Invest & Harvest Magazine - Jun 2016

Invest & HarvestA Comprehensive English Monthly Magazine on Commodity Futures

Karvy Comtrade’s

Volume 09 Issue 05 Hyderabad June 2016 Pages 36 `25/-

PREVAILING UNITYBase Metals: Divided by fundamentals

but united by sentiments!

June 2016 Karvy Comtrade’s Invest & Harvest 3

Editorial

Editor Sushil Sinha

Executive EditorVeeresh Hiremath

Research Team Anup BP

Dilip Kumar Nath Ginumol Mathew Himanshu Gupta Prabhakar ReddyPriya Chaudhary

Raj Nawab Singh KashyapRavi Shankar Pandey

Ritu Raj JhaSmita

Zabiullah Khan

Production Vijayendra Kumar Ch.

Kerthi Saikumar

Distribution Shabna R. Iyer

Printed & Published by: Sushil Kumar Sinha

on behalf of Karvy Consultants Limited.

Karvy House, 46 Avenue 4, Street No-1, Banjara Hills

Hyderabad-500034. AP.

Printed at: Harshitha Printers

6-2-985, Yousuf Building Adj. Railway Gate,

Khairatabad, Hyderabad-500004

Editor: Sushil Sinha

dear readers,India has emerged as the world’s fastest growing economy by registering a fourth quarter GDP of 7.9% of FY 2016 beating the expectation of 7.6%. The GDP data has added cheers to the NDA government, which is celebrating its second year in power. Besides astonishing GDP numbers, forecast of above normal rainfall for 2016-17 added further cheers to the country as well as the central government.

Since beginning of the current calendar year, base metals sector witnessed a roller coaster ride as prices started the year on a weaker note by touching multi-year lows. As the days progressed, prices recouped by 40-50% from their multi year lows reacting to the signs of improvement from China, weaker US dollar, signs of fading interest rate hikes from US and host of other factors. In a cover, we have analysed various factors that resulted into roller coaster ride in the base metals sectors and its likely performance in the near futures.

Crude oil prices at international market witnessed one of the biggest moves since beginning of the current calendar year. In the beginning prices plunged to 12-years lows of $26.05 per barrel and from then onwards, recovered smartly to test $50 per barrel. The recovery in the prices was mainly driven by an increase in the demand for gasoline ahead of summer driving season, which starts with US Memorial Day. Dwindling crude oil stocks for production of gasoline ahead of summer driving also supported the rise in the prices.

Indian guar industry has been passing through tough times because of sharp decline in the prices of guar gum, seed and other derivatives. The industry is struggling for its existence as the domestic demand as well as export demand has declined to lowest levels thereby reducing the profit margins of the gum processors. In an article on guar, we have analyzed various factors affecting the guar industry and performance of Vikas WSP, a guar processor, listed on the Indian stock market to understand the industry performance.

As we all know that the new monsoon season is commencing from June and sowing for kharif crops will commence. The country has witnessed failed monsoon for two consecutive years in 2014-15 and 2015-16. Repercussions of failed monsoon was seen in production shortfall and rally in the prices of foodgrain. In order to increase the production and protect farmers from distress sale of their produce, the government has been increasing the Minimum Support Price for the crops. However, higher MSP failed to bring more acreage under cultivation due to poor monsoon performance. In an article on MSP, we have analysed whether hike in MSP is really helping to increase acreage and production as well as farmers’ income.

With the hopes of above normal rainfall, we are expecting things will turn better for the upcoming monsoon season, but we are keeping our fingers crossed for progress and distribution of rainfall.

Happy ReadingNote: The data in all charts and tables have been sourced from Bloomberg, KCTL Research, unless otherwise indicated.

From the Editor’s Desk


ContEnts

Cover Story

Base Metals - Divided by fundamentals but united by sentiments! 12

DisclaimerThe technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The report contains the opinions of the author(s) that are not to be construed as invest-ment advice. The author, directors and other employees of Karvy, and its affiliates, cannot be held responsible for the accuracy of the information presented herein or for results of the posi-tions taken based on the opinions expressed within. The opinions are based on the information believed to be accurate, and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading.Commodity derivatives trading involves substantial risk. The valuation of the underlying may fluctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profit or that losses can, or will be, limited in any manner whatsoever. The past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management, or investment advisory services.

Special Feature

HZL aim to untapped natural resources to make India as self-sufficient 15 Pramod Shinde, MMR Bureau

Features & Updates

High bets placed on silver rally!! 20

Tough time for Indian Guar Industry 22

Nickel: Revival in the offing 29

MSP: Is it boon for the farmers? 25

Refinery Outages and Gasoline Supply 17

Happy Days Are Here Again 10


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MCX Nickel Price Movement (Rs/kg)

NCDEX Guar Gum Price Movement (Rs/kg)


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Inflation (%) Index of Industrial Production (%)

DoE Inventory Levels (May) Inventory level M/M change (%)

Crude oil 543394 1.18

Gasoline 241795 0.70

Distillate 24838 2.22

Refinary Utilization (%) 89.7 0.00Note: DoE - Department of Energy; volumes in thousand barrel

LME Inventory Levels (May) Inventory level M/M change (%)

Nickel 401766 -3.75Aluminium 2529100 -4.41Copper 151725 1.49Zinc 380700 -5.83Lead 185475 5.97

Note: LME - London Metal Exchange; volumes in metric tonne

Exchange Rate TrendsMay 29,

2016Apr 31,

2016% Change 52 Week

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Indian Rupee 67.2600 66.3300 1.40% 68.7887 -2.22% 63.3050 6.25%

Euro 1.1139 1.1451 -2.72% 1.1714 -4.91% 1.0524 5.84%

Great Britain Pound 1.4515 1.4612 -0.66% 1.5930 -8.88% 1.3836 4.91%

Japanese Yen 110.6800 106.5000 3.92% 125.8600 -12.06% 105.5500 4.86%

Swiss Franc 0.9931 0.9599 3.46% 1.0328 -3.84% 0.9151 8.52%

Canadian Dollar 1.3098 1.2556 4.32% 1.4690 -10.84% 1.2128 8.00%

Australian Dollar 0.7234 0.7603 -4.85% 0.7849 -7.84% 0.6827 5.96%

New Zealand Dollar 0.6760 0.6977 -3.11% 0.7232 -6.53% 0.6130 10.28%

Danish Krone 6.6776 6.5001 2.73% 7.0862 -5.77% 6.3725 4.79%

Norwegian Krone 8.3588 8.0510 3.82% 8.9942 -7.06% 7.6050 9.91%

Swedish Krona 8.3305 8.0324 3.71% 8.8367 -5.73% 7.8937 5.53%Note: All quotes are against the US dollar.


News Digest

Big gas fields could make Israel energy in-dependentJust 15 years ago, Israel relied entirely on imported coal, natural gas and oil for its energy needs. All that could change in the next few years following the dis-covery of giant gas fields. In fact, Israel may have so much natural gas it has to export some to its neighbors. The heart of Israel’s energy revolution sits 15 miles off the country’s Mediterranean coastline. Since it was discovered in 2009, production at the Tamar natural gas field has risen steadily and now averages 1.2 bil-lion cubic feet a day, enough for 40% of Israel’s power generation. Tamar, which contains 10 trillion cubic feet of gas, was just the beginning. In 2011, Noble Energy and Israel’s Delek discovered the Leviathan field. Until recently, it was the largest gas field ever discovered in the Mediterranean. It contains an estimated 22 trillion cubic feet of gas, enough to make Israel a major player in the regional market. (Source: CNN)

US backs India-Iran Chabahar port deal as it outflanks China-Pakistan Gwadar projectWashington broadly supports India and Afghanistan signing a deal with Iran for a transport corridor open-ing up a new route to Afghanistan via the Iranian port of Chabahar, as it outflanks the $46-billion China-Pakistan Economic Corridor project with Gwadar as its focal point. Analysts say Washington is acutely aware that China’s plans to develop Pakistan’s south-ern coastal fishing town of Gwadar into an economic hub, potentially redraws the region’s geopolitical map. It gives China a new trade link from its relatively undeveloped west to key Arabian Sea shipping routes at the mouth of the oil-rich Persian Gulf — giving it potentially strategic as well as economic leverage. The Gwadar project is about more than simple trade — its backers hope that once finished, it will bolster Pakistan’s economy and potentially give China’s navy access to the Indian Ocean. The plan would also strengthen both China and Pakistan’s positions versus India, and hedge against US influence in Asia. India’s Chabahar investment has been pending for years, in part owing to US sanctions against Iran over its nu-clear program, many of which were lifted earlier this year. New Delhi will invest $200 million to develop two terminals and five berths at Chabahar. (Source: First-

spost.com)

