Commodities Outlook 2015

Commodities Outlook 2015 Prathamesh Mallya Sr. Research Analyst (Precious Metals & Energy) [email protected] (022) 2921 2000 Extn :6...
3 downloads 0 Views 1MB Size
Commodities Outlook 2015

Prathamesh Mallya Sr. Research Analyst (Precious Metals & Energy) [email protected] (022) 2921 2000 Extn :6134

Kaynat Chainwala Research Associate (Base Metals) [email protected] (022) 2921 2000 Extn :6136

Riteshkumar Sahu Research Analyst (Agri) [email protected] (022) 2921 2000 Extn :6165

Commodities Yearly Tracker Tuesday | January 6, 2015

Contents Returns • Non Agri Commodities Non-Agri Commodities • Gold • Silver • Crude Oil • Copper Agri Commodities • Chana • Jeera • Soybean • Guar

Commodities Yearly Tracker Tuesday | January 6, 2015

Commodities as an asset class •

Since the past few years, it is seen that investors are getting more experimental and are open to exploring different investment avenues. While equities, physical commodities, mutual funds, fixed deposit schemes, real estate are part of the traditional portfolio; modern form of investments includes commodity futures, commodity ETF’s (Exchange Traded Funds), currency trading, art etc. Among these modern forms of investments, commodities have gained phenomenal standing across the globe. Let us assess how the year 2014 has been for commodities and how the year 2015 would turn out as an asset class to be invested.



At the start of 2014, the optimism was at its peak, as many felt that the effects of 2008 financial crisis have been done with. However, the New Year 2015 is going to start in an atmosphere of dismay. The global economy is in a fragile state- a bleak and gloomy scenario dominates across the globe.



Global commodity prices have slumped in 2014 with Crude Oil (-46%), Silver (-19%), Copper (-15%), Natural Gas (-32%), Lead (-16%) and gold (-2%) losing its value significantly. Since these commodities are heavily traded across the globe, investors have burnt their fingers in this asset class. The factors that led to the fall are as follows.

Commodities Yearly Tracker Tuesday | January 6, 2015

Non-Agri Commodities performance ( 1st January 2014- 31st Dec 2014) in percentage Nymex Crude

-45.87

Nymex NG

-31.70

Spot Silver

-19.32

LME Lead

-16.15

LME Copper

-14.78

Spot Gold

-1.78

LME Alu

3.29

LME Zinc

5.55

LME Nickel

8.46 -50

-40

Source: Reuters, Angel Commodity Research

-30

-20

-10

0

10

20

Commodities Yearly Tracker Tuesday | January 6, 2015

Gold Gold- The unique asset class •

Globalization has made this world a very small place and in this inter-related world the breakdown of one system ripples throughout entire economies across the globe. For this reason, gold has been deemed to be a safe haven asset. The investments in gold have traditionally been viewed as hedge against risks in the financial system.



As a unique asset class, one needs to understand that the economic forces that determine the value of other assets like bonds, real estate and equities are different to the variables that govern the price of gold. Gold is considered as a physical store of wealth as it gives an opportunity for investors to diversify their investment portfolio reducing the overall risk and acts as inflation and currency hedge. Let us assess how gold prices have behaved in the year 2014 and how the year 2015 is going to be.

2014 in review •

Spot gold prices started the year 2014 around $1200/oz mark; then headed higher towards $1400 in mid March’14. Russia's military intervention in Ukraine, rising gold investor index and physical demand from China in the first quarter 2014 led the rally towards $1400.



After briefly touching the $1390 mark in mid march, gold prices started to decline and then corrected downward towards $1250 mark in June’14. The reason for this fall in gold prices can be attributed to the signs of recovery in the US, the world’s largest economy which has given more room for the FED to scale its monetary programme and raised hopes of interest rate hikes in mid 2015.



From there on prices started to rally again touching $1350 mark in mid July’14. However, prices lost steam from July’14 onwards and corrected to the extent of $1130 mark in first half of November’14. In 2014, spot gold prices lost its value by around 2 percent.



The reasons for the decline in gold prices are the combination of factors starting from consistent growth in the US economy, strength in the dollar index, waning physical and investment demand coupled with muted geo political tensions. Declining inflationary trends on back of falling crude oil prices dragged gold further.

Commodities Yearly Tracker Tuesday | January 6, 2015

Gold Where is the yellow metal headed in 2015? •

Since oil prices have fallen to unsustainably low levels, the main cause of concern across the globe now is deflation rather than inflation. The ECB (European Central Bank) is battling to revive the moribund economy and the worry is whether cheap oil would send the Euro zone into outright deflation.



Japan is already printing money to prop its economy. It is just the US economy which is on a mend. The third quarter GDP growth came in at 5 percent the strongest growth in the last 11 years. The Federal Reserve has already tightened its monetary stance by winding up its bond buying program and the talk of the town is that the US economy will be on track to raise interest rates sometime in 2015.



