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Most commodities are likely to remain under pressure in 2015 as well. Invest cautiously
Rahul Oberoi/Money Today | Print Edition: January 2015
2015 outlook: Commodities likely to remain under pressure
(Illustration: Pragati)

Rahul Oberoi
Rahul Oberoi
Commodity investors had a tough 2014, even as equity investors smiled all the way to the bank. This year, till December 5, gold and silver slid over 10%, while the MCX Metal Index fell 8%. Crude palm oil, soybean and soy oil fell more than 10%, though the NCDEX Dhaanya index rose 2%, mainly due to rise in castor seed and coriander prices. The index reflects prices of the 10 most liquid futures traded on the exchange.

Metals, both precious and base, fell after the US Fed ended its quantitative easing programme, reducing liquidity. Slowdown in China added to the woes. To top it all, bumper harvests in 2014 improved supply of most grains and oilseeds.

We bring you the outlook for some actively-traded commodities.


Prices slid 14% from Rs 464 to Rs 398 per kg this year till December 5. One reason was China, the world's largest copper consumer, which is seeing a fall in home prices, indicating low demand for the metal.

"Low demand and oversupply have capped prices. The weakness mirrors sinking Chinese imports amid falling investment activity. The government there is making efforts but the recovery so far has been fragile," says Sugandha Sachdeva, associate vice president and in-charge, metals, energy and currency research, Religare Securities,

Another factor is a recent scam at Quingdao port, wherein traders fraudulently used same metal stocks to get multiple loans from Chinese and foreign banks. This has hit demand for copper as collateral in China's shadow lending sector.

World mine production rose 3% till August. Refined copper saw the largest pick-up (7%), according to the International Copper Study Group (ICSG). ICSG is an intergovernmental organisation that promotes global cooperation on issues related to copper.

"Excess supply has kept prices low in China. The surge in the dollar index has also put pressure on prices by making commodities priced in dollars more expensive for holders of other currencies," says Sachdeva. The index has risen nearly 13% this year.

In 2012, India produced 689,312 tonnes refined copper, 4% of the world's total. Domestic copper metal consumption was 7,26,300 tonnes. CMIE, a research agency, has forecast that domestic refined copper production will rise 10.1% in 2014-15, after falling 6% in 2013-14. It has also said that growth in imports is expected to moderate to 10%.

Copper is expected to take cues from data from China and the US. The movement of the rupee against the dollar may also impact prices.

"Copper prices are at an interesting juncture. Fundamentals are supporting downside as prices approach a crucial support level on the London Metals Exchange," says Sachdeva. Technical charts paint a slightly bearish picture. "The current bearishness is expected to drag prices towards the crucial support of Rs 360-365 per kg on the MCX. Next year, prices are expected to bounce from lower levels as bulls turn the tables to pull the metal towards Rs 420-440," says Sachdeva.


Gold and silver fell 10% and 15%, respectively, this year till December 5 to Rs 26,348 per 10 grams and Rs 36,449 per kg, respectively. Last year, they had fallen 5% and 24%, respectively.

"Precious metals were weighed down by the rising US dollar index. Inflation was subdued in major economies, hitting demand, as gold is a popular hedge against inflation. Weak industrial demand also affected prices," says Aurobindo Prasad, chief research analyst, commodity, Karvy Comtrade. Gnanasekar Thiagarajan, director, Commtrendz Research, seconds Prasad. "Gold and silver fell due to strengthening of the dollar and Fed tapering."

According to the latest Gold Demand Trends report by the World Gold Council covering July-September, global demand for gold was down 2% year-on-year to 929 tonnes. "Gold is expected to be bearish as US interest rates rise. The yellow metal is likely to trade in the range of $1,050-1,350 per ounce in international markets in January-June 2015."

Prasad of Karvy agrees. "Strengthening dollar, good performance by equities, muted inflation and weak demand from China and the EU will cast a negative shadow over precious metals."

Keyur Shah, chief executive officer, precious metals business, Muthoot Pappachan Group, says, "The bottom has been reached. But we don't see any spike in 2015."


Crude oil fell over 30% this year till December 5. Prices were $65.84 and Rs 4,134 per barrel in international and domestic markets, respectively, on December 5, as against $95.44 and Rs 6,092, respectively, on 1 January 2014. According to experts, crude oil is under pressure due to excess supply. The demand, too, is subdued due to slowdown in euro zone, China and Japan, the biggest buyers.

"The action by central banks to prop up their economies may create incremental demand. We see prices at $84 per barrel in the next one year. On the MCX, the price can touch Rs 5,800 per barrel in 2015," says Naveen Mathur, associate director, commodities and currencies, Angel Commodity Broking.

