Karvy Comtrade’s Invest & Harvest - Karvy Commodities · Editor: Sushil Sinha W ith the...

Invest & HarvestA Comprehensive English Monthly Magazine on Commodity Futures

Karvy Comtrade’s

Volume 08 Issue 03 Hyderabad April 2015 Pages 36 `25/-

FMC - SEBI MERGER

A Common RegulatorFor

Equity & Commodity

April 2015 Karvy Comtrade’s Invest & Harvest 3

EditorSushil Sinha

Managing EditorTR Vivek

Executive EditorVeeresh Hiremath

Research TeamAnup BP

Ginumol MathewJitendra K ParasharRamesh Chenchala

Ravi Shankar PandeyRaj Nawab Singh Kashyap

Ritu Raj JhaSarika R. Agarwal

Sonali PatnaikSujal Shah

Tapan Trivedi

ProductionVijayendra Kumar Ch.

DistributionShabna R. Iyer

Printed & Published by:Sushil Kumar Sinha

on behalf ofKarvy Consultants Limited.

Karvy House, 46Avenue 4, Street No-1, Banjara Hills

Hyderabad-500034. AP.

Printed at:Harshitha Printers

6-2-985, Yousuf BuildingAdj. Railway Gate,

Khairatabad, Hyderabad-500004

Editor: Sushil Sinha

With the announcement of merging of Commodity Market Regular – FMC with Securities Market Regulator – SEBI, the process has begun to formalize the process of

merging and we are expecting the same to be in force within 3-4 months. The market participants are eagerly waiting for this merger, which will enhance penetration of the market. Also, this will pave way for introduction of index trading, options trading besides allowing FIIs, Banks, Mutual Funds to enter to commodity trading.

The demand driving season for Natural Gas i.e., winter season has ended in US and during this period in the current year, the demand for Natural Gas was not to the expected levels because of milder winter season. However, the production was similar to that of previous year. But, because of milder winter, demand could not emanate thus leading supply glut in the market thereby led to price slump. Since the usage was limited, the excess production was pushed back in storage platform and fresh demand would come only next winter. Hence, looking into these factors, the Natural Gas prices are likely to under pressure in the medium term.

Under commodity of the month, we have RM Seed and the harvesting season has begun. As per economics, higher supplies during harvesting season results into decline in prices. However, this is not happening in the current year because of lower production due to lower acreage and yield. Over and above, the major producing states like Rajasthan and Gujarat received heavy rains during harvesting season, which resulted into crop damage. It has been estimated that around 17.8 lakh hectares of mustard seed area has been damaged. The damage is 15.1 lakh hectares alone in Rajasthan. Therefore, lower production amid increasing demand for the produce is likely to push the prices to higher levels.

Among bullion segment, the entire sector shown a high volatile movement reacting to various factors ranging from supply demand, economic factors, geo political tensions etc. Since Silver is being as Industrial Metal, the poor performance in the entire base metals sector is adding fuel to silver for weak performance. Moreover, the sluggish demand for the produce from China and India as well as institutional demand could result into weaker bias in Silver in the short to medium term.

Copper has been trading at multi-year lows because of aggressive selling by Chinese investors as the Chinese housing is in risk because of economic factors. China is the world’s largest consumer of copper and power sector of the country accounts of 50% of copper demand in China. The ongoing turmoil in China is reducing the demand for copper, which in turn might impact the global copper pricing trend as all copper minings are pricing their produce based on demand from China

EDITORIAL

Note: The data in all charts and tables have been sourced from Bloomberg, KCTL Research, unless otherwise indicated.

Transitioning Commodities

April 2015 Karvy Comtrade’s Invest & Harvest April 2015 Karvy Comtrade’s Invest & Harvest4 5

CONTENTS

Cover Story

FMC-SEBI Merger: Perspectives 09

DisclaimerThe technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The report contains the opinions of the author(s) that are not to be construed as invest-ment advice. The author, directors and other employees of Karvy, and its affi liates, cannot be held responsible for the accuracy of the information presented herein or for results of the posi-tions taken based on the opinions expressed within. The opinions are based on the information believed to be accurate, and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affi liates cannot be held responsible for any losses in trading.Commodity derivatives trading involves substantial risk. The valuation of the underlying may fl uctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profi t or that losses can, or will be, limited in any manner whatsoever. The past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management, or investment advisory services.

Features & Updates

By Invitation

Special Feature

China’s Slowdown Impact On Global Copper Pricing Trend 15 - Pramod Shinde, MMR Bureau

Silver: Losing Sheen 25

Commodity Of The Month: Rape-Mustard Seed 27

Classroom: The Campaign To Increase Financial Literacy 30

Natural Gas: On Low Flame 21

43

54

65

76

87

98

109

Mar-14 Jun-14 Sep-14 Dec-14 Mar-151140

1180

1220

1260

1300

1340

1380


365

415

465

515

565

615

665


7675

7850

8025

8200

8375

8550

2-Mar 9-Mar 16-Mar 23-Mar 30-Mar

875

925

975

1025

1075

1125

1175

2-Mar 9-Mar 16-Mar 23-Mar 30-Mar

STATISTICS

780

802

824

846

868

890

912

2-Mar 9-Mar 16-Mar 23-Mar 30-Mar200

220

240

260

280

300

320


2450

2675

2900

3125

3350

3575

3800


COMEX Gold (US$/oz) NYMEX Crude (US$/bbl)

Thomson Reuters Jefferies CRB Index MCX Nickel Price Movement (Rs/Kg)

Rogers International Commodity Index NCDEX Cardamom Price Movement (Rs/Kg)

S&P GSCI Commodity Index NCDEX Turmeric Price Movement (Rs/quintal)

Major Global Commodity Index Performers Of The Month (MCX/NCDEX)

SEBI-FMC Merger: What New Super Regulator Must Do 10

FMC- SEBI Merger: Game-changer For The Commodity Market 12


-4-202468

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

7.65

7.90

8.15

8.40

8.65

8.90

9.15

Mar-14 Jun-14 Sep-14 Dec-14 Mar-1558.4

59.3

60.2

61.1

62.0

62.9

63.8


STATISTICS

-4

-2

0

2

4

6

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Rupee Movement 10-year Bond Yield (%)

Infl ation (%) Index of Industrial Production (%)

DoE Inventory Levels (March) Inventory level M/M change (%)

Crude oil 406727 -8.47

Gasoline 238335 -0.72

Distillate 28694 -7.52

Refi nary Utilization (%) 88 1.62Note: DoE - Department of Energy; volumes in thousand barrel

LME Inventory Levels (March) Inventory level M/M change (%)

Nickel 433806 1.20Aluminium 3943725 -0.07Copper 332300 12.12Zinc 513125 -9.56Lead 234125 9.02

Note: LME - London Metal Exchange; volumes in metric tonne

Exchange Rate TrendsMarch 31,

2015Feb 27,

2014% Change 52 Week

High% Change from

52 Week High52 Week

Low% Change for52 Week Low

Indian Rupee 62.498 61.839 1.07% 63.888 -2.18% 58.335 7.14%

Euro 1.073 1.120 -4.15% 1.399 -23.31% 1.046 2.61%

Great Britain Pound 1.482 1.544 -4.02% 1.719 -13.81% 1.464 1.25%

Japanese Yen 120.130 119.630 0.42% 122.030 -1.56% 100.820 19.15%

Swiss Franc 0.973 0.954 1.93% 1.024 -5.01% 0.741 31.34%

Canadian Dollar 1.269 1.252 1.37% 1.284 -1.16% 1.062 19.44%

Australian Dollar 0.761 0.781 -2.57% 0.951 -19.97% 0.753 0.98%

New Zealand Dollar 0.747 0.756 -1.24% 0.884 -15.46% 0.718 4.08%

Danish Krone 6.962 6.665 4.46% 7.135 -2.42% 5.334 30.53%

Norwegian Krone 8.061 7.666 5.16% 8.419 -4.25% 5.849 37.81%

Swedish Krona 8.631 8.337 3.53% 8.828 -2.22% 6.461 33.59%Note: All quotes are against the US dollar.

News Digest

Castor oil exports to rise 33% this yearIndia’s castor oil exports are likely to rise by 33% this year on rising demand from United States, China and European Union (EU), the three largest importers of the medicinal oil.

