Increased Chinese Support Sustained Northward Surge in Copper Prices

The copper market scenario has been improving in the last couple of month owing to the improvement in the Chinese demand though the supply of copper continues to be on the surplus side. The prices have also found support from the series of supply disruptions at major mines. The changes in the global economic scenario and more impetus on the growth have also adequately supported the price rally in copper. The trend has been positive but it’s too early to assume that the market has overall entered the bull phase.

On the supply front, World mine production is estimated to have increased by around 5.8 per cent (730,000 MT) in the first eight months of 2016 compared with production in the same period of 2015. Concentrate production increased by 7.5 per cent while solvent extraction-electro-winning (SX-EW) declined by 0.5 per cent. The increase in world mine production was mainly due to a 45 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia, also contributed to world growth. However overall growth was partially offset by a 4 per cent decline in production in Chile, the world’s biggest copper mine producer, and a 7 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first eight months of 2016 increased to 85 per cent from 84 per cent in the same period of 2015. World refined production is estimated to have increased by about 3.1 per cent (470,000 MT) in the first eight months of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5 per cent and secondary production (from scrap) was up by 5.5 per cent. The main contributor to growth was China (+7 per cent), followed by the United States where production increased by 14 per cent and Mexico (+19 per cent) where expanded SX-EW capacity is contributing to refined production growth. Output in Chile and Japan the second and the third leading refined copper producers increased by around 2 per cent and 3 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. The average world refinery capacity utilization rate for the first eight months of 2016 remains practically unchanged from that in the same period of 2015 at around 83 per cent.

During the same period, world apparent refined usage is estimated to have increased by around 3.8 per cent (570,000 MT) compared with that in the same period of 2015 mainly due to increases in China. Chinese apparent demand increased by around 7.5 per cent compared with the same period of 2015 based on an 8 per cent increase in net imports of refined copper. However July and August net refined copper imports at 176,000 MT and 175,000 MT respectively were the lowest since April 2013 and compares to a net monthly imports average of 312,000 MT in the first half of 2016. Aggregated usage in the EU, Japan and the United States remained essentially unchanged.

Global copper consumption is recovering as well, led by China. China’s refined copper consumption will probably rise by around 7 per cent this year led by strong demand for power cable, high performance sheet and strip for the auto and computer appliance sectors, by a recovery in magnet wire demand, and general demand as the economy recovers. China’s infrastructure spending is and will continue to be a multiple of whatever the US’s will be under its new president. For instance, in the first 10 months of this year, China’s spending on infrastructure alone was $1.4tn and it will probably spend as much if not more in the next 10 years as in the last since government plans to migrate another 200m from the rural areas to the urban world, making a migration of some 400 million over 20 years.

The global demand of copper has expanded by about 1per cent by December 1^st 2016 and is been adequately supported by the positive growth figures from E7 and G7 monetary data. Global policy has shifted from focusing on austerity to one of inflating the global system. What is missing from most equations is that when this shift starts, inventory moves out of the raw material chain into refilling the massive global manufacturing chain from the final product, such as a transformer or an aircon, all the way through the individual sectors to the semi-fabricator, which of course has been emptied in recent years. As per a report world refined consumption will probably rise by 4.5 per cent both in 2016 and 2017 and at least by 2.7 per cent in 2018. These numbers clearly indicates larger supply and demand deficits resulting in significantly positive copper prices.

A number of recent disruptions in the global copper supply show that the metal’s price rally is supported at least in part by fundamentals. About 415,000 tonnes of copper have been lost so far this year due to disruptions, the majority of which have occurred in recent months. The halt in operations at UK-based Anglo American’s central Chile mine began on November 17 following a dispute over negotiations with contractor companies. On November 17, a landslide caused by heavy rains at Park Elektrik Üretim Madencilik Sanayi ve Ticaret AS’ Siirt Madenköy mine in Turkey caused at least five worker deaths. Operations have been halted this situation is likely to continue till early next year. In addition, overall production in Chile has slipped this year, with year-to-date output falling 4.7 per cent to 4,581,000 tonnes from 4,808,000 tonnes in 2015. Production in October declined to 445,000 tonnes, off 3.4% month-on-month and 11 per cent year-on-year.

The positive PMI Data released by Caxin Services (53.1 against the expectation of 52.7) provided increased support to the copper prices. News of Chinese fund buying and supply disruption of copper concentrate supplies from Mongolia which generally feed the smaller smelters supported the unconfirmed reports that fabricators in China have yet to fully meet their buying requirements. China continues to be the key driver of sentiment, and prices have been susceptible to volatile moves as they are directed by news flow. As long as Chinese demand remains healthy, the risk of a sudden and rapid reversal in the short term remains low. In addition, copper is benefiting from a supply side experiencing sudden tightness. Despite positive market sentiment surrounding copper prices, downside risks are quite high due to a practical growth outlook for China and the USA, as well as the probability of an oversupplied market next year. Thus, in spite of the positivity gripping the copper market, one should invest in the market with caution.

Demonetisation: Positive Move to Strengthen Indian Agriculture

Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). In 2015–16, agriculture contributed 17.4 per cent to India’s Gross Domestic Product (GDP), as compared to 18.3 per cent in 2013–14. As against the Twelfth Five Year Plan’s (2012–17) target of 4 per cent growth for the agriculture and allied sectors, the growth registered was 4.2 per cent in 2013-14, -0.2 per cent in 2014– 15, and an estimated 1.1 per cent in 2015–16. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sector’s growth. But all these growth momentum has witnessed a temporary jolt as the Government announced the banning of the 500 and 1000 denomination currency notes as a legal tender. 

The major aim of demonetisation of bigger denomination currency was as follows; first, it is an attempt to make India corruption free, second it is done to curb black money, third to control escalating price rise, fourth to stop funds flow to illegal activity, fifth to make people accountable for every rupee they possess and pay income tax return and finally, it is seen as an attempt to make a cashless society and create a Digital India. 

