 "We remain bullish on gold for medium to long term: Kishore Narne")
Kishore Narne, Associate Director, Business Head-Commodities & Currencies in an interview with Tulemino Antao shares his view on trends in global crude oil prices, bullion and the rupee.
Global crude prices seem to have topped out at $40 a barrel. With reports that top oil producers are unlikely to reach an agreement to reign in global supply gut is the commodity likely to resume its downward trend?
While crude oil is surely in a long term downtrend, there are a couple of factors that may prevent prices from making new lows. Firstly, even as OPEC producers may not agree to a production freeze, U.S. oil production has surely started to decline. Oil production is down to ~9 million bpd from a peak of 9.6 million bpd. With rig counts now at lowest since 2009, we may see further declines in U.S. oil output going forward which will provide a floor to prices. So our base case is that oil prices may remain in a broad range of $30-50 for most part of 2016.
We remain bullish on Gold for medium to long term perspective and the price performance in the first three months of this year has surely moved the floor for prices much higher. Central banks globally are likely to remain accommodative this year and the volatility in currencies is going to keep safe haven demand stronger. In a scenario where a risk off environment similar to Jan-Feb of 2016 plays out again , prices could gain much faster.
Silver also seems to be trading in tandem with gold. What is the global demand/supply gap situation for the precious metal which is also used by several industries? From an investment point of view what would be your strategy?
Although Silver moves in tandem with gold, it has so far underperformed gold this year as it has behaved more like an industrial metal. Industrial metals have been weak due to slowdown concerns from China and consequently Silver prices have also faced headwinds. From a demand/supply perspective, Global mine supply is projected to fall in 2016 by ~5% year-on-year and the silver market deficit is expected to widen in 2016 which will support prices.
With surplus in the global copper market and weak demand from China what is your take on the trends in domestic copper prices for the calendar year 2016?
The surplus in global copper market could continue for 2016 and fade as we enter 2017, Chinese demand continues to be weak, but is off late showing some improvement in key demand sectors. Until supply side sees significant cutback happening soon, prices would continue to be under pressure. On the domestic front, we expect copper to be range bound with highs around Rs.340 and lows around Rs.305.
What about global inventories on Zinc and Nickel prices in wake of the mining law by the Indonesian Government?
Zinc inventories globally has been coming down, over the last 4 years on the LME and are down to 1/3rd of that in 2012, with prices also lower than that in 2012. Falling Zinc inventories along with renewed demand from steel sector and closure of few large mines will be positive for prices in the medium term perspective.
Mining ban from Indonesia has done no good to nickel prices which currently trade at lowest in the decade. Nickel inventories have grown 3 folds in the last year and continues to pressure prices along with weak demand. Closure of significant capacities globally could provide some respite to prices. Nickel could continue to be range bound to between $8,000 and $10,500.
In the spices segment, what is your view on the trends in turmeric with fresh arrivals expected this month and jeera especially in the wake of export demand?
Turmeric prices have been corrective over the last few months, as traders were offloading stocks amid weak demand, harvest time in producing regions and adequate carryover stocks. Production this year could be lowered by 15%-20%, because of scanty rains in some producing areas which could support prices. We expect Turmeric to be under pressure till around Rs.7800 and worst case towards Rs.7500. Medium term case suggests prices inching back towards 10000.
Jeera prices have been trading firm as the supply of quality produce is low, and fear that unseasonal rain in March had damaged the standing crop, along with high demand from stockists has pushed up prices by 12%. A fall in international stocks and decline in exports from Turkey and Syria are likely to favour Indian exports, along with a beneficial falling rupee. We remain bullish on Jeera prices in the short term, for upside towards 17500-17750. A slide below 15000 will negate our view.
What is your take on the rupee in the near to medium term especially in the wake of the rate cut by the RBI and the impending rate hike by the US Fed?
We believe that the INR has limited upside from here given that as U.S. data remains broadly robust. A relative calm in financial markets for a couple of months will give more comfort to the Fed to hike rates and will eventually lead to weakness in most EM currencies including the INR. Even in a scenario where global market volatility resumes, the INR will stand to lose as evident from its behavior during January and February. We expect INR to depreciate towards 68 and below over the medium term.
