Copper Investment Dynamics – Best Yet to Come

Copper is one of the most widely-used industrial metals, its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and telecommunication equipment. Our modern lives require an enormous amount of copper. The major applications of copper are in electrical wires (60 per cent), roofing and plumbing (20 per cent) and industrial machinery (15 per cent). Copper compounds in liquid form are used as a wood preservative, particularly in treating original portion of structures during restoration of damage due to dry rot. Textile fibers use copper to create antimicrobial protective fabrics Electroplating commonly uses copper as a base for other metals such as nickel Copper is used as the printing plate in etching, engraving and other forms of intaglio (printmaking) printmaking Copper oxide and carbonate is used in glass-making and in ceramic glazes to impart green and brown colors. Copper is the principal alloying metal in some sterling silver and gold alloys Copper is used as a constituent of brass, bronze, gilding metal and many other base metal alloys.

Supply Strength of Copper Market

South America will remain the region with the largest copper mine installed capacity and is expected to bring to the market until 2016 an additional 2.3 Mt capacity (31 per cent of the world total growth). Asian and African copper mining capacity has also increasing substantially. All together, these three regions represent 78 per cent of the world additional copper mine production capacity to come on stream by 2016. Until 2016, world copper refinery capacity expected to grow by 4.6 Mt (18 per cent) to 30 Mt. 3.6 Mt of the expansion expected to come from electrolytic refineries and almost 1 Mt from electrowinning capacity. Supremacy of Asia is likely to continue over the other regions in refining capacity with small improvements in Africa and North America. As per the Projected World Copper Refined Capacity Increase by Country, China is likely to be the biggest contributor to the growth with a strong increase of around 2.1 Mt representing 47 per cent of the world growth for the period 2012-16.

Price Drivers for the Market

London Metal Exchange's global network holds the least copper available for delivery since 2008. In May 2008, copper peaked at a price of over $4.21 per pound. Copper is an excellent bell weather commodity when it comes to global economic growth and particularly Chinese growth potential. China's economy is expected to grow at 7.5 per cent this year as economic expansion in the US speeds up to 2.6 per cent. The euro zone is returning to growth after two years of contraction.

Premiums over LME benchmark prices for physical copper were the highest in more than seven years in Europe in November and tripled in the past year in China. Therefore, only a considerable slowdown in China would tarnish the outlook for the price of copper at this point, in my opinion. Copper has been trading in a range of $3.00 to $3.40 since last April. The technical picture for copper is fairly neutral at the moment; therefore, it is the fundamentals of the copper market that will push it through support or resistance.

One other event that can get the industrial metals and copper really moving higher is a new policy in Indonesia that takes effect this month. Indonesia is banning the export of many mineral ores. This has already caused the price of nickel to vault higher in recent trading sessions. Indonesia produces 18-20 per cent of the world's supply of mined nickel ore, and is a significant copper producer. The Grasberg mining complex in Indonesia, the world's largest copper and gold mine in terms of recoverable reserves, is owned and operated by Freeport McMoRan (FCX). It is not 100 per cent clear whether the Indonesian ban will affect copper concentrate deliveries from Grasberg given the political wrangling going on in Jakarta right now. Fundamentals are strongly pointing to put copper on the radar following the supply crunch in the Southeast Asian region.

In January 2014, world usage is estimated to have increased by around 11 per cent compared with that in January 2013. Chinese apparent demand increased by 28 per cent based on a 70 per cent increase in net imports of refined copper from the low net import level in January 2013 and subsequent lower apparent usage. Excluding China, world usage declined by around 1 per cent. On a regional basis, usage is estimated to have declined by 1 per cent in the Americas and Europe, respectively and to have increased by 15 per cent in Africa and 19 per cent in Asia (by only 1 per cent when excluding China).

Constraints for Industry

Amidst the projections of skyrocketing demand for copper, the concerns over long term supply is also supporting the bullish trend. Discoveries of higher grade deposits are becoming less frequent More underground mines are producing copper at a smaller output capacity than open pits, Greater country risks and Infrastructure Challenges (remote locations) Declining average grades Inadequate exploration funding.

Recent developments supporting the bulls

The State Grid Corporation of China (SGCC), which provides power to 80 per cent of the world’s second-largest economy aims to boost by 13 per cent its annual investment to more than $60 billion. Copper demand in China has at least 80 per cent growth left to reach developed world averages and can single handedly support double-digit growth for many years. Beijing has also renewed the 'home appliance subsidy scheme' and is promoting electric cars, which are twice as copper-intensive as conventional vehicles. China has set a goal of 65 per cent urbanization rate by 2050. Over the coming 40 years that means 20 per cent of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period.

