NBHC Kharif Crop Estimates for 2014-15 (First)

With the kahrif season already in progress with about 2-3 weeks delay sowing, NBHC is releasing its first Kharif crop estimate for the year 2014-15. As per our study and market feedback on sowing crop progress, the total Kharif cereals’ production is expected to decline marginally by 1.69 per cent over last year to 121.17 million tonnes. The marginal drop in the production estimate is on account of the recent delay in the monsoon and expectation of lower yield in major producing areas of Bengal, Uttar Pradesh, Chhattisgarh and Bihar. Rice is expected to show a marginal increase in area by 1.18 per cent but a dip of 2.79 per cent in production over last year owing to expected decline in yield. In Maize, which is the other major cereal crop, the area is expected to decline by 8.54 per cent and the production is expected to decline by 4.45 per cent to 7.53 million hectare and 16.73 million tonnes respectively. As the lack of rains and dry weather has been prolonged in major cereal producing areas, farmers are likely to shift to minor cereals as ragi, jowar and bajra (as reported industry sources). Maximum improvement is expected in Jowar whose area and production are expected to expand by 18.55 per cent 31.87 per cent to 2.57 million hectares and 2.94 million tonnes respectively. 

In the pulses sector, the revival of monsoon rains in the pulses growing regions has helped in revival of the urad and other kharif pulses, though the overall yield of Tur is likely to be affected marginally. We expect the area under Tur to improve marginally by 1.75 per cent over last year but the production is likely to decline by 11.66 per cent. Overall, the total Kharif pulses production is likely to improve marginally 2.98 per cent over last year. 

The oil seed sector is likely to see a decline of production by 3.36 per cent. Maximum decline of 27.05 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 0.01 per cent and in cotton, the production is likely to decline by 4.81 per cent.

Weak Indian Monsoon: Concern for Indian Commodities Warehousing

El Niño is a 'warm' ocean current originating along the coast of Peru that replaces the usual 'cold' Peru or Humboldt Current. This warm surface water reaching towards the coast of Peru with El Niño are pushed westwards by the trade winds thereby raising the temperature of the Southern Pacific Ocean. A reverse condition is known as La Niña. Southern Oscillation, a phenomenon first observed by Sir Gilbert Thomas Walker Director-General of Observatories in India, refers to the seesaw relationship of atmospheric pressures between Tahiti and Darwin, Australia.

El Nino has been in news for long time because IMD, RBI and Economists warning about its negative impact on Indian agriculture and Indian Economy.

Basic understanding on El Nino / La Nina

During normal year two things are “STRONG”

· Cold Peru Current

· Trade Winds

As a result, cold water is dragged from Peru towards Australia as shown in the following image. Owing to the above current & trade winds two cycles are created as given in the table below the image. In above image, the red (warm) water region around Australia is called Western Pacific Pool (WPP). In the years of La Nina the above two currents become more pronounced and it results in more rains and even floods in Australia and South East Asian Countries and also results over supply of fishes in Peru region.

During the El Nino the above currents (Cold Peru Current & Trade Winds) become weak. As result, cold water is not dragged from Peru to Australia. But reverse happens – warm water is dragged from Australia towards Peru. Consequently, warm water + low pressure condition develops in the Eastern Pacific (Peru) and Cold condition + high pressure in Western Pacific (Australia).

Since Pressure is inversely related with amount of rainfall, the results are following:

· Warming of Pacific Ocean near Western coast of Peru and Ecuador. It Occurs @every 3-4 years; [In theory, it should occur @every 12 years]

· Its impact usually lasts for 9-12-18-24 months.

· It weakens the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern across the world.

Effect of the development in the Pacific Ocean results in the weakening of the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern.

Impact of Southern Oscillation

El Nino-Southern Oscillation (ENSO) water circulation happens between Australia and Peru But the wind movement is part of larger atmospheric circulation hence affects the rainfall over India. El Niño years directly impact India’s agrarian economy as their effect tends to lower the production of summer crops such as rice, sugarcane and oilseeds. This in return causes inflation to surge and lowers the Gross Domestic Product (GDP). India is the second largest producer of rice and wheat in the world.

How does it affect India and World?

To India

· Drought condition decreases the agriculture output, leads to food inflation.

· Declined supply of cotton, oilseeds and sugarcane negatively affects the textile, edible oil and food processing industries respectively.

To World

· Drought situation over South East Asia and Australia hurts rice and wheat cultivation respectively.

· Warm condition over Peru coast: unsuitable for Plankton population, thus bad for fishing industry. Birds migrate in search of fishes, thus less guano dropping for Fertilizer industry in Peru and Ecuador.

· Flood situation in South America & US Midwest lead to decline in coffee-cocoa and corn-wheat production respectively.

