annual commodities research magazine commodity(for … · 2010 2010 20924.00 15950.00 performance...

Annual Commodities Research Magazine(For private circulation only)

C MMODITYOO U T L O O K

WHAT'S NEXT IN COMMODITY?

SMC

TAXTAX

Dear Readers,

As 2010 sun has set, we are again here before you with our new edition “commodity outlook 2011” for the third time in a row. It is your belief, love and affection which have been acting as a driving force behind our success. Moreover your most valuable feedbacks are also valued. It is our endeavor to help you out in every step of your investing. We believe both economy and your wealth to grow simultaneously.

No sooner had the world economy started reviving up after the global crisis, almost all the commodities and commodity based companies enjoyed wonderful gains. Only a few commodities did not perform well due to the supply glut situation. Fresh buying stimulated by dollar weakness, improvement in economic activities, second round of quantitative easing, increased public spending, currency dynamics etc. But what was more significant was investment demand, which gained huge acceptance all the way through 2010.

What happened is history, what's in store for 2011 is more important…2011 may not be an easy year for investors. Right from mid 2009, we have seen spellbound recovery in commodities on cocktail of factors. But it appears for sure; 2011 would be remembered for its monetary tightening spree. Especially, some countries like Australia, China, India, New Zealand etc already have started tightening their monetary policies. The Bank of China celebrated Christmas Eve raising interest rates by 25 basis points; the second hike in just over two months. This hike is expected to cap the upside of commodities. The prevailing rally in commodities is not purely based on demand supply equilibrium but also of investment demand. Now the major concern is to soak the liquidity from the market; if Government of major economies opts for monetary tightening then investors worldwide would pull out money from the market which may result in some significant downside. But, on the brighter side, it will offer a buying opportunity at lower level. Moreover, it will be fortunate thing for the real recovery of world economy.

Climatic condition plays a major role; good monsoon is painting a buoyant picture. Constructive development in consumer durable, automobile and other important sectors boosted the confidence of commodities. In India, consumer durable market is likely to witness an annual growth of 40% in the next fiscal 2011-12 which may give positive impact on commodities. However, risk associated with higher commodities prices cannot be ruled out, particularly on the situation when prices of many commodities moved on weakness in tandem with other market to some extent rather than on their intrinsic merit.

Apart from monetary policy, demand supply equilibrium, currency play, investment demand, US Dollar Index may pave the path of commodities bull-run. This time recovery is significantly different as it has started across emerging economies, BRIC (Brazil, Russia, India and China). If these economies maintain the pace of growth without reducing the dependency on commodities, then commodities are more likely to trigger fresh buying.

In nutshell, there is a considerable risk in both the directions. On one hand expected tightening of monetary policies, lingering sovereign risk in European Union amid supply glut in few commodities may keep a check on bulls while on the other side, healthy growth in many emerging economies and higher liquidity in the market may invite bulls to run a race.

Jagannadham Thunuguntla Head-Research

Commodity Fundamental TeamVandana Bharti Sr. Research AnalystSandeep Joon Sr. Research AnalystShitij Gandhi Research AnalystSubhranil Dey Research Analyst

Supportive TeamShivanand Upadhyay Content Editor (Hindi)Kamla Devi Content EditorPramod Chhimwal Graphic DesignerSimmi Chibber Research Executive

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Page No.1. Performance of 2010 & Road ahead 2011 22. Chart Indicators explained 33. Commodity Performance 2010 44. Asset Class Comparison 2010 55. Span of price movement 66. Fundamental calls performance in 2010 77. Economic Indicators 8-98. Base Metal production graph 109. Production & Ratio comparison 118. Flashback 2010 & Outlook 2011

i. Ferrous and Non- Ferrous Metals 12-18ii. Bullions 19-21iii. Energy 21-23iv. Spices 24-27v. Other Commodities 27-30vi. Oilseeds 30-32

(Vandana Bharti)

Contents

“Happy Investing in commodities”

COMMODITY OUTLOOK 2011Performance

Range

(Annual Magz. '10) High* Low*

Gold 14000-20000

Silver 22000-33000 45735.00 23610.00

Crude Oil 2500-4500 4077.00 3229.00

Natural Gas 180-375 279.40 144.70

Copper 264-400 421.40 284.10

Zinc 90-170 123.20 74.35

Lead 90-165 122.00 72.55

Nickel 600-1200 1224.70 795.50

Aluminium 85-150 110.00 85.90

Steel 20000-33000 29650.00 22710.00

Turmeric 6500-12000 16350.00 6600.00

Pepper 11500-17000 23338.00 12447.00

Cummin 11600-18500 15915.00 10170.00

Chilli 5400-8000 8034.00 3833.00

Cardamom 840-1250 2097.00 868.00

Mentha Oil 575-800 1305.80 553.60

Chana 2200-3000 2563.00 2066.00

Guar seed 2100-3500 2804.00 1928.00

Guar gum 4700-7000 6550.00 4348.00

Maize 800-1100 1211.00 845.50

Wheat 1250-1550 1461.00 1111.20

Soybean 1700-3200 2408.00 1878.00

RM seed 400-750 618.00 463.80

Ref. soy oil 425-550 596.30 437.50

2010 2010

20924.00 15950.00

Performance of Calls given in our Annual Magazine Commodity Outlook 2010

The Road Ahead 2011

Gold

Silver

Crude Oil

Natural Gas

Copper

Zinc

Lead

Nickel

Aluminium

Steel

Turmeric

Pepper

Cummin

Chilli

Cardamom

Sugar

Chana

Guar seed

Guar gum

Wheat

Soybean

RM seed

Ref. soy oil

Crude palm oil

Bullish Bearish Sideways

* Up to 15 December 2010

2

COMMODITY OUTLOOK 2011Commodity Performance

Amazing facts of Metals and Energy

Energy

FWorld's First Oil Production: Way back in the year 327, Chinese engineers used bamboo pipelines to drill 240 meters below the surface to extract the earliest drops of oil.

FWorld's Largest Offshore Oilfield: Measuring 50 kilometers by 15 kilometers, the Safaniya field in Saudi Arabia is the world's largest offshore oilfield. Discovered in 1951, Safaniya is estimated to hold 37 billion barrels of oil and 151 billion cubic kilometers of gas. That's enough oil to fulfill U.S. demand for nearly five years.

Bullions

FGold is edible, and is put into fruit, jelly snacks, coffee, and tea in some Asian countries. Even Europeans are known to put gold leaf in bottles of liquor.

FOne cubic foot of gold weighs half a ton and the largest gold bar weighs 200 Kg.

FIn every cubic mile of seawater, there are 25 tons of gold. There are 10 billion tons of gold in the oceans and Only 88000 tons of gold have been mined from the earth since records were kept.

FSilver has been coined to use as money since 700 BC and Silver is harder than gold, but softer than copper. The copper toughens the silver and makes it possible to use silver 925 for decorative and fashionable jewelry.

FSilver is used in long life batteries. Billions of silver oxide-zinc batteries are in use everyday powering everything from quartz watches to digital cameras.

Ferrous and Non Ferrous Metals

FThe first known use of copper dates back 10,000 years and average home today contains about 400 pounds of copper for electrical wiring, water pipes and appliances, while the automobile you drive contains about 50 pounds.

FWhen zinc is alloyed with copper, brass is made. And when tin is alloyed with copper, bronze is made. Both brass and bronze are stronger than pure copper and do not corrode in air or water except for a small amount of tarnishing.

FThe Statue of Liberty contains 179,000 pounds of copper and Copper's recycle value is so great that premium-grade scrap has at least 95% of the value of primary copper from newly mined ore.

FIntelligent people have more zinc and copper in their hair.

Chart Indicators

200 days simple moving average

In general, moving averages plot the average price of a commodity over

a period of time. This magazine has charts which includes 200 days

simple moving average trend line. The reason behind was to determine

overall health of the commodities, taking into consideration the data of

past price movement. The calculation goes like this; we add up all the

closing prices for the past 200 market days and divide by 200. A long

term analysis can be done tracking the price movement along the 200

SMA trend. When a commodity current price breaks below its average

price for the past 200 days, it is considered to have broken its long-term

trend. This is bearish because it means that every new buyer of the

commodity is willing to pay less than the average price paid for the past

200 days. It is just the opposite, when the commodity turns bullish. In a

bear market, the 200 Day Moving Average often works as a major

resistance level, however a break above it can lead to a sharp rise. In

other words, if the moving average indicator is sloping upwards then

the price is in an up trend, and if it's sloping downwards the price is

obviously in a down trend.

Volatility

As regards volatility which is also included in the charts given here, it

depicts the relative rate of percentage at which the price of a

commodity moves up and down. Volatility is found by calculating the

annualized standard deviation of weekly change in price. If the price of

a commodity moves up and down rapidly over short time periods, it has

high volatility. A higher volatility means that the price movement can

potentially be spread out over a larger range of values. This means that

the price of the commodity can change dramatically over a short time

period in either direction. A lower volatility means that a commodity

value does not fluctuate dramatically, but changes in value at a steady

pace over a period of time. It is very important to note that volatility

does not measure the direction of price changes.

3

51.56

91.19

-1.31

-7.52

4.21

-7.87

-8.68

44.17

20.45

10.11

-11.20

1.22

28.75

-4.42

89.55

-18.25

-11.00

-19.23

-40.00 -20.00 0.00 20.00 40.00 60.00 80.00 100.00

PEPPER

TURMERIC

CHILLI

CUMMIN

CARDAMOM

SOYABEAN

R M SEED

CRUDE PALM OIL

REFINED SOYA OIL

GUARGUM

GUARSEED

CHANA

MAIZE*

WHEAT

MENTHA OIL

COTTON OIL SEED CAKE

POTATO**

GUR

SPIC

ESOI

L SEE

DS PA

CK

OTHE

RS

% Change

* upto 20th Sept. ,2010** From 5th Jan. ,2010

Return of Agri Commodities from 1st Jan '10 till 15th Dec '10

COMMODITY OUTLOOK 2011Commodity Performance

Source: Reuters and SMC Research

23.9624.71

22.5867.57

69.2563.12

8.726.74

-28.25-28.71

20.6919.76

3.190.62

-12.97-13.45

-3.06-5.57

28.8326.87

-7.29

- 40.00 -20.00 0.00 20.00 40.00 60.00 8000.