According to the International Energy Agency, India's power production needs to rise by 15-20 per cent annually and to meet that, India needs to invest $1.25 trillion by 2030 into energy infrastructure. From this new infrastructure, India's annual copper demand is expected to more than double. Usage in the rest of the world is expected to increase by around 1 per cent. With better prospects for the world economy in 2014, world usage is expected to grow by around 4.5 per cent in 2014 with world ex-China expected to grow by 2.5 per cent. The IMF has raised its forecast for global growth to 3.6 per cent in 2014 compared to 2.9 per cent growth in 2013.

Logistics of Imported Pulses in India

Introduction

India produces a quarter of the world’s pulses, accounting for one third of the total acreage under pulses. Indians consume 30 per cent of the world’s pulses, but domestic production of pulses has not kept pace with population growth. The per capita demand for pulses is declining in India. Yet they remain an important source of protein. Pulses neither receive sufficient official procurement support that wheat and paddy get, nor do farmers view them as commercial crops on par with cotton or soybean. It has resulted in their cultivation, over the years, being pushed to marginal lands prone to moisture stress. Breaking this impasse requires a conscious strategy to promote pulses production, including in irrigated areas. It raises larger questions on why the country isn’t able to increase pulses production. On the supply side, pulses’ production had hovered around 12 million tonnes during the last three decades. Stagnation in production has led to rise in the prices of pulses that further affected their consumption adversely. Traditionally in India, with relatively more focus accorded to food grains, especially rice and wheat, the pulses were relegated to marginal environments. Consequently, over the years despite many focused programs, there were only slight changes in the production of pulses. However, recent initiatives through National Food Security Mission and higher minimum support prices led to leapfrog in production to 18 million tonnes. However, weak technology delivery mechanisms, and continuing low profitability of the sector have failed the arrest the shifting of pulses areas to more remunerative crops. Over all dynamics of the pulses industry suggest that we still continue to be the net importer of pulses requiring about 2.5 to 4.0 million tonnes on an annual basis for the last five years.

 Export and Import Direction

Currently over 182 countries around the globe trade in this sector and the Indian Subcontinent alone accounts for over 30 per cent of the same. While this should let India dominate the market, it has been unable to do so because the high supply deficit in India is known and the steady increase in imports has made negotiations quite redundant. Imports of pulses in India have been increasing and currently account for about 20 per cent of total domestic availability. India normally caters to the need of Asian and African nation’s requirement of pulses.

The major exporting destinations from India for pulses are given in the adjacent table. Pakistan still is the most preferred location in terms of the Indian pulses export with overall share of 29.13 per cent, followed by Algeria, Turkey, Sri Lanka and UAE. The major pulses exported from the India are Peas (Pisum Sativum), Chickpeas (Garbanzos), Moong/Urad, Lentils (Masoor) and Pigeon Peas (Tur). The analysis of commodity wise exports showed that Chickpeas constitutes of over 80 per cent of the total exportable pulses from India. Other pulses with sizable export volume are pigeon peas, moong and urad.

 The country meets its domestic needs primarily through imports from USA, Australia, Myanmar, Turkey Tanzania and Canada. India accounts for 30 - ­40 per cent of total world import of pulses. India has about 12­15 major pulse importers, with the largest concentration located in Mumbai, followed by Kolkata and Delhi. These players reportedly account for 60­70 percent of total pulse imports. Apart from the private players PSU’s like MMTC, PEC, STC and NAFED are also importing actively as per need. Importers rely primarily on personal networks and contacts with brokers in countries for market information, obtaining price quotes, and making purchases. Many traders remain with a given exporter even if they are able to obtain good market information owing to assurance of a guaranteed supply. Moreover, due to the limited incomes and price sensitivity of most Indian consumers, a large percentage (about 80 percent) of imported pulses is rated as FAQ. While quality is a consideration, importers are only willing to pay small premiums for better quality. Traders look for the lowest prices at acceptable qualities. The most important quality attributes are cleanliness, uniform size, color, and shape (important for milling).

The major commodity imported in India is the peas (green & Yellow) (35.70 per cent), followed by Chickpea (18.17 per cent), Moong & Urad (Black Matpe) (16.74 per cent), Lentil (13.19 per cent) and Pigeon peas (13.19 per cent). Major countries from where India is importing pulses are Canada, Myanmar, Australia, Russian Federation, USA, France, Tanzania, China, Mozambique and Malawi.

