KARVY COMTRADE LIMITED - Karvy Commodities Ann... · KARVY COMTRADE LIMITED REGISTERED OFFICE: ... been formulated infusing the fundamental and technical analysis. ... of Karvy, and

KARVY COMTRADE LIMITEDREGISTERED OFFICE: Karvy House, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad, Telangana-500034

CORPORATE OFFICE: Karvy Millennium, 9th Floor, Plot No.31, Financial District, Nanakramguda, Gachibowli, Hyderabad, Telangana – 500032 Contact Us: Toll Free No: 1800-425-1900

SEBI REGISTRATION NO: INZ00007335 | MCX MEMBERSHIP ID: 10775 | NCDEX MEMBERSHIP ID: 00236 | NMCE MEMBERSHIP ID: CL0268 |

“INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL RELATED DOCUMENTS CAREFULLY BEFORE INVESTING”

Annual Commodity Report 2017 3

Preface

Dear Readers

At the beginning of the year 2017, it gives me immense pleasure to release 9th edition of “Karvy Comtrade’s Annual Commodity Report – 2017”. In the last eight years, this report has received an overwhelming response

from the readers including academicians, traders, investors, market participants and other stakeholders who are engaged in the commodity trade either directly or indirectly. This report offers a comprehensive outlook on all the commodities traded on the Indian exchanges for the year 2017, which will guide the market participants to maximize their profits. The outlook presented in the report has been formulated infusing the fundamental and technical analysis. We believe this report would provide you a deeper understanding of the commodity markets and facilitate knowledge-based investment for the year 2017.

The year 2016 was a silver lining in the commodity market as most of the commodities gave a positive return shrugging off earlier years of negative returns. Base metals sector was the best performing sector as the prices of few metals rallied to multi year highs due to strong economic growth across the world. Besides, the world market witnessed few important events like Britain exiting the European Union, US Presidential Election as well as demonetization of high value cur-rency by the Indian government. All these events had a ripple effect on the commodities in the immediate short term.

The report starts with overall commodity market outlook for 2017 taking the events that hap-pened in 2016 as a benchmark. This report covers all the major commodities traded on Indian ex-change, which are having maximum trade participation. Sectors covered in this report are bullion, energy, base metals, oilseeds, spices, softs and cereals.

While preparing the report, all the macro and micro factors affecting the market movement are taken into consideration in order to derive outlook in terms of direction of the market as well as entry and exit levels for the year 2017. Further, the report is prepared in a most simple man-ner so that all sections of the trading fraternity can benefit from understanding the report. In order to attract the readers’ attention, we have made this report statistics driven by using tables, graphs, pie-charts etc. Each commodity starts with the review of previous year followed by an in-depth analysis of various fundamental factors and concludes with long term outlook. Further, to strengthen the fundamental outlook, advanced technical analysis has been carried out to de-termine the entry exit levels for each commodity.

Finally, the success of this report goes to all research analysts who have worked extensively to come out with a long term outlook and make this report a grand success and insightful. I would also like to acknowledge the efforts put in by Mr. Vijayendra Kumar in designing this report.

I wish all our readers a prosperous New Year with peace and happiness in your personal and professional endeavours and to maximize your wealth.

A Very Happy New Year – 2017 from Karvy Comtrade Ltd.

Thank you and good luck.

Veeresh HiremathHead – Commodity Research


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

Contents

Best Recommendations 2017 5

Major Events 2016 6

Gainers and Losers - 2016 9

Statistics 10

Commodity Market Outlook 11

Precious MetalsGold: An Investors’ Paradise 14

Silver: Watch out for the Dark Horse 21

EnergyCrude Oil: Driven by the historic deal 28

Natural gas: Spark might continue 33

Base Metals

Aluminum: Tough road ahead 38

Copper: Winding shall get tighten 41

Nickel: Stuck among producers 44

Lead:The accumulated power 47

Zinc: The glow for steel shall drive 50

Agri Commodities

Oil & Oil Seeds 53

Soybean: Finally the dawn after long night 54

Soyoil: Bears on the prowl, May follow the bear 57

RM Seed: Bumper harvest may set the bears to loose 61

CPO: May regain its Glory 64

Spices 67

Turmeric: Time for the fresh entry 67

Jeera: Bulls to ride the market 70

Cardamom: Bullish all the way 73

Dhaniya: Hopes of Revival 76

Others 79

Guar Complex: On revival path 79

Cotton: A stonger fibre 82

Sugar: Sweeten your portfolio 86

Maize: Record sowing couldn’t feed the output 89

Wheat: Stronger demand to drive the market 92

Mentha Oil: A mixed bag for the year ahead 95

Other Commodity Recommendations 97


DisclaimerThe report contains the opinions of the author that are not to be construed as investment advice. The author, directors and other employees of Karvy, and its affiliates, cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above-mentioned opinions are based on the information which is believed to be accurate

and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading.

