SPICES

Turmeric futures (Mar) is expected to witness correction towards 6030-5960 levels. The outlook for turmeric remains weak as arrivals of the fresh crop have started in key spot markets of Nizamabad, and are likely to gain momentum in the coming weeks. This season, crop has been delayed by a fortnight as late rains led to poor weather conditions and drying the crop took more time than usual which hampered the arrivals and moisture has increased. Prices are also likely to decline due to expectations of a rise in production in 2019-20 (Jul-Jun) to 1.5-1.6 million bags, against over 1.2 million bags last year, according to industry estimates. Jeera futures (Mar) have witnessed the steepest correction this month & this downtrend is likely to continue till it tests 14000-13500 levels. The overall sentiment is weak owing to sharp increase in acreage in Gujarat and Rajasthan and favourable weather conditions across the growing regions may lead to rise in production. Jeera growers in Rajasthan and Gujarat are expecting about 25-30 percent higher yield over last year. Though official numbers are still not out, indications from traders and farmers point to a crop size of about 5 lakh tonnes as against about 4.1 lakh tonnes in the previous year. Dhaniya futures (Apr) will probably continue to consolidate in the range of 6210-7140 for the third consecutive week. This season the sowing has been good in Gujarat and Madhya Pradesh, which has boosted the new crop estimates. While the carry over stock is likely to be only half of last year as the crop fell over 20 percent to 567,000 tonnes in 2019.

BULLIONS

Bullion counter can extend its weakness as easing of US China trade war tensions and lack safe haven demand will continue to keep the prices under pressure. But any escalation in Middle East tensions can cap the downside to some extent. US Treasury Secretary stated that fresh deal signed with China, Mexico and Canada could boost the US economy and growth would outperform projections including those by the IMF. Gold may dip lower towards 39400 while taking resistance near 40600 whereas silver may decline towards 45200 while taking resistance near 47000. Precious metal prices were supported in the recent past after IMF mentioned that global growth appears to have bottomed out but there is no rebound in sight. For 2020 and 2021, the IMF trimmed back its global growth forecasts. Meanwhile investors assessed the risk of a global epidemic from a coronavirus outbreak from China that could have an impact on economic growth. According to a top International Monetary Fund “Global growth appears to have bottomed out but there is no rebound in sight and risks ranging from trade tensions to climate shocks make the outlook uncertain”. Philadelphia Federal Reserve Bank President Patrick Harker stated that a robust labour market was boosting consumer confidence and lifting the U.S. economy, despite headwinds such as a global slowdown and trade uncertainty. The Bank of Japan is set to keep monetary policy steady and signal its cautious optimism over the global outlook, reinforcing market expectations that the rising cost of prolonged easing will keep the hurdle for further stimulus high China’s gold consumption fell for the first time in three years in 2019, as high prices and an economic slowdown hit buying in the world’s biggest market for the metal.

OIL AND OILSEEDS

Soybean futures (Feb) is expected to witness selling in the range of 4215-4235 & may attempt to break the support near 4095 to test 4050-4000 levels taking negative cues from the international market. The sentiments of the oilseeds complex from soybean to soy oil on the Chicago Board of Trade are bearish as they are under pressure from expectations for a massive harvest in rival supplier Brazil. Meanwhile, lack of new demand from China loomed over the market. Beijing pledged to increase imports of U.S. farm products in an initial trade deal with Washington last week. Traders say there have been no confirmed sales. There is more downside yet to be seen in mustard futures (Feb) and may test 4175-4100 levels. The market participants are on the selling side on the likelihood of a bigger crop this year. Conducive weather conditions are seen weighing on mustard prices in wholesale markets. CPO futures (Feb) is expected to hold on to the support near 770, while the upside may get extended towards 810. Soy oil futures (Feb) may consolidate in the range of 860-900 levels. The downside may remain capped on anticipation of a cut in import duty on edible oil. It is reported that the consumer affairs ministry has proposed that the commerce ministry slash the import duty on edible oils to cool prices in domestic markets. According to the consumer affairs ministry, the import duty on crude palm oil should be reduced by 500 basis points and that on refined palm oils by 300 bps. It has also proposed a 10- percentage point cut in import duty on soft oils.