India can achieve 50 million tones maize output by 2025 to meet demandIndia can double its maize production to 50 million MTs by 2025 to meet the rising domestic demand of the crop, Agriculture Minister Radha Mohan Singh said. In spite of the drought last year, the maize production stood at 24.17 MT in 2014-15, Singh said adding this signifies the resilience of maize cultivation against climatic vari-ability. About 64% of the total maize production is used for poultry feed, followed by 16% for human consump-tion, 19% for industrial starch and beverage and 1% for seed. Keeping in view the recent interest of urban consumers especially in specialty corn, like sweet corn, baby corn, popcorn, etc, it is expected that demand for maize as food may rise to 2 MT by 2025, Singh said. By 2025, India will require 50 MTs maize for domestic consumption, of which 32 MT for feed, 15 MT for in-dustrial sector, 2 MT as food and 1 MT for seed. The maize is cultivated throughout the year, 85% during kharif (summer) season and 15% during Rabi season. (Source: The Economics Times)

Govt keeps 2016-17 sugar cane price un-changed India has kept the price that sugar mills must pay to cane growers, for the season starting October 2016, un-changed at Rs.230 per 100kg, as the world’s biggest consumer tries to arrest the rising prices of the sweet-ener.The government has accepted recommendation of the Commission for Agricultural Costs and Prices to keep the cane price steady for the next season. Al-though the central government fixes the cane price ev-ery year, some state governments such as Uttar Pradesh invariably raise the rate to woo farmers, which is a large voting bloc.(Source: Reuters)

Cotton output estimated at 341.50 lakh bales in 2015-16Country’s cotton output is estimated to be 341.50 lakh bales for the 2015-16 season, which began October 1, according to industry body CAI. The Cotton Associa-tion of India (CAI) has placed its April estimate of the cotton for the 2015-16 crop year at 341.50 lakh bales, 170 kgs each. The total output for the 2014-15 crop year stood at 382.75 lakh bales, CAI said in a state-ment. The lower crop estimate is mainly due to crop damage in the northern region due to the white-fly at-


tack this year. The total output estimated in the north-ern zone during the season 2015-16, is 41 lakh bales, down from 53.50 lakh bales last year. The arrival of cotton during April, is estimated at 22.25 lakh bales compared to 27.05 lakh bales arrived during the same month last year. The total cotton arrivals this season up to April are estimated at 302.40 lakh bales, which constitute around 89 per cent of the total estimated crop. The projected balance sheet drawn by the CAI for 2015-16, estimates total cotton supply at 429.10 lakh bales while domestic consumption is estimated at 305 lakh bales, thus leaving an available surplus of 124.10 lakh bales. (Source: CAI)

SEBI favours linking spot markets with e-NAM for fair price discoveryTo bring in more efficiency and transparency in agricul-ture commodities futures, market regulator SEBI has asked the Agriculture Ministry to connect the physical markets – from which it obtains information on spot prices to derive futures prices – to the online trading platform ‘e-National Agriculture Market’ (e-NAM). The Securities and Exchange Board of India (SEBI) has already sent a letter to the Ministry asking it to consider online integration of those basis centers and additional delivery centers on the basis of which spot prices are being polled and futures contracts are be-ing settled. e-NAM was launched by the Prime Min-ister this April with the objective of integrating 585 wholesale markets through the online platform in the next two years for transparent determination of prices. (Source- The Hindu Business Line)

India’s soybean area seen falling as farm-ers switch to pulsesIndian farmers are set to reduce the area given over to soybeans by up to 10 percent this year in response to falling prices, pushing up likely imports of edible oils such as palm oil and soyoil. Soybean is the main sum-mer-sown oilseed crop for the world’s biggest importer of edible oil, but prices have dropped 10 percent in the past two years, while the prices of pulses such as red gram have nearly tripled over the same period. Lower soybean output will force the country to increase im-ports of edible oils, supporting their prices. It could also limit India’s soymeal exports, given prices for its GMO-

free produce are already above international prices. The further price rise due to lower supply could even make imports of soymeal viable for local consumers. Farmers planted 11.63 million hectares with soybean in 2015/16. A 10 percent reduction would cut acreage to around 10.5 million hectares in the 2016/17 marketing year starting July. Most Indian farmers begin cultivat-ing soybean and pulses, which are rain-fed crops, in June after the arrival of the monsoon rains, and they are sown mainly in the states of Madhya Pradesh in central India, Maharashtra in the west, Rajasthan in the north-west, and Andhra Pradesh and Karnataka in the south.(Source- Reuters)

Gold prices headed for biggest monthly de-cline in six monthsGold prices slipped to 3-1/2 month low in the month of May but the yellow metal remained on track for its biggest monthly decline since November on the back of broad strength in the dollar. The safe haven asset has been under pressure over the past couple of weeks as senior U.S. central bank officials, including Fed chief Janet Yellen, indicated that a rate rise may be on the cards sooner rather than later. Bullion has fallen about 6.2 percent in May, its biggest monthly fall since No-vember. The dollar hovered near its highest in two months against a basket of currencies on growing ex-pectations of an imminent U.S. rate hike. Among other precious metals, spot platinum and spot palladiums were set to notch their biggest monthly decline since November. (Source- Reuters)

News Digest

Please read the Disclaimer carefully on page 4


— KTCL Research

Happy Days Are Here Again

The Monsoon is coming, if it hasn’t arrived at your town already. After two succes-

sive years of draught, the Indian Meteorological Department (IMD) has forecast rains at 106% of nor-mal rainfall. “Monsoon rainfall will be 106% of the long period average which is above normal and there is a 94% probability that monsoon will be normal to excess,” L.S Rathore, director general of the IMD told reporters. Skymet, a private me-teorological data provider, projects 109% of long-term average rainfall. The IMD had pushed back its date for the onset of Monsoon to June 7.

But predictions for rainfall in excess of the long-term average remained.

Rural revival and urban bounce After two successive years of draught, the return of rains por-tends cheer all around. Our farmers, our economy and our stock market should benefit from the upcoming monsoon season.

“This is one of the most looked forward to Monsoon seasons in the last decade,” says Gautam Sinha Roy, fund manager at Motilal Os-wal Asset Management Company, pointing out that “although a lot of

delinking from the Monsoon has happened over the last 10-12 years (through better irrigation, linkage with the global agri-cycle and other things), the monsoon has been so bad over the last two years that this year’s rains have become critical from the rural perspective and over-all economic growth perspective.”

“A good monsoon would stimu-late depressed rural demand and rein in food inflation. Hence, it is a positive for the economy” says K P Jeewan, Director and Group Head – Fixed Income, Karvy Capi-tal. But he cautions against reading

UpdatE



UpdatE

too much into good rains. “While giving a much needed relief to the parched hinterland, is not really a silver bullet for all that is ailing our economy,” he cautions.

There’s positive news on the ur-ban side too. The Centre for Moni-toring Indian Economy (CMIE) be-lieves urban consumption is likely to improve. “Promising consumer goods output in 2015-16 is signal-ling improving urban consumption demand in India”, the centre said in its Economic Outlook note, while pointing out that the consumer goods category (which has 30% weightage in the Index of Industrial Production), reversed two succes-sive years of decline to record 3% growth in 2015-16, its fastest in four years. Within the category, the note said, output of consumer du-rables rose by 11.1%.

“Urban sentiment remains upbeat as indicated by RBI’s latest consumer confidence survey,” the note said, be-fore adding. “According to the Nielsen Consumer Confi-dence Index, Indian consum-ers were the most confident in the world in terms of job prospects, personal finances and concerns in the first three months of 2016 with their confidence index touching a nine-year high during the period.”

Global ClarityJune will also see the uncer-tainty recede on two key in-ternational events: an interest rate hike by the US Federal Reserve, and Britain’s status vis-a-vis the European Union (Brexit), which bodes well

for Indian markets, news re-ports quoted fund managers as saying.

“Indian markets will regain positive momentum once global uncertainty related to US Fed rate hike and Brexit are over,” A Balasubrama-nian, CEO, Birla Sun Life Mutual Fund, was quoted. “We anticipate stock mar-kets to outperform post June this year, as expectations are high about reform execu-tion from both central and state government, while the 7th Pay Commission is seen driving domestic consump-tion. The expected recovery in earnings will lift market sentiments and normal mon-soon will increase chances of another interest rate cut.”

source: iMd

sour

ce: i

Md


CovEr story

— Himanshu Gupta

Base Metals - Divided by fundamentals but united by sentiments!

Since the start of the year 2016, the base metals sector witnessed a truly roller coaster ride. The year started on a weaker note for all the metals with prices treading near multi year lows,

however, with the signs of improvement from China, weaker dollar, signs of fading interest rate hikes from US and of course on the back of some improvement in specific fundamentals, things played well for most of the base metals. As a result, some metals even rallied 40-50% from their lows, leaving the market experts and traders in big dismay. What came after that was pretty much expected and the bears once again had a gala time with their short positions.

