In the Chinese calendar, 2008 is known as the year of Rat. In India, Rat is associated with Lord Ganesha, who is widely revered as the remover of obstacles. If the commodity futures market needs anything - it is the removal of obstacles of growth. This year will probably witness a large number of removals of structural impediments by the existing sectoral order and overall structural business adjustments rather than any drastic policy change by the govt.
Demand for commodities from emerging economies is incredibly strong and incredibly resilient, given the high prices. Given the limited growth in supply across most markets crude, gold and grains prices will still have to increase substantially from the current levels to slow down the healthy demand growth from emerging countries.
On the corporate side, commodities price momentum will spur mergers and acquisitions, like the one seen in case of BHP-Rio Tinto. The logic is to focus output in fewer hands to instill market discipline and protect prices.
The trend is fuelled also by the rise of new competitors form previously unknown geographies. Their ambition, cash flow and concentrated ownership means consolidation is unlikely to happen cheaply. There is a saying “Bulls will make money, Bears will make money but Pigs will get killed”. Entities with short term perspective and without backward and forward integration will get wiped out from this market.
International commodity exchanges during the last two years had witnessed a large number of mergers. While domestically we can not rule out similar mergers in years to come, it is important that the focus shifts form hype to the issues of exchange governance. It is also hoped that exchanges will come out with the clearing houses which is so prominently missing in the operating structure.
STT will continue to hang like sword of Damocles on Commodity Futures business. Abhijit Sen Committee report may perhaps see the light of the day unlike FCRA Amendments which may not get tabled in 2008 in Parliament.
At the national level the lack of institutional capacity to think coherently about food and energy security will lead to high cost import dependence. The inability to monitor, manage and report the demand effect of the growing economy will keep the economy highly vulnerable to price shocks.
Demand for commodities from emerging economies is incredibly strong and incredibly resilient, given the high prices. Given the limited growth in supply across most markets crude, gold and grains prices will still have to increase substantially from the current levels to slow down the healthy demand growth from emerging countries.
On the corporate side, commodities price momentum will spur mergers and acquisitions, like the one seen in case of BHP-Rio Tinto. The logic is to focus output in fewer hands to instill market discipline and protect prices.
The trend is fuelled also by the rise of new competitors form previously unknown geographies. Their ambition, cash flow and concentrated ownership means consolidation is unlikely to happen cheaply. There is a saying “Bulls will make money, Bears will make money but Pigs will get killed”. Entities with short term perspective and without backward and forward integration will get wiped out from this market.
International commodity exchanges during the last two years had witnessed a large number of mergers. While domestically we can not rule out similar mergers in years to come, it is important that the focus shifts form hype to the issues of exchange governance. It is also hoped that exchanges will come out with the clearing houses which is so prominently missing in the operating structure.
STT will continue to hang like sword of Damocles on Commodity Futures business. Abhijit Sen Committee report may perhaps see the light of the day unlike FCRA Amendments which may not get tabled in 2008 in Parliament.
At the national level the lack of institutional capacity to think coherently about food and energy security will lead to high cost import dependence. The inability to monitor, manage and report the demand effect of the growing economy will keep the economy highly vulnerable to price shocks.
Commodities have historically displayed a low correlation with other types of assets. While sectoral diversification is a plus, commodities remain...
No comments:
Post a Comment