Global Prospective: Banks anticipate sharp decline in commodity prices

A deceleration in prices of commodities globally would ease prices for those products in Nepal. That would help ease double-digit inflation ravaging the country because commodities make up a significant portion of Nepal's CPI basket.

China's credit curbs pose mounting risk to commodities
Telegraph, 1-Apr-2010
By Ambrose Evans-Pritchard

The big global banks are quietly preparing for a slide in commodity prices over coming months as China clamps down on excess lending and the US Federal Reserve takes away the liquidity pot.

"We believe overheating risks in China are escalating," said Michael Lewis, commodities chief at Deutsche Bank. "Heading into the second quarter, we believe China will become the main source of event risk for commodity markets, specifically industrial metals."

Mr Lewis said Beijing is likely to slash growth in spending on infrastructure from 120pc last year to just 7pc this year. Deutsche expects China's central bank to cut loan quotas by almost a quarter to 7.5 trillion yuan ($1.1 trillion) this year, raise rates, and tighten reserve rules to choke inflation, while local authorities take their own measures to curb the property boom. Lead, zinc, copper, and nickel are all highly leveraged to China's building cycle.

The Royal Bank of Scotland echoed the concerns, saying China has kept the prices of raw materials buoyant by sucking in the world's supply. "A hefty proportion of these imports have undoubtedly been stockpiled, some by private speculators. We do not believe that much unreported stock has yet been eroded," said the bank's commodity team, Nick Moore and Stephen Briggs.

"Our central theme remains to be wary of a general price lapse for the commodity complex over the next six months – not a major price collapse, more of a hiatus. Then sunlit uplands beckon," they said. RBS said a surge of pent-up supply from mines is "waiting in the wings to make its grand entrance" just at the wrong moment as the global recovery goes through a patch of turbulence.

The family of energy, metals, and farm goods has already lagged equity prices since the start of the year. The Reuters/Jefferies CRB commodities index peaked in January and is threatening to slip below its 50-day moving average, a key technical level.

This may offer a better gauge of underlying monetary forces in the world economy than stock markets. The M3 money supply has been contracting since mid-2009 in both the US and the eurozone. It has been slowing in other areas such as Saudi Arabia, where the M3 growth rate has fallen for five months.

The faltering commodity rally has been disguised by the strength of oil, itself sui generis because OPEC can defend the price by cutting output. Crude flirted with $85 a barrel on Thursday, but may struggle if OECD stocks remain above average levels for long.

Sugar has crashed 47pc since its speculative peak in February, punctured by the effects of record planting and the waning weather effects of El Niño – now giving way to La Niña's dry winds over Brazil. Natural gas prices are down by a third. A surge in shale gas supply in Pennsylvania and Colorado unlocked by new technology has combined with a flood of liquefied natural exports from Qatar and Malaysia. Supply has met demand with a vengeance.

Wheat, corn, zinc, soybeans, uranium, and cocoa, are all down this year. But while every commodity has its own story, the sector as whole moves in rhythm with the global liquidity cycle. It is eagerly watched for clues, like the Baltic Dry Index for bulk shipping. The BDI has fallen by a third since November. The 90pc rise in iron ore contracts extracted last week by Rio, BHP Billiton, and Vale for the next quarter may soon look inflated.

RBS is most bearish on gold, forecasting a 17pc drop to $925 an ounce later this year. The metal will lose its 'anti-dollar' appeal as the dollar grinds higher and the Fed tightens, but shoot to fresh records above $1,300 by 2013.

The bank sees parallels with the commodity rally of 1982, which faltered after nine months as the US economy tipped into a double-dip recession. Raw material prices then relapsed for another couple of years. "We expect the path ahead to be strewn with many risks associated with unwinding strategies, rising rates and taxes, and the debt burden," it said.

Of course, China was a marginal force at the time. It consumed 5pc of global metal supply, compared to 40pc today. Paul Volcker was Fed chairman, executing a ferocious monetary squeeze. Ben Bernanke is a different animal.

Deutsche Bank is looking back further, eyeing the choppy action on Wall Street in the mid-1930s when sharp swings in confidence led to deep corrections. The ups and downs of the US stock market over the last year have mimicked the action between March 1933 and February 1934. The curiosity is whether this pattern – perhaps coincidental – will continue to hold. Wall Street fell 22pc the late Spring and early summer of 1934.

Deutsche Bank lists plenty of risks, not least a Greek default that spreads contagion, a larger bond market crisis in big industrial states, and regulatory overkill on banks. But the greatest looming danger is a Sino-American showdown over the yuan.

"Political rigidities appear to be building both within China to resist change, and within China's trading partners -prominently the US – to try to force change. This is a toxic mix."

Prices of essential commodities up

Prices of essential commodities up
Republica, 6-Feb-10

The prices of major essential commodities have skyrocketed in the market in a month´s period. Consumers have faced a sharp rise in prices of staple food items such as pulses, sugar and edible oil over the period.

