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March 17, 2008

Base metals lower on Bear Stearns
Base metals: Settle mostly lower on Bear Stearns troubles; weak Dollar supportive today Base metals settled mostly lower on Friday as the US equities tumbled on the news that Bear Stearns has received emergency funding from JP Morgan and the US Fed. BS shares fell 47% and the Dow JIA Index lost 195 points, as the investors fear that financial crises would worsen. Base metals surrendered their intra-day gains as the traders decided to square off some of their longs on the last trading day of the week. Bullion complex emerged as the direct and obvious beneficiary of the BS fiasco, and further gains are expected. On one hand base metals are finding it difficult to remain at present elevated levels, as the fundamentals don't warrant such high levels, however on the other hand lack of any other opportunities to park the funds is pushing them higher. Needless to say the US Dollar, which is falling like a rock is adding to the upward pressure on the base metals. Today the US Fed has reduced the discount rate by 25 bps to 3.25%. BS troubles are likely to force the US Fed to ease the rates by at least 75 bps, which could see the US Dollar losing further, thus exerting further upward pressure on the prices. We recommend buying the dips for the next two-three days unless some key change occurs in the financial markets. At the same time, we would like to highlight the point that rally without fundamentals could be short-lived and reverse sharply on even the slightest change in the driving factors as the meltdown in the global equities spell nothing but a pronounced weakness for the base metals in the coming months, esp. When the peak demand season of Q2 ends. However, till the US Dollar is unable to find some support, we suggest going long. Copper closed with a loss of $13 at $8,360.SHFE stock report showed that the stockpiles rose by whooping $8,483 tonne. The week marked the fifth consecutive week of buildups, thus giving basis to the talks that the China's demand is not so strong presently. LME stockpiles fell by 2725 tonne, which took the headline figure to just above 125,000. Falling LME stockpiles at LME warehouses are finding their way to China's warehouse, thus falling stock picture is surely deceptive. Cancelled ratio rose to 20.06% from 18.68%. Cancelled tonnage stands at just above 25,000 tonne, which is likely to support strong outflows in the coming days. LME cashto-3 month spread has tightened by $20 to $124(b) which indicates that shorting would be a difficult option. Although fundamentals are not really so compelling, it is advisable to stay long on the complex for the next two-three days. Support for the red metal lies at Rs342.30/Rs338. Resistance would come at Rs346.10/Rs347.90/Rs350.20. Nothing much is happening on the front of the fundamentals of rest of the base metals. However, the weak Dollar story is likely to keep them supported. So, buy on dips is the strategy. Support for lead is seen at Rs126.30/Rs123.70. Resistance would come at Rs128.45/Rs130. Support for zinc is seen at Rs105.10/Rs103.05. Resistance would come at Rs107.20/Rs108.20. Support for nickel is seen at Rs1,325/Rs1,309. Resistance lies at Rs1,342/Rs1,360. Support for aluminium would come at Rs124.70/Rs122.55. Resistance lies at Rs126.15/Rs127.50. Chana: To see sideways movement Chana futures saw deep intra day fall on Friday on heavy selling, as stocks in exchange warehouses had witnessed a rise from 1,000 tonne to around 6,000 tonne in the last one month. However, some short covering at very low levels led to some recovery by the end of the session. Chana stocks in National Commodity and Derivatives Exchange (NCDEX) accredited warehouses, as on Thursday, were over 6,000 tonne, unchanged from the previous day, the NCDEX data showed. Processors stayed away as they expect prices to fall further and will enter the market then. Arrivals on Friday rose to 30 trucks (of 18-20 tonne each) from 20 trucks on Thursday.

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sharekhan Soy oil: Speculation of expected duty cut Soy oil futures have been weak in the past week on the speculation that the government can reduce duty on edible oils by 10% in the coming few days. A duty cut was expected due to high inflation. India's headline inflation rate for the week ended March 1 rose to 5.11% from 5.02% a week ago. Speculators were expecting a possible duty cut as the finance minister P Chidambaram while speaking on inflation in the parliament blamed high prices of primary food articles including edible oils for the rising inflation. Guar: Sideways to mildly weak Mandatory PCP testing by Indian exporters shipping guar gum to Europe has dented the market sentiments in the last few days. However, the impact should be short term and temporary as the European Union (EU) constitutes Europe constitutes just around 20% of our export market. The guar gum exports are already expected to be 8% to 10% up in 2007-08 season. With season coming to an end and stocks likely to wear out as days progress, the prices should recover. Chili: Tone still weak on increasing arrivals Chili prices are moving down due to weak fundamentals. Increasing arrival of good quality crops combined with good carry over stock is underpinning the market tone. Increasing arrival of the fresh crop in the market yards is weighing prices. Guntur spot market has seen arrival of around 1,00,000 bags (1 bags=40-45kg) per day for last couple of days as compared to the daily average arrival of 70,00080,000 bags during the last week. In Guntur market, the NCDEX quality chili is quoting lower at Rs3,900 per quintal. Chili sanam spot prices also quoted lower at Rs3,200-3,600 per quintal as against Rs3,500-3,800 per quintal during the previous day. Chili production this year is expected to be higher around 13 lakh tonne as against 11.5 lakh tonne last year. Carry over stock from the previous year is estimated around 1.5 lakh tonne. In this scenario, farmers and stockiest are offloading their existing stocks. With the absence of firm fundamentals in short term, most of the buyers in the spot markets are keeping themselves at sidelines on the speculation of a further decline in prices. However, good export opportunity may support the market against dips, as the green chili crop in Pakistan was hit by severe cold, there by affecting the supply. Karachi wholesale market green chili price has shot up to a record Rs180 [US $3] per kg. Turmeric: Prices unlikely to sustain at higher side Turmeric prices are unlikely to sustain at higher levels due to increasing arrivals of fresh crop. Daily inflow of turmeric in the physical market at Nizamabad mandi is around 15,000 bags (1 bags=70 kg) as against 7,000 bags last week. The arrivals are expected to increase to 25,000 bags in coming

