NBHC’s First Kharif Crop Estimates for 2018-19

With the Kharif Sowing almost on the verge of completion we at NBHC are releasing our 1^st Kharif Crop Estimate - 2018-19. On the Monsoon front, India's monsoon, which irrigates more than half of the country's farmland, is below an earlier forecast of normal showers. Backed by good monsoon rainfall last year India had produced record 284.83 MT of food grains in the 2017-18, this year highly erratic monsoon and its obscure spread may reduce food grain output in the ongoing Kharif season. 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 decline marginally by 1.71 per cent. Despite heavy rains after the second half of August and first week of September, which caused floods across Bihar, Kerala, Assam Gujarat, and Himachal Pradesh, as many as 254 districts (total 640 districts ~ 40%) are faced with drought like situation this monsoon. The country has been affected by heavy rains in some states leading to massive flooding while the other states are dealing with significantly deficient and draught like situations. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2018-19 would turn out to be as explained in table given below.  

Total Rice is expected to show a marginal improvement in area and production by 4.67 per cent and 1.21 per cent. Within the rice segment, Basmati Rice area and production is expected to decrease by 2.25 per cent and 7.15 per cent respectively, whereas the Non-Basmati rice is expected to increase marginally by 4.96 per cent and 1.73 per cent. Maize is expected marginal lower in area at 1.66 per cent and significant decline in production at 9.64 per cent, as many farmers shifted to other remunerative crops, few districts in Karnataka and Maharashtra, major growers of the crop, got less rains and experienced pest infestation which would have result in yield loss. Maximum Decline is expected in Ragi whose production is expected to fall by 23.88 per cent while its area is likely to shrink by 18.90 per cent. Lack of remunerative income has led Jowar & Bajra farmers to shift their cropping pattern to other cash crops.   

In the pulses sector, we expect the area under Moong to increase by 7.95 per cent whereas the production is expected to rise sharply by 26.07 per cent. Arhar area is expected to increase by 5.10 per cent and the production is expected to experience an increase of 3.06 per cent. Urad area and production is expected to be low by 9.52 per cent and 1.89 per cent respectively. Overall, the total Kharif pulses area and production is likely to decline marginally by 3.75 per cent and 1.80 per cent respectively over last year.

The oil seed sector is likely to see a marginal decline in production by 3.92 per cent. The decline in production is expected to the tune of 50.67 per cent, 28.49 per cent, 21.84 per cent and 17.36 per cent for Niger, Castor, Groundnut and Sunflower respectively. Soybean is the only oilseed crop where area is expected to be up by 6.57 per cent and the production is expected to increase by 12.20 per cent for the coming season.

In this current monsoon season, the cash crop section is likely to show an overall neutral scenario as only the area for Sugarcane is expected up by 4.06 per cent whereas Jute & Mesta and Cotton is down by 0.70 per cent and 2.46 per cent respectively. In terms of production significant rise of 10.11 per cent is expected in sugarcane while marginal decline of 0.15 per cent and 4.84 per cent is expected in Jute & Mesta and Cotton respectively.

Trade War Continues to Take Its Toll on Copper Market

The indecisive sentiment of copper market continues to rule the market over the continued escalation of trade tensions between the United States and China. The supply-demand statistics have for the meantime taken a back seat and the trade directions with regards to the fallout of the trade war have gained impetus. The Global manufacturing activity has already taken a hit from weak orders in August, as a survey showed, a sign that companies are feeling the pinch from the intensifying Sino-U.S. trade war that could derail global growth. Currently, the falling inventories at London Metal Exchange and Shanghai Futures Exchange-approved warehouses are keeping physical prices high in China, as copper premiums are currently at $91 a tonne, close to a near two-year high of $86 (as on November 2016). But, the absence of fresh inflows into warehouses projects a very nervous and twitchy market situation, as there is no real direction to follow and investors, in particular, seem to be trading metals on the basis of influences from other markets. In spite of the strong fundamentals, the copper market may for the short term, embark on a bearish dive if the global currencies continue to weaken significantly following the Turkish route. 

