Commodity futures fall on rupee appreciation

Prices of almost all commodities having global references slumped on the country’s two largest futures exchanges, Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX), due to a sudden appreciation of the rupee, despite steady trends in these commodities in overseas markets.

The Indian currency appreciated 2.8 per cent against the dollar on Monday following the Congress-led United Progressive Alliance (UPA) obtaining a clear public mandate in the 15th Lok Sabha elections. Expectations are that the stable government would attract much higher foreign money inflow.

Sharp appreciation of the rupee value against the dollar will result in lower import cost of commodities like metals, bullion, palm oil, etc, as prices of these commodities are determined by international prices.

Prices of most global commodities declined heavily with base metals, precious metals and energy being the biggest losers. Near-month contract of aluminium declined 4 per cent while copper, lead nickel and zinc slumped 3.35 per cent, 4.11 per cent, 5.68 per cent and 3.29 per cent respectively. Crude palm oil was down 3.87 per cent while gold and silver lost 2.46 and 2.33 per cent respectively.

“More than the global phenomena, it is the rupee appreciation which affected most commodities’ prices locally,” said Harish Galipelli, head-research of the Hyderabad-based commodities trading firm Karvy Commodities Broking.

For example, copper was down by $50 in London at $4,390 which should ideally reflect a decline of Rs 2 in Indian market. But, the red metal nosedived by Rs 7.50 at Rs 214 due to the depreciating rupee against the dollar, Galipelli added.

Rupee, hovering at 49.29 against the dollar late on Friday evening, opened weak on Monday at 48.28 and appreciated further as the day progressed to close at 47.91.

Meanwhile, minor commodities like mentha oil, potato and cardamom sparkled amid glooms in the market. Near-month contracts of these regional commodities jumped marginally up to 2 per cent due to supply tightness.

Rupee appreciation makes the dollar-dominated assets cheaper. Therefore, import reliant commodities, quoted in dollar term, slump when dollar appreciates, said a commodity analyst.