Kharif Crop Estimates 2020-21

 Kharif Crop Estimates 2020-21

NBHC’s First Kharif Crop Estimates for 2020-21                      

India witnessed ‘Above Normal’ rainfall at 109 per cent (95.4 cm) of the long period average (LPA) this year against long period average of 87.7 cm based on data of 1961-2010. In three of four months, June (118 per cent), August (127 per cent) and September (104 per cent) witnessing above normal rainfall, while July recorded (90 per cent) deficient rainfall. Division wise the east and northeast India, central India and south India have received above normal rainfall and northwest India division has recorded deficient rainfall. Good rains have boosted sowing of the kharif crops which farmers have sown in record 1095.37 lakh hectares as on date as compared to 1085.65 lakh hectares a year ago. Nineteen states and union territories have received normal rainfall this year, while nine states and union territories saw excess rainfall. Bihar, Gujarat, Meghalaya, Goa, Andhra Pradesh Telangana, Tamil Nadu, Karnataka and Lakshadweep islands have recorded above normal rainfall. Sikkim recorded large excess rainfall. However, Nagaland, Manipur, Mizoram, Tripura, Uttarakhand, Himachal Pradesh, Jammu and Kashmir have recorded deficiency. Ladakh has recorded large deficiency. Delhi has also received deficient rainfall.  The total live storage in 123 important reservoirs in different parts of the country, monitored by CWC on week ending 16.10.2020 was 148.459 Billion Cubic Meter (BCM) (87 per cent of the storage capacity at Full Reservoirs Level (FRL) against 152.024 (BCM) (89 percent of the storage capacity at FRL) during corresponding date of pervious year and 128.887 (BCM) (75 per cent of the storage capacity at FRL) which is the average storage of the last 10 years. In the last few days, in the post monsoon phase – winter rains, most parts of Maharashtra have received moderate to heavy rainfall due to cyclonic disturbance in a well-marked low-pressure area over South Madhya Maharashtra and adjoining areas. Heavy to extremely heavy rain was reported from most parts of the state with districts of Pune, Solapur, Osmanabad, among others, reporting flash floods as well. Preliminary reports by the commissioner of agriculture stated that crops over 4.5 lakh hectares were damaged in the rains. Standing crops of soybean, maize, sugarcane and tur reported damage. The latest IMD forecast indicates cooling of sea surface temperatures will most likely continue and weak La Niña conditions will likely turn into moderate La Niña conditions during the coming months and sustain till early next year. No cyclone has developed this October yet. But the depression over north interior Karnataka and adjoining areas of Maharashtra moved west-north westwards and weakened into a well-marked low-pressure area over south Madhya Maharashtra. The current low-pressure system had initially formed over the west central Bay of Bengal on October 11. It had crossed the north Andhra Pradesh coast and made landfall over north Andhra Pradesh, following which it moved west north-westwards and weakened into a depression the same day. The system has already caused extremely heavy rain (over 20 cm) over coastal Andhra Pradesh, Telangana, Karnataka, Maharashtra, etc. Keeping in mind the above developments, we are come up with the NBHC’s First Kharif Crop Estimates for 2020-21. 

Total Rice is expected to show marginal improvements in area by 6.74 per cent but production is expected to decline by 2.20 per cent than last year. A smaller crop last year forced India to import maize after a gap of two years. The country imported about 500,000 tonnes maize in 2019-20 (Apr-Mar) to meet the requirement of the poultry industry. This kharif season, acreage is expected to increase by 2.31 per cent but still we are expecting a 5.71 per cent lower crop size because of heavy rain is seen affecting yield of the standing crop in Madhya Pradesh and Karnataka both key growers of kharif maize. Area of Jowar is expected to decline by 1.17 per cent despite increase in production by 1.22 per cent and Bajra acreage is expected to increase marginally by 3.71 per cent but production is expected decline significantly by 14.40 per cent.

In the pulses sector, acreage and production of Tur is expected to increase by 9.78 per cent and 5.48 per cent respectively due to crop condition is good so far in the major growing states of Maharashtra, Gujarat, Telangana and Jharkhand. Urad area is expected to increase by 1.47 per cent whereas production is expected to increase significantly by 45.38 per cent because even if in some places the crops have been damaged, alternatively, there has been an increase in the sowing area as well. We expect the area under Moong is increase by 19.70 per cent whereas the production is expected lower by 3.91 per cent mainly due to crop damage in major producing states.

In oilseeds sector, excess rains in Central India are expected to dampen the prospects of a record harvest for kharif oilseeds, mainly soyabean and groundnut. Soybean acreage expected to improve by 8.17 per cent but the production is expected significantly lowered by 15.29 per cent due to heavy rains in September and October in major growing area which has diminished hope of normal crop. Groundnut acreage expected to improve by 38.61 per cent but the production is expected significantly lowered by 14.69 per cent. Castor area and production is expected to decline by 11.51 per cent and 23.74 per cent. The decline in production is expected to the tune of 8.00 per cent and 14.89 per cent for Sesamum and Sunflower respectively.

COPPER: THE TRUE FIGHTER

COPPER: THE TRUE FIGHTER  

Copper: The True Fighter

 

COPPER: THE TRUE FIGHTER gives month on month account of the development in the copper market over the last decade. It highlights the changes in the copper price over each changing dynamics of supply and demand. Reading through the articles one can feel the movement in the copper market owing to the change geopolitical and economic changes in the fundamentals. The book gives you a virtual account of the various events and activity that has happened in the world of copper and global economy as copper is gauged as the barometer of the global economy. The Main factors affecting price determination of copper which are product cost, the utility and demand, extent of competition in the market, government and legal regulations, pricing objectives and marketing methods used have been explained in detail with real time examples.

