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30 Dec 2011

Commodity Preview 2012

COMMODITY PREVIEW 2012

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30 Dec 2011 1 2 3 4 5 6

Commodity Preview 2012

INDEX
BASEMETALS
Aluminum Copper Lead Nickel Zinc

7
8 10 12 14 16

BULLION
Gold Silver

18
19 21

ENERGY
CrudeOil NaturalGas

23
24 26

OILSEEDS
MustardSeed Soybean CrudePalmOil RefinedSoyOil

28
29 31 33 35

PULSES
Chana

37
37

SPICES
Chilli Coriander Cumin Pepper Turmeric

39
40 42 44 46 48

7 OTHERS


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50
50 53
2

Sugar Cotton

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30 Dec 2011

Commodity Preview 2012

The year 2011 started on an optimistic note that the nascent recovery witnessed in 2010 will extend. But the turnout of events during the year ended up creating more uncertainty. The extent of pessimism continues to remain high. The major global events that shaped 2011 were theArabSpring,earthquakeandTsunamiinJapan, ratingdowngradeforUS,Chinasmonetary tighteningandthentheratecutanddowngradewarningsforEurozoneeconomies. Across the asset classes investors have been in the risk off mode. Higher economic uncertainties pushed the investors to bullion first and then to safer bonds and US dollar. Only USequitymarketsmanagedtoavoidayearonyearlosses,alltheothermajormarketswillend upindeepred.Commoditiestoowereinriskoffcategory.TheReuters/CRBcommoditiesindex fell over 8%. Of the 19 components, only 7 commodities are set to end the year with a positive return. The biggest gainer in the index has been Live Cattle (14% as of Dec.28) while cotton is set to be the largest looser (37%). Amid nonagri commodities, heating oil gained the most whilenaturalgaspostedthebiggestdecline. At home, successive interest rate hikes and sluggish growth in advanced economies; resulted in slowdown in economic growth in India. Sharp drop in Indian rupee against the US dollar also dented economic growth. The Indian currency has fallen 18% so far this year and weakness in expectedtocontinueinnearfuture. Commodities on domestic bourses also witnessed mixed trend in 2011. Strong fundamentals pushed commodities like Chana, Mustard, Pepper and Guar to new all time high while commodities like Cardamom and Turmeric noted sharp decline. In international commodities industrial metal complex ended lower but commodities like gold, silver and crude oil rallied especiallywiththesupportofweaknessinIndianrupeeagainsttheUSdollar. Few things have become a reality of the global financial systems that also include commodities
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30 Dec 2011

Commodity Preview 2012

as an asset class. It is practically impossible to analyze the price trends of individual commodities without taking these factors into account. First and foremost is the fact that the global financial crisis that started in 200809 is not over yet. Secondly the world is flushed with the liquidity that was infused in various parts of the world to counter the global financial crisis. Thisenhancedliquidityhadagreatimpactonthevolatilityinglobalcommodityprices.Thirdis the impact of current crisis on the currencies, especially US Dollar which is also the world reserve currency. All global commodities are Dollar denominated and movement in USD has had an impact on the prices of these commodities. Lastly all the above upheaval resulted in the world growing at three different speeds. EU could already be in recession, USA though not in recession butisonthebrinkofitandevenifitavoidsrecession,prolongedeconomicslowdown hereisimminent.ThirdisthespeedatwhichAsiaisgrowing.WhileAsiadidemergeunscathed from the 200809 crisis, higher inflation as a result of excess liquidity and monetary tightening in these courtiers to combat inflation has resulted in sharp economic slowdown in these countries. It is important to bear in mind all the above factors in addition to the demand and supply scenariooftheindividualcommoditieswhileanalyzingandforecastingthem.Asweenter2012, the market mood continues to be of great uncertainties. Concerns over global economic health andnoquickfixsolutiontostemdebtcrisisinEurozoneinsight,willkeepcommoditiesvolatile.

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30 Dec 2011

Commodity Preview 2012

PerformanceofMajorCommoditiesonIndianCommodityExchanges in2011

Commodity Base Metals MCXAluminium MCXCopper MCXLead MCXNickel MCXZinc NCDEXSteel Bullion MCXGold MCXSilver Energy MCXCrude Oil MCXNatural Gas Oilseeds NCDEXCastor NCDEXMustard MCXCrude PalmOil NCDEXRefinedsoyoil NCDEXSoybean Pulses/Grains NCDEXChana NCDEXMaize NCDEXWheat Spices NCDEXCardamom NCDEXChilli NCDEXCoriander NCDEXJeera NCDEXPepper NCDEXTurmeric Others NCDEXCottonseedcake NCDEXGuarSeed NCDEXGuarGum NCDEXKapas MCXMenthaOil NCDEXPotato NCDEXSugar Quote Rs.perkg Rs.perkg Rs.perkg Rs.perkg Rs.perkg Rs.perton Rs.per10gram Rs.perkg Rs.perbarrel Rs.permmBtu Rs.perquintal Rs.perquintal Rs.per10kg Rs.per10kg Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.perkg Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.perquintal Rs.per20kg Rs.per360kg Rs.perquintal Rs.perquintal CloseAsonDec28th 105.35 399.55 103.55 954.5 96.1 32820 27281 52636 5325 169.7 3953 3542 542 724.05 2482 3278 1219 1190 612.6 6534 3889 15764 32630 4806 1243 7272 24114 812.7 1308 577.6 2886 Change 5.15 39.95 12.1 157.3 12.75 5670 6553 6419 1237 28.1 143 695.5 2.8 91.5 107.5 721 178 147 968.8 1876 233 1438 10133 5438 224 4860 17830 65.1 3.2 26.8 87 %Change 4.7 9.1 10.5 14.1 11.7 20.9 31.6 13.9 30.3 14.2 3.5 24.4 0.5 14.5 4.5 28.2 17.1 11.0 61.3 22.3 5.7 10.0 45.0 53.1 22.0 201.5 283.7 8.7 0.2 4.4 2.9 High 124.15 466.2 135.35 1327.8 115.85 33250 29433 73600 5430 223.5 6058 3570 591 725.8 2557 3700 1346 1435 1615 10970.0 6612 17520 39120 10980 1393 7420 24361 1250 1420 717.5 3065 Low 102.4 332.35 88.45 845.3 86.05 25360 19515 41280 3543 162.5 3740 2629 459.2 588.5 2031 2198 955 1025 545 6274 3688 12975 21835 3918 1018 2416 6310 640 811.4 301.4 2421 Previousclose 110.5 439.5 115.65 1111.8 108.85 27150 20728 46217 4088 197.8 4096 2846.5 544.8 632.55 2374.5 2557 1041 1337 1581.4 8410 4122 14326 22497 10244 1019 2412 6284 747.6 1304.8 604.4 2973

Commodity Castor Chana Guar* Guargum* Mustard** RefinedSoyOil Soybean Sugar

Performance ofCommoditiesonACECommodityExchange Quote CloseAsonDec28th Change %Change Rs.perquintal 3962 69.5 1.8 Rs.perquintal 3277.5 728 28.6 Rs.perquintal 7390 3567 93.3 Rs.perquintal 24113 12065 100.1 Rs.perquintal 3490 641 22.5 Rs.per10kg 724.1 91.65 14.5 Rs.perquintal 2482.5 108.5 4.6 Rs.perquintal 2923 220 7.0

High 6050 3687 7520 24113 3580 725.7 2557 3198

Low 3900 2220.5 3795 12032 2580.75 590.45 2034.5 2426

Previousclose 3892.5 2549.5 3823 12048 2849 632.45 2374 3143

*Guars eed a nd Gua rGum l aunched on 6th Jul y2011 ** New Mus ta rd s eed l a unched on 3rd Ma rch 2011

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30 Dec 2011

Commodity Preview 2012

PerformanceofdifferentassetclassesinIndia

USDINR S&PCNXNIFTY 10yrbondyield AsonDec.28 52.88 4705.8 8.483 Change 8.18 1428.7 0.564 %change 18.3 23.3 7.1 High 54.32 6181.05 8.987 Low 43.85 4531.15 7.934 PreviousClose 44.7 6134.5 7.919

CommodityIndices NCDEXDHAANYA MCXCOMDEX MCXMETAL MCXENERGY MCXAGRI


TrendinNiftyover2011

AsonDec.28 1463.63 3778.54 4658.78 3613.22 3104.41

Change 380.07 483.91 396.51 673.62 376.06

%change 35.1 14.7 9.3 22.9 13.8

High 1465.11 3896.43 5158.62 3677.98 3135.97

Low 1081.1 3229.48 4054.37 2558.33 2473.74

PreviousClose 1083.56 3294.63 4262.27 2939.6 2728.35


56 54 52

TrendinIndianrupeeover2011

6500 6000 5500 5000 4500 4000


3May 31Jan 31Dec 3Sep 3Oct 3Jun 3Jul 3Aug 3Mar 3Nov 3Dec 3Apr

50 48 46 44 42
3May 31Jan 31Dec 3Sep 3Oct 3Jun 3Jul 3Aug 3Mar 3Nov 3Nov 3Dec 3Dec 3Apr

NIFTY

USDINR

TrendinNCDEXDhaanyaover2011 1500 1450 1400 1350 1300 1250 1200 1150 1100 1050
3May 31Jan 3Sep 3Oct 3Jun 31Dec 3Jul 3Dec 3Aug 3Nov 3Apr 3Mar

TrendinMCXCOMDEXover2011 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 3000
31Dec 3May 31Jan 3Mar 3Aug 3Apr 3Sep 3Oct 3Jun 3Jul

NCDEXDhaanya

MCXCOMDEX

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30 Dec 2011

Commodity Preview 2012

aratherdisappointingyearforfinancialmarketsandindustrial metalshave been noexception. Almostall 2011hasbeen the base metals are heading for yearly loss of more than 20% in 2011. Even as the year winds down, we continue to be fearsoverdebtcrisisinEuroZoneanddeterioratingoutlookofglobaleconomies. engulfedwith Base metals started the year on a promising note with copper prices hitting lifetime high in February. However prices have pretty much been on a downward trend ever since. Massive earthquake and Tsunami that struck Japan in early the reversal in prices. Later deepening debt crisis in Euro Zone coupled with downgrade of US AAA rating March, led to anddecelerationofeconomicgrowthinemergingeconomieslikeChinaandIndiaputfurtherpressureontheprices. in both US and Euro Zone took its toll on emerging economies like China and India. For most part of the Weak outlook year, government in both the countries adopted tighter monetary policy in an attempt to rein in rising inflation. This too impactonthegrowthandfactoryactivityinChinaandIndiadeceleratedinlastquarterof2011. hadanegative bourses however losses in industrial metals were not as severe as those in international markets due to On Domestic sharpdeclineinIndianRupeeagainstUSDollar. As we enter 2012, apprehension of what lies ahead remains. There seems to be no immediate solution to the debt problems inEuro Zone and pessimism is so high that recession in the region cannot be ruled out. Also recovery in US is expected to be painstakingly slow. Emerging economies may continue to outperform developed economies but will not globalproblems. beresilientto continue to remain bearish on industrial metals at least in first half of the next year. However improving As a result we macroeconomicpictureinlaterhalfcoupledwithrobustdemandfromemergingeconomiesmayliftpricesofftheirlows.

