How the week was for commodity markets?

Later in the week, Fed will further taper USD 10 billion from its stimulus and likely offer fresh guidance on when it may raise interest rates. Gold prices could jump higher and cross the USD 1400 level if risk aversion continues and we would advise against searching for selling opportunities.

Navneet Damani
Motilal Oswal

Precious metals continued their spectacular run last week as persistent worries about the situation in Ukraine and worries about corporate defaults in China pushed prices higher. Gold is now near its six month highs and is up more than 14% so far this year. Also a wave of risk aversion globally pushed safe haven assets like the yen and gold higher and pulled equities lower. Next week is going to be very eventful for precious metals as investors will focus on Ukraine and the FOMC. A vote is planned for Sunday on whether Ukraine's Crimea should join Russia. Russia has shipped more troops into Crimea and if the situation worsens, it is likely lead to big spikes in gold and silver. Later in the week, Fed will further taper USD 10 billion from its stimulus and likely offer fresh guidance on when it may raise interest rates. Gold prices could jump higher and cross the USD 1400 level if risk aversion continues and we would advise against searching for selling opportunities.

Crude oil prices declined sharply last week as supply side factors started to weigh on prices and growth concerns from China further added to the selling pressure. Additionally a test sale of 5 million barrels from the U.S Strategic Petroleum Reserve triggered a sharp selloff in crude oil prices. Crude oil inventories also rose sharply last week adding to supply side pressure even as the OPEC and IEA raised their demand forecasts for this year. Natural gas prices meanwhile declined almost 4% last week on reports of moderating weather and a sharp fall in consumption. The markets will keenly eye the developments in Ukraine over the weekend and any uptick in geopolitical risks could potentially trigger a rally in oil prices as well. Surprisingly, the oil markets have still not reacted to the Russia-Ukraine concerns but there is a risk of this happening if the conflict results in sanctions related to oil and gas from Russia.

Last week was a mournful one for copper bulls, as copper prices tumbled down to touch a four-year low of USD 6376 levels. What was sparked by China's first bond default is likely to deteriorate further once the butterfly effect of the first default starts to manifest in the markets. The economic numbers from China last week did not offer reprieve either, nor did data from the US. In other metals, aluminum continues to be well supported with the dollar strength and consumer buying. Nickel was again the standout performer last week as all other base metal prices fell but nickel climbed. The Indonesian ban on exports of unprocessed ores has coincided with a rise in demand from stainless steel manufacturers as melt rates improve. In the week ahead, markets will majorly concentrate on the FOMC meeting which will likely see another cut in the monthly-stimulus funded by the US Central bank. Until there is more clarity on Russia-Ukraine, geopolitical concerns will continue to be a headline risk for all industrial metals. Concerns over China's credit risk will continue to be under focus next week, until there is some assurity given by the Chinese government which seems unlikely after the first default. On the price front, we expect copper prices to see some relief rally before some the next round of selling begins. We expect 395 to act as a strong support on the downside, whereas pullback could extend towards 412-415 in coming days.

Oilseeds markets shown divergent trend. Soybean futures recovered on bargain hunting and tightness in physical market. Delivery period is going on and front month March contract is traded in premium and further tightness is expected. Seed quality beans are in extreme scare supply. Seed quality beans are quoted at Rs 4450 for Tikamagadh. April Soybean may face resistance at 4280-4330 while 4170 is strong support. Bias is mild positive. RM seed edged lower as arrivals increased. If temperature rises above 35 degree and stay above 30, arrivals may rise. Crop damage story is now losing momentum subject to no further hailstorms. Soy oil ruled choppy and random. We prefer to stay sideline for a while.