In the midst of the rally in the bullion market post the Brexit, Naveen Mathur, Associate Director - Commodities & Currencies Business, Angel Broking in an interview with Tulemino Antao shares his views and trends in energy, bullion, industrial metals and agri-commodities. Edited Excerpts:
Following Brexit do you see the rally in global gold prices overdone? What is your call on the precious metal for the near-to-medium term? What strategy can investors adopt for the yellow metal in the domestic market? Silver has also made a comeback with the metal topping Rs 47,000 per kg in the domestic market. Is the uptrend for the metal likely to continue going forward?
The fundamentals of the commodity have their own role to play in the price trajectory of the commodity. The investment demand for gold has risen for most part of 2016. As on 29th June’2016, the holdings in the SPDR gold trust at 950 tonnes remain the highest since July 2013, with an inflow of around 307.68 tonnes in the year till date. Dollar index has also fallen by around 3 percent which in turn has supported gold and silver prices, because of its inverse co-relation with commodities.
Since the base metals complex and silver prices also go hand in hand, gains of around 30 percent, 7 percent and 10 percent in Zinc, Nickel and Aluminum prices respectively has led the rally in silver prices.
For gold, we expect the positive momentum to continue in the near term, as prices might head towards $1400 mark (CMP:$1341/oz). In the domestic futures (CMP:Rs.31475/10 gms) can move higher towards Rs.33500 /10 gms.
The uptrend in silver prices is likely to continue in the near term. We expect silver (CMP: $19.70/oz), prices to likely headed towards $20.20/oz while MCX futures September contract (CMP: Rs.46464/kg) can move higher towards Rs. 47500/kg.
Crude oil prices have come off their recent highs after topping $50 per barrel amid the Brexit impact. Will the commodity regain momentum after a period of consolidation? Further, with Venezuela’s oil output declining and a strike in Norway what is your call on the commodity in the near to medium term?
Just after the Brexit result was announced, crude oil prices which have come off from the highs of around $50 mark (Both Brent & WTI), declined by around 6 percent in the intraday trade.
Strike in Norway came as a major boost for oil prices in the recent trading sessions as Workers at five fields operated by ExxonMobil, Engie and BASF unit Wintershall could walk off the job from July 2 if wage talks fail.
In Nigeria, output has recovered by 200,000-300,000 barrels per day (bpd) since mid-June after attacks on oil infrastructure knocked out some 600,000 barrels of daily oil production to around 1.25 million bpd, down from 2 million bpd at the beginning of the year.
Output in Venezuela, which has the world’s largest oil reserves, dropped to 2.37 million bpd in May, according to OPEC data provided by Venezuela.
Many lives now revolve around the quest for food, fostering worker absenteeism and a brain drain. The situation in Norway, Nigeria and Venezuela clearly dictates the fact that the oversupplies oil markets need a respite from somewhere by way of cut in output. This is a push factor for oil prices (CMP: $48.99/bbl) to rise higher towards $56 in the international markets while MCX oil prices (CMP: Rs.3267/bbl) can move higher towards Rs.3600/bbl.
Global copper prices have been firming on expectations that growth in China, the world's largest consumer, is stabilising. With global copper futures ruling over $4,500 per metric tonne what are the price trends seen for the second half of the current calendar year?
Copper, which is often considered a barometer of economic health, witnessed decent performance in 2016 after a gruesome performance last year. Prices gained more than 5 percent on a year to date basis, touched a high of $5131/tonne in Mar’16, and are currently trading around $4800/tonne.
The sheer expectation that China will act swiftly either by cutting bank’s reserve requirement ratio (RRR) several times or lowering interest rates after the much unexpected Brexit vote pulled Copper off the lows.
Overall, second half of 2016 does not look too favourable for China and this does not bode well for Copper too. So, we expect Copper price to trend lower towards $4350/tonne (CMP: $4911/tonne)) on the LME and Rs.307/kg (CMP: 333) on the MCX.
In the domestic market, sugar production from Maharashtra is heading for a sharp decline amid drought conditions in the state. Is there a strategy that one can adopt for sugar futures in the domestic market and what trends do you see for the commodity in the global market?
As the prices jumped in the domestic market, government has taken steps to control prices and keep adequate stocks in the country until the end of next marketing year. The Centre is also considering option of lowering the import duty on sugar to boost supplies if prices rise further.
In this situation, the prices of sugar in the domestic market may stabilize in the range of 3,600 -3800 per quintal levels in the Futures exchange until production estimate of sugar available in October 2016. There are chances that the prices may move higher and may move towards 4,500 per quintal in the futures, once the crushing operations starts. We expect the world sugar prices to trend higher due to robust demand and tight supplies.
Until now the spread of monsoon rains across the country has been satisfactory although some places it has remained below forecast for the initial weeks of June. What is take on prices of edible oils, pulses, basmati rice and soya meal going forward?
It is expected that the deficient area under pulses and oilseed may recover during the month of July. As per the IMDs weekly update, the monsoon rains in the northern India may get above-normal rains during the first week of July, while central and western would receive above-normal rainfall in the second week of July.
The prices of edible oil like Crude palm oil and soybean oil in the country are little under pressure due to higher imports in first five month of 2016. Going forward, the prices of edible oil in the country may remain under pressure and will continue to follow seasonal trend.
In case of pulses, government is trying hard to supply pulses at reasonable prices in the states. For that, it has created buffer stocks and import pulses from various from countries.
What are the production and export trends of major spices such as Jeera and Turmeric? What is your take on the price trends for both in the medium term?
Despite higher acreage in Gujarat, production is affected due to moisture stress and warmer weather during January affecting the flower setting. Hence, cumin production in the country is expected at about 3.31 lakh tonnes, which is just sufficient to meet domestic and export demand. The Jeera export during 2015-16 was down by more than 40 per cent due to higher prices, lower quality and lesser availability compared to last year. According to department of commerce data, in 2015-16 only 93,078 tonnes exported compared to previous year exports of more than 1.56 lakh tonnes.
Turmeric production in India has declined over the last few years due to weather related issues. The production estimates for 2015-16 was about eight lakh tonnes compared to 7.5 lakh tonnes in 2014-15. The exports of turmeric in 2015-16 were lower than the last year figures by about 6 per cent. According to department of commerce data, in 2015-16 about 85,407 tonnes exported from the country compared to 90,738 tonnes in previous year.
We expect both jeera and turmeric to trend down in the medium term. For jeera, the exports slow down during the months of August, September and October. The expectation of good sowing progress for the turmeric may keep the prices sideways to down during the planting season. However, excessive rains in turmeric growing areas may keep the prices firm while jeera prices may surge, if demand for exports persists in coming months.