Major benefit of demonetisation in agriculture is that the ban on high value currency will also curb the menace of money laundering. Now such activity can easily be tracked and income tax department can catch such people who are in the business of money laundering. Most of the fake currency put in circulation is of the high value notes and the banning of 500 and 1000 notes will eliminate the circulation of fake currency. This move has generated interest among those people who had opened Jan Dhan accounts under the Prime Minister’s Jan Dhan Yojana. They can now deposit their cash under this scheme and this money can be used for the developmental activity of the country. Most of the people who have been hiding their income are now forced to come forward to declare their income and pay tax on the same. Even though deposits up to Rs 2.5 lakh will not come under Income tax scrutiny, individuals are required to submit PAN for any deposit of above Rs 50,000 in cash. This will help the income tax department to track individuals with high denominations currency. Finally, all the monetary transaction has to be through the banking methods and individuals have to be accountable for each penny they possess. 

Such good are the benefits of demonetisation, but since majority of our agriculture transaction have traditionally been heavily cash dependent, short terms aftershocks of this move were expected. Cash is the primary mode of transaction in agriculture sector which contributes 15% to India’s total output. Formal financing in many parts, especially Punjab, Uttar Pradesh, Odisha, Maharashtra, Gujarat and Kerala is significantly from cooperative banks, which are barred from exchange-deposit of demonetized currency. Notably, this is a time of kharif harvest and start of rabi sowing, partly explaining why this period is dubbed the ‘busy season’ from a standpoint of credit demand, the other being bunching of festivals and weddings. Agriculture is impacted through the input-output channels as well as price and output feedback effects. Sale, transport, marketing and distribution of ready produce to wholesale centres or mandis, is dominantly cash-dependent, disruptions, breaks in the supply chains feedback to farmers as sales fall, increased wastage of perishables, lower revenues that show up as trade dues instead of cash in hand and when credited into bank accounts with limited access affect the sector. 

These were some of the after effects of demonetisation but majority of farming community is slowly learning the new means of trade. But, now farmers are accepting the new mode of transaction (Cashless or Bank to bank Transaction). It is the myth the farmers refuse to accept cheque payment as Small dairy farmers in Andhra Pradesh accept cheques, Sugarcane farmers accept cheques from sugar factories, Moong farmers are accepting cheques from government procurement agencies, Apple farmers accept cheques from large buyers, Potato contract farmers accept cheques from food companies, Maize farmers in Nabrangpur - Odisha's poorest district are accepting cheques, and coconut farmers in Karnataka took cheques from state agencies and such mode of transaction has been increasing day by day. Moreover, Farmers accept insurance and disaster relief cheques. Thus dealing in cheque is not a new mode of transaction for the farmers. In some states government has failed to deliver the payments by cheque not because there is no mechanism, but due to local middlemen resistance. Food Corporation of India tried but failed to pay Punjab and Haryana farmers by cheque for wheat, only because the powerful commission agents want to first deduct the loan repayment amounts. So to portray that the farming community is not at all aware of modern means of cashless transaction is not so appropriate. 

Few issues of cash payment is involved in payment of labourers, transporters and other small channels, cashless mode can be adopted after due persuasion and training. In the current scenario, It is true that the small and marginal farmers who sell off their produce in the village itself are hurt by the demonetisation. Similarly, value chains with minimal processing and direct consumer sales such as fruits and vegetables are hit. Most fresh produce is sold by small hawkers and vegetable mongers in the streets of India. Since they take payment in cash and buy their wares from the mandi in cash, business is down. These are symptoms of the crying need for reform and high time that the new systems are in place replacing the old traditional ones so as to ensure the every person is made accountable for each and every penny one earns. 

The demonetisation has been accepted as a financial cleanup process by the people at large; the governments should make use of demonetisation as an opportunity to secure the economic wellbeing of the poor farmers in the country. The demonetisation could be an occasion to popularize Kisan Credit Cards, while making it available for not only to men farmers but also to all women farmers. The credit card should be in a position to help farmers purchase the needed inputs without much difficulty. 

Demonetisation could then lead to a new era in agriculture provided it is managed and implemented judiciously.

Copper Industry Finally Sees a Glimmer of Hope with Turnaround in Chinese Demand

Copper market dynamics are largely being guided by the way Chinese demand as China, is world's second-largest economy, also a biggest commodity consumer, accounting for about 45 per cent of the global demand. The price of copper has maintained lower ebb ever since the slowdown in Chinese economy commenced. In the times before 2014, China controlled the market as a growing industrialized nation with an enormous geographic scope and a breakneck growth rate, China became a large consumer of raw materials and commodities. A cheap dollar over the past six years only accelerated these themes, as it made the relative cost of these commodities cheaper on a per-unit basis, all factors held equal. Copper had significantly wider industrial usages than Gold or Silver, and was often be found in electrical wiring. Copper has been the preferred electrical conductor in pretty much every area of wiring with the exception of overhead electric power transmission, in which aluminum is often used. This meant that a growing, industrialized economy was using more of copper, as wiring was going to be a necessity as a country was building its infrastructure.

But Chinese growth began to slow heavily from the 10 per cent growth rates seen for much of the decade leading into 2014, down to 8 per cent; followed by a 7.5 per cent growth target in March of 2014, and then a target of ‘around 7 per cent’ in March of 2015, and most recently, a 6.5 per cent target set for 2016 to 2020. This slowing of growth has had a dramatic impact on Commodity prices, and perhaps one of the best markets to look at for this evidence is in Copper. As China slowed, Copper prices have seen a significant move as this demand for Copper’s industrial usage has waned. After that high in February of 2011, Copper prices have moved down by more than 53 per cent. In the current scenario, we can derive the expectation for additional weakness in metals prices, and this can lead to additional pain for economies with significant mining operations, as lower Copper prices will squeeze margins, and that leads to less hiring, lower wages (or fewer wage increases) and an overall contraction in business. Following the trend’s weakness the copper prices are down almost 30 per cent over the past year. On the contrary the Chinese stocks are up over 40 per cent leading to sustained weakness. 

