ap
r-10
12-M
ay-10
28-M
ay-10
13-Jun-1
0
29-Jun-1
0
15-Jul-1
0
31-Jul-1
0
16-Au
g-10
01-Sep-1
0
17-Sep-1
0
03-Oct-10
19-Oct-10
04-Nov
-10
20-Nov
-
0 6
Weekly Close Price 200 SMA Volatility (%)
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50
60
70
80
90
100
110120
130
140
150
Price&SMA
Weekly price, volatility & 200 SMA
chart of Aluminium futures (MCX)
COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
Australia's no. 2 nickel producer, had returned to normal operating
levels after completing scheduled maintenance work on its Murrin
nickel project. Russia's Norilsk Nickel, the world's largest nickel
producer, boosted nickel production in the first nine months of 2010
by 6 per-cent year on year which can pressurize the prices. The
International Nickel Study Group (INSG) expects the global nickel
market to be in a surplus of around 80,000 tonnes in 2011. Nickel
demand also hinges on the outlook for stainless steel. Meanwhile
China's steel products imports in the month of November rose by 21
percent to 1.38 million tonnes. While exports rose by a modest 1.7
percent to 2.91 million tonnes. Steel is the major user industry of
nickel. The usage of nickel pig iron in steel production affects the
demand of refined nickel in turn pressuring the prices lower. Nickel
pig iron (NPI) production in China has increased rapidly since itsoperations. Aluminum demand in China is not growing as inception in 2005 and now accounts for an estimated 45 percent ofexpectations but its demand outside of China is booming, with N
domestic nickel production. American demand up 15% year on year, to 3.9 Mt, in the first e
months of 2010, and demand from the EU up 18%, to 4.4 Mt over
same period. It is expected that that demand should still remALUMINIUM.....
healthy in 2011, but with high aluminum stocks on the LME
SHFE and the existence of huge off market stocks, and ample exPackaging and transportation demand to guide light
production capacity, can cap upside in prices. China reductiometal in 2011
power cuts will result in production cuts by mines ther
supporting the prices. For aluminum production China provinAluminium has also been through unpredictable movements in 2010
governments had been cutting power supplies to smelterand in 2011 prices may tend to be rather range bound with more of
Guangxi, Guizhou and Henan to help Beijing reduce its eneupside. Recently demand for metal used in autos to electronics have
intensity, cutting aluminum output. Meanwhile Japan imports been increasing in emerging markets as they witness increasingplay key role in the movement of aluminum prices. The appreciademand for consumer durables. Fuel is the key driver of aluminum
of Yuan also affects the cost of aluminum production in China wprices and increase in crude oil will have positive effect in the
will prompt China to further cut production. The annual ratproduction capacity in West Asia continues to increase as more and
primary U.S. aluminum production rose 8.4 percent to 1,757,more plants use gas based plants which are cheaper than the plants
that are run on power. Energy accounts for a quarter of production
cost of aluminum and with the use of gas this cost can be brought
down to 10 percent.
Aluminum prices are expected to move higher as demand from China
remains strong and prospects in developed nations like US and Euro
zone also improve. Chalco, the nation's biggest aluminum maker, alsoexpects world output to rise by 12 percent to 42.28 million tonnes
this year, while consumption to grow by 20 percent to 41 million
tonnes. On the supply side, output in China, world's largest producer
may take a hit as increasing power and raw material cost weigh on
producers' bottom line. As the country gears up to meet energy
saving requirements, there are reports that three smelters with
annual production capacity of 250,000 tonnes have closed down
Range: 80-140
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Ap
r-08
18-Jun-0
8
18-Au
g-08
18-O
ct-08
18-Dec-08
18-Feb-0
9
18-Apr
-09
18-Jun-0
9
18-Aug
-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Apr
-10
18-Jun-1
0
18-Aug
-10
18-O
ct-10
4100000
4150000
4200000
4250000
4300000
4350000
4400000
4450000
4500000
4550000
4600000
4650000
4700000
Weekly Warehouses Stocks of Aluminium (LME)
Tonnes
Source: Reuters and SMC Re
4-Jan
-10
20-Jan-1
0
5-Feb
-10
21-Feb-1
0
9-Mar-10
25-M
ar-10
10-Ap
r-10
26-Ap
r-10
12-M
ay-10
28-M
ay-10
13-Jun-1
0
29-Jun-1
0
15-Jul-1
0
31-Jul-1
0
16-Au
g-10
01-Sep-1
0
17-Sep-1
0
03-Oct-10
19-Oct-10
04-Nov
-10
20-Nov
-10
06-Dec
Weekly Close Price 200 SMA Volatility (%)
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
tonnes in November 2010 from 1,621,038 tonnes in November
2009, and was up by 0.6 percent from October's annual rate of
1,746,478 tonnes. So auto demand with position of production cuts
in China will decide the course of movement in Aluminum.
ZINC.....