Dr. Hanish Kumar Sinha is an Enthusiastic, Dedicated and Detailed oriented Commodity Researcher who with his proven skills has strengthened the operational and functional excellence of the Indian Commodity Sector. His skills with over 20 years of experience in in the field of Commodity Research, Risk Mitigation, Collateral Finance and Trade Facilitation well supported with Sigma Six Black Belt and Business Analytics Certification has allowed him to excel in achieving his professional goals aligned fully with those of the commodities. The author is a PhD in Agricultural Economics from Banaras Hindu University. Dr. Sinha has made notable contributions across print and electronic media as “Commodity Expert” and has shared valuable insights with regards to commodities market on Zee Business, NDTV Profit, ET NOW, CNBC AWAAZ, Business Standard, Economic Times, Asian Age and other business channels and print media. He has been a versatile speaker for various industry platforms.

https://www.amazon.in/dp/1636068081

FOREWORD

For thousands of years copper remained important for making tools, weapons, jewellery and objects of art. Presently, copper is used in building construction, power generation and transmission, electronic product manufacturing, and the production of industrial machinery and transportation vehicles. Copper wiring and plumbing are integral to the appliances, heating and cooling systems, and telecommunications links used every day in homes and businesses. Copper is an essential component in the motors, wiring, radiators, connectors, brakes, and bearings used in cars and trucks. Copper content in the average car ranges from 20 kilograms (44 pounds) in small cars to 45 kilograms (99 pounds) in luxury and hybrid vehicles. But all these uses have limitation and are solely depended on the supply and demand dynamics. The supply comes from the natural resources which are notoriously difficult to monetise correctly as new deposits are discovered, depletion is currently not understood, extraction technologies have improved, new uses are found for resources and the occurrence of common pool resource problems is prevalent. The market behaviour is depended on the mining resources which is concentrated in Latin America and consumption demand of which China accounts for 45 per cent of it. Political and economic changes in both these countries tend to have significant implications for copper prices. Labour unrest can disrupt supply and drive prices higher, while rapid economic growth and infrastructure development can also drive demand, and subsequently prices, higher.

Dynamism is the key for copper market and different factor affecting the prices weigh differently in different years which has been adequately explained in the book Copper: The True Fighter with various degrees of application. In addition to classic issues of supply and demand and economic growth the following specific issues are important drivers of copper prices:

· Global economic cycles: particularly in emerging economies: copper price and demand typically reflect global economic cycles as it is broadly used across a variety of economic sectors. It is closely tied to trends in developing economies as it is heavily used in infrastructure development;

· Chile and China: the two biggest players in supply and demand of copper, producing or consuming over 30% of the global total. Political and economic changes in both these countries tend to have significant implications for copper prices. Labour unrest can disrupt supply and drive prices higher, while rapid economic growth and infrastructure development can also drive demand, and subsequently prices, higher;

· Declining ore grades and other production issues: it is noted that at many existing mines ore grades are declining, therefore more has to be mined to achieve the same outputs. This increases a variety of associated costs in terms of labour, energy, water and land use which are passed through in prices of refined copper;

· Global push towards energy efficiency and energy infrastructure upgrade: copper is in high demand for its electrical transmission qualities, the large scale changes to energy infrastructure and demand for efficient products is a specific issue in copper demand;

· Expectations and commodity markets: copper is a commodity that is very closely tracked by markets, attracting significant trade and speculative activity, therefore expectations of economic growth, investment, recession, disruption can all lead to significant price impacts.

This book has been a witness to one of the great revival of global economy from the Great Depression, while events in Greece and elsewhere in Europe threatened the very survival of the Euro Area. A disappointing recovery gave rise to concerns about stagnation, the idea that deficient demand combined with stagnant productivity growth doomed the advanced countries to chronic slow growth. In contrast, emerging markets, led by but not limited to China, escaped the crisis largely unscathed. They continued to expand throughout the crisis and for much of the subsequent decade. As a result, the global economy grew at a more than respectable average annual rate of 3.4 percent over the years from 2008 to 2018.

The phase of globalization and growth survived the turbulence buffeting the world starting in 2008 seemingly testified to the solid foundations on which the twenty-first-century global economy rested. It all came apart in the final years of the period. In its June 2016 referendum, the United Kingdom voted to leave the European Union. In 2017 one of the first acts of the newly elected US president, Donald Trump, was to withdraw from the Trans-Pacific Partnership. The Trump administration declined to confirm the appointment of new members to the WTO’s dispute settlement panel and in 2018 slapped tariffs on imports from China, Europe, and even Canada, provoking tit-for-tat retaliation. The Chinese economy showed signs of slowing, and emerging markets from Argentina to Turkey experienced strains as the US Federal Reserve hiked interest rates. The stability of the global economy, it appeared, hung in the balance. Another key development over that period was the emergence of China as a leading power with geopolitical ambitions.

Europe’s Foreign and security policy leverage and economic-policy leverage go hand in hand. The EU, for its part, has not shown the capacity to mount a common foreign and security policy; different European countries have very different views of what this would entail. The share of military spending in GDP is lower in Europe than in both the US and China. This leaves China as the obvious candidate to occupy the space vacated by the United States. As the leading trade partner and source of foreign investment for a growing number of countries, it already has some capacity to influence the shape of the international economic order.

Apart from the differing growth perspective in US, Europe and Asia, copper market witnessed one of the most dreaded pandemic of its kind, “COVID 19 – Corona Virus” which apart from taking millions of lives across the world, led the entire copper dynamics off balance. The people at large are clueless about this mysterious virus and are still learning to live with it. This book finally details about how copper moves on strength to strength in the Covid times.

