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Friday, 30 October 2015

NBHC Kharif Crop Estimates for 2015-16 (Final)

With the Kharif sowing season almost on the verge of completion and early harvest arriving in the market, we at NBHC are releasing our Final Kharif Crop Estimate - 2015-16. As per our analysis and industry’s feedback on the crop progress and the status of the current crop harvest, the total Kharif Cereals production is likely to decline by 3.72 per cent. The reason for the shortfall is very much evident. The current season the monsoon had arrived and spread all over India almost a month ahead of the scheduled time, but with the backdrop of El Nino (one of the strongest since 1997) and unusual warming of the Indian Ocean Dipole the monsoon fell short by 14 per cent on the seasonal basis with increased inequitable distribution. A situation of meteorological drought in regions of Maharashtra, Karnataka, Uttar Pradesh, Bihar, Andhra Pradesh and Telangana had taken a big toll on the Kharif crops in these regions. Based on the above conditions we have come to a conclusion that the total Kharif crop production scenario for the year 2015-16 would be on the lower side compared to 2013-14 and 2014-15.

Our first report was released on 22nd August 2015. In our first report we had estimated a drop in the acreage for Maize, Bajra, Pulses, Cotton and Sugarcane. We stick to our estimate of lower acreage on the above crops with mild adjustments.

As per our estimates, the overall cereals production for the 2015-16 is expected to be marginally down about 3.72 per cent over 2014-15 (116.35 million MT against 120.68 million MT). Amongst the cereals, Maize is expected to decline by 25.88 per cent to 13.02 million MT and Bajra is expected to decline by 14.24 per cent to 7.92 million MT. For Rice, we are estimating a marginal drop in the production by about 6.72 per cent owing to decline in the productivity in West Bengal, Uttar Pradesh and Chhattisgarh and prevalence of dry weather in major growing areas.

In the pulses sector, amidst extreme dry conditions and lack of rains, there was a significant drop in the acreage by 10.29 per cent. The most suffered crop in terms of growth was Moong followed by Urad and Tur (Pigeon pea) whose area declined by 9.78 per cent, 8.78 per cent and 4.26 per cent respectively. As per our estimate, Tur production for the year 2015-16 is expected to decline by 26.56 per cent to 2.20 million MT over 2014-15 whereas the production of Urad and Moong is likely to decline marginally by 44.12 per cent and 45.98 per cent to 0.88 million MT and 0.58 million MT respectively. Overall, the total Kharif pulses production is likely to decline marginally by 22.90 per cent over last year.
We stand by our earlier estimate of drop in the overall oil seed production with further reduction in crop size. Maximum decline of 27.76 per cent is expected in case of soybean and 9.07 per cent in case of groundnut.

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 5.53 per cent and in cotton the production is likely to decline by 21.78 per cent over last year.