According to the ICSG, China is expected to drive copper production and demand growth in 2016 and 2017. The ICSG also added that the demand is expected to stay the same in 2016 but forecasted to grow by 1.8% in 2017, mainly supported by the increase in industrial demand from China. The latest copper market forecast report released by the International Copper Study Group (or ICSG), the market will be very close to supply-demand balance in 2016 and 2017, and China is expected to be the biggest contributor to supply and demand growth. China is expected to add about 550,000 tonnes both in smelting and refining capacity next year versus 500,000 tonnes in smelting capacity and 450,000 tonnes in refining capacity this year.

Amidst the major supply side indicators, China is the largest producer of refined copper in the world, it accounts for over one-third of the global refined copper production followed by Chile and Japan. Chile’s refined copper production has fallen 5.2 per cent YoY (year-over-year) in the first seven months of 2016 compared to the same period last year. The country’s copper production has been impacted negatively by a range of issues from floods to labour problems. Chinese copper production has continued to rise in 2016. In the first eight months of 2016, China’s copper concentrate imports rose ~34 per cent YoY. It’s important to note that China’s copper smelting and refining capacity has expanded at a fast pace in the last decade. As a result, the country imports large amounts of concentrates. On an annual basis, the net imports of refined copper rose 9 per cent year-on-year. For the first half of 2016, net refined imports reached 1,874kt, rising 20 per cent year-on-year from H1 2015’s 1,559kt. It processes the concentrates domestically. This helps job creation in China. Higher copper concentrate imports are reflecting in China’s copper production. Production has risen 8 per cent YoY in the first eight months of the year. According to the data released by National Bureau of Statistics on September 19, China’s copper output rose to almost a six-month high in August. According to the data, the output rose to 743,000 metric tons in August. This is higher than July’s output of 722,000 metric tons. It’s also higher than the output of 663,000 metric tons in August last year. Copper started the day on a weaker note amid an increase in China’s output. However, it recovered losses amid a weaker dollar. Chinese copper exports have also been rising over the last few months, while its refined imports have fallen. Since the increase in Chinese copper imports wasn’t exactly backed by end user demand, some of the Chinese refined copper imports found their way into SHFE (Shanghai Futures Exchange) warehouses. As a result, SHFE copper inventories rose to record highs in March. 

In the second half of 2016 the copper scenario seems to be improving with investment stimulus being pushed into the Chinese market, stable dollar and improvement in demand. Thus, in spite of the gloom surrounding the copper market at present, the future is showing signs of recovery. China's demand for copper is expected to rise 4-4.5 per cent in the later part of 2016 and 2017, with the exact level depending on economic growth, investment in power projects and bank credit to small- and medium-scaled factories. State investment in the power sector is expected to rise next year after slowing in 2015. Still, copper is used only when grids fund projects and place orders for power cables and wires. China is likely to spend at least 2 trillion yuan ($315 billion) to improve its power grid infrastructure over the 2015-2020 period, which an executive at a state-owned copper producer told Reuters could consume some 1.3 million tonnes of refined copper. Refined copper production may rise from 6-7 per cent to 7.87-7.94 million tonnes in 2016 as production at new smelters that came on stream this year and last year rises gradually, said He. Growth expected for this year is 7.7 per cent. These, alongside a steady increase in demand from China’s electric vehicle sector of around 200,000 tonnes over the next five years, account for more than 2 million tonnes of copper, compared with current forecasts on total copper consumption over the period of about 105 million tonnes.

Amidst so much of positivity flowing in the Chinese Economy, the copper prices have been working higher in recent days and given recent weeks has been London Metals Weeks when the global industry gathers, the price performance suggests sentiment is far from bearish and possibly even getting a bit more bullish. Tin price are ramping higher, given the shortages in LME stocks that is not surprising and without the backwardation flaring out, the market seems relatively orderly. Finally, the market had become too complacent about the bearish China trade and the rebound since mid-January caught many in the market wrong-footed. A counter-trend move is now in progress; given the low level of LME stocks and rising prices, a period of restocking may ensue.

NBHC’s First Kharif Crop Estimates for 2016-17

With the Kharif season almost on the verge of completion we at NBHC are releasing our 1st Kharif Crop Estimate - 2016-17. As per our analysis and industry’s feedback on the sowing progress and the status of the current crop, the total Kharif Cereals production is likely to improve by 8.25 per cent. For the current season the monsoon had arrived about 7 days late but spread uniformly over the country barring few pockets. The entire season monsoon was found to be 3 % below normal and the spread details are as: Excess – 13%, Normal – 72 % and Deficient – 15 %. In the deficient regions, out of the 9 deficient sub-divisions, 4 sub-divisions were from South Peninsula (Coastal Karnataka, South Interior Karnataka, Kerala and Lakshadweep), 3 from Northwest India (Haryana, Chandigarh & Delhi, Punjab and Himachal Pradesh), and 1 each from Northeast India (Assam & Meghalaya) and Central India (Gujarat region). The crops sown in these areas are already experiencing moisture stress, but the rest of the country is expected to have good crop. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2015-16 would turn out to be as explained in table given below. 

Rice is expected to show a marginal Improvement in area by 5.26 per cent and a rise of 4.96 per cent in production over last year owing to wide spread rains in major paddy growing areas. Maize is the other cereal crop with significant improvement in area as well as production. The area is expected to increase by 13.95 per cent and the production is expected to improve by 28.26 per cent to 19.05 Million MT as major stretch of maize producing areas in major states are experience conducive weather situations. Maximum improvement is expected in Jowar whose production is expected to expand by 25.55 per cent in spite of significant decline in acreage. Lack of remunerative income has led Jowar & Bajra farmers to shift their cropping pattern to other cash crops though the good rains are expected to boost the yield keeping the overall production on the positive side. 

In the pulses sector, the increased positive focus of the government was clearly visible. In the pulses growing states of Madhya Pradesh, Karnataka, Andhra Pradesh and Telangana major production overhaul is expected. We expect the area under Tur, Moong and Urad to increase sharply by 45.05 per cent, 26.66 per cent and 37.02 per cent and likewise the production also to improve by 53.58 per cent, 37.84 per cent and 42.78 per cent respectively. Overall, the total Kharif pulses production is likely to soar up by 47.88 per cent over last year. 