During all this there were times when the individual

counters like zinc and aluminum led the rally while few others like a copper for instance lagged but the point here is that it was more or less a mass participation by the entire team, like always, during the way up and also

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CovEr story

during the way down, although at their own individual pace. The mood of the overall sector was lifted after the China posted record imports of copper in the month of March and its manufacturing PMI also recovered from contraction for the first time in many months.

The recent set of recovery was also underpinned after the production cut announcements by the leading miners especially zinc and aluminium. While big miners are still looking to sell assets to help cut debt or to exit businesses like nickel and coal, they are also preparing for a pick-up in demand as looming supply gaps in at least some commodities sow the seeds for higher prices. BHP Billiton has talked up its future growth options, joining fellow mining giant Rio Tinto in marking a shift in focus after four years of aggressive cost cutting.

Miners have been forced to sell assets after a prolonged commodities rout left them facing piles of debt. Buyers held back as they waited to see whether the market had reached the bottom and deal value fell to $3.3 billion in the first quarter of this year versus just over $6 billion in 2015 as per the report, which justifies the whole set of volatility in the metal prices in the first quarter of this year.

Coming to the individual metals, aluminum prices

were the first to start the northwards journey and rebounded to 9 months high as China’s aluminium producers pledged to shut 4.6 million tonnes per year of capacity, or about 10 percent of smelting, amid plunging prices for the metal. China is the world’s top consumer and maker of aluminium. The prices, however, failed to sustain gains as Chinese smelters looked to restart the plants amidst higher prices that embraced the markets with oversupply fears altogether once again.

Lead and Zinc were also not far behind the line for participating with the metals rally. As the year

unfolded the inventory levels started to come down and the surpluses expectations waned. The single biggest relief for zinc was the removal of 500,000 tonnes of annualized capacity at its Australian, Kazakh and Peruvian operations by Glencore. The company reported a 28-percent decline in own sourced zinc production to 257,100 tonnes in the first quarter of 2016. The developments have so far helped zinc to drive the rally. The story for lead was spoiled after the China imposed a tax on the lead based batteries, since lead is majorly used in batteries, it added to the woes for the metals that is already struggling with a surplus.

Speaking of Nickel, after the year long decline finally formed some base after the demand picked up from China, its international study group said that global nickel market deficit widened to 8,200 tonnes in March from a month earlier, led by a surge in demand from China, where consumption increased by one third. It also added that, global nickel production of 164,100 tonnes fell short of consumption of 172,300 tonnes, it said in its latest monthly report as it revised up its deficit for February to 5,500 tonnes from 3,600 tonnes. Global demand jumped by 17.5 percent in March while production of refined nickel rose 7.8 percent on the month earlier. In China, demand surged by 33 percent in March to 91,300 tonnes from 68,400 tonnes in February.

Copper in fact didn’t really join in the commodity party in China, with SHFE benchmark copper rising a much more modest 4.3 percent from the end of 2015

to the peak so far this year on April 25. It has since retreated and is now down 2.4 percent from the start of 2016, underperforming its London equivalent, which is virtually flat for the year, all thanks to the global surplus and lower demand from China. China is world’s largest copper consumer; it needs to import raw copper for its smelters and refining plants. While copper mining is concentrated in Latin America, more than half of the

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world’s copper is consumed in Asia. Also China is the largest importer of copper ores, anodes, and refined copper. In April, China imported 450,000 metric tons of unwrought copper and copper products. Although imports fell steeply compared to March, they have risen 5% YoY (year-over-year). Note that the monthly decline in imports was expected. Imports swelled to a record high of 570,000 metric tons in March. Imports increased 40% YoY.

source- Bloomberg

Now, recently even the strongest of the metal like zinc succumbed to the selling pressure once the China tightened the regulatory norms for commodity futures that kicked off the cooling in the broader metals / commodities during the month of May. Was the rally overstretched and calling for a correction or does It shows the inter connectivity of the metals with one another despite having all together different fundamentals and different affecting factors. Amidst all this while the metal prices tend to move in tandem, the individual fundamental factors do affect the performance, which can turn the counter into a high or

low beta (beta – is a factor that shows the amount of change in an individual counter with respect to a given change in the broader market), however, the key point remains that it is the sentiment of the entire pack, which affects the overall movement and broader performance, which drills down to the simple fact that the systematic risk cannot be escaped while investing in any selected metals of one’s choice .

ConclusionGoing ahead the mood in the metals space is looking dubious; on one hand the world’s largest economy is looking to form a strong footing and is all set to raise the interest rates further and on the other hand, the rest of the world is still struggling with slower demand, surpluses and excess capacities. The devaluation of currencies is adding further fuel to the supply glut by making the international markets more and more competitive. With metal prices still lingering near multi year lows, any sustained efforts by the central bankers and the governments to spur the demand can ignite a serious bull run in the prices. The current situation as of now is better to see as a half glass full in the wake of host of measures by central bankers to boost liquidity, production cut announcements from the leading miners and signs of stabilization returning in the manufacturing sectors especially China. The way oil prices have recovered nearly 100% from their lows, it is likely to save the major economies from tumbling while saving the world with immediate threat of deflation, which could have made the outlook for commodities like industrial metals way uglier.


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Rate of change - China’s Steel Quaterly Consumption

CovEr story


Hindustan Zinc has come a long way since its incorporation fifty years back. We must acknowledge that it has created enormous value for its shareholders over the last de-

cade culminating in Special Golden Jubilee dividend paid out in April 2016.

Despite of volalite commodity trends and depressed market sentiments in general, Hindustan Zinc continued to outperform its previous operational records as well as generate unparalleled value for shareholders. Hindustan Zinc remained resolute in it’s commitment to conduct business in accordance with the highest ethical stan-dards and the soundest corporate governance practices.

During the quarter ended 31st March 2016, the Com-pany achieved total mine development of 15,638 me-tres during the quarter, up 24% year on year and tak-ing the annual mine development to an all-time high of 56,573 metres, up 18%.

The Company’s transition to underground mining is progressing well. The share of underground mined metal production increased from 28% in FY 2015 to

40% in FY 2016, while continuing to reduce cost of production through various efficiency improvement programs and cost reduction initiatives aided by a benign commodity environment, despite additional regulatory levies and lower average grades resulting from change in mining mix.

This is further expected to climb to around 60% in FY 2017 while the cost of production excluding roy-alty is expected to remain stable. Sindesar Khurd and Kayad mining projects continued to outperform even as RampuraAgucha underground project picks up pace with record mine development towards year end. As a result, HZL expects to reach the 1.2 mtpa mined metal production capacity within the next three years.

In an interaction with Mr. Sunil Duggal, CEO & Whole-time Director, HZL shared the market develop-ment strategy to ensure zinc is used wherever steel is exposed. He also reveals it’s strategy towards scaling up production in the next three to four years.

Mr. Sunil Duggal has a ability to keep a level head at all times, nurture and grow a business, evaluate op-

— Pramod Shinde

HZL aim to untapped natural resources to make India as self-sufficient

spECial FEatUrE


portunities and risks, successfully drive efficiency and productivity whilst reducing costs and inefficiencies and deliver innovative solutions to challenges.

Excerpts :What has really helped HZL to perform better dur-ing tougher business environment, especially large global minors closing their global operations?HZL is one of the low cost producers of Zinc in the world, with the use of best in class technology and the available reserve base. HZL is well positioned to sur-vive in the difficult times and any short terms fluctua-tion in prices should not harm our operations.

Could you please tell us more about transformation with newer application of Zinc gaining lot of impor-tance in the market? We have been doing lot of social awareness programs as a part of our market development strategy to ensure zinc is used wherever steel is exposed. This not only ensures the protection of steel but results in a sustain-able future with lot of downstream industries benefited out of it.

HZL strategies toward value added export to boost the global business as per FTA’s?HZL is also producing value added products and aim to convert a major share of its production into this, keep-ing in view of customers growing need/requirement. However, such huge imports of value added products coming under FTAs route, is upsetting the efforts and customers are left with no option but to keep importing at higher price.

How do you analyze Foreign Trade Agreement (FTA’s) policy impacts on Lead and Zinc industry in the domestic market?FTAs have definite purpose and good for economy in the long run on the whole. But as the cost of production is rising and with lower LME, this particular industry is having a tough time as cheaper imports are coming unabated, when the country is self sufficient to meet its demand through its domestic production and avail-ability. There is huge pressure on further investment or running the plant/production to its full capacity. There is also a big loss to nation exchequer due to huge im-ports and country is being forced to export to the extent of imports coming under FTAs route.