 

Dr. Hanish Kumar Sinha

Consultant – Agri-business, Research & Development

Mumbai - 2020

 

Warehouse Receipt Financing – A Game Changing Perspective

Field Warehousing is a security device which enables the borrower to deliver to the lender legally valid documents of title and to grant a possessory pledge of goods stored in the borrower's own plant, mill, refinery or warehouse. The issuer of the field warehouse receipts creates a legally independent warehouse within the borrower's premises by leasing the storage area, controlling movements in and out, and posting prominent signs giving public notice that the controlled area is operated by the field warehousing company. Access to the warehouse is controlled either by members of the borrower’s staff who are temporarily employed by the warehouse company for this purpose, or by members of the field warehouse company's staff. The warehouse records and inventory levels are periodically audited. The integrity of the staff (whether permanent or temporary) and contractual liability of the field warehouse company are insured under a fidelity and errors and omissions policy.

Visualising the growing financial needs of the farmers, WDRA licensed two repositories for facilitating the issue of NWRs. In India, the term ‘negotiable warehouse receipt’ is defined in Section 2(m) of the Warehousing (Development and Regulation) Act, 2007 (WDR Act), which came into force from 25th October 2010. WDR Act provides for issuance of Negotiable Warehouse Receipts (NWRs)   by the warehouses registered under this Act. A "negotiable warehouse receipt" means a warehouse receipt under which the goods represented therein are deliverable to the depositor or order, the endorsement of which has the effect of transfer of goods represented thereby and the endorsee for which takes a good title. A negotiable instrument is essentially a document embodying a right to the payment of money /goods [which implies creating a right in favour of some person] and it may be transferred from person to person. This developed historically from efforts to make credit instruments transferable; that is, documents proving that somebody was in their debt were used by creditors to meet their own liabilities. A negotiable instrument can be transferred to any number of persons before maturity. The means of accomplishing a transfer from one creditor to another is by endorsement. It means writing of a person’s name on the back of the instrument for the purpose of negotiation. There are about 55,000 warehouses in the country out of which only 735, having a capacity of 6.6 million tonnes, have valid registration with WDRA. About 50% of this capacity is located in Gujarat, Madhya Pradesh and Rajasthan, while Jharkhand, Odisha and West Bengal have just one registered warehouse each. The farmer/trader has no protection against the warehouse in case of deterioration in quality of produce or pilferage by the warehouse. The produce stored in such warehouses is generally managed by collateral management companies and they arrange pledge loans against such WRs.

Stakeholder wise use of warehouse receipt finance:

Farmers: As against traditional loans by banks, loans against WR are quick. WFR brings about better price realization for farmers, especially small and marginal farmers thereby reduce poverty. A major impetus on WFR can help government realise their promise of a 50 per cent profit over input cost for farmers.

Money Lender: Lack of access to institutional credit forces farmers to knock the doors of informal sector that charges hefty interest rates. A well-developed WRF will kill the back of the informal sector.

Encourage Scientific Storage: Spoilage and wastage have become the hallmark of Indian agriculture. It is estimated that 25-30 per cent of agricultural produce every year is lost due to poor storage and frail handling post-harvest. Increased usages of WFR will kick-start a circle of investments in warehousing and fix the missing link in the supply chain.  

Banks: The average tenor of loan against WHR is around six months. This helps banks with their asset-liability mismatch issues as they can churn portfolios quickly. Further, lending against WHR is safer and more liquid for banks. Intermediaries like collateral managers make the job easier for banks as far as underlying collateral is concerned. WRF help banks achieve their priority sector lending targets in an efficient way.     

Overall Economy: WRF can dramatically reduce inter-seasonal price fluctuations. Rural demand has slumped in recent years, which impacted the overall economy. WRF increases liquidity in the rural economy, helping consumption. A well-developed WRF system can also help fix the supply issues, which will lead to a lower inflation-lower interest rates regime in India.

Advantages of warehouse receipt financing:

Ø  Improve farm income and smooth domestic prices by providing an instrument to farmers to spread sales throughout the crop year.

Ø  Mobilize credit to agriculture by creating secure collateral for banks.

Ø  Help create cash and forward markets and thus enhance price discovery and competition.

Ø  Provide a way to gradually reduce the role of government in agricultural commercialization.

Ø  Combine with price hedging instruments to predetermine the cost of future purchases of sales.

Major constraints in warehouse receipt financing:

Ø  Ø  Most of the products of warehouse financing / modus operandi do not reflect the full range of interested stakeholders and are not closely linked to the timely availability of credit hence, identification of common minimum quality items suitable to all stakeholders will help to design the system and thereby improve customer satisfaction.

Ø  Lack of awareness among the grass-root level customers and there are non- uniform complex, non-transparent models of financing to cater the need of different category of customers, there is a need to modify these models as per the current conditions or requirement of clientele, taking into account input and output parameters along with the process parameters of lending institutions.

The inter dependability of critical dimensions / parameters of warehouse financing against other priority sector financial product has not been researched.

