Crash in commodities market may be temporary

© Copyright 2000 - 2009 The Hindu Business Line

M.R. Subramani Chennai, March 23

Last week, the commodities market witnessed its steepest weekly fall in the last five decades. Gold fell eight per cent, crude dropped 6.35 per cent and wheat prices in the US market slipped below the psychological mark of $10 a bushel. Most of the commodities that peaked late last month or early this month have come off with soft ones such as soyabean, wheat and crude palm oil slipping by over 20 per cent.

Does the fall signify the end of commodities boom? Not really, say analysts and experts. The trend actually is a fallout of the crash in equity markets. Funds are booking their profits in commodities so that they will have the necessary liquidity and can overcome any loss in equities, says Mr V. Shanmugham, Chief Economist of the Multi Commodity Exchange.

A shake-out

“It is also more of a long overdue correction,” he says. “The sell-out in the commodities is to add liquidity and this is seen as a shake-out. This will eliminate small players in the market, who would be forced to de-hedge their positions,” says Mr Shyamal Gupta, Head (Institutional Business) of Kotak Commodity Services Ltd. Analysts see the current phase as a temporary one where the commodities could see a fall for the time being, consolidate, and then rebound.

“What we are witnessing is a new orbital in commodities. The prices will recover and the players are likely to take them to a new level,” said Mr Gupta.

Recession fears

“Currently, fears of recession gripping the US are mainly driving crude lower. As a result, other commodities such as soyabean, crude palm oil and corn – all seen as alternative sources of crude oil – have crashed. Vegetable oils had found new peak levels as they were diverted for bio-fuels. Diversion of acreage to crops such as corn, besides the vagaries of weather, saw the wheat counter on boil.

“In between, fears of inflation and economic slowdown have seen the funds and players buy into gold. “Physical buying will have to be at higher levels after the markets rebound from this fall. Soft commodities will touch new highs,” said Mr Gupta. “Gold, on the other hand, belongs to asset class. Its glitter will remain and demand growth will keep crude firm,” he says. Increasing demand, especially from emerging nations, is seen driving the prices of commodities further up.

And Mr Gupta sums up the likely trend saying: “Commodities is the only avenue for funds to make money for sometime to come.” 

Chickpea prices may rule high on lack of stocks

© Copyright 2000 - 2009 The Hindu Business Line

M.R. Subramani Benaulim (Goa) , May 18

Export figures

Prices of chickpea (kabuli chana) could continue to rule high in the global market on lack of carryover stocks. This is despite projections of supply exceeding demand during the current season (March 2006-February 2007).

India could export at least 1.2 lakh tonnes of chickpea during this season from last season's 60,000 tonnes. 

Mexico is expected to double its production to 1.44 lakh tonnes of which 60,000 tonnes could be the bigger sized chana

"The prices will be firm as there is a mismatch of spot and future availability. Currently, there are no stocks in the pipeline,'' said Mr Sudhakar Tomar of Hakan Agro-Industries, UAE.

According to Mr Paul Lambert, President, CICILS, the turkey chickpea crop expected to hit the market in July will not be quoted less than $780-$790 initially. "Prices of pulses, in general, are rising. China, one of the major suppliers, has sold out its stocks,'' he said.

Domestic scenario

Currently, depending on size, chickpea is ruling between $750 and $815 a tonne. With arrivals likely to get over soon and kharif arrival seen around October coupled with export demand, the trade sees prices to firm up in the domestic market also.

Mr Tomar said India could end up exporting at least 1.2 lakh tonnes of chickpea during this season from last season's 60,000 tonnes. Mexico, the main supplier of this pulse in the global market, is expected to double its production to 1.44 lakh tonnes of which 60,000 tonnes could be the bigger sized chana.

He said the potential supply was 2.35 lakh tonnes in the global market against a demand of around 1.5 lakh tonnes. "Also what is happening in the global market is the spread for the bigger size chickpea compared with a smaller one is decreasing. Currently, it is just $25 a tonne from around $200,'' Mr Tomar said.

Global supply

The supply should be comfortable provided the weather plays safe and there are no geo-political tensions in West Asia.

Mexico and India could supply through July, while Turkey, Syria and Iraq could supply during August-November and Australia, the US and Canada from December to February, according to Mr Tomar.

"Market will be firm at least until Ramzaan in September, while Indian domestic production and demand will also be a factor,'' he said.

Mr Lambert said Indian crop would have an impact on chickpea. He also said the currency market, where the US dollar was witnessing depreciation, shipping and liquidity would also be factors to watch out.

Mr Shyamal Gupta, Senior Vice-President, MCX, said there was 18-24 per cent fluctuation in freight prices, while the Indian rupee had slid 2.39 per cent against the dollar.

"Interest rates, on the other hand, have gone up by 170 basis points,'' he said. He also said the per capita consumption of pulses had slid in 2005 to 12.93 kg from 12.98 kg the previous year.