Exports of cas-tor oil had taken a hit last year due to weak demand trend globally, drop-ping to around 429,000 tonne

from 460,000 tonnes during 2012-13. China has report-edly covered 85% of its annual need of over 180,000 tonne oil so far. Europe and United States too have cov-ered an estimated 85% of its need of 120,000 and 60,000 tonne oil so far. While export demand from China, US and EU is unlikely to pick up as they wait for arrival of the new crop and rates to fall further, that from other countries is set to rise in the coming months. A recent survey shows India’s castor seed output will decline by 11% to 1.20 million tonne this year as compared to 1.35 million tonne during last year. Acreage was lower this year by 10% at 0.98 million ha as compared to 1.09 million ha last year. (source-Business Standard)

Tears at onion dehydration industryThe onion dehydration industry says much of it fac-es the prospect of closure due to a steep rise in onion prices. Reduced supplies because of decrease in output and unseasonal rain compromising the crop’s quality in major producing regions have pushed up prices. De-hydration units generally commence production from January and continue till July. Shipments are in the same period. This year, however, with the steep price of raw onion raising the production cost of the dehydrated product, demand from international buyers have been diverted to China and Egypt. Total production of dehy-drated onion in India was about 65,000 tonnes in 2014 and the country exported about 55,000 tonnes. Russia is usually the main buyer, with nearly 40 per cent of the

total shipment. The European Union and America are other major buy-ers. Of the 75-odd onion dehydra-tion units in India,

around 65 are in Mahuva taluka of Bhavnagar district in the Saurashtra region of Gujarat. Mahuva is the big-gest arrival centre for onion in the state. Currently, Indian dehydrated onion is quoted at $2,200-2,600 a tonne. With 10.33 per cent export duty, the fi nal cost touches $2,870 a tonne. China offers the same prod-uct in $2,400-2,500 and Egypt at $2,200-2,600/tonne. (Source- Business Standard)

Hailstorm takes a toll on mustard economyRecent rains and hailstorm in Rajasthan, Uttar Pradesh and Haryana have not only damaged the stand-ing mustard crop, but have hit the mustard economy hard. According to agriculture ministry’s own esti-mate, mustard seed crop in around 2.6 million hect-ares of land has been damaged in the recent bout of unseasonal rain and hailstorm that hit 13 states in the fi rst fortnight of March.In 2014-15, the crop has been planted in 6.6 million hectares, which translates into damage of almost 40 per cent area .In Rajasthan, the country’s biggest producer of mustard seed, the crop in 1.5 million hectares has been fl attened. Mustard is usually sown thrice during the season, be-tween October and the middle of December. Offi cials said almost all the late sown crop had been damaged. A damage of 5-10 per cent to the current estimate could further lower this output to 6.6-7mt. Mustard is one of the premier oilseeds grown in India, having the highest oil content. A signifi cant decline in output could push up annual edible oil imports, already expected to be at a record high in 2015-16.(Source-Business Standard)

Saudi Arabia raises crude prices to Asia for May for second month Saudi Arabia, the world’s top crude exporter, raised the prices for all the grades it will sell to Asia in May, in-creasing levels for the second straight month as robust refi ning margins supported demand in the region. Saudi Aramco raised its May price for its Arab Light grade for Asian customers by $0.30 a barrel compared with April to a discount of $0.60 a barrel to the Oman/Dubai aver-age, it said on Sunday, in line with market expectations. The price pales in comparison with the same month last year when Arab Light was sold at $1.85 a barrel


News Digest

above Oman/Dubai quotes. The Oman and Dubai benchmarks are also

down 50 per-cent since then.

Elsewhere, Saudi Aramco dropped its Arab Light OSP to Northwest Eu-rope by 20 cents for May from the

previous month to a discount of $3.95 a barrel to the Brent Weighted Average

(BWAVE). The Arab Light OSP to the United States was set at a premium of $1.35 a barrel to the Ar-gus Sour Crude Index (ASCI) for May, down 10 cents from the previous month. Source: Economic Times

Iran Nuclear Deal: Oil Prices Could Drop Again If US, Europe Ease Sanctions On Iranian OilGlobal crude oil prices could take a hit this summer if the U.S. and Europe fi nalize details of a nuclear deal with Tehran. Easing sanctions, which is expected to

occur if a fi nal deal is reached, would allow Iran to expand sharply its crude oil exports, further straining a market that’s grappling with oversupply, energy ex-perts say. Oil prices dipped thursday following news of a tentative agreement over Iran’s nuclear program. U.S. crude futures fell 1.9 percent to $49.14 per bar-rel in New York, after hitting a low of $48.11. Brent crude, an international benchmark, dropped 3.6 percent to $55 per barrel, up from a low of $54. Source: International

Business Times

Please read the Disclaimer carefully on page 4

FMC-SEBI Merger: Perspectives— KCTL Research

While presenting the Union Budget 2015-16, the Finance Minister, Mr. Arun Jaitley made a special announcement of merging

Forward Markets Commission – Commodity Market Regulator with Securities and Exchange Board of India – Financial Market Regulator, which was a boost for Indian Commodity Futures market. This move was mainly to bring more transparency to the commodity market. The Finance Minister in his budget proposal commented that merger between the two agencies would help streamline the monitoring of commodity futures trading and curb speculation.

In the Finance Bill 2015, which was presented along-side the budget, the FM laid down the roadmap for the merger of FMC and SEBI by annulling the FCRA 1925 (Forward Contracts Regulation Act). The Finance Bill called for more powers to be granted to the SEBI un-der the SCRA (Securities Contracts Regulation Act) of 1956 thus making the SEBI to regulate the commodity market intermediaries.

The Indian commodity market has been waiting for amendment of FCRA since its inception way back in 2003 and the market participants were eager for this move from the government. This issue has been dis-cussed in various occasions at the parliament. How-ever, it was delayed by the previous government. How-ever, only the contribution for commodity market from the previous UPA government was ban on trading in few commodities, imposition of Commodity Transac-tion Charges.

After the NSEL fi asco in July 2013, the market was eagerly anticipating the government intervention to make it more transparent and competitive rather than making it speculative market. The NSEL fi asco had deeply damaged the image of the market participants as NSEL was unable to resolve the issue including the regulator.

This move has created confi dence among the par-ticipants as SEBI being an extremely tough and stark regulator might indirectly act as a deterrent against speculators/dubba traders while also leading to the en-

try of institutional investors in the commodity market. Further, this merger will clear the long-standing de-mands of introduction of options trading, index trading etc. In addition, this move with increasing the depth of the market by leaps and bounds whereas also enhance participation from FII’s and other domestic fi nancial institutions.

Looking from traders and investors perspective, dif-ference asset classes like stocks, mutual funds, com-modities and currencies are traded under single roof thereby making it easier for the investors and traders to trade all asset classes with single code. It would also smoothen the investor grievance mechanism across these asset classes providing a path for single Know Your Customer (KYC) document.

On the operational front, unlike stocks or other as-set classes, the commodities traded on exchanges leads into delivery of the underlying product upon expiry of the contract. Since, physical delivery of underlying product does not takes place in stocks, it may throw some challenges for SEBI.

On this merger, we had invited guest columns from prominent persons in the industry and we had received the response from NCDEX and Mr. Kushankur Dey, Post-Doctoral Fellow of IIMA.


COVER STORY


SEBI-FMC Merger: What New Super Regulator Must Do— Kushankur Dey, IIM-Ahmedabad

The Budget has proposed the merger of the SEBI and FMC. The Centre has given some breathing time to the FMC on existing

guidelines until Forward Contracts (Regulation) Act, 1956 is repealed. The effect of SEBI-FMC merger will soon be felt in regulation, product-market innovation and surveillance and risk management. In other words, SEBI has been entrusted with dual responsibility – regulation of capital markets and commodity derivative markets. This can have several implications to existing regional and national level commodity exchanges, trading-cum-clearing/institutional clearing agents and investors.

Amplifi cation of regulationRegulatory supervision of economic behaviour (of agents) may be increased manifold, justifying the role of commodity exchanges in price discovery or risk management. Adoption of good governance practices, on one hand, could help rationalise their existence and constitution of a diversifi ed board through succession planning, on the other, may be a desired outcome of SEBI-FMC merger. A principle-based regulatory structure will help rope in commodity and fi nancial eco-system and infuse more rationality in the com-

modity trade. The new regulator could be able to re-solve the inherent confl icts between the principal and agents. However, experiential learning of FMC could help SEBI understand commodities markets and their mechanics.

Trading environmentMarket environment plays a key role in transaction be-tween related parties. However, consequence of trading activity can affect unrelated third parties what is known as externality, for example, notion of general public on price rise of pulses and cereals in 2007-08. The merger could oversee this problem in a logical man-ner. SEBI can issue a directive indicating the incentive structure for affected individuals or groups that may be pro-governance measure. This has twin benefi ts: one is minimal direct intervention of SEBI and the other one, bargaining mechanism may bring about an optimal out-come given low negotiation/transaction costs.

Awareness driveFMC, before merger, has adopted scores of measures for awareness drive relating to capacity building, sen-sitisation of stakeholders and policymakers in agri-culture since 2007-08. In 2012-13, the commission


has organised several awareness programmes in as-sociation with various institutions, market agencies, and commodity exchanges.

The commission also consented to extend the price dissemination project in the proximity of post offi ces, rural branches of banks, warehouses, co-operatives and other remote areas. For instance, FMC initiated price dissemination project had installed 1,863 price tickers across various parts of the country.