The oil seed sector is likely to see a marginal improvement of production by 15.61 per cent. Maximum increase of 13.68 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 8.51 per cent and in cotton the production is likely to decline by 2.67 per cent.

Increased Uncertainty in Demand Grips Major Investment Plans in Copper

Major copper supplying companies and countries are finding it really hard to balance their economy in the wake of sustained weakness in copper demand. The burden of over supply continues amidst lack of increased demand from China (which consumes about 45 per cent of the global supply) and other emerging markets. The slackness in demand has led major copper supplying companies to production cuts and lying off of the expansion plans. Copper consumption in China has been a vital measure of that country’s economic growth as the red metal forms a key network of its infrastructure, transporting water, and conducting electricity. China, with its huge manufacturing sector, is by far the largest consumer of copper. It has been estimated that 70 per cent of copper used in China is imported. Many markets whose returns are positively correlated with China’s industrial/investment cycle (base metals, iron ore, commodity currencies) continued to rise in the spring and early summer of 2016 despite the lack of much lift in Chinese industrial production and fixed asset investment as the authorities provided stimulus, but the copper continues to lag behind on reduced demand and falling prices. 

The situation of over supply is likely to continue for the entire 2016 as there are no signs of improvement in demand. Copper got a boost in recent weeks from encouraging economic data from China that signaled stability for the major copper consumer, but the recent check in the infrastructural growth. China, the world’s biggest consumer of copper, cut imports of the refined metal to the lowest level in 18 months in August as domestic production climbed amid increasing foreign purchases of ore and concentrate. Inbound shipments of refined metal slumped for a fifth month to 232,066 MT from 251,235 MT in July and 262,691 MT a year earlier. Refined-metal exports jumped more than four-fold from a year earlier. Purchases of refined metal were still 16pc higher in the first eight months from a year earlier, the data showed, after record shipments in the first half on the back of a credit boom and property rebound. 

World mine production is estimated to have increased by around 4.5 per cent (430,000 MT) in the first half of 2016 compared with production in the same period of 2015. Concentrate production increased by 6 per cent while solvent extraction-electro-winning (SX-EW) declined by 1 per cent. The increase in world mine production was mainly due to a 50 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 5.5 per cent decline in production in Chile, the world’s biggest copper mine producer and a 10 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first half of 2016 remains practically unchanged from that in the same period of 2015 at around 84.5 per cent. World refined production is estimated to have increased by about 3 per cent (320,000 MT) in the first half of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5 per cent and secondary production (from scrap) was up by 4.5 per cent. The main contributor to growth was China (+6 per cent), followed by the United States where production increased by 16 per cent. Output in Chile and Japan, the second and third leading refined copper producers, increased by about 2 per cent and 3 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. 

Amidst, lack of concrete demand, the marginal fluctuation in prices is been governed by movement in the energy prices, news of supply cuts and movement in dollar prices. Historically, there hasn’t been much of a correlation between copper and energy prices. However, copper and Brent crude oil have had a much higher correlation in the last couple of years. One of the reasons driving commodities lower has been the steep decline in energy prices. If crude oil prices recover as a result of production cuts, we might see an upward price action in copper as well. Copper producers such as Southern Copper (SCCO), BHP Billiton (BHP), and Rio Tinto (RIO would benefit if copper prices increase. It’s worth noting that copper’s long-term fundamentals are better than some of the other commodities such as steel and aluminum. However, in the near term, oversupply and negative global sentiment seem to weigh on copper prices. As per the supply cuts are concerned, Late last year, Glencore — one of the world’s largest copper miners — decided to mothball its largest mines in Africa, taking up to 400,000 MT of copper production off the global market. In Chile, the single largest supplier of copper in the world, the state-run copper commission announced big investment cuts through 2025, eliminating eight mine-development projects worth nearly $23 billion.

World apparent refined usage is estimated to have increased by around 5 per cent (570,000 MT) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 11 per cent based on a 20 per cent increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Excluding China, world usage remained essentially unchanged. On a regional basis, usage is estimated to have increased by 5 per cent in Europe and 7 per cent in Asia (when excluding China, Asia usage declined by 2 per cent), while declining by 17 per cent and 4 per cent in Africa and in the Americas respectively and remaining essentially unchanged in Oceania. 

Now, going by the details of the Chinese market, the global copper status is heading nowhere as the pressure of increasing stock in China is going to pressure the prices any time. Reuters reported that China’s SRB had bought 150,000 MT of copper. That’s quite a big number when we look at annual copper consumption, which is expected to reach 23 million metric tons this year. Moreover, the bonded copper stocks, which are held in free-trade zones in China, have risen over the last few months. The data haven’t been released officially, but Bloomberg estimates the figure at a whopping 600,000 metric tons as of the end of May. China’s bonded copper stocks have risen by 220,000 MT since February 2016. On the demand side, the total floor area under construction (in square meters) by Chinese real estate development enterprises has risen by 4.8 per cent in the first seven months of the year. The rate of growth has fallen 0.2 per cent points as compared to the first six months of the year. In the first seven months of 2016, building sales increased by 39.8 per cent YoY (year-over-year) in China. However, the growth rate has fallen by 2.3 per cent points as compared to the first six months of the year. Thus, we can see that the historically high Chinese imports that we saw earlier this year are not sustainable, as they are not backed by actual end user demand and might ultimately find their way into the Shanghai Futures Exchange warehouses and bonded locations. The above facts clearly explain that all is not well with copper market and it’s not the right time for the new investors to make fresh entry.

Investor’s Sentiment in Doldrums Amidst Absence of Significant Stimulus

Copper trade is still lacking support from the major industry players amidst pressure form the abundance of supplies and global economic slowdown. In spite of the few scattered efforts to add strength to the economic growth in the major consuming countries, the market lacks the sustained support which is required to push up the copper prices and maintain it on the higher levels. Copper tumbled in the past three years as China, the biggest consumer, headed for its slowest economic growth in a generation following years of investment in output by miners. Demand for copper continues to the main concern as there are already signs of China’s wavering demand. The country’s imports of refined copper shrank in July to the smallest in 17 months, while exports jumped fivefold from a year earlier. 

