Debt concerns in the Euro zone have lifted dollar to the 3-month high. The ICE dollar Index, a barometer of greenback performance against the basket of currencies, ended the week almost 1% higher, as the Chinese monetary tightening and Greece debt issues triggered safe haven buying in the dollar. On the macroeconomic front, US unemployment rate fell to its lowest level since August whereas non-farm payrolls declined to 20,000 as compared to last month?s drop of 85,000. After good pending sales of existing US homes and ISM numbers, the ISM non-manufacturing figures also came in positive zone. The Reuters-Jefferies CRB index, which tracks 19 commodity futures, settled nearly 2.65% down mainly driven by oil, copper and grains.
Crude oil futures, after recovering in the first two days of the week, fell steeply below $70 on NYMEX. Higher inventories and oil stock of 59 days which is an above average level is pressurising prices. As there are no real fundamentals supporting, higher prices upside will be capped in crude oil. Even industrial metals fell to the lowest level after rising consistently in 2009. The worst performers of the complex were zinc and lead which fell by 22.76% and 18.84%, respectively (monthly basis), followed by copper, which dropped by 10.66%. The southward movements in base metals were mainly due to the Chinese policy tightening which triggered concerns that there may be slowdown in imports of metal in the world?s major consuming country.
NCDEX pepper futures extended the previous months loses and was sharply lower till the middle of the month. Brazilian crop, which sells at a discount and Vietnam?s pepper imports, which are expected to soar five-fold to 10,000 tonne this year, weighed on prices as it would push up exports from the world’s largest producer. Domestic exports have remained sluggish throughout the year mainly due to premium in domestic prices. December pepper exports stood at 1,750 tonne, down 32% year-on-year.
The International Pepper Community, an inter-governmental organisation of pepper producing countries, projected global pepper production to increase by 3% in 2010 to 2,90,742 tonne from 2,81,974 tonne last year.
Domestic prices are expected to ease further during this month when the new crop arrivals peak but losses will be limited by low stocks in the country. Fundamentals remained firm on thin stocks and domestic demand but pressure from cheaper Brazilian crop capped the gains. Bargain-buying was triggered after prices fell over 6% since the beginning of January as new arrivals, which began this month, weighed on sentiment. India’s pepper output in 2010 is expected to be around last year?s levels, but prices are unlikely to fall sharply in coming months due to low carry-over stocks, as per Reuter?s poll. The crop sown in May-June is harvested from December to February in India, the third largest pepper producer in the world after Vietnam and Indonesia . Kerala is India?s leading pepper-producing state, contributing around 96% of the total output, followed by Karnataka. Prices, however, are not expected to fall much as low global carryover stocks along with higher realisations in India from other crops will ensure support to prices at lower levels. Carryover stocks with India are around 7,000-8,000 tonne, according to market estimates. With prices trading at lower levels, farmers would be more inclined to hold back their crops as pepper can be stored for 3?5 years without deterioration in quality.
Prices will also remain supported from end-February despite the Vietnamese crop hitting the market then, as production is expected to be marginally lower or similar to last year. It shall bottom out around Rs 12,500 ? Rs 12,000 levels. The world would be turning to India for the new crop which is of superior quality from others and such enquires shall be positive for the market. A weakening rupee will be an incentive for exporters that will make Indian prices competitive in the overseas markets.
(The author is head??commodities, Motilal Oswal Financial Services Ltd)