BASEMETALS

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30 Dec 2011

Commodity Preview 2012

Aluminium prices at LME will end 2011 at least 15% lower after posting gains for past two years. Prices have fallen more hitting highs of $2803 in May amid bleak macro economic factors and record high inventories at LME than 30% after warehouses. We expect bearish tone in Aluminum to continue at least in first of half of 2012. Sluggish economic recovery in US, crisis in Euro Zone and slowing economic growth in top consumer China will continue to dent market deepening debt sentiments. On Fundamental front record high inventories of Aluminium at LME warehouses will weigh heavily on the prices. Stocks atLMEhavehitrecordhighsof4953725tonneson21stDecember2011,andareexpectedtohit5milliontonnesinnear future. On Demand front, we expect robust demand to continue from auto sector. However, having said that, global demand is ataslowerpaceof6to7%withChinesedemandgoingstrongat10%. expectedtorise may however be capped as supply glut eases amid falling production. At current prices of $2000 around The downside 30% of the producers are not profitable. As most of the producers break even at $2200 $2400 levels we expect aluminiumplants toshutdownunlesspricesriseby10to15%fromcurrentlevel. from China, the largest producer and consumer of aluminium may fall as it is among the highest cost Also production producerswithaveragecashcostscurrentlystandingat$2,670pertonneaccordingtoHarborIntelligence.Furtheracute andhighenergycostinChinamayfurtherreducesupplyfromtheregion. powershortage Overall we except prices to trade broadly in the range of $1800 $2400 at LME with bias being negative for early part of the year. However prices may recover from the lows amid reduced supply and robust demand from auto sector. On Domesticbourses weexpectpricestohitlowsofRs.90whiletheupsidemaybecappedatRs.123.

Aluminum

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Aluminum

MCXAluminiumMonthlyChart

Source:Telequote

AftermakingamajorbottomnearRs.62in2009,MCXAluminiumistradingpositivelyforminghighertops,higher bottomsonmonthlychart.

Priceisalsoformingasymmetricaltriangle(R,S)withhigherbottomandlowertopformationonit. Priceiscurrentlytradingbetweenthenarrowrangeandheadingtowardsthestrongsupport(S) TheimmediatestrongresistanceisatRs.124Level(previoushigh). RSIisfirmandisclosetothe50mark. GoingaheadpriceisexpectedtoremainrangeboundwithsupportnearRs.85andstrongresistancenearRs.124.

Strategy:Buyingnearsupportsisadvisableforthetarget124then144.

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Commodity Preview 2012

Copper

Copper prices opened on a higher note in 2011. Capitalizing on gains in last quarter of 2010, prices hit all time high of $10,190 per tonne in February. However prices failed to retain the gains as weak macro economic picture led to sharp sell off in industrial metals with Copper hitting lows of $6635 in October. Copper prices are heading for annual loss of morethan20%thisyear,afterendingonafirmernoteforprevioustwoyears. Besieged by global turmoil we expect weakness in copper prices to continue in 2012. Deepening debt crisis in Euro Zone coupled with sluggish growth in US and slowing growth in emerging economies like China and India may put pressure on theprices. On Fundamental front, demand from China, top consumer of industrial metals, is poised to grow at a slower rate than 2011. According to Antaike, Refined copper consumption may rise 6.4% to 7.85 million metric tons in 2012, as against 8.5%growthin2011and11.5%in2010.Worldusageisexpectedtogrowby3.6%to20.4milliontonsasagainstforecast of1.5%increasein2011. However, on Supply front copper prices will be supported by escalating supply disruption due to strikes and labour disputesin topcopperproducingnationsofChileandPeru.Alsofallingoregrades,dwindlingscrapstockpilesandlackof new mines may limit supply. Copper market may continue to be in deficit in 2012 supporting prices. According to The dataprojectionsfromInternationalCopperStudyGroup,refinedcopperproductionmayriseby3.4%to20.1milliontons in2012.Asaresulttheglobalmarketforrefined copperwillcontinuetowitnessdeficit tothetuneof256,000tonnesas againstdeficitof201,000in2011 Further falling stocks at exchange warehouses may also lend support to the prices. Stocks at LME hit highs of 477,925 tonnes in June this year but fallen more than 22% since then. Also inventories at SHFE have fallen more than 59% from thehighsof177,365tonneshitduringmidMarch. FurtherweexpectlowerpricesmaytriggerrestockingdemandfromtopconsumerChina. Overall we expect prices to trade broadly in the range of $6600 $9200 at LME. Concerns over debt crisis in Euro Zone coupledwithslowpaceofrecoveryinUSanddeceleratinggrowthinChinamayputpressureontheprices.Howeverlower level buying by bargain hunters and supply side constraints will lend support to the prices. On Domestic bourses we expectpricestobottomoutatRs.330levelswhiletheupsidemaybecappedatRs.445.

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Copper MonthlyChart MCXCopper Source:Telequote isshowingapositivetrendforthepastthreeyearswithhighertop,higherbottomformationonit. Copper As seen after taking support of the Long term Channel (S) near Rs 330, price has rallied towards Rs 400 confirmingvalidityofthesame. Thenear termresistanceisatRs.442(R1)level.Ifbreachedthenpricehasapotentialtotestitsalltimehighnear Rs.466(R2). Thenear termintermediatesupportisatRs.345followedbyRs.330(S1). RSIisalsofirmandholdingabove40mark(asshownbydottedline). UntilpricebreachesthepreviouslownearRs.330,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget466,then480.

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30 Dec 2011

Commodity Preview 2012

Lead prices are down more than 20% this year and are heading for an annual decline for the first time since 2008. Prices hit high of $2904 at LME on April 2011, however were on a downward trend since then. Mired amid bleak global sentimentand recordhighstocksatexchangewarehouses,priceshityearlylowof$1772.25inOctober. Howeverprices haverecoveredfromthelowswithonsetofwinterwhichincreasesreplacementdemandofbatteries. We expect lead prices to trade firm in 2012 amid expectation of firm replacement demand and hopes robust demand from China.Demand for batteries, which account for almost 80% of Lead consumption, may rise as global sales of cars and light commercial vehicles will rise 6.5% to a record 79.5 million cars in 2012. Production of batteries in China is byalmost20%,accordingtotheBeijingbasedChinaBatteryIndustryAssociation. poisedtorise manufacture 150 million electric bikes by 2015, compared with 120 million in 2010. Each bike uses an Also China will average of 13 kilograms of lead, according to Brook Hunt. As a result demand from China, that accounts for almost 44% ofglobaldemand mayrisemorethan9%nextyear. Further, according to International Lead and Zinc Study Group, global supply of refined lead is expected to rise 3.1% to 10.65 million tonnes as against 4% gain in consumption. As a result supply surplus may reduce to 97,000 tonnes in 2012 of188,000tonnesin2011. fromestimate however be capped as Lead market suffers from high stocks at exchange warehouses. Lead inventories at The gains may LME hit alltime high of 388500 tonnes in October 2011. Though stocks have declined almost 8% this year they still athigherlevels. continuetobe pressure is expected weakness in base metals complex amid concerns over bleak macro economic Further putting outlook. Overall we expect prices to trade broadly in the range of $1700 $2200 at LME with bias being positive. Prices may seek higherreplacementdemandinwinterandexpectationofrobustdemandfromChina.Howeverhigherstocks supportfrom at exchange warehouses coupled with bleak outlook for other base metals may keep a tab on the upside. On Domestic boursesweexpect pricestotradebetweenRs.90toRs.123.

Lead

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Lead MCXLeadMonthlyChart Source:Telequote Asymmetrical triangleformation(R,S)canbeseenontheLeadMonthlychartwithhigherbottomandlowertop formationonit. pricewasunabletobreachthestrongresistancesofRs135(R2)andgaveasharpfalltillRs88.5(S1) Asseen Currently priceistradingbetweenthenarrowrangeandheadingtowardsthestrongresistances(R1) Thenear termresistanceisatRs.122(R1)level.Ifbreachedthenpricehasapotentialtotestnextresistance(R2), which isatRs.135(previoustop). alsofirmandholdingabove40. RSIis UntilpricebreachesthesupportofRs.88,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget122,then135.

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30 Dec 2011

Commodity Preview 2012

of the worst performing base metals in 2011 ending the year almost 20% lower. Prices hit high of $ Nickel was one 29,425 in February amid rise in demand as floods in Australia reduced supply of coking coal required to produce Nickel substitute, Nickel Pig Iron. However, faltering demand from stainless steel industry coupled with expectation of rise in futuresupply andbleakmacroeconomicpictureledtosharpdeclineinthepriceswithpriceshittinglowof$16550inlate November. we expect prices to continue with their downward trend. Prices may come under pressure due to supply Going forward glutamidreduced demandandexpectationofriseinsupply.

Nickel

On fundamental front demand for Nickel is expected to be stable. According to International Nickel Study Group nickel consumption in 2012 may rise by 6.4% to 1.67 million tonnes from 1.57 million tonnes in 2011 while refined nickel production is forecasted to increase by 8.75% to 1.74 million tonnes from 1.60 million tonnes in 2011. As a result Nickel marketmaywitness70,000tonnesofsurplusin2012. On Supply front, rise in production from Ambatovy mine in Madagascar, Vale SA Goro mine in New Caledonia and Onca PumamineinBrazilmayincreasethesupplyglut,puttingpressureontheprices. ThedownsidemayhoweverbecappedamidfallingstocksatLMEwarehousesandhigherenergycostinChinawhichmay limitusageofNickelpigiron. NickelstocksatLMEwarehouseshavefallenmorethan36%fromthepeakof137766tonneshitinJanuarythisyear.Asa resultLMEnickelstockswillbegin2012attheloweststartinglevelinthreeyears. PricesmayfurtherseeksupportfromreducedusageofNickelPigIronasstainlesssteelproducersinChinashifttoNickel. At$18000itismoreeconomicalfromstainlesssteelproducerstouseNickelinsteadofPigiron. Overall we expect prices to trade broadly in the range of $16000 $22000 at LME with bias being negative for first six months. Bleak macro economic outlook coupled with rise in supply may weigh on the prices. However lower stocks at exchangewarehousesmaycapthedownside.OnDomesticboursesweexpectpricestobottomoutatRs.840levelswhile theupsidemaybecappedatRs.1120.

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Nickel MonthlyChart MCXNickel Source:Telequote A symmetrical triangle formation (R, S) can be seen on the MCX Nickel Monthly chart with higher bottom and topformationonit. lower Asseen pricewasunabletobreachthestrongresistancesofRs1327(shownbydottedline)andgaveasharpfall 845(S1). tillRs Currently priceistradingbetweenthenarrowrangeandheadingtowardsthestrongresistances(T1) The immediate strong resistance is at Rs.11001125 Level (previous high). If breached then price has a potential totest nextresistance,whichisatRs.1180. Further,ifpricesustainsaboveRs.1180,retestofitsprevioushighsnearRs.1327lookspossible. RSIis alsofirmandisclosetothe50mark. UntilpricebreachesthesupportofRs.845,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget1180,then1327.

