Food, fuel prices pull inflation down to 12.4%

New Delhi: Lower prices of food and fuel items pulled down inflation to 12.4%, offering hopes of what the finance ministry described as "early signs of moderation'' in prices.
    The decline in the rate of price rise by 0.23% from 12.63% in the previous week comes after five weeks of consistent rise.
    "There are some early signs of moderation of inflation,'' the finance ministry said in a statement adding in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articles.
    However, according to analysts, the decline could be temporary as crop production could be hit due to flood in many states and implementation of sixth pay commission from next month would result in creation of more demands.
    Inflation, which still remains much higher than targeted 9%, for the fiscal could prompt RBI to further tighten monetary policy during the half-yearly review of the credit policy in October.
    According to the ministry statement, prices of 30 essential commodities, after remaining range bound between 5.7-6.7% for 19 weeks in the current financial year, increased from 6.74% as on the August 9 to 7.24% during the reporting week. During the week, prices vegetables declined by 1.1% while meat, egg and fish became cheaper by 0.2%.
    Besides, falling crude in the international market cooled down prices of industrial fuels like naphtha by 9% and furnace oil by 6%. "It (fall in inflation) reflects the global crude price trend. Prices of naphtha, furnace oil light diesel oil etc have come down and certainly this is a welcome pause,'' Crisil principal economist D K Joshi said.
    But agri commodities are still putting a pressure on inflation, he said, adding, "It is too early to conclude that the inflation has started coming down. This fall does not certainly mean that a declining trend has started start.''
    However, in case of manufactured products rate of inflation in the current week increased to 11.02%. AGENCIES

George Carlin  - "In comic strips, the person on the right always speaks first."

Expect onion prices to climb in coming months

Delayed Monsoon, Lower Minimum Export Prices Likely To Keep Prices High

ONION prices are expected to rise by Rs 2-4 per kg in the coming months owing to poor supply, delayed monsoon and decreased minimum export price (MEP) Tamil Nadu Agricultural University has said.
    A survey by the university has advised farmers to store small onion and sell them during October-November as its prices are expected to rise in the coming months. Delayed monsoon, decreased MEP and reduced arrivals from Karnataka would support the prices to rule on the higher side in Tamil Nadu according to the survey carried out by Domestic and Export Market Intelligence Cell (Demic) of Tamil Nadu Agricultural University. If there is rainfall in Palladam, Tirupur and Perambalur and erode areas in Tamil Nadu during harvest, the farmers prices would increase beyond Rs 15 per kg, it said.
    Arrivals from Karnataka have come to an end this year in early August itself and currently farmers were getting a price of around Rs 6 to Rs 11 per kg depending on quality. According to the study for the next three months the prices would hover around Rs 8 to Rs 15 per kg. The country produced around 74.51 lakh tonne of onion from 5.28 lakh hectare in 2007-08 which was 11% higher than that of the previous year according to the estimates of the National Horticulture Research and Development Foundation.
    Exports stood at about 11 lakh tonne during the period which was 5% less than that of 2006-07 due to the government restrictions on export like increasing MEP and quantity restrictions.
    Both production and export consisted of Bellary onion as well as small onions. Bellary onion produced in Maharashtra, Gujarat, Karnataka and Tamil Nadu were exported to Malaysia, Singapore, Seychelles, Bangladesh and the Middle East countries.
    Small onions grown mostly in the southern states and also known as rose onion and Krishnapuram onion were grown in Kolar district in Karnataka and Cuddapah district in Andhra Pradesh. Multiplier onion known as podisu and shallots were grown in Tamil Nadu, Puducherry and Andhra Pradesh.
    Small onion produced in Karnataka and Andhra Pradesh were exported from Chennai port to Singapore and Malaysia and multiplier onions to Singapore, Malaysia and Sri Lanka. MEP ranged from $360 per tonne of podisu onion to $520 a tonne for Bangalore rose onion. The prices of small onion this month have increased by about 20%.