Poor man's Copper-Zinc supply demand picture can
remain balanced
Zinc which is also known as poor man copper has witnessed roller
coaster ride in 2010 as first half proved havoc and the prices tumbled
lower while second half rejoiced bulls to some extent as the pricesdemand of 17.8% was primarily driven by strong recoverie
recovered. China is the key price driver of zinc. According to ChinaEurope, Japan and the Republic of Korea together with fur
Nonferrous Metals Industry Association Zinc consumption may growth in Chinese apparent usage of 13.9%. Mainly zinc is useincrease by 9.5% a year in the next 5 years on demand for galvanized
making car bodies. On mining front Miner Xstrata , the wosteel. Meanwhile zinc prices will get support from vehicles demand
biggest integrated zinc producer, will spend A$274 million ($as car sales in India continue to march forward as sales grew by 20.5
million) to boost output at its George Fisher mine in Australiapercent in November to 161,497tonnes. Sales of trucks and buses
nearly 30 percent by 2013.also grew by 18.3 percent. While in total vehicles sales in China also
grew by 27 percent in November to 1.7 million tonnes. Recently The solution of euro zone problem need to be closely watched
China clamped down on power intensive metals smelting in one of its
major producing regions, while a zinc smelter confirmed a pollution
related closure. Closure of mines will also lead to supply tightness.
Guangdong province, Shenzhen Zhongjin Lingnan Non-femet,
China's third-largest zinc producer, closed its Shaoguan lead and zincsmelter completely on Oct. 21 last year to comply with a pollution
investigation. The shutdowns are expected to extend in the
beginning of 2011, which could reduce 75,000 tonnes of refined zinc
output from China.
According to Lisbon-based International Lead and Zinc Study Group
the global zinc market was in surplus by 211,000 tonnes in the first
ten months of the year.
While over the same period inventory levels increased by 181 kilo
tonnes. An 11.3% rise in world zinc mine production was principally
due to increases of production in Australia, China, India, Finland,
Kazakhstan, Mexico and the Russian Federation. Increased output offurther direction of zinc prices. And it is eventually, fundamental refined zinc metal in Belgium, Brazil, Canada, Germany, India, Japan,restructuring is inevitable in Europe, and the insolvent countriesthe Republic of Korea, the Netherlands, Peru and the United Statesneed to go through a painful austerity process. Which will give sand a number of other countries resulted in global production risingrelief to EU debt problem.by 15.3% in 2010. Meanwhile rise in global refined zinc metal
Range: 70-135
0
1
2
3
4
5
6
7
8
9
1
0
20
40
60
80
100
120
140
Price&SMA
Weekly price, volatility & 200 SMA
chart of Zinc futures (MCX)
Source: Reuters and SMC Re
400000
425000
450000
475000
500000
525000
550000
575000
600000
625000
650000
675000
700000
Weekly warehouses stocks of Zinc (LME)
Tonnes
Source: Reuters and SMC Re
4-Jan-1
0
20-Jan-1
0
5-Feb-1
0
21-Feb-1
0
9-Mar-1
0
25-Mar-1
0
10-Apr-1
0
26-Apr-1
0
12-May-1
0
28-May-1
0
13-Jun-1
0
29-Jun-1
0
15-Jul-1
0
31-Jul-1
0
16-Aug-1
0
01-Sep-1
0
17-Sep-1
0
03-Oct-1
0
19-Oct-1
0
04-Nov-1
0
20-Nov-1
0
06-Dec
18-Dec-10
18-Feb-0
8
18-Apr
-08
18-Jun-0
8
18-Aug
-08
18-Oct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-O
ct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-Oct-10
Weekly Close Price 200 SMA Volatility (%)
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
LEAD.....
Global battery demand to dictate future
Lead prices whose demand is shouldered on demand of lead batteries
may trade sideways with upside bias in 2011. A smelter outage,
declaration of force majeure on deliveries, a flurry of cancellations of
metal at a nearby LME warehouse location are some of the key
factors which can give underlying support to the lead prices in 2011.
Demand from auto makers in emerging markets and investor interest
in new exchange-traded products in base metals are likely to drive
lead prices higher next year. According to China Nonferrous Metals
Industry Association Lead consumption may grow at 9% per year
before 2013 and then slow to 7.5% to 8% from 2013 to 2015.
