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Commodities Weekly January 24,2005 – January 29,2005

Last week the commodity market in India has been through a subtle move in trading. Volumes in both the online exchanges MCX and NCDEX have confirmed a normal surge due to contract expiration of some of the commodities. International events and news about the crude oil jump and revaluation of Chinese currency also could not spur up the precious metal’s market in India to any extent and the both the metals Gold and Silver remained rangebound during the week. Declaration of the rabi crop estimates boosted the consumer confidence to some extent and the bourses reacted heavily on good crop cycle for pulses and vegoil commodities. While at one hand record soya output at South American continent put a regular pressure on the commodity prices, similarly domestic segment is expecting a record output in cottonseed oil due to which the prices seen its 10 year low recently. The most talked about commodity in recent past Sugar was again seen on some front lines amid Ministry’s declaration of Free Sale Quota extension till 18^th Feb. Altogether the week was a mixed bag for agri - commodities topping the charts.

Crude cruising towards $50 a barrel

Amid fears of disruptions during the Iraqi elections last week and meeting of the OPEC to discuss surging Oil prices, traders maintained a tight control over the market, anticipating the crude oil to march at $50 a barrel. On 30^th January, OPEC producers agreed yesterday to keep output limits on hold, convinced that oil prices near $50 a barrel are not stifling world growth. "$50 oil will not play a big role in slowing up growth of the economy. Some analysts say even $60 oil will play a small role in affecting growth," said OPEC President Sheikh Ahmad Al-Fahd Al-Sabah.

"I am comfortable with the market between $45 and $55," said Edmund Daukoru, Nigeria’s presidential adviser on energy, as per the news agencies. It is believed that OPEC is ready to defend oil prices at a floor of about $40 a barrel for US crude, or $30-$35 for a reference basket of OPEC crude.

The rangebound Yellow metal

Fresh investment demand on the wake of violence in Iraq and some weakness in the U.S. dollar was visible on Monday, 24^th January, which pushed the price levels above US$427 from the early lows of January. Again the week started with Comex division of NYMEX witnessing the metal jump of 20 cents raising the prices to end at US$427.10. China reignited market talk of a Yuan revaluation, saying it would discuss the pegged currency regime at next week's London meeting of Group of Seven rich nations. Speculation about a revaluation has been rife during the past year, with European policymakers urging Asian countries whose currencies are controlled to let those units rise to share the burden of the dollar's three-year slide. The second concern in the bullion market is about the forthcoming Iraq presidential elections this weekend. And more so, U.S. President George W. Bush's State of the Union address and the G7 meeting will be some of the important events to watch out for. The metal continued its rally between US$423 and $427 during the week before settling down to the lower levels again.

Rabi crop sets foodgrain output at 206.39 mt

Last week’s release of Agriculture Ministry's Second Advance Estimate of production for 2004-05, the country's foodgrain output this year, at 206.39 mn tonnes (mt), is lower than the 212.06 mt figure for 2003-04. Due to poor monsoon rains, the kharif output went for a setback for the year and the decline was from 112.05 mt to 102.94 mt. Interestingly, the year-end rains and expectations of a good harvest sets the rabi output during 2004-05, at 103.45 mt, this exceeds the previous year's level of 100.01 mt. However, these are still early figures because the crucial rabi crops such as wheat, mustard and gram are still a couple of months away from being harvested. A caution would to be closely monitoring the temperature pattern for forthcoming months as any adverse movement could completely change the scenario.

According to the news agencies, wheat output during 2004-05 is estimated to touch 73.03 mt, up from last year's 72.06 mt. Production of rice, too, is slated to go up marginally, from 87 mt to 87.80 mt. the production of coarse cereals is estimated to register a sharp dip, from 37.77 mt in 2003-04 to 31.88 mt in 2004-05. While output of jowar is expected to rise (from 7.33 mt to 7.53 mt), it would be contrary in the case of maize (14.72 mt to 13.58 mt) and bajra (11.79 mt to 6.46 mt). Pulses production is also expected to be lower, at 13.67 mt during 2004-05, against the all-time high of 15.23 mt for the previous year. The output of gram is expected to rise marginally from 5.77 mt to 5.78 mt this year.

In the oilseeds sector also, output for 2004-05 is set at 248.42 lakh tonnes which is lower by 3lakh tonnes than previous year’s 251.43 lakh tonnes. The rabi output is expected to contribute higher at 100.81 lt against 81.34 lt of 2003-04. Higher production estimates are also projected for sunflower whereas groundnut and soybean is set lower.

