subject: Frbiz.com Reported Commodity Market Outlook For 2010 [print this page] Overall commodity markets witnessed a sharp rally in 2009, with agri-commodity prices rallying to multi-year highs on the back of below average monsoons and thereby supply concerns. This lead to food inflation hitting a 10 year high of 19.95% for the period ended Dec. 5, 2009. At the same time, base metals, energy and bullion prices too witnessed a sharp rally on the back of weakening US Dollar and hopes of global economic recovery, with Gold prices hitting record high of USD 1,226/troy ounce on Dec. 3, 2009.
Rally in agro commodity prices in 2009 has been extraordinary with prices of most of the commodities at its multi years high due to supply concerns. Rising food prices contributed to a faster-than-expected 4.78% surge in the wholesale price index during November. Along with the prices, the volumes at NCDEX also surged more than 100% from January 2009 to December 2009. Considering the individual commodities Turmeric was the major gainer among the agri commodities.
Below is the outlook on individual commodity for 2010 from the leading stock broker, Angel Broking:
Gold
Investment demand for Gold could remain intact in the coming year as the global central bankers doubt the role of the Dollar as a global reserve currency. Hence, central banks want to accumulate gold in their foreign-exchange reserves. The recent global financial crisis that had its roots in the US has disturbed the financial dominance of the US as a global economic power. In the coming years, the Asian giant China could take over as the world''s largest economy and it would take over the role of the US as a major economic power. Hence, this would give China the dominance in every sector, especially the foreign exchange markets. The SDR (Special Drawing Rights) as an option to a global reserve currency would be considered more favorable as it would comprise the major currencies and help to create a supra-natural system. This could lead to higher demand for gold as the dollar could weaken in the coming years and make gold look as an attractive investment from a long-term perspective. In the coming year, Angel expect Spot Gold prices to trade in the range of USD 860 - USD 1,340/oz. Gold prices on the MCX are expected to trade in the range of Rs 15,250 - Rs 19,700.
Silver
In the coming year, Angel expect silver to witness a bullish phase as new avenues of demand open up amid the existing traditional applications of the metal. It also expects investment demand along with industrial demand to drive silver prices higher in the coming year. In the coming year, it expect Spot Silver prices to trade in the range of USD 14 -USD 24.35/oz. Silver prices on the MCX are expected to trade in the range of Rs 21,000 -Rs 31,350.
Metal
In the coming year, Angel expect base metal prices to continue to rise in 2010 on the back of steadily growing industrial and investment demand from China. China is expected to increase its strategic reserves of commodities in the next year and Chinese loans against metal and other commodity stocks will continue to generate substantial growth n the Chinese industry. It expects China to remain the principal driver for new demand supported by new growth from India and other developing economies. Key consuming countries such as the US and China have unveiled huge financial stimulus packages in the immediate aftermath of the collapse of leading financial institutions such as Lehman Brothers in September 2008. Of the approved USD 586 billion Chinese stimulus package, only USD 480 billion will have a direct impact on metals demand by way of construction of new airports, railroads, low-cost housing and post-quake reconstruction n the Sichuan region. The Asian giant's stimulus is spread over this year and next. Growth in Chinese demand for base metals is expected to continue next year, albeit at a slower pace, Western demand for metals is expected to pick-up slowly. Interest rate premiums from financing copper and aluminum does not appear to warrant new financial investment in metals although net inflows into ETF investment as part of asset diversification is expected to continue. Demand for metals from the investment sphere is likely to increase further and support an upside in prices as a rising number of ETFs are likely to attract more retails and institutional investors on an international scale in the coming years.
Crude Oil
Oil prices could trade with a positive bias in the short-term as China Petrochemical Corp, China's largest oil refiner expects crude oil prices to average USD 75/bbl next year. The Chinese oil company forecasts prices to gain on a recovery in global demand, weakness in the dollar and accelerating inflation. On the back of expectation of a rise in demand, the Chinese government may encourage domestic companies to expand oil and gas exploration overseas. Chinese oil companies have already spent around USD 13 billion on overseas assets since December last year as they took advantage of lower valuations caused by the economic slowdown. China is the world's fastest growing major economy and any indication of a pick-up in demand from the country could boost oil prices in the coming year. But a sharp upside in oil prices could be capped on the back of strength in the dollar.