The new regulator, SEBI, might collaborate with man-agement and policy-level institutions for research that could bridge the gap between theories and practice and thus, enhance the veracity of research in commodities.

Traders will be more fi nancial literate of market me-chanics that can strengthen their strategy formulation. However, participants’ gut feeling in exercising the contract need to be checked as information and com-munication pattern often impacts the decision making processes. As they perceive the markets differently based on their risk-return quotients, adoption of gover-nance practices will enhance investor awareness.

While hedgers remain risk-averse, speculators prefer

to bear the risk. Arbitrageurs, on the other, attempt to optimise risk-return metrics considering time and space potentially. Therefore, the new regulator needs to ex-plore psychologies and prospects of investors – com-mercial users and fi nancial market participants.

Optimism with cautionThe above discussion might draw the attention of practi-tioners and policy makers to an innocuous environment of trading and mutually benefi cial platform for intend-ed buyers and sellers that the new regulator is poised to deliver. But the blanket application of the global prac-tices may not bolster the functioning of commodity exchanges. Since the futures market reduces price un-certainty and infl uences the decision of stakeholders in investment and marketing or moderate their risk-return perception, the new regulator needs to assess the util-ity of existing exchanges. Probably, a thorough survey may address the concerns of SEBI: “Small is beautiful or big is better”. While changes were made to FC(R)A Bill, 2010, the new regulator should be cautious while implementing changes in commodities markets.

COVER STORY COVER STORY


COVER STORY

servative position limits, price circuits and compul-sory physical deliveries and also by closer scrutiny of trading patterns and market surveillance followed by timely actions to check delinquencies if any.

However, the statutory powers under the existing FCRA are far less than required and expose FMC to judicial challenge for its regulatory and just actions taken in the interest of market and economy.

Since 1998, several attempts were made to amend the Forwards Contracts Regulation Act (FCRA), 1952 to remove the inadequacies in the Act and to empower Forward Markets Commission to bring in proactive and effective regulation of commodity futures mar-ket. Having realized the importance and urgency for amending the FCRA, the government had got the amendment bill passed as an Ordinance, but unfortu-nately it lapsed.

The size, growth and development mandate of the commodity futures market warrant an autonomous and strong regulator and a stronger legislative and regulatory frame work. The recent Rs 5600 crore spot market debacle serves a proof enough of the kind of damage the lack of unifi ed regulatory mechanism can lead to. Not only commodity futures trade volume dropped following the 2013 NSEL payment crisis, the event shattered market confi dence affecting par-ticipation and investments in commodity markets. As the investigations into the NSEL scam began, FMC, which was earlier under the Consumer Affairs Min-istry was brought under the Finance Ministry in Sep-tember 2013. However, skeptic sentiments continued hurting market growth.

The repeal of the FCRA and introduction of com-modity derivatives under the defi nition of securities in the Securities Contracts Regulation Act (SCRA) has ended the long awaited requirement of empow-ered regulation of commodity markets. The merger has completely obviated the need for amendments in Forwards Contracts Regulation Act (FCRA), while bringing commodities under SCRA.

With SEBI’s autonomous functioning, years-long ex-perience as well as expertise in handling securities de-rivative market and a larger man-power in place, com-modity market transactions will be more streamlined.

Commodity market transactions will be better aligned with those of the equity markets, as surveil-lance and regulation of organized markets across as-set classes would be done by the same regulator. This will not only reduce regulatory intervention but will help save transaction costs (such as costs incurred for

separate setups for regulatory compliance, employing additional manpower, etc.)

With SEBI’s powers to penalize the defaulters in var-ious ways, the market participants are more assured of their interest being protected. This will also give great-er confi dence to investors as they will fi nd it simpler and safer to participate in the commodity markets.

The merger will help deepen commodity markets enabling introduction of more pertinent derivative in-struments and allowing participation of major players.

It is an unwritten rule in all fi nancial markets that larger investor participation along with availability of a variety of trading instruments provides depth to the market. Commodity exchanges are no exception.

The current FCRA regulations, however, neither al-low banks, international hedgers from accessing In-dian markets nor the trading in products like options indices, etc. This limits competitiveness of local ex-changes as well as market participation and growth.

Nonetheless, the proposed merger has set the stage for introduction of wider array of products like indi-ces, options, which are easy to understand and appro-priate for use directly by various market participants.

It will allow banks, FIIS, Mutual funds to enter commodity derivatives market, thus facilitating pro-fessional portfolio management services. This would add depth, stability and liquidity to the market. The resulting synergies and buoyancy would attract more retail participation which will help price discovery and risk management.

COVER STORY

The budget proposal to merge the commodities market regulator Forward Markets Commission (FMC) with the capital market regulator Securi-

ties and Exchange Board of India (SEBI) has set the ball rolling for another round of reforms in the Indian commodity markets.

While India has a long history of futures trading in commodities - even preceding the advent of futures trade in other asset classes such as stocks and curren-cies – the long enforced ban on futures trade hindered the growth of these markets and as such organized com-modity futures are relatively nascent markets in India.

Given the role that commodity exchange plays in na-tion building, a strong commodities market is of utmost importance, as India seeks its rightful place among the major economies in the world.

The proposed merger is in line with the recommen-dation of the Financial Sector Legislative Reforms Commission (FSLRC) led by Justice B N Srikrishna to have a unifi ed fi nancial regulator across asset class-es. It provides a chance to make good for the growth opportunity lost on account of the ban on futures trad-ing in the past and bring domestic commodity ex-changes up to the level of the potential displayed by their global counterparts.

The foremost benefi t the merger will bring in is stronger regulatory environment. FMC has so far been successful in regulating the fu-tures market and controlling the undesirable specula-tion by unscrupulous market participants dynamically using the available market regulation tools like con-

— Ms. Pallavi Oak, NCDEX

FMC- SEBI Merger: Game-changer For The Commodity Market

ForwardMarkets

Commission

SecuritiesExchangeBoard ofIndia



A welcome reform that needs conscious implementation.The FMC-SEBI merger, no doubt, has been the most transformational change for the commodities futures market has witnessed since its inception. While the development is likely to improve credibility, transpar-ency and regulation of fi nancial markets, the role of commodity derivatives in the developing economy like India will have to be taken into consideration and given due importance.

While the trading systems in the two markets – com-modities and equities – are similar (Online trading), there are fundamental differences between commod-ity and equity markets in terms of market structure, participation, impact, delivery systems and so on. For instance, equities are an established asset class for in-vestment, commodity futures market came into prom-inence as a tool for hedging the price risks that the

underlying commodity often faces. Therefore, there is a basic difference in the participants’ approach to the two markets.

One major caveat is that while metals and bullion trading is fairly similar in behavior to equities, agricul-tural commodities need special treatment due to their local price discovery, physical deliveries, and impact on the spot market. In India, markets for agricultural commodities are unique from other asset classes in the sense that only the futures are traded on exchanges while the underlying markets are scattered across the country. Underlying markets are fragmented and rela-tively opaque. Further, they have their own intricacies with differential regulatory/tax regimes across various states. In this background it is a challenging market for investors to participate in and this has thwarted the growth in participation in these markets vis-à-vis other asset classes such as equities.

COVER STORY BY INVITE

China’s Slowdown Impact On Global Copper Pricing Trend— Pramod Shinde, MMR Bureau

Globally, copper prices are at a fi ve-and-a-half-year low thanks to aggressive selling by Chi-nese investors. The Chinese housing market

is at risk due to economic imbalances. It is causing a dramatic slowdown in copper demand. The phenom-enon seems globally contagious. China’s economy ac-counts for approximately 12.5% of the world’s total nominal GDP, so the trade impact would touch virtu-ally every product type and country.

China is, by some distance, the world’s largest cop-per consumer. Its power sector accounted for nearly half of the country’s copper demand. A drop in orders from the sector could cut China’s appetite for imports, a driving force of prices in the international market.

In the year 2014, investment in new power networks was expected to rise more than 10%, industry sources said, but in the fi rst half investments fell 0.6% from a year before, according to data from industry body China Electricity Council.

Still, China’s business climate is uncertain and growing more so by the day. Cheap credit and a bal-looning shadow banking sector in the past few years drove a massive increase in new lending, which fueled a red-hot real estate market and excess construction. As the economy cooled, the massive housing sup-ply ramp-up resulted in high vacancy rates in some Chinese cities, which led to steep price discounts on new properties and rising default rates among smaller property developers.

