Commodities fall sharply in three months following global trend

The price of global commodities fell sharply in the last three months following similar trend in global markets where supply surplus and weak consumer sentiment kept their demand subdued.

Copper, for example, slumped by 18.60% in the last three months to trade currently at $5046 a tonne on the benchmark London Metal Exchange (LME). In India, however, copper cathode reported a decline of 13.50% to trade at $6496.5 a tonne (Rs 139 a kg) in spot market here. Similarly, lead price fell by 12.80% to $1693 a tonne on the LME as against 9.70% decline to $1890.5 a tonne in domestic market.

Globally referenceable commodities, normally, move in India in sync with global markets. Some commodities that follow local issues like demand-supply arithmetic, government policies, taxes etc., move solo for some time in Indian markets versus their global references. But, over a period of one week, they fall in sync with global markets.

"The objective of the commodities' movement in local market in sync with global markets is to avoid cash-future arbitrage for traders. In cases when commodities are traded on global platforms and not in domestic markets due to variation in trading time, traders get advantage of cash - future arbitrage. But, that is just for a short period. Considering a long period of a week or two, prevailing price of commodities broadly follow global trend," said Gnanasekar Thiagarajan, Director, Commtrendz Research.

 

The reverse trend is seen especially when either individual currency or commodity price is highly volatile. In case of stability, the price in India truly reflects global trend. In early Tuesday trade, gold was selling in India at a premium of $1 in tandem with the fall in Asian equity markets. But, later the premium was absorbed fully with gold price settled Rs 24,250 per 10 grams as the yellow metal fell sharply to $ 1,146 an oz after opening high at $1,170 an oz in early Asian trade. Gold opened at Rs 27,800 per 10 gms in spot market here.

Meanwhile, the Indian rupee has depreciated by 3.60% since August 11, the day China devalued Yuan, and 5.52% since January this year.