COMEXLME Spot

MCXCOMEX

LME SpotMCX

NYMEXMCX

NYMEXMCXLME MCXLME MCXLME MCXLME MCXLME MCX

NCDEX

Gold

Silv

erCr

ude

Oil

Natu

ral

Gas

Copp

erAlu

min

iumZi

ncLe

adNi

ckel

Steel

Long

% ChangeReturn of Bullions, Metals and Energy from 4th Jan '10 till 15th Dec '10


4

-34.81

15.32

-10.25

9.12

9.02

-3.24

-3.11

5.28

12.61

3.53

9.64

4.75

22.58

63.12

19.76

6.74

-28.71

-8.33

-8.97

-40.00 -20.00 0.00 20.00 40.00 60.00 80.00

Baltic Dry Index

LMEX

Shanghai Composite

Dow Jones

S&P 500

Nikkei

Bovespa

Hang Sang

Nifty

Dollar Index

RJ CRB

30 Year US Treasury

Gold

Silver

Copper

Crude Oil

Natural Gas

Euro

Japanese Yen % CHANGE

Asset Class Comparison from 4th Jan'10 to 15th Dec'10

2010 has been tough year for all the asset classes as the euro zone debt concerns created ripple effect in various economies. And amid all this crises precious metals like gold and silver reaped the maximum as investors flocked this asset class because both these metals are considered as friend in time of crises. White metal silver reaped the maximum and it gave the maximum return of more than 63% followed by yellow metal gold which gave 22 percent. The base metals also performed satisfactorily as the LMEX grew by more than 15%. Copper which depicts the condition of the economy also outperformed other base metals by giving return of more than 19 percent. Baltic dry index the key barometer of shipping movement dipped lower by 34% in 2010. Baltic Dry Index (BDI) has dropped 83% from its all-time-high of 11,700 in May 2008. Excess supply of ships and seasonal factors affected BDI. While comparing global equity markets US Dow Jones gave 9 percent return in 2010 backed by quantitative easing while Indian nifty gave nearly 12% return. Shanghai composite stock market tumbled more than 10% in 2010 owing to changes in tax norms and inflationary concerns. Japan Nikkei also gave negative return of more than 3%. On currency front euro dipped more than 8% in 2010 while dollar index rose by nearly 3% as the euro zone debt concerns pressurized the euro dollar to greater extent.30 year US treasury bonds increased by 3%. In energy front crude often known as black gold moved in range but gave positive return of nearly 6% on geopolitical tensions and weather concerns. Natural gas performed badly and tumbled more than 28% owing to inventory pile up.

COMMODITY OUTLOOK 2011Asset Class Comparison


5

COMMODITY OUTLOOK 2011The Olden Days

Span of price movement (Agro commodities)

Span of price movement (Metals & Energy)

COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2010 HIGH* 2010 LOW*COMEX 1431.10 252.50 1431.10 1045.20

GoldMCX 20924.00 5600.00 20924.00 15950.00MCX 45735.00 7551.00 45735.00 23610.00

SilverCOMEX 5035.00 194.50 3069.00 1482.30

MCX 6333.00 1626.00 4077.00 3229.00Crude Oil

NYMEX 147.27 9.75 90.76 68.01MCX 591.80 118.60 279.40 144.70

Natural Gas NYMEX 15.78 1.04 5.76 3.21

MCX 421.40 117.60 421.40 284.10CopperLME 9596.00 1323.00 9596.00 6037.00

MCX 151.50 62.20 110.00 85.90AluminiumLME 3380.00 1290.00 2500.00 1828.00MCX 208.30 49.90 123.20 74.35ZincLME 4580.00 759.00 2638.00 1577.00MCX 154.40 40.50 122.00 72.55LeadLME 3890.00 414.00 2650.00 1535.00MCX 2253.90 442.30 1224.70 795.50NickelLME 51800.00 4310.00 27590.00 16975.00

Steel Long NCDEX 37500.00 15550.00 29650.00 22710.00


COMMODITY LIFE TIME HIGH LIFE TIME LOW 2010 HIGH* 2010 LOW*SPICES

Turmeric 16350.00 1666.00 16350.00 6600.00Cummin 16599.00 4877.00 15915.00 10170.00Chilli 8034.00 1731.00 8034.00 3833.00Pepper 23338.00 5350.00 23338.00 12447.00Cardamom (MCX) 2097.00 218.20 2097.00 868.00

OTHER COMMODITIESChana 3345.00 1427.00 2563.00 2066.00Wheat 1461.00 662.00 1461.00 1111.20Mentha Oil (MCX) 1305.80 342.00 1305.80 553.60Guar Seed 2872.00 1015.00 2804.00 1928.00Guar Gum 6550.00 3235.00 6550.00 4348.00Gur 1221.00 361.40 1179.80 897.00Maize 1211.00 500.00 1211.00 845.50

OILSEEDSCrude Palm Oil (MCX) 535.50 228.50 535.50 344.20Soybean 2826.00 1104.00 2408.00 1878.00RM Seed 675.00 317.25 618.00 463.80Ref. Soy Oil (NCDEX) 729.20 337.70 596.30 437.50Ref. Soy Oil (MCX) 725.70 337.05 596.00 436.00

* till 15 December 2010

* till 15 December 2010Source: Reuters and SMC Research

6

COMMODITY OUTLOOK 2011

Date Commodity Name of Analyst Name of Reports Name of Commodity Trend Given Levels Targets % Return05.04.10 Metals & Energy Shitij Gandhi &

Sandeep Joon Energy report April 2010 Target met)

12.04.10 Oilseeds Subhranil Dey Special report on Oilseeds Soyabean(NCDEX) Buy 2000 2200 Made a high of 2190

12.04.10 Oilseeds Subhranil Dey Special report on Oilseeds CPO(MCX) Buy 370 390 5.41

19.04.10 Lead Sandeep Joon Trading opportunity report in Lead Lead(MCX) Sell 100 93-88 12.00

27.04.10 Pepper & Cummin Subhranil Dey The Move of Pepper & Cummin Pepper(NCDEX) Buy 16500 18000-18500 12.12

27.04.10 Pepper & Cummin Subhranil Dey The Move of Pepper & Cummin Cummin(NCDEX) Buy 12900 14500-15500 20.16

03.05.10 Bullions & Energy Shitij Gandhi Special Bullions & Energy report May 2010 Gold(MCX) Buy 17100 17350-17550 2.63

04.05.10 Base Metal Sandeep Joon Special Base metal report April 2010 Zinc(MCX) Sell 101-102 95-93-90 11.76

02.06.10 Base Metal Sandeep Joon Special Base metal Aluminium 10.41 (1st report June 2010 (MCX) Sell 95-96 86-83-82 Target met)

03.06.10 Bullions & Energy Shitij Gandhi Special Bullions & Natural Gas 20.00 (AllEnergy report June 2010 (MCX) Buy 200 220-230-240 target met)

05.07.10 Bullions & Energy Shitij Gandhi Special Bullions & Made a Energy report July 2010 Natural Gas(MCX) Buy 210-220 240-250-260 high of 232

05.07.10 Base Metal Sandeep Joon Special Base metal No targetReport July 2010 Lead(MCX) Sell 82-84 78-73 met(NA)

22.07.10 Zinc Sandeep Joon Trading opportunity report 5.50 (1st in Zinc ZINC(MCX) Buy 90-91 96-98 Target met)

04.08.10 Gold Shitij Gandhi Trading opportunity report in Gold Gold(MCX) Buy 18000- 18250-

18100 18300-18400 2.2220.10.10 Aluminium Sandeep Joon Trading opportunity report

in Aluminium Aluminium(MCX) Sell 104-106 102-100-98 4.24(First target met)

03.12.10 Copper Sandeep Joon Monthly Base metal report Copper(MCX) Buy 396-400 310-318-325 7.3(All target met)

13.12.10 Steel long Sandeep Joon Trading opportunity report in Steel long Steel long(NCDEX) Buy 25400 26000- 6.2(All

-25700 26500-27000 target met)

Special Bullions & Nickel (MCX) Buy 1100 1225-1260 11.36 (1st

Fundamental calls performance in 2010

Fundamental Calls Performance 2010

* Investors can read the special and trading opportunity reports on our website www.smctradeonline.com in research section

7

COMMODITY OUTLOOK 2011Economic Indicators

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

% C

hang

e

U.S Existing Homes Sales (SA)


1-Jan-05

1-Mar-

05

1-May

-05

1-Jul-0

5

1-Sep-05

1-Nov

-05

1-Jan-06

1-Jan-07

1-Jan-08

1-Jan-09

1-Jan-10

1-Mar-

06

1-Mar-

07

1-Mar-

08

1-Mar-

09

1-Mar-

10

1-May

-06

1-May

-07

1-May

-08

1-May

-09

1-May

-10

1-Jul-0

6

1-Jul-0

7

1-Jul-0

8

1-Jul-0

9

1-Jul-1

0

1-Sep-06

1-Sep-07

1-Sep-08

1-Sep-09

1-Sep-10

1-Nov

-06

1-Nov

-07

1-Nov

-08

1-Nov

-09

1-Nov

-10

-300000

-200000

-100000

0

100000

200000

300000

400000Initial jobless claim U.S

14-Jan-05

14-Jun-05

14-Nov

-05

14-Apr-06

14-Feb-0

7

14-Jul-0

7

14-Dec

-07

14-May

-08

14-Oct-

08

14-Mar-

06

14-Aug-09

14-Jan-10

14-Jun-10

14-Nov

-10


In th

ousa

nd

Purchasing Manager Index

Abso

lute

val

ue


25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

65.00

Monthly PMI (U.S) Monthly PMI (EU) Monthly PMI (China)

1-Apr-05

1-Jun-05

1-Aug-05

1-Oct-05

1-Dec-05

1-Feb-06

1-Apr-06

1-Jun-06

1-Aug-06

1-Oct-06

1-Dec-06

1-Feb-07

1-Apr-07

1-Jun-07

1-Aug-07

1-Oct-07

1-Dec-07

1-Feb-08

1-Apr-08

1-Jun-08

1-Aug-08

1-Oct-08

1-Dec-08

1-Feb-09

1-Apr-09

1-Jun-09

1-Aug-09

1-Oct-09

1-Dec-09

1-Feb-10

1-Apr-10

1-Jun-10

1-Aug-10

1-Oct-10

8


·US non farm payroll has shown stunning recovery from mid Economic Indicators commentary 20102009 to last quarter 2010 which show's creation of jobs in

·The PMI of various key countries like US, Japan, China and India manufacturing sector.performed very well from late 2008 to second quarter of 2010.

·The housing data in US has not seen the kind of recovery as Reading above 50 indicates expansion. expected. Existing home sales data recovered drastically from

·US Jobless condition also improved in the year 2010 due to focus first quarter 2008 to last quarter of 2009 but there after plunged by Obama government on job creation. Jobless situation lower.increased at rapid pace in the 2007-08 and peaked in beginning

·CPI (consumer price index) of U.S and China Consumer price of 2009.But during last quarter of 2010 jobless condition also index fluctuated nearly zero.started creeping up.