 In the world, major markets from where India is importing the pulses are: 

• Small Chickpea: Burma, Tanzania, Australia, China, UAE 

• Pigeon pea: Burma, China and Tanzania 

• Black gram: Burma, Singapore and Thailand 

• Mung bean: Burma, Singapore, China and Australia 

• Green and yellow peas: Canada, Australia, Hungary, Tanzania and US 

• Lentil: Netherland, Syria, Canada, Turkey, China 

• Large Chickpea or Kabuli: Australia, Canada, Turkey, Iran and Burma 

Logistic Movement of Imported Pulses in India 

The major ports in India where pulses consignments are offloaded are JNPT (Maharashtra), Mumbai (Maharashtra), Chennai (Tamil Nadu), Tuticorin (Tamil Nadu), Haldia (West Bengal) and Kakinada (Andhra Pradesh). Pulses in Boxes / Containers from Africa, Canada, UAE, Hungary, Iran, US and Turkey are offloaded at JNPT whereas, the bulk consignments are offloaded at Mumbai. These two ports in the Western India cater to the need of miller located in Western & Central parts of India. Some pulses, which are imported by Indian PSU’s (MMTC, PEC, STC & NAFED), are moved to the northern India (Delhi, Himachal Pradesh, Punjab, Haryana and Jammu & Kashmir) to be sold through Public distribution System of Government of India. In the eastern part of the country, the major port handling the pulses are Chennai, Haldia and Tuticorin which handles bulk as well as box / container consignments from Burma, China, Australia, Singapore and Thailand. The Chennai, Tuticorin and Kakinada port caters to the pulses requirement of Southern states (Tamil Nadu, Karnataka, Andhra Pradesh and Kerala), whereas majority on the consignments at Haldia port heads directly to Kanpur (Uttar Pradesh).

 The marketing channel for the imported pulses in India is given as under:

Import Policy Needs a Serious Revamp 

In spite of the above promising statistics for the import and exports from India, the gap between the supply and demand continues to pose challenges for the Indian pulses industry. India continues to be the largest pulses processor, as pulses exporting nations such as Myanmar, Canada and Australia, do not have adequate pulses processing facility. In order to strengthen the Indian market the import policy needs a serious rethinking. 

As per the present policy, the Government Agencies invite tenders for sale of imported pulses in the domestic market. They invite bids from interested parties and after scrutiny allocate the stock to highest bidder. Normally, the bids are accepted only if the bid quantity is more than a threshold limit, such as 200 MT or 500 MT. The Government agencies do not sell in smaller lots of 10­20 MT due to operational inconvenience and for various other reasons. While the highest bidder gets the bid quantity, the bids of other interested buyers is rejected. Hence, mostly the stock goes into the hands of a few buyers. It is observed that since the stock is allocated only to the highest bidder it creates a temporary monopolistic scenario in favor of such successful bidders. In such a case, it is possible for him to take advantage of such a scenario and to jack up the price for a short while to earn handsome profit. Since the Government does not have any control on selling price to be quoted by the successful bidder, it goes on uninterrupted. The result is that the basic purpose of keeping prices under control is somewhat defeated. 

Another, policy hindering the Indian Competitiveness is the introduction of 15 per cent subsidy for government entities. The entry of Government agencies armed with 15 per cent subsidy has changed the trade dynamics completely. Private importers are not able to compete with Government agencies. Therefore, when private importers attempted to import, they lost heavily, as the Government agencies sold their stock at a price lower than the import parity. As a result, most of the private importers stopped import of pulses and lot of importers have went out of business. At present, there is no level playing field, because private importers cannot claim subsidy, while Government agencies enjoy 15 per cent subsidy. 

Pulse importers face a number of risks that threaten the profitability of their transactions. Many importers forward sell their products before taking physical possession of them. Falling domestic prices prior to delivery provide incentive for buyers to renege on contracts. Domestic market conditions, particularly variability in domestic production and import activities, also affect pulse prices. The volume of business and the prices contracted by other importers serving the same market are key factors affecting an importer's profitability. Multiple impending shipments can flood the market and lead to lower prices, increasing the probability of default by domestic clients. Indian importers also face foreign exchange risk because transactions with every country are conducted in U.S. dollar. 

Indian traders are finding it difficult to negotiate imports of pulses from Myanmar as the market in the neighboring country is dominated by private traders and no government agency is involved. Private traders in Myanmar tend to increase prices whenever they come to know that the Indian government is seeking to import the pulses from them. Once government announce the quantity of pulses we plan to import from Myanmar, the prices of pulses gets pushed up. 

Conclusion

To conclude, The Government should recognize the economic relevance of pulses futures trading in term of providing instrument to hedge price risk especially for those who are in pulses import and trade. I feel that the role of the Government should be to formulate policies and to decide the macro level parameters. The Government should not enter into business themselves; rather act like a facilitator and regulator. Even without engaging themselves into trading directly, they can regulate the prices by allowing the private importers to import, rather than importing themselves. Moreover, Instead of selling stock through a tender process, the Government agencies should sell the entire imported stock through an electronic platform. This will reduce the cost of inviting tender and other administrative costs incurred by the Government agencies. In addition, it will encourage participation by smaller players.

