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Base metals lower on Bear Stearns
Base metals: Settle mostly lower on Bear Stearns
troubles; weak Dollar supportive today
Base metals settled mostly lower on Friday as the US equities
tumbled on the news that Bear Stearns has received
emergency funding from JP Morgan and the US Fed.
BS shares fell 47% and the Dow JIA Index lost 195 points, as
the investors fear that financial crises would worsen.
Base metals surrendered their intra-day gains as the traders
decided to square off some of their longs on the last trading
day of the week. Bullion complex emerged as the direct and
obvious beneficiary of the BS fiasco, and further gains are
expected.
On one hand base metals are finding it difficult to remain at
present elevated levels, as the fundamentals don't warrant
such high levels, however on the other hand lack of any other
opportunities to park the funds is pushing them higher.
Needless to say the US Dollar, which is falling like a rock is
adding to the upward pressure on the base metals.
Today the US Fed has reduced the discount rate by 25 bps to
3.25%. BS troubles are likely to force the US Fed to ease the
rates by at least 75 bps, which could see the US Dollar losing
further, thus exerting further upward pressure on the prices.
We recommend buying the dips for the next two-three days
unless some key change occurs in the financial markets. At
the same time, we would like to highlight the point that rally
without fundamentals could be short-lived and reverse sharply
on even the slightest change in the driving factors as the
meltdown in the global equities spell nothing but a
pronounced weakness for the base metals in the coming
months, esp. When the peak demand season of Q2 ends.
However, till the US Dollar is unable to find some support,
we suggest going long.
Copper closed with a loss of $13 at $8,360.SHFE stock report
showed that the stockpiles rose by whooping $8,483 tonne.
The week marked the fifth consecutive week of buildups,
thus giving basis to the talks that the China's demand is not
so strong presently. LME stockpiles fell by 2725 tonne, which
took the headline figure to just above 125,000. Falling LME
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stockpiles at LME warehouses are finding their way to China's
warehouse, thus falling stock picture is surely deceptive.
Cancelled ratio rose to 20.06% from 18.68%. Cancelled
tonnage stands at just above 25,000 tonne, which is likely
to support strong outflows in the coming days. LME cash-
to-3 month spread has tightened by $20 to $124(b) which
indicates that shorting would be a difficult option. Although
fundamentals are not really so compelling, it is advisable to
stay long on the complex for the next two-three days.
Support for the red metal lies at Rs342.30/Rs338. Resistance
would come at Rs346.10/Rs347.90/Rs350.20.
Nothing much is happening on the front of the fundamentals
of rest of the base metals. However, the weak Dollar story
is likely to keep them supported. So, buy on dips is the
strategy.
Support for lead is seen at Rs126.30/Rs123.70. Resistance
would come at Rs128.45/Rs130.
Support for zinc is seen at Rs105.10/Rs103.05. Resistance
would come at Rs107.20/Rs108.20.
Support for nickel is seen at Rs1,325/Rs1,309. Resistance
lies at Rs1,342/Rs1,360.
Support for aluminium would come at Rs124.70/Rs122.55.
Resistance lies at Rs126.15/Rs127.50.
Chana: To see sideways movement
Chana futures saw deep intra day fall on Friday on heavy
selling, as stocks in exchange warehouses had witnessed a
rise from 1,000 tonne to around 6,000 tonne in the last one
month. However, some short covering at very low levels led
to some recovery by the end of the session. Chana stocks in
National Commodity and Derivatives Exchange (NCDEX) -
accredited warehouses, as on Thursday, were over 6,000
tonne, unchanged from the previous day, the NCDEX data
showed. Processors stayed away as they expect prices to
fall further and will enter the market then. Arrivals on Friday
rose to 30 trucks (of 18-20 tonne each) from 20 trucks on
Thursday.
sharekhan
Soy oil: Speculation of expected duty cut
Soy oil futures have been weak in the past week on the
speculation that the government can reduce duty on edible
oils by 10% in the coming few days. A duty cut was expected
due to high inflation. India's headline inflation rate for the
week ended March 1 rose to 5.11% from 5.02% a week ago.
Speculators were expecting a possible duty cut as the
finance minister P Chidambaram while speaking on inflation
in the parliament blamed high prices of primary food
articles including edible oils for the rising inflation.
Guar: Sideways to mildly weak
Mandatory PCP testing by Indian exporters shipping guar
gum to Europe has dented the market sentiments in the
last few days. However, the impact should be short term
and temporary as the European Union (EU) constitutes
Europe constitutes just around 20% of our export market.
The guar gum exports are already expected to be 8% to
10% up in 2007-08 season. With season coming to an end
and stocks likely to wear out as days progress, the prices
should recover.
Chili: Tone still weak on increasing arrivals
Chili prices are moving down due to weak fundamentals.
Increasing arrival of good quality crops combined with good
carry over stock is underpinning the market tone. Increasing
arrival of the fresh crop in the market yards is weighing
prices. Guntur spot market has seen arrival of around
1,00,000 bags (1 bags=40-45kg) per day for last couple of
days as compared to the daily average arrival of 70,000-
80,000 bags during the last week. In Guntur market, the
NCDEX quality chili is quoting lower at Rs3,900 per quintal.