The IHS Economics & Country Risk report expect China’s annual GDP growth far less than 5% in 2015

due to hard landing in China. As hard landing means the scenario starts with a severe tightening of credit in the formal banking system and the country’s sizable shadow banking sector, accompanied by a downturn in the residential real estate market. The credit crunch signifi cantly drags down investment growth, and the real estate recession severely reduces Chinese house-hold wealth and consumption. The credit contraction also limits trade fi nancing and, hence, exports. This widespread demand downturn hampers industrial production. As China’s domestic demand slows, the yuan depreciates and imports decline, which directly impacts China’s trading partners. One bright spot in this scenario is that global commodity prices would decline in response to reduced demand, slightly at-tenuating the negative effects of China’s slowdown on the global economy as suggested by IHS analyst.

At the same time, China’s state power grid is set to boost copper consumption in the power sector this year by around 9 % as reported by Antaike the research based fi rm. The power grid plans to invest

GDP Growth Dips Below 5% in 2015

ANYA LAXMI - QUIZ SERIES 1

Q1: C – explanati on - The diff erence between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. SPOT –FUTURES = BASIS

Q2: B – explanati on - A company or individual that executes futures has to open an account with a broker or member.Q3: – to be given by the readers. (Context)Q4: D – explanati on - A method of anti cipati ng future price movement by using supply and demand informati on means fundamental analysisQ5: A – explanati on - The transfer of the commodity from the seller of a futures contract to the buyer of a futures contract.

By - Smita

ANSWERS

Q.1 Basis is the difference between

A) Spot Price – Cash Price B) Future Price- Cash Price C) Spot price- Future Price D) Future Price – Spot Price

Q.2 An individual can participate in commodity futures by opening an account with

A) Exchange B) Commodity Broker C) FMC D) MCX

Q.3 _______________ is the month in which delivery of a future contract is made

A) Expiry Month B) Mid month C) Delivery month D) Starting month

Q.4 Forecasting of movement of commodity is done by doing technical and _____________analysis

A) Practical B) Digital C) Electrical D) Fundamental

Q.5 ____________is made during the last 10 days of trading of a contract in NCDEX (For Clients)

A) Delivery B) Profi t Booking C) Trading D) Expiry

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420 billion yuan ($67.6 billion) in 2015, up 24 % from last year.The power sector accounted for nearly half of an estimated 8.7 million tonne of refi ned copper con-sumption last year in the world’s top consumer and producer of the metal.

Besides, benchmark industrial metal also collapse of oil prices added to the deteriorating sentiment over the global economy. However, copper has been un-der pressure since the start of the year, sliding 12 per cent and breaking below $6,000 per tonne for the fi rst time since 2009. A combination of oil price nerves, negative sentiment toward commodities and seasonal weakness has all attributed to the fall.

As a result, LME copper inventories have been ris-ing of late with stocks pushing back to almost exactly the same level they were this time last year. In con-junction with rising LME stocks, the spreads have eased, though pointedly the Cash-3m copper spread remains backwardated while the farther-dated spreads also remain tight.

While a preliminary purchasing managers’ index from HSBC Holdings Plc and Markit Economics pointed to expansion at Chinese factories in February, a gauge for new export orders in the report dropped to the lowest since June 2013. Even though the PMI was a little better, we’re still hoping and waiting for more aggressive stimulus measures from the policy makers.

Normally, while approaching towards the Chinese new year, physical buying activity usually decline due to consumers and traders preferring not to hold large inventory of the material over the two-week holiday when industrial activity slows. Such a fall in prices had an adverse impact on global miners - Antofagasta, Glencore, Anglo American, BHP Billiton and Rio Tinto etc.

Goldman Sachs Group Inc also slashed its 2015 price forecasts for several base metals including cop-per and aluminium while raising its estimate for gold by $62 per ounce.

“The primary reason for the changes to our forecasts is cost defl ation - driven by a combination of actual and anticipated U.S. dollar strength, cheaper energy and other input costs, and our expectation of an improve-ment in mining productivity,” Goldman Sachs said.

Australia & New Zealand Banking Group Ltd. cut its price forecasts for industrial metals this year by as much as 19 % on concern that further economic trou-

bles are ahead for China, the world’s largest consumer.Unlike the crude oil market is facing a supply glut

because of the US shale revolution, analysts have been reducing their expectations for a copper surplus this year. Macquarie, for example, expects a refi ned surplus of just 98,800 tonne. In recent months Rio Tinto has lowered forecasts for its Kennecott mine by 100,000 tonne, BHP has cut 150,000 tonne from Es-condida’s 2015 outlook and Glencore shaved guidance for Minera Alumbrera by 50,000 tonne.

The fall in copper hit the share prices of producers hard. Antofagasta, the Chilean producer, fell 68p, or 9.5 per cent, to 641p, while Glencore dropped 23p to 245p. Anglo American was off 90p to £10.54, BHP Billiton 74.5p weaker at £12.82 and Rio Tinto down 132p to £27.87.

“With the likelihood of further weakness in econom-ic growth in China, the headwinds for base metal mar-kets are unlikely to ease,” the bank said in the report. “Base metals are unlikely to see any sustained period above current levels in the fi rst half of 2015.”

The bank’s revised outlook comes after data this week underscored concerns over a slowdown in Chi-na. An offi cial gauge of the country’s manufacturing strength registered a contraction for the fi rst time in more than two years and a private reading of the ser-vices sector showed the weakest pace of expansion in six months. The economy grew at the slowest rate since 1990 last year as the government focused on market reforms instead of rapid growth.

ANZ lowered its forecast for copper this year to $5,850 a metric tonne, from $7,263 a tonne, and re-duced its outlook for nickel to $17,625 a tonne from $21,112 per tonne. The metal has dropped 11 % so far this year.

“The key commodity demand market surprised on the downside in 2014 and is likely to do the same in 2015 while authorities remain focused on diffi cult economic reforms,” the bank said in the report.

While it cut its price estimate for nickel, the bank forecast the metal used in stainless-steel making will rise about 19 % from its current price as the full im-pact of Indonesia’s ore-export ban hits the market this year. China’s producers of nickel pig iron, a lower-grade alternative to the refi ned metal, will struggle to replenish stockpiles with ore from the Philippines due to mine closures and falling ore quality, the bank said.

BY INVITE


Winter season in the US has come to an end, with it marking the close of a very high natural gas demand period in the country.

The natural gas demand peaks between the winter months between November to March. Natural gas is used for heating, registers strong demand from resi-dential and commercial users during this period. Ap-proximately 49% of US households use natural gas for heating during the winter season.

Two factors kept natural gas prices down in winter months when historically they witness a big bump. The winter this year has been milder. The arctic blast that covered virtually all of America in snow last year

was absent. Higher supply of gas also helped in keep-ing prices low. The commodity which lost over 30% in 2014 and has extended its downside by over 5% during the fi rst three months of 2015.

Backed by seasonality, higher demand in the winter months starting early Q4 and lasting upto the end of Q1 of next year lead to a defi cit scenario for the commod-ity. The usual nature of the consumption and supply is such wherein additional consumption do the commod-ity during this period is adjusted with withdrawals from the inventory stored in the underground warehouses wherein the same are later fi lled-in during the lean sea-son between April to October or the co called Injection

Natural Gas: On Low Flame— Tapan Trivedi

SPECIAL FEATURE

Latest Working Gas in Underground Storage data comparison (Upto March 20th)Region March 2015*s March 2014 % Chng 5 Yr. Avg % Chng

East 559 362 54.4% 717 -22.0%

West 344 164 109.8% 270 27.4%

Producing 576 378 52.4% 685 -15.9%

Total 1,479 904 63.6% 1,673 -11.6%

Source: US EIA Weekly Inventory Report


season for the commodity. NG production remains sim-ilar during that period while demand takes a downward blow wherein which the left-over commodity after con-sumption is simply pushed back in storage platforms to be utilized later during the next winter. As the last win-ter season was muted than historical stands and sharply lower than the unprecedented late 2013-early 2014 cold blast, we have seen withdrawals too staying little bit lower than expected.

The week recorded fi rst Net injection of this season as winter offi cially nears an end by the month of March. Last week’s data from storage from the US EIA showed a modest addition to the tune of 12 BCF, its fi rst such weekly injection since 2012 during this time of the year. Cumulatively, working gas inventories stood at 1,479 BCF, 63.6% higher than previous years reading of 904 BCF and lower by over 11% as equated to last fi ve year average (2010-14). Overall the sharp increase on a YoY perspective in understandable as 2013 cal-endar year end and early 2014 recorded very strong cold in most part of North America as also mentioned above. Note that, temperatures this winter between Dec to Mar have been moderately higher than seasonal

norms which was conjugated with persistently increas-ing supplies which is one of the key rationales behind the earlier than normal injection phase been seen in the US as per the weekly; EIA report. Over the medium-term perspective, extended production from the major shale plays namely, Eagle Ford, Haynesville, Marcel-lus, Niobrara, Permian and Utica in the US is likely to continue the injection scenario for the commodity wherein by the month of October ending when winter start moving into the system, there is and anticipation of good increase in both YoY and 4 Yr average reading for the cumulative stocks data for NG in the country. By the start of winter season in Nov, inventories are expected be around 3856 BCF as per projections from EIA that would be moderately higher than 2011-14 av-erage during that period of 3784 BCF and also higher than 2014 data of 3587 BCF. Higher than normal sup-plies continue to call for a weaker consumption pattern as the peak demand season is behind us whereas sup-plies stay ample.

