The year 2014 was bad for commodity investors as prices of most commodities fell. Prices of gold and silver as well as major agri commodities such as soybean, soy oil and crude palm oil plunged over 9% between January 1 and December 22. The MCX Metal index also fell 9% during the period.
Metals, both industrial and bullion, 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 a snapshot of 2014 for some actively-traded commodities.
GOLD AND SILVER
Gold and silver fell 9% and 16%, respectively, this year till December 22 to Rs 26,784 per 10 gm and Rs 36,486 per kg, respectively. During the year, gold touched a high of Rs 30,823 and a low of Rs 25,406, while silver touched a high of Rs 47,654 and a low of Rs 34,199. Last year, they had fallen 5% and 24%, respectively.
"Precious metals were weighed down by the rising US dollar. Inflation was subdued in major economies, hitting demand, as gold is a popular hedge against inflation. Weak industrial demand also hit 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."
Crude oil fell 40% this year till December 22. Prices were $60.11 and Rs 3,603 per barrel in international and domestic markets, respectively, on December 22, 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 largest buyers.
Prices slid 13.4% from Rs 464 to Rs 401 per kg this year till December 22. 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 capped prices. The weakness mirrors sinking Chinese imports amid weakening 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.
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Chana slid 1.5% to Rs 2,875 per quintal this year till December 5. However, it recovered in the second half of December. On December 19, it was trading at Rs 3105 per quintal.
"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.
Prices plunged 15% to Rs 3,303 per quintal this year till December 22 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.
Prices plunged 14% to Rs 601.80 per 10 kg in 2014 till December 22. They 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.
"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.
Prices rose 5% to Rs 4,661 per quintal till December 22. The reasons were lower production estimates due to delay in monsoon and high export demand for castor oil.
Sugar prices have been moving in the range of Rs 2,860-2,650 for the last two months till December 22. Prices have tumbled over 15% since a high of Rs 3,294 in June due to fragile demand, higher supply in domestic and world markets, lowering of the fear of el Nino and lack of exports. During the year, prices slid 5.5% and were at Rs 2,855 per quintal on December 22.
High supplies kept sugar under pressure in 2014. According to the Indian Sugar Mills Assciation, or ISMA, sugar production till November was 17.81 lakh tonnes. This is 6.41 lakh tonnes more than the figure for the same period of last year. In November, 297 mills had started crushing compared to the last year's figure of 262. Close to 509 mills had crushed cane in 2013-14. So, around 200 are yet to start operations this season.
"Due to the 20 lakh tonnes surplus held by the mills as on October 1, domestic ex-mill prices have fallen to their lowest level in the last couple of years," says the ISMA website. The total stocks with the mills, says ISMA, are 75 lakh tonnes.
"Sugar has been falling since the last season due to oversupply. Global prices also fell on account of record output in Brazil last season. Demand, on the other hand, continues to slip," says Vinay Kumar Agrawal, research analyst, WealthRays Securities.
Since August, prices have been seeing a sharp bull run, soaring to Rs 4,120 in December. Mustard seed futures have risen 23% from the year's low of Rs 3,272. Robust oil demand, depleting stocks and increase (of 29%) in mustard meal demand during April-November along with lower sowing added strength to prices.
Nidhi Chandel, research associate, Globe Commodities, says, "Current prices are looking too high compared to that of substitutes like soybean oil. Though sowing has been delayed quite a bit, it will pick up soon and result in better production that may trigger a correction. Harvesting from February will weigh on the commodity, which will drag down prices to Rs 3,500-3,400."
CRUDE PALM OIL
Till December 22, crude palm oil prices slid 24% on the NCDEX. On December 23, crude palm oil was trading at Rs 417 per 10 kg.
DK Aggarwal, chairman and managing director, SMC Investments and Advisor, says, "The edible oil complex traded in the red zone due to ample availability because of higher imports from Indonesia and Malaysia. The main reasons for higher imports were increase in per capita consumption (4.5%) and population growth, stagnant oilseed production and nil export duty on palm products by Indonesia and Malaysia."
The ringgit also fell, which boosted the buying by overseas buyers. The capacity utilisation of domestic vegetable oil refining industry fell from 65-70% to 35-40%.
FULL COVERAGE:2014 Year In Review