Growing demand from China may outweigh any impact from debt
Given the strong automobile demand in nations like China and Inproblems in the euro zone. Generally battery makers restock aheaddemand for lead, metal used in batteries is expected to remain str
of the annual spike in replacement battery activity during theRecently China clamped down on power intensive metals smeltin
Northern Hemisphere winter. In the years gone by and in moreone of its major producing regions, while a lead smelter confirm
balanced market conditions LME lead stocks tended to fall over thepollution related closure. China's output can be reduced by 180,
second half of the year, particularly in the Northern Hemispheretonnes of refined lead which will create supply tightness. W
autumn months. That pattern stopped in 2009 and it is not evidentstocks of lead held in London Metal Exchange (LME) warehouses
this year either. LME stocks did have fallen over June and July but 1/2close to 10 year highs, shipments recently have been leavinthey have risen every month since then till December 2010.
diverse range of warehouse locations, suggesting a widespread Drawdowns of metal from the LME system have run at a healthy clip
up in industrial demand.over the last two months, totalling 13,425 tonnes. The recent cold
snap in Britain has led to a sharp jump in battery sales at European
car parts could boost demand for battery material lead. Lead acid
batteries used in cars and other vehicles are much more prone to
failing in extreme weather such as hard winters and hot summers.
Batteries account for about 80 percent of global consumption of the
metal. But dampening the bull expectations has been the steady rise
in LME stocks. The inventories of 203,850 tonnes are hovering just
below 10year highs.
China is now the world's largest producer of both autos and electric
bikes. Further strong growth in e-bikes and autos, and the growing
need for replacement batteries in the existing vehicle population
mean it is expected that Chinese per capita consumption to expand
by 70 percent by 2015 and 130 percent by 2020. It is still
unpredictable whether China has sufficient production capacity to
meet that demand growth or whether will require imports to fill the
gap.
Range: 80-145
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Price&SMA
Weekly price, volatility & 200 SMA
chart of Lead futures (MCX)
130000
135000140000
145000
150000
155000
160000
165000
170000
175000
180000
185000
190000
195000
200000
205000
210000
Weekly warehouses stocks of Lead (LME)
Tonnes
Source: Reuters and SMC Re
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Apr
-08
18-Jun-0
8
18-Au
g-08
18-O
ct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-O
ct-10
4-Jan
-10
20-Jan-1
0
5-Feb
-10
21-Feb-1
0
9-Mar-10
25-M
ar-10
10-Ap
r-10
26-Ap
r-10
12-M
ay-10
28-M
ay-10
13-Jun-1
0
29-Jun-1
0
15-Jul-1
0
31-Jul-1
0
16-Au
g-10
01-Sep-1
0
17-Sep-1
0
03-Oct-10
19-Oct-10
04-Nov
-10
20-Nov
-10
06-Dec
Weekly Close Price 200 SMA Volatility (%)
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COMMODITY OUTLOOK 20Ferrous & Non Ferrous Metals
STEEL LONG.....
Backbone of infrastructure hinges on growth from
emerging economies
Steel the shining metal demand in 2011 will be driven by emerging
markets, where growth has speed past a much slower recovery in
mature economies. According to the World Steel Association growth
in global steel demand is expected to slow to 5.3 percent in 2011. In
2011 global demand will be led by countries such as Brazil, Russia,
India and China - the so -called BRIC nations, while growth in the
developed world will be slower as maturing economies struggle to
recover from the global downturn. The global consumption of steel,
driven by the BRIC industrialization process, will continue to grow
but at a slower pace as compared to the recent extraordinary pace in
2010.Global stainless steel production may rise to 9 percent or by 1million tonnes to 12 million tonnes next year due to new capacity.
Indian steel consumption is seen more than doubling to 122 million
tonnes in 2015 due to robust investment and infrastructure demand.
The combination of demand from China and India is extremely
positive for the global steel industry Also the net effect of China
growth and accelerating India growth is going to have some very
serious implications for steel making raw materials they will be
driving demand for coal and iron ore.
World steel association has indicated that the steel demand growth
will slow to 5.3 percent in 2011 to 1.34 billion tonnes. Emerging
countries will continue to drive the demand ahead while tough
economic conditions in advanced nations will hinder accelerated
growth. Rise in raw material cost of steel like iron ore and coal will
also keep the steel prices outlook bright. With an increase in demand
from engineering, infrastructure and auto sectors, steel prices are
likely to remain high. Generally during the January-May period, steel
demand picks up due to an increase in the construction activity
across the country. Over 40% of the commodity produced in India
goes into the construction sector. The IIP data also shows the India
growth story and hence will push the steel demand if the figures
shows growth in 2011. Meanwhile India's industrial output grew atits fastest pace in three months in October 2010 beating economists'
estimates and driving away, for now, concerns over a slowdown in
economic activity. According to World Steel Association India is seen
emerging as the world's third biggest steel consumer after China and
the United States next year.