Global crude prices seem to have topped out at $40 a barrel. With reports that top oil producers are unlikely to reach an agreement to reign in global supply gut is the commodity likely to resume its downward trend?
While crude oil is surely in a long term downtrend, there are a couple of factors that may prevent prices from making new lows. Firstly, even as OPEC producers may not agree to a production freeze, U.S. oil production has surely started to decline. Oil production is down to ~9 million bpd from a peak of 9.6 million bpd. With rig counts now at lowest since 2009, we may see further declines in U.S. oil output going forward which will provide a floor to prices. So our base case is that oil prices may remain in a broad range of $30-50 for most part of 2016.
More From This Section
Gold seems to be consolidating after the recent rally above Rs 29,000/10gms. With the US Fed remaining cautious on interest rate hike what is your view on the commodity for the near-to-medium term?
We remain bullish on Gold for medium to long term perspective and the price performance in the first three months of this year has surely moved the floor for prices much higher. Central banks globally are likely to remain accommodative this year and the volatility in currencies is going to keep safe haven demand stronger. In a scenario where a risk off environment similar to Jan-Feb of 2016 plays out again , prices could gain much faster.
Silver also seems to be trading in tandem with gold. What is the global demand/supply gap situation for the precious metal which is also used by several industries? From an investment point of view what would be your strategy?
Although Silver moves in tandem with gold, it has so far underperformed gold this year as it has behaved more like an industrial metal. Industrial metals have been weak due to slowdown concerns from China and consequently Silver prices have also faced headwinds. From a demand/supply perspective, Global mine supply is projected to fall in 2016 by ~5% year-on-year and the silver market deficit is expected to widen in 2016 which will support prices.
With surplus in the global copper market and weak demand from China what is your take on the trends in domestic copper prices for the calendar year 2016?
The surplus in global copper market could continue for 2016 and fade as we enter 2017, Chinese demand continues to be weak, but is off late showing some improvement in key demand sectors. Until supply side sees significant cutback happening soon, prices would continue to be under pressure. On the domestic front, we expect copper to be range bound with highs around Rs.340 and lows around Rs.305.
What about global inventories on Zinc and Nickel prices in wake of the mining law by the Indonesian Government?
Zinc inventories globally has been coming down, over the last 4 years on the LME and are down to 1/3rd of that in 2012, with prices also lower than that in 2012. Falling Zinc inventories along with renewed demand from steel sector and closure of few large mines will be positive for prices in the medium term perspective.
Mining ban from Indonesia has done no good to nickel prices which currently trade at lowest in the decade. Nickel inventories have grown 3 folds in the last year and continues to pressure prices along with weak demand. Closure of significant capacities globally could provide some respite to prices. Nickel could continue to be range bound to between $8,000 and $10,500.
In the spices segment, what is your view on the trends in turmeric with fresh arrivals expected this month and jeera especially in the wake of export demand?
Turmeric prices have been corrective over the last few months, as traders were offloading stocks amid weak demand, harvest time in producing regions and adequate carryover stocks. Production this year could be lowered by 15%-20%, because of scanty rains in some producing areas which could support prices. We expect Turmeric to be under pressure till around Rs.7800 and worst case towards Rs.7500. Medium term case suggests prices inching back towards 10000.
Jeera prices have been trading firm as the supply of quality produce is low, and fear that unseasonal rain in March had damaged the standing crop, along with high demand from stockists has pushed up prices by 12%. A fall in international stocks and decline in exports from Turkey and Syria are likely to favour Indian exports, along with a beneficial falling rupee. We remain bullish on Jeera prices in the short term, for upside towards 17500-17750. A slide below 15000 will negate our view.
What is your take on the rupee in the near to medium term especially in the wake of the rate cut by the RBI and the impending rate hike by the US Fed?
We believe that the INR has limited upside from here given that as U.S. data remains broadly robust. A relative calm in financial markets for a couple of months will give more comfort to the Fed to hike rates and will eventually lead to weakness in most EM currencies including the INR. Even in a scenario where global market volatility resumes, the INR will stand to lose as evident from its behavior during January and February. We expect INR to depreciate towards 68 and below over the medium term.