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Annual Commodities Research Magazine (For private circulation only)





Page No. 1. Performance of 2010 & Road ahead 2011 2. Chart Indicators explained 3. Commodity Performance 2010 4. Asset Class Comparison 2010 5. Span of price movement 6. Fundamental calls performance in 2010 7. Economic Indicators 8. Base Metal production graph 9. Production & Ratio comparison 8. Flashback 2010 & Outlook 2011 i. Ferrous and Non- Ferrous Metals 12-18 19-21 21-23 24-27 27-30 30-32
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 important2011 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.

2 3 4 5 6 7 8-9 10 11

ii. Bullions iii. Energy iv. Spices v. Other Commodities vi. Oilseeds
Jagannadham Thunuguntla

Commodity Fundamental Team

Vandana Bharti Sandeep Joon Shitij Gandhi Subhranil Dey Sr. Research Analyst Sr. Research Analyst Research Analyst Research Analyst

Supportive Team
Shivanand Upadhyay Kamla Devi Pramod Chhimwal Simmi Chibber Content Editor (Hindi) Content Editor Graphic Designer Research Executive

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Happy Investing in commodities

(Vandana Bharti)

Disclaimer : This report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to you. It is only for private circulation and use .The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of the report. The report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that we and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance if this material;(a) from time to time, may have long or short positions in, and buy or sell the commodities thereof, mentioned here in or (b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market maker in the commodities discussed herein (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.

Performance of Calls given in our Annual Magazine Commodity Outlook 2010
Range (Annual Magz. '10) Gold Silver Crude Oil Natural Gas Copper Zinc Lead Nickel Aluminium Steel Turmeric Pepper Cummin Chilli Cardamom Mentha Oil Chana Guar seed Guar gum Maize Wheat Soybean RM seed Ref. soy oil
* Up to 15 December 2010


The Road Ahead 2011

2010 High* 20924.00 45735.00 4077.00 279.40 421.40 123.20 122.00 1224.70 110.00 29650.00 16350.00 23338.00 15915.00 8034.00 2097.00 1305.80 2563.00 2804.00 6550.00 1211.00 1461.00 2408.00 618.00 596.30

2010 Low* 15950.00 23610.00 3229.00 144.70 284.10 74.35 72.55 795.50 85.90 22710.00 6600.00 12447.00 10170.00 3833.00 868.00 553.60 2066.00 1928.00 4348.00 845.50 1111.20 1878.00 463.80 437.50 Aluminium Lead Zinc Natural Gas Cardamom Sugar Silver Cummin Crude Oil Chilli Gold Turmeric Pepper

14000-20000 22000-33000 2500-4500 180-375 264-400 90-170 90-165 600-1200 85-150 20000-33000 6500-12000 11500-17000 11600-18500 5400-8000 840-1250 575-800 2200-3000 2100-3500 4700-7000 800-1100 1250-1550 1700-3200 400-750 425-550


Chana Guar seed Guar gum Wheat Soybean RM seed Ref. soy oil Crude palm oil






Commodity Performance
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.


Amazing facts of Metals and Energy

F First Oil Production: Way back in the year 327, Chinese World's

engineers used bamboo pipelines to drill 240 meters below the surface to extract the earliest drops of oil.
F Largest Offshore Oilfield: Measuring 50 kilometers by 15 World's

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.

F edible, and is put into fruit, jelly snacks, coffee, and tea in Gold is

some Asian countries. Even Europeans are known to put gold leaf in bottles of liquor.
F One cubic foot of gold weighs half a ton and the largest gold bar

weighs 200 Kg.

F cubic mile of seawater, there are 25 tons of gold. There In every

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.

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.

F Silver 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.
Fis used in long life batteries. Billions of silver oxide-zinc Silver

batteries are in use everyday powering everything from quartz watches to digital cameras.

Ferrous and Non Ferrous Metals

F The 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.
Fzinc is alloyed with copper, brass is made. And when tin is When

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.
F The 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.
F Intelligent people have more zinc and copper in their hair.

Commodity Performance


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

% Change

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 -20.00 0.00 20.00 40.00 60.00 80.00 100.00







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

Source: Reuters and SMC Research

Return of Bullions, Metals and Energy from 4th Jan '10 till 15th Dec '10
Steel Lead Nickel Long
NCDEX MCX LME MCX LME MCX LME MCX LME MCX LME MCX NYMEX MCX NYMEX MCX LME Spot COMEX MCX 22.58 24.71 23.96 -20.00 0.00 20.00 40.00 60.00 LME Spot COMEX - 40.00 -28.71 -28.25 6.74 8.72 63.12 -13.45 -12.97 0.62 3.19 19.76 20.69 -5.57 -3.06 -7.29 26.87 28.83

% Change


Crude Natural Oil Gas Copper Alumin ium


69.25 67.57


8000 .

Source: Reuters and SMC Research

Asset Class Comparison


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

% CHANGE Japanese Yen Euro Natural Gas Crude Oil Copper Silver Gold 30 Year US Treasury RJ CRB Dollar Index Nifty Hang Sang Bovespa Nikkei S&P 500 Dow Jones Shanghai Composite LMEX Baltic Dry Index -34.81 -40.00 -20.00 0.00 20.00 40.00 60.00 80.00 -10.25 15.32 -3.11 -3.24 9.02 9.12 5.28 3.53 12.61 4.75 9.64 22.58 -28.71 6.74 19.76 63.12 -8.97 -8.33

Source: Reuters and SMC Research

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.

The Olden Days

Span of price movement (Agro commodities)
COMMODITY Turmeric Cummin Chilli Pepper Cardamom (MCX) Chana Wheat Mentha Oil (MCX) Guar Seed Guar Gum Gur Maize Crude Palm Oil (MCX) Soybean RM Seed Ref. Soy Oil (NCDEX) Ref. Soy Oil (MCX)
* till 15 December 2010


LIFE TIME HIGH 16350.00 16599.00 8034.00 23338.00 2097.00 3345.00 1461.00 1305.80 2872.00 6550.00 1221.00 1211.00 535.50 2826.00 675.00 729.20 725.70

LIFE TIME LOW SPICES 1666.00 4877.00 1731.00 5350.00 218.20 OTHER COMMODITIES 1427.00 662.00 342.00 1015.00 3235.00 361.40 500.00 OILSEEDS 228.50 1104.00 317.25 337.70 337.05

2010 HIGH* 16350.00 15915.00 8034.00 23338.00 2097.00 2563.00 1461.00 1305.80 2804.00 6550.00 1179.80 1211.00 535.50 2408.00 618.00 596.30 596.00

2010 LOW* 6600.00 10170.00 3833.00 12447.00 868.00 2066.00 1111.20 553.60 1928.00 4348.00 897.00 845.50 344.20 1878.00 463.80 437.50 436.00
Source: Reuters and SMC Research

Span of price movement (Metals & Energy)

