Believe it or not: Oil cheaper than packaged water

At $38/Barrel, Petrol Rs 11/Ltr

Sanjay Dutta | TNN

New Delhi: Black Gold has lost its sheen, and how! Today, the cost of a litre of petrol or diesel for Indian oil majors is less than the price of a bottle of packaged water.
    Back-of-the-envelope calculations show that a litre of petrol costs about Rs 11 and diesel about Rs 14, excluding transportation and sundry other charges. By contrast, a
one-litre bottle of water costs between Rs 12-15.
    Here's how the arithmetic goes. A barrel of crude oil contains about 190 litres. At $38 a barrel, the current price in the international market, each litre of crude works out to Rs 10, taking the exchange rate at Rs 50 to a dollar. On an average, approximately 28-29 litres of petrol and 85 litres of diesel are refined from each barrel of crude. Admittedly, this figure can vary according to the type of crude being processed and the technology deployed in a refinery. So, how much would the price of a litre of motor fuel be after incurring the refining cost, if there were no other charges?
    The calculation is so mindboggling that sometimes even executives of oil marketing companies get confused by the myriad central and state taxes—levied at incremental rates—and the complex charges such as a 'freight equalisation levy' and dealer margins.
Such levies taken together constitute 45-55% of the sale price of petrol or diesel.
    So, if petrol costs a little under Rs 50 a litre at Mumbai pumps, taxes and levies make up about Rs 26 and another Rs 13 constitutes the oil-marketing firm's profit. That leaves a basic cost of about Rs 11 per litre. Similarly, at about Rs 37 a litre—the price of diesel—the actual cost can be taken as Rs 14 as the companies are making a profit of almost Rs 4 a litre. A WIN-WIN MOVE? Government may rejig petro-tax regime
New Delhi: The basic cost of petrol or diesel is much less than what the oil-marketing companies charge as nearly 55% of the price consist of the various Central and state levies.
    These calculations are admittedly simplistic and do not take into account other products such as kerosene, jet fuel, cooking gas, naphtha, etc, that are produced along with petrol and diesel and have a bearing on the final cost of each product. However, there won't be a big difference between these figures and the figures worked out by the industry.
    With crude projected to slide further in the coming days as the global slowdown gets a firmer grip on industry and pushes demand further down, the obvious question is: When will our pump prices go down further?
    TOI has repeatedly said this will happen just before the elections are announced, possibly around February. In the meantime, the government is looking to rejig the petro-tax regime to make way for lower prices without hurting oilmarketing companies that have accumulated huge losses during the extended run of high crude prices.

FALLING COMMODITY PRICES :Inflation may drop below 2% : Experts

New Delhi: Inflation might dip below the 2% level by the end of the current fiscal due to slackening demand and sharp decline in commodity and manufactured goods prices, say economists. "I expect Inflation to drop sharply to below 2% by March due to the sharp decline in manufactured goods prices and commodity prices ," HDFC Bank chief economist Abheek Barua said.
    The inflation dropped significantly for the sixth consecutive week to 6.84% for the week ended December 6, the lowest in nine months, after rising close to 13% in the month of August. Barua expects it to further decline to 6.48% for the week ended December 13 and sees more rate cuts by the RBI before its January policy. "I expect a 100 basis point cut in the repo and reverse repo rates," he added.
    Axis Bank economist Saugata Bhattacharya also believe that due to the falling demand, except that of primary articles, inflation might drop to 2% by the end of fiscal year 2008-09. Echoing a similar view, Crisil principal economist D K Joshi said, "By March, I expect the rate of inflation may come down to 2-3% due to the slackening demand and the base effect."
    He added that the sharp decline of commodity prices is leading to the fall of manufactured good prices. In addition to the fall in commodity prices, the decision of the government to reduce prices of petrol and diesel by Rs 5 per litre and Rs 2 per litre, respectively, and the December 7 stimulus package, that envisages 4% cut in excise duty, will have a cascading effect on prices in the coming months. Crisil's economist Joshi said the central bank can take more monetary easing measures in the coming days and slash interest rates further. "I expect the RBI's policy to remain aggressive. It might go for further rate cuts," Joshi added. RBI has taken a host of measures releasing as much as Rs 3,00,000 crore to fuel growth and with the inflation coming down further, it might take more steps to boost industrial output.
    Indicating that the RBI could take more steps to ease liquidity and trigger further softening of interest rates, the Mid-Year Review of the economy tabled by government in Parliament recently said "there is considerable scope for monetary policy easing over the next six to 12 months." Chief economic advisor Arvind Virmani also said the inflation is under control and will come to an acceptable level of 5% by the end of the fiscal."Inflation has started declining. I see it (inflation) between 4-5% by March, may be even before that...it is desirable to cut repo, reverse repo by 100 basis points," he said. AGENCIES

Centre weighs reimposition of 10% CVD on import of long steel items

CVD HAS BEEN FAVOURED AS DOMESTIC PRICES OF LONG PRODUCTS HAVE FALLEN 35% SINCE APRIL

THE government is considering reimposition of 10% countervailing duty (CVD) on bars and structurals to safeguard the interests of domestic steel companies in the wake of rising imports. Bars and structurals are long steel products mainly used in construction work.
    The move would come as a breather for steel makers such as Tata Steel, RINL, SAIL and Jindal Steel and Power (JSPL), who have been feeling the pinch of increased imports of long products over the last couple of months. "The proposal to reimpose CVD is being considered by the finance ministry. It may be included as part of a new fiscal package being considered for the sector," a government official said.
    Last week, steel minister Ram Vilas Paswan also wrote to Prime Minister Manmohan Singh asking for CVD on bars and structurals considering the current import scenario. The CVD on bars and structurals was withdrawn earlier this year when steel prices were rising. The duty waiver was aimed at protecting needs of the domestic construction sector and controlling inflation.
    The CVD has now been favoured as prices of long products have fallen 35% to Rs 32,000-34,000 per tonne level this month as against Rs 48,000-50,000 per tonne in April this year. The absence of the duty puts domestic manufacturers at a disadvantage. In a market where prices are falling, imports become attractive as they are not charged 10% excise duty which domestic companies have to pay. Moreover, with international prices being lower than the domestic prices, there is a fear that even long products may be dumped in the country.
    Says JSPL director Sushil Maroo, "We have been urging the government for CVD on long products for sometime now, considering the price situation. The move will not only protect the local industry against cheap imports but also generate decent revenues for the government. Giving a boost to the domestic industry would mean creation of more job opportunities."
    "Earlier, the US was a major export market for China. With slowdown in demand from the US, Chinese steel producers shifted their focus to India. The CVD would primarily benefit small players as imports would become expensive," says independent steel and natural resources consultant AS Firoz.
    India's annual steel production stands at 56 million tonnes with long products constituting close to 50% and flat products 50%. However, the share of long products in the country's total imports stands at a mere 25%. For the April-November period, total steel imports stood at 6.65 mt.
    Globally, steel prices have more than halved to $600-700 per tonne level after touching a level of $1,400 per tonne earlier this year. Even domestic steel prices have fallen by over 30% in last three months due to slowing demand.
    subhash.narayan@timesgroup.com 

Oil crashes to four-year low of $33

 Oil prices stabilised Friday as the White House's $17.4 billion auto industry rescue package gave Wall Street a boost and the dollar strengthened against the euro. Light, sweet crude for February delivery rose 92 cents to $42.59 a barrel on the New York Mercantile Exchange. The contract overnight fell $2.94 to settle at $41.67. The January contract, which expires Friday, fell 82 cents to $35.40, but fell as low as $33.44, a price last seen more than four years ago.
    Analysts are largely discounting the January price, with the volume of the next month contract trading at 13 times the volume. Yet analyst Jim Ritterbusch said pre-expiration lows do provide a downside target to the next contract.
    Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the market is sending strong signals that an oversupplied market will remain in place for some time. "I think it's going to work its way down to today's lows in the January futures," he said.
    In London, February Brent crude rose 18 cents to $43.54 barrel on the ICE.
    The extreme volatility in energy markets this year, which have seen crude pushed from $100 to $150 between January and July, and back down to $33 this month, has become an urgent global issue. At an energy summit Friday on London, British Prime Minister Gordon Brown warned that a failure to stabilise oil prices could cost the global economy trillions. AP

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Strong global rally helps gold scale 13k