Improved Demand & Sullen Supplies Propels Copper Recovery

The market is learning to live with Covid 19 and amidst significant dent in the supply owing to Covid cases in major mining areas of Chile; the copper market has made significant recovery in the last 15 to 20 days. The South American nation had recorded 298,557 cases of the virus as of July 7, with the state-owned copper mining company, Codelco, confirming that 2433 of its staff had contracted the virus. Work at all of Codelco’s Northern District projects including Gaby, Ministro Hales and Radomiro and Tomic have now been temporarily suspended. BHP Group has ramped down activity at its Cerro Colorado copper mine in Chile. The mine produced 71,700 tonnes of copper in 2019, accounting for about 1.2 per cent of Chile’s total production. Apart from the supply of the raw copper, the extensive lockdown measures across the world had stalled the scrap generation machine, and trade data available for the top scrap exporting nations indicated a more than 50 per cent year-on-year contraction in supply. The death toll from the virus in Peru, the world’s no. 2 copper producer, now stands at 10,589, the 10^th highest in the world, based on data from Johns Hopkins University. For confirmed cases, the Andean country has the fifth-highest in the world. Looking further ahead, the supply impact of the coronavirus is expected to extend far beyond this year, as 2020 has already seen capital expenditure guidance cuts from copper miners and the mine project pipeline is shrinking owing to lockdown-related delays.

The demand improvement is also adding up the positivity of the copper market as the unprecedented levels of stimulus across the world are set to sustain the recovery in copper demand in the longer term. The extensive lockdown measures across the world had stalled the scrap generation machine, and trade data available for the top scrap exporting nations indicated a more than 50 per cent year-on-year contraction in April shipments. The unprecedented levels of stimulus across the world were set to sustain this recovery in the longer term, especially from the copper-hungry green energy and digital economy sectors, which had been singled out for investment by many governments. Renewable power generation is also copper-hungry and on the rise as countries seek to meet net zero commitments. China is the single most important source of demand for industrial metals. It buys between 40 per cent and 50 per cent of the world’s raw aluminium, copper and steel while using nearly two-thirds of the world’s iron ore. These figures, however, exaggerate somewhat China’s role in these markets. While China buys a large share of raw materials, about one-third to half of its purchases was re-exported as components in intermediate or finished goods. The top metals consumer China has carried out an environmental campaign against foreign garbage in recent years, progressively restricting scrap inflows and planning a ban on all solid waste imports by the end of 2020. But, for some undefined reasons, China is dragging its feet in releasing new codes governing high-grade copper and aluminium scrap imports, leaving scrap metal firms abroad confused and without a clear way into their key market.

A slump in global manufacturing showed signs of easing in June as a rebound in Chinese and U.S. activity offered some hope the world’s two largest economies may have passed the worst of the devastation caused by the novel coronavirus, while the collapse in European factory activity abated. The bulls have been firmly in control of copper trade in recent weeks, with the price graph showing a very solid V-shaped recovery, but at the same time as global economies are not showing such optimism. A lot of the bullishness comes from a variety of global fiscal packages aimed at shoring up countries hammered by the coronavirus pandemic. The very strong US non-farm payrolls number continues to mask a lot of ills and investors are happy to hang their hopes on more stimulus. Demand in the US and Europe should recover as lockdowns are hopefully lifted, and Chinese demand should continue to improve due to stimulus measures. In the long-term on the demand side, we are looking at higher-intensity copper usage, higher copper loading in vehicles with the advent of electric vehicles and potentially higher infrastructure spending as well, so that is something we see on the demand side that might be about three to five years out. Investors are increasingly optimistic about an economic rebound, with the mood bolstered after China brought the new coronavirus outbreak under control. The market gloom over the metals that will power the cars of the future is starting to lift. Supply overhangs and then the coronavirus pandemic had crushed short-term prospects for the minerals used to make rechargeable batteries.

Across the world, it is expressed that Government incentives have eased some of the sting from the pandemic which hit the global demand significantly. Despite the oil-price slump that rocked the nascent EV industry, China's government is doubling down on its push into electric vehicles with a range of support measures. Germany's 130 billion euro ($146 billion) recovery budget allocates about 41 billion euros to areas like public transport, electric vehicles and renewable energy. France announced its own 8 billion-euro stimulus package for the auto industry, focusing heavily on the domestic EV supply chain. The outlook for battery demand was not as bad as some were expecting at the height of the global outbreak. Strong signals are there that stimulus efforts will be focused on the shift toward clean energy and electrification in many parts of the world, which is strengthening the medium-long term outlook for demand.

Since, supply is usually easier to track than demand as we can see global miners' projects in the pipeline and the probability of them coming to fruition. Demand is the much harder side of the equation to monitor. It is very sensitive to world GDP, especially Chinese demand. Hence, it got hit extremely hard when China shut down. As China is opening back up with its manufacturing rebounding, copper is facing supply side constraints in Chile, the world's largest producing nation, due to coronavirus concerns and mine closures on back of quarantining. Codelco's curtailment of some smelting operations last week after fatalities among its workforce shows just how at risk the supply side is. China is desperate to boost its GDP growth, or in this case defend it, and the fastest way to produce good economic data is to boost infrastructure spending. It goes against China's long-term deleveraging of industrial investment in favour of consumer investment, but right now it just needs to provide a floor to the data. In addition, China is very strategic. There has been speculation the State Reserve Bureau has been using this price weakness to top off its strategic inventories of the metal, which is quite possible as China has a buy-low, sell-high mentality. The same was seen in oil. Chinese officials are extremely shrewd in purchasing their raw materials and are very opportunistic and tactical.

Finally, we know that the only reason the market and asset prices are up is due to the unprecedented liquidity injections by central banks. It is like trying to jump-start a car that has been dying for the past year but the owner does not want to scrap it. It is throwing everything at the car just to keep it moving and buying time that the car can move on its own without the push. The next few weeks are critical as the second wave of the virus is showing up and a number of countries are delaying their re-openings.