COMMODITY Gold Silver Crude Oil Natural Gas Copper Aluminium Zinc Lead Nickel Steel Long
* till 15 December 2010


LIFE TIME HIGH 1431.10 20924.00 45735.00 5035.00 6333.00 147.27 591.80 15.78 421.40 9596.00 151.50 3380.00 208.30 4580.00 154.40 3890.00 2253.90 51800.00 37500.00

LIFE TIME LOW 252.50 5600.00 7551.00 194.50 1626.00 9.75 118.60 1.04 117.60 1323.00 62.20 1290.00 49.90 759.00 40.50 414.00 442.30 4310.00 15550.00

2010 HIGH* 1431.10 20924.00 45735.00 3069.00 4077.00 90.76 279.40 5.76 421.40 9596.00 110.00 2500.00 123.20 2638.00 122.00 2650.00 1224.70 27590.00 29650.00

2010 LOW* 1045.20 15950.00 23610.00 1482.30 3229.00 68.01 144.70 3.21 284.10 6037.00 85.90 1828.00 74.35 1577.00 72.55 1535.00 795.50 16975.00 22710.00

Source: Reuters and SMC Research

Fundamental Calls Performance 2010


Fundamental calls performance in 2010

Date 05.04.10 Commodity Name of Analyst Name of Reports Special Bullions & Energy report April 2010 Special report on Oilseeds Soyabean(NCDEX) Buy 2000 2200 Sandeep Joon 12.04.10 Oilseeds Subhranil Dey Name of Commodity Trend Given Nickel (MCX) Buy Levels 1100 Targets 1225-1260 % Return 11.36 (1st Target met) Made a high of 2190 12.04.10 19.04.10 Oilseeds Lead Subhranil Dey Sandeep Joon Special report on Oilseeds Trading opportunity report in Lead 27.04.10 27.04.10 03.05.10 Pepper & Cummin Subhranil Dey Pepper & Cummin Subhranil Dey Bullions & Energy Shitij Gandhi The Move of Pepper & Cummin The Move of Pepper & Cummin Special Bullions & Energy report May 2010 04.05.10 Base Metal Sandeep Joon Special Base metal report April 2010 02.06.10 03.06.10 Base Metal Sandeep Joon Special Base metal report June 2010 Special Bullions & Energy report June 2010 05.07.10 05.07.10 22.07.10 04.08.10 Bullions & Energy Shitij Gandhi Base Metal Zinc Gold Sandeep Joon Sandeep Joon Shitij Gandhi Special Bullions & Energy report July 2010 Special Base metal Report July 2010 Trading opportunity report in Zinc Trading opportunity report in Gold Trading opportunity report in Aluminium Monthly Base metal report Trading opportunity report in Steel long Zinc(MCX) Aluminium (MCX) Natural Gas (MCX) Natural Gas(MCX) Lead(MCX) ZINC(MCX) Gold(MCX) Buy Buy Sell Buy Buy 200 210-220 82-84 90-91 1800018100 20.10.10 Aluminium Sandeep Joon Aluminium(MCX) Copper(MCX) Sell Buy 104-106 396-400 Sell Sell 101-102 95-96 95-93-90 86-83-82 11.76 10.41 (1st Target met) 20.00 (All 220-230-240 target met) Made a 240-250-260 high of 232 78-73 96-98 1825018300-18400 102-100-98 310-318-325 2.22 4.24(First target met) 7.3(All target met) No target met(NA) 5.50 (1st Target met) Gold(MCX) Buy 17100 17350-17550 2.63 Lead(MCX) Pepper(NCDEX) Cummin(NCDEX) Sell Buy Buy 100 16500 12900 93-88 18000-18500 14500-15500 12.00 12.12 20.16 CPO(MCX) Buy 370 390 5.41

Metals & Energy Shitij Gandhi &

Bullions & Energy Shitij Gandhi

03.12.10 13.12.10

Copper Steel long

Sandeep Joon Sandeep Joon

Steel long(NCDEX)


25400 -25700

260006.2(All 26500-27000 target met)

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

Economic Indicators
65.00 60.00 55.00 Absolute value 50.00 45.00 40.00 35.00 30.00 25.00


Purchasing Manager Index

0 8 7 6 9 5 0 8 6 7 9 5 0 8 9 0 6 7 8 9 5 8 7 6 9 5 0 8 7 6 9 07 06 05 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -1 -0 -0 -0 -0 r-1 n-1 ug-1 r-0 n-0 ug-0 r-0 r-0 r-0 n-0 ug-0 r-0 t-1 nnnct ct ec ec ec ec ug -Oct Dec ug -Oct ug -Oct eb eb eb -Ap eb eb Ap -Ju Ap -Ju Ap Ap -Ju Ap Oc -O 1-D -O 1-D -Ju 1-A -Ju 1-A -Ju 1-A -A -A -A -D -D -F -F -F -F -F 1111 1111 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Monthly PMI (U.S)

Monthly PMI (EU)

Monthly PMI (China) Source: Reuters and SMC Research


U.S Existing Homes Sales (SA)

40.00 30.00 20.00 % Change 10.00 0.00 -10.00 -20.00 -30.00

0 7 8 6 9 5 0 8 7 6 9 5 0 8 6 7 9 5 0 8 7 6 9 5 9 0 8 7 6 9 5 10 08 0 06 0 07 0 05 0 -1 -0 -0 -0 -0 -0 -1 -0 -0 -0 -0 -0 -0 -0 n-1 -1 y-1 -0 y-0 -0 y-0 -0 y-0 -0 y-0 -0 y-0 vv- anv- a n v- anv- anul ul ul ul ul ul ep ar ep ep ep ep ar ar ar ar ep ar a a a a a a a an ov -J -J -J -J -J -J -J -S -S -S -S -S -S No No 1-J No 1-J No 1-J N 1-J No 1-J M M M M M M M M M M M M 1 1 1 1 1 1 1 1 1 1 1 1 1 111111111111111111Source: Reuters and SMC Research


Initial jobless claim U.S


200000 In thousand





5 -0 an -J 14

u -J 14

05 n-

-N 14

5 -0 ov

6 -0 pr -A 14

eb -F 14

7 -0

7 l-0 Ju 41

7 -0 ec -D 14

ay M 41


-0 ct O 41

8 -M 14

6 -0 ar

ug -A 14


0 -1 an -J 14

0 -1 un -J 14

10 vNo 14

Source: Reuters and SMC Research

Economic Indicators


3 2 1 0 -1 -2 -3 -4 -5

Consumer Price Index

% Change (Period on period)

