Copper basks in reflected glory as Dow Jones rallies

THE rally of the Dow Jones Industrial Average from its low since early March this year has had a positive impact on the base metals complex, particularly copper, which has re-established a positive correlation with the benchmark index after a tumultuous 2008 and a period of uncertainty in the first two months of the current calendar year.  From March to date, copper has shown a 93.1% correlation with the Dow, prompting analysts to speculate that any rise in the benchmark equity index from current levels could result in a concomitant increase in the price of the industrial metal. However, they are quick to point out that the current rally in copper, is more sentiment rather than fundamentally-driven .  While the Dow has given a 39% return since hitting a low of 6547.1 on March 9 to Mondays close of 9108.5, the return on copper has been around 55% at $5,600 per tonne level over the same period. A good showing by US corporates in the second-quarter and positive US housing data have given a boost to the Dow, the rally of which is driving up demand-centric commodities such as copper.  However, the cautionary note struck by commodity analysts may well be in order. For one, copper stock levels on the LME were at a monthly high of 278,925 tonnes on Tuesday at the time of going to press, after bottoming out at 256,900 tonnes on July 13. From July 13, even as stock levels moved up by 8% to 277,425 tonnes on July 27, the three-month copper contract on LME rose from $4,895 a tonne to $5,600, an upside of 14% over the same period. Analysts nonetheless are upbeat on the near term prospects of copper. Given the current scenario, if we are expecting another 15% rally from the current levels in equity markets, and, if our correlation theory is correct, we could expect a similar rally in copper prices as well, said Gnansekar Thiagarajan , director of Commtrendz, a Mumbai-based commodity and forex research outfit.  While declining to put a finger on the price, Arun Chokhani, a senior executive from a prominent Birla group company, says that copper could witness upside over the next month or month and a half. The correlation with the Dow is likely to take prices of copper up further. So, users and paper traders would do well to cover themselves (buy today rather than later) over the next three to four weeks.

Commodity prices climb on customs hurdle

Huge Quantities Of Edible Oils, Pulses & Sugar Lying Idle For Lab Clearance At Kolkata Port

A DELAY in clearing samples of edible oils, pulses, sugar and perishable goods has led to consignments being held up at the customs department in Kolkata Port Trust. This is adding to supply woes and driving up prices of essential commodities. Sugar and pulses have already surged between 30% and 50% due to supply-side problems and the customs clearance delay could mean further pressure on prices.
    Close to 17,300 tonnes of sugar and 1.2 lakh tonnes of pulses are lying uncleared, said a Kolkata Port Trust official on condition of anonymity. Though part of the pulses consignment has been cleared, the exact quantity could not be ascertained.
    A Kolkata-based edible oil processor, said that close to 80,000 tonnes of edible oil, 60,000 tonnes of pulses like tur, urad and yellow peas and 40,000 tonnes of sugar and apples are lying uncleared at the port. A delay in receiving the mandatory lab test report from the state's Central Food Laboratory (CFL) is leading to the shipment being stuck with the customs department, say importers and officials at the port.
    Samples of these commodities have to be sent to the CFL, which issues a test report. The lab, which was earlier under the ministry of health, has now been shifted to Food Safety and Standards Authority of India (FSSAI), resulting in unrest among staff.
    The delay in clearing the samples is on account of administrative problems and 'issues' with local staff, FSSAI chief executive VN Gaur said . He added FSSAI has taken certain measures, including authorising two additional testing laboratories and appointing a new officer at CFL.
    "Almost 50% samples have been cleared and the remaining will be cleared by end of this week," Mr Gaur said. The additional agencies appointed by FSSAI include the state's Public Analyst Lab and Export Inspection Agency but importers and port officials feel these labs are not well equipped for testing.
    FSSAI is also in process of authorising three additional laboratories for testing, Mr Gaur said. "I don't think there should be any problem in future," he added.

Gold scales Rs 15k mount again, but buyers skip party

IT COULD just be sheer coincidence. On Monday when the equity benchmark index Sensex scaled the 15,000 peak again, it had gold for company. The yellow metal returned to the 15K mount after a gap of more than three-and-a-half months. On Monday, the price of pure gold (99.9) shot up by Rs 120 to close at Rs 15,010 per 10 gm in the Mumbai market, a major gold hub. Standard gold (99.5) also surged by Rs 125 to close at Rs 14,940 per 10 gm.
    It's not the domestic demand that is driving the prices this season. Bullion traders said the firm global price, which is the combined result of dollar's weakness and rising crude prices, is the main reason for the latest run-up. Stockists and speculators turned active buyers after the metal rose nearly 2% in international markets. However, surging prices have reduced demand for gold jewellery drastically in spite of forthcoming marriage season, sources knowing the development in the market said. "Now, we are receiving more sellers than buyers because consumers prefer to cash out at the current level," said a leading bullion merchant in Zaveri Bazar.
    A sharp decline in imports further helped the precious metal to gain ground, marketmen said. Gold imports fell by 50% in June, 2009, against the same period of the past year. The country imported nearly 12 metric tonnes of gold in June compared to 18 metric tonnes in the previous before, they added.
    Other metros too recorded a hefty gain on the back of a strong rally in global markets. While in Kolkata spot gold rose to Rs 15,195, in Delhi it settled higher at Rs 15,090 per 10 gm. Chennai markets also saw a gain of Rs 100 as the metal settled at Rs 14,950 per 10 gm. In London, gold prices shot up to a five-week high on fund buying. Spot gold rose as high as $954.30 — its highest level since June 12, 2009 — and that compared with $936.50 in New York on Friday.