India may join top rice producing nations soon

 THE state-run agency — Food Corporation of India — will buy record quantities of rice from farmers after a good harvest, a top government official said, raising hopes it will join the ranks of top global producers easing export curbs.
    The government will review its ban on non-basmati exports in November, and the possible return of what was the world's second-biggest rice exporter last year will add further pressure to prices that have slid around a third from their May record high.
    Alok Sinha, chief of the FCI, said his firm had already bought more than the targeted 27 million tonnes, easing concerns of some trade and government officials that procurement would fall short of the mark. "After procuring record quantities of wheat, we are going to repeat the feat in rice by procuring 28 million tonnes, surpassing 27.5 million tonnes procured two years ago," Mr Sinha said.
    India joined other major producers earlier this year in banning exports on fears of dwindling supplies and rising prices, sending benchmark Thai prices THWHB-up three-fold to a record peak of $1,080 a tonne in March.
    But Egypt has said it will end its ban next month, Pakistan, the world's fifth-largest exporter, has scrapped a minimum export price, and Vietnam lifted its ban in mid-June.
    Traders say government's recent decision to allow exports of seeds of rice and corn as well and hopes of record purchases may spur the government to allow some exports.
    Food and agriculture minister Sharad Pawar has said the government would review the ban on non-basmati rice exports after October, when the new crop is harvested.
    Mr Sinha, the custodian of the country's grain stocks, said wheat at warehouses stood at 23.5 million tonnes, up from 13.5 million tonnes a year ago. Rice stocks were at 7.9 million tonnes, down 2 million tonnes on year.
    Higher food stocks in India, the world's second-biggest grower of rice and wheat, ease concerns of a shortage in world markets and keep global grain prices in check, analysts say.
    While rice export curbs pushed Thai prices up, a number of wheat import tenders floated by India in 2006 and 2007 led to a spurt in prices on the Chicago Board of Trade.

Erratic monsoon, labour unrest hit cardamom crop

THE vagaries of weather and ongoing strike by cardamom plantation workers for wage increase have dimmed the hopes for a better cardamom crop this year.
    The growers estimate the cardamom crop in the previous year to be between 7,000 and 8,000 tonnes. This year it was expected to go to around 9,000 tonnes as the summer rains were good.
    But after some early rains, the monsoon weakened dashing the hopes of the growers. To add to the woes, the workers began a strike in cardamom estates demanding higher wages. As a result the harvest of the crop has been hit leading to a dip in arrivals in the auction centres.
    "We feel that at least 2,000 tonnes could go waste because of the strike. We are hoping to settle the issue in the next conciliation meeting slated for August 23," says KK Devassia, secretary of Cardamom Growers Association. The present daily wages of the workers come to Rs 100.48.
    The demand is to increase it to Rs 139. Mr Devassia argues though the cardamom prices have been ruling above Rs 500 per kg level for the past one year, it cannot be compared to rubber or tea as it is subjected to wide fluctuations in production and price. The owners have agreed for an increased wage of Rs 116.48 per day.
    Recently it was decided to raise the daily wages for rubber tappers to Rs 150 with rubber prices shooting up. Similarly an understanding has been reached to increase the daily wages of tea estate workers to Rs 115 from a level of Rs 101 per kg.
    Meanwhile, with low arrivals, the cardamom prices in auction centres continue to rule high. It averages around Rs 601 per kg. The arrivals stood around 25 tonnes a day. ``The arrivals are mainly from small growers, who have been harvesting the crop using contract workers as the permanent workers are on strike," says PC Punnoose, general manager of KPMC. The prices are expected to remain on the higher side this year also.
    Idukki district in Kerala accounts for around 70% of the total cardamom crop in the country with 33,000 hectares under cultivation and have around 35,000 workers.

Robert Orben  - "To err is human - and to blame it on a computer is even more so."

Lower cotton acreage to hurt, but Bt crop may save the day

Less Farming In Maharashtra, Gujarat & Punjab, But Yields Rise In GM Fields

Agencies NEW DELHI

    COTTON production may not witness a significant fall despite reduction in acreage by about 500,000 hectares in 2008-09, thanks to better yield expected from increasing cultivation of genetically modified (GM) Bt-cotton.
Area under cotton cultivation declined to 85.9 lakh hectares till August 17 from 90.7 lakh hectares on the same period last year, said the government data. "While area under cultivation has shrunk, it will not have much impact on the output, as more than 80% of farmers have planted Bt cotton this year," president of the Confederation of Indian Textile Industries PD Patodia said. The acreage under Bt cotton plantation continues to rise with farmers sowing the transgenic seed in more than 80% of sowing area, compared with about 65% last year. So far, the government has approved 263 hybrid varieties.
    The acreage under cotton has come down because of deficient rainfall in some of the growing areas like Maharashtra and Gujarat. Further, recent floods in parts of Punjab has worsened the situation.
    While the textile industry is expecting a good yield despite low acreage, it is faced with high cotton prices on the back of strong export demand. Any setback in the domestic production may give a further jolt to yarn-makers.
    Lower output may push up average price in the new season. Advance deals for December delivery is up 14% compared to last year, at Rs 24,000-24,500 per candy. "The prices will certainly come down in coming months when arrivals start, but it would be difficult to ascertain the extent of fall," Mr Patodia said.
    The expected fall in output is mainly due to a drop in the area under cotton in the year ending September 2009, for which sowing is currently on. Acreage is seen down 6.6% at 8.9 million hectares, he said.
    The acreage in the year ending September 2008 is estimated at 9.5 million hectares, as per the Cotton Advisory Board (CAB).
    Demand for cotton by mills in India is estimated at about 20.7 million bales in 2007-08, according to CAB and exports is seen at 10 million bales.
    India produced about 315 lakh bales of cotton in 2007-08 but prices saw a sharp increase by over 40% between January and June.