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

% C

hang

e

U.S Monthly Non Farm Pay Roll (SA)


1-Jan-05

1-May

-05

1-Sep-05

1-Jan-06

1-Jan-07

1-Jan-08

1-Jan-09

1-Jan-10

1-May

-06

1-May

-07

1-May

-08

1-May

-09

1-May

-10

1-Sep-06

1-Sep-07

1-Sep-08

1-Sep-09

1-Sep-10

Consumer Price Index

Consumer Price Index, U.S China Monthly CPI Source: Reuters and SMC Research

Jan-05

Jun-05

Nov-05

Apr-06

Jul-0

7Oct-

08Jan

-10

Sep-06

Dec-07

Mar-09

Jun-10

Feb-0

7

Aug-09

- 5

- 4

- 3

- 2

- 1

0

1

2

3

% C

han

ge (

Per

iod

on

per

iod

)

9


Zinc Production in World Nickel Production in World

Copper Production in World Lead Production in World

Source: Reuters Source: Reuters


10

0.00

5.00

10.00

15.00

20.00

25.00

Crude & Gold Ratio

0.00

5.00

10.00

15.00

20.00

25.00

Crude & Natural Gas Ratio

Source: Reuters & SMC Research Source: Reuters & SMC Research


Gold Production in World U.S. NatGas Demand


11

COMMODITY OUTLOOK 2011Ferrous & Non Ferrous Metals

he year 2010 witnessed roller coaster ride for the entire base Aluminum traded on extreme volatile path in 2010 in wide range of metals pack except copper which showed steady upside 85-110. Strike concerns also supported the prices higher. BHP Tmomentum. In the year gone by base metals has affected by a Billiton's aluminum smelter in South Africa went on strike

series of adverse developments in EU, China and US. The European demanding on better wages, this sent prices higher. Japanese buyers debt crisis returned to the forefront while China only hiked its were able to get a deal with cut in premiums for fourth consecutive reserve requirement moved to tighten policy in response to a quarter. Premiums, which are charged over the LME price and growing inflation problem and North Korea made an aggressive include freight and other costs, are set at $112/tonne as against military strike against South Korea. In the U.S. the Fed was under $116 to $118/tonne. attack raising questions about the fate of its quantitative easing

In the month of October the rate of expansion in euro-zone program and tax policy in 2011 remains unknown.

manufacturing production accelerated for the first time in three The fed reserve second round of quantitative easing played the key months which gave the indication that economy is back on track role in recovery of base metals in 2010. The belief that Federal again. In US the job data also gave some hope of recovery as it Reserve's injection of $600 billion to shore up the economy will showed increase in payroll data. U.S. auto sales attained the best accelerate inflation and increase demand for raw materials pushed monthly rate of the year in October which gave demand for base copper prices to life time highs. metals.

The EU crisis affected the global financial markets in 2010 but During the end part of the year some positive economic data from US European central bank also took many steps to support the and other emerging economies supported the base metals segment. respective countries to come out of debt crunch. In an effort to Also the decision of not hiking interest rates and just hiking reserve prevent the “contagion” from spreading to other “peripheral” requirements also gave boost to the base metals in December month.countries such as Portugal and Spain, the European Central Bank

China hiked its reserve requirement by 50 basis point, which locked (ECB) intervened to buy the bonds of countries that are shunned by

350 billion Yuan. Increasing reserve requirements is a more direct the private markets. Supply concerns and labor disputes continued

approach to absorbing the excess liquidity that has been spurring to support the copper in 2010.

Chinese inflation. Shanghai Futures Exchange has increased margins Copper showed the good jump in 2010 as its prices jumped by one and daily price limits in the latest move by China to curb speculation third from 300 to above 400 mainly attributed to global deficit, and cool inflation which only gave knee jerk reaction to base metals. falling inventories and robust demand. Recently imports of copper The activities from China's State Reserves Bureau (SRB) also made and products by China rose by 29 percent to 351,597 tonnes from impact on the prices. The periodically selling by China SRB 273, 511tonnes in October 2010. China's monthly production of pressurized the prices which it bought during the price collapse that refined copper rose 10.8 percent in November due to an increase in accompanied the Great Contraction of late 2008 and early 2009.supply of raw materials and strong metal prices.

Furthermore European Union finance ministers agreed to an 85-Nickel remained volatile throughout 2010 as its prices jumped billion-euro ($115 billion) rescue package for Ireland which would higher in first quarter from 900 to 1200 but plunged sharply lower help safeguard financial stability in the euro zone. But the fears that in May and June while again recovered in remaining part of the year. the crisis in Ireland will spread to its neighbors despite the fact that Strike concerns in Vale Sudbury have given support the prices to Ireland accepted an EU-IMF bailout capped the upside in base metals. some extent in the first quarter of 2010. China steps to shut the polluting smelters also limited the supply and

thus supported the prices.Lead and zinc tumbled like nine pins in the first half of 2010 as prices tumbled from 120 to below 80 which was fall of more than one third due to surge in greenback and Greece debt concerns .But both lead and zinc have given recovered smartly in the second half of the year.

12


LME SHFE Arbitrage

LME-SHFE arbitrage also has impacted on the prices of copper, zinc and aluminum. In 2010 copper prices on the LME mostly traded at a premium to Shanghai prices since August, some traders re-exported copper to take advantage of arbitrage opportunities. SHFE have changed rules that would allow the delivery of material from bonded warehouses against commodities traded on Shanghai's Future Exchange, a move that should bolster arbitrage trading between the Chinese bourse and LME. The ability to deliver bonded stocks would increase flexibility for traders, as they could keep the material in Shanghai, but ship it out easily if domestic prices fall below international prices. China's move to allow commodities in bonded warehouses to be delivered against SHFE contracts without paying the 17% VAT up front, would potentially ease tightness at the front

China and emerging nations need copper because it is the most end of the SHFE copper forward curve and reduce the incentive to re-important metal for a rapidly industrializing nation. Globally average export stockpiles. Less potential for re-exporting has positive single family home uses 439 pounds of copper in construction, an air implications for LME prices in the short term, but it also means more conditioner uses 52 pounds and a refrigerator uses 4.8 pounds. material remaining in China, which could also suggest a slower pace While average vehicle contains more than 50 pounds of copper and of imports related to restocking in the next few months.booming auto sales will support the prices. Cochilco, Chile's copper

With the SHFE-LME copper arbitrage now having to cope with a think tank is predicting a 3% growth in copper demand for 2011 dynamic Yuan, the rules of the game appear to have changed while supply is only going to grow by 0.7%. This deficit is the prime dramatically. Econometric analysis on the latest SHFE-LME arbitrage reason which is driving the copper prices higher. COMEX gold data (from the beginning of July to November 10th) suggests that copper ratio has declined to 3.35 from 4.40 in June indicating that currently, a 1% moves in the Yuan vs. the dollar, results in a 0.98% copper has risen at faster pace than gold. Meanwhile launch of moves in the arbitrage ratio. In other words, the SHFE-LME arbitrage copper ETF in western countries may also create the investment can essentially be regarded as a pure Yuan play at the moment. demand. Recently on December 10th, 2010 ETF Securities launched

world's first copper base metal physically backed exchange traded product. Meanwhile strike concerns which can crop anytime will also support the prices any time. On 6 December 2010 workers at the COPPER.....

“The star performer to shine more”

The stupendous bull run in copper that started in 2009 and 2010 will continue in 2011. But in second half of 2011 one can see some profit booking. In 2010 global supply crunch can be stated by the LME forward curve in backwardation. Meanwhile China's role in the copper market rebound can't be overstated. World consumption of copper has increased 14.9 percent from 2003-2009. But if we exclude China from the equation and world copper consumption swings in the opposite direction to a 14 percent decline over the same time period. Meanwhile, the other BRIC countries (Brazil, India and Russia) combined have seen their copper consumption to grow 15 percent since 2003.

Range: 350-550

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Weekly price, volatility & 200 SMAchart of Copper futures (MCX)

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Weekly Close Price 200 SMA Volatility (%)


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8

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08

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-08

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9

18-Apr-09

18-Jun-09

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09

18-Dec

-09

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0

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10

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Weekly warehouses stocks of Copper (LME)


4-Jan-10

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5-Feb-1

0

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9-Mar-

10

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10

10-Apr-10

26-Apr-10

12-May

-10

28-May

-10

13-Jun-10

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0

31-Jul-1

0

16-Aug-10

01-Sep-10

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03-Oct-

10

19-Oct-

10

04-Nov

-10

20-Nov

-10

06-Dec

-10

13


world's No.3 copper mine, Chile's Collahuasi, agreed to end the longest ever strike at a major private mine in the top producing country, which had stoked supply fears.

In order to meet its ever increasing demand for copper supply, China has looked beyond its borders for new sources and China state reserve bureau imported copper at brisk pace after Beijing announced the $586 billion stimulus plan in November 2008. And in the last year Chinese copper imports left copper in short supply for everyone else, just as demand in the developed world is beginning to turn around. It is expected that consumption in the U.S. is up by 5 percent in 2010 versus the same time period last year, with the European Union up 12 percent and Japan up 37 percent. Rise in demand coupled with a weak supply response will keep the supply tight in 2011.Even if the recent round of quantitative easing has acted as a catalyst for the rise in commodities, the rebounds of many 280,000 tonnes of nickel a year. The plant, as well as Norilsk's other base metals and specifically copper presents a bullish outlook for the Australian units, was mothballed in 2009, as the global financial rest of the economy. With copper and the stock market being lead crisis cut demand for metals. Production is scheduled to begin in the indicators of a very possible economic recovery, a continued rise in first half of 2011. In 2008 the enterprise produced 8,900 tonnes of the metal's price will prove bullish. And considering the economic nickel in concentrate. According to London based Commodity realities of emerging market economies, and their continuous Research Bureau “Nickel production may fall behind demand this appetite for commodities, it is clear that the BRIC countries and their year for the first time in four years on increased usage by the peers will continue to push up copper prices. stainless steel industry”. Also nickel deficit is expected to be 20,000

metric tonnes this year after a surplus of 45,000 tonnes last year.

China's decision to raise production output of nickel in the coming NICKEL..... year since it has more cost advantage than other regions may result

in oversupply of the metal. The weak global economic outlook, rising “Robust steel demand to lift Nickel prices”

inventory, increasing output and declining demand from stainless steel industry may put downward pressure on prices. Furthermore Nickel which was truly been a underperformer in the base metals

pack in the past two years due to oversupply and feeble demand can show steady recovery in 2011.Nickel prices the key ingredient of stainless steel and steel prices depend upon the pace of global economic recovery. The China's apparently insatiable hunger for nickel will support the nickel prices. Vale Sudbury periodic strike concerns also affect the supply. Meanwhile VALE is on the edge of shipping its first nickel out of its long-delayed Goro mine in New Caledonia. Initial plans are to sell 4,000 tonnes of nickel concentrate, but by 2013 the facility could be producing 58,000 tonnes of pure finished metal every year.