 GOLD prices hardened further in the domestic market on Wednesday on the back of a strong global rally. In Mumbai, prices of standard and pure gold scaled Rs 13,000 per 10 gm to touch Rs 13,090 and Rs 13,150 per 10 gm, respectively. The metal was last seen above Rs 13,000-mark on December 1 when prices stettled at Rs 13,010 per 10 gm in Mumbai bullion market.
    However, higher prices kept retail buyers away from the shop despite ongoing marriage season, a bullion merchant said in Mumbai. But it is not the domestic demand that is driving prices now. Bullion dealers said the firm international prices, which is a combined result of the US economic recession and a slide in dollar value against the euro,
are the main reason for the rally in gold market.
    In international markets, yellow metal gained more than 1% on Wednesday on dollar weakness in the wake of the US Federal Reserve's decision to slash interest rates to between zero and 0.25%.
    In Kolkata, the yellow metal rose by Rs 145 to Rs 13,270 per 10 gm. While in Delhi it rose by Rs 20 to touch Rs 13,110 per 10 gm, it scaled Rs 13,000 per 10 gm in Chennai. In London, spot gold rose to $871.30/873.30 an ounce, a two-month high, up from $857.35 on Tuesday in New York. Meanwhile, US gold futures for February delivery too became dearer by
$32.50 at $875.20 an ounce.
Meanwhile, demand for silver improved substantially as jewellers and gift items manufacturers turned active buyers to meet demand for Christmas and New Year celebrations. Ready silver gained the most in Chennai, where the metal closed Rs 595 higher at Rs 18,465 per kg. While in Kolkata the white metal surged by Rs 460 to Rs 17,850, it traded Rs 445 higher at Rs 17,815 per kg. Delhi markets saw a gain of Rs 350 as the metal settled at Rs 17,600 per kg. In international markets, London silver rose to $11.44/11.52 an ounce from $11.21.

OPEC MAKES DEEPEST CUT EVER

Slashes 2.2M Bpd In A Bid To Build A Floor Price, But Prices Slip Further To $40

William Maclean & Barbara Lewis ORAN (ALGERIA)

    OPEC members agreed their deepest oil cut ever on Wednesday, slashing 2.2 million barrels per day from oil markets in a race to balance supply with rapidly crumbling demand for fuel. The 12 members of the Organisation of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel.
    The cut, effective from January 1, comes on top of existing reductions of 2 million bpd agreed by Opec at its last two meetings. It lowers the group's supply target to 24.8 million bpd. "I hope we surprised you —if not, we have to do something about it, said Opec president Chakib Khelil, host of the conference.
    Oil fell more than $3 towards $40 following the deal, after weekly US data showed inventories in the world's biggest consumer continued to swell. US light crude fell $3.40 to $40.20 a barrel, the lowest since July 2004, while London Brent crude fell 80 cents to $45.85 a barrel.
    A deepening recession has battered world demand and fuel inventories are bulging world-wide. "The world economy is driving the price more than anything Opec can do at this stage," said Gary Ross, CEO of consultancy PIRA Energy.
    Opec president said the group would do its utmost to ensure new restraints were strictly enforced. "I can tell you it's going to be implemented and it's going to be implemented very well because we do not have a choice," said Khelil, who is also Algeria's energy minister, adding "If not, the situation is going to get worse."
    Saudi Arabia, the world's biggest oil exporter, has led by example —reducing supplies to customers even before a cut has been agreed to help push prices back towards the $75 level Saudi King Abdullah has identified as 'fair'.
    "The purpose of the cut is to bring the market into balance and avoid the gyrations of the price," said Saudi oil minister Ali al-Naimi. The cut, the third this year, brings a total reduction in Opec supply to 4.2 million bpd, nearly a 5% cut in world oil supplies. The group is due to meet again on March 15.
    Oil below $50 is uncomfortable for all producing nations, but especially for Opec members Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programmes. It is hoped that a sharp supply cut will set oil on the path towards $75.
    Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation — a growing source of concern. The influential Saudi oil minister clearly outlined the kingdom's route to lower production. It is pumping 8.2 million bpd against 9.7 million bpd in August. Saudi Arabia's implied output target is about 8.4 million bpd under existing Opec curbs.
    According to independent observers cited in Opec's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50%. Opechasencouraged other producers to cut back too. Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge. Leading a high level delegation, Russia's deputy PM Igor Sechin said in a speech to Opec that Moscow did not plan to join in co-ordinated output cuts and did not want to join the group. — Reuters

Opec president and Algerian oil minister Chakib Khelil announces the record ever output cut after the Opec meet on Wednesday. - REUTERS

Five Ways to Profit from the New Year Rebound in Commodity Prices

By Martin Hutchinson

Contributing Editor
Money Morning

Between September 2007 and June 2008, oil prices doubled, gold rose 30% and commodities, in general, advanced by a similar percentage.

So why, six months later, when prices have fallen back below last year's levels, does everybody think they won't rise again? The difficulties of extraction haven't gone away, nor have the prospects of increasing consumption in the faster-growing emerging markets such as China. Yes, the prices of commodities are severely affected by marginal moves in supply and demand, but this is ridiculous!

Rest assured, commodities prices will rebound in the New Year. The reasons will soon become quite clear.

The decline in commodities prices since the summer is broad-based. The Reuters Continuous Commodities Index traded recently at 341, down 25% from a year earlier and off about 45% from its June high. At $48 a barrel, oil is trading at less than one-third of its June high. And gold, which appreciated less than other commodities in the spring, is still down 18% from the $1,000-per-ounce level it reached earlier this year.

Conventional wisdom blames the decline in commodity prices squarely on the global recession. Since the rise in demand from emerging markets – particularly the huge consumption bases of China and India – had caused the previous run-up, it seems natural that the absence of that demand growth would cause prices to decline. After all, that happened in 1982, when a deep recession in the United States spread to a number of other countries. Oil prices plunged from $40 a barrel to a mere $10, breaking the back of the Organization of the Petroleum Exporting Countries (OPEC) in the process.

This time around, however, the math doesn't seem to work. For one thing, the world as a whole is by no means locked into recession. We in the rich countries think of our economies as spiraling into a deep decline, but the reality is that we may only be witnessing a secular shift caused by the narrowing of income differentials between rich and poor countries as globalization proceeds.

In countries such as China, India and Brazil – three of the four so-called "BRIC" economies – growth has slowed and many are suffering imbalances in their financial structures, but there is little sign of actual decline in any of them. Indeed, if China's recently announced $590 billion infrastructure investment serves to redirect growth toward domestic consumers, it is possible that the demand for oil and other commodities there may show very little dip at all; it takes a great deal of iron ore and other commodities to produce $100 billion worth of railroads, for example, one of China's stated objectives.

On the supply side, OPEC was full of spare capacity in the 1980s. South Africa and the Soviet Union were still expanding gold production, and the explorations of the 1970s had produced surpluses of many other commodities. But in the past two and a half decades, things have changed.

Oil, for example, remains in short supply. Both deep offshore fields – like those discovered by Petroleo Brasileiro SA, or Petrobras (ADR: PBR), in the Tupi Complex – and the tar sands (like the ones in Canada and Venezuela), are economically unfeasible with oil trading at such a low price. And, if prices remain low, the expansion and exploration of new sources of production will be curtailed even further.

More importantly, though, supply and demand is only one of the reasons commodity prices rise and fall. What really spurred the big price rise in commodities that took place earlier this year was the explosion in the money supply throughout the world.

Money supply, unlike demand, is something that hasn't evaporated with the economic downturn. In fact, it has actually ramped up. Even though money markets have become illiquid, central banks throughout the world are forcing down interest rates and pumping out liquidity by every means they can think of [Indeed, the policymaking arm of the U.S. Federal Reserve meets today (Tuesday), and is expected to cut rates yet again. For a related story, click here].

Meanwhile, governments everywhere (except Germany) are implementing massive "stimulus packages" that will destabilize budgets and insert huge additional demand into the global economy. Since the governments will have to borrow the money to finance those stimulus packages – and the budget deficits that are inevitable in an economic downturn – central banks will be compelled to pump out even more money to accommodate all the increased debt; otherwise, interest rates would go through the roof and finance for the private sector would become unobtainable, hardly the object of this whole costly exercise.

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The future is thus one of rapidly increasing inflation, combined with a healthy recovery in global demand, at least in the emerging markets, as Europe and the United States may suffer deep recessions this time around.

