Fortnightly PerformanceNon-Agri Commodities
On a fortnightly basis, overall global markets traded on a negative note on the back of geopolitical tensions involving Ukraine and Russia. Further, US President Barack Obama authorizing air strikes in Iraq exerted downside pressure on market sentiment. In addition, the US Federal continuing with its quantitative easing (QE) tapering programme of another $10 billion acted as a negative factor.
On the macroeconomic front, optimistic economic data from major global economies failed to provide respite to downside in the global markets.
On the domestic front, the markets traded lower as a result of outflow of foreign funds in equities and debt markets. The Indian rupee depreciated around 1.8 per cent owing to constant dollar demand from state-run banks on behalf of importers, corporate houses and defence-related payments.
Additionally, foreign funds having sold around $361.54 million in equities and $426.59 million in debt markets so far this month exerted downside pressure on the currency. The Reserve Bank of India (RBI) maintaining its key interest rates stable further acted as a negative factor for the rupee.
In the non-agricultural commodities space, gold traded marginally positive as rising tensions in Ukraine with Russia deploying troops along with escalating tensions in the Middle East supported the yellow metal.
Further, the US authorised limited air strikes to blunt an onslaught by Islamic militants in northern Iraq and begun military air-drops of humanitarian supplies to besieged religious minorities to prevent a "potential act of genocide", thereby boosting safe-haven appeal.
However, rising US equities and positive outlook for the US economy by the Federal Reserve which further tapered QE by $10 billion blurred safe-haven demand in the earlier part of fortnight. In the Indian markets, gold prices jumped by 2.5 per cent owing to rupee depreciation and closed at Rs 28,604/10 gms.
Spot silver prices also traded lower in line with weakness in base metals and plunged by 3.7 per cent last fortnight. Also, escalating geopolitical tensions could not provide respite to falling prices. On the MCX, silver prices fell by one per cent but rupee depreciation cushioned sharp downside in prices.
During the last fortnight, LME Copper prices traded lower by 1.8 per cent as concerns of faltering demand intensified after weak services data from the biggest consumer, China. Further, escalating tensions between the Russia and the West with additional sanctions imposed by the latter led to a fall in demand for the red metal.
Also, renewed tensions in the Middle East exerted downside pressure on prices. However, positive demand outlook for the US along with the Fed's assurance that it is not in a hurry to raise interest rates prevented further fall.
In addition, a decline of around six per cent in inventories acted as a positive factor. MCX copper prices fell by one per cent in last fifteen days in line with international markets.
Crude oil prices plunged by more than four per cent in the last 15 days owing to demand concerns in China and ample supplies despite intensified tensions between Russia and the West.
Also, CVR Refining CVRR.N said its 115,000-barrel-per-day refinery in Coffeyville, Kansas might be shut for as long as four weeks after a fire in a gasoline-related unit on Tuesday. The refinery is a major consumer of benchmark West Texas Intermediate (WTI) crude.
A lengthy shutdown of the Coffeyville refinery could temper demand for WTI crude. Rising gasoline stockpiles in the United States, even during the peak summer driving season, have raised concerns about the demand outlook in the world's largest oil consumer, thereby acting as a negative factor for prices.
In the coming fortnight, we expect precious metals to trade sideways due to escalation of a conflict between Russia and Ukraine on one hand and tensions in Iraq on the other. However, declining investor interest in ETF holdings as indicated by liquidation in SPDR Gold Trust and declining money-managed positions will exert downside pressure on prices.
Crude oil prices will likely trade sideways due to ample supplies amidst persisting tensions in the Middle East and Ukraine.
Base metals are likely to trade mixed as supply constraints in zinc and aluminium will continue to support gains. Copper prices are likely to trade lower owing to concerns of supply glut after resumption of Freeport exports. However, demand concerns in China will exert downside pressure on prices.
Revival of the southwest monsoon and a pickup in the sowing of kharif crops has lead to a decline in the prices of most agricultural commodities over the last fortnight. Weak monsoon between June and early July had raised fears of a drought-like situation and concerns over the food output.
According to the India Meteorological Department (IMD), the cumulative rainfall for the season till August 8 was 17 per cent below normal. The IMD has also lowered the chances of emergence of El Nino during monsoon to 50 per cent. According to the Ministry of Agriculture, kharif sowing as on August 7 was 8.9 per cent lower at 80.33 million hectares as against 88.18 million hectares during the corresponding period last year.
Sowing of Pulses, Coarse Cereals and Oilseeds declined by 14.5 per cent, 20.9 per cent and 12.4 per cent respectively.
With southwest monsoon reporting 17 per cent deficient rain, water levels in 85 major reservoirs are below last year's levels but higher than the 10-year average. As per the latest data available from the Central Water Commission, the level in the reservoirs was 88.735 billion cubic metres as against a full capacity of 155.046 billion cubic metres.
The edible oilseed complex largely remained weak. Soybean was the biggest loser in the entire agri commodities basket with 4.4 per cent losses on aggressive pickup in sowing coupled with weak overseas markets and poor meal exports.
Mustard declined 2.6 per cent, tracking overall weakness in the edible oilseed prices while; mustard meal export demand cushioned the downside. Soy oil as well as CPO remained weak and lost 2.1 per cent and 1.3 per cent, respectively, tracking weak edible oil prices in India as well as overseas markets. However, a weak rupee lent some support to prices.
Among spices, turmeric was the only gainer posting 0.5 per cent returns on reports of crop damage in Sangli due to heavy rains. However, weak physical demand capped the upside. Coriander corrected from higher levels on profit taking as well as increased margins and settled 1.9 per cent lower. Cumin, or jeera, remained weak on lack of fresh overseas orders and lost 2.9 per cent. Exporters are waiting for a fall in prices for fresh buying.
Among soft commodities, Sugar prices remained flat. Weak spot demand coupled with selling pressure from mills kept prices under check. However, threat by mils in Uttar Pradesh to suspend operations in the next marketing year starting October supported prices at lower levels and prices settled 0.1 per cent lower.
Sugar prices in global markets remained weak due to rapid cane crushing in Brazil and ample supplies. Cotton futures recovered from lower levels on short-covering, lower-level buying and a weak rupee and settled two per cent higher. Cotton prices declined sharply over the last few weeks due to bearish global market sentiments Cotton futures on ICE declined 1.74 per cent on favorable crop conditions in the US, expectations of weak demand from China and higher global supplies.
Chana futures largely remained weak. Prices fell on record production coupled with improving kharif pulses sowing. However, prices recovered from lower levels over the last few sessions on short-covering coupled with lower level demand and festive buying and settled 0.3 per cent lower.
We expect most agricultural commodities to remain under downside pressure in the coming fortnight due to a revival of monsoon coupled with a pickup of sowing activities. The festive season is around the corner and demand may emerge at lower levels.
The rupee has weakened considerably, and if the weakness continues, some recovery may be seen in prices from lower levels. Any reports of crop damage may lead to a price recovery. Further advancement of monsoon along with the sowing progress needs to be carefully tracked as it will play a crucial role in determining output.