Could you please tell us more about HZL strategy towards scaling up production in the next three to four years?India as a country is blessed with lot of natural resourc-es and the only concern is untapping such resources. If the government support, we would be in a posi-tion to transform all such natural resources and make the country self-sufficient. Hindustan Zinc being the world’s second largest integrated zinc producer is well positioned to meet the country’s demand and the mines are fully geared up to meet the country demand of fin-ished product.

Government recent announcement to ease of FDI norms in 15 major sectors along with smart cities announcement could enhance Lead and Zinc de-mand….please elaborateIndia’s per capita Zinc consumption is one of the lowest at 0.5 kgs per capita. Various announcement/measures taken by GOI, will definitely boost demand of Zinc in the country and HZL is poised to meet such demand for now and future. HZL is also relentlessly trying for in-crease of Zinc consumption in country and working on various projects with Govt and Industry bodies with col-laboration with international consultants/experts as well.

Please share your views on Lead and Zinc demand-supply and price level in the 2nd and 3rd quarter of 2016?Zinc is a metal which is defiantly going towards the shortage with the closure of Century and Lisheen tak-ing away close to 0.5 million tonnes of metal in concen-trates and recent product cut by few major miners has also resulted in the further shortage. There is no major development on the new mines coming in the near fu-ture. The outlook for the zinc prices over the other com-modities are very bright and lead being a sister metal should follow the price of zinc.

Last but not the least, how HZL’s initiative to sup-port Make in India campaign?We support all the initiatives of the government of In-dia and one such initiative is Make in India. 75 % of the sectors identified by India on the Make in India cam-paign needs steel and that’s where zinc will be required to protect the steel. Soon or later we strongly feel that such initiatives by Government of Indian will make In-dia a manufacturing hub of many industries.

spECial FEatUrE



— Rituraj Jha

Refinery Outages and Gasoline Supply

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Crude oil prices in international market wit-nessed sharp decline at the beginning of the current calendar year 2016 and later staged a strong rally from its multi year low lev-

els. WTI crude oil prices hit a recent high of $50.21 / bbl on 26th May recouping from its multi year low of $26.05 / bbl recorded on 11th Feb 2016. In this article, we will look into the facts and figures, which catalyzed the crude oil prices to show one of the biggest moves within limited time frame.

Total Motor Gasoline Demand: Gasoline demand in the United States has been the key factor to be watched during the summer season. As per the latest data available, gasoline total output implied demand averaged around 9907 thousand barrels per day from April’16 onward, which is around 4% more than 2015

average implied demand within the same time frame. Looking at the last five-year average, implied demand was around 9232 thousand barrels per day. In the cur-rent year since April 2016, the average implied demand for gasoline in the United States surged by more than 7% compared to the last five-year average.

8500

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DoE gasoline total output implied demand (‘000 bbls/day)


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Gasoline prices in the USA surged to their highest level in the current year ahead of the Memorial Day Holiday. California, Hawaii, Washington, Alaska and Nevada topped the list among the most expensive gas markets, averaging around $2.624/gallon. Missis-sippi, South Carolina, Arkansas, Texas and Missouri were the least expensive markets, where the average gasoline prices were around $2.062/gallon. As per the American Automobile Association (AAA) data, American drivers are paying more than $2/gallon for the first time since August 2015, though the figures are still less during the time of Memorial Day Holiday since 2005.

Low gasoline prices throughout the country and better Cooling Degree Days (CDD) levels encour-aged more motorists hitting the road during the cur-rent summer driving season. As per the latest updates, AAA forecasts more than 38 million Americans are expected to travel during the current holiday, which is around 700,000 more participants than the previ-ous year and could be the second biggest volume of the travelers since 2005. Low gasoline prices, strong labor market, rising personal incomes and better CDD levels have supported this driving season economi-cally and also weather wise.

Refinery Outages & Crude Stocks: Refinery out-ages are playing an important role now-a-days in determining crude oil prices as the same will weigh upon ongoing buildup in crude oil stocks. Total crude stocks in the United States currently average more than 540 million barrels, which is around 80 year high levels. Studying the seasonal pattern of the crude stocks, it peaks during the month of May, post which it starts declining till September month. With more gasoline consumptions, refiners gain better crack mar-gins, which generally encourage them to churn more

crude oil and thus crude stocks witness a downfall. 3:2:1 refiner crack spread usually average around 18 from March till May, post which it crosses 20 mark. Supply of gasoline will be rising from April to July owing to extra demand. Before the summer driving season during the planned maintenance shutdowns of the refineries, gasoline stocks witness downfall as the outages become low.

In 2016, PADD 1 (Petroleum Administration for Defense Districts) planned maintenance shutdowns had resulted into decline in gasoline production by around 31,000 barrels per day and 27,000 barrels per day in March and April months, respectively. PADD 2 planned maintenance shutdowns are usually from March-May and as per the EIA estimates, gasoline production can get reduced by around 30% than the normal outages. PADD 3 maintenance shutdowns are from Feb-April during which gasoline produc-tion losses are estimated to be more than 33%. For PADD 4 & PADD 5 maintenance shutdowns, gasoline supply disruptions are around 34% and 66% respec-tively. Thus, we can see that why the gasoline stocks declined for 10 out of 13 weeks from mid-Feb’16 to mid-May’16.

1.80

2.30

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Average U.S. Gasoline Price($/gallon)

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Crude stocks seasonality

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Gasoline supply seasonality index


DoE Days of Supply for Gasoline: Days of supply for gasoline are usually calculated by dividing total gasoline stocks in the United States by 4-week aver-age gasoline demand. Thus, we can say that assuming if supply for gasoline halts than for what time frame the stocks will last. 5-year average days of supply for gasoline is around 24.60 and for the current year it is around 26.85 till mid-May. Looking at the total mo-tor gasoline production data, last five-year average is around 8.87 million barrels per day and in the current year, it is already 9.30 million barrels per day. Thus, we can see that there has been around 5% surge in gasoline production by the U.S. refiners till date com-pared to the five year average levels and so, the days of supply for gasoline is also higher. Effect of this might be vulnerable for crude oil prices if the demand doesn’t continue with the current pace. Though, the current gasoline demand is around 4% higher than last

year and around 7% than five- year average levels still the rising levels of supply could lead to supply glut.

Conclusion: Analyzing the above mentioned data, the gasoline demand has surged to some handsome levels which have directly impacted the International crude oil prices. Before the summer driving season, rise in summer-grade gasoline demand has impacted the in-ventory levels, but the levels of consumption on the whole has been less. Due to extra gasoline supply, more than 16 million barrels gasoline got injected (injec-tions- withdrawals) in the current year till date, which last year was around -5 million barrels(withdrawn) during the same time frame. Though, the International agencies are anticipating better consumptions this time seeing improved economic conditions and lower gasoline prices still the rising supply will remain the major concern.


ANYA LAXMI - QUIz SERIES 15

Q1: C – The difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. SPOT –FUTURES = BASIS;Q2: B – A company or individual that executes futures has to open an account with a broker or member.Q3: to be given by the readers. (Contest);Q4: D – A method of anticipating future price movement by using supply and demand information means fundamental analysis;Q5: A – The transfer of the commodity from the seller of a futures contract to the buyer of a futures contract.

Answer of Anya Laxmi Series 14 Q. No. 4 – Answer - D - Price Risk

By - Priya Chaudhary

Answers

ContestAnswer of Q. No. 3 to be given by the readers. Please mail answer to [email protected] by mentioning “Anya Laxmi Quiz Series 15” in the subject along with your name and mobile no. One winner will be selected based on lottery system from the received correct nominations. KCTL Research is not eligible to participate in this contest.

Basis is the difference between A) Spot Price – Cash Price B) Future Price- Cash Price C) Spot price- Future Price D) Future Price – Spot Price

An individual can participate in commodity futures by opening an account with A) Exchange B) Commodity Broker C) FMC D) MCX

_______________ is the month in which delivery of a future contract is made A) Expiry Month B) Mid month C) Delivery month D) Starting month

Forecasting of movement of commodity is done by doing technical and _____________analysis A) Practical B) Digital C) Electrical D) Fundamental

____________is made during the last 10 days of trading of a contract in NCDEX (For Clients) A) Delivery C) Profit Booking C) Trading D) Expiry

Q.1

Q.2

Q.3

Q.4

Q.5

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— Himanshu Gupta

High bets placed on silver rally!!

Silver prices were on corrective mode last month, after surging around 21 percent in first quarter of 2016 mainly because of hawkish stance of Fed members on in-

terest rate and economy. Silver jumped in the first quarter after falling 12 percent last year to its low-est since 2009. This strong performance reflects a marked improvement in investment and specula-tive demand, largely triggered by the rally in gold.

Prices, however, started a correction as most FOMC members reiterated that if incoming data

were consistent with economic growth picking up in the second quarter, labor market conditions con-tinuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. A similar tone was set in the FOMC policy minutes of the April month meet also. After a nosedive seen in the first quarter, the U.S. cur-rency also made a comeback in May. The U.S. cur-rency posted its strongest monthly gain against the yen in 18 months, as another interest rate hike ap-

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peared to be approaching soon thereby making it difficult for commodities like silver to head higher.