Monday, 5 October 2015

Copper Continues to Struggle amidst Sustained Weakness in Global Economies

The copper market continues to feel the heat for the sustained weakness in global economies. The scenario of declining demand from the major consuming countries, increasing strength of dollar and below par performance of major global economies of China, US and European Union continue to ascertain the fact that this lull phase of the copper industry is likely to continue for a much longer period than being expected by major participants. To analyse the above situation in depth we need to assess the current demand and supply situation, latest development in major economies and situation the currency market.
Like other beaten down commodities, copper has fallen victim to its own success. Surging prices on the back of voracious demand from China’s then double digit growth spurred mining companies to zealously crank up production. The elevated production, combined with a Chinese economy in its fifth year of decelerating growth, has created a supply glut that is unlikely to clear anytime soon. Copper supply is forecast to run ahead of demand until at least 2019. While producers such as miner-cum-trader Glencore have announced plans to scale back production and an 8.3 magnitude earthquake in Chile has disrupted supply at some mines, the cuts will do little to soften the blow from softer demand from China. Manufacturing continued to weaken in September, with the Caixin Purchasing Manufacturers’ Index recording a preliminary reading of 47, falling from a final reading of 47.3 in August. The China’s annual copper demand growth is likely to slow to roughly 3 per cent till 2017 against the 9 per cent pace it averaged over the past five years. The sharp slowdown in industrial activity in China is disastrous for copper producers, since China consumes 45 per cent of their output. Its attempt to shift from an investment-led economy to a consumer one has raised fears of a structural decline in the amount of copper it will need. However much electrical wiring there is in consumer goods, it does not match the vast tonnages consumed during the recent decades of rapid urbanisation in the form of power lines, telecommunications cables and the wiring of big apartment complexes. Power grid investment, which accounts for around 30 per cent of Chinese copper consumption, is expected to fall sharply in coming years as the expansion of the electricity network is poised to slow significantly. China’s production of consumer goods that contain large amounts of copper, such as refrigerators and air conditioning units has also been disappointing this year and to add to it the demand from most developed countries is expected to remain subdued. Amidst the above developments the MINERS should prepare in advance for weak demand from many traditional mainstays of copper consumption.
The latest supply situation suggests the surplus situation for the industry. World mine production is estimated to have increased by 3 per cent (280,000 MT) in the first half of 2015 compared with production in the same period of 2014. The increase in world mine production was mainly due to a recovery in production levels at mines in Indonesia and Chile, although the latter also benefited from production at mines that started last year. Aggregated production in these two countries increased by 6 per cent. Production in Peru increased by 8 per cent and in the United States and China, production declined by 4 per cent and 3 per cent, respectively. World refined production is estimated to have increased by 3 per cent (350,000 MT) in the first half of 2015 compared with refined production in the same period of 2014. The primary production was up by 2 per cent and secondary production (from scrap) was up by 8 per cent. The main contributor to growth was China (up by 5 per cent), followed by the Philippines and Indonesia where production was reduced in the first quarter of last year due to operational constraints. Production also increased in the DRC (+11 per cent). Output in Chile and Japan (the second and third leading refined copper producers) declined by 2.5 per cent each, while in the United States (the fourth largest producer of refined copper), production dropped by 6 per cent. The average world refinery capacity utilization rate for the first half of 2015 increased slightly to 82 per cent from 81 per cent in the same period of 2014.
By the first half of 2015, world apparent usage is estimated to have declined by around 2 per cent (245,000 MT) compared with that in the same period of 2014. Chinese apparent demand declined by around 1 per cent based on a 10 per cent decrease in net imports of refined copper from the high net import level in early 2014 and consequently higher apparent usage. Excluding China, world usage declined by around 3 per cent in the first half of 2015 mainly due to a decline of 53 per cent in Russia’s apparent usage and a decline of 8 per cent and 5 per cent in Japan and the EU, respectively.
In spite of increased supply of bearish news, the positive development in the consuming countries is likely to sustain the prices for the short run (3 to 6 months henceforth). Japan's factory output unexpectedly fell for the second straight month in August, fuelling worries that a prolonged slump could quash an unsteady economic recovery and raising expectations of fresh stimulus from the Bank of Japan to reignite growth. U.S. consumer confidence rose and was higher than expected in September. China has also decided to halve sales tax on small cars from 1st October 2015, boosting local auto shares, as the government tries to revive growth in the world's largest car market. This move from China is expected to trigger car production recovery, which in turn will support demand for copper and steel. This is just one more example of supportive Chinese fiscal policy, which could see commodities’ demand cyclically improve over the coming three to six months. As per estimates, transportation accounts for 10 percent of China copper demand. A 2-percent increase in auto sales would push up copper demand by 37,000 tonnes this year, 100,0000 tonnes next year and 166,000 tonnes in 2017. Chile's second-biggest copper mine Collahuasi, owned by London-listed Anglo American and Glencore, said this week it planned to cut output by 30,000 tonnes. That is not a large amount in a market estimated at around 23 million tonnes this year, but it adds to recent announcements about output cuts and reinforces expectations of miners taking out more capacity which would in-turn reduce the supply of copper from the main stream leading to further support to the prices.
The overall short term investment sentiments in the red metals continues to be gloomy, but if one think of investing with the time line of over 3-4 years, this is certainly a time to enter with at least a investment exposure of about 20 per cent of the whole portfolio.

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