On that front, if we look at the actual demand sup-ply variables for the commodity year 2014 as a whole witnessed record demand especially during Q1, 2014

whereas the commodity also registered fresh highs in production levels in second half of the year. Total Mar-keted Production for NG in the last year scaled higher by over 6%, a record in totality and also the best YoY growth fi gures since 2011. Tracking the NG produc-tion effi ciency, the US EIA in its recent STEO report increased its forecast for 2015 and 2016 by 1 BCFPD in each year to 78.4 BCFPD and 80 BCFPD (Billion Cubic Feet Per Day). Rise in production is expected notwithstanding the fall in prices of the commodity and huge decline in rig counts as can be seen from data published by Baker Hughes. Natural gas rig counts as per last week’s 27th March slipped for the 8th con-tinuous week to 233 rigs. Total number of natural gas directed rigs is at its lowest level on record and is down 70% from its recent high of over 800, achieved in 2012. The reading as equated to last year same pe-riod too is down by around 26% from 318 active NG rigs. Overall fall can be simply attributed to cutbacks in fresh investments due to persistent depressed pric-es. However, despite the fall in rig counts, production continues to be higher and anticipated to remain alle-viated which calls for a case wherein effi ciency from utilization capability of gas wells have improved sig-nifi cantly in last few years.

On a broader perspective, as we have stated in our prior write-ups as well, Natural gas production in the US has increased at a very swift pace during the past few years with seven major shale plays namely, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica accounting for almost all of natural gas produc-tion in the country. Rise in production backed by frack-ing technology in Shale formations reduced depen-dence on production from Gulf of Mexico region while at the same time weighed against imports from Canada. Pipeline imports of NG from Canada and Mexico cur-

rently makes under 10% of the total Marketed Produc-tion as against the near 15% in 2009. Also, Net Imports (Imports-Exports) has gradually moved down to just 4% in 2014 as compared to over 12% in the year 2009 and likely to move in low single digits by 2016. Higher local production along with lower average prices of the commodity in US as compared to major international markets like Europe and Asia is one of the key ratio-nales behind reduction in imports for NG as especially Canada gets higher incentive in selling to other mar-kets due to wide price variance in US NG prices from other markets.

Onto the consumption side, NG is a highly season-al commodity with its demand divided into two main seasons, summer and winter. While its consumption is highest in winter season due to heating demand, summer which offi cially runs between May to early September witnesses demand from power producers to provide cooling. Looking at segment wise usage, consumption is sub-divided into four major segments i.e. Residential, Commercial, Industrial and Electric Power segment. Residential and Commercial demand is highly fl uctuating, as it depends on the movement in

US NG Balance Sheet (Billion Cubic Feet Per Day) 2014 2015** 2016** Q1 2015** Q2 2015**

Supply

Total Marketed Production 74.7 78.4 80.0 77.8 78.3

Lower 48 States (excl GOM) 70.4 74.3 76.1 73.6 74.3

Others 4.31 4.04 3.83 4.22 4.01

Total Dry Gas Production## 70.4 73.9 75.4 73.3 73.8

Gross Imports 7.4 7.1 6.8 8.6 6.7

Gross Exports 4.1 4.9 5.7 4.7 3.9

Net Imports 3.3 2.2 1.2 3.9 2.8

Supplemental Gaseous Fuels 0.2 0.2 0.2 0.2 0.2

Net Inventory Withdrawals -0.5 -0.2 -0.2 17.5 -11.2

Total Supply 73.3 76.1 76.5 94.7 64.7

Consumption

Residential 14.0 13.5 12.8 27.0 7.0

Commercial 9.5 9.0 8.9 15.1 6.0

Industrial 21.0 22.4 22.8 24.1 21.4

Electric Power (c) 22.3 24.1 24.6 22.2 23.4

Others 6.80 6.91 7.10 7.59 6.64

Total Consumption 73.6 75.9 76.2 96.0 64.5

Balancing Item (b) -0.3 0.2 0.3 -1.4 0.2

BCFPD - Billion Cubic Feet Per Day; ## Dry Natural Gas Production = Marketed Production less Extraction Loss; Source: US EIA, KCTL Research Note: Data Averaged from Monthly numbers to Yearly (Including forecasts which are marked in **)

Note: Data Averaged between 2010 to 2015 (Including forecasts) Source: US EIA, KCTL Research

10.0%

25.0%

40.0%

55.0%

6

11

16

21

26

31

Jan

Feb

Mar

Apr

May Jun Jul

Aug Se

pO

ctN

ovD

ec

Industrial

Electric Power (c)

Indu. as % of Total Demand

E.P. as % of Total Demand

0%

8%

16%

24%

32%

40%

0

8

16

24

32

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ovD

ec

Residential

Commercial

Resi. as % of Total Demand

Comm. as % of Total Demand

Segment-Wise Usage of Natural Gas in the US based on Seasonal Demand

SPECIAL FEATURESPECIAL FEATURE



weather pattern while demand from other two segments is mostly steady. Winter season usually drives demand for heating from residential and commercial segment wherein share from these two segment in total con-sumption increases to nearly 50%. The same however plunges to low double digits in the summer season. Electric Power segment records higher consumption during summer for powering air conditioners.

As per the EIA projections on the consumption side, that US NG consumption is seen averaging around 75.9 BCFPD in 2015 and 76.2 BCFPD in 2016 which is higher by 3.1% and 0.45% on a YoY perspective as compared to 2014 and 2015 data respectively. Growth is largely driven by demand in the industrial and elec-tric power sectors, while residential and commercial consumption are projected to decline in 2015 and 2016. Lower average natural gas prices expectations amidst lesser consumption from mainly residential segment is indirectly aiding support from industrial and electric power which usually increase their in-take for the commodity in times of lower prices as equated to the other major fuel Coal which is the key input for thermal power plants in the US. As NG also results into lower Carbon emissions as compared to Coal, if prices remain favorable, more demand from these segments can be seen. EIA projects natural gas consumption in the power sector to grow by 8.2% in

2015 and by 1.9% in 2016. Industrial sector consump-tion is likely to increase by 5% and 2% in 2015 and 2016, respectively. Nevertheless, as we talk about the full year forecasts, overall anticipated decline in de-mand in the Residential and Commercial segment is expected to push the commodity into surplus situation for the aforementioned period.

As of the current state, we are nearing the offi cial end of winter season while markets modest demand in sum-mer. We are moving in for Spring which usually sees the weakest demand for natural gas in the US as lack of extreme temperatures cuts demand either for heating or air conditioning. While summer season may lead to modest amelioration in demand in the second half of Q2, 2015; that too would be depending on how actually temperatures rise in that period. Summer in 2014 was a party pooper as largely temperatures stood in range manner and acted against the commodity consumption during that phase. In case summer too remains weaker than normal as with the cased with winter this year, likely that demand destruction could affect residential and industrial while also start impacting electric and other power related demand. If that were to become a reality at-least fi rst 3 quarters of 2015 are seen emerg-ing to be in surplus situation, making an extended bear-ish case for the commodity over short to medium-term time frame.

Please pay by DD/Cheque (at par) in favour of Karvy Comtrade Ltd., payable at HyderabadPlease fi ll this form and send along with DD/cheque to: Mr. Tapan Trivedi, Karvy Comtrade Ltd, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034. Email: [email protected]

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Silver: Losing Sheen— Tapan Trivedi

Bullion as a complex faced a highly volatile month wherein both the commodities, Gold and Silver moved to their lowest levels since

December during the fi rst half of the month, though recorded very strong gains from lows to fi nish with little change as compared to February. Silver commodity at international spot markets closed the month at $16.66 per ounce, tad higher on a month comparison however for the fi rst quarter the whitish precious metal gained over 6%, outperforming gold commodity by a wide margin which during the quarter was almost fl at as compared to Dec 2014 closing near $1185 per ounce.

The month of March was fi lled by geo-political ten-sions in the Middle East and also the FED policy state-ments which drove the precious metals space higher. Silver slipped heavily ahead of the monthly FOMC meeting on 17-18 march on expectations that policy outcome would be hawkish as per the rate increase is concerned. However as of the actual policy Update, FOMC in came out with more dovish expectations over US economy and interest rates in the near-term, push-ing the US Dollar lower while adding value to Bullion complex including Gold and Silver. In the policy, Fed offi cial’s forecasts of how rates will be by end for 2015, 2016 and 2017 fell compared to their anticipation in Dec meeting. The benchmark federal funds rate expec-tations were trimmed lower to 0.625% by the end of 2015, making the case that one, time line for increasing rates shifted from sometime in June towards late last quarter and also, the policy makers would go very slow in terms of % increase this year.