Nickel is an unusually difficult metal to work with, forcing producers to process ore at very high temperatures, high pressure, extremely caustic chemicals or a combination of the three. On mining front at the moment, Russian nickel giant Norilsk is unlikely to feel the sting of added competition for some time. Norilsk currently produces

Range : 900-1500

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Weekly price, volatility & 200 SMAchart of Nickel futures (MCX)

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Weekly warehouses stocks of Nickel (LME)


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-10

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-10

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-10

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Weekly price, volatility & 200 SMAchart of Aluminium futures (MCX)

Volatility (%)


Australia's no. 2 nickel producer, had returned to normal operating levels after completing scheduled maintenance work on its Murrin nickel project. Russia's Norilsk Nickel, the world's largest nickel producer, boosted nickel production in the first nine months of 2010 by 6 per-cent year on year which can pressurize the prices. The International Nickel Study Group (INSG) expects the global nickel market to be in a surplus of around 80,000 tonnes in 2011. Nickel demand also hinges on the outlook for stainless steel. Meanwhile China's steel products imports in the month of November rose by 21 percent to 1.38 million tonnes. While exports rose by a modest 1.7 percent to 2.91 million tonnes. Steel is the major user industry of nickel. The usage of nickel pig iron in steel production affects the demand of refined nickel in turn pressuring the prices lower. Nickel pig iron (NPI) production in China has increased rapidly since its

operations. Aluminum demand in China is not growing as per inception in 2005 and now accounts for an estimated 45 percent of expectations but its demand outside of China is booming, with North domestic nickel production. American demand up 15% year on year, to 3.9 Mt, in the first eight months of 2010, and demand from the EU up 18%, to 4.4 Mt over the same period. It is expected that that demand should still remain

ALUMINIUM..... healthy in 2011, but with high aluminum stocks on the LME and SHFE and the existence of huge off market stocks, and ample excess “Packaging and transportation demand to guide light production capacity, can cap upside in prices. China reduction in

metal in 2011”power cuts will result in production cuts by mines thereby supporting the prices. For aluminum production China provincial Aluminium has also been through unpredictable movements in 2010 governments had been cutting power supplies to smelters in and in 2011 prices may tend to be rather range bound with more of Guangxi, Guizhou and Henan to help Beijing reduce its energy upside. Recently demand for metal used in autos to electronics have intensity, cutting aluminum output. Meanwhile Japan imports also been increasing in emerging markets as they witness increasing play key role in the movement of aluminum prices. The appreciation demand for consumer durables. Fuel is the key driver of aluminum of Yuan also affects the cost of aluminum production in China which prices and increase in crude oil will have positive effect in the will prompt China to further cut production. The annual rate of production capacity in West Asia continues to increase as more and primary U.S. aluminum production rose 8.4 percent to 1,757,560 more plants use gas based plants which are cheaper than the plants

that are run on power. Energy accounts for a quarter of production cost of aluminum and with the use of gas this cost can be brought down to 10 percent.

Aluminum prices are expected to move higher as demand from China remains strong and prospects in developed nations like US and Euro zone also improve. Chalco, the nation's biggest aluminum maker, also expects world output to rise by 12 percent to 42.28 million tonnes this year, while consumption to grow by 20 percent to 41 million tonnes. On the supply side, output in China, world's largest producer may take a hit as increasing power and raw material cost weigh on producers' bottom line. As the country gears up to meet energy saving requirements, there are reports that three smelters with annual production capacity of 250,000 tonnes have closed down

Range: 80-140


18-Dec

-10

18-Feb-0

8

18-Apr-08

18-Jun-08

18-Aug-08

18-Oct-

08

18-Dec

-08

18-Feb-0

9

18-Apr-09

18-Jun-09

18-Aug-09

18-Oct-

09

18-Dec

-09

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0

18-Apr-10

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4100000

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Weekly Warehouses Stocks of Aluminium (LME)

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0

21-Feb-1

0

9-Mar-

10

25-Mar-

10

10-Apr-10

26-Apr-10

12-May

-10

28-May

-10

13-Jun-10

29-Jun-10

15-Jul-1

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31-Jul-1

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16-Aug-10

01-Sep-10

17-Sep-10

03-Oct-

10

19-Oct-

10

04-Nov

-10

20-Nov

-10

06-Dec

-10


15


tonnes in November 2010 from 1,621,038 tonnes in November 2009, and was up by 0.6 percent from October's annual rate of 1,746,478 tonnes. So auto demand with position of production cuts in China will decide the course of movement in Aluminum.

ZINC.....

“Poor man's Copper-Zinc supply demand picture can remain balanced”

Zinc which is also known as poor man copper has witnessed roller coaster ride in 2010 as first half proved havoc and the prices tumbled lower while second half rejoiced bulls to some extent as the prices

demand of 17.8% was primarily driven by strong recoveries in recovered. China is the key price driver of zinc. According to China

Europe, Japan and the Republic of Korea together with further Nonferrous Metals Industry Association Zinc consumption may

growth in Chinese apparent usage of 13.9%. Mainly zinc is used in increase by 9.5% a year in the next 5 years on demand for galvanized

making car bodies. On mining front Miner Xstrata , the world's steel. Meanwhile zinc prices will get support from vehicles demand

biggest integrated zinc producer, will spend A$274 million ($246 as car sales in India continue to march forward as sales grew by 20.5

million) to boost output at its George Fisher mine in Australia by percent in November to 161,497tonnes. Sales of trucks and buses

nearly 30 percent by 2013.also grew by 18.3 percent. While in total vehicles sales in China also grew by 27 percent in November to 1.7 million tonnes. Recently The solution of euro zone problem need to be closely watched for China clamped down on power intensive metals smelting in one of its major producing regions, while a zinc smelter confirmed a pollution related closure. Closure of mines will also lead to supply tightness. Guangdong province, Shenzhen Zhongjin Lingnan Non-femet, China's third-largest zinc producer, closed its Shaoguan lead and zinc smelter completely on Oct. 21 last year to comply with a pollution investigation. The shutdowns are expected to extend in the beginning of 2011, which could reduce 75,000 tonnes of refined zinc output from China.

According to Lisbon-based International Lead and Zinc Study Group the global zinc market was in surplus by 211,000 tonnes in the first ten months of the year.

While over the same period inventory levels increased by 181 kilo tonnes. An 11.3% rise in world zinc mine production was principally due to increases of production in Australia, China, India, Finland, Kazakhstan, Mexico and the Russian Federation. Increased output of

further direction of zinc prices. And it is eventually, fundamental debt refined zinc metal in Belgium, Brazil, Canada, Germany, India, Japan, restructuring is inevitable in Europe, and the insolvent countries will the Republic of Korea, the Netherlands, Peru and the United States need to go through a painful austerity process. Which will give some and a number of other countries resulted in global production rising relief to EU debt problem.by 15.3% in 2010. Meanwhile rise in global refined zinc metal

Range: 70-135

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575000

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625000

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675000

700000

Weekly warehouses stocks of Zinc (LME)

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4-Jan-10

20-Jan-10

5-Feb-1

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21-Feb-1

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9-Mar-

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25-Mar-

10

10-Apr-10

26-Apr-10

12-May

-10

28-May

-10

13-Jun-10

29-Jun-10

15-Jul-1

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31-Jul-1

0

16-Aug-10

01-Sep-10

17-Sep-10

03-Oct-

10

19-Oct-

10

04-Nov

-10

20-Nov

-10

06-Dec

-10

18-Dec

-10

18-Feb-0

8

18-Apr-08

18-Jun-08

18-Aug-08

18-Oct-

08

18-Dec

-08

18-Feb-0

9

18-Apr-09

18-Jun-09

18-Aug-09

18-Oct-

09

18-Dec

-09

18-Feb-1

0

18-Apr-10

18-Jun-10

18-Aug-10

18-Oct-

10


16


LEAD.....

“Global battery demand to dictate future”

Lead prices whose demand is shouldered on demand of lead batteries may trade sideways with upside bias in 2011. A smelter outage, declaration of force majeure on deliveries, a flurry of cancellations of metal at a nearby LME warehouse location are some of the key factors which can give underlying support to the lead prices in 2011. Demand from auto makers in emerging markets and investor interest in new exchange-traded products in base metals are likely to drive lead prices higher next year. According to China Nonferrous Metals Industry Association “Lead consumption may grow at 9% per year before 2013 and then slow to 7.5% to 8% from 2013 to 2015”.

Growing demand from China may outweigh any impact from debt Given the strong automobile demand in nations like China and India,

problems in the euro zone. Generally battery makers restock ahead demand for lead, metal used in batteries is expected to remain strong.

of the annual spike in replacement battery activity during the Recently China clamped down on power intensive metals smelting in

Northern Hemisphere winter. In the years gone by and in more one of its major producing regions, while a lead smelter confirmed a

balanced market conditions LME lead stocks tended to fall over the pollution related closure. China's output can be reduced by 180,000

second half of the year, particularly in the Northern Hemisphere tonnes of refined lead which will create supply tightness. While

autumn months. That pattern stopped in 2009 and it is not evident stocks of lead held in London Metal Exchange (LME) warehouses are

this year either. LME stocks did have fallen over June and July but 1/2close to 10 year highs, shipments recently have been leaving a they have risen every month since then till December 2010.

diverse range of warehouse locations, suggesting a widespread pick Drawdowns of metal from the LME system have run at a healthy clip

up in industrial demand. over the last two months, totalling 13,425 tonnes. The recent cold snap in Britain has led to a sharp jump in battery sales at European car parts could boost demand for battery material lead. Lead acid batteries used in cars and other vehicles are much more prone to failing in extreme weather such as hard winters and hot summers. Batteries account for about 80 percent of global consumption of the metal. But dampening the bull expectations has been the steady rise in LME stocks. The inventories of 203,850 tonnes are hovering just below 10year highs.

China is now the world's largest producer of both autos and electric bikes. Further strong growth in e-bikes and autos, and the growing need for replacement batteries in the existing vehicle population mean it is expected that Chinese per capita consumption to expand by 70 percent by 2015 and 130 percent by 2020. It is still unpredictable whether China has sufficient production capacity to meet that demand growth or whether will require imports to fill the gap.

Range: 80-145

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Weekly price, volatility & 200 SMAchart of Lead futures (MCX)

130000135000140000145000150000155000160000165000170000175000180000185000190000195000200000205000210000

Weekly warehouses stocks of Lead (LME)

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18-Dec

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18-Feb-0

8

18-Apr-08

18-Jun-08

18-Aug-08

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08

18-Dec

-08

18-Feb-0

9

18-Apr-09

18-Jun-09

18-Aug-09

18-Oct-

09

18-Dec

-09

18-Feb-1

0

18-Apr-10

18-Jun-10

18-Aug-10

18-Oct-

10

4-Jan-10

20-Jan-10

5-Feb-1

0

21-Feb-1

0

9-Mar-

10

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10

10-Apr-10

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12-May

-10

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-10

13-Jun-10

29-Jun-10

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17


STEEL LONG.....

