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Monday, 8 December 2014

Copper Market Caught in Web of Global Economic Slowdown

Copper one of the earliest discovered metals is priced for its utility in almost all spheres. However, as the known resources are limited, the metals unique quality enables recycling thereby further increasing its utility. Recycled copper (also known as secondary copper) cannot be distinguished from primary copper (copper originating from ores), once reprocessed. Recycling copper extends the efficiency of use of the metal, resulting in saving of energy and contributes to ensuring that we have a sustainable source of the metal for future generations.

The global copper industry is presently under stress due to the increasing fears of a global economic slowdown and shrinking demand across sectors. As per recent demand and supply estimates, China has become the focus /center stage for all major triggers in the prices. Apart from China, there are three major regions that copper investors should focus on in terms of assessing copper demand: the BRIC countries, the U.S. and The Euro Zone. For the ease of understanding the complete picture, it is important to understand the supply, demand and global economic scenario.

Recent Development Supporting Increased & Sustained Supply of Copper
According to the International Copper Study Group (ICSG), the global mine production is expected to rise by three per cent in the current calendar year and a further by 6.7 per cent in 2015. This is owing to additional output due to capacity expansion of the existing mines and the new mining projects. Resolution of issues and subsequent resumption of export shipments from the existing mines are also expected to result in an increase in supply of copper. Indonesia had imposed an export tax on US-based miners, Newmont and Freeport McMoRan’s mining operations in Indonesia in January 2014. However the mines have resumed production in August 2014. Recently, Newmont Mining also exported 30 thousand tonnes of copper concentrate from Indonesia, ending a nine-month hiatus during the year. Apart from the above two copper majors, KGHM began production at its Sierra Gorda mine in Chile, with an aim to produce 120 thousand tonnes of copper a year from 2015. The company will further increase production to 220 thousand tonnes, after completing the second phase. These factors are expected to drive the supply of copper concentrates into surplus. Seeing the increased global supply of copper concentrates, production of refined copper is expected to rise by 10.1 per cent in 2014-15, after falling by six per cent in 2013-14. 

On the domestic front recovery in cathode production by Sesa Sterlite coupled with increased supply of copper concentrates, globally is likely to lead to an increase in production.

Changes in Demand Scenario
China accounts for 46 per cent of world consumption of refined copper which is gradually increasing. By 2017, its share should be up to 47 per cent because it controls the high level of manufacturing capability and capacity requirements. In Europe, disappointing economic growth has somewhat reversed in the second quarter. The United States is picking up steam with traction in industrial activity; however, because of the economic shift that occurred over the past decade, the real demand driver remains China. In case of India, the growth in imports is expected to moderate to 10 per cent in 2014-15. This will be on account of improved supply of copper in the domestic market. Exports are likely to grow by 15 per cent after falling by 2.7 per cent in the previous year. Sesa Sterlite exports 35-40 per cent of its total copper production and caters mainly to China and South East Asia. The company had produced lower cathodes in the previous year and is currently operating at its rated capacity. This will lead to an increase in the country’s overall exports, but since the global prices are being weighed down by increased supply. Thus pressure on copper prices globally is likely to put downward pressure on the cathode prices in the domestic market, and fall in cathode price in the export market cannot be ruled out for the year 2014-15. Apart from India & China, the US has seen demand recovery, but its small market share (9% of global demand) cannot offset market concerns arising over the recession in Europe (19% of global demand). Looking ahead, concerns over the recession and the deflationary pressure in Europe will continue to weigh on the global economic outlook even though the US economy is on track to recover with improving job data, housing starts and auto sales. The global demand (ex-China) will continue to be a drag on overall global copper demand and will not be strong enough to offset the slowdown in China’s demand.

Recent Developments Affecting Copper Prices
On the supply side, the Chile’s state-run miner produced 1.23 million tonnes of copper in January to September of the current year- a 4 per cent rise from a year ago. However, pre-tax profit fell 14 per cent to USD 2.3 billion which Codelco said was largely due to a slide in the price of copper, down around 14 per cent year to date. Codelco is battling falling ore grades at its decades old flagship mines and is seeking to implement an ambitious USD 27 billion multi-year investment plan to open new projects and revamp older ones. On the labour front, there haven’t been any major labour disruptions recently. All the global mines are producing copper in ample amount.

The most recent US crude fall of more than USD 20 to a five-year low in Asian trade with Brent futures touching a fresh four-year low, extending a steep sell-off after OPEC decided not to cut production last week leading to profound weakness in other commodity markets.
In China, the world’s largest consumer of energy, metals and grains, the manufacturing gauge fell to an eight-month low in November 2014. U.S. holiday spending slowed this past week, German manufacturing unexpectedly shrank last month, and Moody’s Investors Service cut Japan’s credit rating. Japan is the second major consumer of copper after China. Capital expenditures for copper producers tracked by Bloomberg Intelligence are set to decline 21 percent this year from 2013, and fall a further 10 percent in 2015. 

The Way Forward
Overall, market sentiment on the economic outlook for China and global GDP growth are both very important in determining prices. The strength or weakness of the U.S. dollar is also important. One major point of concern for the copper market is that, we expect a strengthening of the U.S. dollar in the next 18 months – not usually a positive for dollar-denominated commodity prices. The trends in global refined copper consumption are also progressing to an alarming state, which is likely to support the copper industry. Going by the demand forecast from the Chinese Housing & Development Sector, Industrial production is not likely keeping up with copper consumption and recent indications have pointed to estimates in Chinese consumption to be very conservative. It now appears that in the next 25 years, the world will need to produce as much copper as has been produced in the history of humanity. Thus, the long-term investment in copper industry is still a prudent decision.

