Traders in base metals and crude oil are in a dilemma. While crude oil prices are rising and base metals are at a two-year high, a strengthening rupee has triggered early profit-booking and squaring-off of positions that had been left open.
The rupee has risen from 46.40 to 44.70 in a month. Data from Indian commodity exchanges show that when prices started moving up about two months ago, traders started reducing open positions. Metal prices are based on international trends and the rise of the rupee resulted in limited gains even when metals and crude oil were rising globally.
Dealers at broking houses said the rupee was affecting profits in all positions maintained in metals and crude. This is because the squaring-off in the value of the contract has to be done in dollars and then into rupees. Due to the uncertain exchange rate scenario, traders are booking profit and cutting positions even though the prices of these commodities are rising. There is also a feeling in the market that metal prices have peaked and a correction is due globally.
“Technically since the market will be lean from December, there is not much scope for a further rally,” said an analyst.
A rising open interest reflects a bullish sentiment while a fall indicates rapid squaring off or profit-booking due to bearishness or a negative view on prices. While the volume of open interest shows the number of positions left uncovered, open interest in value terms is a reflection of its value in rupees as on date. This may not be the rate at which the contract may get settled but a market rate (reflecting current value).
For the past two months, open interest in crude oil and all base metals has been falling. In copper, from the average of 52,000 contracts, open interest has fallen to about 37,000. In average value terms, the fall is from Rs 1.7 crore to Rs 1.4 crore, even as global prices are at a 27-month high of $8,965 per tonne.
Similarly, for nickel, open interest has fallen from 18,218 to 11,205, with value declining from Rs 1.75 crore to Rs 1.22 crore. This when prices have gone up to $24,128 per tonne. In crude oil, the open interest has fallen 52,000 to 26,060 in two months, while prices have moved to $82 per barrel. Average open interest in value terms has gone down sharply from Rs 23 crore to Rs 10 crore.