“Backbone of infrastructure hinges on growth from emerging economies”

Steel the shining metal demand in 2011 will be driven by emerging markets, where growth has speed past a much slower recovery in mature economies. According to the World Steel Association growth in global steel demand is expected to slow to 5.3 percent in 2011. In 2011 global demand will be led by countries such as Brazil, Russia, India and China - the so -called BRIC nations, while growth in the developed world will be slower as maturing economies struggle to recover from the global downturn. The global consumption of steel, driven by the BRIC industrialization process, will continue to grow but at a slower pace as compared to the recent extraordinary pace in 2010.Global stainless steel production may rise to 9 percent or by 1 million tonnes to 12 million tonnes next year due to new capacity. Indian steel consumption is seen more than doubling to 122 million tonnes in 2015 due to robust investment and infrastructure demand. The combination of demand from China and India is extremely positive for the global steel industry Also the net effect of China growth and accelerating India growth is going to have some very serious implications for steel making raw materials they will be driving demand for coal and iron ore.

World steel association has indicated that the steel demand growth will slow to 5.3 percent in 2011 to 1.34 billion tonnes. Emerging countries will continue to drive the demand ahead while tough economic conditions in advanced nations will hinder accelerated growth. Rise in raw material cost of steel like iron ore and coal will also keep the steel prices outlook bright. With an increase in demand from engineering, infrastructure and auto sectors, steel prices are likely to remain high. Generally during the January-May period, steel demand picks up due to an increase in the construction activity across the country. Over 40% of the commodity produced in India goes into the construction sector. The IIP data also shows the India growth story and hence will push the steel demand if the figures shows growth in 2011. Meanwhile India's industrial output grew at its fastest pace in three months in October 2010 beating economists' estimates and driving away, for now, concerns over a slowdown in economic activity. According to World Steel Association India is seen emerging as the world's third biggest steel consumer after China and the United States next year.

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18

COMMODITY OUTLOOK 2011Bullions

What a year it was for bullion counter..... poor man's gold has outperformed every metal and reached to its highest level in last 30 years in very short span of time. Local silver

rices surged high as there is no stoppage or hurdle in prices also wave along the tide and managed to test the 45000 level

between their way. Sentiments became really positive for on MCX platform. Silver mainly rode the coattails of gold's success as Pgold and silver prices to sky rocket on domestic as well as on weak economic conditions made precious metals a hot investment

international bourses. The world economy has seen turbulent times avenue. Weaker dollar could mainly be attributed to gains in

in the last 2-3 years, as the world's deepest recession since 1929 precious metals. Silver's investment demand grew like anything in

emerged in 2008 and spread like a conflagration across the globe, the third quarter of 2010 against a decline in the penultimate two

pushing world's major economies down. However, increased quarters of last to last year. Ishares Silver Trust, the world's biggest

cooperation across countries helped the world leaders tame this silver-ETF, witnessed a cumulative decline of nearly 316 MT in its

recession. Trillions of dollars were poured into financial systems and holdings in the first half of 2010 against a rise of 436 MT in the Q3

monetary policies were relaxed in an effort to fight the recession. As 2010. Both silver and gold historically stood the test of time, as a

an effect of accommodative monetary policies world-wide, macro-medium of exchange, a store of value and a safe haven in times of

economic indicators started turning positive from the third quarter turmoil. These two have historically moved in same tandem,

of 2009. Asia led this global economic recovery with the US also although silver showed more volatility in either direction. Nowadays,

emerging from the recession. Asia's two economic giants; India and silver is taking investors' precedence over gold, shown by the popular

China, gained their earlier growth momentum and continued to be Gold/Silver Ratio (GSR) which broke downwards.

important driver of the Asian recovery. Debt worries were first observed in Greece when the country's fiscal deficit reached nearly 12% of GDP—a way above Euro-zone's prescribed limit of 3%. Debt

Gold/Silver Ratio woes emanated from Greece crept into Portugal, Spain and Ireland. Now, dark clouds of the same spreading beyond Europe are hovering The average gold/silver ratio fell below 45 during the 4th quarter of over global financial markets. These factors were more than enough 2010 from 65.25 in the previous quarter. Overall, the ratio traded for bullion counter to show their strength. Gold made an all time high lower as more upside was witnessed in silver in comparison with while silver prices surged to its 30 year peak in 2010. gold. Silver jumped nearly 15% while gold saw moderate gains of

over 4% during the quarter4. Gold was mostly seen trading above A larger section of investors' community resorted to gold when all $1200/oz levels. other investment assets were not performing well. Equities remained

quite uncertain. Bonds also failed to attract their flight-to-safety demand because of continued sovereign risks prevailing in the market. Investors were tired of low interest rate scenario in the west which means no significant returns on bonds. Gold was also bought as an alternative to rise volatility in currency markets. Uncertain and volatile currency markets took gold prices to new highs in many currencies i.e. Indian Rupee, Dollar, Euro, Pound, Yen, Swiss Franc, Canadian Dollar etc. Gold's investment demand in this period was also robust as the world's largest gold ETF, SPDR Gold Trust, increase their holdings to hit a record at 1,320.436 tonnes on June 29, 2010. Despite surging bullion prices, traditional jewelry demand remained robust with consumption of 406 tonnes of gold in Q2 2010, just 4% below year-earlier levels. With the return of demand for consumer electronics, industrial demand grew by 14% to 107 tonnes in Q2 2010, compared to Q2 2009. Silver which is commonly known as

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85.00Gold/Silver ratio (Comex)

Source: Reuters and SMC Research31-Ja

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19-Aug-01

07-Mar-

02

23-Sep-02

11-Apr-03

28-Oct-

03

15-May

-04

1-Dec

-04

19-Jun-05

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COMMODITY OUTLOOK 2011Bullions...."When Reliability Matters"

old prices are currently trading near their all time highs on global markets as concern over the ability of several GEuropean countries to finance their debt burdens

destabilized the euro and sharpened volatility across financial markets, fuelling an investor flight into the perceived safe-haven asset. Gold's gains were mainly imparted by weak dollar and uncertain economic conditions which prevailed during the 2010. Silver which is also known as poor man's gold is also trading near its 30 year high on international bourses tracking sharp moves in gold and base metal prices as it is also used as an industrial metal. Weaker dollar spurred bullions alternative investment demand while concerns of faltering economic recovery also strengthened metal's safe haven appeal. Apart from lowering dollar index, strong investment demand was another major reason which took gold prices to new highs in 2010. Japan and the US continued to make

in the first 10 months of 2010 which is up fivefold compared with the gold an attractive investment. In particular, statements by Federal

same period of 2009. Surging demand from China is already Reserve officials and discussions in previous policy meetings

changing the seasonal patterns in the gold price — pushing the regarding their willingness to provide a more accommodative policy

annual gold price “peak” from November to February, as gold buying to spur economic growth and reactivate the labour market have put

centers around China's New Year. If current trends continue, the next pressure on the US dollar, which increased long-term inflation

change may be that February's peak may not be much of a peak at all. expectations and, consequently, due to its role as a hedging vehicle,

Apart from Chinese buying, India is also sitting on their hands, pushed up the price of gold. Secondly, official sector activity

waiting for lower prices. However in spite of such high prices continued to be supportive of the gold market as sales by European

demand from India in festive season once gain loomed up which central banks remained negligible while in several emerging

shows that high prices can not affect the hunger for gold in India. markets, including Russia, Bangladesh and Thailand, central banks continue to increase their gold reserves. Now as we are moving towards 2011, it would not be an easy task for us to forecast or predicting the price of gold in coming period. The entire economy is similar to a living breathing organism with many complex parts.

When it comes to silver also, India is the world's #1 consumer as well. Isolating any one aspect is done with the risk of being inaccurate. So,

And it can be seen from imports figures which are up sharply in the price of gold is a difficult number to determine in the overall

2010, nearing 30-year peaks. All such factors shows that in spite of economic outlook. There is no definitive answer to where the price of

such high prices demand from these countries will continue to climb gold will be in 2011 as prices have already surged for ten consecutive

up, taking bullion prices to their new highs in 2011. While both gold years. But if we look at the overall global scenario than we think that

and silver are set to rise further owing to continued currency the current scenario is still very positive for bullions to mark an

devaluation and enhancing physical demand, silver is likely to eleventh year of gains in 2011 on international bourses and new

outperform gold, in our view. Silver prices reasonably tracks gold and highs on local platform as investors seek refuge from an uncertain

are more volatile than the yellow metal. However, silver is also global economic outlook and non reliability on paper currency. On

dependent on industrial growth, and, therefore, price advances may global front, China is now the world's biggest producer of gold and

be limited if the global economic recovery is perceived to have consumes all the gold its mines can dig up. China's miners produced

stalled. Moreover, the nation has received abundant monsoon in 277.017 metric tonnes of gold so far in 2010, up 8.8% from the same

2010, which is likely to result in abundant harvesting and rising period in 2009. In fact, China imported 209.7 metric tonnes of gold

GOLD Range: MCX (17000-26000) COMEX ($1150-$1750)

SILVER Range: MCX (36000-60000) COMEX ($24-$40)

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COMMODITY OUTLOOK 2011Bullions & Energy

agency, downgraded Spain's credit rating which again resulted into fall in crude oil prices by nearly 14%, the steepest fall since December 2008. However, in later part of 2010 it recovered from its lows tracking firm equity market along with rising geopolitical tensions and positive economic data's. The US Federal Reserve has indicated that employment rate in US and Industrial production is growing but at much lower pace than expected. Consumer confidence increased slower-than-market. One more reason for shoot up in oil prices in later part of 2010 was stimulus package given to Europe which gave commodity bulls the green light to come back in and buy to support killing demand for oil and all the things that go with it. The ECB reportedly was already buying Portuguese and Irish bonds in massive quantities causing a rally in the Euro and by default, a break in the dollar. On the contrary, strong economic data just which keeps coming with China's Purchasing Manager Index soared to 55.2 and agricultural income. Silver is expected to see higher demand from we also had a slew of better than expected economic readings out of rural India in the medium term. Silver is also likely to attract greater Europe. Even Ireland's manufacturing and Spain's manufacturing attention from the fund community; particularly in the US. Owing to index beat expectations. With all of such positive data's it seems that its out performance, the white metal is likely to receive more oil has other reasons to be bullish in late 2010 other than the crunch importance than gold. The world's largest silver-backed exchange-of printed money. Energy bulls got one more reason in December traded fund, iShares Silver Trust said that its holdings hit record at 2010 when China delays its rate hike even though inflation surged 10,941.34 tonnes by Dec. 7, 2010. Such strong fundamentals clearly above 5%. However, the increase in reserve requirement ratio (RRR) shows us that there is still a long way to go for bullion in coming by China was viewed as a tame measure and eased concerns about period as current economical environment is igniting up the heat in slowdown in growth. The OPEC also left production quotas this counter.unchanged, forecasting that prices above $90 was driven by temporary factors such as cold weathers and weak US dollar. However, in spite of moderate gains in crude oil futures, upside was not witnessed in natural gas prices. Hurricane season increased the Energy Commentary 2010speculation of lower supply which made producers to increase