Wednesday, 26 November 2014

Second - NBHC Kharif Crop Estimates for 2014-15

In continuation with our previous release on the Kharif Crop estimates, we review the Second Kharif Crop Estimate vis a vis acreage under sowing for the year 2014-15, based on the sowing data released by Ministry of Agriculture (MoA). Our first report was released on 24 July 2014. In our first report we had estimated a drop in the acreage for Maize (8.54 per cent) and soybean (12.50 per cent). As per the MoA’s report for final sowing of kharif crop for 2014-15, maize area has dropped by 12.88 per cent and soybean area has declined by 18.58 per cent over 2013-14. In the pulses sector, the decline in the final area was 1.19 per cent against our expectation of a marginal increase by 2.94 per cent. On the positive side, we had estimated a significant increase in the area for Jowar (18.55 per cent) and Bajra (11.06 per cent) which is almost in line with the MoA figures of 31.34 per cent and 16.09 per cent respectively. The acreage in other crops for the year 2014-15 are in line with their respective areas in 2013-14 with variation of 1 to 4 per cent on either side.
As per our estimates, the overall cereals production for the 2014-15 is expected to be in line with 2013-14 (123.56 million MT against 123.25 million MT). Against our earlier estimate we have raised our total food grain production marginally by 1.67 per cent to 129.59 million MT. Amongst the cereals, Maize is expected to decline by 12.88 per cent to 14.58 million MT and Ragi is expected to improve by 1.75 per cent to 1.85 million MT. A significant improvement has been estimated for Jowar and Bajra where the production is likely to be 3.86 million MT and 11.25 million MT (an increase of 31.34 per cent and 16.09 per cent respectively over our last estimate). In spite of the 2.22 per cent increase in the sowing area for Rice, we are estimating a marginal drop in the production by about 0.63 per cent owing to decline in the productivity in West Bengal, Uttar Pradesh and Chhattisgarh.     
In the pulses sector, despite of the late revival in monsoon, there was a drop in the acreage. Due to the erratic monsoon the most suffered crop was Urad followed by Tur (Pigeon pea) whose area declined by 10.81 per cent and 4.26 per cent respectively. As per our estimate, Tur production for the year 2014-15 is expected to decline by 15.42 per cent to 2.86 million MT over 2013-14 whereas the production of Urad is likely to improve marginally by 5.54 per cent to 1.15 million MT. Overall, the total Kharif pulses production is likely to improve marginally by 1.75 per cent over last year.
We stand by our earlier estimate of drop in the overall oil seed production (though the margin of decline is been reduced from 3.36 per cent to 0.81 per cent). Maximum decline of 21.98 per cent is expected in case of groundnut to 5.97 million MT from 7.66 million MT followed by 16.81 per cent in case of soybean to 9.94 million MT from 11.95 million MT a year ago.
In the current cropping season, we continue with our negative outlook in terms of area and production. In sugarcane, the production is likely to decline marginally by 3.5 per cent and in cotton, the production is likely to decline by 9.04 per cent over last year.

Friday, 5 September 2014

Indian Agriculture Rescued by Late revival of Monsoon

Recent Weather Development

The southwest monsoon has been vigorous over Lakshadweep on 22nd; over Arunachal Pradesh & Kerala on 23rd; over Rayalaseema on 25th, over Sub-Himalayan West Bengal & Sikkim on 26th and over North Interior Karnataka on 22nd & 26th. 

A well-marked low pressure area lies over west-central & adjoining northwest Bay of Bengal off north Andhra Pradesh- south Odisha coasts. It is likely to move inland across north Andhra Pradesh and Maharashtra towards Gujarat. The monsoon trough at mean sea level passes through Jaisalmer, Kota, Narsingpur, Jagdalpur, centre of well-marked low pressure area and thence east-southeastwards to east-central Bay of Bengal. A western disturbance as an upper air cyclonic circulation lies over north Pakistan & adjoining Jammu & Kashmir extending upto mid tropospheric level.

The axis of monsoon trough continued to run close to foothills of Himalayas on 21st. It shifted slightly southwards and passed through Ferozepur, Ambala, Meerut, Fursatganj, Bhagalpur, Balurghat and thence eastwards to Nagaland on 22nd; it again ran close to the foothills of the Himalayas on 23rd & 24th. On 25th, it shifted southwards and passed through Ferozepur, Ambala, Bareilly, Bahraich, Ballia, Purnea and thence eastwards to Manipur across Bangladesh. On 26th, its western end ran close to foothills of Himalayas and eastern end passed through Behraich, Ballia, Gaya, Bankura, Digha and thence southeastwards to north Bay of Bengal. On 27th, its western end continued to run close to foothills of Himalayas and eastern end passed through Gonda, Mirzapur, Daltonganj, Bhubaneswar and thence centre of low pressure area over west-central & adjoining northwest Bay of Bengal off north Andhra Pradesh- south Odisha coasts.

Last week’s upper air cyclonic circulation over South Interior Karnataka & neighbourhood laid over Marathawada & neighbourhood extended between 0.9 & 3.1 km above mean sea level on 21st, persisted over the same region and extended upto 1.5 km above mean sea level on 22nd and became less marked thereafter. 

Last week’s east­ west shear zone along Latitude 10.0°N across south peninsula persisted between 2.1 & 4.5 km above mean sea level with an embedded upper air cyclonic circulation over Lakshadweep-Comorin area on 21st. It became less marked on 22nd. 