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30 Dec 2011

Commodity Preview 2012

metal that will end 2011 with second straight loss. The metal that ended 4% lower in 2010 is heading for Zinc is the only annual loss of more than 20% in 2011. Major factors weighing on prices were weak macro economic conditions and higherinventories atexchangewarehouses. we expect weakness in Zinc prices to continue in 2012. Higher stocks at exchange warehouses coupled Going forward withreduced demandandriseinsupplywillcontinuetoweighontheprices. Zincpriceswill continuetotradelowerasglobaleconomiesstruggletorecover.FearsofrecessioninEuroZone,faltering inUSandslowinggrowthinemergingeconomieslikeChinaandIndiamayweighontheprices. economicrecovery On Fundamental front prices may continue to be under pressure amid higher stocks at both LME and SHFE warehouses. Stocks at LME hit 15 year high of 894825 tonnes in July this year and are poised to end the year more than 17% higher thisyear. OnDemandfront,Global demandforrefined zincmetalisforecastedto grow by3.9%to13.35million tonnesin2012as against 2.2% in 2011. Chinese apparent usage is forecast to rise by 5.7% whereas demand from Europe is expected to paceof1%inasagainstestimatesof2.5%in2011. growataslower Zincminesupplyisexpectedtoriseby4.8%to13.37milliontonnesmainlyduetoincreaseinproduction Onsupplyfront, from India, China, Kazakhstan, Mexico and Russia. Also Refined zinc production is expected to rise by 2.4% to 13.48 million.Asaresultmarketswillcontinuetobeinsurplus.However,accordingtoInternationalLeadandZincStudygroup supplysurplus willnarrowdownto135,000tonnesin2012asagainst317,000in2011. Thedownside mayhoweverbecappedifweseesupplysidedisruptioninresponsetolowermetalprices. Overall we expect prices to trade broadly in the range of $1500 $2100 at LME with bias being negative for first six macro economic outlook coupled with higher stocks at exchange warehouses may put pressure on the months. Bleak prices. However supply disruption due to weak prices may cap the downside. On Domestic bourses prices may hit lows of Rs.85levelswhiletheupsidemaybecappedatRs.116.

Zinc

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Zinc MCXZincMonthlyChart Source:Telequote Zincismovinginasymmetricaltriangleforminglowertop,higherbottoms. is consolidating from last 2 years in a broad range of Rs.75(S)Rs.123(R) and either side breach should rally Price theprice. pricemaycontinuetoconsolidateinthesameregion. Tillthen Onthe downsidepriceishavingsupportnearRs.86(S1)followedbyRs.75(S2previousmajorbottom) holdingnearthe50markandistakingsupportofthe40mark. RSIis Further ifRs.116resistancegetsbreachedthenthepricehaspotentialtotestRs.123(previousmajortop). UntilpricebreachesthesupportofRs.86,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget116,then123.

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30 Dec 2011

Commodity Preview 2012

Precious Metals were a mixed bag in 2011 after a spectacular performance last year. Gold extended its bull run for yet Silver,PalladiumandPlatinumontheotherhandpostedamodestfallbringingahalttotheirtwoyearbull anotheryear; run. Gold extended its decade old bull run and is set to register a modest near 10% gain in 2011 in dollar terms. As against index is likely to register a marginal gain in 2011 marking their third annual rise (about 5%). The US dollar gold, US DJIA index is also set to end the year with a marginal gain (approx. 2%) Meanwhile, the US 10year Treasury bond has given this year due to safe haven buying (9%). On the domestic front, gold gave a robust return (over 30%) in robust return 2011duetorupeesdepreciationagainsttheUSdollar.TheIndiancurrencyissettoendtheyearwithadeclineofalmost 20%. Meanwhile, S&P CNX Nifty is set to register a steep fall (over 20%) in 2011 due to growth concerns and rupees depreciation. Historically, gold has been a relatively steady commodity and a safe haven asset, demand for which increases during Howevergoldwitnessedsharpmovementthisyearraisingconcernswhetheritisasafehavenasset timesofuncertainty. or a commodity in general. Gold hit new all time high this year as uncertainty about major economies increased demand asset.TensionsintheMiddleeast,deepeningEurozonedebtcrisisandratingdowngradeofUSsupported forsafehaven gold price. The metal however saw a sharp correction in last quarter as uncertainty about global economy led to profit taking.Meanwhile safehavendemandshiftedtoassetslikeUSdollarandUStreasurybonds. While gold remains in a corrective phase currently, we expect it to resume its allure as a safe haven asset. Uncertainty about Eurozone and US economy will increase its demand as an alterative asset. Meanwhile lower interest rate in advanced economies will increase demand for gold which yields no interest. Interventions by central banks like Bank of JapanandSwissNationalBanktolimitcurrencyappreciationwillalsosupportgoldsdemandasanalternativeasset. Silver witnessed sharp movement in 2011 but is set to end the year with a minor fall. Extending the rally seen last year, silver rallied to the highest level since 1980 earlier this year supported by .higher gold price and substantial ETF buying. The metal however corrected sharply following multiple margin hikes by CME and correction in industrial metals. Golds retreatfromrecordhighleveladdedtopressure.Whilesilverendedlowerthisyearweexpectstrengthingoldpriceand recoveryinindustrialmetalstosupportsilvernextyear.

BULLION

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30 Dec 2011

Commodity Preview 2012

Goldindollar termsissettoendtheyear2011withagainofabout15%buildingonitsdecadeoldbullrun.Themetalhit a record high level of $1920.3/oz on Sept 6 but has corrected substantially to end the year near $1600/oz level. We to trade firm in the coming year as well. Eurozone debt problems, loosemonetary policy in advanced expect gold prices economies, intervention in currency markets, central bank buying, robust demand from India and China and tensions in Middleeast nationswillsupportgoldprice. Eurozone debt problems have resulted in bailout of three nations so far, Greece, Ireland and Portugal while some other countries like Spain and Italy have come under the scanner. Eurozone economy may continue to face dwindling market confidencein formofhigherbondyieldsandratingdowngradesandtheEuropeanCentralBank(ECB)mayhavetoresort to severe steps to rebuild their economy. Apart from Eurozone economy, concerns persist about US economy as debt levelsarerising. Meanwhile,ChinaandIndiacontinuetofaceinflationarypressures. Gold is alsolikely to gain support from shift in monetary policy stance in major economies. The ECB announced two interest rate hikes this year but reversed the rate hikes amid weakening outlook. China cut its reserve requirement rate forthefirst time since2008whileIndia broughtahalttointerestratehikes.BOEkeptinterestratesteadybutraisedthe asset purchase program to 275 billion. BOE, ECB and BOJ will continue with lower interest rate next year due to slack growth. China may reverse some of the rate hikes in case inflation eases. US Fed has already indicated that it will continue with lower interest rate for at least mid2013 but the central bank may refrain from additional bond purchases unless economic outlook worsens significantly. Higher liquidity will increase concerns about currency debasement increasing golds demand as alternative asset. Central banks may also continue to accumulate gold as the metal is seen analternative asset. Whilegoldcontinues tobeonabullrun,someriskfactorspersist.Goldhastraditionallybeenasafehavenassethowever lately it has shown signs of being more of a commodity. Gold has been on a steady rise for past few years and has hit multiplenew highshowevertherunuptorecordhighlevelthisyearcameinashortspanindicatingvolatility.Inaddition to it, gold has moved in sync with most asset classes in past few months making it vulnerable to extreme price movement. While economic outlook for global economy has worsened, global leaders may take measures to avert anotherrecessionandthiscouldlimitdemandforsafehavenasset. Overall, gold is likely to form a base around $1425/oz level and could breach $1950/oz level on the higher side. On domesticfront, wecouldseegoldpriceformingabaseataroundRs.24000/10gramswhileupsideisseenatRs.31000/10

Gold

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Gold MCXGold MonthlyChart Source:Telequote had been moving in a rising channel with higher tops, higher bottom formation for the past 5 years Gold supported bylongtermsupportlineS. pricehascurrentlybrokenoutoftherisingchannelatRs24000andmadealifetimehighofRs29433. The Currently priceisholdingnearthelongtermresistancesline. supportforthepriceisatRs.25000,whichisapproximatetothelongtermresistancesline(R). Strong Further if price holds above Rs.26000 then it has the potential to test Rs.3200033500 in a time span of 9 12 months RSI isalsofirmabovethesupportlineandholdingabove50whichindicateslongtermpositivemomentum. The intermediate support is at Rs.25000, if it gets breached then the price can test next major support levels of Rs.2400022000. UntilpricebreachesthesupportofRs.24000,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetargets32000,then33500.


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30 Dec 2011

Commodity Preview 2012

Silver was one of the most volatile commodities in 2011. The metal moved as high as $49.5/oz in a run up to breach the all time high set in 1980. However multiple margin hikes by CME and redemptions by ETF holders led to a sharp decline laterintheyear. Weaknessinindustrialmetalsalsokeptacheckonprices Silver is likely to trade under pressure in the near term as weakening outlook for global economy, slack ETF buying, dwindling demand in India and China and higher mine production will weigh on price. However continuing strength in goldmaylimit anymajordownside. The highestdemand for silver is for industrial application and concerns about major global economies will weigh on prices. Debtproblems in Eurozone, sluggish recovery in US and slowdown in economic growth in China and India will keep demand concerns high. Meanwhile, higher price has dampened silver imports into India and China indicating dwindling buying interest. Silver holdings with Ishares ETF are set to mark their first annual drop in 2011 indicating waning investment interest. Buying at lower levels will persist but sustained ETF buying is unlikely unless silver resumes its upward momentum. The metal may remain under pressure also from rising mine production. Global silver mine production has been on a steady rise since 2003 and this trend may persist in the near term. Production has increased from18557tonnes in2003to22889tonnesin2010. is unlikely to see a sustained decline as outlook remain firm for gold. Uncertainty about global economic Silver however recovery will support golds demand as an alternative asset. Industrial metals witnessed a sharp fall this year however lowerpricesandhopesofeconomicrecoveryarelikelytoignitebuyinginterest.RobustgrowthinChinawillalsosupport metals. demandforindustrial The spot gold silver ratio a multiyear low of 31.7 earlier this year after silver rallied to the highest level since 1980. sharp correction in silver pushed the ratio to over 50. The ratio will remain steady above 50 levels in the However the neartermassilverremainsunderpressure. Overall, concerns about global economy and slack ETF buying will weigh on silver price; however strength in gold will continue to support prices. Silver is likely to form a base around $24/oz and could breach $38/oz on the higher silver. Buyingondips couldbethestrategy.OnthedomesticfrontsilverislikelytoformabasearoundRs.44500/kgwhileupside atRs.66500/kg. couldbeseen

Silver

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Silver MCXSilver MonthlyChart Source:Telequote Silver isshowingapositivetrendforthepast2yearswithhighertop,higherbottompriceformation. As seen after breaching the trend channel resistance at Rs.41000 (C), price has rallied and made a life time high ofRs73600. Priceiscurrentlytakingresistancefromshorttermresistanceline(R)nearRs.60000level. Theintermediate supportisatRs.48500,whichhappenstobethechannelline(C) Further if Rs.60000 resistance is broken then the price has potential to test Rs.67000 and then the alltime high near Rs.73600inatimespanof912months RSIis currentlyheadingtowardsthesupportlineandisholdingabovethe50mark. UntilpricebreachesthesupportofRs.40000,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget67000,then73500.

