Monday, 24 February 2020

NBHC’s First Rabi Crop Estimates for 2019-20

The northeast monsoon, between October and December, India witnessed a 30 per cent surplus in total rainfall. The nation’s monsoon 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). Further, the downpour continued through the months of October and November, thereby increasing the water table. The 2019 northeast monsoon season (October-December) rainfall over the country as a whole was above normal (129 per cent of LPA). The seasonal rainfall during the northeast monsoon season over the core region of the south peninsula (comprising of 5 subdivisions viz. Coastal Andhra Pradesh, Rayalaseema, Tamil Nadu & Puducherry, South Interior Karnataka and Kerala), was normal (109 per cent of LPA). The total live storage in 123 important reservoirs in different parts of the country as on 6th February 2020 was 114.821 BCM ( 67 per cent of the live storage capacity at FRL ).The current year's storage is nearly 157 per cent of last year's storage and 146 per cent of the average of last ten years. Availability of good soil moisture across major Rabi producing states has also laid the foundation for laid down a strong platform for good production. 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 1st Rabi Crop Estimates for 2019-20.
As per our study, the total Rabi Cereals production for the year 2019-20 is expected to increase by 4.52 per cent to 134.23 Million MT from 128.43 million MT in 2018-19. Wheat area is expected increase by 12.03 per cent to 33.44 Million Ha and its production is expected to improve by 9.01 per cent to 111.40 Million MT due to favourable weather conditions, improved soil moisture conditions and incentivised increase in MSP to 1925 per quintal from 1840 per quintal given last year. Rabi Rice acreage is recorded lower by 23.24 per cent at 2.61 million Ha against 3.40 million Ha last year and its production is expected to decrease significantly by 27.96 per cent to 10.30 million MT from 14.29 million MT in last year owing to marginal shift in farmer’s focus to pulses & wheat. Total coarse cereals production is expected to increase by 4.92 per cent to 12.54 million MT in 2019-20 mainly due to increase in production of Jowar (2.43 million MT), maize (8.28 million MT) and barley (1.83 million MT). Jowar acreage is improved significantly by 19.12 per cent while the acreage of maize and barley are expected to show a marginal surge of 6.45 per cent and 6.85 per cent, respectively.
The most affected is the cultivation of pulses, particularly Moong and Urad due to erratic rains and also sought a removal of import duties and caps on peas. The Moong acreage is expected to decline significantly by 26.32 per cent to 0.56 million Ha from 0.76 million Ha in last year and production is expected to decline by 26.38 per cent to 0.38 million MT from 0.51 million MT in last year. Urad acreage is expected to decline by 21.44 per cent to 0.74 million Ha from 0.94 million hectares in last year and production is expected to decreased by 20.17 per cent to 0.56 million MT from 0.70 million MT in last year. Overall, the pulses acreage is expected to increase by 1.86 per cent to 15.92 million Ha from 15.63 million Ha in last year and the production is expected to decline by 2.47 per cent at 15.17 Million MT despite Gram acreage and production is likely to increase by 10.14 per cent (10.64 million Ha) and 7.90 per cent (10.93 million MT) respectively.
However total oilseeds acreage is expected to decline marginally by 0.87 per cent at 7.97 million Ha from 8.04 million Ha in last year and production is expected to decline by 7.39 per cent to 10.17 million MT from 10.98 million MT in last year. Mustard acreage is expected to decline by 0.29 per cent to 6.92 million Ha and its production is expected to decline by 6.92 per cent to 8.69 million MT from 9.34 million MT in last year. Groundnut and Sunflower production is estimated to be lower by 8.87 per cent (1.12 million MT) and 39.24 per cent (0.08 million MT) respectively.


Wednesday, 5 February 2020

Copper Investment Sentiments Grappled by Coronavirus

The global economic barometer, which was already struggling over the economic uncertainties, fell off the cliff as coronavirus gripped over 30 Chinese provinces forcing announcing of highest level of public health emergency, bringing almost all economic activity from consumption to logistics to staggering low levels. Investors have started deserting raw materials around the world over fears about the economic fallout from the virus. Currently, in the affected region about 90 per cent of copper smelting, 60 per cent of steel production, 65 per cent of oil refining and 40 per cent of coal output have been halted plummeting the overall sentiments in the global copper and other raw material market. Apart from the current medical emergency, the factors that have pressured the market all throughout 2019 are the trade war between US & China, the global manufacturing recession, dipping of manufacturing PMIs in most developed and emerging markets and the mini trade war between Japan and South Korea. 