Bob Hope  - "You know you are getting old when the candles cost more than the cake."

Govt clears decks for exports of select seeds

Breather For Rice, Corn Growers; Exported Seeds To Be Used Only For Planting New Crops

THE Centre has reopened the door to exports of seeds of non-basmati rice and corn on Wednesday, reversing earlier restrictions, but traders said the move did not mean it would quickly relax other export curbs for key grains.
    The commerce ministry said seeds being exported should be used only for planting new crops, not for consumption.
    Rice prices surged earlier this year after the government, which normally vies with Vietnam as the world's second-largest exporter, banned most shipments in March, triggering a wave of panic buying of Asia's staple food.
    The government also banned exports of corn last month until October 15, fearing increasing overseas demand could leave it short and drive up local prices, intensifying inflation fears. India is a small but important exporter of corn to south-east Asia. Both bans included shipments of seeds at the time.
    Traders say a bumper grains crop this year should allow the government to ease restrictions eventually, although Wednesday's move did not suggest that day was near, especially with election considerations looming next year. "The government is undecided on lifting of the ban," said Vijay Setia, president of the All India Rice Exporters Association.
    The food, agriculture and civil supplies minister Sharad Pawar has said the government's ban on non-basmati rice exports suitable for consumption would remain at least until November, by which time it would have a clear picture of the kharif (summersown) crop.
    In the meantime, some seeds can now be sold overseas, helping farmers abroad prepare for the next planting after many emptied their bins to capitalise on record prices this spring.
    "Export packets will be labelled that seeds are treated with chemical insecticides and cannot be used for food or feed purposes," the commerce ministry said in a statement.
    The price of benchmark Thai rice on Wednesday was steady at $700 per tonne, well below the record high of $1,080 per tonne marked in April but still about double what it was a year ago. On Wednesday, September CBOT corn was trading at $5.72-, per bushel, having surged to a record near $8 in late June before slumping to a low under $5 earlier this month.
    Traders say corn exports from India to countries such as Indonesia and the Philippines had risen sharply as high freight costs made purchases from the US expensive, prompting the ban.

Jay London  - "I saw a stationery store move."

Global Food Crisis May Be Ending as Plantings Gain

By Thomas Kutty Abraham and Pratik Parija

Aug. 20 (Bloomberg) -- A worldwide food crisis that sent prices of wheat, rice and corn to records and sparked riots from Haiti to Ivory Coast may be over after farmers boosted plantings, a top official in India's food ministry said.

``I don't think there's a crisis now,'' said T. Nanda Kumar, the country's food secretary, who is responsible for formulating food security policy in the world's second-most populous nation. ``Food will be available.''

Farmers from Australia to China increased sowings to benefit from higher prices, helping stockpiles gain from 30-year lows. An end to the shortages may help countries including India and Egypt ease trade barriers and cool inflation. Soaring prices increased the number of hungry people by 50 million last year, according to the United Nations.

``Expectations have risen about bigger harvests,'' Parshuram Ray, director at the Center for Environment and Food Security, a New Delhi-based research company, said by phone. ``That's helped cool prices.''

Sri Lanka's central bank said today declining fuel and food costs will ease the second-fastest inflation rate in Asia. Consumer prices in capital Colombo slowed in July for the first time in seven months. China's inflation cooled last month to the weakest pace in 10 months.

More Plantings

Record soybean crops in China and India, an almost doubling of wheat production in Australia, and bigger rice harvests in Thailand and Vietnam have eased shortfalls this year.

The global production outlook for wheat and soybeans is ``very good,'' while rice is still expensive, Kumar said in a New Delhi interview Aug. 18. ``Rice is softening, but I don't think it has softened adequately.''

Rice more than doubled in the past three years as China, Egypt, India and Vietnam curbed exports. Grain prices will remain higher than the average of the past five years even as production improves, Kumar said.

Commodity prices slumped since July 3 as the dollar gained 6.8 percent against a gauge of six major currencies in the past month and crude oil fell 22 percent from its record reducing the attraction of bio-fuels made from grains and sugar cane.

Rice has tumbled 29 percent from its record, while wheat and corn have dropped 35 percent and 26 percent from their peaks.