From here-on the price trajectory would be dependent on the diverging policies of the central bank across the globe. Waning investment demand with SPDR gold holdings as on (23rd December stood at 712.9 tones) at six year low will also be the prime factor for the yellow metal heading lower.



Falling crude oil prices although bodes well for the global economy, falling inflationary scenario however, reduces gold’s appeal as an inflation hedge. Hence, we feel that the growth in the US economy, falling inflation hedge appeal, and strength in the dollar index at large will be the major factor for gold prices to head lower in 2015.



In 2015, price trajectory is dependent on diverging policies of the central bank across the globe. Falling inflationary scenario on account of declining oil prices will also reduce the inflation hedge appeal for the yellow metal. We expect the spot gold prices (CMP: $1204/oz) to head lower towards $1050/oz while MCX gold prices (CMP: Rs.27000) can correct lower towards Rs.24000/10 gms.

Commodities Yearly Tracker Tuesday | January 6, 2015

Silver •

Spot silver prices in the international markets and MCX silver prices have declined by around 16.5 percent and 15 percent respectively in 2014.

Spot silver lost around 17 percent in 2014 22 21

19 18

The U.S. Mint said it will continue to sell its remaining inventory of 2014-dated silver coins (under allocation) until inventory runs out.

18/12/2014

27/11/2014

06/11/2014

16/10/2014

25/09/2014

04/09/2014

14/08/2014

24/07/2014

03/07/2014

12/06/2014

That whopping figure handily beat the 2013 record of 42,675,000 silver coins. Low silver prices have driven investors to American Silver Eagle coins. The white metal is down roughly 17% this year.

15 22/05/2014



16 01/05/2014

Sales of the popular .999 one-ounce silver coins as on Dec 9’2014 were at a record 42,854,000.

17

10/04/2014

Although, the U.S. Mint has logged record silver coin sales for the American Silver Eagles, the popularity of the asset has been waning.





20

20/03/2014



Falling copper prices, along with waning speculative activity in the metal has exerted downside pressure.

27/02/2014



SILVER SPOT

Source:Reuters, Angel Commodity

Money managers have been reducing their bets on silver in 2014 50000 40000 30000



Although, the demand for coins has gained in the US, the asset class has lost its value significantly on account of dollar strength and reduced interest by money managers

20000 10000 0 -10000

Money Managed Net Silver

Source: Reuters, Angel Commodity Research

24/11/2014

24/10/2014

24/09/2014

24/08/2014

24/07/2014

24/06/2014

24/05/2014

24/04/2014

24/03/2014

24/02/2014

24/01/2014

24/12/2013

24/11/2013

24/10/2013

-20000 24/09/2013

Outlook • For 2015, spot silver prices (CMP: $16.19) will correct lower towards $13/oz while MCX silver prices (CMP: Rs.37076) can correct lower towards Rs.30500/kg.

Commodities Yearly Tracker Tuesday | January 6, 2015

Crude Oil •

Crude oil is the worst performer in the non agri commodity space in 2014 falling by more than 45 percent (WTI)



For crude oil, well-supplied markets, weak global demand despite ongoing geopolitical tensions, and shale gas revolution in the US along with strength in the Dollar Index were major contributors to the declining price trajectory. The United States now produces 8.6-million barrels a day, not far from Saudi Arabia's daily production of 9.7-million barrels. The Russians, meanwhile, pump out 10.5-million barrels a day is a reflection of well supplied markets.



Apart from these, low economic growth in the Euro zone, China and other advanced economies too impacted the prices of the crude. Besides, the IMF cut its expectations for global growth to 3.3 percent this year and 3.8 percent next year dragged prices further. The IMF in July had expected economic growth of 3.4 percent in 2014 and 4 percent in 2015.

Outlook 2015 • Global crude oil markets are filled with ample supplies may it be from OPEC nations or Non OPEC nations. Rising crude inventories in the US, and reluctance of any crude oil output from the OPEC, dominates the crude oil markets at present.

Speculators have been reducing long side bets in crude since mid 2014 450000 400000



Falling oil prices although positive for global growth as consumers spend and consumption accelerates it will imply a decline in global savings which may have longer term consequences on financial markets and interest rates.

350000

300000 250000 200000



In 2015, we expect the bearish trend to continue and WTI oil prices (CMP: $50) might possibly correct lower towards $40/bbl while MCX oil prices (CMP: Rs.3200) will head lower towards Rs.2450/bbl.