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30 Dec 2011

Commodity Preview 2012

in Energy sector witnessed mixed trend in 2011. Crude oil, heating oil and gasoline are set to mark their Commodities thirdconsecutive annualgainwhilenaturalgaswillregisteritsfourthannualdrop. Crude witnessed volatile trade in 2011 but is set to end with a modest gain of more than 8%. The major factors which affected crude oil prices this year was earthquake and Tsunami in Japan, the Arab Spring, the US rating downgrade, continuingEurozonedebtproblemsandspreadtradebetweenBrentandWTIandcrudeoilandproductfutures Crudeoilstarted theyearonafirmnoteasantigovernmentprotestshitnationslikeEgypt,Syria,Yemen,Libya,Bahrain, concernsaboutinstabilityintheregionanddisruptingsupplyfromLibya.Howevertensionseasedasdeath Omanfuelling ofLibyanleader Qaddafirestartedpartialproduction. A massiveearthquake and Tsunami in Japan put pressure on crude oil prices on concerns that growth will be affected. However crude oil gained as the earthquake damaged Japans Fukushima nuclear plant raising demand for alternate sourceofenergy togenerateelectricity. Crude oil saw a major correction later in the year as rating downgrade for US and deepening Eurozone debt concerns fuelled demand concerns. Crude oil however recovered in last few months amid tensions relating to Iran and fall in US crude oil stocks. Meanwhile, WTI crude outperformed Brent in the last quarter due to easing supply overhang in US and restartsofLibyanoilsupply. Crudeoilcould faceadifficultyearin2012asmarketplayersremainuncertainabouthealthofglobaleconomy.However we believe that supportive factors persist in form of tensions in the Middleeast and tight demand supply balance. ChinaandIndiawillalsoremainfirmdespiteslowdowningrowth. Demandfrom on the other hand, remained under pressure throughout in 2011 due to supply overhang in US. The Natural gas, commodity isexpectedtoremainunderpressurenextyearaswellhoweverwecouldseepricesbottomingoutasnatural cheaperincomparisontoothersourcesofenergyinUS. gasbecomes

ENERGY

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30 Dec 2011

Commodity Preview 2012

West Texas Intermediate (WTI) crude oil witnessed mixed trade in 2011 but is set to end the year with a modest gain markingitsthird annualgain.WTIralliedearlierintheyeartohitahighof$114.83/bblbutplungedaslowas$74.95/bbl by Oct. Crude oil however showed a fabulous recovery in last quarter to end the year in the green territory. Crude oil is likely to trade firm in the coming year as well supported by tensions in the Middleeast, tightening demand supply balanceandrobustdemandfromChinaandIndia. TheArabSpringstartedinJan2011andhasresultedinendofautocraticgovernmentinTunisia,Egypt,LibyaandYemen. Syria is alsounder international pressure and we could see a shift in leadership soon. While leadership changes have been welcomed in the region, it will result in political vacuum and thereby more intervention by western nations leading toinstability. TensionsbetweenIranandwesternnationswillpersistduetoTehransnuclearactivityhoweverwedonot expectthatitwillresultinanysupplydisruption. The supply overhang in US, especially in Midwest, has pushed Brent price above WTI since 2010. The gap widened to record high level of $28/bbl in 2011 due to supply disruption from Libya. However the spread has narrowed since the death of Libyan autocratic leader Qaddafi and amiddrop in US crude oil stocks. The spread narrowed also afterEnbridge Enterpriseannounced planstoreversetheSeawaypipeline,whichrunsfromTexastoOklahoma,in2012.Theremovalof excess stocks from Midwest to Gulf Coast will help ease supply overhang in US and thereby support WTI price. However we expect Brent to continue to trade above WTI price in 2012. Tensions in Middleeast, robust Asian demand and tight NorthSeamarketwillsupportBrentprice. Risks for crude oil remain in the form of weakening outlook for major economies. Eurozone debt problems are likely to persist resulting in higher borrowing costs and rating downgrades. Meanwhile severe austerity measures will affect economic growth. US economy continues to recover at a slow pace however weak labor and housing market and rising debt level remain a cause of concerns. On the other hand, monetary tightening and uncertainty in Eurozone will affect economic growth in China and India. On the supply front, OPEC members, at their latest meet in Dec, raised its production target to 30 million barrel per day which matches their current production target. OPEC however is likely to overproduce due to higher price and robust demand. Libyan supply is also expected to recover completely next year. Crude gained support from loose monetary policies in advanced economies however we may not see extensive bond buyingnextyearduetoconcernsaboutitslongtermimpact. Overall, we believe crude oil to form a base near $8085/bbl and we could see price rising to $115/bbl. On the domestic

Crude Oil

front,crudeoilpricescouldformabasearoundRs.4550/bblandwecouldseepricerisingtoRs.5850/bbllevel. Go to Index Please See Disclaimer on the Last Page 24

30 Dec 2011

Commodity Preview 2012

TechnicalOutlook CrudeOil MonthlyChart MCXCrude Source:Telequote MCX Monthly Crude Oil price is showing a positive upward channel movement between (C, C1) for past 3 years withhighertop,higherbottomformation. The price has recently given an upside breach of resistance line (R) at Rs.4800 level and is sustaining above the same. Theprice isnowlikelytoheadtowardsthenextresistance(C1)ofRs.5850level. supportforthepriceisatRs.3800levelwhichisbothaTrendlinesupport(C)aswellashorizontalsupport. Major RSIis firmabovethesupportlineandisholdingabovethe50markwhichindicatesbullishmomentum. ifRs.5850(C1)resistancegetsbreachedthenthepricehasthepotentialtotestRs.6240inatimespanof Further 1012 months UntilpricebreachesthemajorsupportofRs.3800,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget6358,then6500.

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30 Dec 2011

Commodity Preview 2012

Natural gas witnessed a sharp slide in 2011 and is set to mark its fourth annual decline. Higher production in US, slack weather related demand and no major supply disruption during the Atlantic hurricane season kept natural gas under pressurethroughout theyearandpricehita2yearlowinDecember. likely to remain under pressure next year as supply overhang will persist in US. Record high stocks and Natural gas is robust production in US will keep markets well supplied. As per US Energy Information Administration (EIA) estimates, production is expected to grow by 1.8 Bcf/d or 2.8% to 67.72 Bcf/d. The growth however compares to a total marketed sharp6.6%gain inproductionthisyear. USworkinggas stocksare10%abovethe5yearaveragelevels.Thewinterrelateddemandhasbeensubduedsofardue and this has resulted in smaller than average withdrawals from storage. EIA estimates that working to mild weather natural gas inventories will total about 1800 Bcf at the end of March 2012 as against about 1600 Bcf at end of March 2011. hand, total consumption is expected to increase by 1.7% to average 68.35 Bcf/d. Residential, Commercial On the other and industrial demand is expected to note a modest rise however demand for electricity generation is expected to increaseby3.7%. Lowernaturalgaspricehasincreasedsubstitutionofthefuelforelectricitygeneration However we believe some buying interest may emerge at lower levels. The continuing drop in price has already affected rig activity in US and rig count has dropped to the lowest level since Jan 2010. This trend may persist as switching to oil lucrative now. The sharp rise in US production has reduced its demand on imports and marginally rigging is more increased exports. Increasing export opportunities will also lend support to gas prices. The Atlantic hurricane season for with 19 named storms (as against long term average of 11 named storms) but did not affect production 2011 was active in the Gulf of Mexico. Early estimates indicate an active hurricane season and this will also support prices. Heating demandfornatural gasincreasesduringwinterwhilecoolingdemandpicksup inlatesummer.Weatherrelateddemand willalsoaffect prices. Overall, natural gas is likely to trade under pressure next year and we could see price dropping as low as $2.35/mmBtu. interest is likely to emerge at lower level. Seasonal weather patterns will also affect prices. On the However buying domesticfront,weexpectnaturalgastoformabaseataboutRs.145.

NaturalGas

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook NaturalGas MCXNatural GasMonthlyChart Source:Telequote MCX Monthly Natural Gas price is showing a negative channel movement for past 2 years with lower top, lower bottomformation. Theprice istakingresistanceatlongtermresistanceline(R)atRs.205levelandlooksbearishbelowthesame. PriceforpastoneyearistradingwithintherangeofRs.165220. Immediate supportisatpreviouslowsnearRs.143level. A breach below Rs 143 level could lead the price lower till alltime lows near Rs.119 level in a span of 912 months. RSIis belowresistancelineandholdingbelowthe50markwhichconfirmsthebearishness. UntilpricebreachestheresistanceofRs.223,bullishnesscanbeeffectivelyruledout. Strategy:Sellingnearresistancesisadvisableforthetargetof143,then119.

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30 Dec 2011

Commodity Preview 2012

TheIndian edible oilandoilseed complexhasendedtheyearon afirmnotewithmostofthecommoditiestradingatits annual high. Mustard seed outperformed its counterparts and is heading to close up by 24% in 2011 while refined soy bean oil hasalmost gained 1415%. Soy bean traded in a broad range and failed to show any remarkable performance andisclosing tadhigherby4.5%.WhilePalmoilisheadingtoclosealmostunchangedasagainstyear2010. Gamut of global and domestic events in year 2011 had an impact on edible oil and oil seed prices. The year started with dryweatherinSouthAmericafirmingsentimentsduringfirsttwomonthsoftheyear2011.Thegainswerecappeddueto persistentworries overdebtcrisisinEurope.ThereafterrecordKharifoilseedcropprospectsinIndiaandUSbroughtina tone to the market. Indian Rupee depreciated to record low during the 3rd and 4th quarter and slowed further bearish downoilimports. Importsduring(AugNov2011)weredownby6.6%to25.42lakhtonsasagainst27.24lakhtonsduring period last season. Lower imports led to increase in domestic crushing and supported the recovery in corresponding pricestowards theyearend. Rise in domestic oilseed (nine oilseeds) production during oil year 201011 to 27.031 million tons as compared to 22.846 million tons during 200910 also lowered edible oil imports. Edible oil imports fell by 5% to 8.3 million tons as compared to 8.8 million tons in oil year 200910. Also the export of oil meals during the first eight months of the financial year significantly by 22.41% to 29.15 lakh tons as compared to 23.81 lakh tons during corresponding period 201112 surged lastyear.For thecomingyearaswellIndiacontinuestofocusonimprovement inthedomesticproductionbyraisingthe subsidyforthefertilizers. MSPandhigher On macroeconomic front even though global growth scenario remains uncertain, the production of biodiesel in US is expected to remain strong. Also Canada has enforced a 2 %mandate and both Brazil and Argentina are expected to biodieselmandatesinbiodieselproductionin2012,supportingdemandforsoybeans. increasetheir Indomestic market weexpecttheimportdutystructureforedibleoiltoremainunchanged in2011,withanintention to keepacheckonlocalpricerise. Letustakealookattheindividualcommoditiesinthissection.