To take advantage of this likely trend, I would recommend a broad portfolio of shares whose prices are closely linked to the prices of major commodities. Among those you might consider:

• Vale (ADR: RIO): As a gigantic Brazilian iron ore producer, Vale will benefit enormously from China's new infrastructure program (Think of all those steel rails!). The stock is currently trading at just over $12 a share with a Price/Earnings ratio (P/E) of about 7.0 and a yield of slightly more than 1.0%.

• Rio Tinto PLC (ADR: RTP): Another huge mining conglomerate, the long-and-bloody attempted takeover of Rio Tinto by BHP-Billiton Ltd. (ADR: BHP) recently fell apart. At $93, Rio Tinto shares have a yield of 5.8% and a prospective P/E of about 3.0. The company is overleveraged, so somewhat dangerous, but you'd be getting paid for the risk.

• Suncor Energy Inc. (SU): The largest pure player in the Canada's Athabasca tar sands, Suncor's marginal cost of production from operating facilities is about $30 per barrel and the cost of opening new facilities is about $60 per barrel. It's currently trading with a P/E of 8.0 but has a yield of less than 1.0%, as it needs all its cash.

• SPDR Gold Trust (GLD)exchange-traded fund (ETF): The largest ETF that invests in gold, GLD has more than 750 tons of the "yellow metal" held in trust.

• Yanzhou Coal Mining Co. (ADR: YZC): China's largest coal miner, Yanzhou has a P/E of 4.0, yields 3.5% and enjoys low costs – not to mention a super-close proximity to the gigantic market that is China.

The carbon trap

Hamsa Sripathy throws light on the concept of carbon credit and explains its significance

 One often hears the term 'carbon credit' being bandied about in industrial circles, but few know the actual meaning of the term, and what role it plays in saving our planet from toxic annihilation. As levels of carbon-di-oxide began rising alarmingly, it became imperative to seek ways of reducing emissions at the earliest. The concept of carbon credits arose in the late 1980s as a consequence of seeking a feasible and practicable solution to the pressing problem. It was introduced in the Kyoto Protocol and carried further in the Marrakesh Accords.
    A carbon credit works like this: if a country or organisation has reduced its greenhouse emissions to a level approved by a regulatory authority such as Clean Development Mechanism (CDM), a credit is awarded to it. One carbon credit allows the holder to emit one ton of carbon dioxide. Credits so acquired can be traded in the international market at the prevailing price.
    Carbon credits play an important role in reducing greenhouse gas emissions by putting a cap on the total annual emissions. Organisations exceeding the pre-defined limit of emission are required to purchase credits from those who have earned them by keeping their emissions low.
    Worth mentioning here is the term 'carbon footprint', which is a numerical measure of the amount of carbon-di-oxide released by an individual or organisation in the course of its everyday activities. The ethos behind the system of carbon credit is to reduce carbon footprints on a worldwide scale.
    Credits are sold by many to commercial and individual customers who are interested in lowering their carbon footprint, who are known as carbon offsetters. Thus, credits not only help reduce carbon-di-oxide output but also provide monetary aid to those who need it most.
    However, the concept has been criticised on the grounds that it is too simplistic a measure to tackle a burning issue, and it does not help solve the systemic and endemic malaises in the world, which were originally responsible for the status quo. Others argue that the offenders are being let off lightly, while they should be penalised more heavily. Still others propose auctioning the credits, as opposed to selling them.
    For all its rights and wrongs, carbon credit cannot take the blame for our failure to save the planet from near-certain destruction. May it serve as a reminder to all of us towards our collective responsibility to nurture the only home we have, mother Earth.

India remains top gold consumer

 Special Correspondent

MUMBAI: India maintained its reputation of being the numero uno consumer of gold when demand for gold reached an all time quarterly record of Rs. 30,600 crore in the third quarter of 2008 (July-September), a significant 66 per cent increase over the third quarter of 2007 as investors sought a safe haven and jewellery buyers returned to the market to take advantage of softer gold prices. Demand increased to 250 tonnes in the third quarter from 190 tonnes in the same quarter in 2007, a 31 per cent increase.

Demand

According to Gold Demand Trends, a report released out by the World Gold Council (WGC), the demand for gold jewellery in India reached 178 tonnes, a rise of 29 per cent in tonnage terms over the same period in 2007, despite a deteriorating economic situation creating a greater squeeze on consumer spending. In currency terms, this equated to a rise of 78 per cent, from Rs. 12,300 crore to Rs. 21,900 crore.

After a sluggish start to the quarter, gold jewellery demand surged driven by rural economic boom, urban consumers wanting to safeguard their investments, said the report. Much of India experienced a good monsoon rainfall, which resulted in a 'feel good' factor boosting rural spending on gold during the festive season. The data, compiled independently for WGC by GFMS Limited, shows investment demand for gold was similarly boosted by the pullback in the gold price during the third quarter.

Oils, oilseeds slip further on negative overseas advices

Agencies NEW DELHI

THE Delhi oil and oilseeds market remained depressive past week following discouraging overseas advices coupled with increased arrivals from producing centres. With the CPO (crude palm oil) in Malaysia down by $ 25 to $ 450 per tonne and Chicago soya oil futures tumbling to around 250 cent this led to nervous selling by stockists easing prices of all major edible oil on the Delhi wholesale market. According to marketmen, increased arrivals of soya seed at crushing units also had a deep impact on edible oil prices. Soya seed which was quoting at Rs 1550/1600 per quintal in producing centres fell to Rs 1480/1500 per quintal. Prices in Ratlam and Neemuch were seen quoting even lower at Rs 1375/1400 per quintal leading to sharp fall in soya oil prices. With soya oil in Indore down by Rs 350 to Rs 4000 per quintal its prices in Delhi also declined from Rs 4800 to Rs 4500 per quintal following heavy selling by stockists. Cottonseed oil slumped to a low of Rs 4050, losing Rs 250 per quintal tracking the weak trend prevailing in Punjab where cottonseed oil prices came crashing down to Rs 3900 per quintal. Sesame oil was also hit by selling pressure with prices easing by Rs 100 to Rs 4250 per quintal even as sesame seed held strong. Mustard seed slipped by Rs 25/50 to Rs 2900/3100 per quintal on weak demand.
GRAINS & PULSES
The Delhi wholesale grains and pulses market ruled mixed past week on the back of mixed signals from upcountry market centres. Tight inventory in roller flour mills appreciated mill-quality wheat Rs 56/58 to Rs 1150/1156 per quintal following spurt in demand. Atta (wheat flour) was also quoting upward by Rs 30/35 at Rs 620/625 per 50 kg on heavy buying by local stockists and retailers. Wheat bran firmed by Rs 20 at Rs 430/450 per 50 kg on increased offtake by upcontry centres. Fine rice 1121 average quality held steady at Rs 5900/6000 per quintal, while rice steam was quoting at Rs 6500/7000 per quintal end week. According to marketmen, sustained arrivals of fine paddy at mills in Haryana eased Paddy grade 1121 from Rs 3000/3100 to Rs 2800/2900 per quintal.
NON-FERROUS METALS
The Delhi non-ferrous metals market observed mixed trends past week. While Nickel and Tin closed firm in tune with the LME (London Metal Exchange) trend copper, brass and aluminium incurred losses. Nickel Russian Plate spurted by Rs 20 to Rs 765/775 per kg on hectic buying by stockists and speculators as nickel on LME rose from $ 11550 to $ 11578 per tonne. Inco nickel was also quoting upward by Rs 10 at Rs 865 per kg. Lead desi soft and hard edged up by Re 1 to Rs 86.50 and Rs 85/89 per kg following firm LME lead which moved up by $ 40 to $ 1332 per tonne. Brass parts, huny scrap and sheet tumbled by Rs 7/8 to Rs 183, 186 and Rs 184 per kg respectively amid increased arrivals from Pune and Hyderabad.
CHEMICALS
All major chemicals ended weak on the Delhi chemical market past week following restricted demand from consuming industries. Formic Acid tumbled by Rs 30 to Rs 68 per kg on lower import booking rate coupled with weak demand. Acetic Acid was down Rs 5 at Rs 45 per kg, while Chinese Sodium Hydrosulphite eased by Rs 3 to Rs 75 per kg. With the import booking rate of Citric Acid down from $ 1200 to $ 875 per tonne its prices in Delhi fell by Rs 100 to Rs 3200/3300 per 50 kg. According to marketmen, prices may ease further by Rs 50/100 per 50 kg in view of ample supplies and weak demand. Sodium Sulphate moved down by Rs 500 to Rs 11500 per tonne on easing rae material prices. Hydrogen peroxide and Zinc oxide also went down by Rs 4/5 to Rs 24/29 and Rs 85/105 per kg on lack of demand. Phosphoric acid fell from Rs 98 to Rs 80/85 per kg amid sustained supplies. Thiourea and chromic acid also sought lower margin with prices dipping by Rs 20/25 to Rs 210 and Rs 250 per kg. Polyvinyl Alcohol and Sodium Benzoate also ended negative on lack of demand.
SPICES & DRYFRUITS
The Delhi spices and dryfruit market observed mixed trends past week. Red chilli pala, packing and fulcut rose appreciably by Rs 500/1000 per quintal with prices reaching a new high of Rs 5800/6000, 6800/8500, 8000/9500 on heavy buying by stockists. According to marketmen, lower estimates of red chilli production in producing centres of Madhya Pradesh and Andhra Pradesh owing to deficient rains flared up prices by Rs 200/500 per quintal in the producing centres following tight stocks. Consequently, prices in Delhi were also quoting upward amid lower inventory, they said. Red chilli phatki also went up from Rs 2300 to Rs 2500 per quintal on buying support. Turmeric bold finger held strong at Rs 6200 per quintal. Gum Nigerian Talu and white edged up by Rs 10/20 to Rs 135/145 and Rs 279/290 per kg following hectic buying by stockists from Rajasthan, Haryana and Punjab with daily trading amounting to 500-600 bags. Gum Nigerian Sankh also held firm at Rs 400/425 per kg. Prices are expected to move further up by Rs 20/25 a kg in view of the tight stock position.