Money Managed Net NYMEX & ICE WTI

Source: Reuters

09/12/2014

18/11/2014

28/10/2014

07/10/2014

16/09/2014

26/08/2014

05/08/2014

15/07/2014

24/06/2014

03/06/2014

13/05/2014

22/04/2014

01/04/2014

11/03/2014

18/02/2014

150000 28/01/2014

It is of great significance to understand that oil producers are not sitting on the oil revenues; they were invested in some financial asset somewhere in the world. This investment will stop as consumption picks up and reduce the liquidity in financial markets.

07/01/2014



Commodities Yearly Tracker Tuesday | January 6, 2015

Natural Gas •

Natural gas the favorite of all traders is an abundant resource Natural gas inventories (April-Oct’14)has been increasing trajectory across the United States, and new discoveries and extraction 4000 methods have led to a dramatic rise in shale gas development 3571 3500 3100 making America the world’s leading natural gas producer. 2709

3000



The returns on this commodity has been volatile year on year, season on season, depending upon the climate variability and various other factors like demand-supply, changing consumption patterns in the US.

2307

2500

1929

2000

1499

1500

826

1000 500

10/31/2014

26-09-2014

29-08-2014

25-07-2014

27-06-2014

30-05-2014

-100000 -150000 -200000

NG Net Non- Commercial futures & Options …

Source:Reuters, Angel Commodity Research

09/12/2014

18/11/2014

28/10/2014

07/10/2014

16/09/2014

26/08/2014

05/08/2014

15/07/2014

24/06/2014

03/06/2014

13/05/2014

-250000 22/04/2014

In 2015, NYMEX natural gas prices can head lower towards $2.4/Mmbtu while MCX natural gas prices can head lower towards Rs.150/Mmbtu.

-50000

01/04/2014



Higher supply because of increasing output across all the shale gas producing units in the US will ensure that whatever climate conditions prevail, the supply will be abundant irrespective of the demand.

0

11/03/2014



Money managers dumped natural gas in 2014

18/02/2014

Outlook 2015 • Climate is the main driver for natural gas demand in 2015.

Source:Reuters, Angel Commodity Research

28/01/2014

Natural gas inventory additions from April to October 2014 and bleak demand scenario from electricity sector led to the fall.

NG US inventory

07/01/2014



04-04-2014

0

Natural gas prices have declined by 32 percent in 2014 Reasons for the fall are as follows • On the production side, strong increases of natural gas output have already been seen in the Lower 48 states, offsetting declines in the Gulf of Mexico.

Commodities Yearly Tracker Tuesday | January 6, 2015

Copper •

Copper, an indicator of the strength of the global economy, has been amongst the worst performer in the base metals space with prices declining by around 14.8 percent in 2014.



Till date in this calendar year, prices tumbled after weak economic data from EU and China alongside slew of scams from China resulted in a threatening demand outlook from the biggest consumers.



Moreover, Newmont and Freeport mines which account for 97 percent of Indonesia’s copper output have resumed copper concentrate exports after both the mining giants agreed to pay a revised duty of 7.5% on its exports, thereby adding to supply. Amidst these concerns, the International Copper Study Group (ICSG) forecast a lower deficit of 270,000 tonnes before swinging into surplus the next year.



On the other hand, US has ended its Quantitative Easing (QE) program owing to strong recovery in their economy while keeping its “considerable time” stance for interest rates unchanged.



Also, certain significant Copper mines in Peru and Indonesia have been shut due to strikes, putting a cap on rising supply and providing a temporary respite to prices.



On the stockpiling front, China’s State Reserves Bureau (SRB) continues to place orders for 150,000 to 200,000 tonnes of copper cathode after buying 200,000 tonnes of copper in March and April 2014, when copper was at its weakest price point in years.

Rising copper output to play spoil sport in 2015 • Copper market is expected to show a production surplus after five years in a row of deficit. Although it was revised downwards to 390,000 tonnes in October from April’s estimate of 595,000 tonnes after a number of strikes in Peru and Indonesia, still supply exceeding demand will be a matter of concern. •

Chinese economy in absence of any major monetary policy breakthrough will further be a drag on prices.



Chinese demand is expected to rise just 4.5 percent next year to 11.2 million mt compared with growth of 9% this year, citing a tight scrap market and the drop in the use of copper as loan collateral post warehousing scams.



In 2015, Copper prices (CMP: $6170) in the international markets might correct lower towards $5200/tonne, while MCX Copper prices (CMP: Rs.392.95) can possibly head lower towards Rs.320/kg.

Commodities Yearly Tracker Tuesday | January 6, 2015

Aluminium •

Aluminium has been amongst the gainers with modest gains of 3 percent in 2014 as global aluminium supplies finally appear to be turning to deficit after years of structural surplus on back of accumulating capacity closures.



In 2014, the world’s biggest aluminium producers have announced production cuts. Russia’s Rusal cut its production by 8% in 2013 and by a further 12% y-o-y in Q1 2014 to the annual capacity of 883,000 tonnes.



