The Timely Saviour

Rahul Oberoi/Money Today        Print Edition: February 2012

The sharp fall in the rupee during the last few months has been a godsend for some. As prices of various commodities fell globally, the rupee cushioned the impact on Indian investors, especially those who placed bets on commodities that are largely imported - crude oil, non-ferrous metals and edible oils.

For instance, falling rupee ensured that prices of crude oil in the domestic market rose more than 23 per cent in the last six months of calendar year 2011, whereas in the global markets, prices fell 4.75 per cent. During the period, the rupee fell 20 per cent from Rs 44.58 a dollar on July 1, 2011, to Rs 53.26 a dollar on December 30, 2011. A falling rupee makes imports costlier as they are paid for in dollars.

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"The rupee fall pushed up prices of non-ferrous metals, precious metals, edible oils and crude oil," says Kunal Shah, head of research, Nirmal Bang Commodities.

Prices of crude oil, refined soya oil and crude palm oil surged 23.15 per cent, 11.76 per cent and 13.48 per cent, respectively, during the last six months of calendar year 2011. Copper fell 4.26 per cent in the domestic market, though it fell 19 per cent in the international market from $9,404 per tonne on July 1, 2011, to $7,590 per tonne on December 28, 2011.

Oil, metals have fallen less in rupee terms
Experts are positive on these commodities as the general view is that the rupee will remain weak for the next couple of months.

"We expect the rupee to remain in the 50-52 range for the next few weeks. However, if it crosses this level, we expect it to reach 55," says Amarsingh Deo, head of commodities and currencies research, Aditya Birla Money.

"In the short term, the rupee can rise towards the 55 level before falling towards 52. It can shoot up towards the 57-58 level in the middle of 2012," says Sudhir Bhalla, director, Ashlar Investment Experts.

THE BENEFICIARIES

Copper: During the last quarter of 2011, copper, used in housing and construction, surged 17 per cent, or Rs 56.45 per kg, to Rs 396.45 per kg on MCX. The rupee fell 8.9 per cent from Rs 48.93 to Rs 53.26 during the period.

"The domestic price of copper is derived from global prices. A weak rupee is keeping prices firm in the domestic market. It is likely that there may be a small recovery in the US housing market in which case the dollar will further strengthen, boosting prices here," says Jayant Manglik, president, retail distribution, Religare Securities.

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Base metal prices are directly linked to the country's growth prospects. The year gone by saw a lot of volatility due to variations in the dollar-rupee exchange rate. Industrial growth in China, the largest consumer of copper, is also the key.

Commodities buoyed by a weakening rupee
There are hints that China may loosen monetary policy to arrest the slowdown in economic growth. This will boost the demand for copper in the international market. Market experts are bullishv on the metal.

"Copper can touch Rs 440 per kg in the next few months," says Manglik. On January 16, 2012, the metal was trading at Rs 412 per kg on MCX.

Edible Oil: Prices of crude palm oil and refined soya oil have been rising since the rupee started falling. In the last three months of 2011, crude palm oil and refined soya oil prices rose 15.23 per cent to Rs 573 per 10 kg and 14.23 per cent to Rs 723 per 10 kg, respectively. India is the world's top buyer of edible oil and imports half the quantity it consumes.

Badruddin Khan, AVP, agriculture, Angel Commodities, says, "On account of firm global prices, crude palm oil is expected to touch Rs 590-600 per 10 kg from Rs 531 at present by the end of June 2012. Production estimates of Malaysian palm oil for this year are lower compared to last year on account of weather disruptions (heavy rain) resulting from the La Nina." La Nina causes above-average rain in South East Asia. Lower output and supply disruptions mean prices will remain high in the coming months.

"If the rupee falls further, crude palm oil imports will become more expensive as the commodity accounts for about 65 per cent of India's edible oil imports," says Khan.

Quote

We expect the rupee to remain in the 50-52 range for the next few weeks. However, if it crosses this level, we expect it to reach 55

Amarsingh Deo

Head of Commodities and Currencies Research, Aditya Birla Money

In oil year 2010-11 (November-October), India imported 83.71 lakh tonnes vegetable oils for its its consumption demand of 162 lakh tonnes. In the 2011-12 season, edible oil imports are estimated to touch 90 lakh tonnes.

Indonesia's move to increase the export duty on crude palm oil by 1.5 per cent may further make imports expensive. India is the biggest importer of crude palm oil from Indonesia.

Refined soya oil might continue to rise in the coming year due to shortage. "In 2012, the demand is expected to increase to 27 million tonnes compared to 26 million tonnes in 2011. We will need seven million tonnes soya oil to meet demand as supply may be 20.07 million tonnes. During January and February, the seasonal demand for edible oils across the country may push up prices. The projected dry weather in Brazil and Argentina and concerns over the fall in soybean output may result in lower soy oil production," says Smita Sinha, head advisory desk, Karvy Comtrade.

Crude Oil: According to the Reserve Bank of India, petroleum crude and other oil products accounted for more than 30 per cent of the country's total imports in 2010-11.

Crude oil prices rose 17 per cent in October from Rs 3,875 per barrel on October 1, 2011, to Rs 4,556 per barrel on October 31, 2011. "Seasonal demand along with political tensions in West Asia and Iran kept crude oil prices high. A weak rupee led to more gains in the domestic market as India is a big importer of crude oil," says DK Aggarwal, chairman and managing director, SMC Investments and Advisors.

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Prices of crude oil surged over 23 per cent between July 1, 2011, and December 26, 2011. On December 30, 2011, crude oil was trading at Rs 5,317 per barrel on MCX.

"Crude oil prices can move in the range of Rs 5,200- 5,700 per barrel in the domestic market and $95-110 per barrel in the international market. Along with a weak rupee, demand from emerging countries will influence prices," says Aggarwal.

In the global markets, crude oil was at $99.68 per barrel on December 23, 2011. "The price movement till the end of April 2012 will depend on the movement in the greenback and the euro debt crisis," says Aggarwal.

The political situation in the world will also drive prices as the US continues to pressure Iran, a major producer, to shut down its nuclear programme.

"World oil demand is likely to climb up by more than 1 per cent in 2012. The production is expected to rise 0.70 per cent. This may support oil prices," says Sinha of Karvy Comtrade.

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