OILSEEDS

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Commodity Preview 2012

Mustard seed futures have been rising at a steady pace since last 6 years, and this year marked its new life time high towardstheyearend.Pricesatthefuturesplatformareheadingforannualgainofalmost25%in2011. price during the year was attributed to rise in meal exports amid declining stocks in spot market and The surge in exchange warehouse. Rapeseed meal exports surged by 66.3% to 8.4 lakh tons in April November 2011 as against 5.07 yearmainly dueto competitive prices inIndiawhichledtoriseinimportsfromChinaby47.37%andSouth lakhtonslast Koreaby34.67% ascomparedtolastyearsameperiod. Inordertoboost theproductionprospectsin201112yearthegovernmenthasraisedtheMSPformustardseedby35% as compared to last season. However this move could not benefit to a large extent as weather was not to Rs.2500/qtl favorable during the sowing period and higher realization for chana diverted the farmers interest. As on first week of India acreage year on year is reported to be around 61.60 lakh ha, up by 1.3%. After looking at the December all we expect the production to be steady to slightly lower as against last years production of 77.7 lakh prevailing weather

MustardSeed

thesupplybalanceformealisexpectedtobetightduetofallinglobalmustardseedproductionin2011 Internationally, 12 by 0.91%to 59.84 million tons against 60.39 million tons last year. Also the ending stocks for meal are pegged lower tons. milliontonsin201112. by2.83%to0.34 Onthedemand front,mustardseedimportsfromChinaareexpectedtobehigherby29.03%to1.2milliontonsin2011 steadyincreaseinmealdemand. 12alongwith Theweatherwillbeakeypricedeterminingfactorduringthecomingdaysasthecropwillbeatitscrucialgrowingstage. Also tightness in global meal supply will lead to increase in Indian meal demand in the international market. Overall we seed price to trade firm for the coming season and bottom for the commodity is seen near Rs.2700 expect mustard 2750/qtlandonhighersideweexpectthepricestotestRs.40004200/qtl.

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Commodity Preview 2012

TechnicalOutlook MustardSeed NCDEXMustard SeedMonthlyChart Source:Metastock A symmetrical triangle formation (R, S) can be seen on the NCDEX Mustard Seed Monthly chart with higher bottom andlowertopformationonit. AsseenpricehasrecentlybreachedthestrongresistancesofRs3073(shownbydottedline)andmadealifetime highofRs.3570. GoingaheadRs.3075shouldactasastrongsupport(shownbydottedline) firmandissustainingwellabovethe50mark. RSIis Aslong aslowertrendlineofthetriangle(S)isintact,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget3900/4290.

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30 Dec 2011

Commodity Preview 2012

For the year 2011 soybean prices were in a consolidation phase and traded sideways. This year was definitely not a soybean year as prices just managed to recover from the yearly lows and may end the year with modest gains. Prices failedtorallyamidhigherdomesticproductionandsteadydemand. Indiansoybeanproductionisestimatedtohitrecordhighof10.5milliontonsin201112ascomparedto9.7milliontons last year. Good crop prospects and weakness in global economy due to Euro zone debt crisis pressurized prices during the first three quarter of 2011. However, bargain buying at lower levels coupled with depreciating rupee against the US dollar, lifted the prices off their lows. Rupee fell almost 18% against the US dollar encouraging higher meal exports. Soy meal exports during April November 2011 surged by 2.9% to 17.51 million tons as compared to 17.01 million tons duringcorresponding periodlastseason. The global supply for soybeans remains well balanced for 201112 due to rise in production in Argentina and India along with the increase in demand for soybean and meal. In 201112 total supply for soybean is expected to be higher by 2.3% tons year on year. Supply for soy meal is expected to be higher by 4.5% to 246.6 million tons year on to 421.61 million year. While on the demand front we expect the global consumption for soy beans to increase by 3.5% to 260.08 million tonsandmeal consumptiontoincreaseby4.8%to177.8milliontons. During the first half of the year 2012 soy bean prices will be taking cues from the progress in Rabi oil seed crops and erratic weather in Malaysia which could impact the edible oil prices. Overall we do not see any deficit on the global and domesticsupply sideandweexpectthedemandtoriseatasteadypace. Overallwe expect soybeanprices to tradeinawiderangein2012.Pricescould seebottomatRs.20752150/qtlwhilethe upsidemaybecappedatRs.27002750/qtl.

Soybean

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Soybean NCDEXSoybean SeedMonthlyChart Source:Telequote NCDEX Monthly Soybean Seed price is showing a positive upward channel movement for past four years with highertop,higherbottomformation. FurtherthebouncebackfrombottomwasbeenrestrictedatRs2826whichwastheprevioustop. PriceforpastoneyearistradingwithintherangeofRS18782500. AbreachedfrombelowfromRs2500couldleadthepricetotouchthelongtermresistanceline(R)atRs2826. Volume and Open Interest is also firm this will add further bullishness to the price to test the resistances line (R) inthecomingmonths.RSIisfirmandholdingabove50levels. Strategy:Buyingnearsupportsisadvisableforthetarget2826,then3000. FurtherifRs.2826(T1)resistancegetsbreachedthenthepricehaspotentialtoeventestRs.30003200inatime spanof1012months UntilpricebreachesthesupportofRs.1850,bearishnesscanbeeffectivelyruledout.

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Commodity Preview 2012

CrudePalmOil
Crudepalmoilpricesfortheyear2011tradedweakandlost0.5%ascomparedto2010.Fallin priceis mainlyattributed to the decline in Malaysian Palm oil prices. The downside to price was capped due to the depreciating rupee against the US dollar. Indian Crude Palm oil prices declined by 0.5% compared to 17% on Bursa Malaysia in 2011. Indian Rupee depreciated nearly 18% against the US dollar in 2011 and capped the downside in Indian Crude Palm oil prices. During the early 2011 Crude Palm oil made a high of 4000 ringgit on Bursa Malaysia exchange due to lower production forecast in Malaysia which was below 17 million ton and dry weather in South America. Thereafter, towards the last quarter (October December) of 2011 prices tested low of 2787 ringgit on rising stocks in Malaysia with production gaining to 17.56millionton.WeaknessinglobaleconomyalsoaddedpressureonPalmoilprices. Palm Oil continued to remain one of the hot favorites of the Indian importers for 2011 to cater to the rising domestic demand. CPO constitutes 64% of total Indian edible oil imports. Import of Crude palm oil surged by 3.96% to 53.74 lakh tons in 2011 compared to 51.69 lakh tons in 2010. Zero import duty regime is likely to continue for some more time as government is fighting hard to control food inflation in the country. Looking forward we see palm entering lean production phase and ongoing weather concerns in Malaysia and Indonesia could affect the output. Also the weather in South America is under threat due dry weather which could affect the output.The world production in 2011 was 50566 ThousandMetricTon (TMT)compared to47930(TMT)in2010.Consumption gainedto49481(TMT)in2011comparedto 47247(TMT) in 2010. Ending stock gained marginally to 5321(TMT) compared to 5234(1000MT) in 2010. With higher endingstockswesawpricedecliningin2011.(Source:USDA) However, weather outlook in 2012 is uncertain as forecasters are predicting a return of La Nina conditions. The Malaysian Palm growing region has seen a bumper production of 17.56 million tons in 2011. The best we can expect for 2012isflatproductionoramarginalincreaseof0.5milliontonsinMalaysia.AsforIndonesia,theeconomiccrisisof2008 dramatically curtailed new plantings and therefore production growth in 2012 may be lower than a normal year. Our house view for the crude oil prices is bullish. The consensus is for Brent crude oil prices are to recover to US$ 125 to 130 perbarrelbymiddleofnextyear.Inthatevent,weexpectvegetableoilpricestorise.Insuchscenariothelowerdemand will get offset by lower production, thus a major downside risk to the prices can be effectively ruled out. Import from IndianandChinamaycontinuetoremainrobustduringtheyear. Outlook:Positive Fortheyearaheadweexpectthepalmoilpricestotradefirmcomparedtolastyear.WeexpectbottomtobeRs400with upsidebeingRs600.

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Commodity Preview 2012

TechnicalOutlook CrudePalmOil

NCDEXCPOWeeklyChart

Source:Telequote
MCXCPOisshowingapositivetrendforthepastthreeyearwithhighertop,higherbottomformationonit.

AsseenafterbreachingtheLongtermresistanceslineatRs535(R),pricehasralliedandmadealifetimehighof Rs591

TheneartermresistanceisatRs.615635Level.Ifbreachedthenpricehasapotentialtotestnextresistanceline (T),whichisatRs.700. TheneartermintermediatesupportisatRs.459,whichhappenstobeapreviousbottom. RSIisfirmandholdingabove50. UntilpricebreachesthesupportofRs.425,bearishnesscanbeeffectivelyruledout.

Strategy:Buyingnearsupportsisadvisableforthetargetof650,then705

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Commodity Preview 2012

Refinedsoybean oiltradedonahighernotein2011andisheadingtowardsprevioushighsetinyear2008. Yearonyearthepricesareheadingtoregisterannualgainmorethan1415%. Prices traded in a broad range of Rs.582/10kg and Rs. 673/10kg during the first three quarters of the year 2011. Good Rabi crop prospects for the season 201011 (at 9.9 million tons as compared to 9.1 million tons in 200910) along with weak global sentiments pressurized the prices. Also rising palm oil stocks in Malaysia limited gains. The prices thereafter the last quarter mainly on good domestic demand, lower production phase for Malaysian palm and recovered in depreciating rupee against the US dollar. Overall rise in domestic oil seed production induced higher crushing reducing oil imports to a large extent. The degummed soy oil imports during November 2010October 2011 degummed soy declinedby39.59%to10.06lakhtons. The global supply for soy oil in 201112 is estimated slightly higher by 1.8% to 54.43 million tons against 53.47 million tons in 201011 due to rise in soy bean production. However the demand is expected to surpass the supply and rise by 4.8% to 42.97 million tons in 201112 mainly on higher demand from China. Consumption in China is estimated at 12.06 milliontons,upby8.5%againstlastyear. 201112 oilseed crops have fared well however production numbers for the Rabi does not seem very In India Kharif impressive due to choppiness in Indian weather amid slight decline in acreage. The imports are expected to be slightly year due to rise in domestic demand. The domestic consumption for soy oil is expected to be rise at a higher than last steadypaceof66.5%in201112. Looking at the current supply and demand scenario we expect soy oil prices to trade firm for the year ahead. The bottom isseennearRs.595600/10kgwhileonthehighersideweexpectthepricestotestRs.850860/10kg. fortheseason