Commodity traders stare at big losses

Sudden Drop In Prices Catches Importers, Exporters Off-Guard

Sugata Ghosh & Deepa Krishnan MUMBAI

 COUNTLESS Indian traders have been trapped by a brutal commodity market. Consider these examples: A small-time importer in Coimbatore is fighting bankruptcy after placing an order for two shiploads of iron scrap. By the time the cargo reached India in little over a month, prices had crashed 70%. His buyers have backed out and the man is facing a Rs 100-crore loss. Across the state border, cashew kernels which have reached Kerala from Ivory Coast are piling up. The kernels have to be processed for re-export. But there's a problem: many overseas buyers are no longer interested since prices have dipped. In Mumbai's chemical mart, a sulphur importer is refusing to lift the cargo from the port. In less than two months, prices have crashed from $700 a tonne to $65, and he has nobody to sell to.
    These aren't isolated instances. Across the spectrum of commodities — scrap, iron ore, sulphur, solvents, dyes, soda ash and even edible oil — local traders have been caught on the wrong foot. There are instances where importers have preferred to pay the penalty rather than pick up stocks from docks at a price which they can't recover.
    Some of them, like the Coimbatore-based scrap trader, are picking holes in the shipping and letter of credit documents to wriggle out of the contracts. A few are even willing to surrender the collaterals to banks with whom they had opened letters of credit.
    "The drop in price was sudden. Sulphur importers who had booked consignments in advance are finding no takers," said Chandrakant Sanghvi, a liaisoning agent in Mumbai.
    Many exporters are also firefighting. Some iron ore exporters have now discovered that their Chinese buyers have disappeared with prices dropping to $55 a tonne from last year's high of $135. Crash in commodities hits importers, exporters alike
    "A MONTH ago, Chinese buyers had asked for a steep cut in price and some even went back on contracts. But there have been some negotiations of late," said Rahul Baldota of MSPL, a large exporter.
    The impact is being felt even in relatively smaller items. Ravi Adukia, an exporter of dye intermediates, said that his Korean and Taiwanese clients are pushing for discounts. "In 45 days, prices have dipped from $1,700 a tonne to $1,100. To maintain the relationship, I may have to lower the price."
    With local buyers unwilling to honour commitments, some fear the pile-up of cargo is a logistical disaster waiting to unfold. Nearly 45,000 tonne of edible oil is lying idle in custom-bonded tanks. Of this, about 7,000-8,000 tonne is in JNPT. "Not even 10% of these have been lifted. Some cleared their stocks on rumours of a duty hike that is currently at 7.5%," said Jayant Lapsia, president of the All India Liquid Bulk Importers and Exporters Association. Local edible oil is proving cheaper, he added. Palm oil — India's primary edible oil import — had been witnessing heavy import defaults since June when the price rose sharply. Even though the price eased in October, matters have improved little.
    Exporters have realised that many of their overseas buyers have not hedged by offsetting positions at the London Metal Exchange which they used to do previously. This is because most commodity futures brokerages have stopped giving exposure limits due to the financial turbulence. The drop in prices, coupled with the crash in shipping freights — as reflected in the Baltic Freight Index touching a 5-year low — has lowered the landed price of hundreds of commodities.
    Familiar echoes ring out across sectors. Minesh Shah, president of All India Plastic Dealers Association said: "In the 30 years of my career, things have never been worse. Since the last batch of imports, plastic prices have shrunk by half. We are having to sell our goods at losses, and will not import till demand picks up." The price of polyvinyl chloride is down to Rs 36 a kg from Rs 73 in July, polypropylene is down to Rs 45 a kg from Rs 115. The landed price of PP is down to $650 a tonne from $2,200.
    Metals, which have hit multiyear lows in a matter of months, are seeing importers running for cover. Surendra Mardia, president of industry body Bombay Metal Exchange in Mumbai said: "Traders are helpless. Some have mopped up funds just to honour commitments to save their international image. Others have been unlucky. Banks are not allowing them to withdraw even funds coming in as payments," he said.
    Chemicals like acid slurry and soda ash, used in detergents and soaps, have seen a decline of nearly 30% in price in two months. Acid slurry (Linear alkyl benzene sulphonic) is currently quoting at $1,500 a tonne, down from $2,300. Sanjay Trivedi, head of Oil Technologists Association of India said: "The sudden decline in input costs may have caught the bulk importers unawares but this is temporary."
    sugata.ghosh@timesgroup.com 

Inflation rises again to touch 10.72%

New Delhi: Halting the fiveweek downward streak, inflation on Thursday inched up to 10.72% on account of rising prices of essential commodities like vegetables, pulses and cereals, and some manufactured items. After declining to 10.68%, inflation rose by 0.04 percentage points for the week ended October 25 even as prices of edible items including rice, wheat, potato, tea, butter and salt firmed up.
    "Inflation of 30 essential commodities (taken together) marginally increased to 7.51% as on the week ending October 25, 2008, from 7.47% reported in the earlier week,'' a finance ministry statement said, adding that prices of six out of 30 items increased during the week.
    Although the index of the 'fuel and power' group remained unchanged, the primary articles group index increased to 11.41% as compared to 10.92% a week ago, the statement said.
    Commenting on the inflation figure, Crisil principal economist D K Joshi said, "The declining trend would continue. The spike in inflation this week is just an aberration.'' AGENCIES

Creative bug bites farmers in Gujarat

Seeds Of Exotic Fruits & Vegetables Imported From Japan, Taiwan

 FARMERS in entrepreneurial Gujarat are increasingly turning innovative. It all started with the production of Taiwanese Papaya at village Limbdi in Surendranagar, traditional bananas in Jamnagar (in Saurashtra's barren land) and very recently Japanese watermelon in Vadodara. The experiments don't end here.
    The farmers are now importing musk melon from Taiwan, brinjal-sized tomato from Japan and egg-sized brinjal from Africa. While seeds of musk melon are being imported from Taiwan at rate of Rs 32,000 per kg, Japanese tomato is being imported at Rs 10 per seed and brinjal seeds at a rate of Rs 70,000 per kg.
    Brinjal is being experimented in Limbdi (Saurashtra), Vadodara and Dhoraji (Saurashtra).
    The unique feature of this brinjal is that it has more disease resistant power compared to traditional crop, said Jitu Patel, an agro-tech expert.
    One kg of brinjal seed is enough to cater to 5 acres. For instance, only 100 gram of seed is adequate to cover production in five acre. Against an investment of Rs 20,000 (including the cost of Rs 10,000 towards seeds and other inputs like fertiliser, power, water etc.), the farmers can get an assured return of Rs 3.50 lakh on a plot of five acres, Mr Patel said. The brinjal crop is likely to be ready within 10 days in Dhoraji (Rajkot district).
    Similarly, tomato (brinjal shaped) seed Rs 10 (per seed) imported from Japan can produce 20 kg of tomato per plant and the duration of crop ranges between 75 and 90 days. Its shelf life is longer and plant strength is higher than the traditional one. The unique feature of this imported tomato seed is that the production is available round the year (maximum shelf life of plant is one year).
    Musk melon cultivated in an acre can give a production of 10 tonne. An investment of Rs 16,000 (including the cost of seeds Rs 8,000 and Rs 8,000 towards fertiliser, power and water) can fetch an income of Rs 1 lakh, Mr Patel added. The musk melon constantly remains in demand in northern parts of the country.