Published in:

Handbook on Minor and Imported Pulses of India -2014

(Foretell Business Solutions Pvt. Ltd)

Changing Investment Scenario in Copper Market

Copper is increasing in popularity as an investable asset for those looking for a way to gain exposure to the unprecedented growth currently underway in the emerging markets.  Copper is one of the most widely-used industrial metals,  its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and a equipment.  Copper is used in power generation and transmission, heating and cooling systems. Copper is one of the most widely-used industrial metals,  its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and telecommunication equipment.  Copper is used in power generation and transmission, heating and cooling systems.

The improving demand scenario for copper is coming from both industries as well as from investors. In copper, physical and investment buyers both account for significant proportions of physical copper demand. Buyers who have an actually physical need for copper are more likely to hold on to their futures (often because they have to).  Physical copper holders may actually, on the other side of the scale, prevent prices from collapsing.  When prices fall, this will attract physical buyers to the market, looking to lock in supplies, and therefore limiting the fall in prices.  While this “Bargain Hunting” also attracts investment buyers into the market – the return of physical buyers to the market at a low price is almost a guarantee.

The global investment scenario in copper is in search of some positive news from China & European Union. The report of slowdown in global economies has immensely affected the prices of copper for the year 2013, which has seen steep correction. With the beginning of 2014 first quarter, few positive signal have development has well supported the copper prices. With forecasts for improving economic growth this year, base metals are prepped to rally, with each metal’s ability to climb based on its own supply situation. The IMF has raised its forecast for global growth to 3.6 per cent in 2014 compared to 2.9 per cent growth in 2013. United States is likely to grow 2.5 per cent in 2014 from 1.5 per cent in 2013. With base metals being an economically sensitive commodity, these growth forecasts are great news, and among the base metals our top pick is copper, whose long term supply picture is fairly tight.  In 2014, the world usage of copper is expected to grow by around 4.5 per cent in 2014 with world-ex-China expected to grow by 2.5 per cent next year, data from the International Copper Study Croup (ICSG).  

In the recent geographical development, a major earthquake of magnitude 8.2 struck off the coast of Chile triggering a mild tsunami in the region. Though, the major copper mine, Chile's Collahuasi copper mine and port had no immediate problems following the quake, it send tremours in the copper prices on the positive side. Further, copper for delivery in three months dropped as much as 0.2 per cent to USD 6,633.50 per tonne on the London Metal Exchange, while in Shanghai the metal for delivery in June fell 0.2 per cent to 46,680 yuan ($7,520) a tonne supporting the fears of lower global supplies.

In spite of development in US and Latin American economies, the demand from China and India still holds the key for the future direction. China's State Council has indicated that it will increase spending on railways and housing, as policymakers attempt to boost slowing growth in Asia’s largest economy leading to substantial demand for copper in the coming months. Some of the important fact and figures pouring out of China are providing strong support to the prices. Overall urban population increases (by 2025, one billion people are projected to live in urban areas) and 221 Chinese cities will have over 1 million people (Europe has 35 cities with over 1 million people). Along with those massive increases, increased demand will be seen for buildings (5 million projected to be constructed by 2025) and transit (170 mass transit systems projected to be built- Europe has 70). Ultimately, whether it is more people, more buildings, or more infrastructures, more copper will be needed to facilitate construction. More consumers, also means more demand for: cars, appliances, garments, and electronics. In fact China has set a goal of 65 per cent urbanization rate by 2050. Over the coming 40 years that means 20 per cent of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period.

According to preliminary ICSG data, the world apparent refined copper balance in 2013 showed a production shortfall relative to demand of around 280,000 MT mainly due to constrained growth in refined production and growth in China’s apparent demand. Although Chinese net imports were lower in 2013, refined production was significantly higher. Anecdotal evidence suggests that unreported inventories held in bonded warehouses in China declined during 2013. Accounting for the unreported inventory decline, estimated to total about 260,000 MT, the ICSG calculated market deficit would increase to about 540,000 MT. On the global front, In 2014, world refined copper production is expected to increase by 6.5 per cent to 22.4 Mt compared with that in 2013. Refined production will benefit from adequate availability of concentrate off-setting expected tightness in the scrap market. ICSG expects world apparent refined demand in 2014 to grow by about 3 per cent from that in 2013 to 22 Mt. Apparent demand in China is expected to increase by about 5 per cent in 2014. Usage in the rest of the world is expected to increase by about 2 per cent. With better prospects for the world economy in 2015, world usage is expected to continue its growth, with world ex-China growth increasing to 2.5 per cent and Chinese growth at about 5 per cent.

In the South Asian market, Indonesia is banning the export of many mineral ores. Indonesia produces 18-20 per cent of the world's supply of mined nickel ore, and is a significant copper producer. The Grasberg mining complex in Indonesia, is the world's largest copper and gold mine in terms of recoverable reserves. So, if the ban is applicable to copper concentrate deliveries from Grasberg, the prices can take an upward swing.  