commodities buzz days. During last two days spot market prices in Nizamabad has fallen by Rs100 per quintal. Stockists are keeping themselves at sidelines at higher price levels. However, prices are not expected to see major dips as the output is lower this year amidst good global demand. Turmeric output during the current season is expected to decline around 7.5 lakh tonne against 8.9 lakh tonne last year. Further, buying support by AP Markfed at Rs3,000 per quintal from local market is likely to support the market. Turmeric export in April-January period is lower by 6% as against that of the last year. Jeera: To trade rangebound with weak undertone Jeera is likely to trade rangebound with weak undertone on increasing arrival of fresh crop in the market yards against the backdrop of higher production outlook. Higher yield and good acreage in Gujarat is likely to increase the production to around 2.11 lakh tonne in 2008 against 1.67 lakh tonne last year. However, good domestic as well as export demand is expected to support the market at lower levels and would resist from major falls. Turmeric export in the period of April-January is still lower by 10% as against last year. Pepper: To recover on export opportunity Indian parity of pepper is currently competitive vis-à-vis other parities. Indian parity remained around $4,000 a tonne (c&f), while the Asta grade pepper in Vietnam is reportedly quoted higher at above $4,200 a tonne (fob). Brazil parity is also reportedly trading above the Indian levels. Around 30-40% of the total crop is already harvested in Vietnam. However, export performance is still weak in the country; total export volume in entire February reportedly declined by 39% to 2,560 tonne as against corresponding period last year. Pepper export till January has already achieved 98% of the target (30,000 tonne) set in the year and the export data is expected to rise further. The dip in the Indian parity has provided some further export opportunity. Meanwhile weakening of Rupee against Dollar is likely to further widen the scope of export. Gold: In uncharted territory Gold stayed in the $990-$1000 band throughout Friday till the New York market opened, and it then went up slightly. The closing was far better at $1008.00 an ounce. Consumer prices in the US were unexpectedly unchanged in February as fuel costs dropped, easing concern that inflation would keep accelerating as the economy slows. The figure followed a 0.4% gain in January. So-called core prices, which exclude food and energy costs, also showed no change, the first time they didn't increase since November 2006.

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Commodities Buzz


March 17, 2008



sharekhan Bear Stearns Cos (BS) obtained emergency funding from JP Morgan Chase & Co and the New York Federal Reserve as the securities firm said its cash position has significantly deteriorated. BS plummeted $21, or a record 37% to $36 at 10:08 am in New York Stock Exchange composite trading, the lowest level in more than eight years. The shares fell to as low as $26.85 on Friday. Chief Executive Officer Alan Schwartz said in a separate statement that the firm acted in response to market rumors of a liquidity crisis. He had denied this week that BS faced a cash shortage, saying the company's liquidity cushion was sufficient to weather the credit-market contraction. US consumer confidence sank to a 16-year low in March and Americans braced for higher inflation as the economy teeters on the brink of a recession. Reuters/University of Michigan’s preliminary index of consumer sentiment decreased to 70.5 from 70.8 in February. The measure is the lowest reading since February 1992 and compares with an average 85.6 in 2007. Record gasoline prices and the

commodities buzz loss of 85,000 jobs so far this year are undermining consumer sentiment, pointing to weaker spending. The US currency also plunged to below parity with the Swiss franc for the first time as traders speculated the Fed will slash interest rates a full percentage point next week to keep a credit-market crisis from triggering a recession. The US currency plunged to $1.5688 per euro, the weakest since the European currency's debut in 1999. The things are dramatic since the beginning of trade this morning. With the Japanese yen hitting a high of 95 and with the euro at 1.5904 the story is absolutely bullish for gold and silver. But at the same time the risks are also very high. Buying gold at unforeseen prices of $1026 and silver at $21.20 an ounce can well be a dangerous thing to do. The Federal Reserve may continue to throw surprises on the markets at every available opportunity. So the best strategy is to wait and watch.

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