05 nJa

05 nJu

05 vNo

6 r-0 Ap


06 p-


07 b-


7 l-0

07 cDe

-0 ct O

8 M

9 -0 ar

09 gAu

10 nJa


10 n-

Consumer Price Index, U.S

China Monthly CPI

Source: Reuters and SMC Research

3.00 2.00 1.00 0.00 % Change -1.00 -2.00 -3.00 -4.00 -5.00 -6.00

U.S Monthly Non Farm Pay Roll (SA)

n Ja 1-

5 -0

5 -0 ay -M 1

pSe 1-


6 -0 an -J 1

M 1-


6 -0

pSe 1-


nJa 1-

07 M 1-


7 -0

Se 1-



8 -0 an -J 1

ay -M 1

08 S 1-

8 -0 ep

9 -0 an -J 1

9 -0 ay -M 1

Se 1-

09 p-

0 -1 an -J 1

0 -1 ay M 1-

pSe 1-


Source: Reuters and SMC Research

Economic Indicators commentary 2010

PMI of various key countries like US, Japan, China and India The

non farm payroll has shown stunning recovery from mid US

2009 to last quarter 2010 which show's creation of jobs in manufacturing sector.
The housing data in US has not seen the kind of recovery as

performed very well from late 2008 to second quarter of 2010. Reading above 50 indicates expansion.
Jobless condition also improved in the year 2010 due to focus US

expected. Existing home sales data recovered drastically from first quarter 2008 to last quarter of 2009 but there after plunged lower.
(consumer price index) of U.S and China Consumer price CPI

by Obama government on job creation. Jobless situation increased at rapid pace in the 2007-08 and peaked in beginning of 2009.But during last quarter of 2010 jobless condition also started creeping up.

index fluctuated nearly zero.

Economic Indicators


Zinc Production in World

Nickel Production in World

Source: Reuters

Source: Reuters

Copper Production in World

Lead Production in World

Source: Reuters

Source: Reuters


Economic Indicators


Gold Production in World

U.S. NatGas Demand

Source: Reuters

Source: Reuters

Crude & Gold Ratio


Crude & Natural Gas Ratio











Source: Reuters & SMC Research

Source: Reuters & SMC Research


Ferrous & Non Ferrous Metals


he year 2010 witnessed roller coaster ride for the entire base metals pack except copper which showed steady upside momentum. In the year gone by base metals has affected by a

Aluminum traded on extreme volatile path in 2010 in wide range of 85-110. Strike concerns also supported the prices higher. BHP Billiton's aluminum smelter in South Africa went on strike demanding on better wages, this sent prices higher. Japanese buyers were able to get a deal with cut in premiums for fourth consecutive quarter. Premiums, which are charged over the LME price and include freight and other costs, are set at $112/tonne as against $116 to $118/tonne. In the month of October the rate of expansion in euro-zone manufacturing production accelerated for the first time in three months which gave the indication that economy is back on track again. In US the job data also gave some hope of recovery as it showed increase in payroll data. U.S. auto sales attained the best monthly rate of the year in October which gave demand for base metals. During the end part of the year some positive economic data from US and other emerging economies supported the base metals segment. Also the decision of not hiking interest rates and just hiking reserve requirements also gave boost to the base metals in December month. China hiked its reserve requirement by 50 basis point, which locked 350 billion Yuan. Increasing reserve requirements is a more direct approach to absorbing the excess liquidity that has been spurring Chinese inflation. Shanghai Futures Exchange has increased margins and daily price limits in the latest move by China to curb speculation and cool inflation which only gave knee jerk reaction to base metals. The activities from China's State Reserves Bureau (SRB) also made impact on the prices. The periodically selling by China SRB pressurized the prices which it bought during the price collapse that accompanied the Great Contraction of late 2008 and early 2009. Furthermore European Union finance ministers agreed to an 85billion-euro ($115 billion) rescue package for Ireland which would help safeguard financial stability in the euro zone. But the fears that the crisis in Ireland will spread to its neighbors despite the fact that Ireland accepted an EU-IMF bailout capped the upside in base metals. China steps to shut the polluting smelters also limited the supply and thus supported the prices.

series of adverse developments in EU, China and US. The European debt crisis returned to the forefront while China only hiked its reserve requirement moved to tighten policy in response to a growing inflation problem and North Korea made an aggressive military strike against South Korea. In the U.S. the Fed was under attack raising questions about the fate of its quantitative easing program and tax policy in 2011 remains unknown. The fed reserve second round of quantitative easing played the key role in recovery of base metals in 2010. The belief that Federal Reserve's injection of $600 billion to shore up the economy will accelerate inflation and increase demand for raw materials pushed copper prices to life time highs. The EU crisis affected the global financial markets in 2010 but European central bank also took many steps to support the respective countries to come out of debt crunch. In an effort to prevent the contagion from spreading to other peripheral countries such as Portugal and Spain, the European Central Bank (ECB) intervened to buy the bonds of countries that are shunned by the private markets. Supply concerns and labor disputes continued to support the copper in 2010. Copper showed the good jump in 2010 as its prices jumped by one third from 300 to above 400 mainly attributed to global deficit, falling inventories and robust demand. Recently imports of copper and products by China rose by 29 percent to 351,597 tonnes from 273, 511tonnes in October 2010. China's monthly production of refined copper rose 10.8 percent in November due to an increase in supply of raw materials and strong metal prices. Nickel remained volatile throughout 2010 as its prices jumped higher in first quarter from 900 to 1200 but plunged sharply lower in May and June while again recovered in remaining part of the year. Strike concerns in Vale Sudbury have given support the prices to some extent in the first quarter of 2010. 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.


Ferrous & Non Ferrous Metals


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
Price & SMA 400 350 300 250 40.00 200 150 100
0 0 0 0 0 0 9 9 9 9 9 9 8 8 8 8 8 8 -0 b-1 r-1 n-1 g-1 t-1 c-1 -0 n-0 -0 -0 -0 -0 -0 -0 b-0 -0 n-0 c ct ct e p ec pr ec pr e e u eb u ug ug u u -F 8-A 8-J -A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 1 1 1 1 1 1 1 1 1 1 1 18 1 1 1 1 1 18


Weekly price, volatility & 200 SMA chart of Copper futures (MCX)
100.00 80.00 Volatiltiy (%) 60.00

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 end of the SHFE copper forward curve and reduce the incentive to reexport stockpiles. Less potential for re-exporting has positive implications for LME prices in the short term, but it also means more material remaining in China, which could also suggest a slower pace of imports related to restocking in the next few months. With the SHFE-LME copper arbitrage now having to cope with a dynamic Yuan, the rules of the game appear to have changed dramatically. Econometric analysis on the latest SHFE-LME arbitrage data (from the beginning of July to November 10th) suggests that currently, a 1% moves in the Yuan vs. the dollar, results in a 0.98% moves in the arbitrage ratio. In other words, the SHFE-LME arbitrage can essentially be regarded as a pure Yuan play at the moment.