For much of 2013, copper has been fighting an uphill battle, with lack of demand and oversupply keeping prices well below 2011′s record highs. Now, with the advent of a new year, investors are having high hopes for the red metal as the global economic situations is stabilizing and the Chinese economy is showing signs of recovery. 

Copper: A Prudent Addition to Your Investment Portfolio

Copper is increasing in popularity as an investable asset for those looking for a way to gain exposure to the unprecedented growth currently underway in the emerging markets. As per the recent demand and supply scenario China has become the center stage for all major triggers in the prices. China is the top consumer of copper in the world. Another reason is the current fundamental in what is driving copper growth demand, a trend that extends beyond China and into the emerging markets. Apart from China, there are three major regions that copper investors should focus on in terms of assessing copper demand: the BRIC countries, the U.S. and The Euro Zone. A savvy copper investor needs to follow the economic developments in those regions for clues into what the future demand for copper looks like in these regions.

Trends in Consumption Demand

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 2014 (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. Overall urban population increases (by 2025, one billion people are projected to live in urban areas) and 221 Chinese cities will have over 1 million people (Europe has 35 cities with over 1 million people). Along with those massive increases, increased demand will be seen for buildings (5 million projected to be constructed by 2025) and transit (170 mass transit systems projected to be built- Europe has 70). Ultimately, whether it is more people, more buildings, or more infrastructures, more copper will be needed to facilitate construction.

ICSG expects world apparent refined demand in 2013 to remain unchanged from that in 2012 (20.5 million tonnes). Although real demand for copper in China is expected to increase by about 6 per cent in 2013, apparent demand in China (that is uncorrected for unreported stock changes) is expected to decrease in 2013 as a result of much lower refined imports. Usage in the rest of the world is expected to increase by around 1 per cent. With better prospects for the world economy in 2014, world usage is expected to grow by around 4.5 per cent in 2014 with world ex-China expected to grow by 2.5 per cent.

Relevance of Chinese Demand

As per a recent study, The State Grid Corporation of China (SGCC), which provides power to 80 per cent of the world’s second-largest economy aims to boost by 13 per cent its annual investment to more than $60 billion. Given that Chinese utilities account for more than 40 per cent of Chinese copper demand, that sort of big jump in capital investment should firm up prices.

Global Supply Update

In developing its global market balance, International Copper Study Group (ICSG) uses an apparent demand calculation for China, the leading global consumer of copper, accounting for about 40 per cent of world demand. Apparent copper demand for China is based only on reported data (production + net trade +/- SHFE stock changes) and does not take into account changes in unreported stocks [State Reserve Bureau (SRB), producer, consumer and merchant/trader], which may be significant during periods of stocking or de-stocking and which could significantly alter supply-demand balances. ICSG projections for 2013 indicate that world production of refined copper is expected to exceed demand for refined copper by about 390,000 tonnes, as demand will lag behind the growth in production. For 2014, although a recovery in usage is anticipated, a higher surplus is expected with increased output from new and existing mines. After three years of relatively stagnant production, mine production in 2013 is expected to increase by 6.5 per cent from that in 2012. Strong growth is expected to continue in 2014 and 2015 as mine projects that were deferred or delayed during the financial crisis are expected to start coming on stream. Expansions and project startups during 2013 and 2014 are expected to increase world mine production to around 18.6 million tonnes in 2014 from 16.7 million tonnes in 2012. Most of the new production is expected to be copper in concentrate, with only limited electrowinning expansion anticipated.

In 2013, world refined copper production is expected to increase by 3.9 per cent compared with that in 2012 as constrained production from maintenance and temporary operational shutdowns in some regions is overshadowed by expanded output in other regions. In 2014, refined copper production is expected to grow by around 5.5 per cent to 22.1 million tonnes with the restoration of production at existing plants and new and expanded capacity at electrolytic plants in China, and to a lesser extent SX-EW plants in Africa. Primary refined copper production is expected to grow by about 7 per cent and secondary production by 2 per cent. 

Supply Concerns

Amidst the projections of skyrocketing demand for copper, the concerns over long term supply is also supporting the bullish trend. The world is also beginning to feel the impact of supply challenges. When it comes down to the production of copper, the industry is experiencing difficulties from various aspects of the production cycle as: Discoveries of higher grade deposits are becoming less frequent, More underground mines are producing copper, at a smaller output capacity than open pits, Greater country risks and Infrastructure Challenges (remote locations), Declining average grades and Inadequate exploration funding.

Stock Update

In addition to higher demand and production constraints, the global stocks of already-mined copper are tightening. A year ago copper stocks were about 1.46 million tonnes. That rose to 1.81 million tonnes in April of last year and has been falling ever since. On December 13th 2013, global copper stocks had declined to an estimated 1.27 million tonnes. Further, the metal’s on-warrant inventory has shrunk to its lowest level since 2008.