India, the second-biggest producer of rice and wheat, may need a second ``green revolution'' to meet food demand driven by rising incomes among its 1.1 billion people, Kumar said.

`Green Revolution'

Monkombu Sambasivan Swaminathan, the 83-year-old agriculture scientist who spearheaded India's first ``green revolution'' in the 1960s that made the country self-sufficient in food, has said the solution to higher farm output lies in providing better remuneration to growers.

``You may call it by any name, what we need is more food,'' said Kumar. India needs to increase its wheat and rice production by 3.5 million tons every year to meet its growing demand and cover emergencies, he said.

Supplies of farm products haven't kept pace with demand from consumers who have become richer in the past five years as India's economy registered the fastest economic expansion in its 60 years since independence. The economy averaged 8.7 percent growth since 2003, the fastest pace after China among the world's biggest economies.

``We're trying to increase productivity in some areas by at least 50 percent,'' using water management, seeds and fertilizers, Kumar said.

Production of grains such as rice, wheat and lentils has increased just 10 percent since 2000. Food grain harvests rose to a record 230.7 million tons in the year ended June 30 from 209.8 million tons in 2000, according to the farm ministry.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.

Bullion crash stirs margin call fears

FINGERS CROSSED

Bullion crash stirs margin call fears

Ram Narsinghdev Sahgal MUMBAI

    PUNTERS in gold and silver could be in for a knife-edged weekend. The sudden and steep slump in intra-day prices of overseas gold and silver on Friday has raised fears that long investors could face a flurry of margin calls when Indian commodity markets reopen on Saturday, after the Independence Day holiday.
    On Friday, some traders were glued to their trading terminals tracking the international movement of bullion and other information like US consumer confidence data which have a bearing on the dollar and thereby, on bullion which is seen as an alternative currency.
    Overseas spot gold hit a low of $772.92 an ounce (around 31 grams), down almost $34 from Thursday's close, before recovering to $797.25 at 6:20 pm IST. Spot silver hit a low of $12.42 an ounce, down $1.75, before recovering to trade at $13.31.
    Market watchers are particularly concerned that local investors' margins could be wiped off in silver, which, at the time of writing, was 86 cents below Thursday's closing. A one cent movement in silver equals Rs 15 in local currency while a one dollar movement in gold is equivalent to Rs 10-12. To take a minimum position in silver or gold futures, an investor has to put up a margin of around 5% of the contract value. The minimum contract size in silver is 30 kg while that of gold is 1 kg.
    A 5% margin on silver would mean an investor has to put up Rs 31,146 based on Thursday's closing price of Rs 20,764 a kg. On gold, the margin works out to Rs 57,330 based on Thursday's closing of Rs 11,466 per 10 gm.
    Margin calls are issued by brokers when client positions (buy or sell) go awry and their margins are not sufficient to hold extant positions. Dollar rally takes sheen off bullion
    IN SUCH cases, brokers square off positions and clients are faced with huge losses.
    At its intra-day low, at the time of writing, international silver had fallen 175 cents, translating into a fall in local currency of Rs 88,980 on a minimum lot size of 30 kg (Rs-dollar at 43.10). This would completely wipe out an investor's margin. Similarly, on gold, the low of $34 in international price works out to a loss of Rs 57,700 on one kg, a huge loss for longs.
    Brokers attributed this sudden fall to a heightened build-up of shorts, a dollar rally on falling crude over the past few days and further leg-up against the euro in light of more recent data that showed Europe's economy contracted for the first time since the 15-nation currency was introduced in 1999. "Of late, there has been some amount of borrowing of gold and silver, which suggests a short build-up. The correction in oil and weak Euro zone data have strengthened the dollar, too," Ross Norman, director of TheBullionDesk.com, a UK-based provider of online commodity market information, told ET. "The real challenge for gold is staying above the 3-year trendline of $748. A breakdown from here would entail the redrawing of technical charts. However, some countries — India, for example — have been providing a floor for gold with increased physical demand at lower levels."
    Bullion (gold and silver) is most liquid on Multi Commodity Exchange of India (MCX), India's premier commodities futures bourse, accounting for 65% of the exchange's daily turnover of Rs 20,000 crore. Since India is the world's biggest gold importer, domestic prices are largely correlated with international prices. In the case of futures, the largest market being COMEX division of New York Mercantile Exchange, price discovery on this platform influences futures prices globally.
    Unlike in the US, where commodities regulator CFTC publishes data relating to long (buy) and short (sell) positions held by commercial (hedgers) and non-commercial (speculative) entities at periodic intervals, no such data is published in India, making it impossible to determine the long-short ratio.
    However, given the recent jump in gold prices from $800 to $835-836 on a pullback in oil to over $116 a barrel, it is fair to assume there would be a significant amount of longs on the futures side as nobody was expecting a break below $800, according to Krishna Kumar Nathani, MD & CEO of India Bullion Investor Services. Nathani expects gold to trade in a range of $813-750 and silver to trade between $13.60 and $12.40 an ounce. The euro-USD, which is currently at $1.4730, is expected to get support at $1.45/44 and face resistance at $1.50/1.51.
    ram.sahgal@timesgroup.com 