20.00 0.00

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

China and emerging nations need copper because it is the most important metal for a rapidly industrializing nation. Globally average single family home uses 439 pounds of copper in construction, an air conditioner uses 52 pounds and a refrigerator uses 4.8 pounds. While average vehicle contains more than 50 pounds of copper and booming auto sales will support the prices. Cochilco, Chile's copper think tank is predicting a 3% growth in copper demand for 2011 while supply is only going to grow by 0.7%. This deficit is the prime reason which is driving the copper prices higher. COMEX gold copper ratio has declined to 3.35 from 4.40 in June indicating that copper has risen at faster pace than gold. Meanwhile launch of copper ETF in western countries may also create the investment 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

COPPER..... The star performer to shine more

Range: 350-550

support the prices any time. On 6 December 2010 workers at the

Weekly warehouses stocks of Copper (LME)

590000 565000

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

540000 515000 490000 465000 440000 415000 390000 365000 340000

10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 n- n- b- b- r- ar- pr- pr- ay- ay- un- un- Jul- Jul- ug- ep- ep- ct- ct- ov- ov- ecJa Ja Fe Fe a O O J J S S A A D 4- 20- 5- 21- 9-M 5-M 10- 26- 2-M 8-M 13- 29- 15 31 6-A 01- 17- 03- 19- 4-N 0-N 60 1 0 2 2 1 2

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.

Source: Reuters and SMC Research


Ferrous & Non Ferrous Metals


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.
1400 1600

Weekly price, volatility & 200 SMA chart of Nickel futures (MCX)
140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

In order to meet its ever increasing demand for copper supply, China
Price & SMA

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 base metals and specifically copper presents a bullish outlook for the rest of the economy. With copper and the stock market being lead indicators of a very possible economic recovery, a continued rise in the metal's price will prove bullish. And considering the economic realities of emerging market economies, and their continuous appetite for commodities, it is clear that the BRIC countries and their peers will continue to push up copper prices.

1200 1000 800 600 400

08 08 08 08 t-08 -08 -09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 b- pr- un- ugc c c ec p ec p ec eb eb ug un ug un J Fe A -A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8- 18- 181 1 1 1 1 1 1 1 1 1 1 1 1 1 1 18

Volatility (%)

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

280,000 tonnes of nickel a year. The plant, as well as Norilsk's other Australian units, was mothballed in 2009, as the global financial crisis cut demand for metals. Production is scheduled to begin in the first half of 2011. In 2008 the enterprise produced 8,900 tonnes of nickel in concentrate. According to London based Commodity Research Bureau Nickel production may fall behind demand this year for the first time in four years on increased usage by the 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


Range : 900-1500

year since it has more cost advantage than other regions may result in oversupply of the metal. The weak global economic outlook, rising inventory, increasing output and declining demand from stainless steel industry may put downward pressure on prices. Furthermore

Robust steel demand to lift Nickel prices

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

Weekly warehouses stocks of Nickel (LME)

170000 165000 160000 155000 150000 145000 140000 135000 130000 125000 120000 115000 110000 105000 100000
10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 n- n- b- b- r- ar- pr- pr- ay- ay- un- un- Jul- Jul- ug- ep- ep- ct- ct- ov- ov- ecJa Ja Fe Fe a O O J J S S A A D 4- 20- 5- 21- 9-M 5-M 10- 26- 2-M 8-M 13- 29- 15 31 6-A 01- 17- 03- 19- 4-N 0-N 60 1 0 2 2 1 2

Source: Reuters and SMC Research


Ferrous & Non Ferrous Metals


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 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 inception in 2005 and now accounts for an estimated 45 percent of domestic nickel production.
Price & SMA 150 140 130 120 110 100 90 80 70 60 50

Weekly price, volatility & 200 SMA chart of Aluminium futures (MCX)
50 45 40 35 30 25 20 15 10 5 0 Volatility (%)

International Nickel Study Group (INSG) expects the global nickel

08 08 08 08 t-08 -08 -09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 b- pr- un- ugc c c ec p ec p ec eb eb ug un ug un J Fe A -A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8- 18- 181 1 1 1 1 1 1 1 1 1 1 1 1 1 1 18

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

operations. Aluminum demand in China is not growing as per expectations but its demand outside of China is booming, with North 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 healthy in 2011, but with high aluminum stocks on the LME and SHFE and the existence of huge off market stocks, and ample excess production capacity, can cap upside in prices. China reduction in power cuts will result in production cuts by mines thereby supporting the prices. For aluminum production China provincial governments had been cutting power supplies to smelters in Guangxi, Guizhou and Henan to help Beijing reduce its energy intensity, cutting aluminum output. Meanwhile Japan imports also play key role in the movement of aluminum prices. The appreciation of Yuan also affects the cost of aluminum production in China which will prompt China to further cut production. The annual rate of primary U.S. aluminum production rose 8.4 percent to 1,757,560


Range: 80-140

Packaging and transportation demand to guide light metal in 2011

Aluminium has also been through unpredictable movements in 2010 and in 2011 prices may tend to be rather range bound with more of upside. Recently demand for metal used in autos to electronics have been increasing in emerging markets as they witness increasing demand for consumer durables. Fuel is the key driver of aluminum prices and increase in crude oil will have positive effect in the production capacity in West Asia continues to increase as more and 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

Weekly Warehouses Stocks of Aluminium (LME)

4700000 4650000 4600000 4550000 4500000 4450000 4400000 4350000 4300000 4250000 4200000 4150000 4100000
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 l-1 l-1 g-1 p-1 p-1 t-1 t-1 v-1 v-1 c-1 c c o e o e e an an eb eb ar ar pr pr ay ay n n u u -J 0-J 5-F 1-F -M -M 0-A 6-A -M -M 3-Ju 9-Ju 5-J 1-J -Au 1-S 7-S 3-O 9-O -N -N -D 4 2 2 9 25 1 2 12 28 1 2 1 3 16 0 1 0 1 04 20 06

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

Source: Reuters and SMC Research


Ferrous & Non Ferrous Metals


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.
Price & SMA 140 120 100 80 60 40

Weekly price, volatility & 200 SMA chart of Zinc futures (MCX)
100 90 80 70 60 50 40 30 20 10 0 Volatility (%)


Range: 70-135

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 recovered. China is the key price driver of zinc. According to China Nonferrous Metals Industry Association Zinc consumption may increase by 9.5% a year in the next 5 years on demand for galvanized steel. Meanwhile zinc prices will get support from vehicles demand as car sales in India continue to march forward as sales grew by 20.5 percent in November to 161,497tonnes. Sales of trucks and buses 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 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 refined zinc metal in Belgium, Brazil, Canada, Germany, India, Japan, the Republic of Korea, the Netherlands, Peru and the United States and a number of other countries resulted in global production rising by 15.3% in 2010. Meanwhile rise in global refined zinc metal

20 0
10 10 10 09 09 09 10 10 10 08 08 08 09 09 09 08 08 08 b- pr- un- ug- ct- ec- eb- pr- un- ug- ct- ec- eb- pr- un- ug- ct- ecJ Fe A D A A A -O -O -J -O -F -A -J -F -A -D -D 8- 18- 188- 18 18- 18 18 18 18- 18 18 18 18 18 18- 18 18 1 1