Price Forecast

The price trend in copper was mixed in 2013, struggling a bit on concerns of demand growth, and how it responded was therefore a reflection of its supply situation. With forecasts for improving economic growth in 2014, copper is prepared to rally, with its ability to climb based on its own supply situation.

Chana: Prices Likely to Gain Strength in Coming Days

The Indian government’s first advance estimate pegged has chickpea production at 8.66 million tonnes, while the trade pegged it somewhere between 7.7 and 8.20 million tonnes, down by about 2.48 per cent from last year’s 8.88 million tonnes (first advance estimate 2014). There are two main attributes for the fall are marginal drop in seeded area expected due delayed kharif harvest and marginal shifting of crop area to oilseed crops in Rajasthan and Madhya Pradesh.

Domestic Balance Sheet (Unit: Million MT)

Figures in * are NCML Estimates based on traders view

Chana Price Seasonality

The price seasonality index for Chana at Delhi indicates that with new crop arrival prospects in the next couple of months, prices start to decline from January onwards. With exhaustion of peak arrivals by the end of April, prices start to gradually march northwards because of good demand for domestic consumption. With subdued demand, the prices cool towards August and In September arrivals touch their trough. Increase in demand for Chana for seed purpose towards the end of September and festive demand keeps the prices northwards, peaking in September and remaining steady in October. During November prices start to decline on anticipation of the new crop and disposal of old stocks for replenishing them with the next crop arrivals. 

The chickpea prices closely follow the seasonal patterns, wherein they start declining at the time that harvesting commences and bottom out as harvesting reaches its peak.

Thus, it can be used as a significant tool in deriving the price trend. Though harvesting starts in the month of January in the case of chickpea, the actual arrival pressure for the crop builds only after February, when harvesting commences in Madhya Pradesh. Accordingly, chickpea prices begin falling from February onwards and bottom out in May, when arrivals from Madhya Pradesh and Rajasthan reach their peak. Thus, as per the seasonal pattern, if the demand supply scenario remains favorable, selling in February and buying in May is advisable for chickpea. 

Chana Supply & Demand Dynamics

Under normal growing conditions, pulse demand in India will continue to expand at about 8.72 million tonnes a year. Price and income elasticity of demand will of course play a role, but demand will continue to rise into the foreseeable future. India’s pulse import volumes will be a function of the shortfall between aggregate domestic production and demand. In the past three months, the domestic price of pulses has risen sharply, raising concern in government circles and suspicion of large-scale stock building by some major players. There is risk of the government imposing restrictions on futures trading in desi chickpeas. 

It is common knowledge that con¬sumption demand for a range of food products, including pulses, is driven up by India’s rising incomes, low per-capita consumption, and population pressure. Two other factors also deserve attention – the expansion of overall farm production and higher support prices for the related pulses.

India and Global Chana Updates:

• Contrary to Government estimate, chana output this rabi season is expected to be lower at 6.5 million tonnes (mt), according to trade estimate at the Pulses Conclave 2014 held in Goa. This was largely due to unusually cold weather and overestimate of pulses acreage. Earlier, the government has estimated a bumper chana output at 9.8 mt this year against 8.88 mt harvested in the same period last year.

• An important fact to highlight is that the chana prices have fallen below the minimum support price and the quantity of Government’s pulses purchase at MSP is low and is not sufficient to protect farmers’ interest. Chana prices in the wholesale market has fallen to Rs. 25-27 a kg against the MSP of Rs. 31 a kg.

• Spells of heavy rainfall has destroyed hopes of farmers in Madhya Pradesh, which has been receiving torrential rains in the wheat and chana region. According to farmers welfare and agriculture department, hailstorm struck 640 villages in 18 districts of the state. Hailstorm struck 93 villages in Seoni district, 90 in Dewas, 80 in Raisen, 72 in Umariya, 57 in Neemuch, among others.

• According to Australian Bureau of Agricultural and Resource Economics and Science, production of Australian Chickpea is estimated down by 23 percent at 629,000 MT against 813,000 MT from last year.

• In its latest monthly review of Canadian chickpeas Agriculture Canada's market analysis branch in Winnipeg updated forecasts for 2014. It thinks chickpea production this year will total 130,000 MT from 173,000 acres, compared to 182,000 MT from 198,000 acres in 2013. It is important to note that Agriculture Canada does not survey growers and its forecasts should not considered official. Agriculture Canada forecasts exports will reach 85,000 MT in 2014-15, compared to 55,000 MT this season. Domestic use is forecast at 58,000 MT in the coming marketing year, versus 65,000 this season. Season ending stocks are forecast to finish the 2014-15 marketing year at 120,000 MT, versus 125,000 this season and 54,000 MT last season.

Recommendations: (NCDEX)

The market is expected to find first strong support at the levels of 2750-2800 and has good potential of reaching 3400 and 3900 on the higher side (Time Horizon: Till mid of August 2014). 