FSQ for Sugar extended till 18^th Feb

As per the recent announcement by the Ministry of Consumer Affairs, Food and Public Distribution the validity period for sugar mills to dispose of their free sale quota (FSQ) allocated for January has been extended till February 18th. Government has released sugar amounting to 12 lakh tonnes for the month of February under the free sale quota arrangement. Additional release of 1 lakh ton announced by the Union Minister of Consumer Affairs, Food and Public Distribution, Mr Sharad Pawar also constitute part of this arrangement. Release of sugar under the system for the month of January stood at 14 lakh tonnes. The move taken by the ministry was on the wake of spiraling prices both in the domestic retail market as well as the wholesale market. As per news agencies confirming from sugar officials, the actual sales taking place in the coming month would be higher than the 12-lt FSQ released for February due to the extended validity period of the January free sale quota to February 18th. Finally the total sugar available for indigenous consumption would be at least 14.16 lakh tonnes, which includes the additional quota release declared recently.

Jeera futures at MCX witnesses record volume

On January 17th, MCX had launched Jeera futures as commodity contracts and it spurred the market very quickly with record volumes in a very short span of time. According to the news resources, Jeera futures contracts on the Commodity Exchange MCX on Tuesday, 25th January witnessed record volumes of Rs 6.5 crore. Surprisingly the volumes generated just the previous day stood at Rs 4.5 crore. Traders in Delhi, Rajasthan and Unja in Gujarat, Jeera exporters from Mumbai are taking active trading interest in the Jeera futures contract. The trading volume is around Rs 5 crore per day and open interest is about 400 tonnes as per exchange release. It is expected that MCX is about to launch a new set of contracts with revised specifications in Jeera futures. The new contracts have been designed in the light of the heavy trading volumes witnessed in the existing Jeera futures contracts.

Sliding Edible Oil; pressure on Cottonseed oil

The commodity spectrum in the country is witnessing recent fall in edible oil prices on the wake of a large rapeseed/mustard crop and weak international prices, especially of soyabean and palm oils. Topping among the sliding list is cottonseed oil which is running at its 10 year low, barging the psychological mark of Rs 300 per10-kg trading lot and is currently quoted at Rs 295. According to the news agencies, a bumper crop of cotton this season has augmented seed supplies. The oilseeds trade has projected a marketable surplus of 56.2 lakh tonnes cottonseed during 2004-05 season versus 43.4 lt last season. On this basis, washed Cottonseed Oil availability is estimated at a new high of 6.2 lt, up from 4.8 lt of last year.

A similar trend has been visible in the Soyabean Oil prices which has declined by more than Rs50 in a month and slided down at Rs 355 per 10 kg due to excellent soyabean crop conditions at Brazil and Argentina in South America. Raw material for manufacturing of Vanaspati has been Crude Palm oil, but due to availability and low prices of Cottonseed Oil, the trend might shift from CPO trading at Rs 315 to Cottonseed Oil as expected. Also falling international prices and adding to it possibilities of a reduction in tariff values at this point of time can further depress the domestic market.

MCX
	Open	High	Low	Close	%ge Change	Volume Traded	Open Interest
Gold Feb	6137	6150	6094	6112	-0.41	9856	3997
Gold April	6170	6185	6137	6165	-0.08	4152	1582

Silver March	10301	10383	10185	10282	-0.18	1581780	271440
Silver May	10320	10410	10241	10318	-0.02	9420	6000

Ref Soy Oil Feb	373.4	374	351	354.8	-4.98	99060	12800
Ref Soy Oil Mar	370.5	371.9	347.1	351.5	-5.13	27850	9880

Kapas April	318	319	307.8	309.6	-2.64	7108	8832

NCDEX
	Open	High	Low	Close	%ge Change	Volume Traded	Open Interest
Castor Feb	307.6	307.6	297.3	299.8	-2.54	7860	1540
Castor March	304	304	291.2	294.1	-3.26	5130	1080

Soya Bean Feb	1289.1	1290	1199	1210.7	-6.08	137450	34710
Soya Bean March	1290.05	1291.45	1198.2	1210.45	-6.17	115000	28810

Guar Gum Feb	3576	3580	3368	3508	-1.90	10260	2285
Guar Gum March	3630	3635	3411	3558	-1.98	22935	4535

Guar Seed Feb	1428	1430	1359	1407	-1.47	181250	39460
Guar Seed March	1431	1435	1364	1412	-1.33	1180810	264520

Debjyoti Chatterjee
India Infoline Commodities Pvt Ltd
Ph. (022) 5675 4478 / 79
Mail to: deb@indiainfoline.com

Dealing Desk
Ph (022) 5677 5950 / 60
Mail to: comm@5pmail.com

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