Commodity Research Report Ways2Capital 10 october 2016

Gold prices ended lower on Friday, reversing earlier gains, as disappointing U.S

Gold prices ended lower on Friday, reversing earlier gains, as disappointing U.S. employment data was seen as unlikely to alter the Federal Reserve’s plan for raising interest rates before the end of the year. Gold for December delivery on the Comex division of the New York Mercantile Exchange dipped $ 1.10, or 0.09%, to settle at $1,251.90 a troy ounce by close of trade. The contract slumped to $ 1,243.20 earlier in the session, a level not seen since June 7, before climbing to as high as $ 1,267.60 in the immediate aftermath of weaker-than-expected U.S. nonfarm payrolls data. The U.S. economy added 156,000 jobs last month, down from a gain of 167,000 in August, while the unemployment rate ticked up to 5.0%, the Labor Department said Friday. Market analysts had expected 176,000 new jobs and the jobless rate to hold at 4.9%. Hourly wages for private sector workers rose 2.6% in September from the same month a year earlier, in line with expectations. Despite the lack lustre report, the slowdown was not expected to prevent the Federal Reserve from raising interest rates later this year. Markets are currently pricing in around a 65% chance of a rate hike at December's meeting, the yellow metal ended with a loss of $64.60, or 4.9%, the worst one-week performance since mid-September 2013, amid growing expectations for a December rate hike by the Federal Reserve.
The precious metal is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion. The U.S. dollar index, which measures the greenback's value against a basket of six major currencies, ended the week at 96.65, down 01% on the day. The index had climbed to a more than two-month high of 97.21 prior the release of the U.S. jobs report. For the week, the greenback gained 1.3% amid growing expectations the Federal Reserve would raise interest rates by the end of the year. A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies. Also on the Comex, silver futures for December delivery inched up 3.5 cents, or 0.2%, on Friday to settle at $ 17.38 a troy ounce. The contract fell to $ 17.11 earlier Friday, the lowest since June 24. On the week, silver tanked $ 1.88, or 9.55%. Elsewhere in metals trading, copper for December delivery tacked on 0.8 cents, or 0.37%, on Friday to end at $2.163 a pound. For the week, New York-traded copper prices dropped 3.1 cents, or 2.09%. In the week ahead, market players will be turning their attention to Wednesday’s minutes of the Federal Reserve’s September policy meeting for fresh clues on the timing of the next U.S. rate hike. U.S. retail sales data will also be in the spotlight, as investors attempt to gauge if the world's largest economy is strong enough to withstand an increase in borrowing costs before the end of the year. In addition, there are a handful of Fed speakers on tap, including Chair Janet Yellen, as traders look for more clues on the likelihood of a December rate hike.Elsewhere, China is to release what will be closely watched trade and inflation data amid ongoing concerns over the health of the world's second biggest economy.

Oil fell about 1 percent on Friday as players took profits on a rally over the past week that propelled prices nearly 15 percent to four-month highs on hopes of OPEC crude output cuts. Also weighing on the market was the steady rise in U.S. oil drilling as crude trades at or near $50 a barrel. A closely watched report by oil services provider Baker Hughes showed U.S. drillers adding rigs in 14 of the past 15 weeks. Brent crude LCOc1 settled down 58 cents, or 1.1 percent, at $51.93 a barrel. Earlier in the day, it hit $52.84 cents, three cents short of a one-year high. U.S. West Texas Intermediate crude settled down 63 cents, or 1.3 percent, at $49.81. OPEC is "back in business," determining oil prices, and only a "brave person" would bet against the cartel, an avowed oil bull, Andy Hall, said in a letter seen by Reuters to investors in his $ 2.5 billion hedge fund Astenbeck. Friday's drop, Brent and WTI remain up more than 10 percent since the Organization of the Petroleum Exporting Countries wrong-footed many market participants eight days ago with its first production cut plan in eight years. For the week, Brent ended up 6 percent while WTI rose 3 percent. But with prices appearing to have gained too much, too soon - the Relative Strength Index for Brent and WTI was at 69 on Thursday, just below the overbought level of 70 - there was pressure to liquidate. On Friday, Brent's RSI fell to 67 while WTI dropped below 58. "This is certainly not a one-way trade and we're seeing the other side acting now," said Tariq Zahir at Tyche Capital Advisors in New York. "As much as the world wants to believe OPEC will cut some output, there are doubts what real good it will do to the oversupply," Zahir said. Since OPEC proposed a production cut plan on Sept. 28 that it said will be formalized at its policy meeting in Vienna in November, it has embarked on an unusual flurry of meetings to nail down details. Next week, the group meets with Russia for informal talks in Istanbul to get non-members to contribute to cuts. hopes to bring its own output down to 32.5 million-33 million barrels per day, reducing about 700,000 bpd from a global glut estimated by analysts at 1.0 million to 1.5 million bpd. But the group's tendency to often max out production makes the market wary. Any OPEC move to extend production curbs to other countries "would not make much sense," a source at Brazil's state oil company, Petrobras , which produces about 2 million bpd, said on Friday. CHART-WTI & Brent crude forward curves move above $50 per barrel.