Commodity prices shoot up on weak monsoon

Coimbatore: The monsoon, which hasn't brought enough rain and cheer to most parts of the country, is casting a long shadow on commodity prices. In the past two months, the prices of key food articles like pulses, potatoes and red chillies have shot up.
    Chana, delivered in the Delhi market, has spurted up by 14.6% to Rs 2,520 for a quintal in just a week on the spot markets. Yellow peas have jumped by about 20%. "Prices of pulses have gone up because of the late kharif crop. The monsoon has not been good and this would impact production,'' says Anjani Sinha, MD and CEO, National Spot Exchange.
    Potato prices have risen 20% since June and red chillies have become dearer by 16% on spot exchanges during the period. A quintal of potatoes, which quoted Rs 856 on June 1, now costs Rs 1,029. "The monsoon is one of the main reasons for the price spike. The price forecast is normally based on the acreage sown. This year the acreage sown has been less,'' says Anil Mishra, CEO, National Multi Commodity Exchange.
    The impact would be high on rain-dependent crops such as pulses and oilseeds. Chana, mustard, guarseed, soyabean and groundnut would bear the brunt of a poor monsoon, say industry officials. The production of pulses had come down to 2.37 million tonnes from 3.08 million tonnes last year. The production for the current year is expected to slide further because of poor rains. "If the monsoon is not good this month, we would have serious problems,'' says Madan Sabnavis, chief economist, National Commodity and Derivatives Exchange (NCDEX). Import prospects are not good in pulses with Myanmar, one of the largest suppliers of urad and tur, is not releasing enough stocks into the market, say observers. This, coupled with lower domestic production, is bound to push prices higher, they say.
    "We have a deficit in pulses and when imports happen, prices would go up,'' says NMCE's Mishra. Wholesale and retail prices of tur and urad dal have already seen a quantum jump. Sowing has to be completed by mid-July for pulses and even if the rains come, it would be late for the crop, say observers. The monsoon has left most of northwest India untouched. The futures markets have already started reflecting the price trend with the September and October contracts for chana and potato quoting higher than existing spot rates.

Higher duty to dim gold imports

Duty Hike Of Rs 100 On 10 Gram Bars & Rs 500 On Silver Makes Imports Taxing

 GOLD imports, which are down by over 50% in the calendar year to June from the same period last year, are likely to be hit due to an increase in customs duty on gold bars. Physical demand, which was already low on account of the rise in price above Rs 14,500 per 10 gm, will be constricted further, say traders.
    The budget for FY10 stipulates a hike in import duty on gold bars to Rs 200 from Rs 100 per 10 gram and for silver to Rs 1,000 from Rs 500 per kg. In a bid to offset the duty hike, Pranab Mukherjee exempted branded jewellery from excise duty.
    However, domestic bullion traders are unhappy with both the measures. While the hike in duty on gold and silver bars will hike the cost of manufacturing jewellery, removal of excise on branded jewellery will boost sales of imported jewellery at the cost of that locally made, according to Bombay Bullion Association president Suresh Hundia.
    One of the largest bullion dealers in the country, Prithviraj Kothari of RisshiSiddhi Bullion feels that increase in custom duty will 'encourage' smuggling. Ajay Mitra, the managing director of Indian Subcontinent, World Gold Council, said difference in price between the internationally-sourced gold and Indian domestic gold widens between 3-3.5% (per 10 grams) due to the additional taxation. "This could lead to additional smuggling especially during periods of high demand during festival season," he said.
    According to BBA, gold imports fell to 61.8 metric tonnes during the first half of 2009, down 56% from the corresponding period last year. Silver shipments into the country have also declined sharply to around 54 tonnes compared to the regular monthly imports of around 100-300 tonnes.
    Bullion analyst and director of commodity research firm Commtrendz, T Gnanasekar also feels that imports and physical demand will be negatively impacted. "There will not be any impact on the prices as they are governed by investment demand and several other factors," he said. The duty on gold and silver had not been reviewed since 2004 even though prices have increased manifold from Rs 5,000-6,000 per 10 gram to current levels.
    According to Vinod Hayagriv, chairman, All India Gems & Jewellery Trade Federation, the increased duty is acceptable as they had not been revised since many years despite an increase in gold prices. "There could be a marginal increase in prices but this can be easily absorbed looking at the inflation in gold," he said. On the impact of excise removal on branded jewellery, Mr Hayagriv feels there would not be any major impact as duty was applicable on jewellery which was being sold with the jewellers mark or their brand. To save duty most of jewellers were selling without the brand or their mark.
BULLION BLUES
Physical demand, which was already low on account of the rise in price above Rs 14,500 per 10 gm, will be constricted further, say traders
Local Bullion dealers are unhappy with both the measures. While the hike in duty on gold and silver bars will spurt the cost of manufacturing jewellery, removal of excise on branded jewellery will boost sales of imported jewellery at the cost of that locally made, they feel