If the macro fundamentals and other analytical as-pects were to be believed , silver may remain posi-tively skewed in the second quarter as industrial demand is still intact, while further ETF and specu-lative demand is also expected stay abreast, mainly because risk aversion should prevail amid a macro-economic environment challenged by growing nega-tive interest rates regimes and other global uncer-tainties. ETF investors bought 745 tonnes of silver in the first quarter of the year after selling 506 tonnes in 2015, 181 tonnes in 2014 and 82 tonnes in 2013.

Improving U.S. housing market will help underpin demand for the metal used in everything from insula-tion to solar panels, just as mine supply is set to tighten. Contracts to purchase previously owned U.S. homes climbed in April by the most since 2010, according to a private report recently, which is followed by data showing purchases of new homes surged to the high-est in eight years. Industrial uses, ranging from appli-ance components to glass coating, account for about half of silver demand, according to the Silver Institute. Activity in China’s manufacturing sector unexpect-edly expanded for a third straight month in May but growth remained weak as orders softened, suggesting the world’s second largest economy is still struggling to regain traction. Going ahead any sustained recov-ery in the manufacturing activities from US and China is going to attract fresh industrial demand for silver.

While long coveted for use in jewelry, coins and uten-sils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver con-sumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, ac-cording to data compiled by GFMS for the Washing-ton-based Silver Institute. Industrial demand is set to increase, driven by rising incomes and growing penetra-tion of technology in populous, developing nations, as well as thanks to new uses being found for silver’s anti-bacterial and reflective properties in everything from hospital paints to Band-Aids to windows. About 50 per-cent of global demand last year came from price-sensi-tive sources such as retail coins, jewelry and silverware, which would help curb price increases as per GFMS.

The gold-silver ratio, after slipping towards 86 in the first quarter, and making silver look rela-tively cheaper compared to gold at current price lev-els against the long term average, started to return sharply and made a comeback towards 73, suggest-ing a strong buying interest in silver. It is further ex-pected the ratio could revert towards its longer term (1980-today) average of 62, which would result in a considerable outperformance of silver relative to gold.

In the light of entire promising picture, some chal-lenges would also impact and challenge the upside for the prices. With, higher prices the strong increase in monetary demand for silver as seen in the early months of 2016 may not keep the pace. Secondly, a couple of interest rate hikes in U.S. could translate into some pressure on non interest yielding assets like sil-ver, although the current leg of correction is already a function of the increase in the probabilities of rate hike from 1 to 2 in the year 2016. And, finally the in-dustrial demand, which accounts for more than half of total silver demand, is likely to fall further this year after falling 4.1 percent in 2015 amid weaker indus-trial demand growth, especially from emerging market economies. However, even with all those conditions and hitches silver is looking an attractive investment which can finally rewards its investors after long price correction of 4 years, that makes the May month’s decline as welcome opportunity for the silver bulls!

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Indian guar industry has been passing through the difficult times since last couple of months wherein the prices of guar seed and guar gum in both spot as well as futures market have been

witnessing a poor performance. In the year 2015-16, the guar gum and allied products exports declined to the lowest levels from the top position it witnessed in the year 2012-13. Guar gum, which was trading at Rs.1,00,000 per quintal in the year 2012-13 had lost its value by 95% and currently trading around Rs. 5100 per quintal. Crash in the guar prices seems unpalatable to the guar traders as everlasting demand of guar product driven by its high industrial value has always been proved profitable to farmers as well as other stakeholders. Major reason of downfall can be attributed to oversupply situation driven by shrinking export demand of guar gum from US.

Guar is prominently known for its derived product like guar gum power, which has unique properties of

solubility over wide range of temperature making it more demandable in oil and gas industry in the US and China. These two countries imports 80% of the exports from India. Another value addition application of guar comes from other industries ranging from food, explosives, pharmaceuticals, cosmetics, paper industry, textile, paints and distempers industry whereas it is used as hydro colliders, emulsifier, thickening agent, stabilizer, coating/filming agent, binder etc. Besides, guar is also used in cattle feed and fishery industry in form of guar meal (Churi and Korma), which is having higher protein content with good digestible quality. Stable demand of guar meal in domestic market as well as in overseas market has made the guar industry export dependent.

Changing demand pattern for guar products gave a new height to guar industry as large chunk of demand shifted from food industry to oil and gas industry where gum got a breakthrough as a key component

— Ravi Shankar Pandey

Tough time for Indian Guar Industry

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used in hydraulic fracturing techniques applied during oil and gas extraction. Growing demand for guar gum in international markets attracted the attention of different investors and government as well as huge capital investment was made in this industry whereas government banned export of guar seeds from country to encourage indigenous guar processing industry. Guar gum is a leading value added derived product of guar seeds having higher exporting value accounting for about 66-70% of total guar export from India.

Being a largest guar producer, India enjoys monopoly in global guar export by capturing 80% of total global export where US, China and Canada are the leading export destinations. Indian guar export witnessed rapid growth during year 2008-09 to year 2011-12 on account of aggressive buying by oil and gas industry in US. Guar export grown from a mere 2.58 lakh tons to 7.07 lakh tons recording compounded annual growth of 29% in between year 2008-09 to 2011-12 where processed guar gum contributed about 88% to 90% of total guar product export. However, declining demand of guar from US after year 2011-12 due to falling rigs counts in US impacted Indian guar Industry adversely in terms of lower export value and negative growth as well. Total guar export declined after 2011-12 and dropped to 3.65 lakh tons in the year 2015-16 with a negative growth of 12%. Since the guar gum was used in oil and gas exploration, it is carrying a good correlation with the crude oil prices in international market. Repercussion of tumbling crude oil prices in year 2015-16 was seen on Indian guar industry, which lost its worth substantially mainly due to steep fall in export demand from US.

Similarly, oversupply situation in domestic market backed by surplus production in past five year also led to the depression to guar gum and guar seed prices, which touched its multi years lows in year 2015-16.

Price correlation between Guar Gum and Crude oil

Considering the bleak scenario of guar industry during the year 2015-16 lots of adjustments are expected to maintain the equilibrium between supply and

demand dynamics. Global production of guar is highly concentrated in India, which contributes about 80% to total global production on account of its climatic and geographical advantages. Agro-climatic condition in western part of India is quite conducive for guar cultivation especially in Rajasthan where guar has been more preferred crop compared to other commercial crops due to its drought-resistant capacity. Considering the supply demand dynamics it is clear that India’s guar production and productivity is largely influenced by Rajasthan, which covers about 83% of total area and

Year Total Guar Production

Total Guar Products Export in terms of Guar Seeds

% of Export in total production

Total Guar gum export in terms of Guar Seeds

% of Guar gum export in total guar export

2008-09 1935790 828504 43% 7,80,342 94%

2009-10 594658 672069 113% 6,10,017 91%

2010-11 1965344 1441767 73% 13,79,938 96%

2011-12. 2217609 2282301 103% 21,62,671 95%

2012-13 2460660 1254758 51% 11,43,095 91%

2013-14. 3410000 1817355 53% 16,20,175 89%

2014-15 3250000 2011967 62% 17,97,158 89%

2015-16 2280000 1010895 44% 9,16,444 91%

source: trade sources and KCtl research

Guar seeds production, exports in terms of the guar seeds in tonnes

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contribute about 80% of total guar production in India. Adequacy of guar stocks and proximity of trading centers supported the proliferation of guar processing units in Rajasthan.

Contracting demand for guar products especially guar gum has resulted in dubious situation in guar industry over its growth potential. Guar gum, which is classified in different grade according to its industrial use is facing stiff competition from other substitute products like Xanthan gum which has almost similar quality guar gum. Xanthan gum has been replacing guar gum due to its prices competitiveness thereby hurting the demand for guar gum in the food industry as well as for oil and gas industry. However, surging shale gas exploration and production in US and China is big hope for Indian guar traders as most of the demand is expected to come from China in coming year.

Being a kharif crop, guar is sown in May – July where acreages under guar are largely fluctuates in line with the amount of monsoon rainfall. Better monsoon is always helpful for yield of rain-fed guar crop in Rajasthan, which leads to higher production. Amount of rainfall over north –west region which includes major guar producing states like Rajasthan and Haryana has always been positive correlation with total acreages and production. A pattern analysis which covers impact of monsoon rainfall on acreages and production of guar showed acreages under guar and production fell consequently with the deficit monsoon rainfall in north – west region of the country and vice-versa.

Diverse uses of guar gum in various industries made it more worth full over the time which spurred farmers to increase area under guar cultivation. Total acreages under guar have increased with compound annual growth of 5% in between year 2008-09 to year 2015-16 whereas total production has grown by 2% to 22.8 lakh tonnes during same time period.

