In the wake of sliding global commodity prices Priti Gupta, MD-Commodities & Currencies, Anand Rathi Group shares her views with Tulemino Antao on the trends in global crude oil prices, precious metals, base metals and pulses
Global crude prices seem to be under pressure and $50 levels seem to be a tough resistance zone as of now. What is your take on crude oil prices especially in the wake of winter setting in the Western world?
This year, following a huge supply glut, crude oil has slid almost 20%. OPEC and non-OPEC oil producers are pumping crude at near record levels. In the recent past, shale-oil production added to the supply glut, dragging prices down to $38. But, ahead of the start of the driving season and as U.S. shale production sags, prices could stabilise at present levels. Most market participants are keeping an eye on the Fed as well as China, which is growing at a slowest pace in a decade. China is one of the major consumers and its crude import data suggest that it is benefiting from the lower price of crude. Recent statements by OPEC's General Secretary suggest that demand is expected to grow, whereas supply from non-OPEC members is expected to contract. The next OPEC meeting is expected in early December, and comments from OPEC’s General Secretary suggest the organisation could consider cutting production in order to support their ailing economies. We expect prices to remain in the range of 42-50 Dollars.
Gold prices seem to be in an uptrend, currently hovering near Rs 27,000/10gm. Is there a possibility of a downslide to Rs 25,000 if the US Fed hikes the interest rate?
The probability of a rate hike by the Federal Reserve in September was high. However, because of uncertain global growth it refrained from doing so. Along with crude, gold too had been under pressure, but concerns about the slowing global economy supported gold at lower levels. Following weakness in the local currency, an upswing in gold was seen on the domestic commodity bourses. We do not expect gold to fall toward Rs.25,000 this year.
What would be the impact on domestic prices in the wake of the gold bond and monetisation schemes? What impact will it have on imports?
To curb gold imports the government introduced the gold monetisation scheme. However, considering the time for implementation and creating awareness for the same, the scheme is likely to have a small impact in the near future. If the scheme rolls out and functions seamlessly then we could see the impact in a couple of years. Gold deposits of smaller amounts would have been more attractive considering that the government has asked for a minimum deposit of 30gm, which makes it a non-retail product.
What are the underlying demand/supply trends in silver, and are present valuations more attractive than in gold?
Falling within the precious-metals pack as well as the base-metals pack, silver tends to be more volatile. In the past month, however, it has been less affected by the fall in base metals and has been supported at lower levels and risen in sync with gold. We wouldn't recommend investing in silver at present levels, but, from a short-term perspective, investors could see some upturn until the Federal Reserve considers raising the interest rate. We could see $16.50 in the short term.
What is your call on global copper prices in the wake of the weak economic data from China, the world's largest consumer?
It is isn't unknown that China has been decelerating and demand for base metals in the world's largest consumer is sluggish. Recent data released by The National Bureau of Statistics suggest that China’s economy grew 6.8% in Q3. A rate cut for the sixth time in a year suggests that the economy fears a hard landing. In another step to support exporters, the Peoples Bank of China (PBoC) had weakened the currency (yuan) by around 4% and, after the recent rate-cut decision, speculation is rife that the Central bank would further weaken it. We expect the downside to be contained in the near future as the easing steps by China could support prices at lower levels.We anticipate support at 4800 and on the upside 5300 on the LME.
Is the worst over for base metals?
Most base metals have come under pressure this year, except lead, which is down 5% compared to more than a 15% drop in other base metals, including copper, nickel, zinc and aluminium. Considering the slowdown in the global economy and in the world's largest consumer, base metals would continue to bleed. We would keep and eye on the supply constraints that may emerge due to production cuts.
Do you see prices of pulses topping out and what could be the downside?
Prices of pulses have jumped more than 50% in one year due to low production following unseasonal rainfalls and a sharp fall in the area under cultivation in the chief growing areas. Some pulses like tur dal hit a new life-time high of Rs.200kg; other pulses followed. To check the spiralling prices, the government of India has taken strict action against hoarders. Also, in the last few days the Centre has seized around 75,000 tons of pulses from various states. Further, to fill the gap in demand and supply, the government has decided to import 3,000 tons. Also the Centre will create a buffer stock of pluses. These decisions will help restrict the surging prices of pulses. We don’t expect pulses to hold at higher levels as the government is likely to take some more strict action against hoarders. This fear may encourage them to sell stocks in the spot market. Also, fresh arrivals in the major spot markets may start in a few days.
With the Indian rupee hovering around Rs.65 to the US dollar, what downside do you foresee if the US Fed hikes the interest rate?
Following fund outflows from FIIs in the equity and debt segments, the rupee has fallen to the lowest level since September ‘13, However, the RBI has been efficient in curbing volatility. After falling to around 67, the RBI has used its foreign-exchange reserves and stabilised it in the range of 64.50 and 65.50. India's FX reserves on 16th October were $353.52 billion. Since the start of the year it added nearly $30 billion. The RBI governor, in his previous interaction with the media, said that the Central bank would utilise the FX reserves in case of heightened volatility. Considering the fund outflows and the Fed rate decision still hanging over us, we do not expect the rupee to rise above 64 and to trade within the range of 64.30 and 66.50.