El Nino Phenomenon in India

According to Historical data of 126 years (1880-2005), about 90% of all evolving El Niño years have led to below normal rainfall and 65% of evolving El Niño years have brought droughts. However, one thing is clear that El Niño years do affect the weather in India in terms of Monsoon rain. During this time, the rainfall is generally below normal, which has its bearing on crop production. Here is a list of droughts taken place in India in last two centuries. Some of these have been an outcome of the El Niño phenomenon.

Period	Drought Years	Number of Drought
1801-1830	1801, 1804, 1806, 1812, 1819, 1825	6
1831-1860	1832, 1833, 1837, 1853, 1860	5
1861-1890	1862, 1866, 1868, 1873, 1877, 1883	6
1891-1920	1891, 1897, 1899, 1901, 1904, 1905, 1907, 1911, 1918, 1920	10
1921-1950	1939, 1941	2
1951-1980	1951, 1965, 1966, 1968, 1971, 1972, 1974, 1979	8
1981-2013	1982, 1986, 1987, 2002, 2004, 2009	6

Developments in Pacific Ocean

Over the past several months, the Pacific Ocean has transitioned rather dramatically toward an El Niño state. An powerful oceanic Kelvin wave—the strongest since a similar event in 1997 which preceded the very strong 1997-1998 El Niño event—made its way eastward across the Pacific Ocean during March and April and has now surfaced in the far East Pacific west of Peru and Ecuador.

Sea surface temperature anomalies have increased rapidly in this region over the past two weeks, with warm anomalies now extending across the entire equatorial Pacific.

The current spatial pattern, temporal evolution, and magnitude of sea surface temperature anomalies greatly resemble that which occurred in 1997. The overall volume of warm water associated with the current event in the Pacific actually exceeds that during the 1997-1998 events by a considerable margin.

The atmosphere has apparently started to respond to the recent surface ocean warming, with easterly trade winds continuing to weaken across most of the Pacific basin. There is evidence that a new Kelvin wave may be forming in the West Pacific, which (if true) would make further warming in the East Pacific essentially inevitable by mid-summer.

Numerical ocean-atmosphere models used to make predictions regarding the state of El Niño months in advance—are nearly unanimous in projecting the development of full-fledged El Niño conditions by late summer or early fall 2014. Chance of El Niño has increase over 65% by summer end.

During May-September 2013, well below-average SSTs were observed over the eastern half of the Pacific. From January - February 2014, SSTs were mostly below average across the eastern equatorial Pacific. Recently April – May 2014, SST anomalies have increased and are above average across the Pacific Ocean.

The tropical Pacific is now expected to warm throughout 2014, according to scientists from NOAA’s Climate Prediction Center and Columbia University’s International Research Institute for Climate and Society. That could produce a massive source of energy that would be strong enough to drive up global temperatures.

During April through mid-May the observed ENSO conditions moved from warm-neutral to the borderline of a weak El Niño condition. Most of the ENSO prediction models indicate a continued warming trend, with a transition to sustained El Niño conditions by the early northern summer.

Major Climatic Predictions for 2014-15 for World

• Asia and Australia will see less rainfall as a result of El Niño, leading to drought and wildfires.
• The western US faces storms and floods from an approaching El Niño
• The sea level along California's coast may rise 30 centimeters, and then be pushed even higher by storm surges. Extra water may sound good, because California has been hit by a severe drought. But the raised seas may combine with heavy El Niño rains to cause devastating floods, as happened to the San Francisco area in 1997-98.
• When El Niño arrives, Central and South America face a mix of storms, floods and droughts.
• Major Climatic Predictions for 2014-15 for India
• The onset of monsoon is likely to be delayed by a week (expected date 4th – 6th June)
• Poor monsoon / drought like condition = commodities prices will rise especially sugar, pulses and edible oil. Government needs to stock them up, put restriction on exports, before black marketers start hoarding.
• India is expected to see below-normal monsoon this year with Met department forecasting 95 per cent rainfall. India Meteorological Department (IMD) officials said the monsoon is expected to be below normal because of the El-Nino effect, which is generally associated with the warming of ocean water.
• Farmers need to device alternate farming strategy, change the seeds and irrigation strategy for the drought like situation.

Impact of Poor Monsoon on Commodities Market

The poor monsoon mainly impacts the farm sector, which accounts for only 12 per cent of India’s GDP today as against 55-60 per cent during the time of the early 20th century British Viceroy. Yet agriculture and the monsoon still matter, particularly for what they do to price levels and how they influence inflation expectations in the economy. The prices of major farm commodities (cereals, pulses and oilseeds) are expected to increase sharply and there is a good opportunity to WSP (warehouse service providers) to enhance their rates as the commodities could be lower in supply.

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.