RefinedSoyOil

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Commodity Preview 2012

TechnicalOutlook RefinedSoyOil NCDEXSoybean OilMonthlyChart Source:Telequote NCDEX Monthly Refined Soybean Oil is showing a positive trend for the past four year with higher top, higher bottom formationonit. Price iscontinuouslysupportingonthelongtermlineSasseemabove. seen after breaching the short term resistances line at Rs 526, price has rallied and headed towards the life As time highofRs729. near term resistance is at Rs.672675 level. If breached then price has a potential to test next resistance line The (T), whichisatRs.729. near term intermediate support is at Rs.599, below that Rs 526 is another support which happens to be a The break outpoint. isfirmandholdingabove50. RSI Until pricebreachesthesupportofRs.570,bearishnesscanbeeffectivelyruledout. Strategy:BuyingnearsupportsisadvisableforthetargetofRs755. Please See Disclaimer on the Last Page 36

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30 Dec 2011

Commodity Preview 2012

In the year 2011 Chana prices scaled to test new high after a consolidation phase of more than 3 years. Prices at the futuresareheading towardsitsannualgainofaround28%.DuringApril2011thearrivalspressurizedpricesandwesawa at Rs.2198/qtl. There after the prices surged to Rs.3700/qtl towards September end as seasonal demand seasonal low gainedmomentum forthefestivals. The rally in prices is attributed to fall in domestic production amid increase in domestic consumption and lower imports output in Australia. We estimated Indian production to be slightly lower by 1.2% at 73.6 lakh tons. The due to lower production in Australia was pegged lower by 44% to 3.1 lakh tons and the domestic consumption rose by a CAGR of decade. Rise in domestic consumption is the result of increase in standard of living and growth in the 6.65% over last countryseconomy inrecentyears. For the season 201112 the government has increased the MSP for Chana by Rs.700/qtl or 33.3% to Rs.2800/qtl in order domestic production. The rise in MSP coupled with higher realization this year has encouraged the farmers to boost the tocoverlarge areaundercultivation.For201112aspergovernmentofIndiaslatestreportstheproductionisestimated lower at 7.5 million tons as compared to last seasons record output of 8.25 million ton. The consumption is expected increase by around 45% as compared to last years consumption of 7.9 million tons. Internationally the production in Australiaisexpectedtobebetterfromlastyearat3.94lakhtonshoweverstilllowerthatthenormalyears. chana prices are expected to follow last yearsprice movement. Prices during January and February will This year as well be determined by the development in weather and festive demand. Thereafter we expect the prices to trade weak till April as the new crop arrival hits the spot markets. And subsequently the price is expected to bounce and the month of breachlastyears levelsduringthemonthofAugustandSeptember. In a nutshell we expect chana prices to trade weak till April 2012 and test 24502500 on the lower side and thereafter Rs.39504000 by last week of September 2012. Overall we expect the year to be bullish for Chana. Risk to recover to test this scenario remains the 201112production number,asChana sowingisjustgettingover inthecountry.Climateduring thegrowingperiodwillhaveanimpactonsentimentsaswellaspricetrend.

CHANA

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Chana NCDEXChana MonthlyChart Source:Telequote A symmetrical triangle breakout (R, S) can be seen on the NCDEX Chana Monthly chart with higher bottom and lower topformationonit. Thebreakout wassosignificantthatpriceralliedbreachingtheprevioustopofRs3345andmadeanewlifetime ofRs3700. priceistradingbetweenthenarrowrangesandheadingtowardsthestrongsupportofRs26852785. Currently The near term resistance is at Rs.3345 level (previous top). If breached then price has a potential to test next resistance linelifetimehigh,whichisatRs.37003800. RSIis alsofirmandholdingabove50 UntilpricebreachesthesupportofRs.2005,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetarget2900,then3016.

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30 Dec 2011

Commodity Preview 2012

Bearishnesshit spices complex in 2011 with the exception of Black gold (Pepper). Cardamom, Turmeric, Red Chilli and Coriander closed near its yearly low. Cardamom and Turmeric saw the biggest decline in 2011 while pepper made a life timehighin2011 andendedtheyearwithasubstantialgain. Year on year, the King of Spices, black pepper continued to rule the spices kingdom as it registered a gain of 53% while rest of the spices gave negative returns. Cardamom declined the most by 61% compared to 2010. Turmeric and Chilli declined by 53% and 22% respectively. However, coriander declined by 6% and Cumin ended 10% higher compared to lastyear. spices is determined by a blend of factors such as domestic production, export demand and weather Price trend for duringthetime ofcropdevelopment. In2011theexport demandforspicesdeclinedby11%comparedto2010.GlobalturmoilinformofEurozoneDebtcrisis, sluggish US economic recovery bundled with slowdown in India and China led to decline in the spices demand. Also higherproduction fromotherspicegrowingcountriesweigheddowntheprices.ExportdemandforPepperandTurmeric remainedhigherasthepriceswerecompetitiveintheglobalmarket.MeanwhileexportdemandforCuminremainedlow as output in Syria and Turkey the other Cumin producing nations was higher in 2011. Coriander exports declined 45% comparedto2010asoutputinBulgariaandRomaniagainedin2011. The Indian Rupee declined around 18% against the US dollar in the year 2011. Declining INR made Indian spices cheaper in the world market. In comparison to other spices, pepper exports gained the most from falling Indian rupee. Pepper exportwere13750MT(AprilOctober2011)comparedto10350MTin2010anincreaseof33%. Lower inventories coupled with lower production estimates for pepper; the trend for the spice is expected to remain firm. Strategy of buying Red chilli, Cumin, Coriander and Cardamom for the season 201112, post harvesting can be followed.However,theupsideforCuminandCorianderisexpectedtobelimitedbecauseofhigherproductionestimates thisseasonand tradersmayconsidergoingshortonriseforthisspice.

SPICES

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30 Dec 2011

Commodity Preview 2012

Chilli

RedChillilostitspungentstatusin2011.Pricesdeclinedin2011afterclosingfirmforlastthreeyears.RedChillideclined by22%in2011comparedto2010.Higherproductionandlowerexportcanbeheldresponsibleforthepricedecline. Export, the major driving factor for Red chilli prices did not support the prices in 2011. Exports declined by 26% in 2011 compared to 2010. High prices of Indian Chilli in the global market and good crop in China led to lower exports from India. Tradeontheexchangeplatformcontinuedtogainsincethevolumedippedin2009.Volumesarestilllowercomparedto 2006and2007whentherallyinChillipricesstarted. Sowing in 2011 is said to be higher than the normal season. Andhra Pradesh, the major Chilli growing area, saw sowing higher than last year as per the Andhra Pradesh Agriculture Department. Sowing is 2011 is 5.75% higher at 44432h.a comparedto41879h.ain2010.Sowingisstilllowerby5%in2011comparedtothenormalseason46973h.a. Withhighersowingandlowerexportdemand,weexpectpricestocontinuetotradeweakinthefirsthalfof2012.Once thearrivalpressureslowsdownwecanseepricesresumingtheuptrend. Outlook:Positive WeexpectpricestobottomoutatRs60005500withupsidebeingRs90009500

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Chilli

NCDEXChilliMonthlyChart

Source:Telequote

Strategy:Buyingnearsupportsisadvisableforthetargetof11000,then12000. NCDEX Monthly Chilli price is moving in a rising channel (R, S) with higher tops, higher bottom formation for the past5years. Priceaftermakingalife timehighofRs10970gave asharpcorrectionandalsobreached theimmediatesupport line(S1)Rs6951/ ThestrongsupportisatRs.4000,whichisthelongtermsupportline(S). Pricecouldtakethesupportfromthelongtermsupportline(S)andwouldshowsomepullbackfromthislevel. Further if Rs.8000 gets breached then the price has potential to test Rs.1100012000 in a time span of 10 12 months RSIisalsofirmandholdingabove50 UntilpricebreachesthesupportofRs.4000,bearishnesscanbeeffectivelyruledout.

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30 Dec 2011

Commodity Preview 2012

Coriander

Coriander prices were under pressure for the entire 2011. Coriander prices declined by 6% in 2011 compared to 2010. Coriander declined on the back of higher inventory and higher production. Low export demand also supported the low corianderprices. Corianderexporthasdeclinedby45%in2011comparedto2010.HigherpricesofIndiancoriandercomparedtoBulgaria and Romania led to lower export demand. Higher inventory led to cash future arbitrage opportunity for the entire year on the exchange with almost 35000MT to 40000MT which is 10% of the total production lying in the exchange warehousefortheentireyear. Sowing in 2011 is expected to be 227000h.a against 232139h.a in 2010 for Rajasthan, which is the major producer of coriander in India. Falling prices from 10000 per quintal in 2008 to Rs 2600 per quintal in 2010 has made the farmers to lose interest in coriander farming. Weather is the main factor to look for in the coming month which will be the price driverforthenew crop.Butwith highinventoryinspotandexchangeplatformtheoutlookforthe commoditylooks dull forthecomingyear. Outlook:Negative WeexpectpricestobottomoutatRs30002700intheyear2012andupsidebeingRs4800500fortheyear.

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Coriander

NCDEXCorianderMonthlyChart

Source:Telequote
Strategy:Buyingnearsupportsisadvisableforthetargetof6000,then7000.

NCDEXMonthlyCorianderpriceismovinginaslopingchannel(R,S)withlowertops,lowerbottomformationfor thepast5years. Priceaftermakingalife timehighofRs10970gave asharpcorrectionandalsobreached theimmediatesupport line(S1)Rs6951/ ThestrongsupportisatRs.3000,whichisthelongtermsupportline(S). Pricecouldtakethesupportfromthelongtermsupportline(S)andwouldshowsomepullbackfromthislevel. Further if Rs.5000 gets breached then the price has potential to test Rs.60007000 in a time span of 10 12 months RSIisalsofirmandholdingabove50 UntilpricebreachesthesupportofRs.3000,bearishnesscanbeeffectivelyruledout.

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30 Dec 2011

Commodity Preview 2012

Cuminpricesduringtheyear2011closedupby10%.ItsurgeduptoRs.18000/quintalonlowerinventoryandproduction concerns in Syria and Turkey. But the higher prices were not sustained due to higher production and lower exports in Indiaduring thepeakseason. pace in the last quarter of the year 2011 with 20500MT exported till October compared to 19800MT last Export gained year. Higher production and declining prices has attracted export demand in the last quarter of the calendar year. in Syria and Turkey also favored Indian Cumin in the world market as Indian cumin was cheapest due to Political tension fallingINRand shipmentsfromSyriaandTurkeyweredelayed. However the year 2012 is expected to be different as we expect Cumin price to trade with a negative bias. Area under Cumin has increased in Gujarat by 20% over 2010 at 264,000 ha. Favorable weather so far has increased the probability ofhigherproduction forthespice.CuminweatherduringthemonthofJanuaryhastobecloselymonitoredasanymajor disturbancecould impacttheyield. Prices may remain under pressure during the first quarter of the year 2012 due to expiry of stock on domestic bourse. Stock of about 8000MT on NCDEX will expire in January, February and March 2012 contracts. In addition, the arrivals newcropwhichgetsharvestedinFebruary2012willalsopressurizethepriceofCumin. pressureofthe consumption for the spice to gain at a steady pace this year. The prices for the spice in the third and We expect the fourthquarter willbedeterminedbytheproductionprospectsinSyriaandTurkey. Outlook:Negative We expect Cumin prices to be under pressure till March on the back of higher inventory and harvesting pressure. We expectpricestobottomoutatRs1200011500withupsidelimitedtoRs1750018000.

