Commodity Research Report Ways2Capital 20 June 2016

The Federal Reserve held short-term interest rates steady and officials lowered projections of how much they’ll raise them in the coming years, signs that persistently slow economic growth and low inflation are forcing the central bank to rethink how fast it can lift borrowing costs.

The Federal Reserve held short-term interest rates steady and officials lowered projections of how much they’ll raise them in the coming years, signs that persistently slow economic growth and low inflation are forcing the central bank to rethink how fast it can lift borrowing costs. Wednesday’s moves marked a stark reversal from just a few weeks ago, when several Fed officials, including Chairwoman Janet Yellen, dropped strong hints they might raise rates in June or July. Instead, she emphasized the central bank’s uncertainty about when they’ll act and where rates are headed in 2018 and beyond. The uncertainty was striking in part because the Fed’s forecasts for the economy didn’t change much from the quarterly projections released in March. Officials still expect modest economic growth near 2% annually over the next three years, a rise in consumer-price inflation to 2%, and an unemployment rate below 5%.

In spite of the recent disappointing release of economic data sets from the nation along with uncertainties in the global economy, Federal Reserve still hints a two gradual rate hikes in 2016. However, the number of officials that expect the Fed to raise rates only once this year has gone up significantly. The committee also cut its 2016 economic growth forecast to 2 percent from 2.2 percent. Projection for economic growth in 2017 was also slightly decreased.

Gold rose on Friday after registering its biggest one-day fall since May 24 in the previous session, supported by a softer dollar and headed for a third straight weekly gain. On a topsy-turvy Thursday, the safe-haven asset breached the $1,300 level and hit a peak of $1,315.55 an ounce - nearly a two-year high - before turning 1% lower following the suspension of campaigning for next week's "Brexit" referendum in Britain after a member of Parliament was shot dead. Spot gold was up 0.4% at $1,283.90 an ounce at 0355 GMT. Bullion has risen 0.8% for this week so far. Traders said that market dealings could be volatile next week ahead of the June 23 referendum when Britain will vote on whether to remain in the European Union or to leave. The Bank of England escalated its warnings about fallout from the vote, saying it could harm the global economy and that sterling looked increasingly likely to weaken further if "Leave" wins. Reflecting renewed optimism towards gold, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fun

U.S. gold fell 0.9% to $1,287.10. "Brexit concerns will still be the primary driver over the next few days," said INTL FC Stone analyst Edward Meir, referring to the June 23 vote by Britain on whether it will leave the 28-member European Union. "Given what is at stake, we think that gold will likely push higher until this uncertainty lifts, Thursday's downside reversal notwithstanding," Meir said. Gold could get a further boost as a safe haven if a vote by Britain to leave the group pushes Europe back into a recession. The Bank of England escalated its warnings about fallout from the referendum, saying it could harm the global economy and that sterling looked increasingly likely to fall further after any "Out" decision. "Leading into the Brexit vote, we expect gold to remain around current levels between the $1,270-$1,300 range. But after then all bets are off as everything depends on the results of the referendum," ANZ analyst Daniel Hynes said. "If UK does leave the EU we could see prices touching $1,400 in the immediate aftermath of the referendum," Hynes said. The dollar was up slightly on Friday, rising 0.1% to 104.37 yen, but it was still down more than 2.5% for the week, after hitting its lowest since August 2014 on Thursday. The dollar index, which tracks the greenback against a basket of six major peers, slipped 0.2% and is set for a weekly decline of the same magnitude. On Thursday, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.20% to 902.53 tonnes, the highest since October 2013. Silver, which slid 2% for its biggest one-day fall in about a month on Thursday, rose 1.1% to $17.33 and was nearly flat for the week. Platinum and palladium were headed for a weekly decline despite rising on Friday by 1% and 2.1% respectively.