The weakness in the red metals is also been accredited to the increasing uncertainty in the currency market as investors are fleeing to the relative safety of the dollar amid Turkey's financial woes and as concern grows that a U.S.-China trade spat will curb economic growth and put more countries under pressure of the steep rising of global debt. Argentina is already feeling the pressure as its peso crashed to a historic low. While previous debt crises involved U.S. households and, later, profligate European governments such as Greece, this time the concerned center's on companies in emerging markets that have borrowed heavily in dollars and euros. The Global debt loads have exploded since the Great Recession in 2008. From $97 trillion in 2007, total household, corporate and government debt grew to $169 trillion last year. The crises are likely to deepen further if FED continues to raise its interest rate in the midst of a healthier U.S. (U.S. dollar, now at its highest level in 13 months). For emerging markets that borrowed in dollars and euros, rising interest rates will make it more expensive to borrow new money or refinance existing debt. That could trigger a wave of defaults by corporate borrowers, with problems spreading far beyond Turkey and ultimately big debt bubble for the United States which can lead to a global financial crisis.

As per the basic fundamentals of copper trade are concerned, the supply continues to improve amidst lesser strikes compared to last year. World mine production is estimated to have increased by 5.7 per cent in the first five months of 2018, with concentrate production rising by 5.5 per cent and solvent extraction-electro-winning (SX-EW) by 6 per cent. The increase in world mine production of about 450,000 t copper was mainly due to constrained output in the comparative period of 2017 namely in Chile and Indonesia, production in Chile, the world's biggest copper mine producing country, increased by 13.5 per cent primarily because production in February/March 2017 was restricted by a strike at Escondida (the world's biggest copper mine) and also because there was an improvement in Codelco's production levels in 2018, Indonesian output increased by 43 per cent because comparative output in 2017 was negatively affected by a temporary ban on concentrate exports that started in January and ended in April and a 12.5 per cent increase in SX-EW production in the Democratic Republic of Congo (DRC) and a 13 per cent rise in Zambian mine output due to the restart of temporarily closed capacity. Although no major supply disruptions occurred in the first five months of this year, overall growth was partially offset by lower output at some mines in Canada (-8.5 per cent) and in the United States (-10 per cent). After a strong increase in the last few years due to new and expanded capacity, output in Peru (the world's second largest copper mine producing country) has levelled off. On a regional basis, mine production is estimated to have increased by around 11 per cent in Africa, 8.5 per cent in Latin America, 6 per cent in Asia, 3.5 per cent in Europe and 10 per cent in Oceania and declined by 7.5 per cent in North America. World refined production is estimated to have increased by 2 per cent in the first five months of 2018 with primary production (electrolytic and electro-winning) rising by 0.5 per cent and secondary production (from scrap) increasing by 9 per cent. In tonnage terms, the main contributor to growth in world refined production was China due to its continued expansion of capacity. Production in Chile was up by 6.5 per cent supported by a 5.5 per cent increase in electro-winning (SX-EW) production mainly because comparative output in 2017 was constrained by the strike at Escondida referred to previously. In addition, primary electrolytic production increased by 9 per cent mainly due to improved production at Codelco. Production in Indonesia and Japan was also substantially higher, recovering from reduced output last year that was due to a strike and maintenance shutdown respectively. Increases in electro-winning (SX-EW) output in the DRC and Zambia also contributed to world refined production growth. However, overall growth was partially offset by declines in India (shutdown of Vedanta's Tuticorin smelter/refinery in April), in Peru, Poland and the United States. On a regional basis, the refined output is estimated to have increased in Africa (11 per cent), Asia (2 per cent) and Latin America (4.5 per cent) while remaining essentially unchanged in Europe and Oceania and declining in North America (3 per cent). In a major development in India, the refined production in Tuticorin has been stopped which is costing the company around US$ 100 million annually. The smelter has been at a standstill since late March and was sealed by government authorities in May following public, fatal protests against the operation and expansion of the smelter. Vedanta is currently trying to counter the closure and gain access to its facilities using legal means and side by side wants to carry out necessary maintenance work on a leak in the sulphuric acid facility.

On the demand side, the buying spree took off after Beijing announced two weeks ago it would hit $16 billion worth of U.S. imports, including scrap metal (the United States is one of China's biggest copper scrap suppliers), with duties of 25 per cent from Aug. 23 in retaliation for a similar move by Washington. World Copper consumption between January-June 2018 was 11.57 million MT as against 11.53 million MT in 2017. WBMS estimates that imports of refined copper into China were about 350000 MT in June bringing it to 1.86 million MT. Chinese estimated demand for January to June 2018 was 5981 kt which is 5% above the previous year's total and represented over 51% of the global total. Thus, we can see that China's Demand can alone support the global copper market and is nothing to fear for the long-term investors in copper.