ENERGY COMPLEX

Crude oil prices may remain on weaker path as growing record U.S production eclipsed the supply disruptions in Libya. Meanwhile EIA released its Drilling Productivity Report, in which they forecast that US shale production would increase by 22Mbbls/d over February to 9.2MMbbls/d, with increases driven predominantly by the Permian, and to a lesser extent the Bakken region. The more recent pressure appears to be reflective of growing concerns over the Wuhan virus outbreak, and the potential hit may have on growth. President Donald Trump, in Davos described U.S. as being in energy revolution that has reawakened the powerful machinery of U.S. enterprise, encouraging U.S. shale producers to crank out even more oil than the current record high of 13 Mbpd in order to retain country’s energy independence. Crude oil may dip lower towards 4000 while facing resistance near 4300. Libya's National Oil recently declared force majeure on the loading of oil from two major oil fields after the latest development in a long-running military conflict saw forces loyal to commander Khalifa Haftar ordering the shutdown of facilities in the east and south of the country. Natural gas can remain on weaker bias and may test 120 by taking resistance near 150. U.S. natural gas futures dropped to a fresh three-year low below key level of $2 on forecasts for mild winter weather through early February, despite record liquefied natural gas (LNG) exports and signs of a production slowdown. The weather in the U.S. Lower 48 states so far this winter has been much milder than usual with average daily temperatures three degrees Fahrenheit higher than normal in December last year.

OTHER COMMODITIES

Cotton futures (Feb) is expected to trade sideways in the range of 19920- 20300 levels. The downside may remain capped as the arrivals coming to the spot markets are on the lower side. Total new crop arrivals so far this 2019-20 season have reached 1,48,56,000 bales, down 5.14 percent from 1,56,61,000 bales arrived during the same period last year. On the international market, traders and farmers are keeping a close eye on China's demand following the initial trade deal between the United States and China. Further on the subject of the New Year in China, the nation has not yet made any significant purchases of US agricultural commodities since the signing of the Phase One agreement, and it seems that they are now unlikely to do so before the first week in Feb. Chana futures (Mar) is likely to fall further towards 4000-3900 levels. Sentiments are constantly under pressure due to progress in Rabi Chana sowing and Government holding major stocks. Even steady arrivals of new domestic Chana are being witnessed in spot markets of Karnataka and Maharashtra that will continue to pressurize chana prices in short term. The buyers are also on the sidelines and demand in chana dal and besan from wholesaler, retailer counters has been reported slack. Mentha oil futures (Jan) may go down further to test 1200-1190 levels. At present, fresh arrivals are coming onto the spot markets from Madhya Pradesh. Moreover, the sowing for the new season is expected to commence from next month and the market participants are expecting that the acreage is likely to be higher this season.

BASE METALS

Base metal counter may remain on mixed path. Copper may recover towards 460 levels while taking support near 440 levels. Copper inventories in London Metal Exchange-registered warehouses jumped by a third overnight, providing a boost to supplies in LME depots after months of erosion. The global world refined copper market showed a deficit of 33,000 tonnes in October, down from 89,000 tonnes in September. Meanwhile, lead may remain sideways and may move in the range of 149-156 levels. Zinc may take support near 179 levels and can recover towards 190. Stocks of zinc in LME warehouses are close to 20-year lows at about 50,000 tonnes, having been on a downtrend since October 2015. Visible inventories including those on the LME, in warehouses monitored by the ShFE and those held by producers are estimated at about 1.1 million tonnes. Meanwhile worries about nearby availability of zinc on the LME market has pushed cash metal to a premium of nearly $20 a tonne over the 3 months, having been at a discount in December. Nickel prices can move with sideways bias as it may face resistance near 1060 while taking support near 1000 levels. The China Iron and Steel Association recently forecasted that Chinese steel demand of about 890 million tonnes for 2020, up 2% from 2019. Aluminium prices can recover towards 147 levels by taking support near 138 levels. China estimate of national output last year was 35.8 million tonnes, slightly higher than the official assessment of 35.0 million tonnes released by the National Bureau of Statistics.