Commodity derivatives trading involve substantial risk. The valuation of the underlying may fluctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profit or that losses can, or will be, limited in any manner whatsoever. Past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from

sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

We do not offer any sort of portfolio advisory, portfolio management, or investment advisory services. The reports are only for information pur-poses and not to be construed as investment advice. For a detailed disclaimer please go to following URLs:

http://karvycommodities.com/disclaimer; http://karvycommodities.com/risk-disclaimer“INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL RELATED DOCUMENTS CAREFULLY BEFORE INVESTING”

Note: These calls are indicative in nature as they reflect the likely movement in future contracts based on their respective spot price direction. For example, in Comex gold futures, the benchmark is international spot gold. Especially for agricultural com-modities, recommendations may differ based on their seasonal pattern wherein wide swings could be seen in select commodity contracts depending on their sowing and harvesting.

Best Recommendations 2017

Commodity Exchange Action Entry Target SL

GoldComex Buy 1100-1120 1440/1662 950

MCX Buy 26350-26450 34500/39850 22250

AluminiumLME Sell 1960-1980 1540 2220

MCX Sell 144-146 105 164

Refined Soy Oil NCDEXSell

760-770 640 880

810-820

Buy 630-640 730 570

RM Seed NCDEX Buy3600-3620

4850/52503000

3300-3320

Guar Seed NCDEX Buy3000-3020

4100/4450 22002600-2620

Jeera NCDEX Buy15800-16200

20000 1150013600-14000

Mentha Oil MCXBuy 925-945 1180/1300 730

Sell 1300-1320 960 1470

Crude Oil

NYMEX Buy43-44

68/78 2533-34

MCX Buy2900-2950

4650/5500 17502250-2300


Major Events 2016

September 2016Surgical StrikeSeven terror launch pads in the Pakistan-occupied Kash-mir were destroyed by the Indian Army on the night of September 28 and 29, when soldiers crossed the Line of Control and carried out swift operation. The surgical strike was a result of tough decision making by the Narendra Modi-led BJP government at the Centre and was widely appreciated by the people. The Army said the operation was carried out based on intelligence reports.

Hurricane MathewHurricane Matthew was a tropical cyclone which originated in the Caribbean Sea in December and caused mass devastation in the Haiti, United States of America, Cuba, Dominic Republic and parts of South America. The cyclone claimed more than 800 lives in United States; 1000 died in Haiti.

February 2016North Korea Launches a Satellite into OrbitNorth Korea has apparently launched a satellite to orbit, in a move that the United States and other nations quickly con-demned as an attempt to further develop a prohibited long-range missile capability.

(www.space.com)

November 2016

January 2016

Zika Virus Spread Across US

In the year 2016, the World

Health Organization (WHO) had

declared the Zika virus as global

risk factor. The virus attacks of

the fetus and results into birth

of infants with small head. This

virus had its large impact in the

year 2015 in Brazil and in 2016 it

spread to across other parts of the

world. Around 30-40 lakh people

were affected by this virus. WHO had

declared an ending of Zika virus in

November 2016

OPEC Agrees to Cut Oil Produc-tionOPEC confounded its doubters and sent crude oil prices soaring by agreeing to its first production cuts in eight years. The deal, designed to drain record global oil inventories, overcame disagreements between the group’s three largest producers -- Saudi Arabia, Iran and Iraq -- and ended a flirtation with free markets that started in 2014.

(Bloomberg)

US Presidential ElectionThe electoral process to choose the successor of US President Barack Obama was held in the month of November, 2016. American busi-nessman and television personality Donald Trump, a nominee of the Republican Party, beat his rival candidate and Democrat Hillary Clinton to emerge victorious in the electoral battle. Trump will take oath as the 45th President of the United States on January 20, 2017.