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

demand of 17.8% was primarily driven by strong recoveries in Europe, Japan and the Republic of Korea together with further growth in Chinese apparent usage of 13.9%. Mainly zinc is used in making car bodies. On mining front Miner Xstrata , the world's biggest integrated zinc producer, will spend A$274 million ($246 million) to boost output at its George Fisher mine in Australia by nearly 30 percent by 2013. The solution of euro zone problem need to be closely watched for

Weekly warehouses stocks of Zinc (LME)

700000 675000 650000 625000 600000 575000 550000 525000 500000 475000 450000 425000 400000
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 l-1 l-1 g-1 p-1 p-1 t-1 t-1 v-1 v-1 c-1 c c o e o e e an an eb eb ar ar pr pr ay ay n n u u -J 0-J 5-F 1-F -M -M 0-A 6-A -M -M 3-Ju 9-Ju 5-J 1-J -Au 1-S 7-S 3-O 9-O -N -N -D 4 2 2 9 25 1 2 12 28 1 2 1 3 16 0 1 0 1 04 20 06

Source: Reuters and SMC Research

further direction of zinc prices. And it is eventually, fundamental debt restructuring is inevitable in Europe, and the insolvent countries will need to go through a painful austerity process. Which will give some relief to EU debt problem.


Ferrous & Non Ferrous Metals


LEAD..... Global battery demand to dictate future

Range: 80-145
160.00 140.00

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

120 100 80 Volatility (%) 60 40 20 0

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 problems in the euro zone. Generally battery makers restock ahead of the annual spike in replacement battery activity during the Northern Hemisphere winter. In the years gone by and in more balanced market conditions LME lead stocks tended to fall over the second half of the year, particularly in the Northern Hemisphere autumn months. That pattern stopped in 2009 and it is not evident this year either. LME stocks did have fallen over June and July but they have risen every month since then till December 2010. Drawdowns of metal from the LME system have run at a healthy clip 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.

120.00 Price & SMA 100.00 80.00 60.00 40.00 20.00 0.00
0 0 0 0 0 0 9 9 9 9 9 9 8 8 8 8 8 8 -0 r-0 n-0 g-0 t-0 c-0 b-0 r-0 n-0 g-0 t-0 c-0 b-1 r-1 n-1 g-1 t-1 c-1 c c c e p e p e p e e u eb u u u u u -F 8-A 8-J -A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 8-F 8-A 8-J 8-A 8-O 8-D 1 1 1 1 1 1 1 1 1 1 1 18 1 1 1 1 1 18

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

Given the strong automobile demand in nations like China and India, demand for lead, metal used in batteries is expected to remain strong. Recently China clamped down on power intensive metals smelting in one of its major producing regions, while a lead smelter confirmed a pollution related closure. China's output can be reduced by 180,000 tonnes of refined lead which will create supply tightness. While stocks of lead held in London Metal Exchange (LME) warehouses are close to 101/2 year highs, shipments recently have been leaving a diverse range of warehouse locations, suggesting a widespread pick up in industrial demand.

Weekly warehouses stocks of Lead (LME)

210000 205000 200000 195000 190000 185000 180000

175000 170000 165000 160000 155000 150000 145000 140000 135000 130000
10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 n- n- b- b- r- ar- pr- pr- ay- ay- un- un- Jul- Jul- ug- ep- ep- ct- ct- ov- ov- ecJa Ja Fe Fe a J J - S S O O A A D 4- 20- 5- 21- 9-M 5-M 10- 26- 2-M 8-M 13- 29- 15 31 6-A 01- 17- 03- 19- 4-N 0-N 60 1 0 2 2 2 1

Source: Reuters and SMC Research


Ferrous & Non Ferrous Metals



Range: 22000-33000

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

90 80 70

Backbone of infrastructure hinges on growth from emerging economies

33000 Price & SMA

60 Volatility 50

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.


40 30


20 10

08 t-08 -08 -09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 08 08 08 c g b n b- pr- un- ugc c c ec p ec eb ug un J Fe A De -Fe -Ap -Ju -Au -O A -O -D 8-F 8-A 8-J 8-A 8-O 8-D 8- 18- 188- 18 18- 18 1 18 18 1 1 1 18 18 1 1 1 18 1

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research




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 prices also wave along the tide and managed to test the 45000 level on MCX platform. Silver mainly rode the coattails of gold's success as weak economic conditions made precious metals a hot investment avenue. Weaker dollar could mainly be attributed to gains in precious metals. Silver's investment demand grew like anything in the third quarter of 2010 against a decline in the penultimate two quarters of last to last year. Ishares Silver Trust, the world's biggest silver-ETF, witnessed a cumulative decline of nearly 316 MT in its holdings in the first half of 2010 against a rise of 436 MT in the Q3 2010. Both silver and gold historically stood the test of time, as a medium of exchange, a store of value and a safe haven in times of turmoil. These two have historically moved in same tandem, although silver showed more volatility in either direction. Nowadays, silver is taking investors' precedence over gold, shown by the popular Gold/Silver Ratio (GSR) which broke downwards.

rices surged high as there is no stoppage or hurdle in between their way. Sentiments became really positive for

gold and silver prices to sky rocket on domestic as well as on

international bourses. The world economy has seen turbulent times in the last 2-3 years, as the world's deepest recession since 1929 emerged in 2008 and spread like a conflagration across the globe, pushing world's major economies down. However, increased cooperation across countries helped the world leaders tame this recession. Trillions of dollars were poured into financial systems and monetary policies were relaxed in an effort to fight the recession. As an effect of accommodative monetary policies world-wide, macroeconomic indicators started turning positive from the third quarter of 2009. Asia led this global economic recovery with the US also emerging from the recession. Asia's two economic giants; India and China, gained their earlier growth momentum and continued to be important driver of the Asian recovery. Debt worries were first observed in Greece when the country's fiscal deficit reached nearly 12% of GDPa way above Euro-zone's prescribed limit of 3%. Debt woes emanated from Greece crept into Portugal, Spain and Ireland. Now, dark clouds of the same spreading beyond Europe are hovering over global financial markets. These factors were more than enough for bullion counter to show their strength. Gold made an all time high while silver prices surged to its 30 year peak in 2010. A larger section of investors' community resorted to gold when all 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

Gold/Silver Ratio
The average gold/silver ratio fell below 45 during the 4th quarter of 2010 from 65.25 in the previous quarter. Overall, the ratio traded lower as more upside was witnessed in silver in comparison with gold. Silver jumped nearly 15% while gold saw moderate gains of over 4% during the quarter4. Gold was mostly seen trading above $1200/oz levels.