Separately, another aspect which added weight to Bullion in latter half of the month was the tensions in Middle east. Silver scended higher tracking sharp gains in Crude oil which jumped after Saudi Arabia said it did air strikes in Yemen along with its Gulf Arab allies. Equities fell across the globe whereas in commodities Bullion and Energy gained after King Salman ordered the air strikes against Shiite Houthi positions as a mark of investment in safe haven assets.

The easy FED policy stance drove good correc-tion in US Dollar index which from its highs of over

100 mark, a 12 year high slid towards 95 levels in and around the time the FED policy was announced though later, separate statements from other FED managers and largely bullish expectations over health of US economy aided it to still end the month with 3% gains. Federal Reserve Bank of Richmond President, Jeffrey Lacker said there is a strong case to be made that interest rates should rise in June. In other cues, Atlanta Fed President Dennis Lockhart said March 26 he still favors raising borrowing costs from mid-year onward despite some softer readings on economic growth. Higher rates boost the appeal of assets with better yield prospects such as bonds and equities as increase in rates develop a case that economy is do-ing well. Though for Bullion it acts against investor’s sentiment as better economic prospects push the safe-haven appeal of Bullion lower.

Talking about the physical demand supply variables for the commodity in India, trade data released by the Gujarat State Export Corporation Limited (GSECL),

SPECIAL FEATURE FEATURE



bullion imports by the state touched highest levels in four years during fi scal year 2014-15, backed by eas-ing rules from government over imports. Total gold imports during the FY stood at 152.24 MT, rising over 66.79% YoY whereas silver imports in the state fell to 625 MT, lower by 56.15% on a YoY comparison. While this is a state wise statistics, scenario is some-what similar in major parts of the country wherein the rate of fall and rise is a bit at a lower rate. Easing tax rules by the government since last year May and also extended relaxation over the so called 80:20 rule has given away for higher imports for gold commodity as equated to silver. Also, lower prices of Gold which along with gold moved to 4 year low last year too pulled higher demand for the yellow metal and acted against the domestic consumption for silver commod-ity. From the GSECL demand also dipped from indus-trial sector.

Looking at the pricing front, Silver commodity in international markets managed decent outperfor-mance over gold in recent past as decent positivity in base metals too supporting. Base metal after falling in

Jan have managed to ease off from their lows led by speculation that persistently weaker economic vari-ables in China would force the government to come out with easing fi scal and monetary stimulus. We feel bullishness over aforementioned variables along with extended monetary support from ECB and BoJ may continue to support the Bullion complex, including silver over short-term. Gains however are expected to remain capped backed by lower physical from the major consumers India and China along with lower institutional demand from as can be witnessed from international ETF’s. This in addition to continued un-certainty over how the US policy makers are going to respond towards the monetary policy in coming month may act as a major resistance zone for the com-modity. Thus for the April month, the commodity to consolidate in a big range between $17.5-18.0 on the higher side and $15.0-15.5 on the lower side at Spot and Comex markets internationally. Bias for our side would remain moderately negative wherein which traders can plan selling on pullbacks with mentioned upper band as stoploss.

— Raj Nawab Singh Kashyap and Ramesh chenchala

COMMODITY OF THE MONTH

Fundamental AnalysisIndia is the fourth largest producer of Rape-Mustard (RM) seed in the world

contributing 9% to the global production. In In-dia, mustard oil is mostly used in the north and eastern parts of the country as a major cook-ing oil. It has a strong and pungent taste better suited for the cuisines of north and east.

The production of RM seeds has increased at a compounded annual growth rate (CAGR) of around 1%. The acreage growth for the crop has grown virtually at the same pace. The net acreage for this crop in India currently is 6.6 million hectares.

India does not export RM seeds because of the domestic demand for mustard oil. Mustard oil is the third most widely used cooking me-dium after palm oil and soy oil.

In the European Union, the acreage of RM seeds is similar to India’s but its yields are much higher. Due to unavailability of adequate high yielding seeds, rain fed cultivation and un-favorable climate India’s has one of the lowest yields in the world.

The crop was adversely impacted in regions such as Rajasthan due to a host of climatic rea-sons in 2014-15. Overall, the acreage under RM seed for 2014-15 has decreased by 8.6% to 65 lakh hectares. In the fi rst week of March 2015, unseasonal rainfall and hailstorm affected RM seed crops negatively. However, details of crop damage yet to be estimated. The Solvent Ex-tractors Association of India has estimated In-dia’s Rabi mustard seed production for 2014-15 at 5.74 MMT.

The RM Seed futures are expected to trade on a positive note during the month of April on account of lower production estimates and crop damage due to recent rainfall. In the year 2014-15, the area under RM seed cultivation declined by nearly 9% to 65 lakh hectares against last year’s acreage of 71 lakh hectares. The Solvent Extractors Association of India has estimated

Rape-Mustard Seed

India’s RM Seed production at 57 lakh tons against previous year’s production of 65 lakh tons. Though the April month witnesses more arrivals, it is likely to be delayed because of recent rainfall.

Further, mustard oil meal is being exported in large quantities and recently, China has shown interest in importing oil cake and the deal is likely to be inked very soon.

Therefore, all the above mentioned factors are likely to support RM seed futures to trade on a positive note.

Technical analysisRM seed May contract delivery futures are trading around Rs 3456/quintal as on 1 April, 2015 and contract delivery futures for June and July are trading at a premium of Rs 40-50. We antici-pate RM seed futures to move higher up to Rs 3650-3850 levels in the near term. From the price chart, it is evident that prices had breached the short term consolidation phase break out point around Rs 3430 and are hovering above those levels. Also it had broken monthly short term 8 and 13 day moving average resis-tance levels around Rs 3400 levels.

Since several months’ prices moving higher along with rising trend line support levels, at present it is providing supports around Rs 3330 levels. Based on these technical factors we anticipate RM Seed futures to move higher up to Rs 3600 and further to Rs 3800 levels which are the Fibonacci 50% and 38.2% retracement resis-tance levels of the range Rs 4546-2654. Overall, we are anticipat-ing RM Seed futures to move higher and recommend building long positions from lower levels.Recommendation: RM Seed May NCDEX Buy at Rs 3480-3470; TP: Rs 3660/3760; SL: Rs 3350

FEATURE


Domestic Commodities Monthly Supports And ResistanceCommodity Contract S3 S2 S1 Close R1 R2 R3 Direction Recommendation/Range

BULLION

Gold MCX Jun-15 24862 25237 25727 26269 26891 27448 27783 Down Sell at 26900-27000 TP 26100/25700 SL 27450

Gold Hedge May-15 22800 23100 23500 23794 24500 24800 25200 Down Sell at 24600-24650 TP 23500/23100 SL 25200

Silver MCX May-15 33221 34143 35575 37169 38672 40030 40997 Down Sell at 38500-38600 TP 35600 SL 39400

METALS

Copper MCX Jun-15 345 354 368 383 398 412 421 Sideways Sell at 390-393 TP 365/355 SL 415

Lead MCX May-15 104 106 110 114 118 121 124 Up Buy at 114-113 TP 121/124 SL 108

Zinc MCX May-15 123 125 128 131 134 136 138 Up Buy at 128-127.50 TP 137 SL 123

Nickel MCX May-15 670 712 747 783 856 921 945 Down Sell at 840-845 TP 740/710 SL 890

Aluminium MCX May-15 110 111 112 113 114 115 115 Sideways Trading range 107-117

ENERGY

Crude Oil MCX May-15 2670 2799 2968 3155 3369 3561 3677 Sideways Sell at 3400-3420 TP 2800 SL 3680

Natural Gas MCX May-15 155 161 166 171 180 188 192 Down Sell at 178-180 TP 160/155 SL 190

EDIBLE OILS

Soybean NCDEX Jun-15 3305 3332 3391 3458 3501 3541 3580 Up Buy at 3420-3400 TP 3600/3750 SL 3300

Soy Oil NCDEX Jun-15 530 538 549 560 574 586 593 Side-ways Trading range 586-538

RM Seed NCDEX May-15 3316 3338 3372 3411 3446 3478 3501 Up Buy at 3480-3470 TP 3660/3760 SL 3350

CPO MCX May-15 403 414 424 434 454 472 479 Down Sell at 453-454 TP 425/415 SL 476

Castor seed NCDEX May-15 3567 3614 3689 3772 3850 3920 3970 Down Sell at 3980-3970 TP 3700/3620 SL 4100

SPICES

Dhaniya NCDEX May-15 5423 6044 7299 8708 9689 10587 11422 Up Buy at 8500-8600 TP 10000 SL 7900

Turmeric NCDEX May-15 6665 7003 7319 7662 8236 8745 8967 Up Buy at 7400-7380 TP 8200/8700 SL 6900