After spending most of the year in doldrums, crude oil futures got storage. However, dissipating storms and steadily growing economy underpinned in later part of 2010 and roused above $90 mark after lead a decline in demand, thus inventory climbed and ultimately almost 2 years. Third quarter of 2010 was the official hurricane prices declined. Fundamental factors drive gas prices more than season, which was expected to fuel the energy prices in 2010. But, it economical factors during 2010. Prices fell more than 20% in August failed to impact the oil market to a larger extent as effect of tropical in Indian market. In the month of September, moreover prices storms was very little. Weakness in economic growth also kept the oil recovered on account of rising storm threat in Gulf of Mexico but, market under pressure. Energy producing companies drilled more growth in prices was capped by appreciating currencies. However in oil on speculation that the summer driving season would create more US, winter season starts in the month of November which generally demand for energy products. However, demand could not match with boosts demand of natural gas but normal temperatures in northwest the supply due to slower growth of major world economies thereby and Midwest remain below average normal which once again capped resulting to bearish trend for the crude oil prices. Events like the the upside in prices during late 2010. EIA estimated natural gas volcanic eruption in Iceland and a complaint filed by SEC against marketed production in 2010 will average 62.09 billion cubic feet Goldman Sach continued to inject volatility into the market. In the per day, or 22.66 trillion cubic feet for the year, just above the all-month of May, ongoing debt crisis in Euro zone resulted into sharp time high of 22.65 tcf set in 1973. fall in the prices below $65 per barrel. In May 2010, Fitch, the rating

Weekly price, volatility & 200 SMAchart of Silver futures (MCX)

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COMMODITY OUTLOOK 2011Energy....“A Passion to Perform”

hike during 2010 was also one of the main reasons in driving commodity prices. If interest rates along with money flow in form of quantitative easing keeps coming like this then we expect prices to got support with rise in demand. However, as the OPEC decided to Crude oil prices which sunk up to $65 on NYMEX division during leave production quotas unchanged at current levels amid forecasts 2010 rebounded smartly over the period of time and traded nearly 2 that demand growth in 2011 will be lower than that in 2010 the year high on better-than-expected economic numbers from the US 'fragile global economic recovery, including the adverse effect of and shrinking inventories. EIA data showed that crude stocks fell possible currency conflicts and fears of a second banking crisis in 9.85 million barrels in the week to Dec. 10, against analysts' forecasts Europe' as well as 'lower industrial output, lagging private for a 2.5 million barrel fall, while imports fell 1.36 million barrels per consumption, persistently high unemployment and ample spare day. The large drop in crude inventories was seen because of the 1.36 capacity throughout the oil supply chain' in OECD would constrain million barrel-per-day drop in crude imports and end of year LIFO tax growth in oil consumption. Overall we look 2011 as a year full of draw downs in effect. People hold cargo offshore instead of bringing possibilities for crude oil to trade on both sides. If we talk about range it in and being taxed on it. On the hand prices also got support as then we expect prices to move in range of $60-$115 on international China had not announced a rate hike which was expected even bourses. The most important thing has to be seen in coming period is though inflation surged above 5%. Even though, bullish data for the the evaluation of $600B asset-buying program announced by Fed energy complex and strong demand for gasoline and distillates and reiterate the commitments to accommodative monetary stance support the bullishness in the marketplace; the dollar remains the that will run through June 2011. The increased support is expected biggest elephant in the room and likely will remain the driver of to hold the economic recovery and reduce unemployment rate. prices for the foreseeable future. With fundamentals improving and Another factor apart from economic front is the hurricane season in the dollar remaining relatively weak, we expect prices to move higher 2011 in North Atlantic region which runs between June and from here. With keeping all such factors in mind, 2011 can be November. About 30% of US crude oil production comes from Gulf of anticipated as the year full of various possibilities which can drove Mexico. Hence, occurrence of storms and hurricane in this region will crude prices in any direction. However, sustainable rally above $90 disturb the supply and production of oil. However in 2010 it was needs significant improvement in global oil demand outlook but it reported that there would be number of hurricanes occurring in this appears unlikely in the near-term. The OPEC left production quotas region but none of them was that strong which can disrupt the oil unchanged; forecasting price above $90 was driven by temporary production. So investor's are adviced to keep an eye on occurring factors such as cold weathers and weak US dollar during 2010. On hurricanes during this period to gauge the direction in prices. the other side of coin, global financial markets performance during

2011 will also play an important role for crude oil prices movement. However, the fact that the Federal Reserve had not announced a rate

CRUDE OIL Range: MCX (3200-5200) NYMEX ($60-$115)

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COMMODITY OUTLOOK 2011Energy

Another commodity in energy sector is the natural gas which was the worst performer commodity during 2010 as most of the year prices remain under pressure due to heavy build up in inventories. Hurricane season increased the speculation of lower supply which made producers to increase storage. However, dissipating storms and steadily growing economy lead a decline in demand, thus inventory climbed and ultimately prices declined. Fundamental factors drive gas prices more than economical factors during 2010.

Overall the sentiment is expected to remain on both sides with expectation of range bound moves in this commodity.

Prices fell more than 20% in August, 2010 in Indian market. In the month of September, prices recovered on account of rising storm threat in Gulf of Mexico. Tropical storm Matthew and tropical depression sixteen led gas prices to rise more than 8% in mid of September. However, growth in prices was capped by appreciating currencies. In coming year we expect that prices may remain in the doldrums as continuous build up in inventories along with weak demand for natural gas can keep the bears active in this commodity. On the other hand rig counts are continuously increasing not only in North America but also at International level which will add spice to the sentiment. With the continuously rise in inventories, we except that in 2011, prices might get some support also as producers may cut output for the first time in six years amid record stockpiles and expanding US economy. It is also anticipated that Industrial demand for gas will rise as the U.S. economy recovers from the worst recession since the 1930s as a tax-cut package proposed by President Barack Obama may bring inflation-adjusted growth in the U.S. economy to a 4 percent annual rate by fourth quarter of 2011.

NATURAL GAS Range: MCX (120-320) NYMEX ($2-$7)

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COMMODITY OUTLOOK 2011Spices

Outlook 2011 “Red Hot Grenades for the year”

Investors seeking for safer investments may opt for chilli futures. The counter has a strong support at 4400 levels. A fundamental signal of a strong cold front bringing sharp temperature drops in China is expected to reduce yields of the Chinese crop. Buyers from Malaysia, Sri Lanka, South Korea and Bangladesh may remain attracted towards India. In 2010/11, crops like turmeric & cotton may create tremendous pressure over domestic crop production, which is remaining stagnant near to 12-13 lakh tonnes. Area sown in Andhra Pradesh for the week ending with 1st December, 2010 lags behind by 18.96% at 33,204 lakh hectares as compared to last year. Higher exports enquiries of Indian produces may help to bolster profit for rest of the year as likely previous year where the red hot spice constituted the biggest item of export realizing. On the contrary, the factor capping the gains is to be accounted to the Rabi sown fresh crop farmer sales which is likely to hit the market by Jan-Feb & continued till the month of May. Seasonal trend shows a sharp correction is expected during months of October, when new Chinese crop comes to the market.

Range: 5500-11000

CHILLI

Past Year Movement

In the past year, the fundamental factor supporting the downside in chilli futures was the expectations of increased production as like previous years. The huge carry over stocks of about 95 lakh bags persisting at the Guntur mandi in Andhra Pradesh till the mid months of the year added just another straw being piled onto the camel's back driving the prices to touch one year low at 3833 levels. Moreover, China had displaced India in Pakistan market and in the first half of 2009-10, chilli exports to Pakistan was nil as against 22,000 tonnes during the first half of 2008-09. Later during the year i.e in the mid of the third quarter, the prices recouped strongly from its lows touching highs of 8524 levels, giving investors a return of 107.95%. The counter was influenced by the shortfall in the Chinese chilli crop & Spices Board making the red hot spice more acceptable in the international markets. Exports during April-November 2010 witnessed an upsurge by 26% to 166,000 tonnes and earnings also gained 22% to Rs. 102,000.25 lakhs.

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Past Year MovementSince the beginning of the year, cummin futures had fallen like nine pins by more than 18% making low of Rs.10710/qtl. The bearish sentiment of cold wave & rains, which were good this year, improved the soil moisture & gave an improved estimation of 2.3 million bags production. Moreover, rupee appreciation had taken a toll on exports & threatened the purchases of abroad. Cummin exports during April-November 2010 dipped by 36% to 20,500 tonnes and earnings slipped by 30% to Rs. 27,064.13 lakh. Tracking the international scenario, Syria and Turkey started to offer much cheaper prices either for old crop stocks or the new crop, which added to the bearish sentiment. During the later half of the year, prices propped up above 15540 levels from its long lived consolidation phase on the deceiving report of Turkish crop failure. Cummin being a delicate crop, the continued rains, by the end of the year raised concerns of re-sowing. Reports by Gujarat state farm department indicated that sowing was down 45%, gave a continuation to the bullish theme making the counter to make a decent recovery touching the highs of 15265 levels.

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Outlook 2011 “The seed will travel through a shaky voyage”

The outlook remains pretty shaky following the slash in sowing area by 25.2% in Gujarat. The unseasonal rains and cloudy weather have enable farmers to cultivate only on 1,60,000 hectares by December 6. Three-year average acreage of the spice is 2,84,500 hectares in the state. Production is estimated around 1.37 lakh tonnes against 1.21 lakh tonnes last year & carryover stocks are lower at around 4-5 lakh bags. The fluctuations in exchange rates of rupee against dollar may keep the buying momentum intact in the counter. The market will have to be monitored closely for both signs of strength or weakness. The first half of the year appears to be a buying opportunity, taking advantage of supply gap in the international market. During this period, export enquiries pour in with arrivals of fresh crop from local fields. This time period has been paying better historically as the global shortage gives Indian jeera an edge internationally. Thereafter, sufficient arrivals & availability from all origins may reduce the investment appeal & the counter may witness heavy correction till December. A selling opportunity appears till December on reports of comfortable supplies in global market. Some caution may also creep into when sowing progresses during Nov-Dec in major growing states of India.