85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00

Gold/Silver ratio (Comex)

01 -01 -02 -02 -03 -03 -04 -04 -05 -06 l-06 -07 -07 -08 -08 -09 l-09 -10 -10 -10 g nct ct ec ar ar pr Ju ay pr eb ay ec un an Ju eb ep ug Ja -Au -M 3-S 1-A 8-O 5-M 1-D 9-J 5-J 24- 9-F 8-A 5-M 1-O 9-A 28- 3-F 4-M 0-D 13 0 2 1 1 1 2 1 1 19 2 1 07 2 1

Source: Reuters and SMC Research


Bullions...."When Reliability Matters"



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

Weekly price, volatility & 200 SMA chart of Gold futures (MCX)
25000 40 35 20000 30 Price & SMA 15000

old prices are currently trading near their all time highs on global markets as concern over the ability of several European 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 gold an attractive investment. In particular, statements by Federal Reserve officials and discussions in previous policy meetings regarding their willingness to provide a more accommodative policy to spur economic growth and reactivate the labour market have put pressure on the US dollar, which increased long-term inflation expectations and, consequently, due to its role as a hedging vehicle, pushed up the price of gold. Secondly, official sector activity continued to be supportive of the gold market as sales by European central banks remained negligible while in several emerging 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. Isolating any one aspect is done with the risk of being inaccurate. So, the price of gold is a difficult number to determine in the overall economic outlook. There is no definitive answer to where the price of gold will be in 2011 as prices have already surged for ten consecutive years. But if we look at the overall global scenario than we think that the current scenario is still very positive for bullions to mark an eleventh year of gains in 2011 on international bourses and new highs on local platform as investors seek refuge from an uncertain global economic outlook and non reliability on paper currency. On global front, China is now the world's biggest producer of gold and consumes all the gold its mines can dig up. China's miners produced 277.017 metric tonnes of gold so far in 2010, up 8.8% from the same period in 2009. In fact, China imported 209.7 metric tonnes of gold

Volatility (%)

25 20 15


5000 10 0 5

08 08 08 t-08 -08 -09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 08 c g b n b- pr- un- ugc c c ec p ec eb ug un J Fe A De -Fe -Ap -Ju -Au -O A -O -D 8-F 8-A 8-J 8-A 8-O 8-D 8- 18- 188- 18 18- 18 1 18 18 1 1 1 18 18 1 1 1 18 1

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

in the first 10 months of 2010 which is up fivefold compared with the same period of 2009. Surging demand from China is already changing the seasonal patterns in the gold price pushing the annual gold price peak from November to February, as gold buying centers around China's New Year. If current trends continue, the next change may be that February's peak may not be much of a peak at all. Apart from Chinese buying, India is also sitting on their hands, waiting for lower prices. However in spite of such high prices demand from India in festive season once gain loomed up which shows that high prices can not affect the hunger for gold in India.


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

When it comes to silver also, India is the world's #1 consumer as well. And it can be seen from imports figures which are up sharply in 2010, nearing 30-year peaks. All such factors shows that in spite of such high prices demand from these countries will continue to climb up, taking bullion prices to their new highs in 2011. While both gold and silver are set to rise further owing to continued currency devaluation and enhancing physical demand, silver is likely to outperform gold, in our view. Silver prices reasonably tracks gold and are more volatile than the yellow metal. However, silver is also dependent on industrial growth, and, therefore, price advances may be limited if the global economic recovery is perceived to have stalled. Moreover, the nation has received abundant monsoon in 2010, which is likely to result in abundant harvesting and rising


Bullions & Energy


Weekly price, volatility & 200 SMA chart of Silver futures (MCX)
50000 45000 40000 35000
Price & SMA

agency, downgraded Spain's credit rating which again resulted into fall in crude oil prices by nearly 14%, the steepest fall since December
50 45 40 35
Volatility (%)

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 we also had a slew of better than expected economic readings out of Europe. Even Ireland's manufacturing and Spain's manufacturing index beat expectations. With all of such positive data's it seems that oil has other reasons to be bullish in late 2010 other than the crunch of printed money. Energy bulls got one more reason in December 2010 when China delays its rate hike even though inflation surged above 5%. However, the increase in reserve requirement ratio (RRR) by China was viewed as a tame measure and eased concerns about slowdown in growth. The OPEC also left production quotas 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

30000 25000 20000 15000 10000 5000 0

30 25 20 15 10 5

08 08 08 t-08 -08 -09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 08 c g b n b- pr- un- ugc c c ec p ec eb ug un J Fe A De -Fe -Ap -Ju -Au -O A -O -D 8-F 8-A 8-J 8-A 8-O 8-D 8- 18- 188- 18 18- 18 1 18 18 1 1 1 18 18 1 1 1 18 1

Weekly Close Price

200 SMA

Volatility (%)

Source: Reuters and SMC Research

agricultural income. Silver is expected to see higher demand from rural India in the medium term. Silver is also likely to attract greater attention from the fund community; particularly in the US. Owing to its out performance, the white metal is likely to receive more importance than gold. The world's largest silver-backed exchangetraded fund, iShares Silver Trust said that its holdings hit record at 10,941.34 tonnes by Dec. 7, 2010. Such strong fundamentals clearly shows us that there is still a long way to go for bullion in coming period as current economical environment is igniting up the heat in this counter.

Energy Commentary 2010

After spending most of the year in doldrums, crude oil futures got underpinned in later part of 2010 and roused above $90 mark after almost 2 years. Third quarter of 2010 was the official hurricane season, which was expected to fuel the energy prices in 2010. But, it failed to impact the oil market to a larger extent as effect of tropical storms was very little. Weakness in economic growth also kept the oil market under pressure. Energy producing companies drilled more oil on speculation that the summer driving season would create more demand for energy products. However, demand could not match with the supply due to slower growth of major world economies thereby resulting to bearish trend for the crude oil prices. Events like the volcanic eruption in Iceland and a complaint filed by SEC against Goldman Sach continued to inject volatility into the market. In the month of May, ongoing debt crisis in Euro zone resulted into sharp fall in the prices below $65 per barrel. In May 2010, Fitch, the rating

not witnessed in natural gas prices. 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. Prices fell more than 20% in August in Indian market. In the month of September, moreover prices recovered on account of rising storm threat in Gulf of Mexico but, growth in prices was capped by appreciating currencies. However in US, winter season starts in the month of November which generally boosts demand of natural gas but normal temperatures in northwest and Midwest remain below average normal which once again capped the upside in prices during late 2010. EIA estimated natural gas marketed production in 2010 will average 62.09 billion cubic feet per day, or 22.66 trillion cubic feet for the year, just above the alltime high of 22.65 tcf set in 1973.


Energy....A Passion to Perform



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

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 leave production quotas unchanged at current levels amid forecasts that demand growth in 2011 will be lower than that in 2010 the 'fragile global economic recovery, including the adverse effect of possible currency conflicts and fears of a second banking crisis in Europe' as well as 'lower industrial output, lagging private consumption, persistently high unemployment and ample spare capacity throughout the oil supply chain' in OECD would constrain growth in oil consumption. Overall we look 2011 as a year full of possibilities for crude oil to trade on both sides. If we talk about range then we expect prices to move in range of $60-$115 on international bourses. The most important thing has to be seen in coming period is the evaluation of $600B asset-buying program announced by Fed and reiterate the commitments to accommodative monetary stance that will run through June 2011. The increased support is expected to hold the economic recovery and reduce unemployment rate. Another factor apart from economic front is the hurricane season in 2011 in North Atlantic region which runs between June and November. About 30% of US crude oil production comes from Gulf of Mexico. Hence, occurrence of storms and hurricane in this region will disturb the supply and production of oil. However in 2010 it was reported that there would be number of hurricanes occurring in this region but none of them was that strong which can disrupt the oil production. So investor's are adviced to keep an eye on occurring hurricanes during this period to gauge the direction in prices.

