Platinum and Black Pepper

Platinum is the new attraction for traders in the commodity market in India. The daily average volume of the white metal on the Multi Commodity Exchange (MCX) has risen five times in July, albeit from a small base. As volumes have picked up, the spreads have narrowed. Globally, platinum is traded by sophisticated commodity traders. Recently, Goldman Sachs & Co has painted a bullish outlook for the metal. It has advised investors to buy platinum futures on the New York Mercantile Exchange (Nymex). The cause of bullishness is reduced supply from the world’s largest producer, South Africa, due to mine blackouts.
The metal, used mostly for pollution-control devices in cars, might again expose South African supply problems, in the second half of 2009. Platinum had slipped to $863 an ounce in January when the economic outlook turned bleak. Car-makers consume 60% of the production. With the economic outlook reversing, platinum is back in demand.
 
Black pepper exports, a major contributor to the Indian spices export, have fallen sharply in the first quarter of the current financial year. Exports crashed 46% during April-June 2009. Indian market has been taken over by cheaper exports from Indonesia and Vietnam. For the past 12-15 months, Indian prices were higher by $200-$300/tonne, on an average, than prices in Vietnam, Indonesia and Brazil. Indeed, import of pepper has increased sharply to 5,451 tonnes against 3,971 tonnes during the same period of 2008-09, the spice coming mainly from Vietnam and Indonesia.

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Tea, Guar Seeds and Foodgrains

· Lack of selling and ample buying pushed ICE Futures US cotton to a nine-month high, amid rallying commodities and a falling US dollar. One of the key reasons is late monsoon rains, in the world’s second largest cotton producer, India.  

· Scanty rainfalls were also responsible for a sharp rise in the Indian guar futures. Guar is mostly grown in north-western India, where the rainfall has been particularly poor. Guar acreage in Rajasthan, the country’s top producer, is down 74%. Rajasthan accounts for about 80% of India’s guar acreage.
 
· The silver lining is that the government has raised its 2008-09 food grain output estimates by four million tonnes to a high at 233.88 million tonnes, thanks to a record production of wheat, rice, maize and gram.
 
· India has recorded a 10% drop in tea production between January and May this year, according to Indian Tea Association. Production during the period stood at 215.8 million kg, compared with 240.2 million kg in the same period last year, a decrease of 24.4 million kg. The peak period between June and October would be crucial.
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Crude Oil

Oil prices, which had started recovering after dropping to a low of $30/barrel, are slipping again. Crude oil is trading below $60/barrel after touching a high of $70 in the recent past. Oil prices seem to have dropped because a rise of the dollar against the euro has limited investors’ need to use commodities as an inflation hedge. The US currency rose to its strongest against the euro since May 21 this year. Another reason for the decline in oil prices was the release of numbers indicating a contraction in manufacturing in the New York region for the 14th month. The poor performance of the equity markets globally was another factor. Data released by the US Government suggests that the fall in the crude prices was triggered by a more than expected increase in distillate and gasoline inventories. Although crude oil inventories have declined, inventories of heating oil and diesel fuel have hit a 25-year high. There was further pressure on prices after news from OPEC suggested that consumption would not reach 31 million barrels per day until 2013 – that was the average of 2008 before the economic crisis led to a cut in oil usage. OPEC expects global demand to touch 84.2 million barrels per day against 85.6 million barrels last year. OPEC is not alone in its bearishness about demand for crude oil in 2009 – the International Energy Agency (IEA) has also predicted a 2.9% decline in 2009 demand. The IEA expects demand for oil to rise as developing economies recover, but it also maintains that demand is unlikely to rise until 2010.

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