Reasons behind Increased Sowing in Current Kharif Season 2020-21

Higher water levels in reservoirs, more-than-normal rains in the current summer season and expectation of a good monsoon have motivated farmers to increase the pre-kharif area under crops like paddy, moong, maize, bajra and groundnut, resulting in a 36% year-on-year rise in crop area so far. This was possible owing to the heavy rains which happened due to heavy rains towards the end of rabi season. The cropping sentiments were also boosted by the IMD forecast of Normal Monsoon for the year 2020-21. The advancement of monsoon in most part of the country about a week to 10 days ahead of scheduled date has also boosted the sowing sentiments.  

 One point needs to be noted that the kharif crop has taken incremental jump in the states of Gujarat, Maharashtra, Madhya Pradesh and Uttar Pradesh and the crops affected are pulses and oilseeds which is majorly concentrated in these 4 states. As per figures of sowing till 27^th June 2020, the area under coarse grains have been hiked by 100 per cent followed by the biggest increase is in oilseeds, under which area has gone up by more than six times. The area under pulses has increased by up to three times.

 The current pace of sowing is encouraging but the real development lies the months of July and August where the country is expecting 103 % and 97% rains over LPA, where conditions of flood is expected to be more rampant than the previous years, which might force more cases of replanting of seeds impacting the yield and total quantum of kharif crop production.

Copper Moves on After Confronting Covid-19 & Looming Economic Recession

The global copper market is going through an unusual period in history as the coronavirus pandemic has unleashed a series of unprecedented events affecting every industry. As part of the new emerging geographic scenario, the United States is forecast to readjust to a 0.9 per cent CAGR. Within Europe, the region worst hit by the pandemic, Germany is likely to add over 53.7 thousand MT to the region’s size over the next 7 to 8 years. In addition, over 65.1 thousand MT worth of projected demand in the region is expected to come from Rest of European markets. In Japan, the Electrical & Electronics segment is likely to reach a market size of 549.7 thousand MT by the close of the analysis period. Blamed for the pandemic, significant political and economic challenges confront China. Amid the growing push for decoupling and economic distancing, the changing relationship between China and the rest of the world is expected to influence competition and opportunities in the global Copper market. Against this backdrop and the changing geopolitical, business and consumer sentiments, the world’s second largest economy will grow at 3.9 per cent over the next couple of years and add approximately 1.2 Million MT in terms of addressable market opportunity. Continuous monitoring for emerging signs of a possible new world order post-COVID-19 crisis is a must for aspiring businesses and their astute leaders seeking to find success in the now changing copper market landscape.

Apart from the Electrical & Electronics segment, the construction and manufacturing sector is also showing signs of recovery. Economic data is signalling a robust recovery in the Chinese construction and manufacturing sectors during the second quarter. Demand for copper in China, where half the world’s output is consumed, has picked up significantly since Beijing eased its lockdown in March.  As its economy has clicked back into gear, physical premiums — the extra price buyers pay to take delivery of the metal immediately — have risen sharply while inventories have plunged as manufacturers scrambled for supply. The closely tracked utilisation rates at wire rod mills — which account for two-thirds of China’s refined copper consumption — have rebounded, hitting 90 per cent in April. Thus, we can clearly see signs of economic recoveries in different parts of the world, though the pace of recovery is too varied in different economic locales.

The decision to keep Chinese factories shut after the Lunar New Year sent shudders through the massive mines of Brazil and Chile that feed them. So far, mining heavyweights like Vale and Codelco have managed to continue operating through the outbreak, adopting safety measures without stalling output. Other mines in the region that did shut are now reopening. Now, with China getting back to work and Latin America the new virus hot spot, concern is shifting from demand to supply. Alarm bells are starting to ring again in metal markets as the outbreak explodes in Latin America, with the region’s highly urbanized population of 600 million accounting for about 40 per cent of daily deaths globally. That’s coming at a time when Chinese demand is recovering and markets tighten. Chile is the top exporter of copper and Brazil is the second-largest shipper of iron ore. So far, mining heavyweights like Vale and Codelco have managed to continue operating through the outbreak, adopting safety measures without stalling output. Other mines in the region that did shut are now reopening.

The positive in the market is stiff recovering of the Chinese economy. The focus is on recovering activity in China rather than downturn in the rest of the world. Beijing’s stimulus package, centred on “new” infrastructure such as electric vehicle charging points, should be positive for copper demand. China’s continued strong imports and relatively flat global exchange stocks reinforce the positive optics. Unsurprisingly, given the level of lockdown disruption in key producer countries such as Peru, global mine supply is expected to fall by 4 per cent this year. That will translate into a 2.4 per cent drop in production of refined metal. A surplus of copper isn’t obvious right now. Global exchange stocks currently total 461500 MT, which is only 549000 MT higher than this time last year. Rises in LME and CME inventories have been almost totally offset by declines on the Shanghai Futures Exchange, where registered stocks have fallen by 219000 MT over in April and May. Post lockdown, China’s consumption of refined copper improved by about 4 per cent at 1.19 million MT in the first four months of the year, although higher import flows may be partly down to a near collapse in scrap supplies. Imports of copper scrap totalled just 292,400 tonnes in January-April, down 43 per cent on last year.

One should always remember that China consumes over 45 per cent of the global copper. The current concern is the slowing demand signs in the Chinese market. Although Beijing’s latest stimulus package ticks a lot of copper boxes, there is absence of liquidity flood and construction boom such as seen a decade ago. Then there is the problem of what China is going to do with all the copper-containing products, such as air-conditioners and white goods, it normally exports. The coronavirus’ second-round hit on demand, in the form of Western consumer appetite, looks set to be bigger than the direct impact of lockdowns. China’s factories suffered a collapse in export orders in April, according to both official and Caixin Purchasing Manager’s Indices. Weak exports are the point of maximum weakness for China’s copper sector, although it could take several months before a build in product inventories works its way back up the value chain to the refined metal segment. Moreover, the fear of resurgence of US – China trade war, which seems to be a reality, given the aggressive postures taken by China on several geo-political fronts.