Cumin

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Cumin NCDEXJeera MonthlyChart Source:Telequote NCDEXMonthlyJeerapriceismovinginarisingchannelwithhighertops,higherbottomformationforthepast5 years. Price after making a life time high of Rs 17520 gave a sharp fall and supported at long term channel line (S) Rs 13000/ Thestrong supportisatRs.13000,whichisthelongtermsupportline(S). Further if Rs.14425 resistance gets breached then the price has potential to test Rs.1850020000 in a time span of10 12months RSIisalsofirmandholdingabove50 The intermediate support is at Rs.13000, if gets breached then the price can test level of Rs.10710 (Previous low &S2) breachesthesupportofRs.10700,bearishnesscanbeeffectivelyruledout. Untilprice Strategy:Buyingnearsupportsisadvisableforthetargetof18500,then19000.

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30 Dec 2011

Commodity Preview 2012

In year 2011 black pepper tested its all time highs levels in spot as well as futures markets. Pepper ended with a yearly gain of 53%. In the year 2012 as well, we expect the trend to continue of higher prices on global supply concerns. With estimates of global pepper production of 300000MT in 2012 against 310000MT in 2011 and the stock depleting to 90000MTagainst 95000MTin2010,supplyconcernsloomoverpeppermarket. prospects for the season are expected to be lower than last year. As per trade sources pepper output is The production expected tobe around 43000 tons in 2012 as against 48000 tons in 2011. Late withdrawal of the south west monsoon heavy rains in Kerala and Karnataka in the month of November can affect the yield considerably. Indian coupled with pepperproduction isexpectedtobe43000MTin2012againstthenormalcropsizeof50000MT.Productionof43000MT lowestsince2000. in2012isthe thekeypricedriverin2011fortheBlackGold.Pepperexportshasgainedby33%comparedto2011will Exporthasbeen lower supply and increasing domestic demand. India has exported 13750MT (AprilOctober) in 2011 compared to 10350MTin 2010.Thescenariolooksnodifferentfor2012. with the traders and farmers may limit the downside move in price during the first quarter of the year. Low inventories We expect the consumption to increase at a steady pace due to change in food pattern and increase in the other ofthespice.Thuswithlowersupplyandsteadygrowthinconsumptiontheinventorylevelisexpectedto industrialusage beloweryear onyear. The preliminary estimate of pepper production in Vietnam is expected to be 120000MT in line with 2011. With weather concerninIndonesia, nomajorreliefisexpectedintheworldpeppersupply.Thepricesinthethirdandfourthquarterof theyear2012 willbedeterminedbytheproductioninBrazilandIndonesia. Outlook:Positive Weexpectprices tocorrectinthefirstquarterof2012onthebackofChristmasholidays,freshsupplyfromIndiafollowed by Vietnam harvesting. Harvesting in India and Vietnam during January to March 2012 will pressurize the pepper prices. Weexpectprices tobottomoutatRs2700028000withupsidetargetofRs4000042000in2012.

Pepper

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Pepper NCDEXPepper MonthlyChart Source:Telequote NCDEX Monthly Pepper is showing a positive trend for the past four years with higher top, higher bottom formation onit. Asseen afterbreachingthemediumtermresistancesatRs16456(S1),pricehasralliedandmadealifetimehigh ofRs37190. Price iscurrentlyresistingtowardstheLongtermresistancesline(R)whichcouldbeapproxRs37500/ Thenear termintermediatesupportisatRs.24564,whichhappenstobeamajorsupport RSIis firmandholdingabove70 UntilpricebreachesthesupportofRs.24400,bearishnesscanbeeffectivelyruledout. Strategy:Buyingnearsupportsisadvisableforthetargetof49000,then50000

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30 Dec 2011

Commodity Preview 2012

intheyear2011tumbledtoatwoyearlowlevelsofRs4150fromthehighofRs10500towardstheyear Turmericprices end on higher supplies. Higher production of 950000MT against the normal crop of 800000MT led to the plunge in Higher inventory of 10 lakh bags against 7 lakh in 2010 continued to keep prices under pressure till the Turmeric prices. yearendof2011.Turmericregisteredadeclineof53%in2011comparedto2010. Turmeric export has gained by 56% in 2011 compared to 2010. Export of 50000MT was witnessed in 2011(April to 2010. Export demand has capped the downside as low price of Indian turmeric in the global October) compared marketgeneratedgooddemand.FallingpriceshasledtoexportdemandfortheYellowGold. The year 2012 is expected to give some relief to Turmeric farmers and traders. Prices are expected to bottom out after harvesting (April May) and gain in the last quarter (OctoberDecember) of the 2012. We expect the prices to remain underpressuretillnewcroparrivals(AprilMay).Lowerrealizationtothefarmersduringthetimeofsowing(MayJune) inacreagefortheyear201112.AndhraPradeshwhichproduces60%ofIndianturmerichasseenadecline hasledtofall of1.5%in2012.Areacoveredin2011is68000h.acomparedto69141h.ain2010. Overallyieldfortheseasonisexpectedtobesteadyasthatoflastyear.Meanwhilethelatewithdrawalofmonsoonand during the month on November is likely to affect the quality of the spice in the major producing state of untimely rains Karnataka,TamilNaduandAndhraPradesh. Opening stocks are expected to be higher in 2012 as higher production in 2011 outweighs increase in exports. Higher beginning stocks of 10 lakh bags in 2012 and stable production of 850000900000MT will keep pressure on turmeric pricestillfirsthalfof2012.Exportcanbethedrivingfactorin2012.Withlowerrealization,higherlabourcostandalmost investment(cropcycle),farmerwillturnawayfromtheyellowgoldasithaslostitssheeninlasttwoyears. aninemonth Prices will be under pressure till first half of the year. We expect prices to gain in the last quarter (October December) of2012. Outlook:Positive 3200 to be a bottom of the season and Rs 10000 as the potential top for 2012. Bottom is expected to be We expect Rs madeduringAprilMaywhichwillbethearrivaltimeofnewturmeric.

Turmeric

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30 Dec 2011

Commodity Preview 2012

TechnicalOutlook Turmeric NCDEXTurmeric MonthlyChart Source:Telequote NCDEX Monthly Turmeric price is moving in a downward channel with lower tops, higher bottom formation for oneyear. thepast Price after making a life time high of Rs 16350 gave a sharp fall and headed towards the major supported line Rs 4080/ Thestrong supportisatRs.4000,whichisapproxtolongtermsupportline(S). ifRs.4000supportisbreachedthenthepricecanfurtherfalltillRs.3000. Further Pullback canbeexpectedfromthisleveltargetingRs.900010000inthetimespanof1012months RSIisshowingsomepullfromcurrentlevelat30 UntilpricebreachesthesupportofRs.6600,bearishnesscanbeeffectivelyruledout. Strategy:BuyingnearsupportsisadvisableforthetargetofRs.9000,then10000.

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SUGAR
GlobalSugarScenario: Globalsugarprices(rawsugarfutures)havecorrectedcloseto30%fromtherecordhighof33dollarsperpound.Andyet it remains almost double the price seen in July 2008, when crude touched the high of 147 dollars per barrel. Raw sugar wastradingcloseto14dollarsperpoundthen.Hencetokeepthingsinperspective,itisimportanttorememberthatthe correctionisfromtherecordhighoftheeuphoricriseinpricesto33dollarsperpound. The historic rally could be attributed to bullish fundamentals as well as the factors mentioned in the preface global crisis, weak dollar and excess liquidity. Some of the impact is getting reversed in the current price decline. Global sugar surplus is expected to be highest since 200607. Various sources put the 0607 sugar surplus to be around 6 mln tons or even more. Prices dipped to the lows of 8 dollars per pound in 200607 seasons. Adding to the bearish sentiment is the second largest exporter Thailand. The country is expecting record crop and thus exports. In addition countries that are not traditional exporters are also seeing excess of sugar and will enter the export market viz India, EU, Pakistan, Russia etc. Good supply from the northern hemisphere nations like Thailand and India could see some more declines in raw sugarpricesinglobalspotandderivativemarkets. Andyet thepricedeclineseemsunlikelytoprecipitateonlowerside.Thestocktouseratio(SUR)calculatedonthe basis of the USDA data remains at record low levels. On the other hand private study put the cost of production in Brazil at about 22 dollars per pound, close to the current market price. Trend in global sugar prices will dictate the decision to produce Sugar versus ethanol in Brazil. The weather situation in Brazil also remains uncertain, and could potentially impact the crop size. Brazil supplies close to 50% of the total exports in the world hence even a marginal shift in Brazil can impact the global surplus situation sharply. USDA expects Brazil to export 23.8 mln tons. On the other hand USDA datasuggestthatSURinChinaisclosetorecordlowat8%,lowerSURwasseenin200506inrecenthistoryat6%.China willneedtoimportrecordamountofsugar,closeto2.22.5milliontonsofsugarincurrentyear.Chinamaybewaitingin sideline for prices to correct and will end up supporting the global prices on correction. Raw sugar prices are most likely to find support close to 2021 cents per pound. Risk to this base case scenario is the ongoing global financial crisis. If the crisis worsens or dollar strengthens sharply, sugar as a financial asset can easily see a sell off due to large sugar surplus scenario.Weakdollarwillseebuyinginallcommodities,includingsugar.

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IndianSugarScenario: It is important to understand the global scenario as it will influence Indian prices this year, which is a sugar surplus year. In India sugar production follows a 57 year cycle. Sugar production increases over a 34 year period, reaches a high, whichinturn,resultsinlowersugarprices.Lowersugarpriceandincreasedsugarcanearrearsresultsinlowersugarcane production for the next 23 years. And the sugar prices shoot up and the area under sugarcane rises during the next season. According to the Indian Sugar Mills Association (ISMA), the Indian sugar production bottomed out in the year 200809at14.5mlntonesandisexpectedtoincreaseto2526mlntonsin201112.Thestocktouseratio(SUR)hasalso turned favorable to 34%. Of the 2.5 mln tons exports, quota of only 1 mln ton has so far been announced. As a result, path of least resistance for prices in India remains lower, especially in first half of the sugar year. Local prices will gain some support every time export quota related news is announced. But comfortable supply situation will keep the prices from rising. We expect the sugar spot prices to decline by another 10%. High inflation scenario in the country will keep governmentfromreleasinghighersugarexportquotasrapidly.Slackseasondemandandfreshsuppliesinthemarketwill keep the path of least resistance for prices to be downwards. Upside to sugar thus remains limited. The prices can still faceasuddenreversaliftheglobalpricesreversesharply. Weexpectthesugarspotprices(NCDEXMGradebasisKolhapur)todeclinebyanother10%closetothelowsof2500per quintal. Upside to sugar remains limited due to comfortable demand supply scenario at home. High inflation scenario in countrywillkeepgovernmentfromreleasinglargesugarexportquotasrapidly.Howeverthepricescanstillfaceasudden reversaliftheglobalpricesreversesharply.