Current situation and conclusionDepression in the guar industry has intensified in last three years as most of the major companies of guar industry like Vikas WSP have been struggling for existence as share prices has touched its multi year lows. Vikas WSP has witnessed steep decline its share prices as prices has plunged to Rs.5.5 has from Rs.76 recorded in year 2012-13.

ConclusionLower return on guar cultivation has prompted farm-ers to shift to other profitable crops like pulses where-as millers have also reduced their production capacity owing to shrinking export demand for guar products. Despite of higher nutritional value and protein con-tent, demand of guar meal is limited in cattle feed in-dustry due to some constrains. Growth of guar meal consumption in country may give a new height to guar industry only after the series of research and develop-ment in this industry. Government has to take some corrective measures to help out the guar industry. De-spite of being a non food crop guar has enough poten-tial to generate huge foreign exchange to the country as it did in year 2012-13. Government can allocate some amount to subsidize this sector whereas a large chunk of amount should be invested in research and development. Countries like Australia, US and China have invested huge amount to encourage indigenous guar production and it could be a signal to end of mo-nopoly of India in coming future.

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Guar Seed - Comparison of Rainfall, area and Production

source: iMd, Ministry of agri. & KCtl research

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Comparison of guar gum prices and Vikas WSP


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— Raj Nawab Singh Kashyap

MSP: Is it boon for the farmers?

Indian agriculture sector has witnessed paradigm changes in the last 50-60 years, which has revolutionized the method of farming. However, despite of all these changes, the farm sector

continues to face problems of deficient rainfall, low yield, pest attacks etc. With around 60% of the population dependent on farming activity, lower income due to less production or inadequate prices affect the farmers negatively.

To mitigate these contingencies and support the farmers along with the overall farming sector, Government intervenes with various schemes and tools. One such tool is MSP (Minimum Support Price) which ensure that farmers do not suffer from any sharp fall in his/her produce prices. Moreover, both the state and central govt. have policy of procurement of food grains with objectives of ensuring MSP to the farmers and to provide food grains to the weaker sections at affordable prices. It also ensures effective market intervention thereby keeping the prices under

check and also adding to the overall food security of the country.

The CAGR of total food grain production over the past 5 years has marginally declined by 0.75% and pulses production witnessed negative growth rate at 0.70% per annum. The major cause of the negative growth rate can be attributed to deficient rainfall which was witnessed in the past 2 years. Meanwhile, if we observe the change in land under cultivation under pulses it has actually grown at CAGR of 0.9%. Despite of rise in acreage under pulses cultivation, the production declined owing to lower yield levels because of failed monsoon for two consecutive years. The acreage under major grain crops like paddy and wheat along with coarse cereals like bajra, jowar, ragi etc are declining. Similarly acreage under nine oilseeds also declined over the past five years at a CAGR of 1.6%. With rapid urbanization and growing population, arable lands are increasingly getting diverted towards building infrastructure. Even though


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Acreage and production of Kharif crops over the years (Area – Million Hectares and Production – Million Tons)

Crop

2011-12 2012-13 2013-14 2014-15 2015-16 3rd Adv. Est.

Prod. in million MT

Acreage in million Ha

Prod. in million MT


Prod. in million MT


Prod. in million MT


Prod. in million MT


Rice 105.30 44.01 105.24 42.75 106.65 44.14 105.48 42.25 103.36 41.764

Wheat 94.88 29.86 93.51 30.00 95.85 30.47 86.53 31.47 94.04 29.089

Jowar 5.98 5.98 5.28 5.28 5.54 5.54 5.45 5.85 4.59 5.667

Bajra 10.28 8.38 8.74 6.36 9.25 6.79 9.18 6.80 8.25 7.06

Maize 21.76 8.78 22.26 8.67 24.26 9.07 24.17 9.30 21.02 9.13

Ragi 1.93 1.18 1.57 1.12 1.98 1.18 2.06 1.15 1.86 1.15

Barley 1.62 0.64 1.75 0.70 1.83 0.67 1.61 0.71 1.62 0.698

Tur 2.65 4.01 3.02 3.89 3.17 3.90 2.81 3.63 2.60 3.81

Gram 7.70 8.30 8.83 8.52 9.53 9.93 7.33 8.25 7.48 8.474

Urad 1.77 3.37 1.90 3.05 1.70 3.16 1.96 3.33 1.88 3.778

Moong 1.63 3.63 1.19 3.35 1.61 3.02 1.51 3.13 1.58 3.64

Total Pulses 17.09 24.46 18.34 23.26 19.25 25.21 17.15 23.85 17.06 25.258

Total Food grains 259.29 124.36 257.13 119.83 265.04 124.01 252.02 121.97 252.23 120.406

Groundnut 6.96 5.86 4.70 5.26 9.71 4.72 7.40 4.32 6.89 4.13

Castor seed 2.30 1.47 1.96 1.23 1.73 1.06 1.87 1.02 1.78 1.10

Sesame 0.81 1.90 0.69 1.71 0.72 1.68 0.83 1.64 0.89 1.73

Niger seed 0.10 0.36 0.10 0.31 0.10 0.30 0.08 0.23 0.08 0.22

Mustard seed 6.60 5.89 8.03 6.36 7.88 6.65 6.28 6.52 6.86 6.45

Linseed 0.15 0.32 I .49 0.30 I .41 0.29 0.16 0.32 0.13 0.29

Safflower 0.15 0.25 0.11 0.18 0.11 0.18 0.09 0.10 0.06 0.11

Sunflower 0.52 0.73 0.54 0.83 0.50 0.67 0.43 0.19 0.30 0.15

Soybean 12.21 10.11 14.67 10.84 11.86 11.72 10.37 10.94 8.92 11.63

Total Nine Oilseeds 29.80 26.90 30.94 27.03 32.75 27.27 27.51 25.18 25.90 25.70

Cotton 35.20 12.18 34.22 11.98 35.90 11.96 34.81 12.82 30.52 11.88

Jute 10.74 0.81 10.34 0.78 11.08 0.76 10.62 0.82 9.92 0.78

Sugarcane 361.04 5.04 341.20 5.00 352.14 4.99 362.33 5.14 346.72 4.92

*source- Ministry of agriculture, KCtl research

the change is not major but it is likely to have bigger impact in near future.

In order to ensure better price for the farmers during peak harvesting stage and protect them from distress sale, central government has been increasing minimum support price for major crops since last five years. The hike in MSP is also to attract farmers to increase their acreage under cultivation of essential crops. Though the MSP was increased substantially, it failed to

attract more acreage under cultivation because of poor monsoon performance and availability of inputs in time to the farmers. Surge in the prices of various agro commodities has made the government to ensure more production so that prices can be controlled by way of attracting farmers through higher MSP. Meanwhile, our agricultural production especially food crops and oilseeds are more or less same as yields are getting stagnant. It must be taken into note that monsoon


Sl No. Commodity Variety 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Kharif Crops

1 PaddyCommon 1080 1250 1310 1360 1410 1470

Grade 'A' 1110 1280 1345 1400 1450 1510

2 JowarHybrid 980 1500 1500 1530 1570 1625

Maldandi 1000 1520 1520 1550 1590 1650

3 Bajra - 980 1175 1250 1250 1275 1330

4 Maize - 980 1175 1310 1310 1325 1365

6 Arhar (Tur) - 3200 3850 4300 4350 4625# 5050#

7 Moong - 3500 4400 4500 4600 4850# 5225#

8 Urad - 3300 4300 4300 4350 4625# 5000#

9 CottonMedium Staple 2800 3600 3700 3750 3800 3860

Long Staple 3300 3900 4000 4050 4100 4160

10 Groundnut In Shell 2700 3700 4000 4000 4030 4220

11 SoyabeanBlack 1650 2200 2500 2500 2600 2775

Yellow 1690 2240 2560 2560 2600 2775

Rabi Crops

12 Wheat - 1285 1350 1400 1450 1525 -

13 Gram - 2800 3000 3100 3175 3425 -

14 Rapeseed/Mustard - 2500 3000 3050 3100 3350 -

Other Crops

15 Sugarcane * - 145 170 210 220 230 -#source- Ministry of agriculture, KCtl research # inclusive of rs.200 per quintal bonus: * fair and remunerative price

rainfall has a very important role in Indian agriculture and it literally plays a major part in determining yields and acreage under a crop.

For the upcoming 2016-17 kharif season, central govt. has continued its trend of raising the MSPs for all agro commodities. Kharif oilseed crops MSP were substantially raised compared to last year. Sesame support prices were grown by 6.4% with the highest bonus of Rs. 200/quintal amongst kharif oilseed crops. The highest rise in MSP has been done in pulses to encourage farmers to devote more land under pulses cultivation. Meanwhile, at physical market higher prices in pulses may result in farmer shifting to pulses crops. The monsoon in the current year is likely to be above normal which may boost expectation of better output and more land under cultivation.