Range: 22000-33000
18000
23000
28000
33000
38000
Price&SMA
Weekly price, volatility & 200 SMA
of Steel Long futures (NCDEX)
chart
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Apr
-08
18-Jun-0
8
18-Aug
-08
18-Oct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-O
ct-09
18-Dec-09
18-Feb-1
0
18-Apr
-10
18-Jun-1
0
18-Au
g-10
18-O
ct-10
Weekly Close Price 200 SMA Volatility (%)
18
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8/6/2019 Commodity Outlook Final
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COMMODITY OUTLOOK 20Bullions
What a year it was for bullion counter..... poor man's gold has outperformed every metal and reached t
highest level in last 30 years in very short span of time. Local srices surged high as there is no stoppage or hurdle in
prices also wave along the tide and managed to test the 45000 lbetween their way. Sentiments became really positive for
on MCX platform. Silver mainly rode the coattails of gold's succes
Pgold and silver prices to sky rocket on domestic as well as on
weak economic conditions made precious metals a hot investminternational bourses. The world economy has seen turbulent timesavenue. Weaker dollar could mainly be attributed to gain
in the last 2-3 years, as the world's deepest recession since 1929precious metals. Silver's investment demand grew like anythin
emerged in 2008 and spread like a conflagration across the globe,the third quarter of 2010 against a decline in the penultimate
pushing world's major economies down. However, increasedquarters of last to last year. Ishares Silver Trust, the world's big
cooperation across countries helped the world leaders tame thissilver-ETF, witnessed a cumulative decline of nearly 316 MT i
recession. Trillions of dollars were poured into financial systems andholdings in the first half of 2010 against a rise of 436 MT in the
monetary policies were relaxed in an effort to fight the recession. As2010. Both silver and gold historically stood the test of time,
an effect of accommodative monetary policies world-wide, macro-medium of exchange, a store of value and a safe haven in time
economic indicators started turning positive from the third quarterturmoil. These two have historically moved in same tand
of 2009. Asia led this global economic recovery with the US alsoalthough silver showed more volatility in either direction. Nowad
emerging from the recession. Asia's two economic giants; India and silver is taking investors' precedence over gold, shown by the popChina, gained their earlier growth momentum and continued to be
Gold/Silver Ratio (GSR) which broke downwards.important driver of the Asian recovery. Debt worries were first
observed in Greece when the country's fiscal deficit reached nearly
12% of GDPa way above Euro-zone's prescribed limit of 3%. DebtGold/Silver Ratiowoes emanated from Greece crept into Portugal, Spain and Ireland.
Now, dark clouds of the same spreading beyond Europe are hovering The average gold/silver ratio fell below 45 during the 4th quartover global financial markets. These factors were more than enough 2010 from 65.25 in the previous quarter. Overall, the ratio trafor bullion counter to show their strength. Gold made an all time high lower as more upside was witnessed in silver in comparison wwhile silver prices surged to its 30 year peak in 2010. gold. Silver jumped nearly 15% while gold saw moderate gain
over 4% during the quarter4. Gold was mostly seen trading abA larger section of investors' community resorted to gold when all$1200/oz levels.other investment assets were not performing well. Equities remained
quite uncertain. Bonds also failed to attract their flight-to-safety
demand because of continued sovereign risks prevailing in the
market. Investors were tired of low interest rate scenario in the west
which means no significant returns on bonds. Gold was also bought
as an alternative to rise volatility in currency markets. Uncertain and
volatile currency markets took gold prices to new highs in many
currencies i.e. Indian Rupee, Dollar, Euro, Pound, Yen, Swiss Franc,
Canadian Dollar etc. Gold's investment demand in this period was
also robust as the world's largest gold ETF, SPDR Gold Trust, increase
their holdings to hit a record at 1,320.436 tonnes on June 29, 2010.Despite surging bullion prices, traditional jewelry demand remained
robust with consumption of 406 tonnes of gold in Q2 2010, just 4%
below year-earlier levels. With the return of demand for consumer
electronics, industrial demand grew by 14% to 107 tonnes in Q2
2010, compared to Q2 2009. Silver which is commonly known as
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
85.00
Gold/Silver ratio (Comex)
Source: Reuters and SMC Re
31-Jan-0
1
19-Au
g-01
07-M
ar-02
23-Sep-0
2
11-Ap
r-03
28-Oct-03
15-M
ay-04
1-Dec-04
19-Jun-0
5
5-Jan
-06
24-Jul-0
6
9-Feb
-07
28-Au
g-07
15-M
ar-08
01-Oct-08
19-Ap
r-09
28-Jul-0
9
13-Feb-1
0
24-M
ay-10
10
19
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COMMODITY OUTLOOK 20Bullions...."When Reliability Matters"
old prices are currently trading near their all time highs on
global markets as concern over the ability of several
GEuropean countries to finance their debt burdens
destabilized the euro and sharpened volatility across financial
markets, fuelling an investor flight into the perceived safe-haven
asset. Gold's gains were mainly imparted by weak dollar and
uncertain economic conditions which prevailed during the 2010.