Gold below $800 first time since Dec

"It's still early to say it's the end of the super-cycle but if the markets continue to fall like they are doing now, I am sure many people will be talking about it very soon,'' said Adrian Koh, analyst at Phillip Futures in Singapore. "The region around $750 is very important because this is a longterm gold uptrend support. So, if it's broken,gold's really gone,'' he said. AGENCIES

Singapore:
Gold tumbled nearly 3% on Friday and slipped below $800 for the first time since D e c e m b e r, with investors' confidence in precious metals shattered by falling oil prices and a surging US dollar.
    Silver, which normally tracks gold, was the hardest hit, falling more than 12% to its lowest since last September. Platinum fell 3% and palladium was at its lowest in nearly two years.
    Tokyo's platinum and gold futures hit limit down. Spot gold hit an intraday low of $787.10, its weakest since December 17, down from $811.25/812.65 late in New York on Thursday and well below an all-time high of $1,030.80 in March.
    "The dollar's continuing uptrend is a key factor depressing commodities in general and triggering heavy sales in gold,'' said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities in Tokyo.
    "Japanese players are dumping their long-term positions after breaking through key levels this week. The market may be oversold, but the market is still in a downward trend.'' Gold has lost much of this year's gains to profit taking, oil's declines from record highs and more recently the dollar's rally against abasket of currencies which reduced the metal's safe-haven appeal.

Gold equities are better bet

EQUITY markets are in doldrums. Record inflation is eating away bank deposits. Are there are any investment avenues left? Gold, say experts, can be used as a potent tool to fight wealth erosion. ET caught up with Evy Hambro who manages Merrill Lynch's World Gold Fund and also several segregated natural resource mandates for other clients. Mr Hambro who has worked in London, Sydney and Toronto feels that gold prices have not peaked as yet and that gold equities would outperform gold price over the long run. Interestingly, his World Mining Fund focuses on a defensive value investment style while the World Gold Fund focuses on a cyclical value investment style. Mr Hambro is also the co-fund manager for Merrill Lynch's Natural Resources Hedge Fund. Excerpts:
Given the market scenario, investment in gold has gained significance. Do you think investors would gain more by investing in gold mining companies as against gold ETFs or direct investment in gold derivatives?
Gold equities should outperform gold price over the long run. This is because gold equities are able to leverage on the gold price and to grow production- if you buy a gold ETF or direct gold, you are not able to do this and only have exposure to moves in the spot gold price. Gold equities are similar to holding a call option on gold in the ground. However, investors should be aware that they are also taking some equity market risk when investing in gold equities (although market movements will not be the main driver of performance of the stocks over the longer term).
Globally what has been the trend in mining companies' stock performance? Say, for bigger market-cap stocks like Barrick and Goldcorp versus junior golds? How has it affected performance of your fund?
We tend to focus our investments in those companies that are able to grow their production and are able to control costs. We typically have a bias for mid cap companies as these are well placed to leverage any rise in the gold price, enabling us to generate maximum possible return for our investors. That said, in periods where the gold price is moving up strongly and the broader markets momentarily focuses on the sector, large-caps have tended to perform better (as investors seek out these names to get exposure to the gold price). We tend to avoid small cap explorations stocks as the risk profile is not appealing.
The trend in gold and dollar is not independant of each other. Do you feel that the woes for the dollar are over; how would it impact commodity prices, especially that of gold?
A: We do expect volatility in the dollar going forward and this, coupled with inflation, may prove supportive of commodity prices (and particularly gold)
On a different note, what geo political factors are likely to affect crude oil prices in the coming months?
Although new factors could come in to play at any given time, tensions over Iranian nuclear ambitions, unrest in Nigeria and resource nationalisation are all likely to continue to influence oil prices going forward.

Honey trap in the making?