TREND SHEET

TECHNICAL RECOMMENDATIONS

CRUDE MCX (FEB) contract closed at Rs. 4048.00 on 22nd Jan’2020. The contract made its high of Rs. 4663.00 on 06th Jan’2020 and a low of Rs. 3965.00 on 23rd Jan’2020. The 18-day Exponential Moving Average of the commodity is currently at Rs. 4195. On the daily chart, the commodity has Relative Strength Index (14-day) value of 31.889.

One can buy between Rs. 3870-3900 for a target of Rs. 4180 with the stop loss of Rs. 3810.

NICKEL MCX (FEB) contract closed at Rs. 995.50 on 22nd Jan’2020. The contract made its high of Rs. 1051.20 on 23rd Dec’19 and a low of Rs. 982.80 on 02nd Dec’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 1016.27. On the daily chart, the commodity has Relative Strength Index (14-day) value of 39.897.

One can sell near Rs. 1020 for a target of Rs. 960 with the stop loss of Rs. 1050.

REF SOYA NCDEX (FEB) contract was closed at Rs. 882.80 on 22nd Jan’2020. The contract made its high of Rs. 950.00 on 30th Dec’19 and a low of Rs. 803.10 on 26th Nov’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 899.30. On the daily chart, the commodity has Relative Strength Index (14-day) value of 42.947.

One can sell between Rs. 890-895 for a target of Rs. 860 with the stop loss of Rs 905.

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NEWS DIGEST

• The DGCX announced that it broke its annual volumes and AOI records last year, making 2019 its most successful year since launch. The Exchange traded 23.06 million contracts in 2019 , beating its previous record of 22.26 million contracts traded in 2018.

• Global aluminium production fell by 1.0% last year in its first annual contraction since the Global Financial Crisis in 2009.

• The global nickel market deficit tightened to 1,266 tonnes in November 2019 from a revised shortfall of 3,077 tonnes in the previous month, the International Nickel Study Group (INSG) stated.

• Ivory Coast produced a record 32.478 tonnes of gold in 2019, up 35% from 24.06 tonnes in 2018.

• U.S. homebuilding surged to a 13-year high in December as activity increased across the board.

• BP has pulled out of Iraq's giant Kirkuk oilfield after its $100 million exploration contract expired with no agreement on the field's expansion.

• China's refined copper output rose 11.6% year-on-year in December to a monthly record high of 930,000 tonnes. Output for the whole of 2019 rose 10.2% yearon-year to 9.78 million tonnes- the National Bureau of Statistics (NBS).

• The China Iron and Steel Association recently forecast Chinese steel demand of about 890 million tonnes for 2020, up 2% from 2019.

WEEKLY COMMENTARY

CRB travelled in a slim spread in the week gone by as investors were in fix amid mix triggers. The U.S. dollar was only marginally up despite concerns surrounding the coronavirus outbreak in Wuhan. The virus, which causes a type of pneumonia, has spread to multiple countries outside China, including the U.S. and Japan. The safe-haven metal gold gained earlier this week as some fear a potential virus outbreak could weaken tourist visits during the upcoming key Chinese holiday period. In later part of the week it traded in range. Oil prices dropped as the International Energy Agency's (IEA) forecast of a market surplus in the first half of this year was enough to cancel out concerns about military disruptions that have slashed Libya's crude output. About 95% of Libya’s oil supply could be at risk, yet crude traders are barely alarmed, underscoring the market’s bigger worries over the mammoth recent builds in U.S. fuel supplies. Base metals traded mix on their own fundamentals. Amid mild weather conditions, natural gas prices broke through a months-long consolidation to crumble to the lowest level since 2016. Copper, lead and nickel prices were down whereas zinc and aluminium prices flared up. Copper consumption outside of China fell 2% in the first 10 months last year. Demand in China offset a global decline and apparent usage worldwide edged 0.2% higher over the same period, ICSG said in a report. Even a larger than expected decline in inventories last week could not prevent the collapse.