Crude oil prices which sunk up to $65 on NYMEX division during 2010 rebounded smartly over the period of time and traded nearly 2 year high on better-than-expected economic numbers from the US and shrinking inventories. EIA data showed that crude stocks fell 9.85 million barrels in the week to Dec. 10, against analysts' forecasts for a 2.5 million barrel fall, while imports fell 1.36 million barrels per day. The large drop in crude inventories was seen because of the 1.36 million barrel-per-day drop in crude imports and end of year LIFO tax draw downs in effect. People hold cargo offshore instead of bringing it in and being taxed on it. On the hand prices also got support as China had not announced a rate hike which was expected even though inflation surged above 5%. Even though, bullish data for the energy complex and strong demand for gasoline and distillates support the bullishness in the marketplace; the dollar remains the biggest elephant in the room and likely will remain the driver of prices for the foreseeable future. With fundamentals improving and the dollar remaining relatively weak, we expect prices to move higher from here. With keeping all such factors in mind, 2011 can be anticipated as the year full of various possibilities which can drove crude prices in any direction. However, sustainable rally above $90 needs significant improvement in global oil demand outlook but it appears unlikely in the near-term. The OPEC left production quotas unchanged; forecasting price above $90 was driven by temporary factors such as cold weathers and weak US dollar during 2010. On 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

Weekly price, volatility & 200 SMA chart of Crude futures (MCX)
4500 4000 70 3500 Price & SMA 3000 40 2500 2000 10 1500
0 0 9 9 9 10 10 10 10 09 09 09 -1 -0 -0 r-1 r-0 ccgbnbnct ct ug O O Ju Fe Ap Ju Fe Ap De De Au -A 888888888881 1 1 1 1 1 1 1 1 1 1 18

400 90 80 360

U.S Crude inventory (Absolute Change)


60 Volatility (%) Millions 50 340


30 20



6 9 09 10 0 10 8 08 09 6 06 07 7 07 08 9 6 7 8 0 05 0 c- ar- n-0 ep-0 ec- ar- n-0 ep-0 ec- ar- n-0 ep-0 ec- ar- n-0 ep-0 ec- ar- n-1 ep-1 ecD Ju S M Ju S D M M D Ju S De M Ju S D M D Ju S 0- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 10- 101 Stocks in Barrels Source: Reuters and SMC Research

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research





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

Natural Gas inventory, U.S


Another commodity in energy sector is the natural gas which was the worst performer commodity during 2010 as most of the year prices 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.
Billions Cubic feet



remain under pressure due to heavy build up in inventories.







Weekly price, volatility & 200 SMA chart of Natural Gas futures (MCX)
350 300 250 Price & SMA 200 150 100 50 0
0 -1 ay M 9Ju 910 n9 0 -1 ul -J Au 91 g0 9 -1 ep -S 0 0 -1 ct -O 9 N 90 -1 ov 9 0 -1 ec -D


90 80 70 60 Volatility (%) 50 40 30 20 10 0

0 0 0 0 0 9 9 9 9 9 0 0 0 0 10 0 8 8 8 8 8 9 9 9 9 09 9 8 8 8 8 08 8 -0 -0 r-0 r-0 y- -0 -08 g-0 -0 t-0 v-0 c-0 -0 -0 r-0 r-0 y- -0 -09 g-0 -0 t-0 v-0 c-0 -1 -1 r-1 r-1 y- -1 -10 g-1 -1 t-1 v-1 c-1 an eb a p a un ul u ep c o e an eb a p a un ul u ep c o e an eb a p a un ul u ep c o e -J 4-F 4-M 4-A 4-M 4-J 4-J 4-A 4-S 4-O 4-N 4-D 4-J 4-F 4-M 4-A 4-M 4-J 4-J 4-A 4-S 4-O 4-N 4-D 4-J 4-F 4-M 4-A 4-M 4-J 4-J 4-A 4-S 4-O 4-N 4-D 24 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Source: Reuters and SMC Research

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

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

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.




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.

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




6000 Price & SMA

40.00 Volatililty (%)









0 0 0 0 10 10 l-10 10 10 10 10 10 09 -1 -1 -1 r-1 cvcgbpnnct ar ay Ju Ja O Ju Se Fe Ap De De Au No M 9-M 999999999991 1 1 1 1 1 1 1 1 1 1 1 19


Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

Outlook 2011 Red Hot Grenades for the year

Range: 5500-11000

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.

CUMMIN Past Year Movement

Since 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 AprilNovember 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.

Weekly price, volatility & 200 SMA chart of Cummin futures (NCDEX)
50 45 40 12000 Price & SMA 35 Volatililty (%) 30 25 20 4500 15 10




0 0 0 0 0 0 9 9 9 9 9 9 8 -1 -1 -1 -1 -1 -1 -0 -0 -0 -0 -0 -0 -0 ct ct ec pr ec pr ec eb eb ug un ug un O -O -J -F -A -J -F -A -D -D -D -A -A 91 19 19 19 19 19 19 19 19 19 19 19 19

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research




Outlook 2011 The seed will travel through a shaky voyage

Range: 11000-17000

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.

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 sufficient reason to lock the stocks for the upcoming years. The best 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

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

45 40 35


21000 30 Price & SMA 18500 25 20 15 13500 10 11000 5 0 Volatililty (%)


0 0 0 0 0 0 9 9 9 9 9 9 8 -1 -1 -1 -1 -1 -1 -0 -0 -0 -0 -0 -0 -0 ct ct ec pr ec pr ec eb eb ug un ug un -O -O -J -F -A -J -F -A -D -D -D -A -A 19 19 19 19 19 19 19 19 19 19 19 19 19

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

to parity with other origins, which further gave a boost to touch the record high of 23,338 levels.

Outlook 2011 Black gold to shine

Range: 16000-28000

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.




TURMERIC Past Year Movement


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

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.



Price & SMA

Volatililty (%)







0 9 9 10 10 10 10 09 09 09 09 08 -0 r-1 r-0 cccgbngbnct O Ju Fe Ap Ju Fe Ap De De De Au Au 9999999999991 1 1 1 1 1 1 1 1 1 1 1


Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research

Outlook 2011 Rhizome will add-in colour to profits

Range: 6000-13500

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.