SUGAR is again having the bee-and-honey-pot effect on investors. So I'd like to flag five facts for you about Brazil's new season.
    As the world's top producer of sugar and ethanol, Brazil moves and shakes the global market. Though India's own numbers are certainly important, Brazil will be final arbiter of fate. No doubt you have read all the trade forecasts and international S&D balance sheets. But here are a handful of below-the-radar developments that no talking head on telly will tell you.
    First, Brazil's cane area is expanding. It has sown 8 mn ha for the 2008-09 season, up 12%. (This is almost double India's acreage this year.) Brazil will also harvest 12% more cane than last year. Even so, Brazil's cane farms add up to just 2% of its total farm land. So they are still not under any assault from food-vs-fuel activists and have plenty of room to grow. Supply of cane is plentiful this year.
    Two, mills are growing in number and size. Thirty new mills should start operations this season apart from expansions by older mills. That means increased competitive pressure.
    Foreign investment and interest in Brazilian sugar sector has never been higher. Mills controlled by foreign investors crushed 11.5% of all sugarcane crushed in Brazil last year. MNCs now control 10% of Brazil's ethanol production and growing.
    The big daddy among foreign investors is the Tereos Group with five plants that crush over 12 mn t cane. They are followed by Louis Dreyfus with seven plants that can crush 11.5 mn t cane. (By the way, the largest cane grower and processor on the planet is Brazil's own Cosan, which crushed 36 mn t last year) All this adds up to great news for consumers but tough love for mills. There is no chance of collusive pricing.
    Three, meanwhile all mills are coping with rising cost of growing, harvesting and processing cane. It now costs 11% more to plant cane. The average cost per cut has increased 30% due to the sharp increase in the cost of inputs such as fertilisers.
    Last year, in Sao Paulo region, which is the Maharashtra of Brazil's cane sector, producing a tonne of cane cost a mill $19. With average yield of 90t/ha, that means a cost of $1649 per hectare. But due to an explosive increase in cane supply, cane prices fell 32%. So mills earned only $1607 per hectare and incurred a $42 loss. So bottomlines are under pressure.
    Four, while ethanol and power are two significant revenue streams, they are no match for sugar. Speaking at Stanford last November, Cosan CFO Paulo Diniz broke down Cosan's $1.7 bn in revenue: 61% from sugar sales, 33% from ethanol sales, and 6% from cogen power sales. That proportion is fairly typical. So don't believe anyone who says Brazilians have gone off sugar.
    On the face of it, ethanol is on a bull run within Brazil. Its fleet of flex fuel cars is enlarging rapidly with 23 of every 100 cars now run on pure hydrated ethanol or a flex-fuel blend. So total domestic ethanol consumption this year may cross 22 bn litres, from 19 bn litres last year.
    But Brazilians tank up on ethanol only when they get it for less than 70% the price of petrol. In the peak cane crushing months when ethanol is plenty, that is no contest and ethanol wins hands down. With crude at $149/barrel, even in the off-season months ethanol had little to worry. Now petrol could look attractive once again. This has happened quite frequently in the past, especially in the last two months of the Brazilian sugar year (Jan-Feb).
    With 58% of 550 mn tonnes cane likely to go straight into ethanol this year, ample supply should keep ethanol cheap and the preferred consumer choice. But if crude drops to around $100, ethanol needs to sell for less than $70. If mills find that unviable, they are quite likely to switch back to sugar. So don't take the ethanol boom for granted.
    Meanwhile, returns from cogen are a bit dodgy. Currently, only 48 mills out of 405 sell electricity to the grid and/or other private companies. According to the Sugar and Alcohol Millers Association of Sao Paulo State (UNICA), the current net profit margin from cogen is around 15%.
    But it isn't that simple. The cost to connect the mill to the grid is highly expensive and some mills are 1,000 km away. Moreover, the current average price is R$140 per mega watt hour. For the new season, the government is unlikely to pay more than R$149/MWh. That isn't enough to attract investment into larger and more efficient boilers. Basically mills will continue to depend on ethanol and sugar for profits.
    Five, Brazil plans to increase ethanol exports 25% to almost 5 billion litres. Of this, over 3 billion litres could potentially be exported to the US, either directly or through the Caribbean Basin Initiative. That sounds like a great profit opportunity. But Brazil's competitiveness in the US after paying a 55 cents-per-gallon import duty depends on local corn prices.
    December corn is trading at $5.35 on CBoT. That's a 15% drop in six days, the most since July 1988. At $5 corn, US ethanol costs about $2/gallon. So before betting on enhanced Brazilian exports to US, I'd recommend updating the equation frequently.
    Brazil will certainly crush more cane this year. But will it find a profitable market for both sugar and ethanol in an era of rising costs and nail-biting competition is the big question. Ultimately Brazil's collective corporate strategy and vision will impact India and the global market. Make sure the risks they take doesn't become your honey trap.
    nidhi.srinivas@timesgroup.com 