Silver which is also known as poor man's gold is also trading near its
30 year high on international bourses tracking sharp moves in gold
and base metal prices as it is also used as an industrial metal. Weaker
dollar spurred bullions alternative investment demand while
concerns of faltering economic recovery also strengthened metal's
safe haven appeal. Apart from lowering dollar index, strong
investment demand was another major reason which took gold
prices to new highs in 2010. Japan and the US continued to makein the first 10 months of 2010 which is up fivefold compared with
gold an attractive investment. In particular, statements by Federalsame period of 2009. Surging demand from China is alre
Reserve officials and discussions in previous policy meetingschanging the seasonal patterns in the gold price pushing
regarding their willingness to provide a more accommodative policyannual gold price peak from November to February, as gold buy
to spur economic growth and reactivate the labour market have putcenters around China's New Year. If current trends continue, the
pressure on the US dollar, which increased long-term inflationchange may be that February's peak may not be much of a peak a
expectations and, consequently, due to its role as a hedging vehicle,Apart from Chinese buying, India is also sitting on their ha
pushed up the price of gold. Secondly, official sector activitywaiting for lower prices. However in spite of such high pr
continued to be supportive of the gold market as sales by Europeandemand from India in festive season once gain loomed up w
central banks remained negligible while in several emerging
shows that high prices can not affect the hunger for gold in India.markets, including Russia, Bangladesh and Thailand, central banks
continue to increase their gold reserves. Now as we are moving
towards 2011, it would not be an easy task for us to forecast or
predicting the price of gold in coming period. The entire economy is
similar to a living breathing organism with many complex parts.When it comes to silver also, India is the world's #1 consumer as w
Isolating any one aspect is done with the risk of being inaccurate. So,And it can be seen from imports figures which are up sharpl
the price of gold is a difficult number to determine in the overall2010, nearing 30-year peaks. All such factors shows that in spi
economic outlook. There is no definitive answer to where the price ofsuch high prices demand from these countries will continue to cl
gold will be in 2011 as prices have already surged for ten consecutiveup, taking bullion prices to their new highs in 2011. While both
years. But if we look at the overall global scenario than we think thatand silver are set to rise further owing to continued curre
the current scenario is still very positive for bullions to mark an devaluation and enhancing physical demand, silver is likelyeleventh year of gains in 2011 on international bourses and new
outperform gold, in our view. Silver prices reasonably tracks goldhighs on local platform as investors seek refuge from an uncertain
are more volatile than the yellow metal. However, silver is global economic outlook and non reliability on paper currency. On
dependent on industrial growth, and, therefore, price advances global front, China is now the world's biggest producer of gold and
be limited if the global economic recovery is perceived to hconsumes all the gold its mines can dig up. China's miners produced
stalled. Moreover, the nation has received abundant monsoo277.017 metric tonnes of gold so far in 2010, up 8.8% from the same
2010, which is likely to result in abundant harvesting and riperiod in 2009. In fact, China imported 209.7 metric tonnes of gold
GOLD Range: MCX (17000-26000)COMEX ($1150-$1750)
SILVER Range: MCX (36000-600COMEX ($24-$40)
0
5000
10000
15000
20000
25000
Price&SMA
Weekly price, volatility & 200 SMA
chart of Gold futures (MCX)
Source: Reuters and SMC Re
18-Dec-10
18-Feb-0
8
18-Ap
r-08
18-Jun-0
8
18-Au
g-08
18-Oct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-Oct-10
Weekly Close Price 200 SMA Volatility (%)
20
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COMMODITY OUTLOOK 20Bullions & Energy
agency, downgraded Spain's credit rating which again resulted
fall in crude oil prices by nearly 14%, the steepest fall since Decem
2008. However, in later part of 2010 it recovered from its l
tracking firm equity market along with rising geopolitical tens
and positive economic data's. The US Federal Reserve has indic
that employment rate in US and Industrial production is growing
at much lower pace than expected. Consumer confidence incre
slower-than-market. One more reason for shoot up in oil price
later part of 2010 was stimulus package given to Europe which g
commodity bulls the green light to come back in and buy to sup
killing demand for oil and all the things that go with it. The
reportedly was already buying Portuguese and Irish bond
massive quantities causing a rally in the Euro and by default, a b
in the dollar. On the contrary, strong economic data just which ke
coming with China's Purchasing Manager Index soared to 55.2agricultural income. Silver is expected to see higher demand from
we also had a slew of better than expected economic readings ourural India in the medium term. Silver is also likely to attract greaterEurope. Even Ireland's manufacturing and Spain's manufactuattention from the fund community; particularly in the US. Owing toindex beat expectations. With all of such positive data's it seemsits out performance, the white metal is likely to receive moreoil has other reasons to be bullish in late 2010 other than the cruimportance than gold. The world's largest silver-backed exchange-of printed money. Energy bulls got one more reason in Decemtraded fund, iShares Silver Trust said that its holdings hit record at2010 when China delays its rate hike even though inflation sur10,941.34 tonnes by Dec. 7, 2010. Such strong fundamentals clearlyabove 5%. However, the increase in reserve requirement ratio (Rshows us that there is still a long way to go for bullion in comingby China was viewed as a tame measure and eased concerns abperiod as current economical environment is igniting up the heat inslowdown in growth. The OPEC also left production quthis counter.unchanged, forecasting that prices above $90 was driven
