Bullion, agro-commodities set to gain

By Invitation: Gaurav Katariya Research head, commodities Arihant Securities

Bullion, agro-commodities set to gain
Bullion, agro-commodities set to gain

For the ever fascinating and electrifying commodity futures market, 2018 has really been a mixed bag, so far. In last 7 months, we have seen huge spells of bearish and bullish rallies in spices like cumin seed (jeera); turmeric (haldi) and coriander (dhaniya) whereas oilseeds like soybean and mustard (except castor) have largely shown a dull trend.

As far as metals and energy markets are concerned, bullion prices have consistently remained on a downside while base metals have traded in a large price range with high volatility. Crude oil prices have broadly seen an up-trend in last 7 months but on the other hand, natural gas prices have dipped into a sluggish phase.

Now the question is how these commodities are going to perform in the next couple of months amid festive and seasonal demands? Let us explore.

Agro commodities: Monsoon forecasts are always crucial for agro commodities in India. This year the forecast for a better than normal monsoon corrected prices of commodities like soybean, guarseed and guargum. But the recent forecast of a dull phase in August and September by Skymet Weather, a private company, has brought speculators and traders back. Many areas of agriculture belts in India have actually received below average rainfall, so far, which gives weight to the predictions made by Skymet. Thus, combining this latest forecast with present status of rainfall and the upcoming festive season demand, we are expecting a major up-trend in prices of agro commodities that are traded in futures market.

Oilseeds like soybean and mustard are likely to come out of their dull phase and see a mid-term trend reversal, as festive and wedding season will push demand. We may see soybean adding 12-15 percent gains to its current rate of Rs 3,400 per quintal and trade around Rs 3,900 per quintal. Mustard is also looking set to deliver another round of bullish rally and trade above Rs 5,000 per quintal during the festive season whereas castor prices are likely to continue northbound journey and trade past Rs 6,000 per quintal since demand for castor oil is likely to get a huge boost from paint industries.

The favourite duo of speculators, guarseed and guargum will see an extension to the ongoing bullish rally by getting an increment of 15-20 per cent. Cumin seed prices will touch record highs this year as there is huge dearth of supply due to war like situation in major exporter Syria. We may see prices trading as high as Rs 25,000 per quintal in futures. Turmeric and coriander are likely to follow the bullish trend in cumin seed and see a spike of at least 20 per cent in current prices. Turmeric and coriander futures prices may touch Rs 8,500 per quintal and Rs 6,000 per quintal, respectively.

Bullion: After seeing a consistent fall in prices this year, a short-term relief rally in gold and silver seems to be on cards. In international markets, sentiments are still weak but festive and wedding seasons in India may bring back buyers. It is to be kept in mind that the primary trend in bullion is still bearish and any rise in prices will only be temporary in nature. From yearly high of Rs 31,620 per 10 gm, gold prices have corrected by more than 7 per cent whereas silver has tumbled by around 10 per cent. We are expecting a return of demand in gold and silver and see prices rising by 3-5 per cent from here.

Base metals: The highly volatile pack of base metals is likely to see a consolidation in next few weeks. Amid trade war between China and the US, June and July contracts saw extreme price swings with zinc leading the pack with a 10 per cent rise on year-on-year basis and then tumbling by over 25 per cent to Rs 170 per kg from yearly high of around Rs 235 per kg. We are expecting zinc to trade around Rs 180-200 per kg for next few weeks. Copper prices are also likely to take a halt after recording huge fluctuations on both sides. Copper prices are expected to trade in the range of Rs 400-450 per kg for next few weeks.

Energy: Crude oil prices have been on a corrective mode since last one month after recording a yearlong rally. Prices may dip further in next few weeks but the overall trend is bullish, which will ultimately bring buyers back. We are expecting prices to generate another round of bullish rally and trade beyond $80 (Rs 5,500) per barrels from $69 per barrel. Natural gas is likely to stay in the current dull phase for another couple of months. A major turnaround is not expected before October-November when winter season demand in the US will bring back speculators and traders.