On the supply side the surplus in no more a surprise for the industry. World mine production is estimated to have increased by around 4 per cent (345,000 MT) in the first five months of 2016 compared with production in the same period of 2015. Concentrate production increased by 5.5 per cent while solvent extraction-electro-winning (SX-EW) remained essentially unchanged. The increase in world mine production was mainly due to a 52 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 5 per cent decline in production in Chile, the world’s biggest copper mine producer and 11 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first five months of 2016 remains practically unchanged from that in the same period of 2015. World refined production is estimated to have increased by about 3.5 per cent (330,000 MT) in the first five months of 2016 compared with refined production in the same period of 2015, primary production was up by 3 per cent and secondary production (from scrap) was up by 5 per cent. The main contributor to growth was China (+7 per cent), followed by the United States where production increased by 18 per cent. Output in Chile and Japan - the second and third leading refined copper producers - increased by around 3.5 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. The average world refinery capacity utilization rate for the first five months of 2016 increased to 83.5 per cent from 82.2 per cent in the same period of 2015.

Though there has been a marginal improvement in the demand, it has significantly failed to keep pace with the rising supplies. In the first five months of 2016, world apparent refined usage is estimated to have increased by around 5 per cent (510,000 MT) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 12 per cent based on a 22 per cent increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Copper imports by China have been declining since April 2016 after reaching a peak in March. This increase in its export data and a decline in imports raised concerns over the strength of demand for copper in China. Excluding China, world usage remained essentially unchanged. After taking imports of unwrought copper and products to a record in the first half, China cut purchases to 360,000 MT in July, the lowest since August 2015. On a regional basis, usage is estimated to have increased by 6 per cent in Europe and 8 per cent in Asia (when excluding China, Asia usage declined by 2.5 per cent), while declining by 20 per cent and 4 per cent in Africa and in the Americas respectively and remaining essentially unchanged in Oceania.

The industry has been trying to cut the supplies in order to match up with the decline in the demand but copper-output cuts spurred by lower prices aren’t enough to end a surplus this year and demand won’t catch up with supply until 2017. Production outpaced demand by about 147,000 MT in 2015, the biggest surplus since 2009. Till now, around 700,000 MT of supply will have been removed in about the year through mid-2016 as prices sank to a six-year low. Still, new supplies from mines added this year indicated that the glut would not be completely wiped out in 2016. Stockpiles of the metal are ballooning, further pointing to a demand slowdown. Inventories monitored by the London Metal Exchange have jumped to a 10-month high. Supplies are likely moving out of China and into warehouses tracked by the London Metal Exchange. 

Going by the above situation of supply glut and shrinking demand, the industry is keenly looking forward to the economic situation of major consuming countries for support. A partial support came from the data released by the China Logistics Information Centre, which showed that China’s Manufacturing PMI rose to 50.4 in August. This is better than July’s value and is also higher than the market’s expectations of 49.9. The reading above 50 indicates the expansion of manufacturing activity. This better-than-expected factory data gave support to copper prices as healthy manufacturing activity in China implies a healthy demand for copper. But this support was short lived as the US dollar weakened due to weaker-than-expected manufacturing data for US which showed the ISM Manufacturing PMI data as 49.4 in August. This was disappointing, as the market expected a manufacturing PMI reading of 52. This weaker-than-expected data weighed on the US dollar pulling down the scope of sustained improvement in copper prices. 

In spite of the marked gloom encircling the copper market, the silver lining comes from the improvement in the apparent demand of copper in China. Copper’s apparent demand has been better-than-expected this year on the rise in Chinese construction activity coupled with an increase in the country’s bonded stocks. The supply side of the equation has also been somewhat supportive of copper prices. Along with the curtailments by companies like Freeport-McMoRan (FCX) and Glencore (GLNCY), weather-related disruptions in Chile, which is the world’s largest copper producer, have prevented the market from moving to a larger surplus. Other positive developments in global economy supporting copper market are coming from US and Japan. In the United States, the No. 2 copper user, the two leading presidential candidates have pledged to step up spending on infrastructure if elected. In Japan, Prime Minister Shinzo Abe’s government is embarking on a plan to spend $77.5-billion Canadian on infrastructure. Thus, though for the short term there is no support to the copper industry, the long term investors should stay invested and refrain from panicking.

Rising Smelting Capacity Provides Glimmer of Hope to Investors

Copper continues in the grip of abundance supplies, low demand and weakening global economies. The slow growth of the global economy is also not helping the copper prices either. Since the demand of copper is not showing any significant improvement, global economic development is currently guiding the short term volatility in the prices, but in a tight range.

The supply of copper have turned on the deficit side in the month on month analysis as major mining companies have resorted to significant capacity reduction amidst declining demand though the overall supply scenario continues to be robust. ICSG data, the refined copper market for April 2016 (excluding the adjustment for changes in China’s bonded stocks) showed an apparent production deficit of around 110,000 MT mainly due to strong Chinese apparent refined copper demand. When making seasonal adjustments for world refined production and usage, April showed a production deficit of about 32,000 MT. The refined copper balance for the first four months of 2016, including revisions to data previously presented, indicates a production deficit of around 119,000 MT. This surplus is shown merely on the demand and usage pattern of copper in global market. On the mining side the production is estimated to have increased by around 4 per cent (260,000 MT) in the first four months of 2016 compared with production in the same period of 2015. Concentrate production increased by 5 per cent while solvent extraction-electro-winning remained essentially unchanged. The increase in world mine production was mainly due to a 51 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 4 per cent decline in production in Chile, the world’s biggest copper mine producer and a 13 per cent decline in DRC where output is constrained by temporary production cuts. Production of refined copper also showed a positive growth of over 4.5 per cent (330,000 MT) in the first four months of 2016 compared with refined production in the same period of 2015, primary production was up by 4 per cent and secondary production (from scrap) was up by 5.5 per cent. The main contributor to growth was China (+8 per cent), followed by the United States where production increased by 18 per cent. Output in Chile and Japan the second and third leading refined copper producers increased by 5 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts.  