Minimum support prices for the given commodities

in the table have risen substantially in the last five years. In grains, paddy and wheat are the major crops; both of them have grown at a CAGR of 5.5% and 4.23% respectively. However, the growth in production and acreage for the aforementioned commodities for the last 5 years has not been impressive. Land under paddy cultivation including both Kharif and Rabi season has declined at a rate of 1.2%. Similarly production has marginally declined by 0.35% for the same duration.

For wheat, the fall in acreage and production has been only marginal of 0.1% and 0.9% respectively over the past 5 years. In pulses, rise in acreage has been very miniscule of around 0.9%, whereas its production has declined by 0.7%.

In oilseeds, acreage under soybean has witnessed a CAGR of 2.9% over the past five years; however its production has not been similarly impressive. It has

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actually declined by almost 9.3% in contrast to the increase of around 10% in its MSP. Overall, acreage and production under the nine oilseed crops including both kharif and rabi has a negative growth rate of 1.6% and 3.9%. In terms of production barring ground nut all other oilseed crops amongst the nine has witnessed negative growth rates.

If we look up the data for the past 5-year monsoon rainfall in India, it is observed that barring 2-years, others have remained in deficit. The year 2014-15 and 2015-16 were particularly worse in terms of rainfall as deficit of 13% and 14% affected agricultural production. The lower monsoon rainfall can be attributed to the El Nino conditions which began to develop in 2014 and continued till 2015-16.

*source- iMd, KCtl research

Procurement of Wheat and Rice for the Central PoolDuring each rabi / kharif season and before the commencement of sowing, the Government of India announces the minimum support prices (MSP) for procurement on the basis of the recommendation by the Commission for Agricultural Costs and Prices

(CACP). However, the farmers are free to sell their produce to other buyers who offer better prices than MSP. The quantity procured of both wheat and rice for the central pool is witnessing a declining trend of 3.2% and 2.5%. The fall in procurement quantity can be attributed to simultaneous rise in prices at physical markets, which farmers are more likely to prefer rather than selling to the Govt. agencies. Moreover, MSP of wheat in the last five years has risen by 4.23% whereas average physical market prices at the time of peak arrival has grown by 5.5%. The difference between MSP and physical market prices has increased in the said duration in favor of the latter. Secondly, lower production in the last 2 years due to below normal monsoon has affected overall supplies in the country.

ConclusionWe have been witnessing an increase in MSP over the years, however, similar increase in production is not being witnessed, which is mainly because of poor monsoon performance. Rise in MSP had its impact on rise in acreage, which is miniscule if other factors are taken into consideration like monsoon, price realization etc. MSP has been successful in providing support to farmers in terms of limiting their risks by providing them assured minimum prices.

Higher MSP may not contribute to rise in income level of the farmers unless and until they get the higher price being witnessed in the market during off season. However, it may support farmer’s income by limiting their losses. The last two years in Indian agriculture was negative for most part of the agro-commodities in terms of production due to below normal monsoon. With rising population majority being young is likely to boost demand for food crops like grains, pulses and oilseeds. Meanwhile, production is not increasing at the same rate as population which is resulting higher prices of the agro-commodities. This may work as a benefit for farmers as they are getting higher prices for their produce. But in long term cheaper imports may create problems for the domestic farmers. This scenario can be seen in the domestic oilseed industry which is now in distress. India has become one of the largest importers of edible oil globally. As we have limited land resources, we need to substantially increase our production to meet the growing demand and supporting farmers to get the advantage of higher market prices and MSP.

*source- dept of Food and public distribution, KCtl research

Marketing Seasons

Wheat(April-March) in

million MT

Rice(October-September) in

million MT

2011-2012 28.335 35.041

2012-2013 38.148 34.044

2013-2014 25.092 31.845

2014-2015 28.023 32.04

2015-2016 28.088 31.889


Rainfall trend and its departure

-20

-15

-10

-5

0

5

10

0150300450600750900

2011 2012 2013 2014 2015

JUN-SEP actual rainfall in MM Rainfall in % departure

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— KTCL Research

Nickel: Revival in the offing

Nickel prices last month showed more than 10% losses at LME on a monthly basis, whereas the losses at MCX were around 9.50%. With declining monthly

Chinese industrial profits and ongoing anticipations of near month interest rate hikes, nickel prices suf-fered losses despite of having positive fundamentals.

Tracking down the LME stocks and cancelled warrants, the former declined by around 3.75% on monthly basis while the latter rose by around 4% on M/M basis, which is a good signal for nickel prices. The Chinese industrial firms in April month made a profit of around 502 billion Yuan which is equivalent to $76.60 billion. This profitability was around 4% more than compared to April 2015 but was far be-hind by 11% growth in March 2016. As per the data from National Bureau of Statistics, during first four months of 2016 profits crossed 1.80 trillion Yuan. Apart from this, as per the FED Chairperson state-ment, seeing the stronger jobs data, the economic con-ditions are quite feasible for another rate hikes sooner this year. This particular statement and anticipations dragged down the dollar denominated commodities.

Coming to the supportive fundamentals of nickel

500530560590620650680

2-May 7-May 12-May 17-May 22-May 27-May

MCX Ni (INR/kg)

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which could probably help the metal showing some recovery in near months, China’s low- grade nickel pig iron purchases moved to record- high in April month. As per the imports data available, 107,161 metric tonnes of NPI was imported by the country which was around 50% more than the imports data last year same period. Imports of nickel and alloy by China jumped by around 270%. The domestic nickel pig iron moved to nine- months high of around 337,000 tonnes in April.

As per the latest International Nickel Study Group (INSG) data, global nickel market deficit widened to 8,200 tonnes in March month compared to Febru-ary. With a major surge in Chinese demand, the same helped widening the deficit on monthly basis. As per the data, global nickel production of 164,100 tonnes fell short of consumption of 172,300 tonnes. Global demand jumped by 17.5 percent in March while pro-duction of refined nickel rose 7.8 percent on the month earlier. In China, demand surged by 33 percent in March to 91,300 tonnes from 68,400 tonnes in Febru-ary. Stainless steel mills in China ramped up in the first quarter of the year. For the first quarter, demand grew by 4.2 percent to 477,900 tonnes, while output declined by 0.3 percent to 477,300 tonnes thus the market came in 600-tonne deficit. Forecasting for 2016, INSG men-tioned that output of nickel will drop to 1.913 million tonnes in 2016 from 1.983 million tonnes last year.

Nickel prices in near term shall see a boost seeing supportive data of widening deficit and all time high imports data from China. China’s recent unexpected growth in the manufacturing sector can also lend sup-port to nickel prices. Though the May month official Purchasing Managers Index (PMI) was unchanged from April month at 50.1, still it signals struggling moves of the world’s biggest metal consumer and second biggest economy. The output sub-index went up to 52.3, compared with 52.2 in April which in-dicates production remains solid despite efforts by the government to curb overcapacity. The manufac-turing sector still continues shedding jobs though the pace got declined comparing to April month.

In addition to this, world’s biggest ferronickel mine in Colombia is expected to witness indefinite strike starting mid- June. Union workers of the mine owned by the Australian firm South32 at Cerro Matoso men-tioned of moving to indefinite strike in protest of pay and work conditions. The workers of the mine demand-ed for pay hikes of around 9.77% which was earlier refused by the company mentioning of slump in min-eral prices. Cerro Matoso has already become famous in April 2015 when the strikes over the mine impacted on the global nickel output. Thus, nickel prices in near term shall show some big moves with rising Chinese appetite and anticipated decline in production levels.