According to retailers, the price of sunflower oil soared to Rs 100 from Rs 90 per liter recorded a month ago. Likewise, mustard oil became dearer by Rs 15 over the period. Mustard oil is selling for Rs 105 per liter in the market.

Nirajan Neupane, owner of Kusheshwar Cold Store in Ghattekulo, said the prices of essential commodities have skyrocketed in the market as wholesalers are raising the prices every other day.

“The price of sugar has increased to Rs 90 from Rs 80 per kg. Likewise, iodized salt has become dearer by Rs 4 to Rs 15 per kg over the period,” Neupane added.

Prices of popular rice varieties such as Sona Mansuli, Jira Masino and Mansuli steam have also increased over the period by Rs 5 to Rs 15 per kg.

“Price of Mansuli rice has increased to Rs 45 per kg from Rs 30 recorded a month ago. Similarly, price of Jira Masino rice increased to Rs 56 from Rs 48 and Mansuli steam increased from Rs 35 to Rs 40 kg,” Neupane added.

The price of lentils, another popular food commodity, also saw a sharp rise over the period. Price of Rahar Dal increased to Rs 140 from Rs 130 while Musuro Dal became dearer by Rs 5 to Rs 105 per kg.

According to Nepal Retailers´ Association, price of Mung Dal too increased by Rs 10 to Rs 140 per kg over the period.

Ganga KC of New Khadya Store in Baneshwar said consumers were facing sharp rise in prices of essential commodities due to haphazard price rise by the wholesalers.

“Price of Mas Dal increased by Rs 25 to Rs 130 per kg over the period. There have been minor fluctuations in prices of all major commodities over the period,” he added.

Global Sugar Shortage May Turn ‘Acute’ in Third Quarter

Nepal is facing an acute sugar shortage as highlighed by 9 sugar-related news stories in the month of January alone (January 26, January 24, January 23, January 20, January 17, January 16, January 13, January 11 and January 7). It looks like the problem as a global dimension.

Global Sugar Shortage May Turn ‘Acute’ in Third Quarter
Bloomberg, 9-Feb-2010
By Thomas Kutty Abraham

A global sugar shortage, which drove prices to the highest level in three decades, may peak in the third quarter this year on demand from the U.S., Mexico, India and Pakistan, according to U.K.-based Tropix Capital Management.

“As we enter the second quarter, we enter the inter-crop period for South Brazil when export supply is minimal,” Sean Diffley, founder of the hedge fund and former head of sugar trading at ED&F Man Holdings Ltd., said by email. “Countries like Russia will return to the market in force. The acutest part of the deficit may not be apparent until the third quarter.”

India, China, Indonesia, Pakistan, Egypt and Russia are among countries planning to buy sugar to cool domestic prices, worsening a deficit that may reach 11.92 million tons in the year ending April 30, up from 8.32 million tons predicted in October, Kingsman SA said yesterday. The shortfall may be 5 million to 6 million tons this season, according to Tropix.

“The world stocks-to-use ratio should reach 20 year lows in the second half of this year,” said Diffley, who worked for 16 years at ED&F Man, one of the biggest sugar trader.

India, the biggest user, may need to import an extra 2.5 million to 3 million tons this season to meet a 7 million ton deficit, according to Kingsman. Pakistan, Asia’s third-biggest user, plans to purchase 1.25 million tons by June. The country “apparently bought 100,000 tons” from Cargill Inc. in the past few days, Michael McDougall, a Newedge USA senior vice president said yesterday in a report from an industry event in Dubai.

China Drought

China, the biggest consumer after India, may have a deficit of 3.3 million tons this year after drought and cold weather cut yields, the Guangxi Bulk Sugar Exchange Center said last month. Thailand, the second-biggest exporter, may produce 7.2 million tons in the year started in November, less than the forecast.

“There’s a real rationale to be invested in sugar, at least until March,” when the Brazilian harvest begins, Hussein Allidina, head of commodity research at Morgan Stanley, said in an interview in Dubai. Prices will extend gains as a deficit was expected to last through the season ending Sept. 30, he said.

Sugar output in Brazil, the top producer, may increase by as much as 4.4 million tons to 35.3 million tons in 2010-2011, as growers boost planting to take advantage of record prices, Plinio Nastari, president of research firm Datagro, said in an interview on Feb. 7 in Dubai. The global sugar market may have a surplus of 1.5 million tons next year, he said.

“The forward sugar curve already reflects the assumption that Brazilian production will rebound significantly,” Diffley said. “If we see another rainy harvesting period we may not see the surplus in 2010-11 that analysts are assuming is a given.”