Oil prices dipped on Thursday but remained near June highs reached the previous session when they were buoyed by a fall in U.S. crude inventories. U.S. West Texas Intermediate crude oil futures CLc1 were trading at $49.63 per barrel at 0051 GMT, down 20 cents from their last settlement. International Brent crude futures LCOc1 were down 24 cents at $51.62 per barrel. Traders said the price dips early on Thursday were largely a result of profit-taking following strong price rises the day before. Both contracts hit their highest levels since June on Wednesday after the U.S. Energy Information Administration said crude stockpiles fell 3 million barrels last week to 499.74 million barrels, and as international oil markets prepared for a planned output cut by the Organization of the Petroleum Exporting Countries. "Another week another surprise drawdown in crude inventories by the EIA ... Although crude in storage remains at record highs, this is the third week of unexpected drawdowns in a row," said Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore. He added that WTI prices would likely be "eyeing the psychological $50" soon, although there was the downside risk of shale drillers putting rigs back into operation which were mothballed at lower prices.

In the West, particularly in the US, steel capacity has undergone truncation with big-ticket mergers inevitably leading to shutting down of inefficient mills. Mistry is a strong advocate of supply-side discipline for "sustenance and viability" of the industry. Consolidation creates the ideal condition for investments in "product innovation, technology and supply chain efficiencies." Singh says Indian steelmakers will have to benchmark production costs against the best global norms to fight off the falling spread between steel prices and raw materials. Predatorily priced steel imports leading to reduction in domestic prices in the last two financial years did much harm to Indian industry. Mercifully, New Delhi took appropriate actions, which have proved effective in curbing such imports. Imposition of anti-dumping duty on imports of flat steel products originating from six countries, including China, is incontrovertible proof of the domestic industry being harmed by arrivals of unfairly priced foreign origin steel. But, trade actions alone will not secure a level playing field for Indian industry, whose global competitiveness is compromised by logistics costs, which compare unfavourably with other major producers in Asia, and high energy and other cost components of doing business. Both SAIL and Tata Steel get their entire requirements of iron ore and limited quantities of coking coal from captive mines. But mandatory contribution to district mineral foundation and national mineral exploration trust under the Mines and Minerals Amendment Act since January 2015 has increased raw materials cost for steel groups that own mines. To that extent, they suffer erosion in competitiveness.

Tin and lead prices slipped at the non-ferrous metal market in Mumbai on Monday on stockists selling amid sluggish demand from alloy industries.Elsewhere, copper armature and brass utensils scrap also edged down owing to mild demand from industrial users.Select copper and zinc gained due to good demand from industrial users.Tin prices slid by Rs 3 per kg to Rs 1,445 from last Saturday's close at Rs 1,448 and lead moved down by Rs 139 as against Rs 142 previously.Copper armature and brass utensils scrap softened by a Re per kg each to Rs 351 and Rs 277, respectively.However, copper scrap heavy rose by Rs 2 per kg to Rs 362 from last weekend's level at Rs 360.Copper cable scrap, copper wire bar and zinc inched up by a rupee per kg each to Rs 367, Rs 395 and Rs 199, respectively.