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May International Commodity Price TrendsApr 29,

2016May 31,

2016% Change 52 Week

High% Change from

52 Week High52 Week

Low% Change from

52 Week Low

LME Lead 3 Month ($/t) 1805.00 1700.00 -5.8% 1966.00 -13.53% 1551.50 9.57%

LME Zinc 3 Month ($/t) 1938.50 1923.00 -0.8% 2197.00 -12.47% 1444.50 33.13%

LME Nickel 3 Month ($/t) 9445.00 8435.00 -10.7% 13680.00 -38.34% 7550.00 11.72%

Comex Silver (S.oz) 17.82 15.99 -10.2% 18.06 -11.44% 13.62 17.43%

LME Copper 3 Month ($/t) 5050.00 4671.00 -7.5% 6083.50 -23.22% 4318.00 8.18%

Nymex Crude Oil (S/bbl) 45.92 49.10 6.9% 61.82 -20.58% 26.05 88.48%

LME Aluminium 3 Month ($/t) 1679.00 1556.00 -7.3% 1774.00 -12.29% 1432.50 8.62%

ICE Sugar (cents/lb) 16.32 17.49 7.2% 17.70 -1.19% 10.13 72.66%

Comex Gold (S/oz) 1290.50 1217.50 -5.7% 1306.00 -6.78% 1045.40 16.46%

CBOT Soy Oil (cents/lb) 33.14 31.82 -4.0% 35.43 -10.19% 25.70 23.81%

ICE Coffee (cents/lb) 121.50 121.55 0.0% 142.60 -14.76% 111.05 9.46%

ICE Cotton (cents/lb) 63.77 63.94 0.3% 68.11 -6.12% 54.53 17.26%

LIFFE Sugar (S/t) 467.40 483.80 3.5% 488.60 -0.98% 329.00 47.05%

Nymex Natural Gas ($/mmbtu) 2.18 2.29 5.1% 2.96 -22.57% 1.61 42.02%

CBOT Soybean (cents/bushel) 1029.75 1078.50 4.7% 1098.00 -1.78% 844.25 27.75%

CBOT Corn (cents/bushel) 391.75 404.75 3.3% 454.25 -10.90% 347.25 16.56%

CBOT CORN 391.75 404.75 3.3% 454.25 -10.90% 347.25 16.56%

CBOT Soy Meal ($/t) 334.80 396.60 18.5% 419.80 -5.53% 258.90 53.19%

CBOT Wheat (cents/bushel) 488.50 464.50 -4.9% 618.00 -24.84% 442.25 5.03%

Nickel, -9,5%

Copper, -7.7%

Silver, - 7.6%

Aluminum, -6.3%

Gold, - 5.4%

Lead, - 4.7%

Zinc, 0.3%

Mentha Oil, 1.7%

Cotton, 3..5%

Cardamom, 4.1%

Natural Gas, 7.8%

Crude Oil, 9.8%

Guar Gum, -12.7%

Guar Seed, -7.6%

Jeera, -6.1%

Turmeric, -4.8%

Dhaniya, -4.5%

Soybean, -2.5%

Soy OIl, 0.1%

RM Seed, 1.0%

Barley, 1.3%

Cotton Seed Oil Cake, 1.7%

Wheat, 4.7%

Sugar, 6.5%

Chana, 7.0%

Maize, 13.8%

May Gainers and Losers (M/M%)MCX NCDEX

statistiCs


statistiCs

source: Bloomberg ; EC: European Union; IN: India; US: United States; CH: China; GE: Germany; UK: United Kingdom; JN: Japan

Economic Events In June 2016Date Time C Event Period Surv(A) Prior

06/01/16 06:30 CH Manufacturing PMI May 49.98 50.1

06/01/16 06:30 CH Non-manufacturing PMI May -- 53.5

06/01/16 07:15 CH Caixin China PMI Mfg May 49.27 49.4

06/01/16 13:30 EC Markit Eurozone Manufacturing PMI May F 51.5 51.5

06/01/16 19:15 US Markit US Manufacturing PMI May F 50.64 50.5

06/01/16 19:30 US ISM Manufacturing May 50.42 50.8

06/02/16 14:30 EC PPI MoM Apr 0.08% 0.30%

06/02/16 17:45 US ADP Employment Change May 172.60k 156k

06/03/16 07:15 CH Caixin China PMI Services May -- 51.8

06/03/16 07:15 CH Caixin China PMI Composite May -- 50.8

06/03/16 13:30 EC Markit Eurozone Services PMI May F 53.1 53.1

06/03/16 13:30 EC Markit Eurozone Composite PMI May F 52.9 52.9

06/03/16 14:30 EC Retail Sales MoM Apr 0.38% -0.50%

06/03/16 18:00 US Trade Balance Apr -$41.57b -$40.4b

06/03/16 18:00 US Change in Nonfarm Payrolls May 162.51k 160k

06/03/16 18:00 US Two-Month Payroll Net Revision May -- -19k

06/03/16 18:00 US Change in Private Payrolls May 155.57k 171k

06/03/16 18:00 US Change in Manufact. Payrolls May -2.83k 4k

06/03/16 18:00 US Unemployment Rate May 4.95% 5.00%

06/03/16 19:15 US Markit US Services PMI May F 51.37 51.2

06/03/16 19:15 US Markit US Composite PMI May F -- 50.8

06/03/16 19:30 US ISM Non-Manf. Composite May 55.32 55.7

06/03/16 19:30 US Factory Orders Apr 1.58% 1.10%

06/03/16 19:30 US Factory Orders Ex Trans Apr -- 0.80%

06/07/16 14:30 EC GDP SA QoQ 1Q F -- 0.50%

06/07/16 CH Foreign Reserves May -- $3219.0b

06/08/16 CH Trade Balance May -- $45.56b

06/08/16 CH Exports YoY May -- -1.80%

06/08/16 CH Imports YoY May -- -10.90%


Date Time C Event Period Surv(A) Prior

06/09/16 07:00 CH CPI YoY May -- 2.30%

06/09/16 07:00 CH PPI YoY May -- -3.40%

06/12/16 11:00 CH Industrial Production YoY May -- 6.00%

06/14/16 14:30 EC Industrial Production SA MoM Apr -- -0.80%

06/14/16 18:00 US Retail Sales Advance MoM May -- 1.30%

06/14/16 18:00 US Retail Sales Ex Auto and Gas May -- 0.60%

06/15/16 14:30 EC Trade Balance SA Apr -- 22.3b

06/15/16 18:00 US PPI Final Demand MoM May -- 0.20%

06/15/16 18:45 US Industrial Production MoM May -- 0.70%

06/15/16 23:30 US FOMC Rate Decision (Upper Bound) 15-Jun 0.59% 0.50%

06/15/16 23:30 US FOMC Rate Decision (Lower Bound) 15-Jun 0.33% 0.25%

06/16/16 14:30 EC CPI MoM May -- 0.00%

06/16/16 18:00 US CPI MoM May -- 0.40%

06/17/16 18:00 US Housing Starts MoM May -- 6.60%

06/17/16 18:00 US Building Permits MoM May -- 3.60%

06/22/16 19:30 US Existing Home Sales MoM May -- 1.70%

06/23/16 13:30 EC Markit Eurozone Manufacturing PMI Jun P -- --

06/23/16 13:30 EC Markit Eurozone Services PMI Jun P -- --

06/23/16 13:30 EC Markit Eurozone Composite PMI Jun P -- --

06/23/16 19:30 US New Home Sales MoM May -- 16.60%

06/27/16 19:15 US Markit US Services PMI Jun P -- --

06/27/16 19:15 US Markit US Composite PMI Jun P -- --

06/28/16 18:00 US GDP Annualized QoQ 1Q T -- 0.80%

06/28/16 18:00 US GDP Price Index 1Q T -- 0.60%

06/28/16 18:00 US Core PCE QoQ 1Q T -- 2.10%

06/29/16 18:00 US PCE Deflator MoM May -- --

06/29/16 18:00 US PCE Core MoM May -- --

06/29/16 19:30 US Pending Home Sales MoM May -- 5.10%

06/30/16 14:30 EC CPI Estimate YoY Jun -- --

06/30/16 14:30 EC CPI Core YoY Jun A -- --

Economic Events In June 2016 (Continued)

source: Bloomberg ; EC: European Union; IN: India; US: United States; CH: China; GE: Germany; UK: United Kingdom; JN: Japan

statistiCs


sUnaharE pal

Cross Word On Commodities - 15Fill this Cross Word and test your commodity knowledge

By - esha Chaudhury Das

Across1. Commodities futures has recently got moved to another ministry (7)19. Rajasthan govt recently has reintroduced ceiling on a particular commodity (5)28. Both options contract is also known as (4)52. Regulator of commodity futures market after Sep’ 15 onwards (4)57. KCTL in house monthly magazine (3)68. Right now this segment is not allowed to trade in commodity futures (4)89. Unjha is know for a commodity (4) 99. Recently a country has exposed her physical hoarding of gold (5)112. Famous for Castor (4)121. Indian agri system is still dependent on a weatherly pattern (7)128. This centre is known for Mentha oil (7)

Down2. One of the major producer of rubber, palm oil and nickel in South East Asia (9)6. Earlier commodities futures were under the ministry (14)17. The delivery centre of Maize Rabi (8)87. An exclusive online trading platform of KCTL which has been launched

recently (5)

Answers of Sunahare Pal Series 14

1 2 6

17 19

28

52

57

68

87

89

99

112

121

128

P U L S E S GT L

M S P A EN N

F Z CP C A D O

C O R I A N D E RR S I L EU T A HD O IE N R A B IO AI F S A F A LL E

D M Y A N M A R

Y U A NE L N I N O

F I N A N C EI N D I A

Karvy Comtrade’s Invest & HarvestJune 2016

RNI No.APENG/2008/24815

Documents

Invest & Harvest Magazine - Jun 2016