During the same reference period world apparent refined usage is estimated to have increased by around 6 per cent (460,000 MT) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 14 per cent based on a 30% increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Excluding China, world usage declined by around 1 per cent. On a regional basis, usage is estimated to have increased by 6 per cent in Europe and 9 per cent in Asia (when excluding China, Asia usage declined by 3 per cent), while declining by 20 per cent and 4.5 per cent in Africa and in the Americas respectively and remaining essentially unchanged in Oceania.    

The global economic scenario is uncertain with declining housing demand in US, continuing slowdown in China and strengthening of dollar. Indication of slowdown in US demand have started coming with the cooling of Housing Data as the MBA mortgage applications index fell 3.5 percent last week, a third straight decline, while purchases also dropped as per data from the Mortgage Bankers Association. U.S. construction spending in June unexpectedly fell 0.6 per cent. Recently, the Chinese manufacturing PMI (purchasing managers’ index) data were released. The divergence between the official PMI data and Caixin manufacturing PMI data was observed. According to the data, the official Chinese manufacturing PMI for July was 49.9—below the market’s expectation of 50. It indicates a contraction in the manufacturing activity. On the other hand, the Caixin manufacturing PMI released by Market for July was 50.6—the first expansion since February 2016. Amid weak signals of demand from China, the Market is looking forward to the monetary stimulus from the country’s central bank. The Market participants are expecting a monetary stimulus from the Central Bank of China in the near term.

Apart from the dynamics of supply and demand and global economic scenario, the copper is finding small support from the rising smelting industry which is ever expanding. Although copper prices have fallen by over 50 per cent since they reached a peak in 2011, Chinese copper smelters have not reduced the pace of capacity expansion, thanks to historically high treatment and refining charges (TC/RCs) over the same period. Despite excess smelting capacity and progressively tighter concentrate markets, we can expect the Chinese smelting industry to continue growing during the next four years.  In fact, there is potential for even higher growth rates than we currently expect in our base case scenario, due to the short lead times associated with the development of new smelter projects and changes in project status.

There are several reasons for this situation. First, there is room for China's cathode self-sufficiency rate to increase further.  Even though China has been the biggest producer of copper cathodes in the world for several years, it still needs to import between 30-40 per cent of its total cathode consumption every year, which means that government support, in the form of low-cost loans, environmental approval and access to land, among other, is readily available for smelters. Second, in spite of the economic slowdown, Chinese copper producers have remained profitable due to the high TC/RCs. According to the latest data from China Nonferrous Metals Industry Association (CNIA), profits obtained by Chinese copper smelters hit RMB 2.0B in Q1 2016, up 41.35 per cent y-on-y. Third, rising copper prices provide additional incentives to Chinese copper smelters.  It is expected that refined copper prices would reach the bottom of the cycle in 2017 and to start rebounding from 2018 onwards. In those cases, being exposed to an increasing copper price trend might be an opportunity for significant profits. Fourth, the lead-time of Chinese copper smelting projects is very short. Over the past six months, massive expansion plan in the smelting plants have been laid. A few to be mentioned are Chifeng Jinjian's 400,000 MT/year expansion, Zhongqi Copper's 100,000 MT/year expansion, the 100,00 MT/year Lingbao smelting project, Shenghai Chemical's 50,000 MT/year expansion and Yantai Guorun's 50,000 MT/year expansion. It is expected that over 70 per cent of the increase in global smelter capacity during the next four years will take place in China. Thus the above reasons certainly provide increased positive support to the copper market and to the long term investments.

Low Uncertain Demand for Copper Dampens Investment Sentiments

Copper continues to driver of the global economy as the socio - economic development of the country is measured in terms of its per capita consumption. Increased economic activity leads to increased consumption of copper and other related metals. As for the price, commodity markets are cyclical in nature. Each raw material market has its individual characteristics. So many factors contribute to whether the price of a commodity moves higher or lower. While commodity production is often a localized affair, consumption is ubiquitous. Therefore, deficit conditions or periods of oversupply occur often as a result of weather or other acts of nature, political events, and a myriad of other factors. 

The copper market as of now is gripped with the slowness of demand as the economic growth in China has slumped to below 7 per cent. Considering the fact that China is the biggest consumer of base metals, the economic situation of China will have an impact on copper prices. The copper has been under pressure recently after a reading of Chinese manufacturing activity showed that Beijing's economic stimulus program is beginning to run out of steam. Fears of devaluation in the renminbi compounded the pressure on the copper price as China is responsible for 46 per cent of total global copper demand of some 22 million MT. Another factor that pushed copper to three month lows earlier this week is robust supply. More than 750,000 MT of annualized supply was idled in 2015 by companies including Freeport McMoRan and Glencore in response to low prices, according to a report by consultants Wood Mackenzie, but producers are looking far more resilient in 2016 and curtailments this year are unlikely to exceed 150,000 MT. In addition some major projects are ramping up this year including China Minmetals' Las Bambas mine and Freeport's Cerro Verde expansion project in Peru.

The demand and supply dynamics of copper continues to be exceedingly dominated by the supplies. World mine production is estimated to have increased by around 3 per cent (100,000 MT) in the first two months of 2016 compared with production in the same period of 2015. Concentrate production increased by 4 per cent while solvent extraction-electro-winning (SX-EW) remained essentially unchanged. The increase in world mine production was mainly due to a 54 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Indonesia and the United States and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 6 per cent decline in production in Chile, the world’s biggest copper mine producer and a 13 per cent decline in DRC where output is constrained by temporary production cuts. World refined production is estimated to have increased by about 4 per cent (135,000 MT) in the first two months of 2016 compared with refined production in the same period of 2015: primary production was up by 4 per cent and secondary production (from scrap) was up by 2 per cent. The main contributor to growth was China (+6 per cent), followed by the United States where production increased by 25 per cent. Output in Chile and Japan the second and third leading refined copper producers, increased by 3 per cent and 5 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. The average world refinery capacity utilization rate for the first two months of 2016 increased to 84 per cent from 83 per cent in the same period of 2015.