Reserve Bank of India Governor Urjit Patel might have targeted to keep retail inflation at around five per cent till March 2017, but as he has pointed out in his maiden policy review, there are many upside risks to this target.
One such risk, which Patel and his team will have to deal with, might come from chana; prices of the gram have shown a steady rising trend in the past few weeks. The entire pulses complex has cooled down — with prices of some like moong even dropping below the minimum support price , necessitating government intervention — but chana has stood out from the rest. Data sourced from the department of consumer affairs showed in the last one month, chana prices in major wholesale markets of the country have moved up by Rs 2,000-3,000 a quintal largely due to a supply crunch. This was despite the fact that the government had extended stockholding on pulses by a year. Besides, the Securities and Exchange Board of India had suspended chana futures. The August Wholesale Price Index-based inflation rose to a two-year high of 3.74 per cent from 3.55 per cent in July. Inflation in pulses fell to 34.55 per cent from 35.76 per cent in this period. Traders said in some wholesale markets, chana was selling at an average of Rs. 8,000 a quintal in August. But in September, it moved to Rs 9,750 a quintal, with all possibility of the price moving further at least till December-end or January.

Global food markets are likely to remain balanced with the prices of cereals under pressure on record high production. Though cereal utilisation is expected to set a new record this year, the growth in utilisation may not support prices due to large carryover stocks from the previous year. The Food and Agricultural Organisation of the United Nations in its latest report forecast global cereal production to set a new record at 2.56 billion tonnes in 2016-17, a rise of 1.5 per cent from the previous year. Along with carryover stocks, total cereal availability in the world is estimated to surpass consumption in 2016-17 by 664.3 million tonnes, over 25 per cent of the annual consumption."Global food markets will likely remain 'generally well balanced' in the year ahead, as prices for most internationally traded agricultural commodities are relatively low and stable. The benign outlook, especially for staple grains, is poised to lower the world food import bill to a six-year low in 2016-17," the FAO said in its October report released on Thursday. The FAO raised its forecast for global wheat production to 742.4 million tonnes, led by increases in India, the US and the Russian Federation, which is poised to overtake the EU as the grain's largest exporter. Total wheat utilisation is projected to reach 730.5 million tonnes, including a big jump in use of lower-quality wheat for animal feed. Global rice production is predicted to expand for the first time in three years, increasing 1.3 per cent to an all-time high of 497.8 million tonnes, buoyed by abundant monsoon rain over Asia and sizeable increases in Africa.

Ending speculation on lowering import duty on sugar to boost supplies, the government on Wednesday clarified that the country has adequate domestic stocks to meet any extra festival demand and that prices haven't shown any abnormal rise in the past few months. "All India average retail price of sugar is hovering at Rs 40-42 a kg. For the past six months, sugar price has been almost stable and the government has been constantly monitoring the rates," the Ministry of Consumer Affairs, Food & Public Distribution stated. The statement comes against the backdrop of a high-level meeting on Tuesday to review the prices of essential commodities, which also included sugar and pulses. Sugar prices had risen by Rs 50 paise a kg in some cities of the country owing to supply shortage, triggering speculation that the Centre might lower the 40 per cent import duty to smoothen supplies, particularly during the festival season. A Bloomberg analysis also showed that despite not lowering the duty, India might import less sugar than predicted three months ago after global prices surged to a four-year high and the first normal monsoon in three years boosted the outlook for domestic crop. The report said that imports might total 1.25 million tonnes in the year starting October 1, the most since 2009-10 compared with 2.1 mt predicted in June. According to industry sources, India's sugar production in 2016-17 crop year is expected to be 23.37 mt, down from 25.1 mt last year. Industry players also feel that despite low production in 2016-17, there won't be any shortage of sugar in the country as stocks in hand are adequate. "With carry-over stock of 7.5 mt from sugar season in 2015-16 and expected sugar production of 23.4 mt in 2016-17, there will be enough sugar available in 2016-17 to meet the domestic demand of 25.6 mt in the next season," the Indian Sugar Mills Association had said recently. There would be carry-forward stocks of 5.2 mt for sugar season 2017-18, it added. Meanwhile, Food Minister Ramvilas Paswan said the government was keeping a close watch on the prices of sugar, pulses and edible oil to check hoarding and ensure adequate availability in the market in the festival season. According to government data, the average retail price of sugar was ruling at Rs 40 a kg on Wednesday, against Rs 30 a kg in the year-ago period.