During the current pandemic era, copper demand from the top consumer China has fallen by 2.8 per cent to 11.87 million MT this year but is expected to rise by 2.6 per cent in 2021. Demand from other key consumers like Europe, North America including US, Canada and Mexico is also expected to deteriorate this year. Going forward, a swift turnaround in demand is least expected. Global industrial activities remain on the lower side due to the negative impact of the pandemic. The copper market is expected to find more support Global reported refined copper demand in 2019 was 23.915 million MT, up 25 thousand MT on that for 2018. For 2020 the forecasts suggest that refined copper demand might be 22.625 million MT, a decrease of 5.4 per cent. For 2021, demand for refined copper might increase by 4.4 per cent to 23.625 million MT. Looming tensions between US and China is likely to worsen their trade relations further that may on weigh demand from the world’s largest Copper consumer China. In spite of the pick-up in Chinese industrial activity and mine disruptions, it is still expected that copper supply would outpace demand for this year — the most significant annual market surplus since the global financial crisis since 2007-08. Beijing’s stimulus package, centred on “new” infrastructure such as electric vehicle charging points, should be positive for copper demand. Chinese government stimulus and backlog orders accumulated during the coronavirus-fuelled lockdowns have supported copper demand in top consumer China, while stimulus measures and reopening of economies in the West have also boosted investor sentiment. China’s continued strong imports and relatively flat global exchange stocks reinforce the positive optics. 

NBHC’s Final Rabi Crop Estimates for 2019-20

The rainfall during the months of June-September was at 10 per cent above average. Rainfall over the country as a whole during the SW monsoon season (June-September), which is the principal rainy season of the country, was normal (110 per cent of LPA). The 2019 northeast monsoon season (October-December) rainfall over the country as a whole was above normal (129 per cent of LPA). Live storage in 123 major reservoirs as on 21 May 2020 was 60.73 BCM as against 36.15 BCM on the same day last year (21 May 2019) and 37.58 BCM of normal (average of the last 10 years) storage. Current year’s storage is 168 per cent of last year’s storage and 162 per cent of last 10 year’s average storage. Unseasonal rains, thunderstorms and snowfall across certain pockets in the country in Feb- March had led to damage of standing Rabi crops - wheat, mustard and gram as over 60 per cent precipitation were concentrated in north-western and central India. In India, Rabi harvesting starts in March in Gujarat, Madhya Pradesh, Rajasthan and Maharashtra and in April in Punjab, Haryana and Uttar Pradesh. The Government announcement of the lockdown came right in the middle of this rabi harvesting season. They did exempt farm activities from the lockdown but the shortage of labour and lack of transport facilities is expected to impact the rabi crop adversely. Keeping in consideration the large-scale post monsoon developments and the sowing reports from various parts of the country, NBHC Pvt. Ltd. has come up with its Final Rabi Crop Estimates for 2019-20.

In our first estimate (First Rabi Crop Estimates for 2019-20 – 11^th February 2019) we had broadly concluded that in the year 2019-20, the production of total pulses and oilseeds are expected to decline by 2.22 per cent and 13.48 per cent over 2018-19. In the current assessment, the Pulses and oil seed have marginally pushed themselves further in the negative region with an expected decline of 4.58 per cent and 6.58 per cent over the last estimate.

Wheat production is expected to fall further by 3.12 per cent over last estimate as delayed harvesting has led to a fall in yield and further delays in procurement exposes the crop to untimely rains but would be still higher by 5.61 per cent over last year mainly because of increase MSP coupled with the surplus monsoon and post-monsoon rain in October boosted soil moisture levels. Rice production is expected to increase marginally by 3.17 per cent over last estimate amidst reports of higher yield in Telangana but would still be lower by 25.67 per cent over last year owing to marginal shift in farmer’s focus to pulses & wheat. Maize is expected to decline further by 2.17 per cent over last estimate leading to overall fall in production by 0.99 per cent over last year. Jowar production is expected to improved further by 2.62 per cent over last estimate leading to overall increase in production by about 23.57 per cent over last year.

Pulses production is projected to drop further by 4.58 per cent over last estimate, which is 2.22 per cent lower than last year’s production mainly due to 10.85 per cent drop in the gram production, which constitutes about 70 per cent of the total Rabi Pulses. Gram production is expected to decline further 4.87 per cent over the last estimate mainly due to fall in Madhya Pradesh as lot of area under gram was diverted for wheat cultivation. Urad, Masoor and Field Pea are also expected to decline by 2.00 per cent, 2.17 per cent and 5.00 per cent respectively over the last estimate.

Total oilseeds production is estimated to be 9.50 million MT, which is about 6.58 per cent lower than the last estimate mainly because of fall in Mustard and groundnut production, leading to overall fall in production by 13.48 per cent over last year. Mustard and Groundnut production is expected to decline 7.00 per cent and 5.00 per cent respectively over last estimate.

