Weak Rupee negates gains from a fall in global prices

KOLKATA: Indian consumers have not been able to take advantage of a fall in global commodity prices due to a weak rupee. Though prices of gold, crude palm oil, soya oil and pulses have dropped in the global market, rupee depreciation has made imports of these commodities costlier in the domestic market. Edible oil is one of the important commodities imported for meeting a growing demand in the domestic market. Crude palm oil, which cost $973 per tonne in June last year, now costs $840 per tonne.


“But the full impact of this drop cannot be passed on to the consumer as the rupee has weakened against the dollar, thus pushing up the landed price of edible oil,” said BV Mehta, executive director, Solvent Extractors Association of India. He added that importers were working on a margin of 2% -3% and if the rupee devaluates further, there may even be a price hike. In last June, the rupee was at 55.53 as against the dollar. India needs 175 lakh tonne edible oil to meet its annual domestic demand.

In the current oil year (November 2012 - October 2013), it is expected that India will need to import nearly 107 lakh tonne oil. In the last one week, the rupee has devalued by 4%. On June 5, the rupee closed at 56.70 against dollar. On Tuesday, the rupee devalued to 58.98 against dollar in early trade to close finally at 58.39. A weak rupee has forced pulses importers to stay away from the market for a while.

KC Bhartia, chairman emeritus of All India Pulses & Grain Association, said importers were not placing any orders now. “They are on a wait-and-watch mode for the time being. Internationally, pulses price is hovering between $1,200 and $1,500 per tonne, which is somewhat less than last year. But a depreciated rupee will make pulses costlier,” he said.

India imports around 3-4 million tonne of pulses to meet its annual domestic demand. Pulses are generally imported from the US, Myanmar, Turkey and Australia. “It is an unusual thing that we are seeing now. The government should come up with measures to make the rupee strong. Globally, commodity prices have fallen but prices are ruling high in India,” said CP Krishnan, director, Geojit Comtrade. Gold traders and dealers said the government’s move to curb imports to strengthen the rupee and bring down the current account deficit has not worked well.

Internationally, gold prices have climbed down to $1,370 per ounce from $1,660 per ounce in January. In January, 10 gm of gold would cost Rs 29,800 even though the rupee was at 53.20 level. Today, the price is around Rs 27,700 per 10 gm even though international prices have come down by $290 per ounce. “We had told the government that a check on the supply side will not arrest the current account deficit. And that has come true with the rupee devaluating further. The government should immediately take steps to stop the usage of gold as an investment product,” said Bachhraj Bamalwa, director, Nemichand Bamalwa and Sons. India imported 864 tonne of gold last year.

Kishore Narne, head (commodity & currency), Motilal Oswal Commodity Broker, said movements in domestic commodity markets have largely been due to the volatility in the rupee and global markets are showing signs of nervousness before the German Constitutional Court hearing on the legality of the Outright Monetary Transactions.

“European peripheral yields inch higher and with no major data releases, the volatility in currency markets will drive commodities,” he said.