Last week’s upper air cyclonic circulation over Sub­Himalayan West Bengal & Sikkim in lower levels became less marked on 21st. Last week’s trough from East Madhya Pradesh to Kerala across interior Karnataka extending upto 0.9 km above mean sea level became less marked on 21st. A trough in the middle & Upper tropospheric westerlies ran roughly along Long. 62.0°E to the north of Lat. 35.0 on 21st, and was seen as an upper air cyclonic circulation over Afghanistan & neighbourhood extending upto mid tropospheric levels on 22nd; over north Pakistan and adjoining Jammu & Kashmir on 23rd & 24th, over eastern parts of Jammu & Kashmir on 25th and moved away east-northeastwards thereafter. 

Monsoon trough was mainly close to foothills of Himalayas; however its eastern end oscillated southwards towards the end of the week. South Peninsula and East & northeast India received above normal rainfall during the week. All the sub-divisions of South Peninsula received normal to excess rainfall during the week. Out of 36 meteorological subdivisions, the rainfall has been excess over 10, normal over 05, deficient over 09, scanty and no rainfall over 1 sub-division (Haryana, Chandigarh & Delhi). In area-wise distribution, 32% area of the country received excess/normal rainfall, 25% received deficient rainfall, 42% area received scanty and 1% area where no rainfall has occurred. Meteorological sub-division-wise rainfall for the week is given in adjascent table.

For the country as a whole, cumulative rainfall during this year’s monsoon has so far upto 27 August been 18% below the LPA. Cumulative Meteorological sub-division-wise seasonal rainfall is given in the adjacent table. 

Data released by the Union Ministry of Agriculture on 29th August 2014 shows that sowing of Kharif crops had shown a steady increase during the week ended August 29 to touch 966.25 lakh hectares (ha) as compared to 998.01 ha at this time of the season last year. Quoting reports received from the states, an official statement said here that rice had so far been sown in 350.02 lakh ha (as compared to 349.76 lakh ha at this time last year, pulses in 95.40 lakh ha (100.64 lakh ha), coarse cereals in 170.83 lakh ha(190.64 lakh ha), oilseeds in 172.21 lakh ha (186.70 lakh ha), sugarcane in 47.17 lakh ha (50.32 lakh ha), cotton in 122.51 lakh ha (111.65 lakh ha) and jute & mesta in 8.11 lakh ha (8.31 lakh ha).

Tuesday, 12 August 2014

Continuous Monsoon Boosts Kharif Crop Prospects in India

Recent Weather Development
Last week’s feeble offshore trough from south Gujarat coast to Karnataka coast persisted over same area on 31st July; it ran from south Gujarat coast to Kerala coast on 1st August; persisted over same area on 2nd, 3rd & 4th from Gujarat coast to Lakshadweep on 5th; from Karnataka coast to Lakshadweep on 6th August.

Last week had well marked low-pressure area over northwest Bay of Bengal & neighbourhood moved west-northwestwards and laid as a low-pressure area over interior Odisha & neighbourhood on 31st July, it further moved west-northwestwards and became less marked over north Chhattisgarh & neighbourhood on 1st August. However, the associated upper air cyclonic circulation laid over East Madhya Pradesh & neighbourhood and extended upto 5.8 km above mean sea level on 1st August. It laid over northeast Madhya Pradesh & adjoining southeast Uttar Pradesh extending upto 1.5 km above mean sea level on 2nd August. The upper air cyclonic circulation merged with monsoon trough, while over northeast Madhya Pradesh and neighbourhood on 3rd August.
An upper air cyclonic circulation laid over Saurashtra & Kutch extending upto 0.9 km above mean sea level on 1st August and over Kutch and adjoining south Pakistan on 2nd August. It laid over the same area between 0.9 km and 2.1 km above mean sea level on 3rd August; between 1.5 km and 3.1 km above mean sea level on 4th August and moved away westwards on 5th August.
Another upper air cyclonic circulation laid over northwest Bay of Bengal between 5.8 to 9.5 km. above mean sea level on 1st August and over north Bay of Bengal & neighbourhood extending between 2.1 and 7.6 km above mean sea level on 2nd August. Under its influence, a low-pressure area formed over North Bay of Bengal & neighbourhood on 3rd August. It concentrated into a well-marked low-pressure area over the same region and again concentrated into a Depression, which laid centered over Gangetic West Bengal close to Midnapur on 4th Thereafter, it moved westwards and intensified into a Deep Depression, laid centered over Jharkhand & adjoining Gangetic West Bengal, about 50 km south of Jamshedpur on the same day. While moving westwards, it laid centered over north Chhattisgarh and adjoining Jharkhand & northwest Odisha, about 100 km. east-southeast of Ambikapur on 5th August morning. Thereafter, it moved west-northwestwards and weakened into a depression over north Chhattisgarh & adjoining East Madhya Pradesh, about 150 km east of Umaria on 5th August evening and laid over northeast Madhya Pradesh & neighbourhood close to south of Sidhi the same night. The depression further moved west-northwestwards and laid centred over central parts of north Madhya Pradesh & neighbourhood, about 50 km southeast of Khajuraho on 6th August.  

South Peninsula and Central India has received excess rainfall. Out of 36 meteorological subdivisions, the rainfall has been excess over 11, normal over 06, deficient over 14 and scanty over 05 sub-divisions. In area-wise distribution, 55% area of the country received excess/normal rainfall, 29% received deficient rainfall and remaining 16% area received scanty rainfall.  