Understanding Indian Commodity Market: An Overview of Operation, Regulation and Approach to Price Trend Analysis

-- ISBN: 9788175110502     by Dr. Hanish Kumar Sinha           (Price: Rs. 650.00)

Understanding Indian Commodity Market: An Overview of Operation, Regulation and Approach to Price Trend Analysis is a unique imitative which brings forth the complexities of functioning of Indian Commodity Market in a simple easy to grasp text. The chapters give a deep insight into the different realms of commodities market from the investor as well as the regulator point of view. The author has taken utmost care to list out the minutest details which would enhance the understanding of the individual about the Indian Commodity Market. This book aims at making the individual/ corporate a better investor.

The trading of commodities consists of direct physical trading and derivatives trading. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. The first chapter enlists the various Commodity Exchanges dealing in derivative market in India & World. It highlights the similarities and the difference between the financial derivative and the commodity derivative. The introductory chapter gives special mention to the different domestic and global commodity exchanges functioning actively. Apart from the adequate attention has also been made to highlight the importance of warehousing in commodity derivative market. The second chapter deals with the major commodity exchanges active in the Indian commodity space. It highlights the operation of various commodities exchanges along with the detailed list of commodities traded in them. The trading of commodities consists of direct physical trading and derivatives trading. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. The third chapter deals with the various facets of quality testing and maintenance of Commodity in Indian market. It highlights the role of various agencies involved in the quality aspect of the commodities as most of the items are perishable in nature. This chapter gives special mention to the different domestic and global commodity quality standards applied actively in the commodity market space. Apart from the adequate attention has also been made to highlight the importance and functions of various agencies involved in assuring the quality of in commodity market.

The fourth chapter deals with the regulatory aspects of the commodity trading practiced in India. The apex authority controlling the commodity trade is the Forward Markets Commission which was constituted by the FCRA. With the passing of years several amendments were proposed to ensure smooth and efficient regulation of the commodity exchanges and trading practices. The chapter highlights the different basic rules and guidelines in accordance to which the trading is done. The use of commodity-linked financial risk management instruments by commodity producers, traders and consumers, including processors, reflects the desire to obtain protection from uncertain adverse price movements and, in certain cases, to procure short-term finance. The higher and the more unpredictable the price volatility of a commodity, the greater is the possibility of incurring losses or realizing gains on future sales or purchases of a commodity. The greater the share in an enterprise's earnings or in its production costs that a specific internationally traded commodity or commodities represent, the greater that enterprise's exposure to price risks. Instruments for managing commodity price risks are varied; they include stabilization programmes and funds (at the national or company level), marketing strategies involving the timing of sales and purchases, long-term contracts with fixed prices, forward contracts, the use of futures or options to hedge prices through commodity exchanges, and over-the counter (OTC) markets and the use of swaps and commodity-linked bonds. It is observed that credit and market risk commanded the lion’s share of risk managers’ time while operational risk was still being largely overlooked. It might also be notice that risk managers spent most of their time monitoring risk, less time measuring it, and an even smaller amount of time actively managing it.

In the fifth chapter an attempt has been made to study the various types of risk involved in the commodity trading and design suitable mitigation methods using various trading instruments available at the disposal of the investor. The various factors affecting the price of the commodity is dealt in detail in sixth chapter. Prices of commodities are very influential to demand and supply of commodities with one’s own country and competing countries. The duration & time difference of cropping seasons, carry over stock, quantum of export and imports, internal consumption pattern, surplus for exports, prices of the substitute commodities play their role in price determination. Government interventions in export- import policies, allowing duty free imports, export subsidies, export bans, market interventions like Minimum Support Price (MSP) also has very critical role to play in terms of pricing of agricultural and certain industrial commodities. Commodity market participants want to take advantage of such price fluctuations depends upon their risk taking ability and anticipation of the price movements. Commodity market participants are classified under the following three broad categories - hedgers, speculators, and arbitragers Commodity market participants provide the liquidity and volume to the market which helps to derive representative price. Commodity derivative markets differ from financial markets in terms of physical Settlement, Warehousing and quality of underlying assets because of the very difference of the nature of asset. Commodities are bulky in nature, requires safe storage space, it deteriorate with time and needs to settle by actual physical delivery.

The seventh chapter deals with the different tools required for the technical analysis. The major tools to be mentioned are charts and indicators. Important combination of chart patterns has been explained in detail in this section. One must be vigilant enough to spot the patterns in the dynamic market to be able to forecast the prices with increased accuracy. The major indicators (leading and lagging) are expected in the later stages of the section which normally guides the analyst to identify the prices trend in the market. The chapter highlights the different charting patterns which are identified in the dynamic price chart by analyst to forecast the price of a particular commodity or script or index.

Apart from the above chapters, the book also has the section of Glossary of Important Term and references which could be of great help to the readers.