In spices, turmeric prices were bearish on quality issue. The quality is inferior due to cold weather just before the harvest. Also, the demand is thin in ready markets and traders are also focusing on the higher moisture levels. Bearish sentiments persisted in whole oilseeds complex in domestic as well as in the international markets amid cautiousness around the uncertainty of soybean imports by China from U.S & back at home, the improving prospects of oilseeds production this Rabi season. It was only CPO which saw some short covering amid trade tussle with Malaysia. If India’s refined imports from Malaysia drops from about 2.6 million tons a year to reach to 2018 levels, about 2 million tons of Malaysian processed products worth $1.4 billion may need new buyers. Many Indian palm oil buyers have started shifting to Indonesia amid concerns that Modi’s government may restrict purchases from Malaysia or hike import taxes. Cotton counter was weak amid lower buying from mills as well as exporters amid a downtrend in the global market.

NCDEX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (NCDEX)

MCX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (MCX)

SPOT PRICES (% change)

WEEKLY STOCK POSITIONS IN LME (IN TONNES)

PRICES OF COMMODITIES IN LME/ COMEX/ NYMEX (in US $)

Middle-east crisis---- A smoldering peat-fire

After killing of Iranian IRGC leader Soleimani and the Iranian missile retaliation, oil prices, which had spiked on the risk of an all-out war between the US and Iran and the possible fallout of oil and gas production in the region, are now falling back to pre-Soleimani assassination levels as the U.S. President Donald Trump said to impose sanctions on Tehran instead of another military strike. The attacks did not destroy major energy infrastructure of Iraq that could have disrupted global crude supply but the situation remains volatile and the likelihood of possible strikes on tankers or oil facilities in the region remains. Even if no direct war is expected, the conflict is not over. The current status of the conflict is like a smoldering peat-fire. You can feel the heat but you don’t see the flames.

Despite no direct conflict between both sides, a proxy war via Hezbollah, Hamas or the proIranian Shi’a militias in Iraq, against the main oil and gas operations of Western and Arab national oil companies will continue to plague the region, and these conflicts could escalate further if Iran continues its current nuclear program. Tehran could escalate the proxy war by Hezbollah or Hamas.

However OPEC added that there is no risk of an oil shortage if hostilities do flare up. OPEC reiterated that they don’t see any risk that Iran will close the Strait of Hormuz. There’s so much oil in the market right now that a single disruption, or even a small series of disruptions in the Middle East, doesn’t impact the world supply. However, OPEC’s confidence that there is enough spare capacity in the market is a political statement to quell existing fears. The spare capacity of OPEC at present is almost totally in the hands of two main players, Saudi Arabia and the UAE, while the rest of the members are struggling to reach even their own set targets. In case of a military confrontation between Iran (or proxies) and the US, a real possibility exists that total OPEC spare capacity is taken out. Although U.S. shale production and Brazilian production has gone up, no other producer could substitute a possible loss of Saudi Arabia's production. Earlier, Abqaiq attack in September 2019 had disrupted a capacity of 5.7 million barrels per day of light crude.

India gets about 40% of oil from the Middle East and 20% from Iraq. India switched to Iraq when they lost Iran and Venezuela because of the U.S. sanctions. India may not face crude oil shortage if the tensions in the Middle East escalate even to a war, as many countries such as Saudi Arabia, or other Middle East countries can assure supplies to the country. However, increase in prices could affect India's fiscal deficit and consumer price index in the long run.

Although the risk of escalation in oil prices seems to be fading, but the current risks in the Middle East, The East-Mediterranean and Libya cannot be ignored. The above scenarios could all have a detrimental impact on oil and gas production and exports from the middle-east as Just the fear of disruption of Iraqi oil supply has caused a shock in the world’s oil markets.

INTERNATIONAL COMMODITY PRICES

Currency Table

News Flows of last week