For the country as a whole, cumulative rainfall during this year’s monsoon has so far upto 06 August been 18% below the Long Period Average (LPA) as against 23% till last week upto 30 July. Out of 36 meteorological subdivisions, the rainfall has been excess/normal over 20 and deficient over 16 sub-divisions. There is no Meteorological sub division in scanty category. In area-wise distribution, 58% area of the country received excess/normal rainfall and remaining 42% area received deficient rainfall.


No. of
% area of country
No Report
A well-marked low pressure area lies over northwest Madhya Pradesh and neighbourhood. The system would move in west-northwesterly direction and weaken further into a low-pressure area by tomorrow. The associated upper air cyclonic circulation extends upto mid-tropospheric levels.
The quantum of rainfall for the season given in the adjacent table (10.08.2014) reveals that 50 per cent of the metrological divisions are still experiencing deficient rainfall.

      Kharif sowing area has crossed 80.3 million hectares, but is still 9% lower than the 88.2 million hectares sown by this time last year, according to data released by the agriculture ministry on 8th August 2014. Crop wise, rice has been sown in 26.7 million hectare, coarse cereals in 1.4 million hectare, pulses in 760,000 hectare and oilseeds in 1.52 million hectare. While rice sowing area is nearing last year’s acreage (27.3 million hectare), sowing of coarse cereals has dipped by over 20%. The planting of sugarcane and cotton is also in progress. Sugarcane has been planted in 47.17 lakh Ha and cotton in 112.24 lakh Ha so far. The government, meanwhile, has announced a diesel subsidy of 50 per cent to enable farmers to re-plant their damaged crops.

Expectation on Sowing Progress: The current revival of monsoon is speeding up the sowing in the season and is likely to move towards near normal conditions in the next couple of weeks.

Friday, 1 August 2014

Indian Monsoon Taking a Positive Turn

Recent Weather Development

- The biggest threat to this year's monsoon seems to have receded. El Nino conditions that were building up in the Pacific have eased in the past month, prompting the Australian weather bureau to withdraw its El Nino 'alert'.

- Rains in the northwest India grain bowl as well as in soybean belts of western-central parts are expected speed up summer planting activities.

- Weather officials have said that the momentum picked up by Southwest Monsoon in July is likely to continue in August with normal rainfall expected next month. While July is likely to receive rainfall of 93 per cent of the Long Range Forecast (LPA), rainfall of 96 per cent of the LPA is expected in August.

- While most international weather agencies see the El Nino threat receding, the US's Climate Prediction Center still maintains a 70 per cent chance of the event occurring during the monsoon season. Nevertheless, the consensus view seems to favour the occurrence of a mild El Nino later this year. 

- The monsoon's revival has increased sowing of crops by 54 per cent in the past week to 53.32 million hectare, but planting is still much lower than last year.

- According to agriculture ministry data, sowing is been done on 53.32 million hectare, against 72.91 million hectare in the corresponding period of the previous year. Total normal area under kharif planting is 105.75 million hectare. 

- The crop wise analysis planting of paddy was relatively slow in UP, Odisha, Maharashtra, Chhattisgarh, MP, Andhra, Assam, Haryana and West Bengal. The table below would give the details of the progress of sowing made up to 18th July 2014.

State wise Development in Rainfall Activity

For the country as a whole, cumulative rainfall during this year’s monsoon has so far upto 29 July has been down by 24 per cent. The details are given in the table above.

Major Forecast for the Coming Week
·         Southwest Monsoon is likely to continue in active phase especially over many parts of east & central India.
·         Rainfall is likely to increase considerably over plains of northwest India & adjoining foothills of Himalayas. 
·         Near normal rainfall would occur over along west coast and below normal over some parts of northeastern states and south interior Peninsula.
The southwest monsoon would continue to progress with vigour over East Rajasthan and be active over West Uttar Pradesh, West Madhya Pradesh, Gujarat Region, Konkan & Goa, Madhya Maharashtra, Coastal Andhra Pradesh and Telangana.

I feel that the Indian Kharif sowing is likely to pick up in the coming day and would reach to a near normal situation in couple of week's time. 

Friday, 25 July 2014

NBHC Kharif Crop Estimates for 2014-15 (First)

With the kahrif season already in progress with about 2-3 weeks delay sowing, NBHC is releasing its first Kharif crop estimate for the year 2014-15. As per our study and market feedback on sowing crop progress, the total Kharif cereals’ production is expected to decline marginally by 1.69 per cent over last year to 121.17 million tonnes. The marginal drop in the production estimate is on account of the recent delay in the monsoon and expectation of lower yield in major producing areas of Bengal, Uttar Pradesh, Chhattisgarh and Bihar. Rice is expected to show a marginal increase in area by 1.18 per cent but a dip of 2.79 per cent in production over last year owing to expected decline in yield. In Maize, which is the other major cereal crop, the area is expected to decline by 8.54 per cent and the production is expected to decline by 4.45 per cent to 7.53 million hectare and 16.73 million tonnes respectively. As the lack of rains and dry weather has been prolonged in major cereal producing areas, farmers are likely to shift to minor cereals as ragi, jowar and bajra (as reported industry sources). Maximum improvement is expected in Jowar whose area and production are expected to expand by 18.55 per cent 31.87 per cent to 2.57 million hectares and 2.94 million tonnes respectively. 

In the pulses sector, the revival of monsoon rains in the pulses growing regions has helped in revival of the urad and other kharif pulses, though the overall yield of Tur is likely to be affected marginally. We expect the area under Tur to improve marginally by 1.75 per cent over last year but the production is likely to decline by 11.66 per cent. Overall, the total Kharif pulses production is likely to improve marginally 2.98 per cent over last year. 