Gold, silver lose shine on soaring inflation, firm $

EASING crude oil, firm dollar and spiralling rate of inflation kept Delhi bullion market bearish past week with both gold and silver plunging to new lows. Closely following the global trend, Spot Silver (.999) on the Delhi bullion market held strong at Rs 24700 per kg in the early part of the week on the back of firm London silver, which edged up from 1743 cent to 1755 cent per ounce. However, heavy speculative selling during the later part of the week plunged London silver to a low of 1528 cent, pulling down spot silver here to a new low of Rs 21900 per kg end week.
    According to marketmen, with gold in London after maintaining a poise at $910 dipping to $855, gold standard (.999) here after opening at 12660 improved to Rs 12710 per 10 gm, but with investors facing fund crunch, gold came tumbling down to Rs 11850 per 10 gm end week, losing by a hefty Rs 810 as crude oil touched a low of $ 115 per barrel. Gold Sovereign also suffered a loss of Rs 350 at Rs 9500/9900 per 8 gm. Gold one kg bar of .950 fineness in tune with the trend closed weak at Rs 11800 per 10 gm.
OIL & OILSEEDS
Closely following the overseas trend, the Delhi oil and oilseeds market remained depressive past week with all major edible oil and oilseeds dipping further amid nervous selling by stockists. According to marketmen, with the CPO (crude palm oil) in Malaysia tumbling from $ 975/980 to $ 900/905 per tonne amid speculative selling and weak demand from Asian countries and CPO futures on KLCE (Kuala Lumpur Commodity Exchange) down minus 275 Ringgit, this led to heavy selling by stockists in the domestic markets. Moreover, with re-sellers also on the selling drive, edible oil prices on the Delhi market plummeted by 150/200 per quintal as CPO at Kandla port tumbled from Rs 4210 to Rs 3980 per quintal.
GRAINS & PULSES
The Delhi wholesale grains and pulses market ruled mixed past week amid fluctuating signals from upcountry market centres. In the cereals section, rice fine such as rice 1121 and sela dipped by Rs 200/400 to Rs 4800/4900 per quintal. Rice raw and steam closed weak at Rs 5400/5500 per quintal. According to marketmen, rice acreage this year is up by over three times as compared to last year. Moreover, good monsoon rainfall also have raised hopes of bumper paddy crop this year. All this, kept buying sentiments weak. Also, increased arrivals of new crop from upcountry market centres of Uttar Pradesh led to selling pressure, pulling down rice prices further on the wholesale market. Rice basmati towed the line with prices slipping from Rs 6400/6900 to Rs 6000/6400 per quintal on stockists' selling.
NON-FERROUS METALS
The Delhi non-ferrous metals market ended largely on a weak note past week amid lacklustre demand and weak LME (London Metal Exchange) advices. Tin ingot lost heavily by Rs 66 per kg to Rs 1092 on sustained selling by stockists as tin on LME tumbled from $ 22347 to $ 19850 per tonne on speculative selling. Tracking LME copper, which slipped from $ 8190 to a low of $ 7660, copper wire scrap, sheet cutting and mixed copper scrap plunged to a low of Rs 355, 350 and Rs 328, losing Rs 13.50/14.00 per kg. Copper rod and ingot also ended weak at Rs 387/380 per kg. Zinc sheet lost Rs 6.50 at Rs 97/105 per kg, while zinc dross slipped to Rs 85 per kg on selling pressure.

Scour.com invite from Akbar Jiwani

Hey,

Did you hear about Scour? It is the next gen search engine with
Google/Yahoo/MSN results and user comments all on one page. Best of all we
get paid for using it by earning points with every search, comment and vote.
The points are redeemable for Visa gift cards! It's like earning credit card
or airline points just for searching! Hit the link below to join for free
and we will both get points!

http://scour.com/invite/ways2earn/

I know you'll like it!

- Akbar Jiwani

Gold falls 2 pct, tracking losses across commodities

  LONDON (Reuters) - Gold fell more than 2 percent in Europe on Tuesday, tracking losses in other commodities, notably oil which lost more than $2 a barrel to a three-month low.

The dollar reached a new seven-week high against a basket of currencies, further dampening interest in gold. Traders are awaiting the rates announcement of the U.S. Federal Reserve later in the session.

Gold fell as low as $875.60 an ounce, its weakest level in nearly six weeks. At 1535 GMT it was at $877.00/878.00 an ounce, down from $895.55/896.95 late in New York on Monday.

COMEX December gold lost $22.10 to $878.00 an ounce.

A firm dollar typically pressures gold, as it dents the precious metal's appeal as an alternative investment.

"Gold has sold off on oil's steep falls and with sharp falls in many other commodity markets," said Mark O'Byrne, executive director of Gold and Silver Investments.

