Demand for physical commodities raring to go
The domestic commodity markets can once again focus on what they know best: physical demand and supply of everything from gold, metals, potatoes, wheat and sugar to jeera, cooking oil, guar gum and red chillies.
By Nidhi Nath Srinivas, TNN |
NEW DELHI: Now that hedge funds have almost exited the sector, the domestic commodity markets can once again focus on what they know best: physical demand and supply of everything from gold, metals, potatoes, wheat and sugar to jeera, cooking oil, guar gum and red chillies.
Consequently, while overheated commodities like base metals, gold and sugar have cooled off as less money is chasing them, others remain irrepressible due to a genuine shortage of supply. Sentiment bottomline: stay bullish on commodities like gold, base metals, rubber and pulses. They are not making more of these any time soon.
This is also the main reason why commodity-based scrips have fallen far more sharply than the underlying commodity itself. Traders simply see no reason to panic. Instead they are using this technical correction to make some money and reload their positions at bargain prices.
“We are bullish on gold because we are fairly sure it will find support at $580/oz. In fact, we are bullish on it reaching $700/oz. We see no reason why investors should exit gold today,” said Giby Mathews, MD of Cochin-based JRG Securities, a listed brokerage.
India’s sugar scrips are a good illustration why commodity brokers like Mathews are upbeat. While all the major mill stocks have eroded their value by anything between 30% to almost half their value in the last one month, sugar futures have not seen a commensurate drop.
“In the first few days, sugar stocks fell because funds were exiting from all their commodity shares in panic. Then the stock market free fall kicked in to further increase losses. But sugar itself has not become cheaper by half. In fact, even though prices are a trifle bearish, they are still above Rs 19/kg here,” said an equity analyst at Edelweiss Capital.
“Even in the world sugar market, prices are still double of what they were last year. So the view taken by financial players cannot take away from the underlying demand for it,” said MD of a large Karnataka-based sugar company.
Meanwhile, traders are taking the global meltdown in their stride. “A technical correction was necessary. Except for base metals, bullion, and energy commodities, which are aligned to international commodity markets, there is not much speculative activity right now in most products. Prices are moving as per perceived medium-term demand-supply fundamentals,” said a Mumbai-based aluminium trader.
Consequently, while overheated commodities like base metals, gold and sugar have cooled off as less money is chasing them, others remain irrepressible due to a genuine shortage of supply. Sentiment bottomline: stay bullish on commodities like gold, base metals, rubber and pulses. They are not making more of these any time soon.
This is also the main reason why commodity-based scrips have fallen far more sharply than the underlying commodity itself. Traders simply see no reason to panic. Instead they are using this technical correction to make some money and reload their positions at bargain prices.
“We are bullish on gold because we are fairly sure it will find support at $580/oz. In fact, we are bullish on it reaching $700/oz. We see no reason why investors should exit gold today,” said Giby Mathews, MD of Cochin-based JRG Securities, a listed brokerage.
India’s sugar scrips are a good illustration why commodity brokers like Mathews are upbeat. While all the major mill stocks have eroded their value by anything between 30% to almost half their value in the last one month, sugar futures have not seen a commensurate drop.
“In the first few days, sugar stocks fell because funds were exiting from all their commodity shares in panic. Then the stock market free fall kicked in to further increase losses. But sugar itself has not become cheaper by half. In fact, even though prices are a trifle bearish, they are still above Rs 19/kg here,” said an equity analyst at Edelweiss Capital.
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“Even in the world sugar market, prices are still double of what they were last year. So the view taken by financial players cannot take away from the underlying demand for it,” said MD of a large Karnataka-based sugar company.
Meanwhile, traders are taking the global meltdown in their stride. “A technical correction was necessary. Except for base metals, bullion, and energy commodities, which are aligned to international commodity markets, there is not much speculative activity right now in most products. Prices are moving as per perceived medium-term demand-supply fundamentals,” said a Mumbai-based aluminium trader.
Luckily for investors, these fundamentals rarely change due to the whim of speculators chasing short-term gains. As a result, though the bubble of base metals has burst, commodity traders know that the physical short supply of copper, zinc, nickel and aluminium will remain for some time to come.
“Though there appears to be a meltdown in metals as some speculative positions remain, even in India, it is not worrying us too much because it will only improve demand and price parity,” said a nickel trader. From the perspective of agricultural commodities, the current stock market downfall could well be in a parallel universe.
“We see no changes in demand-supply fundamentals. There have been no large-scale exits because most players in farm commodities do not usually dabble in metals and bullion as well. Prices are in sync with market realities,” said an analyst from a Mumbai-based MNC brokerage.
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