Jeera NCDEX May-15 13483 13921 14377 14875 15615 16274 16591 Up Buy at 14400-14350 TP 15500/16200 SL 13600

Cardamom MCX May-15 795 837 870 906 977 1040 1064 Sideways Trading range 980-800

OTHERS

Chana NCDEX May-15 3496 3539 3583 3630 3703 3769 3799 Up Buy at 3550-3580 TP 3800/3900 SL 3400

Mentha Oil MCX Apr-15 782 794 824 859 877 894 914 Up Buy at 816-820 TP 900/914 SL 770

Wheat NCDEX May-15 1346 1374 1408 1446 1491 1532 1555 Sideways Sell at 1476-1480 TP 1380/1345 SL 1555

Sugar NCDEX May-15 2132 2218 2306 2401 2548 2678 2739 Sideways Trading range 2620-2330

Maize NDDEX May-15 1140 1160 1180 1192 1220 1245 1264 Side-ways Trading range 1110-1250


International Commodities Monthly Supports And Resistance

Commodity Contract S3 S2 S1 Close R1 R2 R3 Direction Recommendation/Range

BULLION

Gold Comex Jun-15 1108 1126 1153 1183 1213 1240 1258 Down Sell at 1220-1222 TP 1140/1100SL 1286

Silver Comex May-15 14.53 14.97 15.74 16.60 17.32 17.98 18.49 Down Sell at 117.40-117.50 TP 16.00/15.50 SL 18.50

METALS

Copper Comex May-15 2.403 2.484 2.605 2.740 2.872 2.991 3.073 Down Sell at 2.800-2.810 TP 2.610/2.500SL 2.950

Copper LME 3M Fwd 5376 5520 5756 6020 6252 6463 6622 Down Sell at 6210-6220 TP 5800/5700SL 6500

Lead LME 3M Fwd 1615 1657 1733 1819 1884 1944 1996 Up Buy at 1852-1850 TP 1920/1950SL 1800

Zinc LME 3M Fwd 1935 1965 2020 2081 2128 2172 2208 Up Buy at 2075-2070 TP 2170/2200SL 1950

Nickel LME 3M Fwd 10576 11245 11779 12350 13500 14516 14896 Down Sell at 13300-13310 TP 11800/11300 SL 14500

Aluminum LME 3M Fwd 1705 1725 1754 1785 1818 1848 1868 Sideways Trading range 1700-1860

ENERGY

Crude Nymex Jun-15 38.85 41.27 44.28 47.60 51.63 55.23 57.29 Sideways Sell at 51.70-52.00 TP 45/4300SL 57.30

Natural Gas Nymex Jun-15 2.438 2.526 2.605 2.691 2.842 2.976 3.031 Down Sell at 2.820-2.830 TP 2.530/2.430SL 3.050

EDIBLE OILS

Soybean CBOT Jul-15 905 927 951 978 1015 1048 1065 Sideways Trading range 1040-920

Soy Oil CBOT Jul-15 27.74 28.70 29.62 30.62 32.24 33.68 34.33 Sideways Sell at 31.80-31.85 TP 29.70/29.00SL 33.70

Corn CBOT Jul-15 349 360 366 376 389 401 408 Down Sell at 400-400.50 TP 380/367 SL 409

Wheat Jul-15 459 478 492 514 536 556 569 Down Trading range 500-575

Cotton Ice Jul-15 58.70 60.26 61.51 63.46 65.17 66.72 67.90 Down Buy at 61.60-61.50 TP 65.20 SL 60.20

Sugar Jul-15 15.00 15.15 15.30 15.49 15.80 16.05 16.30 Down Trading range 11.70-113.50




— Smita, Manager at Karvy

CLASSROOM

“Financial Literacy” as the term suggests, indicates the

knowledge of a person about different fi nancial tools and instruments available to him with which he could arrive at prudent decisions that help him generate wealth.

Financial literacy is not some-thing that is useful only for the rich. It benefi ts every strata of society. An increase in fi nancial literacy will help deepen the mar-ket for fi nancial products and ser-vices.

Despite the proliferation of pri-vate and public sector banking networks, India remains a severe-ly underbanked nation. Large sec-tions of population in rural areas continue to be dependent on the highly exploitative unorganized fi nancial system. Therefore, fi nancial literacy be-comes even more critical.

The primary purpose for con-ducting Financial Literacy Cam-paigns should be basically to fa-cilitate the process of fi nancial inclusion. It can be done only in two ways and they are fi nancial lit-eracy and easy access to fi nancial instruments. The campaign should aim at imparting knowledge to people so that they are able to do fi nancial planning. It should instill in them the habit of savings and employing the savings in main-stream instruments that offer capi-tal protection as well as greater prospects of generating sustained wealth. These campaigns would

The Campaign To Increase Financial Literacy

help the common man in such a way so that he will be able to plan ahead and be fi nancially prepared to face the many exigencies life can throw up. It will help people to plan for retirement or higher education of their children.

These fi nancial literacy cam-paigns can be conducted through different ways. This article will deal with fi nancial literacy related to commodities.

The commodity market regula-tor Forward Markets Commis-sion (FMC) conducts various programmes through agricultural institutes and exchanges. These

institutions and exchanges con-duct literacy campaigns through different members of exchanges so that they can provide knowl-edge about commodities futures along with other sectors. These institutions along with FMC de-cide target audience and it may be exporters, importers, manu-facturers and physical traders for attending these campaigns, since fi nancial literacy is essential for person of every age and each sec-tion of society. Experts in relevant fi elds are invited to hold such workshops. These events are held free of cost.

FINANCIALLITERACY

In another format, FMC asks various exchanges to contact their members. Since members act as the interface for any indi-vidual who wants to enter into the fi nancial markets, they are the ones who play an important role in conducting campaigns. Also those clients who are already par-ticipating in fi nancial markets and know fi nancial products need to get updated with the new reforms and tools of the fi nancial sector. These campaigns are conducted at different locations of India for different fi nancial groups on dif-ferent topics.

We at Karvy Comtrade have conducted around 80 seminars, only last year, for creating aware-ness on fi nancial literacy.

However there are some basics in terms of do’s and don’ts which have to be kept in mind and infact these are the base of fi nancial literacy.

DOs while dealing in com-modity futures

Understand the commodity and price impacting parameters before participating in commodity futures.

Study historical and seasonal price movement.

Be aware of the risks associat-ed with your positions in the mar-ket and your ability to respond to margin calls on them as unfavor-able price movements result into higher margin requirement

Collect/pay mark-to- market margins on your futures position on a daily basis from/to your Trad-ing Member as per the Exchange rules and regulations.

Comply with taxation and oth-er state regulatory issues relating to sale/ delivery and stamp duty.

Apply your own prudent judg-

ment while trading in a commodity. In case of any doubt/problem

contact the Exchange help desk Participate in the commodity

derivatives market after analyzing the facts and doing due diligence. Etc.

DONTs while dealing in commodity Future

Do not fall prey to market ru-mors and tips

Do not act based on bull/bear run of market sentiment in the market.

Do not go by any explicit/ im-plicit promise made by analysts/ advisors/ experts/ market interme-diary until convinced.

Do not go by the reports/ pre-dictions made in various print and electronic media without verifi ca-tion.

Do not trade in any commod-ity without knowing the risk and rewards associated with it.

Do not deal with any interme-diary not registered with the ex-change on which you wish to trade.

DOs while dealing with mem-ber (Commodity Broker) of the Commodity Exchanges

Insist on reading and signing a ‘Risk Disclosure Agreement’.

Go through details of Client Member Trading Agreement to know your rights and duties vis-à-vis those of Member-Brokers.

Ask all relevant questions and clear your doubts with your Mem-ber before transacting.

Pay required margin in time and understand the consequences of non-payment.etc.

DONTs while dealing with member (Commodity Bro-

ker) of the Commodity Ex-changes

Do not undertake off-market transactions in commodities. It is both risky and illegal.

Do not deal with unregistered intermediaries. Ask for/Know about their regulatory approval reference (UMC) before trading through the intermediary. The list of Members is available on the website of the respective Exchanges.

Do not get carried away by alluring advertisements, rumors, hot tips or the promise of assured returns by the Member. As the Portfolio Management Schemes (PMS) are not available in com-modity markets, the promise of returns by any Member is illegal.

Do not start trading before reading and understanding the Risk Disclosure Agreement.

Do not neglect to confi rm in writing, orders for higher value given over phone.

Do not forget to take note of risks involved in the commodity trading.

Do not delay payment/ deliv-eries of commodities to Member.

Do not give authority to the Member of the Exchange to make ‘sale’ and ‘purchase’ decisions on your behalf and also do not surrender the right of receiving contract notes on a daily basis. Portfolio Management Schemes (PMS) are not allowed in com-modity market.

Do not accept unsigned/ dupli-cate contract note/ confi rmation memo.