The oil seed sector is likely to see a decline of production by 3.36 per cent. Maximum decline of 27.05 per cent in production is expected in case of groundnut. 

In this current monsoon season, the cash crop section is likely to show a negative growth in terms of production. In sugarcane, the production is likely to decline marginally by 0.01 per cent and in cotton, the production is likely to decline by 4.81 per cent.

Friday, 13 June 2014

Weak Indian Monsoon: Concern for Indian Commodities Warehousing

El Niño is a 'warm' ocean current originating along the coast of Peru that replaces the usual 'cold' Peru or Humboldt Current. This warm surface water reaching towards the coast of Peru with El Niño are pushed westwards by the trade winds thereby raising the temperature of the Southern Pacific Ocean. A reverse condition is known as La Niña. Southern Oscillation, a phenomenon first observed by Sir Gilbert Thomas Walker Director-General of Observatories in India, refers to the seesaw relationship of atmospheric pressures between Tahiti and Darwin, Australia.

El Nino has been in news for long time because IMD, RBI and Economists warning about its negative impact on Indian agriculture and Indian Economy.

Basic understanding on El Nino / La Nina

During normal year two things are “STRONG”
· Cold Peru Current
· Trade Winds

As a result, cold water is dragged from Peru towards Australia as shown in the following image. Owing to the above current & trade winds two cycles are created as given in the table below the image. In above image, the red (warm) water region around Australia is called Western Pacific Pool (WPP). In the years of La Nina the above two currents become more pronounced and it results in more rains and even floods in Australia and South East Asian Countries and also results over supply of fishes in Peru region.

During the El Nino the above currents (Cold Peru Current & Trade Winds) become weak. As result, cold water is not dragged from Peru to Australia. But reverse happens – warm water is dragged from Australia towards Peru. Consequently, warm water + low pressure condition develops in the Eastern Pacific (Peru) and Cold condition + high pressure in Western Pacific (Australia).
Since Pressure is inversely related with amount of rainfall, the results are following:
· Warming of Pacific Ocean near Western coast of Peru and Ecuador. It Occurs @every 3-4 years; [In theory, it should occur @every 12 years]
· Its impact usually lasts for 9-12-18-24 months.
· It weakens the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern across the world.
Effect of the development in the Pacific Ocean results in the weakening of the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern.

Impact of Southern Oscillation
El Nino-Southern Oscillation (ENSO) water circulation happens between Australia and Peru But the wind movement is part of larger atmospheric circulation hence affects the rainfall over India. El Niño years directly impact India’s agrarian economy as their effect tends to lower the production of summer crops such as rice, sugarcane and oilseeds. This in return causes inflation to surge and lowers the Gross Domestic Product (GDP). India is the second largest producer of rice and wheat in the world.

How does it affect India and World?

To India
· Drought condition decreases the agriculture output, leads to food inflation.
· Declined supply of cotton, oilseeds and sugarcane negatively affects the textile, edible oil and food processing industries respectively.

To World
· Drought situation over South East Asia and Australia hurts rice and wheat cultivation respectively.
· Warm condition over Peru coast: unsuitable for Plankton population, thus bad for fishing industry. Birds migrate in search of fishes, thus less guano dropping for Fertilizer industry in Peru and Ecuador.
· Flood situation in South America & US Midwest lead to decline in coffee-cocoa and corn-wheat production respectively.

El Nino Phenomenon in India
According to Historical data of 126 years (1880-2005), about 90% of all evolving El Niño years have led to below normal rainfall and 65% of evolving El Niño years have brought droughts. However, one thing is clear that El Niño years do affect the weather in India in terms of Monsoon rain. During this time, the rainfall is generally below normal, which has its bearing on crop production. Here is a list of droughts taken place in India in last two centuries. Some of these have been an outcome of the El Niño phenomenon.

Drought Years
Number of Drought
1801, 1804, 1806, 1812, 1819, 1825
1832, 1833, 1837, 1853, 1860
1862, 1866, 1868, 1873, 1877, 1883
1891, 1897, 1899, 1901, 1904, 1905, 1907, 1911, 1918, 1920
1939, 1941
1951, 1965, 1966, 1968, 1971, 1972, 1974, 1979
1982, 1986, 1987, 2002, 2004, 2009

Developments in Pacific Ocean

Over the past several months, the Pacific Ocean has transitioned rather dramatically toward an El Niño state. An powerful oceanic Kelvin wave—the strongest since a similar event in 1997 which preceded the very strong 1997-1998 El Niño event—made its way eastward across the Pacific Ocean during March and April and has now surfaced in the far East Pacific west of Peru and Ecuador.

Sea surface temperature anomalies have increased rapidly in this region over the past two weeks, with warm anomalies now extending across the entire equatorial Pacific.
The current spatial pattern, temporal evolution, and magnitude of sea surface temperature anomalies greatly resemble that which occurred in 1997. The overall volume of warm water associated with the current event in the Pacific actually exceeds that during the 1997-1998 events by a considerable margin.

The atmosphere has apparently started to respond to the recent surface ocean warming, with easterly trade winds continuing to weaken across most of the Pacific basin. There is evidence that a new Kelvin wave may be forming in the West Pacific, which (if true) would make further warming in the East Pacific essentially inevitable by mid-summer.

Numerical ocean-atmosphere models used to make predictions regarding the state of El Niño months in advance—are nearly unanimous in projecting the development of full-fledged El Niño conditions by late summer or early fall 2014. Chance of El Niño has increase over 65% by summer end.