Rough road ahead for Indian diamond players

THE Indian diamond industry, that was hoping for a semblance of recovery in exports ahead of Christmas, is bracing itself for rough times. A poor demand from the US and Europe — India's largest jewellery importers, a fluctuating currency and volatile gold price have added to the problems.
    Some large integrated diamond manufacturers like Suashish Diamonds are tackling the situation through moderate inventories, but many small and medium-sized units may have to slash production. Gopal Laddha, CFO of Suashish Diamonds, said: "We plan our inventories according to the demand, so we have not suffered so far. However, many from the industry are having to
cut down manufacturing because there
is no demand, and the price of rough diamonds is also high."
    While some primary diamond producers have agreed to lower the price of rough diamonds, others like DTC are yet to announce price cuts. The high price, along with expensive credit from banks to purchase rough diamonds, has been eroding the manufacturing profits.
    Mehul Choksi, MD of Gitanjali Group that has a large retail network both in US and India, says that the lack of demand has brought down the prices by 35-50%. This is bound to come into effect soon. "Once the price of roughs decline, the manufacturing profits of Indian units would improve," he said.
    According to data released by the Gem and Jewellery Export Promotion Council (GJEPC), between April and September imports of rough diamonds had grown 19% over the previous year's. This was largely due to the zero duty import structure, said Sanjay Kothari, former chairman of the council.
    During the same period, exports of polished diamonds have grown despite the slowdown by nearly 22%. In value terms, the exports were to the tune of Rs 33,519 crore, due to higher price of diamonds. However, the exports will be slack till, feel traders.
    Jewellery, though a low margin industry, accounts for nearly 20% of the total Indian exports and employs over a million people. With the economic situation becoming dire around the globe, most of the jewellery exporters who looked at tapping alternative markets in Middle East and Asia earlier, are now going slow.
Gold sparkles again
MUMBAI: Gold recovered some of its overnight losses in the domestic market on Wednesday as some investors shifted their funds to safe haven assets after a steep fall in equity prices. In international markets, yellow metal came under selling pressure as the dollar recovered some lost ground against the euro after Barack Obama won the US election and with hopes that change in the presidency would be positive for the economy. In Mumbai, pure and standard gold firmed up by Rs 125 and Rs 120 to Rs 11,810 and Rs 11,745 per 10 gm respectively. In London, spot gold fell to $745.60/747.00 an ounce from $763.20 in New York on Tuesday.

Delay in cane crushing sweetens sugar

West Bengal, Madhya Pradesh & Rajasthan Look To Maharashtra Due To Higher Prices In UP

THE delay in sugarcane crushing in Uttar Pradesh has driven states like West Bengal, Madhya Pradesh and Rajasthan to turn to Maharashtra to meet the demand. This has pushed up the spot price of sugar in Maharashtra. In the futures market, there has been a rise in the open interest — the outstanding buy and sell positions — of the most active contract.
    A higher state advised price (SAP) in UP has lowered demand from millers, who have moved the court against the state government. Millers feel that the SAP is very high and the state government has fixed it arbitrarily without taking into account the losses they suffered in the past couple of years when prices crashed due to good production. The Allahabad High Court is likely to hear the matter on Thursday.
    Meanwhile, crushing is on in Maharashtra. Of the 173 mills, 22 mills till Tuesday crushed 500,000 tonnes of cane, producing 50,000 tonne of sugar at 9% recovery. The state is likely to produce around 60 lakh tonnes of sugar this year, at an estimated recovery rate of 12%.
    "Good demand from Maharashtra is coming from several states including the eastern states that buy sugar from Uttar Pradesh and this has firmed up the ex-mill price in the state," said Maharashtra State Co-operative Sugar Factories Federation MD Prakash Naiknavare,
    The ex-mill sugar price (S-30) which excludes excise duty, is up Rs 25-30 at Rs 1,620-Rs 1,625 per quintal since last week. The price of medium sugar (M-30) hovers between Rs 1,650 and Rs 1,655 per quintal. Mr Naiknavare feels prices can further increase by Rs 25 this month, touching Rs 1,675 in December.
    Sugar prices are also up on the futures exchanges, with price of Sugar M200 December contract on NCDEX up by almost 5% to Rs 1,849 per quintal on Wednesday as against Rs 1,763 on October 29. During the same period, volumes of the same contract moved up to 26,000 tonne from 5,780 tonne. Amol Tilak of Kotak Commodity Services said that the price will further increase due to delayed crushing, retail demand and overall low production. "December contract should touch Rs 1,866 levels by next week," he said.
    nidhi.sharma1@timesgroup.com 

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IN A NUTSHELL :Commodities

Gold slips more than 2% on dollar rise

• LONDON: Gold prices slipped more than 2% on Thursday, and nearly 5% from session highs as the dollar firmed against the euro. Spot gold fell 2.1% to $738.20 an ounce, compared to $754.30 an ounce late in New York on Wednesday. The metal earlier hit $776.30 an ounce, its highest in a week. Meanwhile, in Mumbai, all commodity markets, including bullion and oilseeds remained closed on Thursday for Bhau beej festival. Copper falls 10% on demand fears

• LONDON: Copper fell by 10% on Thursday as rising London Metal Exchange stocks halted this week's shortcovering rally in industrial metals and recessionary worries returned. Copper for three months delivery fell 10% to an intraday low of $4,190 a tonne after LME stocks came in at 223,875 tonnes, up 6,575 tonnes. Copper was last seen at $4,220, down from $4,655 at the close on Wednesday, when it surged 12.6%. Nickel, which surged 14% on Wednesday fell on Thursday to a low of $11,900, down 12.8%. It stood at $11,950 against $13,640 on Wednesday. Lead dropped, down 8.5% to a low of $1,445 before tracking back to $1,460 versus $1,580. Zinc stocks also came in higher at 182,100 tonnes, sending prices to a low of $1,145 a tonne. It was last seen at $1,155, down 8.3% versus Wednesday's $1,260. Tin shed 6.1% to $14,300 against Wednesday's close of $15,225. Aluminium was 3.7% lower at $2,071, down from $2,151 on Wednesday. Sugar traders unlikely to get extension of sops for exports

• NEW DELHI: The food ministry is believed to have informed the cabinet committee on economic affairs (CCEA) about the decision not to extend the subsidy on sugar exports beyond the 2007-08 season ended September. Official sources said the decision on not extending the subsidy to the current season has been conveyed to the CCEA. The cabinet committee on prices (CCP) had last month decided that the sops should end this September as prices were higher than the last year's rates. Cotton procurement nears 10 lakh quintals till Oct 29

• NEW DELHI: The government agencies have procured nearly 10 lakh quintals of cotton till October 29, with farmers rushing to them following a decline in prices below the minimum support price level in open markets. According to the Cotton Corporation of India (CCI), purchases of the white commodity have crossed 9.9 lakh quintals till October 29. The government has sharply increased the minimum support price (MSP) of standard cotton (long staple) to Rs 3,000 per quintal for 2008-09 from Rs 2,030 in the previous year. The MSP of medium staple cotton has been raised to Rs 2,500 per quintal from Rs 1,800.