DemonetizationIn a historic move, Prime Minister Narendra Modi announced on No-vember 8, 2016, the government’s decision to ban or demonetise the existing higher denomination cur-rency notes of Rs 500 and Rs 1000. The Prime Minister termed this as a war against terrorism and black money, and urged the country-men to support the government’s bold move.

(AFP photo)


July 2016

Solar Impulse

Powered solely on sun’s energy, Solar Impulse 2

made history with its round-the-world flight. It

completed a journey of 25,000-miles on July 26,

2016 after it took off 16 months ago in March 2015.

It made 16 stops across the world during its journey

while demonstrating as to how an aircraft can reduce

world’s energy consumption by 50%.(Reuters photo)

August 2016

Rio Olympics: Sindhu, Sakshi shine as India end

campaign with two medals

Three unassuming women became the redeemers

for India at the Rio Olympics as the country

concluded its campaign with some good, bad and

ugly memories. Defying all odds and showing

killer instincts, PV Sindhu, Sakshi Malik and Dipa

Karmakar became the unlikely heroines and saved

the country’s pride from returning empty-handed for

the first time since Barcelona 1992. The trio notched

a few firsts for India; Sindhu, at 21, became the

youngest to win an Olympic medal, a silver which

was never achieved in badminton; and Sakshi’s

bronze was also a first for women’s wrestling.(Times of India)

March 2016

ICC World Twenty 20The West Indies defeated 2010 winner Eng-land by four wickets in front of a packed Eden Gardens, and has consequently moved ahead of New Zealand in second place. ICC World Twenty20 India 2016 champion West Indies has number-one ranked India firmly within its sights after it became the only country to win the tournament twice.

(www.icc-cricket.com)

May 2016NASA Announc-es 1,200 New PlanetsAstronomers us-ing NASA’s Kepler Space Telescope announced they have confirmed the exist-ence of 1,284 newly discov-ered planets around distant stars, doubling the number of alien worlds detected by the agency’s planet-hunting probe. Nine of these newly verified worlds are poten-tially habitable, orbiting

their stars in a zone warm enough for

water to pool as a liquid, which is considered essen-tial for life as we know it, the scientists said. Nearly 550 of the newly verified worlds could be rocky plan-ets like Earth. More than 100 of them are about the size of Earth or smaller.

(Wall Street Journal)

June 2016BrexitThe citizens of United Kingdom voted in favour of coming out from the Euro-pean Union in the month of June. Following a referendum held on 23 June 2016 in which 52% of votes were cast in favour of leaving the EU, the UK gov-ernment intends to invoke Article 50 of the Treaty on Europe-an Union, the formal procedure for withdrawing, by the end of March 2017. Prime Minister Theresa May, elected by the ruling Conservative Party in the wake of the referendum, has promised a bill to repeal the European Communities Act 1972 and to incorporate existing EU laws into UK domestic law.

(Wikepedia)

April 2016Saudi Arabia Announces Aggressive Economic PlanSaudi Arabia is a country near-synonymous with the oil industry, but now the kingdom is moving to end what it calls its “addiction to oil” with a new plan. The plan, known as Vision 2030, was announced by Deputy Crown Prince Mohammed bin Salman, the fast-rising 31-year-old said to be at the helm of Saudi Arabia’s plans to modernize its economy.






