Benefits of fall in global prices nullified

The rupee’s depreciation has nullified the benefit of the ongoing fall in global commodities’ prices for India Inc. Especially so with dollar-denominated commodities like gold, silver, copper and vegetable oils. They continue to remain costlier in India, despite a drastic decline in the prices of these commodities globally.

The Indian currency has depreciated by 8.28 per cent so far this month to hit a new year’s low and closed at 49.58 against the dollar on Thursday, as global risk aversion prompted investors to move into safer assets like debt.

The greenback climbed to a seven-month high against major global currencies after the US Federal Reserve flagged “significant downside risks” to the US economy, but stopped short of bold monetary easing.
 

ERODING GAINS Price change of major commodities
Commodity	2-Sep	22-Sep	Change (%)
Gold ($/oz)	1,882.9	1,733.0	-8.0
Gold (Rs/10g)	27,610.0	28,030.0	1.5
Silver ($/oz)	43.3	36.9	-14.8
Silver (Rs/kg)	64,670.0	63,405.0	-2.0
Rs/$	45.8	49.6	-8.3
Copper ($/tonne)	9,050.5	7,790.5	-14.0
Copper (Rs/kg)	495.0	478.0	-3.3

“India is set to get no benefit of the fall in commodities’ prices which started a few days ago. Those who import commodities like crude oil, vegetable oil, etc, will have to pay more for imports. Inflation in these sectors is bound to increase,” said Madan Sabnavis, chief economist, Care Ratings.

Gold prices in India did fall, though, following a similar trend in global markets. Still, the fall was limited. The intensity of fall in the global commodity was capped because of the depreciating rupee, said Naveen Mathur, associate director, Angel Broking.

In the London spot market, gold has fallen 7.96 per cent since the beginning of this month, to trade at $1,733 an oz early this afternoon, as compared to $1,882.88 on September 2. Indian consumers missed this benefit due to the rupee’s behaviour. In fact, gold in rupee terms rose 1.52 per cent to close on Thursday at Rs 28,030 per 10g, as compared to Rs 27,610 per 10g at the beginning of this month.

“There will be no impact on overall demand, as jewellers hedge their position at the price booked by consumers. Since the festive season is on, the demand is likely to rise by at least 15 per cent in volume and 40-45 per cent in value terms. But, yes, for the same quantity, consumers will have to pay more,” said Rajesh Mehta, chairman of India’s leading gold jewellery exporter, Rajesh Exports.

Similarly, the price of silver has declined this month from $43.25 an oz to $36.85 an oz, a fall of 14.8 per cent. The decline was moderated in rupee terms to close at Rs 63,405 a kg here on Thursday, from Rs 64,670 a kg on September 2.

Copper wire bar in Mumbai closed at Rs 478 a kg on Thursday, a decline of 3.3 per cent, as compared to Rs 495 a kg at the beginning of this month. In the same period, however, on the benchmark London Metal Exchange (LME), it recorded a decline of nearly 14 per cent to settle on Thursday at $7,790.50 a tonne from $,9050.5 a tonne. For some global commodities, we will have to pay more, which may result in higher inflation,” said D K Joshi, an economist with Crisil, the rating agency.

Reuters adds: US crude futures fell sharply on Thursday as weak economic signals added to the increasing worries about slowing economic growth and a stronger dollar pressured dollar-denominated oil prices. On the New York Mercantile Exchange, November crude fell $4.08, or 4.9 per cent, to $81.84 a barrel. ICE Brent November crude fell $4.14 to $106.22 a barrel by 1238 GMT, having traded from $105.87 to $109.50.