The Book can be bought online directly from the link given below:

https://notionpress.com/read/understanding-indian-commodity-market

Copper Still a Good Asset to Invest

All commodities move in response to supply/demand fundamentals: real and perceived. To analyze any commodity you need to look at what makes up physical vs. investment demand for the metal (in terms of proportions) and what drives each holders.  Copper is interesting because physical and investment buyers both account for significant proportions of physical copper demand. It's hard to overstate the importance of copper prices, both to numerous industries as well as the global economy. In the U.S., demand for products made of copper, 60 percent of which is used to make wire, comes primarily from four sectors. One is construction. A second source of copper demand comes from utilities and companies that own and operate the vast transcontinental high-power lines that crisscross the nation and constitute the bulk power grid. A third source of copper demand is manufacturers of electronic products like smart phones and electronic industry. A fourth industry that buys large amounts of copper products is the car and truck industry. The average automobile, for example, contains nearly one mile of copper wiring, while the total weight of copper in cars ranges from 50 pounds for compacts to as much as 100 pounds for luxury and hybrid cars.

Demand Prospects

The Chinese demand has always been the mover and trend setter for the copper prices. The State Grid Corporation of China (SGCC), which provides power to 80 percent of the world’s second-largest economy aims to boost by 13 percent its annual investment to more than $60 billion. Given that Chinese utilities account for more than 40 percent of Chinese copper demand, that sort of big jump in capital investment should firm up prices.

China is not the only source of expected rising copper demand. The worldwide demand for the red metal has rose throughout 2013. The trends in global refined copper consumption are also progressing to an alarming state. Industrial production is not keeping up with copper consumption and recent indications have pointed to estimates in Chinese consumption to be very conservative. It now appears that in the next 25 years, the world will need to produce as much copper as has been produced in the history of humanity.

India also provides a very compelling case for copper demand and one only has to look as far as their power needs. According to the International Energy Agency, India's power production needs to rise by 15-20% annually and to meet that, India needs to invest $1.25 trillion by 2030 into energy infrastructure. From this new infrastructure, India's annual copper demand is expected to more than double.

There are three major regions that copper investors should focus on in terms of assessing copper demand: the BRIC countries, the U.S. and The Euro Zone.  A savvy copper investor will follow the economic developments in those regions for clues into what the future demand for copper looks like.

Supply Growth & Major Hindrances

Strikes, storms and scheduled maintenance of major copper processing facilities are flattening the growth in copper production. The rate at which global copper supplies are growing will peak this year and then begin to slow next year.

Chile -- Output at Codelco’s 300,000 ton per year Chuquicamata smelter was halted for most of December due to a strike.

Philippines -- Glencore’s Pasar smelter in the Philippines remains closed since Typhoon Haiyan slammed into the country on November 7, 2013.

Australia -- BHP Billiton plans a maintenance outage at its Olympic Dam smelter in March.

Indonesia -- Freeport-McMoRan has suspended copper concentrate exports from its huge Grasberg mine in Papua as it fights a sudden 25 per cent export duty that will grow to 60 per cent by 2016 on copper concentrate exports. That led Deutsche Bank to cut its 2014 copper sales estimates by 120 million pounds, assuming a full first-quarter of export disruptions.

Status on global Inventory

In addition to higher demand and production constraints, the global stocks of already-mined copper are tightening. A year ago, copper stocks were about 1.46 million tons. That rose to 1.81 million tons in April of last year and has been falling ever since. By December 2013 global copper stocks had declined to an estimated 1.27 million tons. Further, the metal’s on-warrant inventory has shrunk to its lowest level since 2008. Copper inventories in China, meanwhile, have dropped and stocks at Shanghai Futures Exchange warehouses have also dropped. From where we stand at Metal Miner, whether an uptick in Chinese demand will lift global copper markets remains unclear, but some perceive copper may have hit its floor.

Price Outlook

The current prices of copper are driven by excellent fundamentals. Strong demand growth driven by China and global infrastructure/urbanization - underpinned by a wide range of uses. China has little domestic resource and is unable to use its industrial advantages to create supply (unlike aluminum, zinc, coal, iron-ore). Copper industry has failed to deliver sufficient supply growth despite record high prices – prices have had to raise high enough to generate enough scrap to balance the market. Copper demand in China has at least 80% growth left to reach developed world averages and can single handedly support double-digit growth for many years. The other major factor supporting the price is shift in the standard of living in the emerging markets. China is the top consumer of copper in the world, and a major consumer of all commodities. Another reason is the current fundamental which is driving copper growth demand, a trend that extends beyond China and into the emerging markets. Despite the recession, globally right now we are witnessing an unprecedented growth of moving people from rural to urban dwellings. Humans that live in rural settings existence require virtually no copper, but in an urban setting AC’s, electricity, cars etc. – all require copper. Now in countries such as China and India, that have huge populations, this movement means a lot of copper is required.