CARDAMOM Past Year Movement

Last year, investors of cardamom futures have enjoyed & witnessed both of the extreme situations of relentless one-sided rally & a disheartening 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
2000.00 1800.00 1600.00 Price & SMA 1400.00 1200.00

Weekly price, volatility & 200 SMA chart of Cardamom futures (MCX)
100 90 80 70 Volatililty (%) 60 50 1000.00 800.00 600.00 400.00
0 0 0 0 0 0 0 0 0 0 0 0 9 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -0 l-1 ct ar ec pr ec ay ov eb ep an ug un Ju -J -O -J -S -F -A -D -D -A -N -M 9-M 1 19 19 19 19 19 19 19 19 19 19 19 19

40 30 20 10

Weekly Close Price

200 SMA

Volatility (%) Source: Reuters and SMC Research


Spices & 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

Range: 900-1800

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.

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 climate change. In the international scenario, farmers are shifting more towards corn and oilseeds at the expense of pulses. However,
2700 2600 2500 Price & SMA 2400 2300 2200 2100 2000

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

45 40 35 Volatililty (%) 30 25 20 15 10

0 0 9 9 9 10 10 10 09 09 09 08 -1 -0 -0 r-1 r-0 cccbnbnct ug ug O Ju Fe Ap Ju Fe Ap De De De -A -A 99999999991 1 1 1 1 1 1 1 1 1 19 19

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research

later during the year the heating demand made the counter to give a break out from its long lived consolidation phase & touch highs of 2510 levels.

Outlook 2011 Battle with the demand and supply mismatch

Range: 2100-2900

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.


Other 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.

Weekly price, volatility & 200 SMA chart of Guar Gum futures (NCDEX)
7000 6500 6000 40 5500 Price & SMA 5000 4500 4000 3500 20 3000 2500 2000
0 9 9 9 10 10 10 10 09 09 09 08 -0 -0 r-1 r-0 cccgbnbnct ug O Ju Fe Ap Ju Fe Ap De De De Au -A 999999999991 1 1 1 1 1 1 1 1 1 1 19

50 45

35 30 25

Volatililty (%)

15 10

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research

Outlook 2011 Bulls to drive-in Range (Guar seed: 2000-3200) (Guargum: 4800-8000)
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 1520%, 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.

Weekly price, volatility & 200 SMA chart of Guar Seed futures (NCDEX)
3200 40



2600 30 Volatililty (%) Price & SMA 2300 25 2000 20 1700 15




0 9 9 10 10 10 10 09 09 09 09 08 -0 r-1 r-0 cccgbngbnct O Ju Fe Ap Ju Fe Ap De De De Au Au 9999999999991 1 1 1 1 1 1 1 1 1 1 1

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research


Other 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 from states such as Punjab, Haryana and Uttar Pradesh, giving the futures a best reason to rise by 8%, covering up the losses in prior
1500.00 1400.00 1300.00 Price & SMA 1200.00 1100.00 1000.00 900.00 800. 00

Weekly price, volatility & 200 SMA chart of Wheat futures (NCDEX)
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0 0 0 0 0 10 10 10 -1 10 10 10 -1 10 -1 vr-1 gcbpnl-1 nay ar ct M De Ja Ap Au No M Ju Ju Se O Fe 333333333333-

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research

months. Thereafter, prices found tough to expand with the flow of heavy stocks into the spot markets introduction of OMSS scheme coupled with heavy imports from neighboring countries.

Outlook 2011 Ridden sideways

Range: 1150-1450

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.

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 created situation of surplus in sugar inventories with greater
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Weekly price, volatility & 200 SMA chart of Gur futures (NCDEX)
45 40 35 30 Volatililty (%) 25 20 15 10 5

0 0 0 0 0 9 9 9 9 9 9 8 -1 -1 -1 -1 -1 -0 -0 -0 -0 -0 -0 -0 ct ec pr ec pr ec eb eb ug un ug un -O -J -F -A -J -F -A -D -D -D -A -A 19 19 19 19 19 19 19 19 19 19 19 19

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research

crushing activity amid consumers getting health conscious & trying sugar-free products.


Other Commodities & Oil Seeds


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

Range: 2800-3500

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 (OctoberSeptember) 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.

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. The positive turn around in exports figures i.e a whooping rise by more than 70% to 14,82,086 tonnes (July-November 2010) as compared to same period last year gave an upward break-out to

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



2300 Price & SMA

45 Volatililty (%)







-D 19 8 -0 ec 19 09 bFe 19 9 r-0 Ap un -J 19 09 19 09 gAu 9 -0 ct -O


5 0 10 10 10 10 09 r-1 ccgbne p e e u u -J -F -A -D -D -A 19 19 19 19 19 19 200-SMA Volatility (%) Source: Reuters and SMC Research

Weekly Close Price

prices touching highs of 2350 levels. The high volume of outstanding sales of U.S soybeans, particularly for China provided a guarded optimism to the price movement.

Outlook 2011 "External factors in lobbying the bean profits"

Range: 1800-2800

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.


Oil 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.
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Weekly price, volatility & 200SMA chart of Mustard Seed futures (NCDEX)
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Volatililty (%) Price & SMA

0 0 9 9 9 8 10 10 10 09 09 09 -1 -0 -0 -0 r-1 r-0 ccbnbnct ec ug ug O Ju Fe Ap Ju Fe Ap De De -D -A -A 9999999991 1 1 1 1 1 1 1 1 19 19 19

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research

Outlook 2011 There is too much of seed

Range: 2500-3500

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.

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-onmonth 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
550 500 450 Price & SMA 400 350 300 250 200

Weekly price, volatility & 200 SMA chart of CPO Futures (MCX)
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0 0 0 9 9 9 9 9 8 10 10 09 -1 -1 -0 -0 -0 -0 -0 -0 r-1 bnnct ec ec pr ec eb ug ug O Ju Fe Ap Ju -F -A -D -D -D -A -A 999991 1 1 1 1 19 19 19 19 19 19 19

Volatililty (%)

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research


Oil Seeds


28-month high to MYR3452/ton at Bursa Malaysian Derivative exchange underpinned by bullish factors of stronger imports from China & weaker Malaysian ringgit. Demand from domestic market remained quite strong through out the year as the soybean yields

were not improving. Internationally, crude oil prices increased its appeal as a substitute used in bio-fuels. By the year end, China continuously selling off vegetable oils from stockpiles to stabilize prices and euro zone debt issues were a drag on palm oil.

Outlook 2011 Pause in upsurge

Range: 400-600

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.

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.
600 580 560

Range: 500-800
Weekly Price, Volatility & 200SMA chart of Ref. Soy Futures (NCDEX)
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Volatililty (%)

Price & SMA

0 0 0 9 9 9 9 9 8 10 10 09 -1 -1 -0 -0 -0 -0 -0 -0 r-1 bnnct ec ec pr ec eb ug ug O Ju Fe Ap Ju -F -A -D -D -D -A -A 999991 1 1 1 1 19 19 19 19 19 19 19

Weekly Close Price


Volatility (%) Source: Reuters and SMC Research



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