Crude oil prices rose on Friday for the first time in seven days as markets took a breather from concerns about the impact of Britain's possible exit from the European Union. Brent crude futures were up 59 cents, or 1.3%, at $47.78 a barrel at 0143 GMT after slumping 3.6% in the previous session. The contract is on track to fall nearly 5.5% for the week. US West Texas Intermediate crude futures rose 37 cents, or 0.8%, to $46.58. The contract fell 3.8% in the previous session and prices are down around 5% so far this week. The British pound rose from a two-month low after campaigning for next week's so-called Brexit vote next week was suspended following the murder on Thursday of UK member of parliament Jo Cox, who was a vocal advocate for Britain to stay in the European Union. Commodities across the board also posted gains, while equity benchmarks including Japan's Nikkei stock average rose. "We need to brace ourselves for further volatility," said Ben Le Brun, market analyst at Options Xpress in Sydney. "We are seeing a bit of a recovery now with maybe some short positions being unwound. It is certainly going to be a wild ride for investors and traders going into the June 23 decision," he said. Still, global oil majors Chevron Corp and Royal Dutch Shell Plc are putting small refineries on the auction block as they look to trim lower-margin assets in the face of headwinds from rising crude oil prices. Chevron, the second largest US oil company, is soliciting interest in its Burnaby, British Columbia, refinery and gasoline stations, the company told Reuters. Shell is looking for buyers for its Martinez, California, refinery, two people familiar with the situation told Reuters. Shell declined to comment.

Copper prices rose 0.8 percent last week to close at $4550 per tonne as minutes of the Bank of England's latest decision on interest rates show that the monetary policy committee thinks inflation and economic growth would be undermined if the British public votes to leave the EU, thereby urging people to vote in favor of REMAIN in EU, easing some fears of Brexit. Traders said sentiment in copper remained firm as it rose after two days of losses in global markets on evidence that Chinese growth is stabilizing and concerns over a build up in metal stockpiles eased. Meanwhile, Copper for three-month delivery gained 1% to $4,557 a metric tonne on the London Metal Exchange. It touched a four-month low of $4,483.50 on Thursday. In the national capital, copper mixed scrap rose further by 2 to Rs 376 per kg. Following are today's metal rates (in Rs per kg): Zinc ingot Rs 98-104, Nickel plate (4x4) Rs 850-855, gun metal scrap Rs 227, Bell metal scrap Rs 229, copper mixed scrap Rs 376, chadri deshi Rs 295. Lead ingot Rs 76, lead imported Rs 82, aluminium ingots Rs 155, aluminium sheet cutting Rs 151, aluminium wire scrap Rs 151 and aluminium utensils scrap Rs 149.

Supported by increased demand from consuming industries at the domestic spot markets, nickel prices traded higher 0.63% to Rs 607.30 per kg in futures trade. At the Multi Commodity Exchange, nickel for delivery in July month moved up by Rs 3.80, or 0.63%, to Rs 607.30 per kg in a business turnover of 35 lots. Likewise, the metal for delivery in June traded higher by Rs 3.20 or 0.54% to Rs 600.40 per kg in 2,071 lots. Analysts said a pick-up in demand by alloy-makers in the spot market mainly led to the rise in nickel prices at futures trade.

Lead prices went up by 0.70% to Rs 115.65 per kg in futures trade today as traders enlarged their positions amid rising demand at domestic spot market. At the Multi Commodity Exchange, lead for delivery in the current month rose by 80 paise or 0.70% to Rs 115.65 per kg in a business turnover of 940 lots. The metal for delivery in July edged up by 75 paise or 0.65% to Rs 116.45 per kg in 52 lots. Market analysts said rising demand from battery-makers in the domestic spot markets kept lead prices higher at futures trade but weakness in the base metals pack at the London Metal Exchange on global growth concerns, limited the gains.