Alcoa, another major producer, cut its production to 551,000 tonnes in 2014 and has permanently closed about 30% of its global aluminium smelting capacity over the last five years.



On the flip side, consumption rose 6 percent to 27 million tonnes in the first half of the year, and is expected to grow over the next four years as auto makers like BMW, Ford and Mercedes use more aluminium in cars and strive to design a new generation of lighter, more fuel-efficient vehicles with reduced life-cycle emissions.



On the demand front, US aluminium imports in October were at their highest in December 2014 since 2008 reflecting a shortage, as bigger inflows from Canada offset a slowdown in material from Russia.



Also, Marubeni, a major aluminium trader in Japan, estimated the global aluminium market will see a deficit of 387,000 tonnes in 2015, against an estimated deficit of 125,000 tonnes in 2014 as many aluminium producers have cut loss-making capacity or shut down completely in response to low LME prices, high energy costs and a flood of new capacity from China.

Supply constraints to boost prices in 2015 • Chinese producers were very dependent on Indonesian bauxite, of which there is a lack as of now, and next year this will become a serious concern as smelters become short of bauxite.



Not only this, the aluminium market is expected to tighten significantly next year to show a 102,500 tonne deficit, from an earlier prediction of a 4,444 tonne deficit and will also be supportive of the metal prices.



In 2015, Aluminium prices (CMP: $1824) in the international markets might surge higher towards $2300/tonne, while MCX Aluminium (CMP: Rs.115) prices can possibly head towards Rs.140/kg.

Commodities Yearly Tracker Tuesday | January 6, 2015

Nickel •

Nickel the primary raw material to produce steel, started the year 2014 on a positive note gaining around 12 percent. It has been the best performer across non-agri commodities in 2014.



The ban came at a time when the Philippines’ government was investigating ways to boost the economic contribution of the mining sector, which accounts for less than 1% of GDP, in spite of vast, largely untapped mineral resources. Earlier this month (Dec’2014), all the hopes of revival of exports were put to rest after Indonesia’s constitutional court upheld the country’s ban on exports of raw mineral ores imposed in January’14, rejecting a challenge from mining companies and pushing prices higher.



Since August’14, prices started falling as anticipated shortages following an ore export ban in Indonesia failed to materialize. This gap in the ore supply was filled by Philippines. The Philippines’ nickel exports to China, jumped by 26% between Jan- Aug’14. In addition, Nickel Asia, Philippines largest nickel producer, expects to ship 17 million metric tons in 2014, a 21% increase over 2013.



China has been a net importer of Nickel for many years, however, that’s changed since the probe in Qingdao warehouse scam hit bank financing of metal deals. Banks have tightened credit for loans backed by industrial metals in the wake of allegations that traders at the ports of Qingdao and Penglai fraudulently used the same stockpiles of metal as collateral to secure multiple loans. As a result, investors have sold holdings to repay debts or to reduce their stockpiles.



This led to a surprise jump in nickel exports confounding expectations of a global supply shortage of the metal. China’s refined nickel exports totaled a record 73,000 tonnes in the (June-Oct’14), and two of the most significant flows of outbound nickel have been to Malaysia and South Korea, both of which host London Metal Exchange (LME) warehouses.



The resulting rise in LME nickel stocks has in effect killed off the strong rally that began at the start of the year when Indonesia banned nickel ore exports. New nickel projects that have started up, existing projects that have ramped up production, and disappointing usage figures outside China and India have led to a whopping stock build up of a 56 percent in 2014 in turn exerting downside pressure.

Commodities Yearly Tracker Tuesday | January 6, 2015

Nickel continued…. •

However, supply concerns have reignited as most producers in the Philippines' main nickel mining region of Caraga are expected to close operations from Nov’14 until early next year in anticipation of heavy rains.



With a ban on raw metal shipments by top exporter Indonesia in place, the seasonal decline in the Philippines' output could force China's vast stainless steel industry to run down its stocks of nickel ore. Also, the typhoon Typhoon Hagupit in Dec’14 which destroyed nearly 16,500 houses has fuelled concerns of nickel supply disruption.



Monsoon season in Philippines is denting its overseas sales and acting as a threat to China. China has been supplementing their nickel ore stocks with shipments from the Philippines in turn creating a supply constraint for the nation. Reports that Canada's First Quantum Minerals has shut its 38,000-tonnes-per-year Ravensthorpe nickel plant in Australia following an acid spill is also acting as a positive factor for prices.

Supply disruption concerns to boost Nickel prices in 2015 •

In totality, nickel prices are expected to trade higher in 2015 as the market balance is likely to slip into deficit bringing an end to the glut seen in the past 4 years.