Turmeric
Turmeric production for the year 2009-2010 is expected to rise due to rains in the months of October and November 2009. This provided support to the turmeric crop sown. Production of turmeric is projected at 5.3 million bags as compared to 4.2 million bags. Carryover stocks of turmeric till the end of December 2009 is expected to be 200,000 bags as compared to 1.2 million bags in the same period previous year. Thus, the supplies of turmeric are going to be almost same as that of previous year. Prices in the short term (till January 2010) may be determined by the demand from the domestic market and clear crop estimates of turmeric. In the medium to long term (February onwards) prices may be determined by the fresh arrivals in the domestic mandis and demand from the overseas and domestic market. Prices at the futures are trading in range bound manner since a couple of weeks. Prices may find strong support around 6,605 levels and resistance may be seen at 7,800 levels.
Guar
If we consider the supply side in the current crop season i.e. October 2009-September 2010, production is estimated to be lower at around 3-3.5 million bags compared with 8.5-9 million bags in 2008-09. Carryover stocks of last year for Guar seed stands at around 3-3.5 million bags. Thus, total supplies for 2009-10 stands at around 6 million bags, which is far below the total consumption of 7-7.5 million bags. Guar gum stock with the stockiest currently stands at around 150,000 tonnes. Exports were hit drastically due to economic slowdown in the year 2008. However, in the current season export demand is expected to increase by 2-3%. The annual exports of Guar stand at around 200,000 tonnes. Guar futures have corrected by almost 10% since last 2-3 weeks due to slow down in export demand. Thus, Stockiest have started stocking Guar seed even at the current low prices on expectations that the prices would rise further due to a drop in output by almost 60%. Export demand is currently and at a very slow pace ahead of Christmas vacation. Market has already discounted the fact of output drop by surging almost 58% since June 2009. However, further price rally would depend on the overseas demand for Guar gum which is expected to pick up in January. Export demand may lead prices to breach its previous high made in the month of November and could touch fresh highs of Rs 3,100 per qtl in the first half of 2010.
Soybean
As per the USDA's latest Monthly Supply & Demand Report (December 10, 2009), Global oilseed production for 2009/10 is projected at 428.60 million tons, up 8.42% as compared to 395.30 million tonnes in 2008-09. Global soybean production is projected at a record 250.25 million tons this year, up 18.67% as compared to 210.87 million tonnes last year. Indian soybean production is estimated to decline to 8.5 million tonnes this year as compared to 890,000 tonnes last year. Major producing countries of soybean are USA, Brazil, Argentina, China and India. The USA is the world leader in soybean production with contribution of 35% and India ranks 5th in global production of soybean and contributes only 4%. As per the Solvent Extractors Association of India, total export of domestic oil meals (extractions) during the 1st 8 month of financial year (April- November 2009), has declined sharply to 1.89 million metric tonnes from 3.36 million metric tonnes, down by 44% as compared to last year during the same period on account of weak export demand and lower crushing/processing due to disparity. In the coming months, Soybean prices are expected to move southwards on above mentioned fundamentals like higher global oilseeds production and lower export demand of domestic soy meal. NCDEX January Contract shall find strong support at 2,235/2,185 and resistance at 2,520/2,650.
Commodities - An attractive investment avenue
In the year 2010 the US Dollar will continue to be the prime trendsetter for dollar denominated commodities as a weaker dollar makes commodities look attractive for holders of other currencies.
Further, the US Federal Reserve's decision to pull back the stimulus measures along with raising interest rates from the current near zero levels would provide further cues to the market. China will continue to remain the driver for consumption of commodities with it likely to replace India as the world's largest gold consumer over the next year. Global economic recovery would remain the focus in the coming year as financial markets still remain wary over the progress and lingering inflationary concerns.
Overall, the commodities market looks as an attractive investment avenue for investors as supply-related issues in the case of agri- commodities and recovery in demand for commodities like base metals and energy shall drive prices higher.
by: Frbiz
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