Slower- than-normal progress of the south-west monsoon has impacted sowing of rain-fed kharif crops, according to data released by the agriculture ministry on Friday.So far, an area of 8.4 million hectares has been sown, nearly 11% lower than the 9.4 million hectares sown by this time last year. However, these are early days as the seasonal or total area under kharif crops in the June October season is 106.2 million hectares. Kharif crops such as rice, pulses, coarse cereals and cotton are planted till mid- to end-July. Sowing is expected to pick up pace as the monsoon progresses. Over the past week, the monsoon has not moved beyond parts of Karnataka in southwestern India, although it progressed into the eastern regions to cover West Bengal and parts of Bihar, Jharkhand and Odisha. The drought-hit states of Maharashtra, Uttar Pradesh and Madhya Pradesh are yet to witness monsoon showers. After two deficit rainfall years leading to a protracted drought, all eyes are on the monsoon which is forecast to be above normal this year, at 106% of the long-period average. The south-west monsoon is critical to the kharif crop season as over half of India’s farmland lacks assured irrigation and India receives 80% of its annual rainfall during these four months.

The import of pulses has come under the scanner of central intelligence agencies to check any black marketing and cartelisation to jack up the prices of the commodity. The officials of Intelligence Bureau (IB) and Directorate of Revenue Intelligence (DRI) have alerted the field formation to the possibility of such illegal activities by traders and hoarders, official sources said today. About 5.5 million tonnes of pulses were imported last fiscal, largely through private traders. The move comes as the prices of pulses have continued to soar and reached Rs 200 per kg in retail. Various central agencies and the Income Tax department have been conducting raids across the country for some time to check hoarding.

Indian soybean futures gained on expectations of a delay in sowing as monsoon rains are yet to arrive in regions where the oil seed is grown.The July soybean contract on the National Commodity & Derivatives Exchange rose by 0.97 percent to 3,954 rupees ($58.92) per 100 kg.July soyoil futures eased 0.42 percent to 644 rupees per 10 kg due to high stocks of oil in the country.Farmers of Madhya Pradesh and Maharashtra may switch to pulses and other cash crop due to lower crushing demand. According to the SOPA, output of the soybean for 2015-16 is forecasted down at 6.9 mt, compared to earlier estimate of 7.4 mt. At Indore spot market in top producer Madhya Pradesh, soybean dropped by 29 rupees to 3968 rupee per 100 kgs. Oil meal exports during May 2016 are reported at only 7,737 tons compared to 121,339 tons in May 2015 - down by 94% according to data compiled by Solvent Extractors' Association of India. Farmers of MP and Maharashtra may switch to pulses and other cash crop due to lower crushing demand. According to the SOPA, output of the soybean for 2015-16 is forecasted down at 6.9 mt, compared to earlier estimate of 7.4 mt.

The Securities and Exchange Board of India (Sebi)’s directive on Thursday asking exchanges not to launch new chana (Bengal gram) contracts and allow only squaring off the open positions, following the suspension of chana futures, had an impact on prices in mandis.  Prices went down on Friday by 1.7 per cent. In futures market, prices were below spot market as traders were reducing positions as heavy margins were already imposed by the regulator.On Friday, the National Commodity & Derivatives Exchange Limited (NCDEX) spot chana price fell 1.7 per cent to Rs 6954  a quintal in Delhi mandi while futures was down 0.66 per cent to Rs 6,875. June last year, chana turnover on the NCDEX was Rs 1,165 crore and it was contributing 22.3 per cent of total NCDEX volumes. However, in past two months the average volume has come down to Rs 165 crore, 5.5 per cent of the exchange’s volumes.Even open interest a year ago used to be 0.29 million tonnes, which fell to 15,000 tonnes on Friday.A sebi appointed task force is working on a criteria for commodities to qualify for trading in derivatives. Wheat and maize prices have also shot up 10 to12 per cent since April, but available stock with government has yet not raised panic button.