During May-September 2013, well below-average SSTs were observed over the eastern half of the Pacific. From January - February 2014, SSTs were mostly below average across the eastern equatorial Pacific. Recently April – May 2014, SST anomalies have increased and are above average across the Pacific Ocean.

The tropical Pacific is now expected to warm throughout 2014, according to scientists from NOAA’s Climate Prediction Center and Columbia University’s International Research Institute for Climate and Society. That could produce a massive source of energy that would be strong enough to drive up global temperatures.

During April through mid-May the observed ENSO conditions moved from warm-neutral to the borderline of a weak El Niño condition. Most of the ENSO prediction models indicate a continued warming trend, with a transition to sustained El Niño conditions by the early northern summer.

Major Climatic Predictions for 2014-15 for World
  • Asia and Australia will see less rainfall as a result of El Niño, leading to drought and wildfires.
  • The western US faces storms and floods from an approaching El Niño
  • The sea level along California's coast may rise 30 centimeters, and then be pushed even higher by storm surges. Extra water may sound good, because California has been hit by a severe drought. But the raised seas may combine with heavy El Niño rains to cause devastating floods, as happened to the San Francisco area in 1997-98.
  • When El Niño arrives, Central and South America face a mix of storms, floods and droughts.
  • Major Climatic Predictions for 2014-15 for India
  • The onset of monsoon is likely to be delayed by a week (expected date 4th – 6th June)
  • Poor monsoon / drought like condition = commodities prices will rise especially sugar, pulses and edible oil. Government needs to stock them up, put restriction on exports, before black marketers start hoarding.
  • India is expected to see below-normal monsoon this year with Met department forecasting 95 per cent rainfall. India Meteorological Department (IMD) officials said the monsoon is expected to be below normal because of the El-Nino effect, which is generally associated with the warming of ocean water.
  • Farmers need to device alternate farming strategy, change the seeds and irrigation strategy for the drought like situation.
Impact of Poor Monsoon on Commodities Market
The poor monsoon mainly impacts the farm sector, which accounts for only 12 per cent of India’s GDP today as against 55-60 per cent during the time of the early 20th century British Viceroy. Yet agriculture and the monsoon still matter, particularly for what they do to price levels and how they influence inflation expectations in the economy. The prices of major farm commodities (cereals, pulses and oilseeds) are expected to increase sharply and there is a good opportunity to WSP (warehouse service providers) to enhance their rates as the commodities could be lower in supply.

Monday, 26 May 2014

Copper Investment Dynamics – Best Yet to Come

Copper is one of the most widely-used industrial metals, its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and telecommunication equipment. Our modern lives require an enormous amount of copper. The major applications of copper are in electrical wires (60 per cent), roofing and plumbing (20 per cent) and industrial machinery (15 per cent). Copper compounds in liquid form are used as a wood preservative, particularly in treating original portion of structures during restoration of damage due to dry rot. Textile fibers use copper to create antimicrobial protective fabrics Electroplating commonly uses copper as a base for other metals such as nickel Copper is used as the printing plate in etching, engraving and other forms of intaglio (printmaking) printmaking Copper oxide and carbonate is used in glass-making and in ceramic glazes to impart green and brown colors. Copper is the principal alloying metal in some sterling silver and gold alloys Copper is used as a constituent of brass, bronze, gilding metal and many other base metal alloys.

Supply Strength of Copper Market

South America will remain the region with the largest copper mine installed capacity and is expected to bring to the market until 2016 an additional 2.3 Mt capacity (31 per cent of the world total growth). Asian and African copper mining capacity has also increasing substantially. All together, these three regions represent 78 per cent of the world additional copper mine production capacity to come on stream by 2016. Until 2016, world copper refinery capacity expected to grow by 4.6 Mt (18 per cent) to 30 Mt. 3.6 Mt of the expansion expected to come from electrolytic refineries and almost 1 Mt from electrowinning capacity. Supremacy of Asia is likely to continue over the other regions in refining capacity with small improvements in Africa and North America. As per the Projected World Copper Refined Capacity Increase by Country, China is likely to be the biggest contributor to the growth with a strong increase of around 2.1 Mt representing 47 per cent of the world growth for the period 2012-16.

Price Drivers for the Market

London Metal Exchange's global network holds the least copper available for delivery since 2008. In May 2008, copper peaked at a price of over $4.21 per pound. Copper is an excellent bell weather commodity when it comes to global economic growth and particularly Chinese growth potential. China's economy is expected to grow at 7.5 per cent this year as economic expansion in the US speeds up to 2.6 per cent. The euro zone is returning to growth after two years of contraction.

Premiums over LME benchmark prices for physical copper were the highest in more than seven years in Europe in November and tripled in the past year in China. Therefore, only a considerable slowdown in China would tarnish the outlook for the price of copper at this point, in my opinion. Copper has been trading in a range of $3.00 to $3.40 since last April. The technical picture for copper is fairly neutral at the moment; therefore, it is the fundamentals of the copper market that will push it through support or resistance.

One other event that can get the industrial metals and copper really moving higher is a new policy in Indonesia that takes effect this month. Indonesia is banning the export of many mineral ores. This has already caused the price of nickel to vault higher in recent trading sessions. Indonesia produces 18-20 per cent of the world's supply of mined nickel ore, and is a significant copper producer. The Grasberg mining complex in Indonesia, the world's largest copper and gold mine in terms of recoverable reserves, is owned and operated by Freeport McMoRan (FCX). It is not 100 per cent clear whether the Indonesian ban will affect copper concentrate deliveries from Grasberg given the political wrangling going on in Jakarta right now. Fundamentals are strongly pointing to put copper on the radar following the supply crunch in the Southeast Asian region.