The table below shows the details of the Final Estimate for the 2019-20 Rabi Crop:

Copper Market Struggles to Survive Amidst Sliding Economies

Global copper market saw a mild recovery amidst renewed aggression by the Chinese participants, though the global sentiments continues plummet as nations gear up to fight COVID-19 with increased focus. In the face of the continued pandemic, and resulting country lockdowns, copper has been hit by headwinds and tailwinds at the same time. On one side producers have halted production, adding some support, yet on the other hand demand has dried up as the world hunkers down to prevent further spread and save lives. As increasing number of cases are being reported around the world, major market indices have shrunk by over than 20 per cent from their highs in last 2 months and have entered in the bearish territory/region. The fear of economic recession is looming large on several economies. Since the development of vaccine against COVID-19 looks as a distant reality (may take a minimum of 8-10 months) I feel that both supply and demand chain disruptions arising for goods and services are likely to continue for much longer. The effects of Covid-19 on global businesses are also becoming visible, with companies scaling down operations, asking employees to work home, slashing production targets. Sectors such as aviation, tourism, hospitality have almost come to a grinding halt. Moreover, as the coronavirus pandemic is seeing an accelerating situation in emerging markets, a third round of hits to the global economy is shaping up and emerging market economies will encounter tougher challenges.

Unlike developed countries, which have relatively complete and balanced economic systems, emerging market economies are not very sound in terms of an economic ecology and mechanism, and would suffer more damage. Some emerging markets have already seen economic slowdowns due to long-term economic structural problems. The pandemic has weighed on the contractions and have even drawn them into crisis. Wider impacts are likely to be visible in the emerging markets as the pace of spread of COVID-19 is likely to derail several economies. The countries may even see economic stagnations amid quarantines and lockdowns as they have a higher dependency on the global market, especially for energy and export-oriented economies. The turbulence of financial markets and the rise of financing cost are likely to further trigger a series of debt defaults, or even lead to a regional debt crisis. As a result, emerging markets would be hit harder, lose more, and even generate a chain reaction under the new phase of the pandemic. Emerging markets and developing countries contributed 47.8 per cent to the global economic growth in 2018, and if the emerging economies slide into a crisis, the global economy will take a longer period of time to resume. 

The copper markets have improved by about 12 per cent in the last month, despite a rapidly deteriorating outlook for global economic growth and industrial metals demand. Copper's recent rally has ploughed on through April, shrugging off an IMF projection of -3 per cent GDP growth in 2020, and a collapse in crude oil prices. Offering some support to copper prices in recent weeks have been mine production cuts as the Covid-19 crisis has deepened in key production region South America. The global copper market is headed for a surplus of between 200,000-300,000 tonnes in 2020. Australia-based mining group MMG's copper production fell by 24 per cent year on year in the first quarter on disruption to output at its Peruvian mine Las Bambas. Elsewhere, Canadian miner First Quantum Minerals this week revised down its 2020 production guidance for its Cobre Panama copper mine, which has been shut down because of Covid-19. The global copper market is headed for a surplus of between 200,000-300,000 tonnes in 2020. China's refined copper production fell in March as producers cut output during the outbreak. Domestic output fell to its lowest level since May 2019 to 771,000 MT in March, down by 2.5 per cent from a year earlier, according to data this week from China's national bureau of statistics.

The supply side response so far has been conservative relative to the expected drop in demand, and nowhere near big enough to preserve a supply deficit forecast by some at the start of the year, before Covid-19 halted swathes of the world's copper-consuming manufacturing base, including the automotive sector. Projections of the drop in global demand for copper this year vary widely, but forecasts made before the IMF's projection of contracting GDP included a fall in demand of 5-6 per cent, against a drop in supply of around 1 per cent. The slackening global copper demand showed the depth of the downturn in manufacturing since Covid-19 struck. April purchasing managers index readings for manufacturing in Europe dropped to 20-year lows, with equivalent US readings at 11-year lows. Automotive sector, which is one of the largest copper consuming industries, is going through its worst phase. There have been huge drops in car sales have occurred across Europe - with new car sales in France in April down by 88.8 per cent on the year, the Italian market falling by 97.5 per cent from last year and the Italian market falling by 97.3 per cent.

Economic activity in the euro zone all but ground to a halt this month as the coronavirus forced governments around the world to impose lockdowns and firms to down tools and shut their businesses. The spread of the pandemic has resulted in down scaling of economic activities in all major affected countries for the past 3 months leading to economic slowdown and financial crises. As per studies, the worst has not yet been seen in the data, prices of copper are expected to come down further in the short term. Many countries have now resorted to judicious easing of restrictions. Major countries resorting to phase wise controlled easing of restrictions are US, Italy, Spain, Portugal, Belgium and India as the longer the industries / economic activities are closed, the more would be the economic pain. Central banks pouring money over these markets and strong industrial demand in China seem to still underpin prices at these levels.

Saving lives has become a priority for all the countries in the world and the slowing down or decelerating economic growth has taken a back seat. But, the negative growth in the national income of several countries has forced controlled opening up of the economic activities to generate resources to fight the battle against COVID-19 pandemic. China is an important country for copper prices because it is the largest buyer. Still, there are signs that the demand for copper and copper-made products will decline since most of China’s trading partners are now struggling. Moreover, the IMF warned that the world would go through the worst recession since the Great Depression. This is a negative for copper prices, which tend to do well when the economy is booming.

The short-term outlook is one where these rallies run out of steam because we are still faced with the biggest demand shock in living memory it will take a long time to reset itself. Overall, the long term demand continues be robust. The increased demand for the uninterruptable and well-founded supply of electricity along with rising concern to reduce energy transmission and distribution lines would certainly lead to increased demand of copper. The positive signs surrounding pandemic is the restart of economic activity in China which is likely to kick start the economic churning of the global economic wheel.

