Commodity prices fall worldwide, falling rupee helps India market

Agri, metals, oil down, gold jump sharply reacting to global economic and geo political uncertainties

Worsening US-China trade war raising fresh growth concerns and intensifying geo-political tensions has rattled commodity markets globally. In India, however, prices of commodities depending on imports have been supported by sharp fall in rupee exchange rate against dollar. Base metals and crude oil were down due to growth concerns while gold, silver prices shot up to new levels globally, while in India falling rupee has only fuelled the rally.

On the benchmark Multi Commodity Exchange (MCX), gold futures for delivery in October gained by 2 per cent to hit the lifetime high of Rs 36,956 per 10 grams. Standard gold for spot delivery in the popular Zaveri Bazaar here also jumped to the record high of Rs 36165 per 10 grams which prompted buyers to desert the street. Silver futures for delivery in September jumped by 2.53 per cent to trade at Rs 42,410 a kg with its price in spot was quoted at Rs 42,035 a kg.

In the latest round of directive, the Chinese government on Monday ordered state trading companies to avoid purchase of agri commodities from the United States and simultaneously let it currency devalue against US Dollar to make exports from the country viable, leading to the Chinese Yuan tumbling beyond the key 7 / dollar for the first time in more than a decade. With these steps, the Chinese government responded to the US President Donald Trump’s decision last week to impose 10 per cent tariff on $300 billion of Chinese imports starting September 1.

Soybean contract on the Chicago Board of Trade today was down little less than 1 per cent after closing 3 per cent lower last week to trade at $8.62 per bushel which analysts are expecting to fall further to $8.43. Similarly CBoT corn contract fell 1.5 per cent while wheat was down 1.9 per cent today on CBoT. Down India, Soybean futures for delivery in September on the National Commodity & Derivatives Exchange (NCDEX) declined by 1 per cent to trade at Rs 3539 a quintal. Similarly, cotton seed oilcake for September slumped by 2.14 per cent to trade at Rs 3063 a quintal. The fall has been curtailed due to rupee depreciation.

The rupee closed with a decline of 1.65 per cent to 70.74 against the dollar on Monday.

“The United States is the largest exporter of soybean to China, one of the largest importers of vegetable oils in the world. Following the fresh development, sentiment in all other commodities remained bearish due also to a recovery in the acreage this kharif season,” said Ajay Kedia, Managing Director, Kedia Commodity.

As of August 2, the total kharif acreage was lower by 6.6 per cent this sowing season than the same period last year. Overall sowing reported a recovery, with widening spread of showers, from its initial decline of above 16 per cent in the beginning of the season due to delay in rainfalls this monsoon season.

With the latest round of sanctions imposed on Iran, worrisome job losses scenario in China, Hong Kong struggling for independence and regional instability in Saudi Arabia, prices of agricultural commodities, base metals and energy declined in the international market.

Depreciation in the rupee supported agricultural commodities, base metals and energy from further fall. While brent crude futures declined by 1.15 per cent to $61.18 per barrel, the US West Texas Intermediate (WTI) fell by 1.28 per cent to trade at $54.95 barrel. Base metals including aluminium, copper, nickel and zinc declined albeit marginally in early Monday trade on the benchmark London Metal Exchange (LME).

Price of Copper, a gauge of economic health earlier on London Metal Exchange hit $5,640 a tonne, the lowest since June 2017. Other metals followed copper, except nickel. Nickel hit a two-week high at $14,930 a tonne on the LME on report that Indonesia will not permit unprocessed ore exports after January 2022.

“Escalating trade war between the United States and China; and geo-political tensions are two main factors for the decline in commodities’ prices. In the current circumstances, demand of base metals and energy is likely to remain under pressure. But, bullion may find support as safe haven buying from investors with gold and silver prices to remain firm. Other commodities would remain subdued,” said Kishore Narne, Associate Director, Motilal Oswal Financial Services Ltd.