This should remain the way going forward till 2017, when facilities to process nickel, bauxite and other metal in China (capacity of about 20 million tons of ore) will start production and revamp supplies. Seasonal rains in Feb’15 might disrupt nickel mining in the Philippines, crimping exports to top buyer China and stoking a shortfall in the global supply of ore



In 2015, Nickel prices (CMP: $15180) in the international markets might surge higher towards $20000/tonne, while MCX Nickel (CMP: Rs.970) prices can possibly head towards Rs.1300/kg.

Commodities Yearly Tracker Tuesday | January 6, 2015

Zinc •







Zinc prices soared to three-year highs in 2014 and ended the year 5.5 percent higher as intensifying deficit in the global market as one of the biggest mines, Century open pit in Australia is due for closure next year and the delayed start-up of its Dugald River project boosted prices. Several large, aging mines are scheduled to close next year, and miners need higher prices to justify the cost of finding and developing new sources of metal. Miners may not produce enough zinc to meet the needs of steel companies and coin makers until 2018.

Owing to this, zinc production is expected to fall short of demand for the second consecutive year in 2014. Moreover, zinc stored in the London Metal Exchange's warehouses is down 26% since the start of 2014, equivalent to only about 20 days of global production. The International Lead and Zinc Study Group further stated that refined zinc demand is expected to exceed supply by 403,000 tonnes in 2014 and 366,000 tonnes in 2015. Also, global zinc consumption is growing 7% a year, catalyzed by an automobile industry that requires zinc to protect steel components from rust and corrosion. Supply constraints could propel the metal even higher over the coming years.

LME Zinc stocks took a dive in 2014 950000 900000 850000 800000 750000 700000 650000 600000

Mine closures and delayed startups will push Zinc prices higher in 2015 • For the coming year, zinc prices will continue to climb as some of the world's largest zinc mines run dry amidst spurt in demand coupled with expectations of a sharp deficit. •

Moreover, MMG Ltd, which owns Century, planned to open a new mine in Australia next year, but it’s being delayed back to late 2016 due to technical issues, thereby fuelling supply concerns further.



In 2015, Zinc prices (CMP: $2190) in the international markets might surge higher towards $2600/tonne, while MCX Zinc (CMP: Rs.140) prices can possibly head towards Rs.170/kg.

Commodities Yearly Tracker Tuesday | January 6, 2015

Chana • •







In 2014, Chana, one of the most important Rabi crop in India, made an all time high of Rs 3745 per qtl and settled 13.5% higher year on year. The year started on mixed note with arrival pressure building up gradually since the month of January. Prices increased from its low of Rs 2878 per qtl in January and touched its high of 3416 per qtl in March and again touched a low of Rs 2651 per qtl in July. The prices of chana during Jul-Sep 2014 were mainly suppressed due to high supply of stocks due to duty free imports and high stocks with the procurement agencies and importers. With the commencement of Rabi crop sowing in November 2014, Chana prices have witnessed a good deal of volatility. Late arrivals of southwest monsoon and thereby delay in sowing and harvesting of kharif crops have consequently impacted sowing of this largest grown Pulse. Since the prices of chana has been ruling below MSP for a long time, farmers have ignore the crop in kharif 2014 which have result in drop in area and affect the production too. Chana prices may, however, started to rise in the last fortnight of Dec 2014 in anticipation of imposition of import duty on Chana and less production estimates from the trade sources.

Duty free imports of Chana





In Oct 2014, Govt has extended the time for duty-free imports of pulses to March 2015, to keeping a check on prices and ensure availability of the protein-rich food in the local market. However, the duty concession on chickpea, or chana, has been extended only until Dec 2014 to ensure remunerative prices to farmers and encourage them to plant the crop. But in the new year of 2015, Agri Department had postpone 10% duty on 'chana' and also recommended freeing exports of all other varieties of pulses till Mar 2015 citing the low area under Chana this kharif.

Yearly Performance - Chana Open High Low MRV % Chg NCDEX Chana Spot 2963.9 3693 2700 3542 19.50 NCDEX Chana Futures 3075 3745 2651 3492 13.56 Source- Reuters & Angel Research

MRV- Most recent Value

Commodities Yearly Tracker Tuesday | January 6, 2015

Chana… Sowing declined in 2014-15 season •





Chana sowing in 2014 started late towards end of October 2014, as against the normal schedule of mid October. In the latest estimate there is a major fall in the acreage of chana or gram, which has dropped by over 15 per cent. According to the data, chana has been sown on 79.65 lh so far compared with 95.03 lh a year ago. The CCEA has set Chana MSP for 201415 season at Rs. 3175/qtl. from Rs. 3100 last year increase only by 2.4%. Sowing has been less in Maharashtra, MP, AP and Karnataka by about 38%, 24%, 41% and 5.68% respectively in the current season, compared to that in the previous year. However, acreage under chana has expanded in Rajasthan and UP by about 19% and 2 % respectively in the same period. Maharashtra, the third largest producer of Chana (Bengal gram), after Madhya Pradesh and Rajasthan has a huge fall in Chana acreage this year. Chana farming has covered only 8.64 lakh ha of land in the ongoing Rabi season, while above 12.68 lakh ha war under Chana farming in the corresponding period a year ago. This shows that the acreage has shrunk 32% this year.