In case of pulses, there has been some fall in retail prices in the past few weeks on improved supply from new crop and imports, but the rates are still higher than last year with gram been sold at Rs 110 a kg, tur at Rs 120 a kg, urad at Rs 135 a kg, moong at Rs 82 a kg and masoor dal at Rs 85 a kg. Among edible oils, the retail price of groundnut oil and mustard oil was ruling stable at Rs 135 a kg and Rs 100 a kg, respectively, while soya oil and sunflower oil showed a marginal decline to Rs 85 a kg each.

Uttar Pradesh to limit drop in Indian sugar production Indian sugar production will decline – but not by as much as some other commentators believe, US officials said, noting a rise in cane plantings in the northern state of Uttar Pradesh. Many observers have forecast a sharp decline in sugar output in India, the second-ranked producing country, in 2016-17 thanks to weather. Commodities trader ED&F Man estimates Indian sugar production falling to 22.5m-23m tonnes, while Rabobank forecast output of 23.3m tonnes. However, the US
Department of Agriculture's New Delhi bureau estimated output at 23.95m tonnes - albeit a figure still well below the 27.70m tonnes produced in 2015-16, and indeed the lowest in seven years.

UN pegs grain prices at 10-year low - and cautious on revival prospects The United Nations, citing "ample" cereals supplies, stoked doubts over prospects for a revival in grain prices - which it revealed had fallen to
their lowest in 10 years. The UN food agency, the Food and Agriculture Organization, said that "international wheat prices are likely to remain stable and relatively low during the 2016-17 season". For coarse grains, a
group which includes barley, corn and sorghum, it said that "with large export availabilities and weak export demand prospects, international prices could remain subdued". The comments came even as it unveiled a
drop in its cereals price index, a sub-set of its much-followed food price index, of 1.9% last month to its lowest since October 2006.

Tight soybean market 'leaves little margin for output error' – UBS Record US soybean yields alone will not be enough to sate global demand for the oilseed, with prices very susceptible to any shortfall in South American prospects, UBS said. "Based purely on supply and demand fundamentals, soybeans remain most susceptible to US production and South American planting disappointments," said the bank. And UBS said that of the main traded grains, "soybean demand trends are the most constructive," thanks to heavy US exports, an limited South American competition. The bank as its central forecast predicted modest support for soybean prices, seeing them rise to $10.00 cents a bushel on a one-year horizon, up from the $9.57 ¾ a bushel that
November 2017 futures were priced at on Wednesday.

Sugar price rally dents expectations for Chinese imports The rally in sugar prices, coupled with improved domestic production prospects, has dented expectations for purchases of the sweetener by China, the top importer. The US Department of Agriculture's Beijing bureau cut to 6.0m tonnes its forecast for Chinese sugar imports in 2016- 17 – ditching expectations of a rise in volumes. Indeed, the downgraded figure was 1.9m tonnes below the USDA's official estimate. The reduced import estimate "is a result of both higher domestic sugar cane production, a narrowing of domestic and global sugar price spreads which makes smuggling less attractive, as well as a strengthening of Chinese enforcement against illegal sugar trade," the bureau said in a

Sugar Rally, Normal Monsoon Rain Seen Trimming India Imports India may import less sugar than predicted three months ago after global prices surged to a four-year high and the first normal monsoon in three
years boosted the outlook for domestic crop. Overseas purchases may total 1.25 million metric tons in the year starting Oct. 1, the most since 2009-10, according to the median estimate of six traders and analysts surveyed by Bloomberg. That compares with 2.1 mt predicted in a June survey. Production is seen tumbling 10 % to 22.5 mt, the median estimate of another survey of 10 traders and analysts showed. The Indian Sugar Mills Association estimates supplies next year will be enough to meet domestic demand forecast at about 25.6 million tons with
inventory of 7.5 mt. The group says production will drop 6.8 percent to 23.4 million tons in 2016-17. Stockpiles are sufficient to meet demand and the domestic prices are stable over the past six months, the Food Ministry said in an e-mailed statement on Wednesday.

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