Chili sanam spot prices also quoted lower at Rs3,200-3,600
per quintal as against Rs3,500-3,800 per quintal during the
previous day. Chili production this year is expected to be
higher around 13 lakh tonne as against 11.5 lakh tonne last
year. Carry over stock from the previous year is estimated
around 1.5 lakh tonne. In this scenario, farmers and
stockiest are offloading their existing stocks. With the
absence of firm fundamentals in short term, most of the
buyers in the spot markets are keeping themselves at
sidelines on the speculation of a further decline in prices.
However, good export opportunity may support the market
against dips, as the green chili crop in Pakistan was hit by
severe cold, there by affecting the supply. Karachi wholesale
market green chili price has shot up to a record Rs180 [US
$3] per kg.
Turmeric: Prices unlikely to sustain at higher side
Turmeric prices are unlikely to sustain at higher levels due
to increasing arrivals of fresh crop. Daily inflow of turmeric
in the physical market at Nizamabad mandi is around 15,000
bags (1 bags=70 kg) as against 7,000 bags last week. The
arrivals are expected to increase to 25,000 bags in coming
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days. During last two days spot market prices in Nizamabad
has fallen by Rs100 per quintal. Stockists are keeping
themselves at sidelines at higher price levels. However,
prices are not expected to see major dips as the output is
lower this year amidst good global demand. Turmeric output
during the current season is expected to decline around
7.5 lakh tonne against 8.9 lakh tonne last year. Further,
buying support by AP Markfed at Rs3,000 per quintal from
local market is likely to support the market. Turmeric export
in April-January period is lower by 6% as against that of the
last year.
Jeera: To trade rangebound with weak undertone
Jeera is likely to trade rangebound with weak undertone on
increasing arrival of fresh crop in the market yards against
the backdrop of higher production outlook. Higher yield
and good acreage in Gujarat is likely to increase the
production to around 2.11 lakh tonne in 2008 against 1.67
lakh tonne last year. However, good domestic as well as
export demand is expected to support the market at lower
levels and would resist from major falls. Turmeric export
in the period of April-January is still lower by 10% as against
last year.
Pepper: To recover on export opportunity
Indian parity of pepper is currently competitive vis-à-vis
other parities. Indian parity remained around $4,000 a
tonne (c&f), while the Asta grade pepper in Vietnam is
reportedly quoted higher at above $4,200 a tonne (fob).
Brazil parity is also reportedly trading above the Indian
levels. Around 30-40% of the total crop is already harvested
in Vietnam. However, export performance is still weak in
the country; total export volume in entire February
reportedly declined by 39% to 2,560 tonne as against
corresponding period last year. Pepper export till January
has already achieved 98% of the target (30,000 tonne) set
in the year and the export data is expected to rise further.
The dip in the Indian parity has provided some further
export opportunity. Meanwhile weakening of Rupee against
Dollar is likely to further widen the scope of export.
Gold: In uncharted territory
Gold stayed in the $990-$1000 band throughout Friday till
the New York market opened, and it then went up slightly.
The closing was far better at $1008.00 an ounce.
Consumer prices in the US were unexpectedly unchanged
in February as fuel costs dropped, easing concern that
inflation would keep accelerating as the economy slows.
The figure followed a 0.4% gain in January. So-called core
prices, which exclude food and energy costs, also showed
no change, the first time they didn't increase since
November 2006.
2 March 17, 2008 Home Next
 sharekhan commodities buzz

Bear Stearns Cos (BS) obtained emergency funding from JP loss of 85,000 jobs so far this year are undermining
Morgan Chase & Co and the New York Federal Reserve as consumer sentiment, pointing to weaker spending.
the securities firm said its cash position has significantly
deteriorated. BS plummeted $21, or a record 37% to $36 at The US currency also plunged to below parity with the Swiss
10:08 am in New York Stock Exchange composite trading, franc for the first time as traders speculated the Fed will
the lowest level in more than eight years. The shares fell slash interest rates a full percentage point next week to
to as low as $26.85 on Friday. Chief Executive Officer Alan keep a credit-market crisis from triggering a recession.
Schwartz said in a separate statement that the firm acted The US currency plunged to $1.5688 per euro, the weakest
in response to market rumors of a liquidity crisis. He had since the European currency's debut in 1999.
denied this week that BS faced a cash shortage, saying the
The things are dramatic since the beginning of trade this
company's liquidity cushion was sufficient to weather the
morning. With the Japanese yen hitting a high of 95 and
credit-market contraction.
with the euro at 1.5904 the story is absolutely bullish for
US consumer confidence sank to a 16-year low in March gold and silver. But at the same time the risks are also very
and Americans braced for higher inflation as the economy high. Buying gold at unforeseen prices of $1026 and silver
teeters on the brink of a recession. Reuters/University of at $21.20 an ounce can well be a dangerous thing to do.
Michigan’s preliminary index of consumer sentiment The Federal Reserve may continue to throw surprises on
decreased to 70.5 from 70.8 in February. The measure is the markets at every available opportunity. So the best
the lowest reading since February 1992 and compares with strategy is to wait and watch.
an average 85.6 in 2007. Record gasoline prices and the

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