In January 2014, world usage is estimated to have increased by around 11 per cent compared with that in January 2013. Chinese apparent demand increased by 28 per cent based on a 70 per cent increase in net imports of refined copper from the low net import level in January 2013 and subsequent lower apparent usage. Excluding China, world usage declined by around 1 per cent. On a regional basis, usage is estimated to have declined by 1 per cent in the Americas and Europe, respectively and to have increased by 15 per cent in Africa and 19 per cent in Asia (by only 1 per cent when excluding China).

Constraints for Industry

Amidst the projections of skyrocketing demand for copper, the concerns over long term supply is also supporting the bullish trend. Discoveries of higher grade deposits are becoming less frequent More underground mines are producing copper at a smaller output capacity than open pits, Greater country risks and Infrastructure Challenges (remote locations) Declining average grades Inadequate exploration funding.

Recent developments supporting the bulls

The State Grid Corporation of China (SGCC), which provides power to 80 per cent of the world’s second-largest economy aims to boost by 13 per cent its annual investment to more than $60 billion. Copper demand in China has at least 80 per cent growth left to reach developed world averages and can single handedly support double-digit growth for many years. Beijing has also renewed the 'home appliance subsidy scheme' and is promoting electric cars, which are twice as copper-intensive as conventional vehicles. China has set a goal of 65 per cent urbanization rate by 2050. Over the coming 40 years that means 20 per cent of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period.

According to the International Energy Agency, India's power production needs to rise by 15-20 per cent annually and to meet that, India needs to invest $1.25 trillion by 2030 into energy infrastructure. From this new infrastructure, India's annual copper demand is expected to more than double. Usage in the rest of the world is expected to increase by around 1 per cent. With better prospects for the world economy in 2014, world usage is expected to grow by around 4.5 per cent in 2014 with world ex-China expected to grow by 2.5 per cent. The IMF has raised its forecast for global growth to 3.6 per cent in 2014 compared to 2.9 per cent growth in 2013.

Wednesday, 7 May 2014

Logistics of Imported Pulses in India


India produces a quarter of the world’s pulses, accounting for one third of the total acreage under pulses. Indians consume 30 per cent of the world’s pulses, but domestic production of pulses has not kept pace with population growth. The per capita demand for pulses is declining in India. Yet they remain an important source of protein. Pulses neither receive sufficient official procurement support that wheat and paddy get, nor do farmers view them as commercial crops on par with cotton or soybean. It has resulted in their cultivation, over the years, being pushed to marginal lands prone to moisture stress. Breaking this impasse requires a conscious strategy to promote pulses production, including in irrigated areas. It raises larger questions on why the country isn’t able to increase pulses production. On the supply side, pulses’ production had hovered around 12 million tonnes during the last three decades. Stagnation in production has led to rise in the prices of pulses that further affected their consumption adversely. Traditionally in India, with relatively more focus accorded to food grains, especially rice and wheat, the pulses were relegated to marginal environments. Consequently, over the years despite many focused programs, there were only slight changes in the production of pulses. However, recent initiatives through National Food Security Mission and higher minimum support prices led to leapfrog in production to 18 million tonnes. However, weak technology delivery mechanisms, and continuing low profitability of the sector have failed the arrest the shifting of pulses areas to more remunerative crops. Over all dynamics of the pulses industry suggest that we still continue to be the net importer of pulses requiring about 2.5 to 4.0 million tonnes on an annual basis for the last five years.

 Export and Import Direction
Currently over 182 countries around the globe trade in this sector and the Indian Subcontinent alone accounts for over 30 per cent of the same. While this should let India dominate the market, it has been unable to do so because the high supply deficit in India is known and the steady increase in imports has made negotiations quite redundant. Imports of pulses in India have been increasing and currently account for about 20 per cent of total domestic availability. India normally caters to the need of Asian and African nation’s requirement of pulses.

The major exporting destinations from India for pulses are given in the adjacent table. Pakistan still is the most preferred location in terms of the Indian pulses export with overall share of 29.13 per cent, followed by Algeria, Turkey, Sri Lanka and UAE. The major pulses exported from the India are Peas (Pisum Sativum), Chickpeas (Garbanzos), Moong/Urad, Lentils (Masoor) and Pigeon Peas (Tur). The analysis of commodity wise exports showed that Chickpeas constitutes of over 80 per cent of the total exportable pulses from India. Other pulses with sizable export volume are pigeon peas, moong and urad.

 The country meets its domestic needs primarily through imports from USA, Australia, Myanmar, Turkey Tanzania and Canada. India accounts for 30 - ­40 per cent of total world import of pulses. India has about 12­15 major pulse importers, with the largest concentration located in Mumbai, followed by Kolkata and Delhi. These players reportedly account for 60­70 percent of total pulse imports. Apart from the private players PSU’s like MMTC, PEC, STC and NAFED are also importing actively as per need. Importers rely primarily on personal networks and contacts with brokers in countries for market information, obtaining price quotes, and making purchases. Many traders remain with a given exporter even if they are able to obtain good market information owing to assurance of a guaranteed supply. Moreover, due to the limited incomes and price sensitivity of most Indian consumers, a large percentage (about 80 percent) of imported pulses is rated as FAQ. While quality is a consideration, importers are only willing to pay small premiums for better quality. Traders look for the lowest prices at acceptable qualities. The most important quality attributes are cleanliness, uniform size, color, and shape (important for milling).