temporary factors such as cold weathers and weak US do
However, in spite of moderate gains in crude oil futures, upside
not witnessed in natural gas prices. Hurricane season increasedEnergy Commentary 2010speculation of lower supply which made producers to incre
After spending most of the year in doldrums, crude oil futures got storage. However, dissipating storms and steadily growing econunderpinned in later part of 2010 and roused above $90 mark after lead a decline in demand, thus inventory climbed and ultimaalmost 2 years. Third quarter of 2010 was the official hurricane prices declined. Fundamental factors drive gas prices more tseason, which was expected to fuel the energy prices in 2010. But, it economical factors during 2010. Prices fell more than 20% in Aufailed to impact the oil market to a larger extent as effect of tropical in Indian market. In the month of September, moreover prstorms was very little. Weakness in economic growth also kept the oil recovered on account of rising storm threat in Gulf of Mexico market under pressure. Energy producing companies drilled more growth in prices was capped by appreciating currencies. Howevoil on speculation that the summer driving season would create more US, winter season starts in the month of November which gene
demand for energy products. However, demand could not match with boosts demand of natural gas but normal temperatures in northwthe supply due to slower growth of major world economies thereby and Midwest remain below average normal which once again capresulting to bearish trend for the crude oil prices. Events like the the upside in prices during late 2010. EIA estimated naturalvolcanic eruption in Iceland and a complaint filed by SEC against marketed production in 2010 will average 62.09 billion cubic Goldman Sach continued to inject volatility into the market. In the per day, or 22.66 trillion cubic feet for the year, just above themonth of May, ongoing debt crisis in Euro zone resulted into sharp time high of 22.65 tcf set in 1973.fall in the prices below $65 per barrel. In May 2010, Fitch, the rating
Weekly price, volatility & 200 SMA
chart of Silver futures (MCX)
Volatility(%)
5
10
15
20
25
30
35
40
45
50
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Price&SMA
Source: Reuters and SMC Research
18-Dec-10
18-Feb-0
8
18-Ap
r-08
18-Jun-0
8
18-Au
g-08
18-Oct-08
18-Dec-08
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-Oct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-Oct-10
Weekly Close Price 200 SMA Volatility (%)
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10-Dec-05
10-M
ar-06
10-Jun-0
6
10-Sep-0
6
10-Dec-06
10-M
ar-07
10-Jun-0
7
10-Sep-0
7
10-Dec-07
10-M
ar-08
10-Jun-0
8
10-Sep-0
8
10-Dec-08
10-M
ar-09
10-Jun-0
9
10-Sep-0
9
10-Dec-09
10-M
ar-10
10-Jun-1
0
10-Sep-1
10
COMMODITY OUTLOOK 20Energy....A Passion to Perform
hike during 2010 was also one of the main reasons in driv
commodity prices. If interest rates along with money flow in for
quantitative easing keeps coming like this then we expect price
got support with rise in demand. However, as the OPEC decideCrude oil prices which sunk up to $65 on NYMEX division during
leave production quotas unchanged at current levels amid forec2010 rebounded smartly over the period of time and traded nearly 2 that demand growth in 2011 will be lower than that in 2010year high on better-than-expected economic numbers from the US
'fragile global economic recovery, including the adverse effecand shrinking inventories. EIA data showed that crude stocks fell
possible currency conflicts and fears of a second banking cris9.85 million barrels in the week to Dec. 10, against analysts' forecasts
Europe' as well as 'lower industrial output, lagging prifor a 2.5 million barrel fall, while imports fell 1.36 million barrels per
consumption, persistently high unemployment and ample spday. The large drop in crude inventories was seen because of the 1.36
capacity throughout the oil supply chain' in OECD would constmillion barrel-per-day drop in crude imports and end of year LIFO tax
growth in oil consumption. Overall we look 2011 as a year fudraw downs in effect. People hold cargo offshore instead of bringing
possibilities for crude oil to trade on both sides. If we talk about rait in and being taxed on it. On the hand prices also got support as
then we expect prices to move in range of $60-$115 on internatiChina had not announced a rate hike which was expected even
bourses. The most important thing has to be seen in coming periothough inflation surged above 5%. Even though, bullish data for the
the evaluation of $600B asset-buying program announced byenergy complex and strong demand for gasoline and distillatesand reiterate the commitments to accommodative monetary stasupport the bullishness in the marketplace; the dollar remains the
that will run through June 2011. The increased support is expebiggest elephant in the room and likely will remain the driver of
to hold the economic recovery and reduce unemployment rprices for the foreseeable future. With fundamentals improving and
Another factor apart from economic front is the hurricane seasothe dollar remaining relatively weak, we expect prices to move higher
2011 in North Atlantic region which runs between June from here. With keeping all such factors in mind, 2011 can be
November. About 30% of US crude oil production comes from Guanticipated as the year full of various possibilities which can drove
Mexico. Hence, occurrence of storms and hurricane in this regioncrude prices in any direction. However, sustainable rally above $90
disturb the supply and production of oil. However in 2010 it needs significant improvement in global oil demand outlook but it
reported that there would be number of hurricanes occurring inappears unlikely in the near-term. The OPEC left production quotas
region but none of them was that strong which can disrupt thunchanged; forecasting price above $90 was driven by temporary
production. So investor's are adviced to keep an eye on occurfactors such as cold weathers and weak US dollar during 2010. On
hurricanes during this period to gauge the direction in prices.the other side of coin, global financial markets performance during
2011 will also play an important role for crude oil prices movement.