Range: 11000-17000

PEPPER

Past Year Movement

Pepper futures on the national bourse, during twelve months became the victim of the usual “tug of war” between the producing nations. Vietnam, Brazil, Indonesia & Sri Lanka together were the “price setters”, whereas tracking these; India became the “price taker”. The rupee factor also played a major role, as it increased the premium of the “black gold” in the global markets, resulting to which the nation lost out to Vietnam in black pepper exports to traditional markets like the US and the Europe. The exports during period April to Noveber, 2010 fell 17% in term quantity to 11,500 tonnes & 4% in terms of value as compared with same period in 2008-09. However, with steady domestic consumption through out the year, prices gyrated sharply last year by 74% from a meaningful bottom at the 12,690 levels. Bullish fundamental factors such as stagnant production, very limited material at local market, exhausted carryover stocks, & increased prices of white pepper gave investors

to parity with other origins, which further gave a boost to touch the sufficient reason to lock the stocks for the upcoming years. The best record high of 23,338 levels.thing of the spice is that it can easily be stored for 2 -3 years without

quality deterioration. By the end of the year, Indian parity fell in-line

Outlook 2011 “Black gold to shine”

Pepper futures may feel some renewed pressure till the month of May with continued harvesting season in all major origins. Beginning with India, arrivals which begins from January, is expected to run up to March. Thereafter, harvesting season in Vietnam is March-May. Tracking seasonal trend, some robustness could be seen in the middle of the year i.e June-July, due to non-availability of fresh arrivals & stocks. The counter can again enter a mode of correction during when crop comes up from Brazil & Indonesia in between July-Oct. Production figures that have been flashed in the recent 38th session of IPC are as follows (in tonnes): India – 47500 (-4.14%), Brazil - 33,000 (3.13%), Indonesia – 25000 (-28.57%), Vietnam – 1,00,000 (5.26%). Overall calculations depict that the global production in 2011 is set to decline by at least 3% from 2010. Given this, chances are some orders will come to India as there are end users who prefer quality over price. Adding to it, a rise is pegged in domestic consumption at 44,750 tonnes & exports at 18500 tonnes by India. The prognosis of increased prevalence of diseases and farmers enjoying high prices in coffee may act as a catalyst to global supply and demand imbalance, which may be re?ected in the sharp increases to test 28,000 levels.

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TURMERIC

Past Year Movement

Speculative activities alleged by market manipulators took the journey of turmeric futures to a 2-year high at 16,318 levels. Bull and bear operators kept the price movement volatile throughout. Beneficiaries were the farmers, who had been bestowed by new cars, put their cash to more productive use, buying tractors & building houses. In the futures trade, heavy difference & gaps between the consecutive contracts, kept the buyers aside. This decelerated the growth in exports during the past months. In total spices exports from India, turmeric accounted to fall by 14% in terms of quantity. Nonetheless, it witnessed a rise of 81% in terms of earning, simply explained by the fact that Indian turmeric is considered to be the best because of its high curcumin content. Bulk buyers & traders at the spot markets enlarged their positions on tight stocks but reviving monsoon-capped gains. Farmers taking the taste of the attractive returns took all possible measures to save their remunerative crop. Acreage & sowing area in Andhra Pradesh, rose to 101% as compared to year 2008. However, lower stocks of yellow spice till fresh arrivals in the month of January took control of the futures from falling.

Outlook 2011 “Rhizome will add-in colour to profits” The history of “production to be huge haul” may once again repeat this year. Farmers & investors aspirants are suggested to adopt a 'wait and see' attitude, also to move in lockstep with the combination of the external situation of volatility in the spot market. The counter may remain surrounded between the waves of upper & lower circuits. Turmeric futures December, April and May contracts are in ideal situation of backwardation, which shows that the price for far future delivery is less than the near future delivery in futures. This is simply explained by the estimates for 2011 production which may be substantial higher by 50-55 % at 70 lakh bags as against the normal of 45 lakh bags. The buying sentiment of futures contract are expected to remain unfavorable until the crop hits the market & the prices are stable. New turmeric for 2011 season is apprehended to be started after January 15 or by early February 2011 itself & get continued till March. As per data released by Spices Board, turmeric export target for year 2010-11 is around 50,000 tonnes lower by 2000 tonnes from last year's target. Huge contract gaps especially between the months of Oct-Nov & Nov-Dec may offer a big arbitrage opportunity for hedgers and speculators.

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CARDAMOM

Past Year Movement

Last year, investors of cardamom futures have enjoyed & witnessed both of the extreme situations of relentless one-sided rally & a dis-heartening downfall. Prices stumbled to multi-month lows of 868 levels, after touching highs of 2097 levels, making the commodity known as “circuit breaker”. Since the beginning, short supply of cardamom in Guatemala as well as locally, helped Indian exporters sell larger volumes despite high prices in auction markets. A bullish theme of continued disequilibrium in demand and supply with the former outweighing the latter pushed had taken command of the counter. Slowly, exporters began to stay away from the market because of the high prices, as a result of which price movement began a southward movement. Exports during the period April-November

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COMMODITY OUTLOOK 2011Spices & Other Commodities

2010 of small variety fell by 34%, whereas large variety by 39%. It's only because of high quality, earning surged by 19% in the first & 63% in the later. Caution crept into the market, when the local crop received good monsoon rains & fresh crop hit the market by mid-July. Guatemalan harvest during the months of September / October made the prices more fragile. By the end, “queen of spices” came very much in focus again closing above 1000-mark, with revived demand from dealers, covering up for winter & New Year seasonal demand.

Outlook 2011 “The dried fruit may spread the aroma”

Investors in cardamom futures & farmers taking care of “Queen of spice” could enjoy reasonable returns for the sixth consecutive year in 2011 -2012, blessed in disguise with drop in quantity of the spice from Guatemala. Production in Guatemala has been going down consistently for most of the review seasons as the farmers are having no incentives on replanting as because the revenues earned are too low as compared to other substitute crops like coffee. On the contrary, good returns has motivated the Indian farmers to undertake good farm management practices, making improve the quality to be recognized in the international market. Non-availability of produce in between period Feb-July & heating demand from essential oil producers could create bidding wars for their raw material. This year, both harvest season & Ramzan season is expected to collide in the month of August, whereas Diwali will be celebrated at the end of October. Upcountry dealers may wait for prices to cool-off before some bargain hunting & meeting the demand for the upcoming festivals. However, bulls say shortages will push cardamom prices higher as the output is not to be growing consistently corresponding to the demand growth may influence the market.

Range: 900-1800

CHANA

Past Year Movement

Throughout the year, chana futures continued to battle with the demand-supply mismatch figures. The country has always been in deficit by 1-2 million tonnes to meet the consumption of 20 million tonnes. Since the beginning of the year, prices nose-dived by almost 15% on reports of higher acreage & massive imports to keep the inventories filled, maintaining a support at 2100 levels. Government took some major measures interventions like imposing a ban on exports, reduced the import duty & decision to organize 60,000 "pulses and oilseed villages" in rainfed areas, coaxing farmers to step up the output. The marginal increase in minimum support prices of rabi pulses could not motivate farmers much to increase area under pulses, as over 85% of the pulses in the country are grown in rainfed areas, also the productivity is low as the crop is disease-prone due to later during the year the heating demand made the counter to give a climate change. In the international scenario, farmers are shifting break out from its long lived consolidation phase & touch highs of more towards corn and oilseeds at the expense of pulses. However, 2510 levels.

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Weekly price, volatility & 200SMA chart of Chana futures (NCDEX)

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Outlook 2011 “Battle with the demand and supply mismatch”

The tug-of-war between demand-supply mismatch of pulses may make a further prolonged journey in this year, favoring a guarded optimism to chana futures in the long term. The target for pulses production in the 2010-11 crop-year has been fixed at 16.5 million tonnes. Demand is expected to rise 4.3% to 19.08 million tonnes this year, according to government estimates. Hence, to curb this gap & avoiding the nut to be responsible for the rising inflation, the government is believed to be mulling to import around 9,00,000 tonnes of the legume till March 31, 2011 a rise of 3,00,000 tonnes from its earlier target of 6,00,000 tonne import. The export of pulses (except Kabuli Chana), however, is banned till 31 March 2011. On the other side, Canadian chickpeas production is expected to increase sharply to 81,000 tonnes due to higher yields and harvested areas, however total supply is estimated to fall sharply due to low carry-in stocks. Lesser imports of imported chickpeas stocks from Canada may add cushion to the prices. Thanks to rising disposable incomes, demand from confectionary and food industry in India is forecasted to grow, where majority of chana consumption (65%) is in the form of besan.

Range: 2100-2900


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COMMODITY OUTLOOK 2011Other Commodities

GUAR

Past Year Movement

Guar complex began its journey falling one sided by more than 21%, wading below the expected fundamental supported levels. A bearish theme had taken command of the price movement, the reasons being guar gum processing units were sitting on large stocks, because the stepped up high input cost of guar gum powder declined the export orders. Secondly, the hawkish effect of huge disparity in the prices of seed and gum made the price trend more fragile. The sentiments again turned favourable for guar seed futures during the month of June with reports of some delay in the progress of monsoon & apprehensions of lower sowing activities. Later, once again returning from the resistance at 2600 levels in guar seed & 5900 levels in guar gum, the price trend reversed downside. Sharp decline in the yield levels due to the last minute rains, slashed the crop output to around 90 lakh bags (1 bag=100 kg), down from 1.51 million tonnes of previous estimate. Guar being a rain-fed crop, excess rain during harvesting turns the sentiments bullish. This is what exactly happened during last year. Unseasonal rains & concerns of crop damage made the prices rebounded strongly off their lows & run up very fast making new highs.

Outlook 2011 “Bulls to drive-in”

Guar complex may trade up on prevailed bullish trends. There are basically two reasons for this, firstly, Indian guar gum finding a secured place in the international markets with increased application use as paper and textile sectors, fracturing of oil and gas formations. Demand for fracturing of oil and gas formations is likely to go past the previous years on increase in oil exploration in the country, rising demand & expectations of a decline in global inventories in 2011. Secondly, the notification given by Ministry of Commerce & Industry for compulsory testing & getting health certificate of guar gum shipments to European Union so as to match the global standards required may continue to give export business more confidence. Increase use of guar as a vegetable in the South & raw material to produce guar gum in the North may also support the growth front. Overall supplies is estimated to be get lowered by 15-20%, as farmers have started opting crops like chana and mustard seed, on account of earning better remuneration. Also, guar being a rain-fed crop, vagaries of monsoon has filled fear among farmers, of being caught. In such a scenario, investors can claim higher returns as any big downturn looks limited till the next arrivals during the months of Nov-Dec.

Range (Guar seed: 2000-3200) (Guargum: 4800-8000)

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Weekly price, volatility & 200 SMA chart of Guar Gum futures (NCDEX)


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COMMODITY OUTLOOK 2011Other Commodities

WHEAT

Past Year Movement

Wheat futures had undergone major turbulence in 2009/10 stemming largely down from 1460 levels to low of 1112 levels. The surges in the beginning were connected with several policies of government coming into force. The annual exercise to procure the grain was stepped up to fill up the federal granaries & to deal with the burgeoning stocks which were expected to pick up after Baisakhi. This left little stock in open markets, the reflection of which was seen on the futures counter. As weeks passed by, the apprehension of nation to harvest more than 82 million tonnes exerted a pressure, following a series of unexpected decline of 19% in prices. USDA's report that global inventories may total 196.8 million tonnes by May 31, the most since 2002, just added another straw to the camel's back. Higher temperatures during month of May, have always been a source to worry for the crop's yield. Crop damage reports emerged months. Thereafter, prices found tough to expand with the flow of from states such as Punjab, Haryana and Uttar Pradesh, giving the heavy stocks into the spot markets introduction of OMSS scheme futures a best reason to rise by 8%, covering up the losses in prior coupled with heavy imports from neighboring countries.