Gainers and losers - 2016

-30.7%-18.9%

-4.9%-3.7%-3.7%-2.3%

1.7%2.2%

10.1%12.5%

14.9%15.2%15.6%16.1%16.5%17.0%17.3%17.4%

19.4%23.6%

31.4%46.4%

61.6%63.4%

79.3%

TurmericSoybean

MaizeGuar Gum

Cotton Seed Oil CakeGuar Seed

Rm SeedDhaniya

GoldWheat

AluminumLead

Mentha OilSoy Oil

SugarCotton

SilverNickel

CopperJeera

BarleyCrude Oil

Natural GasZinc

CardamomIndian Market

-13.2%

-1.9%

8.2%

8.6%

11.6%

12.3%

12.5%

12.7%

13.6%

15.8%

16.2%

17.7%

19.2%

24.2%

28.0%

45.0%

59.3%

60.1%

CBOT Wheat

CBOT Corn

ICE Coffee

Comex Gold

ICE Cotton

LME Aluminium 3 Month

LME Lead 3 Month

CBOT Soy Oil

LME Nickel 3 Month

Comex Silver

CBOT Soybean

LME Copper 3 Month

CBOT Soy Meal

LIFFE Sugar

ICE Sugar

Nymex Crude Oil

Nymex Natural Gas

LME Zinc 3 Month

International Market


Statistics

Economic Indicator as on DecemberCountry GDP (%) CPI Inflation

(%)PPI Inflation

(%)Interest Rate

(%)Unemployment

Rate (%)IP (%) Current

Account BlnUS 3.9 1.3 1.40% 0.25 5.8 1.26 -100.26

EUROPE 0.2 0.3 -0.9 0.05 11.5 0.1 30

GERMANY 1.2 0.6 1.4 0.05 6.6 0.2 23.1

UK 0.7 1 1.4 0.05 6 -0.1 -23.096

JAPAN -1.3 2.9 3.6 0.1 3.5 0.4 833.4

CHINA 7.3 1.4 -2.7 5.6 4.07 7.2 161980.2

INDIA 5.3 1.77 1.8 8 - -4.2 -10.081

AUSTRALLA 2.7 2.3 1.2 2.5 6.3 - -12525

SINGAPORE 2.8 0.1 90.4 0.08 2 2.6 19.41

Commodity2015-2016 2016-2017

Advise Fixed Advise Fixed DifferOilseedsSoybean (Black) - - 2675 2775 -Soybean (Yellow) 2600 2600 2675 2775 6.7Groundnut in shell 4030 4030 4120 4220 4.7Sunflower seed 3800 3800 3850 3950 3.9Sesamum 4700 4700 4500 5000 6.4Nigerseed 3650 3650 3725 3825 4.8Rapeseed/Mustard 3350 3350 3600 3700 10.4Toria - - - - -Safflower 3300 3300 3600 3700 12.1Pulses

Gram 3425 3425 3800 4000 16.8

Masur(Lentil) 3325 3325 3800 3950 18.8

Arhar 4425 4625 4625 5050 9.2

Moong 4650 4850 4800 5225 7.7

Urad 4425 4625 4575 5000 8.1

Minimum Support Prices Recommended by CACP and Fixed by Government

Commodity2015-2016 2016-2017

Advise Fixed Advise Fixed DifferCerealsPaddy (Common) 1410 1410 1470 1470 4.3Paddy (Grade 'A') 1450 1450 1510 1510 4.1Jowar (Hybrid) 1570 1570 1625 1625 3.5Jowar (Maldandi) 1590 1590 1650 1650 3.8Bajra 1275 1275 1330 1330 4.3Ragi 1650 1650 1725 1725 4.5Maize 1325 1325 1365 1365 3.0Wheat 1525 1525 1625 1625 6.6Barley 1225 1225 1325 1325 8.2Other CropsCopra (Milling) 5550 5550 - - -Copra (Ball) 5830 5830 - - -Jute (TDS) 2700 2700 - - -Sugarcane 230 230 - - -Cotton (MS) 3800 3800 3860 3860 1.6Cotton (LS) 4100 4100 4160 4160 1.5

Source: MOA; MS: Medium Staple; LS: Long Staple

1450

1525

1600

1675

1750

Dec-15 Mar-16 Jun-16 Aug-16 Nov-16

MSCI World

1750

1850

1950

2050

2150

Dec-15 Feb-16 May-16 Aug-16 Nov-16

MSCI US

104

110

116

122

128


MSCI EUROPE

109

118

127

136

145


MSCI ASIA

475053565962

Jan-15 Aug-15 Mar-16 Oct-16

Services PMI

US EU ChinaGermany UK

464850525456

Jan-15 Sep-15 Apr-16 Nov-16

Manufacturing PMI

US EU ChinaGermany UK

-1

2

5

8

-7-4-1258

Jan-15 Aug-15 Mar-16 Sep-16US Europe UKJapan China (RHS)

IIP

-5

-2

1

4

7

10

6.50

6.85

7.20

7.55

7.90

Mar-14 Jan-15 Nov-15 Sep-16

China (LHS)USEuropeUKJapan

GDP

270

288

306

324

342


S & P GSCI Agriculutural Index Spot

770800830860890920


Rogers Int.Agriculture Index

770800830860890920


S & P GSCI Spot Index

155

165

175

185

195

205


CRB Commodity Index


Commodity Market Outlook

T he year 2016 had been a very promising year for the commodities market across the board. Unlike 2015, most of the commodi-

ties ended the year 2016 on a positive note. Best performing commodity on the global exchange was zinc on LME, which ended the year with gains of 60.1% followed by NYMEX natural gas (+59.3%) and crude oil (45%). Precious metals segment end-ed the year with gains recovering from three years of negative closing. COMEX gold futures gained by 8.6% while silver gained by 15.8%. On the domes-tic front, zinc was the top performing commodity, which ended the year with a gain of 63.4% followed by natural gas (61.6%) and crude oil (46.4%). Gold and silver ended the year with a gain of 10.1% and 17.3%, respectively.