The major commodity imported in India is the peas (green & Yellow) (35.70 per cent), followed by Chickpea (18.17 per cent), Moong & Urad (Black Matpe) (16.74 per cent), Lentil (13.19 per cent) and Pigeon peas (13.19 per cent). Major countries from where India is importing pulses are Canada, Myanmar, Australia, Russian Federation, USA, France, Tanzania, China, Mozambique and Malawi.
 In the world, major markets from where India is importing the pulses are: 

• Small Chickpea: Burma, Tanzania, Australia, China, UAE 
• Pigeon pea: Burma, China and Tanzania 
• Black gram: Burma, Singapore and Thailand 
• Mung bean: Burma, Singapore, China and Australia 
• Green and yellow peas: Canada, Australia, Hungary, Tanzania and US 
• Lentil: Netherland, Syria, Canada, Turkey, China 
• Large Chickpea or Kabuli: Australia, Canada, Turkey, Iran and Burma 

Logistic Movement of Imported Pulses in India 

The major ports in India where pulses consignments are offloaded are JNPT (Maharashtra), Mumbai (Maharashtra), Chennai (Tamil Nadu), Tuticorin (Tamil Nadu), Haldia (West Bengal) and Kakinada (Andhra Pradesh). Pulses in Boxes / Containers from Africa, Canada, UAE, Hungary, Iran, US and Turkey are offloaded at JNPT whereas, the bulk consignments are offloaded at Mumbai. These two ports in the Western India cater to the need of miller located in Western & Central parts of India. Some pulses, which are imported by Indian PSU’s (MMTC, PEC, STC & NAFED), are moved to the northern India (Delhi, Himachal Pradesh, Punjab, Haryana and Jammu & Kashmir) to be sold through Public distribution System of Government of India. In the eastern part of the country, the major port handling the pulses are Chennai, Haldia and Tuticorin which handles bulk as well as box / container consignments from Burma, China, Australia, Singapore and Thailand. The Chennai, Tuticorin and Kakinada port caters to the pulses requirement of Southern states (Tamil Nadu, Karnataka, Andhra Pradesh and Kerala), whereas majority on the consignments at Haldia port heads directly to Kanpur (Uttar Pradesh).
 The marketing channel for the imported pulses in India is given as under:

Import Policy Needs a Serious Revamp 

In spite of the above promising statistics for the import and exports from India, the gap between the supply and demand continues to pose challenges for the Indian pulses industry. India continues to be the largest pulses processor, as pulses exporting nations such as Myanmar, Canada and Australia, do not have adequate pulses processing facility. In order to strengthen the Indian market the import policy needs a serious rethinking. 

As per the present policy, the Government Agencies invite tenders for sale of imported pulses in the domestic market. They invite bids from interested parties and after scrutiny allocate the stock to highest bidder. Normally, the bids are accepted only if the bid quantity is more than a threshold limit, such as 200 MT or 500 MT. The Government agencies do not sell in smaller lots of 10­20 MT due to operational inconvenience and for various other reasons. While the highest bidder gets the bid quantity, the bids of other interested buyers is rejected. Hence, mostly the stock goes into the hands of a few buyers. It is observed that since the stock is allocated only to the highest bidder it creates a temporary monopolistic scenario in favor of such successful bidders. In such a case, it is possible for him to take advantage of such a scenario and to jack up the price for a short while to earn handsome profit. Since the Government does not have any control on selling price to be quoted by the successful bidder, it goes on uninterrupted. The result is that the basic purpose of keeping prices under control is somewhat defeated. 

Another, policy hindering the Indian Competitiveness is the introduction of 15 per cent subsidy for government entities. The entry of Government agencies armed with 15 per cent subsidy has changed the trade dynamics completely. Private importers are not able to compete with Government agencies. Therefore, when private importers attempted to import, they lost heavily, as the Government agencies sold their stock at a price lower than the import parity. As a result, most of the private importers stopped import of pulses and lot of importers have went out of business. At present, there is no level playing field, because private importers cannot claim subsidy, while Government agencies enjoy 15 per cent subsidy. 

Pulse importers face a number of risks that threaten the profitability of their transactions. Many importers forward sell their products before taking physical possession of them. Falling domestic prices prior to delivery provide incentive for buyers to renege on contracts. Domestic market conditions, particularly variability in domestic production and import activities, also affect pulse prices. The volume of business and the prices contracted by other importers serving the same market are key factors affecting an importer's profitability. Multiple impending shipments can flood the market and lead to lower prices, increasing the probability of default by domestic clients. Indian importers also face foreign exchange risk because transactions with every country are conducted in U.S. dollar. 

Indian traders are finding it difficult to negotiate imports of pulses from Myanmar as the market in the neighboring country is dominated by private traders and no government agency is involved. Private traders in Myanmar tend to increase prices whenever they come to know that the Indian government is seeking to import the pulses from them. Once government announce the quantity of pulses we plan to import from Myanmar, the prices of pulses gets pushed up. 

To conclude, The Government should recognize the economic relevance of pulses futures trading in term of providing instrument to hedge price risk especially for those who are in pulses import and trade. I feel that the role of the Government should be to formulate policies and to decide the macro level parameters. The Government should not enter into business themselves; rather act like a facilitator and regulator. Even without engaging themselves into trading directly, they can regulate the prices by allowing the private importers to import, rather than importing themselves. Moreover, Instead of selling stock through a tender process, the Government agencies should sell the entire imported stock through an electronic platform. This will reduce the cost of inviting tender and other administrative costs incurred by the Government agencies. In addition, it will encourage participation by smaller players.

Published in:

Handbook on Minor and Imported Pulses of India -2014
(Foretell Business Solutions Pvt. Ltd)

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