Apart from China, United States is the second largest copper consumer, accounting for 9 per cent of global copper consumption. Strong housing and automotive demands bode well for US copper consumption. In fact, the US economy is improving and that was why we can expect some surge in the copper prices. But, this surge is unlikely to be supported for long term as profit growth at China’s industrial firms showed signs of slowing in April, in line with other data for the month which suggested the economy may be losing steam again after picking up earlier in the year.
The uncertainty and low phase of copper is attributed to the slow economic activity in China, weak forecast for global economic growth and increasing strength of USD. Recently, the dollar has appreciated, and the U.S. Federal Reserve has reiterated their intentions to hike interest rates this summer and many commodities have either moved lower or stopped their upward trajectory. The dollar is the reserve currency of the world and the pricing mechanism for most raw materials around the world. A stronger dollar is not supportive of a continuation of the recovery in commodity prices. Commodity prices are highly sensitive to interest rates around the world. When interest rates are high, it costs more to carry inventories of raw materials. Therefore, consumers tend to become hand to mouth regarding their requirements. Low interest rates are positive for commodities, and we continue to live in an environment of some of the lowest interest rates ever on record. Interest rates remain in negative territory in Japan and Europe - it costs money to store money in the bank.

As regards to copper in the recent times, Copper consumption estimates for China are being revised up. Huge spending on copper-intensive power infrastructure on the state grid in 'rural areas' will continue through 2012 (12 bn RMB). Beijing has also renewed the 'home appliance subsidy scheme' and is promoting electric cars, which are twice as copper-intensive as conventional vehicles. Moreover, in spite of the slowdown, China has been a shining example of overall economic growth, growing at an annual rate of 9.9 per cent between 1980 and 2010. Most forecasts do not have China slowing down anytime soon; the IMF predicts China's economy will expand at an annual rate of 9.7 per cent over the next 5 years. One of the largest drivers of copper will be the growth of the Chinese consumer. Now one billion Chinese have become consumers, salaries have increased, and domestic consumption will continue growing faster than GDP (which in itself is projected to grow 500 per cent by 2025). 

In the current demand scenario the actual copper trade has almost vanished from the market. As per observation producers and consumers of industrial metals are mostly absent from the market. They have left the field wide open for funds that buy or sell on signals from models using numerical relationships; one of these involves the U.S. currency, which when it falls makes dollar-denominated commodities cheaper for foreigners. Selling pressure from the dollar continues to cap the market as well as weak manufacturing data from China. Chinese manufacturing and trade data from the over the week-end reinforced doubts about demand. Thus, the investment sentiment continues to be in doldrums and fresh investors need to wait for some more time before making an entry.

Development in Indian Warehousing Industry with Focus on Pulses

-  Article Published in HANDBOOK OF PULSES 2016 -  Page (54 - 59) 

Warehousing plays a very vital role in promoting agriculture marketing, rural banking and financing and ensuring Food Security in the county. It enables the markets to ease the pressure during harvest season and to maintain uninterrupted supply of agricultural commodities during off season. Hence, it solves the problems of glut and scarcity, which are the usual problems in agricultural marketing. Though warehousing is an independent economic activity, yet is closely linked with production, consumption and trade. Warehousing is now seen as an integral part of the supply chain where goods are not only stored for safekeeping, but also where other value processes are implemented, thereby minimizing wastage and costs.

Agricultural warehousing accounts for fifteen percent of the warehousing market in India and is estimated to be worth Rupees 8,500 crore. However, it is perceived to be inadequate and unorganised. More than 40 per cent of the agricultural warehouses are run by state enterprises such as FCI, CWC and SWCs. About 30 per cent of the warehousing capacity is held by unorganised small godown players. These unorganised warehouses lack scale and quality. On the other hand, there are a few large national-level players in the warehousing market which own professionally run warehouses and also provide ancillary services around warehousing. Although there is no exact data on the number of warehouses present, some of the substantial capacities available in public, cooperative and private sectors are depicted in the adjacent table.

Given the fact that a huge quantity of government procured food grains are kept in open storage (CAP) for months together, the risk of quality deterioration needs no emphasis. In this context, the finding of an expert Committee, point to a total warehousing gap 35 million MT during the 12^th plan period, reflecting the excess of demand for warehousing capacity less supply or availability of the same. In the other words, warehousing capacity of 35 million MT need to be created in the country during the 12^th plan period to ensure that the demand for storage of agri commodities is adequately take care of. Of this gap, as indicated above, capacity of 12.11 million MT has already been created. The gap insofar as the private sector is concerned is likely to be about 10 million MT as the bulk of the storage gap is in the public sector.

About 80 per cent handling and warehousing facilities are not mechanized and traditional manual methods for loading, unloading and handling of foodgrains and other commodities are used. However, the warehouses which are mechanized have just forklifts or hydraulic hand pallet trucks. These numbers clearly indicate that there is an acute shortage of organized and good quality warehousing and storage infrastructure in the country, for both, agricultural and non-agricultural commodities. In spite of the fact that government has incentivized agri-warehousing capacity building, there had been lack of sustained investment in the warehousing sector. The private sector initiatives were small and sporadic in this sector. Besides, most of the private sector warehousing capacities available in the country were of poor quality, small, fragmented and do not meet the requisite infrastructure standards.

The warehousing capacity built over past 10 years, especially those sanctioned by NABARD have an average storage capacity per warehouse of 1,261 MT and around 75 per cent of numbers of godowns have capacity of less than 1,000 MT. The development of small and medium godowns indicates that most of them have been built by farmers or a community of farmers thus ensuring that distress sale is reduced and better prices are paid to farmer for their produce. Apart from this there are few large national level players which have emerged over the last decade owing to the available capital subsidy. These include National Bulk Handling Corporation Ltd., National Collateral Management Services Ltd., Adani Agri Logistics, Star Agriwarehousing & Collateral Management Ltd., Shree Shubham Logistics Ltd., Ruchi Infrastructure Ltd., Guru Warehousing Corporation, Paras Warehousing and LTC Commercial. Irrespective of the concerted efforts from the government as well as private and corporate players in the warehousing sector, the industry is gripped with regional imbalance.