"The CRB Reuters Jefferies Commodity Index was down 3 percent yesterday, its largest one day sell-off since last March," he added.

Falling oil prices are also weighing on gold. U.S. crude futures slipped to a three-month low of $118 a barrel as traders focused on rising OPEC supply and easing demand in the United States and Europe.

Gold tends to track movements in crude, as it is often bought as a hedge against oil-led inflation. Weaker oil prices also undermine sentiment towards commodities as an asset class.

FED EYED

Traders are looking ahead to the Fed's rate-setting meeting, with a statement due at 1815 GMT. While rates are expected to stay at 2 percent, analysts say the bank's accompanying statement will be closely watched.

"The key event risk today is the FOMC decision," said JP Morgan analyst Michael Jansen. "The market is expecting no change, but looking for a small uptick in hawkish rhetoric. This could be US dollar supportive/metal negative."

Among other precious metals, platinum and palladium steadied after posting sharp losses earlier in the session, when platinum hit a fresh six-month low of $1,529 an ounce.

The white metal, chiefly used to make autocatalysts, has shed around 13 percent in the last week, while palladium has dipped nearly 10 percent.

The metals have been hit hard by the worsening outlook for the automotive sector.

Spot platinum was at $1,556.50/1,576.50 an ounce against $1,551.00/1,571.00. Spot palladium ticked up to to $351.00/355.00 an ounce from $349.50/357.50 late in New York.

Silver slid to $16.59/16.63 an ounce from $17.00/17.05.

Prices head north, but shoppers don’t stop

Companies Across The Spectrum Clock Increase In Sales Volume, Turnover

DESPITE high inflation and concerns of a slowdown, consumer demand is still buoyant. An ET analysis of the top 50 consumer goods and services firms shows sales growth for the June quarter at 24% (year-on-year) — highest in the past one year. The higher revenue growth of companies at an aggregate level is not just due to price increases; companies say that even demand has been in double digits.
    The analysis captured firms whose products and services are directly consumed by the households. The firms in the sample cuts across sectors such as textile, automobiles, consumer durable, FMCG, liquor, airlines, telecom services, footwear and retail.
    Henkel marketing head Ranju Mohan said: "Net sales growth is not just a result of product price increase; there is also volume growth for consumer goods across industries. Demand for daily consumption items has gone up by 5-10% depending on the category."
    Not surprisingly then, Hindustan Unilever reported high volume growth across product categories. While FMCG business grew by 18.8% — about half ofitwasdue to increase in prices —there was more that 8% volume growth. The growth also helped it clock year-on-year net sales growth of 21.1% during the quarter, the highest in over a decade. The company's chairman Harish Manwani has gone on record attributing the growth to double digit increase in consumer spending in both urban and rural India.
    "There has been some adjustment in the consumers' consumption. But overall demand is robust. Our July 1-15 sales data shows purchases from our stores have gone up compared to three months ago,'' says Wadhawan Retail MD Gaurav Modwel. Profitability of cos takes a beating
    THE company operates 200 Spinach, Sabka Bazaar and other grocery stores across India. Auto and two-wheeler companies that are supposedly in trouble have not seen any major demand slump so far. Maruti Suzuki, the largest automaker, managed to clock 20% net sales growth during the quarter at a time when the auto industry is stung by rising interest rates. Though part of the sales growth was linked to higher price tags of automobiles, the firm managed to record 12% growth in volumes.
    Two-wheeler maker Hero Honda reported double-digit growth in volume shipments. This came despite the slowdown in the two-wheeler industry since demand here is intrinsically linked to interest rates that have shot through the roof. In consumer durables, all product categories excluding airconditioners have recorded strong volume growth in the quarter. While airconditioner sales were affected by early onset of monsoon, other appliances including refrigerators and washing machines have clocked better growth rates compared to last year. Profitability has, however, been affected with net profit growth now down to single digits for the companies in the sample. Net profit growth for the 50 companies stood at 8% for Q1 of FY09 compared to 14% growth in Q4 of FY08. This shows consumer goods and services firms are struggling to pass on the impact of cost risepricier raw materials, higher staff cost and interest rates-to the end-consumer.
    Admits LG Electronics director (sales & marketing) V Ramachandran: "Commodity prices have shot up. We have increased prices, but they have not been sufficient to neutralise the impact of high raw material cost, so profitability has been hit. But demand is strong."
    Even if we exclude telecom services, a sector immune to inflation, the overall picture of accelerating sales growth remains intact. Excluding telecom firms, aggregate net sales growth for consumer goods and services firms shrinks marginally to 22%. However, aggregate profit growth actually improves, as RCOM net profit on a standalone basis has declined.
    vivek.sinha@timesgroup.com