Copper Finds no Respite as Coronavirus Aggravates Downside Risk

An economic disaster just four decades ago, China now touches the lives of billions of people around the world. The growth in China is significant for industrial giants, auto industry, renewable energy, and countless others who depend on its economic might. The current situation of corona epidemic is worryingly unique, because unlike the SARS episode of 2002-2003, the world is considerably more integrated. NO sector has been left out from being significantly effected from this epidemic be it. The coronavirus is spreading across the world and is now causing governments to shut down schools and public gatherings, which mirror the enforced shutdown of factories all over China. Disruption of China's logistics and supply chains due to restrictions on travel and impacts on labour due to quarantines and fears of contagion have resulted in a marked slowing of industrial activity generally within the country. The resulting lower demand for raw materials among manufacturers and the construction industry, along with the disruption of road transport and congestion at Chinese ports, are having a strong impact on inbound and outbound trade. The Chinese construction sector accounted for 48 per cent of the country's refined copper demand in 2019. Construction activity in the country has remained largely suspended due to the coronavirus, with work unlikely to resume in the near term, significantly affecting the demand of copper. Copper consumption has been impacted by reductions in manpower at manufacturing plants. Even though rates of infection in China appear to be falling and the government has ordered a general return to work, there have been outbreaks of the disease in countries outside China, including Japan, South Korea, Italy, Singapore and Iran, since the middle of February. This has raised fears of a global pandemic and increased concern that the virus could have a significant, longer-term negative impact on economic growth globally.

Apart from the coronavirus thereat, the global economic slowdown is also taking the toll on the copper market. The truce in US – China tariff conflict had infused positivity. The long term demand scenario still looks very convincing. There is significant rise in the cars and small automobiles demand as owing to the recent corona epidemic people especially in China as they are avoiding public transport network to keep away from infection. 

The supply Preliminary data indicates that world mine production declined by about 0.6 per cent in the first eleven months of 2019, with concentrate production down by 0.5 per cent and solvent extraction-electro-winning (SX-EW) declining by around 1 per cent. Reduced output in major copper mine producing countries more than offset growth in other countries. Production in Chile, the world’s biggest copper mine producing country, declined by 1 per cent mainly due to lower copper head grades and few production disruptions. Indonesian output declined by 46 per cent as a consequence of the transition of the country’s major two copper mines to different ore zones leading to temporarily reduced output levels. Ø After growth of 13 per cent in 2018, aggregated production in the Democratic Republic of Congo (DRC) and Zambia declined by 3 per cent as consequence of temporary suspensions at SX-EW mines, reductions in planned production and operational constraints. Production in a number of copper mine producing countries, including Australia, China, Mexico, Peru and the United States increased mainly due to a recovery from constrained output in 2018. Panama started producing copper in March 2019, with the commissioning of the Cobre de Panama mine, and was the most significant contributor to world mine production growth over the first eleven months of 2019. On a regional basis, mine production is estimated to have increased by around 4 per cent in North America, 1 per cent in Latin America and 4 per cent in Oceania but declined by 6 per cent in Asia, 2 per cent in Africa and 1 per cent in Europe.

Preliminary data indicates that world refined production declined by about 0.5 per cent in the first eleven months of 2019 with primary production (electrolytic and electro-winning) falling by 0.9 per cent and secondary production (from scrap) increasing by 1.6 per cent. World refined production growth was constrained as a consequence of a 25 per cent decrease in Chilean electrolytic refined output due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations. Total Chilean refined production (including Electro-winning) declined by 9 per cent. A 38 per cent decrease in Zambian refined output due to power supply interruptions, smelter outages and temporary shutdowns and the introduction on 1st January 2019 of a 5 per cent custom duty on copper concentrate imports that constrained smelter feed. Reduced output in Japan, Peru and United States and in several EU countries, due to smelter maintenance shutdowns and operational constrains. However, these reductions were partially offset by growth in Chinese output and by increases in countries recovering from production constraints in 2018 such as Australia, Brazil, Iran and Poland. On a regional basis, refined output is estimated to have increased in Asia (2.5 per cent) and in Oceania (10 per cent) but declined, in North America (-2 per cent), in Latin America (-7 per cent), in Africa (-10 per cent) and in Europe (-2 per cent).

Chinese smelters, facing high inventories of sulphuric acid and logistical problems resulting from measures aimed at halting the spread of the virus, have been forced to cut production in recent weeks. China’s own refined copper output is projected to grow by 3.8 per cent to 9.3 million MT year and its exports by 10.8 per cent to 350,000 MT. That leaves China’s refined copper market in a surplus of 650,000 tonnes in 2020, narrowed from 936,000 tonnes last year. Copper concentrate consumption, meanwhile, is expected to rise by 6.6 per cent on a copper-contained basis to 7.25 million tonnes, with domestic production holding steady at 1.56 million tonnes.

The demand prospect though is subdued owing to spread of the epidemic has shown no signs of slackening for the long term. The economic activity has slowed down significantly in China (which consumes over 40 per cent of the global copper) but is certain that it would bounce back with increased vigour once the coronavirus spread is contained and cured. China has sufficient capacity of semis in other provinces that a prolonged suspension in Hubei will not limit the recovery of copper demand. In addition, most semis fabricators usually run at reduced utilisation rates until the end of the second week after Chinese New Year. Therefore, the direct impact of the delayed restarts will be less than one-week of Chinese copper demand. However, the indirect impact and the downside risks on demand could be much larger. The actual impact on the demand could be assessed based on how long the coronavirus is expected to stay virulent. If China loses one month of copper demand, this means a reduction of more than one million tonnes of refined copper demand. However, some of the loss in copper demand, especially the demand from consumer durables, should be able to be clawed back later in the year if the health crisis dissipates in the first quarter. On the other hand, demand loss from infrastructure and construction sector will be harder to make-up; best case scenario is that it would be delayed to later this year. As a result, we believe that there is now a significant downside risk to our forecast of 0.9 per cent Chinese total copper consumption growth for 2020.

Indian Pulses Gearing up to Walk The Last Mile