Outlook 2011 “Ridden sideways”

A relatively plentiful monsoon in 2010 has saved the nation from the threat of grain shortage in the world granaries. World wheat markets are expected to undergo major turbulence in 2010/11, stemming largely from unexpected production shortfalls due to unfavorable weather conditions in a number of major producing countries. The forecast of world wheat production during 2010-11 by International Grain Council is pegged at 643.9 million tonnes, some 5% below last year's. As regards to India, wheat production may be little higher than the targeted 82 million tonnes during the next Rabi marketing season. The good news for the year is that according to a latest release from the Ministry of Consumer Affairs, Food & Public Distribution lower global production of wheat is not likely to affect domestic availability of the grain. Global consumption is placed higher at 660 million tonnes mainly because of greater than anticipated use of attractively-priced feed wheat imports in Pacific Asia, including South Korea and the Philippines. The projected 2010/11 price range price is well placed in range of $6.00-7.50 per bushel, while Rs. 1200-1400/qtl on national bourse. Pending decision of wheat exports in the pipeline may give some small glimmer of hope to futures market. The world wheat market is looking for India now to tackle the expected short supply of wheat and its increasing prices.

Range: 1150-1450

GUR

Past Year Movement

Gur prices largely guided by the sugar price movement had witnessed a steep fall in line with the sugar prices. Soon after reaching a high at 1179 levels in February 2010, declined for 10 straight months. Bearish market fundamental of sluggish demand & heavy arrivals justified the extent of the fall. Breaking the crucial support level of 1000 levels, the counter witnessed a steep fall & also tested the downside of 897 levels. It is interesting to note here that higher stock-to-use ratio was associated with lower prices as compared to previous year. Years passing by, per capita consumption of products such as gur & khandsari has actually declined significantly from about 15 kg to 10 kg. Round the year, bears remained dominated over gur futures, simply explained by the crushing activity amid consumers getting health conscious & trying created situation of surplus in sugar inventories with greater sugar-free products.

Weekly price, volatility & 200 SMA chart of Wheat futures (NCDEX)

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COMMODITY OUTLOOK 2011Other Commodities & Oil Seeds

Outlook 2011 SUGAR “Price to stabilize..... thanks to farmers”

This year, after a gap of two seasons & with an opening surplus of about 5.8 million tonnes, country's sugar production in the 2010-11 (October-September) is pegged at 24.5 million tonnes against the domestic demand of 22.5-23 million tonnes. Going by surplus stocks data, the monthly quota for sale in the open market through ration shops may be allotted higher, hence controlling the upside. In further news, government may lift stock limit ban on sugar by dealers and traders from January. The current situation of backwardation in international market (NYMEX) between spot & futures shows that there is shortage of current supply of sugar relative to current demand. Therefore in intention of filling this gap, the world would need most of India's produce even paying higher price. Therefore, moving in lock steps with international prices, it will be important to watch what India actually exports and when. The re-launch of sugar futures will gave the genuine players of the industry an excellent platform to hedge on national exchanges rather opting overseas exchanges, hence saving their cost avoiding risk currency price fluctuation. Market participants are waiting for the decision for allowance of unrestricted exports, termed as open general licence (OGL), which could see global prices easing.

Range: 2800-3500

SOYBEAN

Past Year Movement

Soybean futures poised for its first sixth-straight monthly loss taking into consideration fundamentally bearish features. Data compiled by the Solvent Extractors' Association of India revealed that soymeal exports, which shared the bulk of sales, plummeted more than 40% to 8,43,775 tonnes (January-June 2010) from 14,08,027 tonnes same period last year. Processing soybean was economically unviable due to negative crush margins. Also, the price trend moved in lock steps with weaknesses in oilseeds complex, lead by anticipation of record soybean production in US and Brazil. In the later half, sell-off was slowed down and market fundamentals of renewed demand began to assert themselves. A jump in domestic soyoil prices, a rise in soymeal export price due to a weak rupee, triggered fresh buying in the counter. The nation kicked off soybean meal marketing early last year by selling 12,000 tonnes to Thailand, with competitive prices.

prices touching highs of 2350 levels. The high volume of outstanding The positive turn around in exports figures i.e a whooping rise by sales of U.S soybeans, particularly for China provided a guarded more than 70% to 14,82,086 tonnes (July-November 2010) as optimism to the price movement.compared to same period last year gave an upward break-out to

Outlook 2011 "External factors in lobbying the bean profits"

Promising estimates given by Central Organization for Oilseeds and Oil Trade (COOIT) & U.S Dept. of Agriculture (USDA) throw a bullish outlook. In fact, domestic prices reflecting global rates, farmers & investors could be assured of good returns. Projections made by COOIT show that kharif production is likely to be lower by 10% at 93.5 lt (lakh tonnes), whereas marketable surplus for crushing is pegged higher by 14% at 85.5 lt, oil availability at 14.54 lt higher by 13.59%, & 8.0 lt to be retained for sowing as well as direct consumption, lower by 20% as compared to 2009/10. Enquiries for exports for soy meal in particular may continue to pour in from South-East Asia and the Far-East countries, owing to reduced availabilities of sun?ower and rapeseed meal. As per USDA reports, total U.S. oilseed production for 2010/11 is projected at 101.7 million tonnes, down slightly due to a small reduction in cottonseed. Second half of the year can witness some minor correction, when market sees the arrival of the crop in Sept-Oct (India), August-September (U.S & China) & January-February in South America. Moreover, if China acts to constrain inflation by tightening credit, damping world trade & growth for much of Asia could slow as well.

Range: 1800-2800

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Weekly price, volatility & 200 SMA chart of Soybean futures (NCDEX)

Weekly Close Price 200-SMA Volatility (%)Source: Reuters and SMC Research

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COMMODITY OUTLOOK 2011Oil Seeds

MUSTARD SEED

Past Year Movement

Mustard futures looked pretty sour, heading a straight fall of more than 22% in the first quarter of the year. A month before the arrivals i.e February, farmers offloaded their previous stocks in order to accommodate new arrivals with expectations rise of a bigger harvest. The COOIT'S estimate of production indicated a higher production of 63.2 lakh tonnes in 2009-10 rabi season as compared to 62 lakh tonnes in 2008-09. Investors seized from the chance to profit as the market was groaning under the weight of excessive fresh arrival season which began from the month of February. Thereafter, the prices went through a road to a very gradual recovery of 19%, on the back of better exports enquiries for rapeseed meal accompanied with lower level buying at 470 levels. Surge in exports by more than 39% during March-October period as compared to same period in 2009 added certainty to the price movement & gave investors more confidence to step in the trade. By the end, prices remained in a range with reports from China, that it would auction more from its rapeseed oil reserves.

Outlook 2011 “There is too much of seed”

Recovery of prior losses is likely to continue in mustard futures. India will harvest about 6.3-6.6 million tonnes of rapeseed from March this year, compared to about 5.5 million tonnes last year. Rajasthan has completed rapeseed sowing on 2.75 million hectares as on Dec. 6, up 24% on year. As per USDA, global rapeseed production is projected at 58.4 million tonnes, up 1.2 million due to gains for Canada and EU-27. India's export trade is expected to continue to rely on foreign purchases, especially by EU given the concurrence of poor rapeseed harvests with further rising demand from bio-fuel producers. EU-27 rapeseed production is increased due to higher yield estimates for Germany, United Kingdom, and Romania. However, the current scenario of profit booking may continue taking weak cues from global markets. The bearish factor back pedaling the profits is that China may sell more rapeseed oil from reserves to reduce prices significantly. Moreover, arrivals pressure to rise in April and continue in May as farmers bring more stocks for raising money needed for the marriage season, which begins immediately after Akshaya Tritiya.

Range: 2500-3500

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Weekly price, volatility & 200SMA chart of Mustard Seed futures (NCDEX)

CRUDE PALM OIL

Past Year Movement

Domestic palm oil price movement has always fluctuated because of its direct linkage to oil markets in Malaysia and Indonesia. Start the year, Crude palm oil futures entered into a seven months long lived consolidation phase, trading in the range of 340-380 levels. The gains took a back seat due to higher percentage of imports month-on-month especially during April, May & July. China's measures to control inflation & money tightening measures impacted the palm oil market. Later half, drop in supplies amid La Nina weather event over Malaysia & festival season demand provided a glimmer of hope. Breaking the resistance at 390 levels, the counter went for a non-stop rally, hitting a high of Rs.505.70 & showed the best annual climb, giving a return of 31% to its investors. CPO futures climbed to a fresh

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Weekly price, volatility & 200 SMA chart of CPO Futures (MCX)





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COMMODITY OUTLOOK 2011Oil Seeds

28-month high to MYR3452/ton at Bursa Malaysian Derivative were not improving. Internationally, crude oil prices increased its exchange underpinned by bullish factors of stronger imports from appeal as a substitute used in bio-fuels. By the year end, China China & weaker Malaysian ringgit. Demand from domestic market continuously selling off vegetable oils from stockpiles to stabilize remained quite strong through out the year as the soybean yields prices and euro zone debt issues were a drag on palm oil.

Outlook 2011 “Pause in upsurge”

At the onset of the 2010/11 season, palm oil prices are also on an upward path, although not as steeply as previous year. The bull-run may see some pause as summer sets in the country. A supply relief for palm oil in 2011 can be seen owing to a substantial increase in production in Malaysia and Indonesia. The yield cycle is set to turn upward resulting in considerably higher production. The reason being rainfall considerably improved during the past 10 months and this will be reflected in increased yields. As per FAO report, production is forecasted to grow by a healthy 6.5% (i.e. double the rate recorded last year), due to the developing weather pattern which tends to augment rainfall throughout Southeast Asia, as well as further increases in mature area, notably in Indonesia. Nonetheless, consumption growth will also remain fuelled primarily by soyoil, followed by palm oil. Competing soya oil will increasingly fill global vegetable oil demand, given a recent surge in palm prices. Indonesia's palm oil export tax structure & European Union biofuel directives will also be in focus. India's imports could fall slightly, due to this season's ample built up inventory and because rising domestic prices are likely to trigger a release of stocks.

Range: 400-600

REF. SOY OIL

Outlook 2011 “Will spark profits on crisis runway”

Tracking international macro factors, surge in ref soy oil futures can be much attributed to U.S exports & extraordinarily large shipments to China. U.S. soybean oil exports for 2010/11 are forecasted at 2.7 billion pounds, down from last season's record 3.4 billion. Later on in 2011, domestic consumption of soybean oil should start to improve as it is needed to meet higher use requirements for biodiesel. Global vegetable oil stocks in 2010/11 are expected to fall to a 7-year low, which has strengthened prices across all markets. However, this glut situation may not impact soy oil prices on national bourse. The reason being is estimated improved supply from local crushing units to nearly seven million tonnes from a little over 6.5 million tonnes last year. Imports of vegetable oil have also declined by 11% in November. The counter has a strong support at 520 levels. Spillover strength from CPO & crude oil prices may maintain the spark to generate broad-based buying across the counter. Any downturn looks limited at this stage, as there is still money waiting to come into market on every correction.

Range: 500-800

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