Only 22 per cent of total storage capacity is available in the major consumption states. Even some of the states have got storage capacities of less than one month of their requirement. While obvious factors like proximity to the major mandis in the state, differences in the quantities of food grain and pulses produced within the state, etc. are the major causes behind the regional imbalances, other key factors like the extent of interest and initiative shown by bank officials in promoting the concept of rural godowns to local entrepreneurs, publicity and awareness created about the scheme at the local level, etc. also played a major role behind these regional imbalances. In short, dominant producers of food grain and related agricultural products comprise the majority of godowns and storage capacity.

The warehousing industry in India gained tremendous impetus after the introduction of the Warehousing Development and Regulatory Authority (WDRA) which came into existence on 26th October 2010 as per the provisions made in the Warehousing (Development and Regulation) Act, 2007. WDRA has been instrumental in the implementation of negotiable warehouse receipt (NWR) w.e.f. 26^th April 2011. As per the Warehousing (Development and Regulation) Act, 2007, negotiable warehouse receipts (NWRs) can be in both paper and electronic forms. The format of the NWR has been finalized in consultation with various stakeholders and Indian Banks’ Association (IBA), and paper NWRs are now being issued by the registered warehouses across the country. The advantages of electronic warehouse receipts (EWR) over the paper warehouse receipts include: reduction in manual paper handling, elimination of transportation of paper warehouse receipts, reduction in chances of forgery, and quick access of information. The WDRA play a vital role in developing an orderly, robust and reliable warehousing system in the country not only for foodgrains and other dry commodities but also for perishable commodities like fruits and vegetables wherein post-harvest losses are reported to be about 30 per cent. The introduction of NWR system in the country would not only help farmers to avail better credit facilities and avoid distress sale but would also safeguard financial institutions by mitigating risks inherent in credit extension to farmers. The pledging /collateralization of agricultural produce with a legal backing in the form of NWR would lead to increase in flow of credit to the rural areas, reduce the cost of credit (due to certainty of recovering credit by the bank) and would spur other related activities, like standardization, grading, packaging and insurance services in the agricultural sector. With the increased requirement of quality storage, warehousing industry would also get a boost in rural areas. This would also fill gaps in the logistic chain of agri-business in the rural sector.

With the emergence of the collateral management companies, warehouse receipt finance has gained acceptance in the banking sector, with all big and small banks now participating in this space. As a result, finance against commodities is likely to experience a participating in this space. As a result, finance against commodities is likely to experience a phenomenal growth. While currently the size of the market is estimated at about Rs. 30,000 crore, as per a recent study by NABCONS, the potential for finance against collateral of major agri commodities and fertilizers is Rs. 166234 crore, details in this regard are given in adjacent table.

Over the years warehousing business has been transformed to a great extent from merely a storage infrastructure to a one stop shop for supply chain management through the entry of private sector. Nowadays the goods are stored as per the scientific methodology to protect them against the quantitative as well as qualitative losses occurring due to unavoidable circumstances such as floods, pest attacks, etc. Hence, ‘warehouse performance indicators’ should be introduced to check the efficiency of the warehouses which now should include quality parameters like ability to control wastage, pest control measures, provide wide range of testing, grading and certification services which can help in ascertaining the value of the commodity deposited and bring transparency among all interested entities.

In India Pulses are grown in around 24-26 million hectares of area producing 17-19 million MT of pulses annually. India accounts for over one third of the total world area and over 20 per cent of total world production. India primarily produces Bengal gram (chickpeas), red gram (tur), lentil (masoor), green gram (mung) and black gram (urad). For majority of vegetarian population in India, pulses are the major source of protein. Pulses and pulse crop residues are also major sources of high quality livestock feed in India. In India pulses are cultivated on marginal lands under rain fed conditions.  Only 15 per cent of the area under pulses has assured irrigation. Because of the high level of fluctuations in pulse production (due to biotic and abiotic stress) and prices (in the absence of an effective government price support mechanism) farmers are not very keen on taking up pulse cultivation despite high wholesale pulse prices in recent years.  India having the largest shares about 25 per cent production, about 33 per cent acreage and about 27 per cent consuming of total pulses of the world. The acreage ranged from 23.46 (2003-04) to 23.82 million hectares (2015-16) and production varied from 14.91 million MT (2003-04) to 17.33 million MT (2015-16). The productivity has increased from 636 kg/ hectares (2003-04) to 728 kg/ hectares (2015-16). The major pulses producing states are Madhya Pradesh (24.12 per cent), Maharashtra (16.46 per cent), Rajasthan (12.94 per cent), Utter Pradesh (8.82 per cent), Andhra Pradesh (8.06 per cent) and other states together (21.29 per cent) during 2015-16.

As per the figures given in table 2, the Pulses accounts for a share of about 4.49 per cent of the total Warehouse Receipt Finance happening in the country. Of the total food grains produced in the country, the total pulses contribute to 6.85 per cent and the cereals comprises of about 93.15 per cent (as per production statistics of 2015-16). Thus we can see that the pulses at present command a very low profile status in terms of utilizing the warehousing capacity of the country. In order to improve the situation of the pulses situation in the country the government has proposed  proposal to create a buffer stock of 3.5 lakh MT of pulses during the current 2015-16 crop year through domestic purchase or imports to prevent a further price spikes. Out of the proposed 3.5 lakh MT, about 1.5 lakh MT of tur and urad will be procured in the ongoing kharif marketing season and the rest 2 lakh MT of chana and masoor will be bought in the rabi marketing season. With huge buildup of inventories and limited storage space with the government there is ample scope of expansion of private warehousing in the pulse sector.

Though the storage capacity has increased at a CAGR of about 8 per cent during the last decade till March 2016, the irony remains that around 20-30 per cent of the total food grain harvest is wasted due to lack of availability of storage capacity, regional imbalance in warehouses, lack of adequate scientific storage and inefficient logistic management in the country.