Turmeric futures closed lower on Friday due to weak demand and reports of good sowing progress in Karnataka and Tamilnadu. The Jul’16 delivery contract on NCDEX closed 0.72% lower to settle at Rs 7,976/quintal. However, they closed negative on profit booking triggered by limited demand at spot market during closing hours of trade. July futures ended at Rs.7976/quintal, down by 0.72% while August closed with loss of 0.87% from its previous trade. Trade at Erode market remained steady at Rs.8400-8600/quintal for finger and Rs.8100-8300/quintal for bulb and arrivals were at 4000 bags. Steady trend was witnessed in Nizamabad market with finger and bulb trading at Rs.8400/quintal and Rs.7800.quintal and arrivals at 600 bags.Reports of steady domestic demand and expectation of higher sowing prospects have pressurizing prices. The prices may be range bound to higher on reports of forecast of above normal rains in turmeric growing area in south India. Turmeric arrivals have been higher in February, March and April compared to last year but the arrivals have slowed in May as per agmarknet data. However, the arrivals are higher by 105% in May 2016 compared to last year same month. Producers are releasing their lower or medium grade Turmeric and holding premium quality in the anticipation of better return ahead on anticipation of some weather disturbances in the coming monsoon. As per dept of commerce data, turmeric exports in 2015-16 are pegged at 85,426 tonnes while the export for the 2014-15 was 90,738 tonnes for the same period.

The July contract ended 0.69% down at Rs. 4,590 per quintal. The mustard prices are moving higher last week on anticipation of limited supplies during the monsoon and good demand for oil from industrial buyers.Mustard seed dropped third straight day in benchmark Jaipur market of Rajasthan on Friday due to slow demand at the higher level as prices hit 5-month higher earlier this week.The recent surge in mustard prices were due to strong demand for mustard oil from blenders, amid low arrivals of raw material in the spot market.However, demand has slowed in last couple of days, as inventories with stockist were sufficient to meet any incremental demand.Further crushing activity is slow amid disparity of Rs 3,638 per tonne to crushers, due to which off-take of raw material was thin.Price gap between blended and pure oil was quoted nearly Rs 17/kg and the same gap is easily saleable and attractive for market participant.Apart from local fundamentals, prices are also pressured by weakness in futures market, which has fallen 3 percent in this week, after rallying 7 percent in June itself.However, downside for mustard seed seen limited due to low arrivals and millers are facing supply shortage of raw materials.Mustard seed arrivals were 1.60 lakh bags in today's trade across country, against 1.70 lakh bags on previous session.Mustard seed prices dropped Rs 25 today to trade at Rs 4,725/100kg in Jaipur Market. While Mustard oil Expeller and Kacchi Gani eased Rs 2 to trade at Rs 790 and Rs 840/10 kg respectively.However, Mustard cake was up Rs 10 to trade at Rs 2,350/100kg.At local bourse, mustard seed most active July contract on the National Commodity & Derivatives Exchange Ltd. (NCDEX) was 0.12 percent higher at Rs 4,688 while forward August contract was tad down at Rs 4,750 against Previous close of Rs 4,752.

Jeera July’16 future prices ended the day in green at Rs. 17170 per quintal, up by 0.2%. On spot market front, at Unjha market, the prices reported at around Rs.17600 and the total arrivals were 5000 bags. Stock positions at the NCDEX accredited warehouses are 3481 tonnes and 3 MT are in process as on 17 June 2016. According to Dept of Commerce data, the export of jeera during 2015- 16 (Apr-Feb) surged to 93,539 tonnes compared to 1.56 lt exported last year same period. The exports for 2015-16 declined compared to last year. Devaluation of currencies in the buying countries and appreciation of Indian currency combined with high prices have led to a steep decline in jeera exports in 2015-16. As per third advance estimate of Gujarat State for 2015-16, production is pegged at 2.13 lt higher by about 7% forecasted in revised fourth advance estimate of 1.97 lt. In 2013-14, production was 3.46 lt. Industrial buyers have already sourced sufficient quantity for the domestic requirements but the export demand may pick up as prices have been going down since last one month. In the next few months, the prices will depend on export demand.

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