Outlook 2015 • • •

Weather so far has been conducive for the growth of Chana crop. Considering favorable weather conditions in the coming days and thereby a normal yield, it is expected that Chana production to hover around 80 lakh tonnes in 2014-15 against Government has targeted 93 lakh tonnes. Chana prices have gained recently and lower output will continue to support an upside in the Chana prices in the near term but allowing duty free import may restrict the prices to around Rs 3400 per qtl. However, with the commencement of fresh arrivals from Karnataka and Maharashtra in January 2015, prices will start declining tracking the seasonal price patterns and may hit around Rs 3200/ qtls. The downside in the prices will be restricted in the new season as supply side situation may remain tight and this shall limit the fall in the prices beyond the Minimum Support Price.

Commodities Yearly Tracker Tuesday | January 6, 2015

Jeera •

In 2014, Jeera prices have been under the grip of bears in first 3 months of the year owing to three consecutive years of record production, lead to huge carryover stocks in the physical markets.The production rise to 6.5-7 million bags of 55 kg each in the year 2014, from 4.5-5 million bags a year earlier, due to an expanded area under cultivation and favorable weather conditions. • The prices has picked up after the April 2014 on good persistent export demand from the India as there was geopolitical concern in Syria and Turkey. • In India, Jeera is sown from October till the beginning of December and harvesting starts in February. March-April will be the peak arrivals season in India. Since the monsoon this year has been late and erratic it had effected the rabi sowing of Jeera in the Gujarat and Rajasthan. • Despite good export demand the farmers in Gujarat has moved to more ruminative crops like coriander, funnel and potato since Jeera is very sensitive to sowing period variations. It is highly sensitive to rain, if rain occurs during harvesting time (February to March) quality of the Jeera will be badly affected besides quantity damage (due to fungal diseases). It will turn black and will fetch the lowest price in the market. Prices rallied in Dec 2014 • •



In the last three months in 2014, prices have constantly increasing amid reports of less sowing in Gujarat and Rajasthan. In Dec 2014, prices of jeera has climbed to its highest levels of the year in Jan 15 contracts to Rs. 15770 per qtl after touching low of Rs. 9770 per qtl in April ’14, which is the lowest levels in six years. In Unjha, a key spot market in Gujarat, jeera edged up by 25.8% within a month to Rs.15100 / quintal at the end of year from Rs 12000/ qlt in the first week of Dec 2014.

Yearly Performance - Jeera Open High Low MRV % Chg NCDEX Jeera Spot 12742 15187 10246.9 15137.5 18.80 NCDEX Jeera Futures 12535 15770 9770 15305 22.10 Source- Reuters & Angel Research

MRV- Most recent Value

Commodities Yearly Tracker Tuesday | January 6, 2015

Jeera.. Jeera acreage decline 42% YOY in Gujarat •

The strong export demand has, however, not resulted in increased sowing in India mainly due to late harvesting of the kharif crops and less realization for the farmers last year. Sowing of jeera has gone down by almost 42% this year. Jeera, till December 29, was sown on 259,400 hectares in Gujarat, the main jeera-producing state in the country. At the same time last year, it was sown on 445,200 hectares. In Rajasthan, jeera was sown on 339,000 hectares this year as against 390,000 hectares last year



Jeera exports increased 25% in 2014 •

India's cumin exports zoomed to record levels last year on supply crunch in the global market amid strong domestic supplies. Geo-political tensions in Syria and Turkey have led to a supply crunch in the global markets raising supply concerns from the two major exporting countries. In 2014-15 season the Jeera exports from India soared 25 % (Apr-Sep14) as compared to last year. Good quality jeera has attracted international buyers including countries in European Union (EU), United States of America (USA) to India and, as a result, export demand has gone up this year.

• •

Outlook 2015 •



Currently (Dec 14) Jeera is driven by rising demand in the spot market. Besides, tight stocks position in the physical market on limited arrivals from producing belts influenced the upside and export demand may test the Rs 18000/ qtl levels in 2015. On the other hand, a cooler weather in Gujarat and Rajasthan is expected to be beneficial for the crop growth, which might limited the uptrend in short term and prices may be down to Rs 13800 / qtl.

