Endgame for commodity boom

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Eighteen bids for rice import tenderConsumers pay price of futures trading ban

New Delhi, Aug 17: June, is now placed at $738, down more than 6%. Wheat, which has risen to around $13 per bushel is now trading below $9 per bushel, a 30% drop. Global production of wheat is expected to be 658 million tonnes this year, up 8.3% from last year and rice is expected at 666 million tonnes, up 1.4% year on year.

The other factor driving commodity prices down in August is the turnaround of the US dollar. The currency has moved up as concerns have spread on weakness in the Eurozone. “With the reversal of demand for dollars, the speculators have given up their positions’, said Amit Mitra, Secretary General, Ficci. “Due to the strengthening dollar, the hedging positions in the commodity markets have been squared off. The equity markets will gain out of this downturn”, said Debjyoti Chatterjee, assistant vice-president at Mape admisi, one of India’s largest commodity market brokers.

Going ahead, investment guru Marc Faber told Reuters that commodity prices have reached a peak because the world is in a recession. He said raw materials demand would continue to decline. The weakening trend in commodity prices in India is now expected to make it easier for the government to fend off demands for further curbs on commodity trading.

Without wanting to be quoted, officials from NCDEX and MCX said they would now move the government again to resume trading in the agricultural commodities that had been banned since January 2007. The government had taken the plea that futures trading in the commodities were responsible for skewing agricultural spot prices, an argument that took no account of the global hardening of commodity prices. As the chart shows, in the non-agriculture space, too, barring the prices of iron and coal, all others in this broad category like nickel, zinc, aluminium, copper, lead and tin are trading at their near one-year lows with chances of falling further.

Of immediate consequence will be the impact of the margin calls in the Indian bullion markets. On Saturday silver hit two lower circuits and fell more than 10 per cent, soon after opening on MCX. The near month contract on the exchange finally settled at Rs 19,398 per kilogram, down 6.61%, while gold October futures settled at Rs 11,270 per 10 grams, down 1.81% from previous close. The scene was roughly the same in the spot markets, where prices virtually slipped all through the day.