Falling rupee to make imported pulse costlier

Ishta Vohra NEW DELHI

 IMPORT of pulses is expected to increase steadily over the next ten years as demand is growing while domestic production is stagnant. This could be bad news for consumers as the rupee is depreciating, pushing up the price of imported pulses.
    Global producers are also taking advantage of India's pulse shortfall by hiking their prices, according to Assocham's Pulse Production Report 2008. According to the study, imports would increase to 27 lakh tonnes by 2019-20. Canada, Australia, Myanmar would be major suppliers of the commodity to India, benefiting from growing demand and rising prices.
    Since virtually every household in the country uses pulses, the report is significant. The government is also concerned since prices of urad, moong, masur and gram has shot up due to shortage in domestic supplies and higher import prices. This is affecting the per capita consumption of pulses, which has plummeted to 12.7 kg/year now from a peak of 27.3 kg/year attained in 1958-59. The negative CAGR of 1.58% is a cause of concern, according to Assocham's director general D S Rawat. Pulses are a key source of protein for the vegetarian sections of the population.
    India is the world leader in pulses production, contributing about 24% or 14.5 million tonnes to the global production of 61.33 million tonnes in 2007. However, production has registered a paltry growth at CAGR of 0.26% over the last five decades. Production has been virtually stagnant over the past decade, he added.
    The lack of growth in production has led to growth in imports, leaving the country dependent on overseas suppliers for the past 30 years. India's pulses imports have risen at a CAGR of 10.38%, with net imports rising from 4.6 lakh tonnes in 1998-99 to 20.4 lakh tonnes in 2006-07. Canada, Myanmar, Australia, and the US contribute about 40%, 27%, 9% and 6%, respectively, to the country's pulses basket. The quantum of pulse import from Canada has more than doubled during the last five years. In 2006-07, Canada's share in pulses import touched 905.325 tonnes, out of India's total imports of 2,255.649 thousand tonnes.
Partial relaxation of ban on non-basmati rice exports likely
NEW DELHI: The group of ministers (GoM) on food, which will meet on November 3 to review food prices, may partially relax the total ban on non-basmati exports, commerce secretary GK Pillai has said, reports Our Bureau. He, however, added that the total export ban will not be lifted. The GoM is also expected to re-impose import duties on edible oil. Mr Pillai was speaking to mediapersons after a meeting organised by the Council for Leather Exports in the Capital on Wednesday. In a bid to tackle rising inflation, the government had announced ban on export of non-basmati rice on March 31. It had also scrapped the import duty on crude edible oil and brought down the customs duty on refined edible oil to 7.5%.

Oil slips to $64 on fears of slump in demand

Reuters LONDON

OIL prices fell below $65 Thursday to reverse earlier gains, pressured by concerns demand might continue to weaken as the US economy shrank in the third quarter. The world's largest economy shrank at a 0.3% annual rate in the third quarter, the sharpest contraction in the US in seven years. The spectre of recession prompted businesses to cut investment and unnerved consumers, who slashed spending at the sharpest rate in 28 years.
    US light crude slipped by more than $2 and it was trading was sown $3.05 at $64.45 a barrel by 22:00 pm IST. London Brent crude was down by $3.03 at $62.44.
    "Oil markets seem to be pricing for a deep and long recession that will derail oil demand growth this year and next," Jan Stuart with UBS said in a research note.
    Oil has more than halved from its record high of $147.27 struck in July and is down by 30% so far this month, putting it on track for its biggest ever monthly fall. Earlier, it rose to as high as $70.60, supported by a weak dollar and hopes that interest rate cuts in the US and China would bolster the world economy.
    Asian stock markets gained for a third day and European shares opened higher on signs that investors were rediscovering an appetite for risk in response to global efforts to prevent a deep recession.
    The US Federal Reserve cut interest rates by half a percentage point, taking its target for overnight bank lending to 1%, the lowest since 2004, in an attempt to revive the sagging economy.
    China also cut its interest rates on Wednesday, kicking off what is likely to be a global round of interest rate cuts, with Norway already having followed suit, and Taiwan and Hong Kong cutting rates on Thursday. The Fed cut pushed the dollar lower, making dollar-priced commodities like oil cheaper and more attractive for holders of other currencies.
    Also supporting oil were Opec's decision last week to cut output by 1.5 million barrels per day, or about 5%, to prop up prices and hints that it might further reduce supply. Nigeria's state oil company said in a statement that it would reduce crude oil export volumes by 5% in November and December because of the Opec cutback.

The prices of many commodities have returned to their ’05 levels

The prices of many commodities have returned to their '05 levels. Such a huge decline in commodity prices, and that too, over a short period, raises questions about their future direction. Kiran Kabtta elaborates

    EVEN AS THIS article was being written, gold fell to $713 per troy ounce and was heading towards one of its biggest weekly losses. Crude oil has already hit $65 per barrel, having fallen 56% since its peak of $147 per barrel in July this year. Prices of base metals, one of the worst performers of recent times, are down by 40-50% since the beginning of the year.
    The prices of many commodities have returned to their '05 levels. Such a huge decline in commodity prices, and that too, over a short period, raises questions about their direction in future. The commodity markets, which have witnessed a bull run since '05, have not remained unaffected due to the global financial crisis and the ensuing credit crunch.
    As the equity meltdown continues, the commodity markets have witnessed aggressive selling. The domino effect among various asset classes has taken its toll on commodities as well.
    Equities were at the forefront during the last bull run in financial assets, which began in '03-04. The boom in equities acted as a leading trigger and source of funds for investors in other asset classes.
    Ranging from energy and agriculture commodities to precious and industrial metals, the market started finding reasons to buy into them with a bullish outlook.
    Higher crude oil prices post Hurricane Katrina, drought in major wheat-growing areas of the world, the El Nino and La Nina effects, which caused floods and droughts in various parts of the world, were some of the physical factors that were pushing up commodity prices.
    The China Olympics proved to be yet another trigger for a rally in industrial commodities. The ensuing construction boom in China managed to push up the prices of most base metals.
    That was then. The weakening of equity markets following the subprime crisis changed things dramatically, impacting commodity markets as well. The first to feel its effect were base metals and agricommodities. The energy basket dominated by crude oil and the precious metals basket led by gold managed to pull over, even while other asset prices had started to cool down. Crude oil prices peaked out amidst bearishness in global equity markets. This was primarily due to shifting of investment demand from equities to liquid commodities like crude oil and gold.
    However, the crude oil market could not sustain the investment boom for long. With the world's largest economy steadily being strangulated by the credit crisis and claiming its victims in the form of erstwhile top financial institutions, fund managers had to withdraw from the oil market.
    The month of October has proved to be a major dampener for the commodity markets. The S&P Goldman Sachs Commodity Index, which showed a modest gain of 1% during the nine months ended September '08, is now in the red with a 28% loss. The index value, at a little over 5,000 points, is the same as it was at the beginning of '05.
    So, is this meltdown in commodities a blip in the long-term bull run or a conclusion of a threeyear bull run? Now that the surplus investments are out, the markets are likely to stabilise around the fair fundamental values in case of each individual commodity.
    Probably, a recovery in equity markets may yet again signal an entry into commodities on a case-to-case basis. However, investors are definitely going to be more cautious the next time. As a result, we may not see such mountain-like formations for quite some time to come.
    kiran.kabtta@timesgroup.com 