However, the fact that the Federal Reserve had not announced a rate
CRUDE OIL Range: MCX (3200-5200)NYMEX ($60-$115)
260
280
300
320
340
360
380
400
Millions
U.S Crude inventory (Absolute Change)
Stocks in Barrels
0
10
20
30
40
50
60
70
80
90
1500
2000
2500
3000
3500
4000
4500
Weekly price, volatility & 200 SMA
chart of Crude futures (MCX)
Volatility(%)P
rice
&SMA
Source: Reuters and SMC Research Source: Reuters and SMC Re
18-Feb-0
9
18-Ap
r-09
18-Jun-0
9
18-Au
g-09
18-O
ct-09
18-Dec-09
18-Feb-1
0
18-Ap
r-10
18-Jun-1
0
18-Au
g-10
18-Oct-10
18-Dec-10
Weekly Close Price 200 SMA Volatility (%)
22
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COMMODITY OUTLOOK 20Energy
Another commodity in energy sector is the natural gas which was the
worst performer commodity during 2010 as most of the year pricesremain under pressure due to heavy build up in inventories.
Hurricane season increased the speculation of lower supply which
made producers to increase storage. However, dissipating storms
and steadily growing economy lead a decline in demand, thus
inventory climbed and ultimately prices declined. Fundamental
factors drive gas prices more than economical factors during 2010.
Overall the sentiment is expected to remain on both sides w
expectation of range bound moves in this commodity.
Prices fell more than 20% in August, 2010 in Indian market. In the
month of September, prices recovered on account of rising storm
threat in Gulf of Mexico. Tropical storm Matthew and tropical
depression sixteen led gas prices to rise more than 8% in mid of
September. However, growth in prices was capped by appreciating
currencies. In coming year we expect that prices may remain in the
doldrums as continuous build up in inventories along with weak
demand for natural gas can keep the bears active in this commodity.
On the other hand rig counts are continuously increasing not only in
North America but also at International level which will add spice to
the sentiment. With the continuously rise in inventories, we except
that in 2011, prices might get some support also as producers may
cut output for the first time in six years amid record stockpiles and
expanding US economy. It is also anticipated that Industrial demand
for gas will rise as the U.S. economy recovers from the worst
recession since the 1930s as a tax-cut package proposed by
President Barack Obama may bring inflation-adjusted growth in the
U.S. economy to a 4 percent annual rate by fourth quarter of 2011.
NATURAL GAS Range: MCX (120-320)NYMEX ($2-$7)
0
10
20
30
40
50
60
70
80
90
0
50
100
150
200
250
300
350
Weekly price, volatility & 200 SMA chart
of Natural Gas futures (MCX)
BillionsCubicfeet
Natural Gas inventory, U.S
Volatility(%)
Price&SMA
Source: Reuters and SMC Research
Source: Reuters and SMC Re
9-Dec-10
9-May
-10
9-Jun
-10
9-Jul-
10
9-Aug
-10
9-Sep
-10
9-Oct-10
9-Nov
-10
Weekly Close Price 200 SMA Volatility (%)
0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
3500.00
4000.00
4500.00
24-Jan-08
24-Feb-08
24-Mar-08
24-Apr-08
24-May-08
24-Jun-08
24-Jul-08
24-Aug-08
24-Sep-08
24-Oct-08
24-Nov-08
24-Dec-08
24-Jan-09
24-Jan-10
24-Feb-09
24-Feb-10
24-Mar-09
24-Mar-10
24-Apr-09
24-Apr-10
24-May-09
24-May-10
24-Jun-09
24-Jun-10
24-Jul-09
24-Jul-10
24-Aug-09
24-Aug-10
24-Sep-09
24-Sep-10
24-Oct-09
24-Oct-1
24-Nov-09
24-N
24-Dec-09
23
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COMMODITY OUTLOOK 20Spices
Outlook 2011 Red Hot Grenades for the year
Investors seeking for safer investments may opt for chilli futures. The counter has a strong support at 4400 levels. A fundamental signal of a st
cold front bringing sharp temperature drops in China is expected to reduce yields of the Chinese crop. Buyers from Malaysia, Sri Lanka, South K
and Bangladesh may remain attracted towards India. In 2010/11, crops like turmeric & cotton may create tremendous pressure over domestic
production, which is remaining stagnant near to 12-13 lakh tonnes. Area sown in Andhra Pradesh for the week ending with 1st December, 2010
behind by 18.96% at 33,204 lakh hectares as compared to last year. Higher exports enquiries of Indian produces may help to bolster profit for re
the year as likely previous year where the red hot spice constituted the biggest item of export realizing. On the contrary, the factor capping the g
is to be accounted to the Rabi sown fresh crop farmer sales which is likely to hit the market by Jan-Feb & continued till the month of May. Seas
trend shows a sharp correction is expected during months of October, when new Chinese crop comes to the market.