At present, the US is producing 8.5 million barrel per day, or mbpd, the highest in the last 28 years. The Organization of Petroleum Exporting Countries (OPEC) nations are producing their full capacity of 30 mbpd. The OPEC says world demand is likely to rise 1.05 mbpd in 2014. Consumption is expected to peak in the last quarter, taking annual demand to 91.19 mbpd. For 2015, the forecast for demand growth is 1.19 mbpd; consumption is expected to be 92.38 mbpd.


India is the world's largest producer, consumer and importer of pulses. Higher imports, partly due to zero Customs duty since 2006 (imposed to keep prices under check), and higher domestic production have been putting pressure on prices. Chana is trading below the minimum support price, or MSP, of Rs 3,100 per quintal.

While the zero import duty on pulses has been extended till March, in case of chana the extension is till December to encourage farmers to plant the crop in the hope of getting remunerative prices. Chana slid 1.5% to Rs 2,875 per quintal this year till December 5.

"Many factors kept prices low in 2013-14. Production in Gujarat and Rajasthan rose sharply. Second, the quality of the Madhya Pradesh crop was inferior compared to that from other states. Therefore, supplies from the country's largest producing state continued to be sold at lower levels, which acted as a barrier for the bulls," says Ankita Parekh, research analyst, commodities, Nirmal Bang Commodities.

"Government efforts to tame food inflation also played a part. Demand, especially during the monsoon, did not rise as vegetable prices fell," says Parekh.

Experts say production is expected to be 54 lakh tonnes in 2013-14. Average annual consumption is 52-54 lakh tonnes.

For the next year, though it is too early to say anything, latest data show a big fall in acreage in Madhya Pradesh and Rajasthan as many farmers have shifted to other pulses and coriander. Low soil moisture in these states is also a concern. Production is expected to be 48-50 lakh tonnes in 2014-15, say experts.

In 2014, chana traded in a range on the NCDEX. It tested Rs 3,458 per quintal in March. In July, it touched a one-year low of Rs 2,745. "If chana is able to remain above Rs 3,500 in the coming year, it can test Rs 3,750. If it moves below Rs 3,000, the next support level will be Rs 2,600," says Vivek Gupta, director, research, CapitalVia Global Research. "The current acreage scenario and soil moisture conditions suggest the output will fall. This will boost prices. By February, chana may rise towards Rs 3,400," says Parekh of Nirmal Bang Commodities.


Prices plunged 16% to Rs 3,270 per quintal this year till December 5 due to fall in soy meal exports and hope of higher production.

"There was a sharp 86% drop in soy meal exports in April-October. Also, the Soybean Processors Association of India forecast 10% rise in production," says Nidhi Chandel, assistant manager, commodity and currency research, Globe Commodities.

Soybean production was 11.9 million tonnes in 2013-14 while consumption of vegetable oil (crude palm oil, mustard, soy oil, sunflower and others) was 18 million tonnes (this included three-four million tonnes soy oil). Soy oil consumption included 1.95 million tonnes imports. In 2014-15, soybean production is expected to be around the last year's level of 11.9-11.8 million tonnes, while consumption is expected to be 19.3 million tonnes.

"We expect prices to remain subdued around Rs 2,800-3,400 per quintal due to peak soybean supply season in India and the US and rise in supply of crude palm oil. Once we are through this, prices may rise 10-15% before the start of the crop season next year," says Chandel.


Prices rose from January to March owing to dry weather in major producing states. However, strong rupee and rains over key growing belts of South America changed the trend. Overall, prices fell 18% from January 1 to December 5.

"Supply of South American soybean picked up as strong rupee made imports cheaper. Lower soybean arrivals in the domestic cash market and expectation that lower rains will hinder domestic production supported prices till July. After that, higher global production and cheaper imports triggered a bear run," says Vinita Advani Acharya, senior research analyst, Geofin Comtrade. Soy oil prices in India are influenced by global edible oil prices.

India's soy oil consumption is three million tonnes, with domestic supply meeting half the demand. Consumption is expected to grow 3-4% on an average every year.

"Rising consumption, at a time when production is not able to keep pace, will lead to higher imports in the coming year," says Acharya.

On the NCDEX, soy oil rose 10% from January to early March, after which it traded in the range of Rs 660-730 per 10 kg till early August. However, it fell after that, and is currently at Rs 582 per 10 kg.

"The weekly price chart is hinting at a downtrend. Breakdown of the Rs 560 level on a weekly basis will lead to more bearishness, dragging down prices to Rs 540-532. A breach of this level can pull it down to Rs 500-505. However, if prices form a base near Rs 560 and manage to stay above Rs 595 on a weekly basis, they can approach Rs 618-630-645 levels."


Prices rose 3.17% to Rs 4,591 per quintal till December 5. The reasons were lower production estimates due to delay in monsoon and high export demand for castor oil.

"The next two-three months will be crucial for exports. Good demand will pull up prices," says Vibhu Ratandhara, assistant vice president, commodities, Bonanza Commodity Brokers. Arrivals are likely to be in full swing from December.

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