Gold buying gains pace ahead of Diwali

But Spot Price Falls To Rs 12,155 After Scaling Rs 14k On Oct 10

 THE 'sarafa' markets across the country witnessed some action on the auspicious day of 'pushya nakshtra', when people make new investments or start a new venture.
    Gold prices, which have fallen over the past two days, further supported buying that pepped up otherwise dull sales in the markets. In some cities, such as Udaipur and Indore, sales were in line with the trend of the previous years but in some other places like Ahmedabad and Mumbai, sales were still just half of what was registered the previous year. Pushya nakshtra occurs several times in a year but the one that falls before Diwali is considered auspicious for gold purchase.
    Although the global liquidity crunch, has impacted most asset classes including commodities, gold is still considered a safe bet, despite volatile prices and general economic negative sentiment over the last few months. Demand has been price-driven, and not consistent.
    After touching $909 per ounce level in first week of October, prices are down by 17% to $753. In the domestic markets, the fall has been of the order of 13% since October 10, at Rs 12,155 per 10 gm in the Mumbai physical market due to the weakening of the rupee.
    Bullion dealers and jewellers reckon that prices need to fall further between Rs 11,200 — Rs 12,000 level for demand to perk up. "Gold prices need to go below Rs 12,000 to generate a good demand," said Rohit Choksi, MD, Ishwarlal Harjivandas Jewellers based in Ahmedabad. Mr Choksi said that sales picked up on Wednesday but it is still over 50% down compared to last year.
    Other cities such as Indore in Madhya Pradesh and Udaipur in Rajasthan showed good sales on Pushya Nakshtra. Sumit Anand of Punjab Saraf Jewellers who is also the regional director of Gem and Jewellery Federation Madhya Pradesh said that there was a good rush. Narendra Singhvi who is the president of Sarafa Association of Udaipur said that sales were better compared to last year. "With share markets and property markets crashing people are buying more gold," he said.
    Gold prices took a beating following the strengthening of the dollar and the fall in crude oil prices. With the improvement in liquidity following various governments measures around the globe, investors are selling gold which they were buying earlier as an alternative investment. Amar Singh, head of research at Angel Commodities said that the short term trend looks bearish for gold if dollar remains strong. "Spot gold prices will have a crucial support at $736 as demand is expected to come at low level," Mr Singh said.
    Bombay Bullion Association president Suresh Hundia said that demand for gold will significantly improve at price levels of Rs 11,200. He added that there was some improvement in demand on Wednesday.
    Liquidity crisis hits
    diamond industry hard
MUMBAI: THE global financial crisis has hit the local diamond industry hard. With liquidity drying up, diamond manufacturers are finding it tough to meet their commitments for buying rough diamonds from mining companies abroad. As a result they could lose their licences to acquire the rough diamonds from these companies, reports Maulik Vyas. India is the largest importer of rough diamonds in the world and Indian companies specialise in exporting the stones after polishing them. Local diamond companies import rough diamonds worth over Rs 40,000 crore per annum under "site holding agreements" with the mining majors under which they are required to purchase all the rough diamonds that are excavated from a particular mine. If the Indian companies fail to purchase the diamonds, they stand to loose the raw material procuring contracts. Concerned over the possibility of the companies losing their licences, the diamond industry body has written to global mining majors asking them to reduce their supply of raw material till the situation improves. The Gems and Jewellery Export Promotion Council (GJEPC) has written to mining majors like DTC, Rio Tinto, Alrosa, BHP and Aber recently. "If mining companies continue to supply, the manufacturing companies have to buy it as per the terms of the contract and in the current scenario, Indian companies will find it difficult to pay up. But if the miners cut supplies, Indian manufacturers, reeling under a liquidity crunch, benefit without losing the rights over a mine," said GJEPC chairman Vasant Mehta.

Oil continues to slide on recession threat

US Crude Prices Drop $4 To $67 A Barrel; London Brent Falls Below $66

 OIL fell to a new 16-month low below $70 a barrel on Wednesday, as a big rise in US fuel inventories last week provided further evidence of an economic slowdown in the world's biggest energy consumer. Gloom about the global economic outlook could limit the impact of any oil supply cuts Opec might agree at a meeting on Friday.
    US light crude for December delivery was down $4.30, or 5.9%, at $67.88 a barrel by 22:30 pm IST. It touched a session low of $67.50, its lowest since June 2007. London Brent crude was down $3.76, or 5.4%, at $65.96 a barrel.
    US crude oil stocks rose by 3.2 million barrels last week, more than the 2.6 million barrels analysts had forecast. The Energy Information Administration also reported a rise of 2.7 million barrels in gasoline stocks versus forecasts for a 2.8 million increase.
    "The numbers look bearish on virtually all fronts," said Jim Ritterbusch of Ritterbusch & Associates, adding "The data reinforces our bearish view and ups the probability of $62 crude".
    Oil has been tracking downward moves in global equity markets, which have been reacting to increasing evidence of a global slowdown. Steep falls in European and US stock markets, plus the US dollar's rise to a 2-year high against a basket of currencies on Wednesday helped drive down oil and other commodities.
    "The relationship between oil and equities could be tested by any decision by Opec to reduce production at this week's meeting," said Frances Hudson, global thematic strategist at Standard Life Investments.
    The price of oil has more than halved from a record high above $147 in July as the financial crisis has started to hit energy demand in the US, the world's largest energy consumer, and other industrial countries. The Organisation of the Petroleum Exporting Countries called an emergency meeting this Friday, when the producer group is widely expected to agree to cut supply to defend prices.
    Opec secretary general Abdullah al-Badri has said that the world would face a huge oversupply of oil next year, if production continued at current rates. Badri is in Moscow where he met Dmitry Medvedev, president of Russia, which is the world's second largest oil exporter after Saudi Arabia.

Global meltdown takes oil to $70

Reuters LONDON

 OIL fell towards $70 on Tuesday, pressured by expectations that a global recession will crush demand for oil, which could limit the impact of any supply cuts by Opec.
    US light crude for November delivery was down $3.85 at $70.40 a barrel by 22:00 pm IST, after earlier hitting a session high of $75.69. The market hit a record high above $147 in mid-July. London Brent crude was $3.56 down at $68.47 a barrel.
    The Organisation of the Petroleum Exporting Countries is due to meet in Vienna on Friday, when the producer group is expected to reduce output to defend prices. Iran has said a drop in demand could push Opec to cut output by 2-2.5 million barrels per day.
    Opec is meeting after a 50% fall in oil prices in just three months from a record peak above $147. The sharp drop partly reflects falls in demand from the US, the world's top energy consumer and other industrial countries, which are suffering the effects of the credit crisis. "A cut of about 2 million barrels per day will only offset the amount of US demand that has been lost on a year-overyear basis," said Edward Meir of broker MF Global.
    Opec could face an intense debate at their meeting on how much oil they should take off global markets as they balance their price needs against risks to a fragile world economy. The International Energy Agency, which advises industrialised countries, has said an Opec output cut could prolong a global economic slowdown.
    Oil and other commodities have been tracking moves in equity markets in the past few weeks. "I think they moved in line with equities on Monday and are now pulling back, using stock markets as a barometer for demand," said Christopher Bellew at Bache Commodities.
    European shares gave up early gains that had followed a rise in U.S. stock markets on Monday on hopes of more government aid to the economy.
    The US currency was near one-and-halfyear high versus a basket of currencies, which put pressure on dollar-denominated commodities, including oil and gold.

India, Pakistan restore cross-LoC trade

PTI CHAKAN-DA-BAGH (JAMMU & KASHMIR)

  AFTER a gap of over six decades, India and Pakistan on Tuesday restored cross-LoC trade by launching truck services on the Srinagar-Muzaffarabad and Poonch-Rawalkote roads, scripting a new chapter in bilateral ties.
    Tasleem Arif, a driver from Srinagar, drove the first goods laden truck from the Salamabad checkpost in Jammu and Kashmir to Chakoti on the other side of Line of Control (LoC) with the hope that one day he would not need permit or any documents to cross the Aman sethu at Kaman post.
    "This has been a 61-year-long cherished dream of many Kashmiris to travel across the LoC without having to acquire a passport or without being on the wrong side of the law. I am happy that I will be the privileged man to cross the LoC today," said an excited Arif, who was driving the lead vehicle of the 13-truck convoy to Chakoti as part of cross LoC trade.
    Governor NN Vohra flagged off the goodsladen trucks which marked resumption of trade ties between the divided parts of Kashmir after 61 years.
    Three trucks carrying gifts (fruits and vegetables) were also flagged off by HH Tayabji, adviser to the governor from Rangar international trade terminal in Chakan-de-Bagh in Poonch amid tight security.
    "Today is historic day marking yet another chapter of friendship in Indo-Pak bilateral relations. It will strengthen the trade relations between the two sides," Mr Tayabji told reporters as he hugged Pakistan officials at the Chakan-Da-Bagh crossing point of LoC.
    The formal beginning of trade has also raised hopes of revival of traditional trade ties and return of peace to the strife-torn region.
    "We hope that this initiative of trade between the two parts of Kashmir will lead to revival of the traditional trade ties between Muzaffarabad and Kashmir Valley as was the practice during pre-1947 days," Abdul Ahad Bhat, a fruit grower from Baramulla district said.
    The septuagenarian has seen the pre-1947 days as well as when goods used to be carried by labourers in baskets on their backs. "One basket would have fruit equivalent to today's two and half boxes," he added. At Rawalakote, Pakistan officials led by the deputy commissioner Mohmmad Afzal received the trucks carrying gifts and were taken to Titrinote trade centre.
    Local traders of Poonch (Jammu & Kashmir) and Rawalakote (POK) exchanged sweets, pleasantries and fond memories.
    "My father's dream has come true today. He wanted to do business in Rawalkote, where the family was running a shop in old market area before shifting to Poonch in 1947," said Sardar Manohar Singh, son of 84-year-old Keekar Singh.