Range: 5500-110
CHILLI
Past Year Movement
In the past year, the fundamental factor supporting the downside in
chilli futures was the expectations of increased production as like
previous years. The huge carry over stocks of about 95 lakh bags
persisting at the Guntur mandi in Andhra Pradesh till the mid months
of the year added just another straw being piled onto the camel's
back driving the prices to touch one year low at 3833 levels.
Moreover, China had displaced India in Pakistan market and in the
first half of 2009-10, chilli exports to Pakistan was nil as against
22,000 tonnes during the first half of 2008-09. Later during the year
i.e in the mid of the third quarter, the prices recouped strongly from
its lows touching highs of 8524 levels, giving investors a return of
107.95%. The counter was influenced by the shortfall in the Chinese
chilli crop & Spices Board making the red hot spice more acceptable
in the international markets. Exports during April-November 2010
witnessed an upsurge by 26% to 166,000 tonnes and earnings also
gained 22% to Rs. 102,000.25 lakhs.
Weekly price, volatility & 200 SMA
chart of Chilli futures (NCDEX)
Price&SMA
15
20
25
30
35
40
45
50
3500
4000
4500
5000
5500
6000
6500
7000
Source: Reuters and SMC Re
CUMMIN
Past Year Movement
Since the beginning of the year, cummin futures had fallen like nine
pins by more than 18% making low of Rs.10710/qtl. The bearish
sentiment of cold wave & rains, which were good this year, improved
the soil moisture & gave an improved estimation of 2.3 million bags
production. Moreover, rupee appreciation had taken a toll on exports &
threatened the purchases of abroad. Cummin exports during April-
November 2010 dipped by 36% to 20,500 tonnes and earnings slipped
by 30% to Rs. 27,064.13 lakh. Tracking the international scenario,Syria and Turkey started to offer much cheaper prices either for old
crop stocks or the new crop, which added to the bearish sentiment.
During the later half of the year, prices propped up above 15540 levels
from its long lived consolidation phase on the deceiving report of
Turkish crop failure. Cummin being a delicate crop, the continued
rains, by the end of the year raised concerns of re-sowing. Reports by
Gujarat state farm department indicated that sowing was down 45%,
gave a continuation to the bullish theme making the counter to make a
decent recovery touching the highs of 15265 levels.
Weekly price, volatility & 200 SMA
chart of Cummin futures (NCDEX)
2000
4500
7000
9500
12000
14500
17000
Source: Reuters and SMC Re
Price&
SMA
19-Dec-08
19-Feb-0
9
19-Ap
r-09
19-Jun-0
9
19-Au
g-09
19-Oct-09
19-Dec-09
19-Feb-1
0
19-Ap
r-10
19-Jun-1
0
19-Au
g-10
19-O
ct-10
19-Dec-10
Weekly Close Price 200 SMA Volatility (%)
19-Dec-09
19-Jan-1
0
19-Feb-1
0
19-M
ar-10
19-Ap
r-10
19-M
ay-10
19-Jun-1
0
19-Jul-1
0
19-Au
g-10
19-Sep-1
0
19-Oct-10
19-N
ov-10
19-Dec-10
Weekly Close Price 200 SMA Volatility (%)
24
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8/6/2019 Commodity Outlook Final
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COMMODITY OUTLOOK 20Spices
Outlook 2011 The seed will travel through a shaky voyage
The outlook remains pretty shaky following the slash in sowing area by 25.2% in Gujarat. The unseasonal rains and cloudy weather have en
farmers to cultivate only on 1,60,000 hectares by December 6. Three-year average acreage of the spice is 2,84,500 hectares in the state. Produc
is estimated around 1.37 lakh tonnes against 1.21 lakh tonnes last year & carryover stocks are lower at around 4-5 lakh bags. The fluctuation
exchange rates of rupee against dollar may keep the buying momentum intact in the counter. The market will have to be monitored closely for signs of strength or weakness. The first half of the year appears to be a buying opportunity, taking advantage of supply gap in the internati
market. During this period, export enquiries pour in with arrivals of fresh crop from local fields. This time period has b