‘Fundamental Backing’

Raw-sugar futures for March delivery gained as much as 2.6 percent to 27.28 cents a pound in after-hours electronic trading on ICE Futures U.S., and were at 27.27 cents at 2:44 p.m. Mumbai time. Prices fell 12 percent last week, the biggest weekly drop since October 2008.

“During the last great sugar bull-run, the market often paused for breath and consolidated for weeks before pushing sharply higher,” said Diffley. “We believe that sugar’s rally has a sound fundamental backing.”

Sugar had its biggest annual advance since 1974 last year as heavy rains and drought pared harvests in Brazil and India, the largest growers. Futures reached 30.4 cents on Feb. 1, the highest since January 1981.

“The last time around when prices rose above 30 cents, it stayed at that level for six months,” Jonathan Drake, head of sugar business at Cargill Inc. said in an interview. “Going by history, prices are going to stay high for at least six months. High prices will also be accompanied by greater volatility.”

Gold set to cross Rs 25,000 per tola

Gold set to cross Rs 25,000 per tola
ArthaExpress, 13-Jul-08

Taking a cue from the international market, gold in the domestic market today hit Rs 21,350 per 10 gram — Rs 24,900 per tola (11.664 gram).

“The price rise is not due to local demand but due to international price rise,” said president of Nepal Gold and Silver Dealers’ Association (NEGOSIDA) Tej Ratna Shakya, who was today again selected president unanimously for a second term.

The price of gold once again is on a bullish path. Earlier — on March 17 — gold had touched a historic high of Rs 25,000 per tola in the domestic market. “And the phenomenon may repeat itself,” he said adding that the rising international price has pushed the local price sky high despite low local demand.

In the international market, gold today hit $964.50 per ounce. The price of gold in the international market is rising even though the price of crude is also touching new highs by the day. Gold is inching towards $1000 per ounce in the international market and the domestic market too is warming up.

The continuous rise in crude price, weakening greenback and the fall in international share markets have led to the hike in the global gold price.

the domestic market, gold closed Rs 255 higher to Rs 21,090 per 10 gram on Friday from last week’s closing price of Rs 20,835.

Paddy prices jump on short supply

Paddy prices jump on short supply
eKantipur.com, 3-Jan-08

A ban slapped by India on the export of paddy to Nepal has cut down its supply in the local market and caused the prices of paddy and rice to shoot up.

Traders said the prices have already gone up by around 30 percent this season compared to a year earlier. India banned the export of food grains like rice and wheat to contain their prices. The price of Sona Mansuli rice, used mostly by people of the lower and medium classes, has reached Rs 1,450 per quintal, up from last year's Rs 1,100. Likewise, a quintal of basmati rice now costs Rs 2,400 where as it was available at Rs 1,800 a year ago.

The price rise came despite a robust 17 percent growth in paddy production in the country.

Fresh data from the Birgunj Customs shows that the country imported 26,448 metric tons of paddy and 3,276 metric tons of rice in the first quarter of the current fiscal year. No rice or paddy was recorded to have been imported since then.

“The prices will keep rising as stock keeps depleting,” Tara Prasad Gupta, a rice trader, told the Post. After carrying out a research on the possible impact of India's ban, Nepal Rastra Bank's Birgunj Regional Office has suggested that the government request India to roll back the ban. As internal production can only meet 65 percent of the total demand, Nepal has no option but to import paddy and rice to feed its people, the research said.

Gold prices touch all-time high - Rs 20,200 per tola

Gold prices touch all-time high
eKantipur.com, 3-Jan-08

Spurred by a hike in oil prices and the weak dollar, gold rose to a record high of Rs 17,320 per 10 grams (Rs 20,200 a tola) in the local bullion market Thursday. The price was Rs 17,105 per 10 grams on Wednesday.

Market analysts and traders said that as global investors had been buying gold as a hedge against accelerating inflation and the falling dollar, prices had moved up in the international market. The local price of the precious metal is based on international trends.

A weaker dollar makes gold cheaper for holders of other currencies, causing the demand for bullion to go up. The metal is also generally seen as a protection against oil-led inflation. “The main reason for the increase is that oil prices have broken through the 100-dollar mark. This and the weakening dollar have driven up gold prices,” said Tej Ratna Shakya, president of the Nepal Gold and Silver Dealers Association. He said these factors have fueled demand for the precious metal in the global bullion market.

World prices of the yellow metal increased to US$ 868 an ounce, smashing the 28-year-old record of US$ 850. This previous record was set in 1980 when investors rushed to buy gold because of a high inflation rate sparked by soaring oil prices amid the Iranian revolution.

Shakya said that with the dollar outlook remaining weak and further US interest rate cuts in store, gold could rise further.

The surge in the price of gold has driven away local buyers. “The demand for gold in the local bullion market has dropped by over 75 percent because of the increase in its price,” said Shakya. “Nepalis buy gold to make jewelry. The concept of purchasing gold as an investment has not developed here.”