Vehicles with goods cross the Aman Sethu on the way to Muzaffarabad. Srinagar-Muzaffarabad road was thrown open to cross-LoC trade on Tuesday. — PTI

Most of the base metals have fallen significantly in the past two months

It's A Zero Sum Game

Most of the base metals have fallen significantly in the past two months, with prices coming close to their marginal cost of production. There is only limited downside from here onwards

DEVANGI JOSH I & SANTAN U M I SH R A ET I NTELLIGENCE GROU P

BASE METALS as a whole have witnessed significant declines amid rising concerns over possibilities of a global recession. Plunging stock markets across the world and deepening global credit crunch continue to weigh on the outlook of base metals in general. Chinese demand — a factor that largely contributed to the bull run in the past five years — has also started showing signs of a slowdown. As most of these metals have a direct correlation with the overall economic growth, weakness in the world economy has pulled down their prices.
    Another indicator of demand slowdown is the rising level of inventory at the London Metal Exchange (LME). The inventory level for zinc and aluminium has increased by more than 30% in the past six months, whereas copper inventory rose by 90% during the same period. Hence, it's not surprising that copper prices have fallen the most (almost by 40%) during the same period.
    However, the recent plunge in commodity prices has pushed most metals close to their average marginal cost of production and hence, most market participants expect prices to have a limited downside from here. This does not necessarily mean that base metals are expected to regain their winning streak, considering sluggish demand against the backdrop of slowing economies across the world.
COPPER: Prices have taken a beating in the past few weeks. They are off by more than 40% from their July highs of near $8,645 per tonne and are currently trading just above $4,700. Recent problems in the financial markets and subsequent fears of a global slowdown or possible global recession are expected to cap prices.
    However, the $4,200-4,500 range is seen as a strong downside support that coincides with lows reached in late '05. While China, the biggest consumer of the metal, is not expected to escape the tremors of the slowdown in world's major economies, the production cycle of the past four years indicates a decline in output for the next 3-4 months.
    Most domestic non-ferrous metal producers get their revenues from the treatment and refining charges (TC/RC margins), which are a function of the availability of copper concentrate and prices of final copper metal. But the TC/RC margins have been under pressure for quite some time.
    If there is any cut in the production of mined copper and a consequent fall in supply, the TC/RC margins will come under further pressure. But if there is no closure of mines, the supply of mined copper may be in surplus, improving TC/RC margins.
    Among the two big players in India, Sterlite Industries gets 50% of its revenue from the copper business, while Hindalco gets 63% (on a standalone basis) from this segment. Sterlite's margin is also slightly better than that of Hindalco because the former sources some of its concentrate from captive sources.
    Sterlite is also developing its copper mines in Africa, which will further increase the availability of mined copper. We believe that Sterlite is better positioned to tackle the current volatility in copper prices.
ALUMINIUM: Prices have started moving downwards since July '08 and the market is expected to remain oversupplied this year. In the first eight months of '08, China produced 8.9 million tonnes (mt) of metal and is on track to produce more than 13 mt in the whole of '08 — twice the output seen in '04.
    This is at a time when the LME inventory is at a much higher level compared to '04. This may result in prices further coming under pressure, unless smelters announce significant production cuts.
    Currently, aluminium is trading near $2,200 per tonne — well below the global marginal cost of production near $2,500. The decline is expected to find a strong support near March '05 lows closer to $2,000. On the other hand, the medium-term upside is expected to be capped by the $2,500-2,700 range.
    Most domestic aluminium producers are integrated and even at the current price level, there is still some room to generate profits. If the current trend continues, the operating margins for most players will almost get halved. Hindalco enjoys higher operating margin among the three big players.
    But Novelis, the company it acquired last year, has still not turned around and the current credit market crisis may force it to go slow on expansion plans. In this space, Nalco is relatively better placed with huge cash reserves and zero debt. This will help it to implement new projects and expand volumes.
ZINC: Prices have seen the sharpest decline from their peaks in late '06. Prices have been in a downtrend for nearly 18 months and are down nearly 65% from their May '07 highs of around $4,120 per tonne. Among base metals, zinc has continued to move downwards for quite some time now and is currently trading well below its estimated cost of production of $1,600 per tonne. At this price level, 10% of the world's zinc production may be forced out of production. But looking at the weak economic scenario, this may not put much upward pressure on prices. A further downside is expected till its strong support at $1,100 level.
    Hindustan Zinc, the subsidiary of Sterlite Industries, is the largest integrated player in this segment. And if the current price level is sustained, more than 70% of its operating profit will be wiped out, compared to its peak level in FY07. We advise investors to avoid exposure to this stock.
    devangi.joshi@timesgroup.com 

Commodity prices come crashing down

Record Harvests, Recession Fears Drive Downward Spiral

As the dark clouds of an economic slowdown gather over the world, the prices of most primary commodities are sliding worldwide. Only a few months earlier, prices of many key commodities, like foodgrains, crude oil and metals, had reached dizzy heights. Now they are in a free fall.
    Wheat had touched $481.5 per metric tonne (pmt) in March, while rice zoomed up to $772 pmt in May this year. These were all-time highs, causing riots to break out in over three dozen countries and a global uproar. At the end of the first week of October, wheat prices had tumbled by nearly twothirds to $272 pmt, while rice prices nearly halved to $412 pmt, according to latest data released by the Food and Agriculture Organisation (FAO) of the United Nations. Other agricultural commodities too have seen a slump. Soybean prices have gone down from a peak of $586 pmt in July to $371 pmt and palm oil from $1,249 pmt in March to $885 pmt.
    According to the latest FAO estimates, the main reason behind this dramatic across-theboard decline is record harvests in most crops. World cereal output touched 2.2 billion metric tonnes, a new record, and 5% more than last year. Wheat production increased by about 11%, fed by a phenomenal 25% rise in Europe. It could have been more but for declines in Argentina, Turkey, Iran, and a less than expected rise in the Australian harvest. Rice production too has increased by 2% over last year's record harvest. China has reported a record soybean harvest.
    While increased availability has eased prices, future increases cannot be ruled out for two reasons—the balance between global production and consumption continues to be poised on a razor's edge, and latest sowing data indicates a decline in the area covered under wheat in the Western countries. So, while the world may benefit from the downward trend in the near future, prospects in the middle term are not too rosy.
    Meanwhile, crude oil prices, which had set a blistering pace throughout last year and the first half of this year to reach an all-time high of $147 per barrel in July, dipped dramatically to $69 per barrel on Thursday. That's a decline of more than 50% in three months. A different set of factors is working here. Demand is declining due to the economic slowdown and fears of an allconsuming recession. DOUBLE-EDGED SWORD
    According to the Short Term Energy Outlook released last week by the Energy Information Administration (EIA) of the US government, oil consumption in the advanced countries covered under the OECD is expected to fall by over 1.1 billion barrels per day in 2008.
    In the US, which consumes 24% of the world's oil, daily consumption has remained at 18 billion barrels per day, which is the 1999 level. This is a direct result of the downturn in manufacturing activity and cost cutting by families facing a financial crunch. Output from factories, mines and utilities has dipped by 2.8% last month in US, the most since 1974, according to Bloomberg.
    Less noticed, but key to driving worldwide inflation are metal prices. Gold prices have risen steeply as jittery investors withdrew from risky markets and sought safe havens following the housing bubble burst last year. In the first quarter of this year, gold touched a record high of $927 per ounce.
    But, that too
Commodity price
fall boon & bane for poor nations
slipped to about $830 per ounce by September. Copper rose to $8,443 pmt in the second quarter this year, but it is now selling at $6,991, a decline of over 17%. While iron ore prices have largely remained static this year at around $140 per dry metric ton, this actually represents a slowdown in a six-year-long price surge.
    Experts say that prices will dip by next year as demand slows down. The World Bank's steel products price index rose continuously over the year to a high of 342 in August but dipped marginally to 338 in September. These declines in metals too are a direct consequence of the economic slowdown as it ripples across the world.
    Falling commodity prices have major implications for underdeveloped countries — they are a double-edged sword. While food prices going down helps in fighting hunger in food-deficit countries, crashing primary commodity prices also means less incomes for farmers and miners who export them to developed countries. Since the US and EU constitute a huge chunk of the global economy, the recession there is effectively exported to the third world through declines in commodity prices and job losses.