Commodities Yearly Tracker Tuesday | January 6, 2015

Soybean •









In 2014, Soybean price have lost almost 10% on NCDEX. Soybean prices largely remained bearish after touched a peak in May. Soybean prices in the domestic market have been on a declining trend since the end of April as weak demand for exports of soy meal from India has lead to a decline in demand from the crushers. In Sep-Oct 2014, prices have declined steeply taking cues from weak overseas markets. Pickup in the soybean acreage as well as improvement in the rainfall in the major soybean growing regions of Madhya Pradesh and Maharashtra gave also added to the downside pressure during these two months. Prices have been improving after the Oct on reports on supply concerns amid 10% less sowing in the country. Soybean January futures on NCDEX increased to a high of Rs. 3476 per qtl last month from a low of Rs 2967 per Qtl in early Oct as government has hiked 5% import duty on both crude and refined edible in Dec 14. In 2014, soybean prices in the international market (CBOT) has lost 22%. . Prices on the CBOT were on a bull run since the start of the calendar year 2014 owing to tight supplies in the USA as well as India and weather concerns in Brazil & Argentina. Soybean prices in the overseas markets have been in a bearish mode over since May on account of record sowing of soybean crop in the US for the upcoming 2014-15 season. Prices have also declined as favorable climatic conditions have led to expectations of a better yield and thus, another year of record output in the US as well as the globe.

Commodities Yearly Tracker Tuesday | January 6, 2015

Soybean.. Late and deficient sowing of Soybean • The sowing of soybean in India commenced late due to delayed monsoon especially in the major soybean producing states of Madhya Pradesh and Maharashtra. Sowing activities in other states like Rajasthan and Karnataka too commenced late due to delayed rainfall. However, a revival of monsoon in July led to a sharp rise in the sowing activities. •

According to the data released by the Ministry of Agriculture, soybean sowing across India stands 10.1 percent lower at 10.91 mn ha compared to 12.13 mn ha last year. According to the Maharashtra State Agriculture Minister, may decline 26.3 percent to about 2.8 mn ha for the 2014-15 season. About 56.97 lakh ha is sown under soybean in Madhya Pradesh while 35.56 lakh ha have been covered in Maharashtra and 8.22 lakh ha in Rajasthan.

Record import of soy oil 2014-15 and import duty hike • India soybean oil imports increase about 80% since Apr 2014 due to lack of domestic crushing. The domestic crushing was unviable as the domestic prices were high compared to the international market affecting the crushing parity. In Nov, 2014 there is seven fold increase in soy oil exports on speculation that government may hike import duty. India's soy oil imports jumped to 121,097 tons compared to 14,980 tons for the same period a year ago as per data released by the SEA of India. •

Government hikes import duty on crude, refined edible oil in the last week of Dec 2014, to protect the interest of farmers and the domestic oil processing. According to a notification issued by the Central Board of Excise and Customs (CBEC), the customs duty on crude oil has been hiked to 7.5 % from 2.5 % and while that on refined edible oil has been raised to 15 % from 10 %.

Commodities Yearly Tracker Tuesday | January 6, 2015

Soybean.. Soymeal exports plunge 84 percent compared to 2013 (Apr-Nov) •

Soymeal exports from India have declined sharply in FY14 due to weak demand and high prices. Demand for Indian soy meal exports are weak largely due to unattractive quotes vis-à-vis other exporting countries such as US, Brazil and Argentina along with lower soybean availability.



Exports of soy meal in the first eight months (April – Oct) of the financial year 2014-15 have declined 84% to 250,904 tonnes from 1,559,474 tonnes during the corresponding period last year. The major exporting destinations during the period were Greece, South Korea, Sri Lanka, Egypt and the U.A.E.

Record Global output expected •





USDA in its monthly crop report in Dec forecast global output for 2014-15 at 312.8 million tonnes vis-à-vis 283.94 million tonnes last year. There is increase in production estimates for Canada, Ukraine and Paraguay. Soybean output in the US in 2014-15 is forecast at a new record 107.73 million tonnes compared to 91.39 million tonnes last year. Soybean exports are expected to increase by 1.1 million tonnes to 47.9 million tonnes reflecting the record export pace and prospects for additional sales and shipments ahead of the South American harvest. Export demand for soybean from China, the largest consumer of US soybeans is good. It accounts for about 72% of U.S. export shipments till Dec 14, although substantial gains have been seen for other importers, including the EU, Turkey, and Taiwan. China largely imports soybean from the US for its soy meal requirement.

Commodities Yearly Tracker Tuesday | January 6, 2015

Soybean.. Soybean output in 2013-14 and expected output in 2014-15

• •

Soybean output witnessed a sharp decline in 2013-14 to 12 million tonnes as extended monsoon as well as unseasonal rains in MP damaged substantial quantities of soybean crop. The country’s output in 2012-13 stood at 14.67 million tonnes. According to the first advance estimates released by the Ministry of Agriculture, Soybean output for 2013-14 is pegged at 11.989 million tonnes. This year will be the second consecutive low production after 2012-13.