Do not accept contract note/ confi rmation memo signed by any unauthorized person.Pl visit the website of fmc for details (http://www.fmc.gov.in/) http://fmc.gov.in/showfi le.aspx?lid=151&langid=2&SubLinkID=116


CLASSROOM


STATISTICS

Source: Bloomberg ; EC: European Union; IN: India; US: United States; CH: China; GE: Germany; UK: United Kingdom; JN: Japan

Economic Events In April 2015Date Time Region Event Period Survey (M) Prior

04/01/15 06:30 CH Manufacturing PMI Mar 49.7 49.9

04/01/15 07:15 CH HSBC China Manufacturing PMI Mar F 49.3 49.2

04/01/15 13:25 GE Markit/BME Germany Manufacturing PMI Mar F 52.4 52.4

04/01/15 13:30 EC Markit Eurozone Manufacturing PMI Mar F 51.9 51.9

04/01/15 17:45 US ADP Employment Change Mar 225K 212K

04/01/15 19:30 US ISM Manufacturing Mar 52.5 52.9

04/02/15 18:00 US Initial Jobless Claims Mar-28 286K 282K

04/02/15 19:30 US Factory Orders Feb -0.40% -0.20%

04/03/15 07:15 CH HSBC China Services PMI Mar -- 52

04/03/15 18:00 US Change in Nonfarm Payrolls Mar 245K 295K

04/03/15 18:00 US Unemployment Rate Mar 5.50% 5.50%

04/06/15 19:15 US Markit US Composite PMI Mar F -- 58.5

04/06/15 19:30 US ISM Non-Manf. Composite Mar 56.5 56.9

04/07/15 14:30 EC PPI YoY Feb -2.90% -3.40%

04/08/15 23:30 US U.S. Fed Releases Minutes from March 17-18 FOMC Meeting

04/08/15 JN Bank of Japan Monetary Policy Statement

04/10/15 07:00 CH CPI YoY Mar 1.20% 1.40%

04/10/15 07:00 CH PPI YoY Mar -4.80% -4.80%

04/10/15 14:00 UK Industrial Production YoY Feb 0.30% 1.30%

04/10/15-04/15/15 CH New Yuan Loans CNY Mar 1025.0B 1020.0B

04/13/15 05:20 JN Machine Orders MoM Feb -- -1.70%

04/13/15 05:20 JN PPI YoY Mar -- 0.50%

04/13/15 CH Trade Balance Mar $40.00B $60.62B

04/14/15 14:00 UK CPI YoY Mar -- 0.00%

04/14/15 18:00 US PPI Ex Food and Energy YoY Mar -- 1.00%

04/15/15 07:30 CH GDP SA QoQ 1Q -- 1.50%

04/15/15 11:30 GE CPI YoY Mar F -- 0.30%

04/15/15 18:45 US Industrial Production MoM Mar -0.20% 0.10%

04/16/15 18:00 US Housing Starts MoM Mar 15.90% -17.00%

04/16/15 18:00 US Building Permits MoM Mar -2.00% 3.00%

04/17/15 14:30 EC CPI YoY Mar F -- --

04/17/15 18:00 US CPI YoY Mar -- 0.00%

04/20/15 11:30 GE PPI YoY Mar -- -2.10%

04/21/15 14:30 EC ZEW Survey Expectations Apr -- 62.4

04/22/15 19:30 US Existing Home Sales MoM Mar -- 1.20%

04/23/15 07:15 CH HSBC China Manufacturing PMI Apr P -- 49.6

04/23/15 19:30 US New Home Sales MoM Mar -- 7.80%

04/24/15 18:00 US Durable Goods Orders Mar -- -1.40%

04/29/15 17:30 GE CPI YoY Apr P -- --

04/29/15 18:00 US GDP Annualized QoQ 1Q A -- 2.20%

STATISTICS

Cardamom -16.8%

Nickel-10.2%

Crude Oil -1.3%

Gold-1.0%

Natural Gas -0.4%

Aluminum -0.4%

Cotton 0.3%

Silver 1.2%

Copper 1.8%

Zinc 1.9%

Lead 5.1%

Mentha Oil 8.3%

Turmeric-10.1%

Wheat-9.3%

Soy Oil-1.9%

Barley-1.9%

Jeera 0.3%

Rm Seed 0.6%

Soybean 1.8%

March International Commodity Price TrendsMarch 31,

2015Feb 27,

2015% Change 52 Week

High% Change from

52 Week High52 Week

Low% Change from

52 Week Low

ICE Sugar (cents/lb) 11.93 13.93 -14.36% 18.28 -34.74% 11.91 0.17%

CBOT Soy Meal ($/t) 326.80 353.70 -7.61% 509.40 -35.85% 302.00 8.21%

CBOT Soy Oil (cents/lb) 30.39 32.80 -7.35% 43.74 -30.52% 29.32 3.65%

CBOT Soybean (cents/bushel) 973.25 1030.75 -5.58% 1536.75 -36.67% 904.00 7.66%

Nymex Crude Oil (S/bbl) 47.60 49.76 -4.34% 107.73 -55.82% 42.03 13.25%

LIFFE Sugar (S/t) 355.40 371.80 -4.41% 495.90 -28.33% 355.00 0.11%

Comex Gold (S/oz) 1183.10 1213.10 -2.47% 1346.80 -12.15% 1130.40 4.66%

LME Aluminium 3 Month ($/t) 1785.00 1815.00 -1.65% 2119.50 -15.78% 1744.85 2.30%

ICE Cotton (cents/lb) 63.10 64.73 -2.52% 94.89 -33.50% 57.05 10.60%

LME Nickel 3 Month ($/t) 12395.00 14095.00 -12.06% 21625.00 -42.68% 12310.00 0.69%

ICE Coffee (cents/lb) 132.90 136.75 -2.82% 225.50 -41.06% 129.05 2.98%

LME Zinc 3 Month ($/t) 2081.00 2065.00 0.77% 2416.00 -13.87% 1963.00 6.01%

CBOT Wheat (cents/bushel) 511.75 517.50 -1.11% 735.00 -30.37% 466.25 9.76%

Nymex Natural Gas ($/mmbtu) 2.64 2.73 -3.44% 4.89 -45.97% 2.57 2.84%

CBOT Corn (cents/bushel) 376.25 384.50 -2.15% 519.50 -27.57% 318.25 18.22%

Comex Silver (S.oz) 16.60 16.51 0.51% 21.53 -22.89% 14.10 17.72%

LME Copper 3 Month ($/t) 6041.00 5895.00 2.48% 7212.00 -16.24% 5339.50 13.14%

LME Lead 3 Month ($/t) 1820.00 1728.00 5.32% 2307.00 -21.11% 1676.50 8.56%

March Gainers and Losers (M/M%)MCX NCDEX


SUNAHARE PAL

Across1. Amount required to trade in commodities futures (6)

6. Hedging basically shows no profi t no loss (6)

12. An automated system of trading (4)

16. Volatility of that attracts participants to trade (5)

23. Indore is the centre of this commodity and its short form is written in that fashion (3)

26. Buy is called by another name (4)

29. A commodity used in adhesive and whose last name is referred by (3)

34. The very basic but mandatory form (3)

38. A characteristics which in fact differentiates commodities from equities (8)

50. If some one speculates, chances of erosion of capitalis more (4)

56. A commodity which is a fruit, traded at overseas exchange and is in liquid form (11)

67. A commodity which is used in pharma industries (9)

78. A type of trade which is mostly understood as arisk free (9)

91. A name of exchange in Japan (5)

94. A delivery centre in Gujarat (4)

101. A type of tax which is imposed on certain commodities (3)

103. Basic function which is performed for any buy or sell (5)

111. The date from which commodity contract ceased to exist is termed as (6)

116. Name of the currency of an Asian country (3)

122. Name of a commodity which has got delivery centre in southern states of India (8)

129. An amount charged on service tax (4)

Down1. Daily loss or profi t is called as (12)

4. A commodity which attracts maximum turn over at Indian exchanges (4)

5. A form of money arrangement for the various activities of a company (3)

10. Positions which are not squared off remains opened for that day (2)

33. An international exchange which is famous for energy trading (5)

65. A commodity which has got its correlations with aviation sector and is traded in exchange (5)

69. An exchange based at Indore (4)

88. A commodity mostly used in vehicles (4)

90. An Indian Exchange (3)

Cross Word On Commodities1 4 5 6 10

12 16

23 26 29 33

34 38

50

56 65

67 69

78 88

90 91 94

101 103

111 116

122 129

Fill this Cross Word and test your commodity knowledge

By - Zehra Fatima

Karvy Comtrade’s Invest & HarvestApril 2015

RNI No.APENG/2008/24815

Karvy Comtrade’s Invest & Harvest - Karvy Commodities · Editor: Sushil Sinha W ith the...

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