Except for the Medical Emergency in China, things had started to show improvement with the recently announced Phase I of the US and China trade deal, the recent election in the UK, where conservatives had a resounding victory, the passing of United States–Mexico–Canada Agreement (USMCA) and the Fed’s commitment to lower interest rates. Another catalyst will be the planned upgrades by Codelco, the state-owned copper mine in Chile. The company is expected to accelerate these upgrades in 2020 if it gets the much-needed funds from the government. As a result, upgrades could lead to disruptions in its mines. This is important because Codelco is a major copper producer that produced more than 1.81 million MT from its mines. Another supply risk for copper production will be from the Democratic Republic of Congo (DRC). In recent years, political risks in the African country have been increasing this had led Glencore to close down its Mutanda mine. Similar problems are also happening in neighbouring Zambia, which is another important producer. As per analysis, world mine production declined by about 0.3 per cent in the first ten months of 2019, with concentrate production remaining essentially unchanged and solvent extraction-electro-winning (SX-EW) declines by 1 per cent. The reduced output in major producing countries is more than offset growth in other countries. Production in Chile, the world’s biggest copper mine producing country, declined by 0.2 per cent mainly due to lower copper head grades and some production disruptions that occurred early in the year. Indonesian output declined by 47 per cent as a consequence of the transition of the country’s major two mines to different ore zones leading to temporarily reduced output levels. 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 ten months of 2019. On a regional basis, mine production is estimated to have increased by around 4 per cent in North America, 1.5 per cent in Latin America and 5 per cent in Oceania but declined by 6 per cent in Asia, 2 per cent in Africa and 2 per cent in Europe. world refined production declined by about 0.3 per cent in the first ten months of 2019 with primary production (electrolytic and electro-winning) falling by 0.7 per cent and secondary production (from scrap) increasing by 1.7 per cent. World refined production growth was constrained as a consequence of a 27 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 10 per cent. A 37 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 has been reported in Japan, Peru, the United States and a few European countries due to smelter maintenance shutdowns. 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 (3 per cent) and in Oceania (10 per cent) but declined, in North America (-2 per cent), in Latin America (-7 per cent), in Africa (-9.5 per cent) and in Europe (-2 per cent).

These fundamental factors, in addition to the strong geopolitical headwinds across the global landscape, will no doubt lead to another year of volatile prices. In the absence of a major economic downturn, copper’s supportive fundamentals should keep price risk skewed to the upside. On the positive side, The Chinese government recently announced that it has no plans to further reduce the subsidy on EVs in 2020. It is believed that the decision to keep the subsidy will help to support EV sales, production and related copper demand in 2020. This change in approach to EVs in China is in line with developments in other regions. In Europe, the likes of Germany and Norway continue to ramp up EV-related incentives, supporting copper consumption in the region. In consultation with German automakers, the so-called “Environmental Bonus” incentive has been raised to a maximum of €6,000 for battery EVs priced up to €40,000. In the US, some States have extended subsidy offerings, while others are introducing similar incentive programs. In the other markets, the Chinese government plans to end the subsidy on newly approved onshore and offshore wind projects in 2021 and 2022, respectively. In the US, tax incentives for new solar power installations have started to wind down this year and the subsidy on wind power generation will also begin to decrease next year. s a result, we believe that demand for copper will be brought forward in both China and the US in 2020, as developers rush to install new capacity ahead of these changes. 

Moreover, The Chinese government recently approved new standards, beginning in July 2020 that will re-categorise some copper scrap as “renewable copper material. The new threshold for copper content of imported copper scrap has been set at 97 per cent and 56 per cent for brass scrap. This threshold is noticeably above the average copper content for copper and brass scrap imported in 2019. In addition to the changes in scrap-related policies in China, rising costs to upgrade scrap ahead of export to China will likely incentivise more secondary consumption capability to be built in scrap generating and/or processing countries.

The outbreak of the Coronavirus in China replaced the trade war as the leading concern weighing on the Chinese economy. As the number of cases rise and pop up in other countries around the world, the threat to both the Chinese and global economic landscapes is growing. The Chinese government has addressed the risk of the spreading virus but it had already caused 170 deaths with over 7,700 reported cases. In the near term, the rising potential for a global pandemic with China as ground zero for the health emergency has caused the price of copper to tank.

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