Outlook 2015 •





Comfortable supplies in the current season are expected to keep prices stable between 3200 – 3400 per qtl level in the first half of the 2015. Despite higher supplies no major downside is expected as Govt has increased 5% the import duty for the crude and refined edible oil. This makes the import expensive and the local crushing will be viable for the domestic demand. Improved rains in the second half of the monsoon lead to a surge in the yield and may result in higher than expected output. Also, weakness in the overseas markets may continue to add to the downside pressure in the domestic markets. Weakness in demand for soy meal exports may also keep prices under check. IN the downside , prices may touch Rs 2900 / qtl during the year. Overseas markets are also expected to continue to remain bearish due to improved crop condition, favorable climatic conditions and expectations of yet another year of record output in the US and South America. However, sharp downside in the prices may be restricted on better soybean demand by China.

Commodities Yearly Tracker Tuesday | January 6, 2015

Guar •











In 2014, the guar complex prices are in mixed trend. Guar Seed and Guar gum has recorded very low drop in prices compared to the last year prices. However, the prices have dropped around 19 % and 29% for guar seed and guar gum respectively from its high in 2014. Guar prices have started rising again in March 2014, due to the onset of the lean supply season and the potential of renewed demand from the US. The demand of guar gum for the food sector also increased in the countries like Germany, Latin America and China during that period. May onwards Guar prices witnessed a consolidation phase due good monsoon prospects in the month of August and September, which raised hopes of better output and less demand in the export market. Between May 2014 and mid August 2014 Guar seed prices consolidated in a very narrow range between Rs 5200 and Rs 5400 per qtl levels. In 2014, monsoon predictions and production estimates have been moving prices over the past few months but crude prices have impacted the guar prices of late. Guar gum prices have been moving between Rs 11,000 and Rs 18,000 per quintal over the past one year, much below the levels that prevailed a couple of years back. Mid Oct onwards average monthly price lost a whopping 22% in the time span of just 2 month and made new low of Rs 4594 per qtl (Dec 14) on the back of drop in export demand from the US shale companies due to tumbling crude prices in the world market. December guar price movement was indicative of the crude price impact and the consequent drop in export demand. Guar gum prices were hovering around Rs 13,500 on December 5 and were seen correcting as the crude crisis brewed. By mid-December, guar prices fell to Rs 11,260 a quintal as crude hit a multi-year low.

Commodities Yearly Tracker Tuesday | January 6, 2015

Guar.. Low demand from shale companies for Guar Gum pull down prices •

Guar prices usually pick up by mid-October due to export demand from the shale gas sector in the US and China. But export demand did not pick up this year as expected, as crude prices remained subdued. • The ongoing rouble crisis has started reducing Russian orders for its export. Shipment orders of other agri commodities have also declined steeply since the Western world imposed economic sanctions on Russia after the latter’s intervention in Ukraine. • Pakistan — another major exporter of guar gum — was willing to ship the produce at low prices. This kept the prices under control. • In Nov-Dec 2014, the crude crisis turned acute and the production cost of shale gas suddenly became higher than that the crude produced by the Opec countries. Falling prices have since made shale gas production unviable. Food and textile Demand might support prices • The food industry is already the second-biggest buyer. Guar gum acts as a stabiliser in sauces and noodles and prevents the formation of ice crystals in frozen desserts such as ice cream. At the moment, about 60% of the flour-like gum obtained after milling guar is used in shale drilling to raise the viscosity of proppants, materials that are forced into shale fractures to enlarge them so that oil and gas can be extracted. • Guar is also used by the textile industry as a thickening agent for printing dyes and its by-products are used as high-protein cattle feed. It takes 3 kg of guar seeds to make 1 kg of guar gum.Traders are hoping the drop in prices will encourage more food firms to pick up guar gum. With the food industry taking up some of the slack from the oil sector, albeit at much lower prices, India's guar gum exports this fiscal year may be slightly higher than the 475,000 tonnes shipped last year. Outlook 2015 • In 2014-15, guar production is expected to be 20 to 25 per cent lower than last year due to changed pattern of monsoon. • For guar gum, anything below Rs 10,000 level may not ne unviable for the producers. Technically, there is strong support at Rs 10,000 and Rs 9800 is a critical psychological support for the coming year. A moderate recovery is in sight for guar in the medium term to Rs 14,500 or then to Rs 15,000 by April cannot be ruled out.

Commodities Yearly Tracker Tuesday | January 6, 2015

Thank You!

Angel Commodities Broking Pvt. Ltd. Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 3083 7700 Corporate Office: 6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000 MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy, completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from “Angel Commodities Broking (P) Ltd”. Your feedback is appreciated on [email protected]