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30 Dec 2011

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TechnicalOutlook Sugar

NCDEXSugarWeeklyChart

Source:Telequote

A Channel formation (C, C1) can be seen on the NCDEX Sugar Weekly chart with higher bottom and lower top formationonit. As seen price has recently breached the short term resistances line at Rs 28500 (shown by breakout) and head towardsprevioushighofRs.3079.

Going ahead Rs.3079 should act as a strong resistances (Double top A, B) and price showed a sharp correction thereafter. RSIisflatandissustainingnearthe50mark. AslongasprevioustopofRs3079isbreached,bullishnesscanbeeffectivelyruledout.

Strategy:Sellingnearresistancesisadvisableforthetarget2600/2500.

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Cotton

Cotton year 201213 has begun and it is expected to be a very interesting year, especially in India. India, in recent years, hasemergedasthesecondlargestsupplierofcottontotheworld,andthelargestsuppliertoChina,whointurnimports close to 40% of the total world imports. This status has resulted in higher correlation between global prices and Indian prices. At home record production, slow down in economy on one hand with record support prices, high cost of production,veryhighexportsonotherwillinfluencethepricesinbothdirections. ItwasduetoitsgloballinkthatIndianmarketssawrecordpricesin201011despitearecordcrop,notsorecordexports and almost stagnant consumption. At one point according to USDA, the stock to use ratio (SUR) in 201112 was projected to be 17 years low. Combined effect of tight fundamentals and weak dollar was such that the ICE cotton futures and Cot look A spot Index both made an unprecedented high of around 230 cents per pound, and in response Shankar prices touched the high of 60,000 per candy! The prices have corrected since then by more than 60% in global markets. In thecommoditycomplex,cottonhascorrectedby most.Therupeedepreciationhashelpedlimit thelossesin Indiancottonprices.ThecorrectioninIndiancottonpriceiscloseto40%fromthehigh. The question is: are we done with the correction? To know the answer, let us first put things in perspective though the global prices have corrected by more than 60%, they still remain above the prices that prevailed before the global crisis and volatility began. In derivative markets the active contract saw 8082 cents per pound to be multiyear resistance, whichwasbrokeninJuly2010.Andevenafterthesharpcorrectionsfromthehigh,currentpricesremainat86centsper pound!LetuslooksatdomesticandIndiansituationseparatelytounderstandthetrendin201112. DomesticCottonOutlook Indiahashadgoodcottonyearsinrecenttimes.Inlastfiveyears,all,barringone,yearsproducedrecordcottonandcrop was above 300 lakh bales. 200809 was an exception when the crop dipped and was recorded at 290 lakh bales. And yet the stock to use ratio dipped close to record levels in recent years in its 10s and 20s. This was mainly due to very high exports in recent years. For the year 201112 too, the crop is expected to be record. Cotton Advisory Board estimates croptobearound356lakhbales.Alongwiththeopeningstockof47lakhbalesandimports,thesupplyisexpectedtobe record at 409 lakh bales. CAB has put the exports at 80 lakh bales. Domestic consumption is likely to decline by 2% and could see total demand including exports to be close to 330 lakh bales. The Stock to use ratio will improve to 24% from thelowsof15%in201011.Howeverthearrivalsarelowerby30%comparedtolastyear,whileitiswidelybelievedthat the farmers are holding the stock for better price realization, some sections of the industry has started saying that the crop may not be as high as being estimated. If the crop is revised lower by say 57%, the demand and supply scenario getssimilartowhatwasseenlastyear.

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UnderanycircumstancesdirectionininternationalpriceswillremaincrucialforpricesinIndia. InternationalCottonOutlook USDA data suggests that the years 200910 and 201011 saw lowest global SUR in a last 14 years. Tight fundamentals, record liquidity in system and sharp fall in dollar were the main reasons for the record rally in cotton. There is marked correction in all the factors: the demand and supply is expected to ease in 201112, easy money is no longer a rule and dollar decline has halted. But all that has already been factored into the prices except may be the supply. The northern hemisphere supply is going on and the crop numbers may be revised. Two crucial countries of southern hemisphere will see record crop as well as record exports in current cotton year Australia and Brazil. This point to the fact that, if the numbers indeed materializes, the whole year will be well supplied. The only x factor in this story as always is China. ChineseSURisexpectedtoimprovefromthelowsof25%to35%;itisstilllowfromthetraditionalpractices.Historyhas seen China maintain SUR of 100% and above, but even in recent years, to have 4550% SUR in China is a norm. To replenish its dwindling stock China is expected to enter the market at lower levels. Already the trade sources are saying that the country is buying huge quantities on every dip. Other side of the coin is that most of the developed world is either in recession or is in a slowdown. This could cap the Chinese demand for cotton, as economic growth has a direct bearingonthedemandfortherawmaterial. Given the above factors, one can say that the least path of resistance for cotton is downwards. While most part of correction is done, 710% downside in international prices cannot be ruled out. 8082 cents per pound is where demand will emerge. China could emerge as buyer after the Chinese New Year Holidays in February, by then most of northern Hemisphere arrivals would be done. However the upside would be capped due to economic slowdown and improved supply from the southern hemisphere (Brazil and Australia). Keeping the global trends in mind Indian prices would also react. As it seems the central bank will intervene in case of sharp depreciation in rupee. Weak rupee will help the exporters, while appreciation from current levels will erode the advantage. Assuming that most of rupee depreciation is doneandthecurrencymayslowlystrengthen,theIndiancottonpricesmayhaveadownsidetothetuneof1015%from the current levels. Prices should bottom out in January February and reverse. Price rise will depend on the Chinese demandaswellaseconomicrecovery. Expect Shankar to bottom out close to 30,000 per candy by January. Current demand and supply scenario does not warrantsharpralliesinprices.Weseesellingpressuretoemergecloseto36,00038,000percandyforShankar.Threatto this scenario remains a) if the crop size is reduced from current levels, the upside to the prices will be greater in second half of the crop year; b) if the Chinese do not emerge at lower levels to buy, the downside pressure on the prices will be aggravatedduetoverycomfortabledemandandsupplyscenarioinIndiaaswellasinrestoftheworld.

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30 Dec 2011

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TechnicalOutlook Kapas

NCDEXKapasWeeklyChart

Source:Telequote

Strategy:BuyingnearsupportsisadvisableforthetargetofRs.895,then1000. NCDEX Weekly Kapas price is moving in an upward channel CC1 with higher tops, higher bottom formation for thepasttwoyears. Thepricehadmovedoutofthechannelandtradedabovethesameforaperiodofthreemonths. Price after making a life time high of Rs.1228 gave a sharp fall and headed towards the major support line C at Rs.640. ThepricehaslikelytakentheTrendlinesupportandiscurrentlyheadedhigheragain. Pullback can be expected from this support level targeting Rs.895 and then Rs.1000 in the time span of 1012 months RSIissustainingabovethesupportlineandispointinghigherindicatingbullishness. UntilpricebreachesthesupportofRs.640,bearishnesscanbeeffectivelyruledout.

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PreranaDesai VicePresidentResearch prerana.desai@kotakcommodities.com +912266528894 Hudani Faiyaz Sr.Research analystSpices,EdibleOil faiyaz.hudani@kotakcommodities.com +912266528837 Sudha R.Acharya Research analystEdibleOil,Pulses, Grains sudha.acharya@kotakcommodities.com +9122 66528809 Madhavi Mehta Research analystEnergy,Bullion madhavi.mehta@kotakcommodities.com +912266528809

DharmeshBhatia AVPResearchTechnicalAnalyst dharmesh.bhatia@kotakcommodities.com +912266528846 AmitSajeja Sr.ResearchanalystTechnicalAnalyst amit.sajeja@kotakcommodities.com +912266528847 AjayBaheti AssociateResearchTechnicalAnalyst ajay.baheti@kotakcommodities.com +912266528845 PriyankaJhaveri ResearchanalystBaseMetals priyanka.jhaveri@kotakcommodities.com +912266528848

Disclaimer Thisdocumentisnotforpublicdistributionandhasbeenfurnishedtoyousolelyforyourinformationandmustnotbereproducedorredistributedtoanyotherperson.Personsintowhosepossessionthis documentmaycomearerequiredtoobservetheserestrictions. Thismaterialisforthepersonalinformationoftheauthorizedrecipient,andwearenotsolicitinganyactionbaseduponit.Thisreportisnottobeconstruedasanoffertosellerthesolicitationofanoffer to buy any commodity or commodity derivative inane jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Commodity Services Limited. It doesntconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjectives,financialsituations,orneedsofindividualclients. Wehavereviewedthereport,andinsofarasitincludescurrentorhistoricalinformation,itisbelievedtobereliablethoughitsaccuracyorcompletenesscannotbeguaranteed.NeitherKotakCommodity Services Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professionaladvice. Price and value of the commodity referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactionsincluding those involving commodity derivativesinvolvesubstantialriskandarenotsuitableforallinvestors.Reportsbasedontechnicalanalysiscentersonstudyingchartsofacommodityspricemovementandtradingvolume,supposedto focusingonacommoditysfundamentalsandassuch,maynotmatchwithareportonacommodity'sfundamentals. Wedonothaveanyinformationotherthaninformationavailabletogeneralpublic.Thereportisbasedoninformationfromsourceslikerespectiveindustryassociations,FICCI,CII,companies,mediaand other public sources. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forwardlooking statements are not predictions andmaybesubjecttochangewithoutnotice.Ourproprietarytradingmaymaketradingdecisionsthatareinconsistentwiththerecommendationsexpressedherein. Weandouraffiliates,officers,directors,andemployeesworldwidemay:(a)fromtimetotime,havelongorshortpositionsin,andbuyorsellthecommoditiesmentionedhereinor(b)beengagedinany othertransactioninvolvingsuchcommoditiesandearnbrokerageorothercompensationoractasamarketmakerinthecommodity/(is)discussedhereinorhaveotherpotentialconflictofinterestwith respecttoanyrecommendationandrelatedinformationandopinions. Theanalystforthisreportcertifiesthatalloftheviewsexpressedinthisreportaccuratelyreflecthisorherpersonalviewsaboutthesubjectcommodityandnopartofhisorhercompensationwas,isor willbe,directlyorindirectlyrelatedtospecificrecommendationsorviewsexpressedinthisreport. Nopartofthismaterialmaybeduplicatedinanyformand/orredistributedwithoutKotakCommodityServicesLimiterspriorwrittenconsent. RegisteredOffice:KotakCommodityServicesLtd.,Nirlonhouse,1stFloor,Dr.AnnieBesantRoad,Opp.Sasmira,Worli,Mumbai25

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