Global commodity market came under the influence of some of key events that took place across the globe in the year 2016. Since beginning of the year, commodity market was eagerly waiting for likely stance to be taken by the US FOMC regarding further rate hikes after December 2015 hike. While raising the interest rate in December 2015, the US Fed had indicated for 4 hikes in the year 2016, however, the expected rate hike was not done in the year 2016. Against the expected 4 hikes, US FOMC raised interest rate only once that too in its December 2016 meeting.

Other major event that shook the global market

was Great Britain exiting (BREXIT) the European Union. The citizens of United Kingdom voted in favour of exiting the European Union, which had its ripple effect on the global financial market. Immediately after an outcome of the poll result of brexit, the Great Britain Pound tumbled to 30 years low, which led to sharp decline in the global commodities market. Apart from Brexit another event that impacted the market was US Presidential Election. It was expected that Ms. Hillary Clinton would be the next US President. Surprisingly, Mr. Donald Trump has won the presidential election, which led to volatile trend in the financial market including commodity market. In a winning speech, Mr. Trump had indicated for increasing spending on infrastructure, which took the base metals price to new high levels. The losses witnessed in first 10 months of the year in base metal were reversed post US Presidential election within a month.

In the energy segment, both crude oil and natural gas were the top performing commodities in the entire commodity market space as the prices


staged a strong rally in the year 2016. A sharp rally in natural gas was witnessed owing to forecast of severe cold weather across US, which created additional demand for natural gas for heating purpose. Continued withdrawal of natural gas inventories was seen throughout the year, which shows an additional demand. Crude oil market also was on Bull Run in the year 2016 despite of record high level of production from OPEC region after lifting of sanction on Iran. However, US shale oil production declined as the US refiners were unable to cope up with lower global crude oil price on account of record production from OPEC countries. In an effort to maintain price stability, OPEC and non-OPEC members agreed for production cut of ~1.8 million barrels per day.

Among the agri commodities in the international arena, sugar was the top performing commodity, which gained by 28% Y/Y followed by soy meal (19.2%) and soybeans (16.2%). Corn and wheat ended the year with negative closing. Changing production scenario to varying climatic factors led to a rally in most of agri commodities on the global exchanges.

On the domestic front, the year 2016 was a catastrophic year for the Indian agri commodities market as the sector had received shock in terms of banning of futures trading in Castor Seeds and Chana. After banning of these two commodities, the

investors’ fraternity took very cautious approach in trading in the agri commodities, which had resulted into lower volumes. The price performance of agri commodities on NCDEX was mixed in the year 2016. Cardamom was the top performing agri commodity, which gained by 79.3% followed by barley (31.4%) and jeera (23.6%). Indian agriculture production was very good and few crops recorded a bumper crop harvest following normal monsoon in the year 2016. Indian agriculture breathed a sigh of relief following normal monsoon after two consecutive years of deficient rainfall, which reduced the country’s dependency on imports.

Among the policy matters on Indian commodity market was announcement of introduction of options trading in the commodities. In the budget speech, Union Finance Minister Mr. Arun Jaitley had emphasized on the introduction of options in the commodities market and instructed SEBI to work out on the options trading. Based on the directions of the central government, SEBI is working on introduction of options in commodities, which is expected to become reality in 2017.

The year 2017 is expected to be a very promising year for the commodities market. The consumption demand is expected to emerge from major economies following the economic growth, which is expected to create investment demand in the commodities market. The stance of US FOMC regarding interest rate hike and policy decision by major economies is expected to play a pivotal role for the commodities market. On the domestic front, market is expected to rebound from the odds following introduction of options trading. Besides, platform will be provided by the national exchange for Indian investors to explore the global market in the form of BSE International Exchange at IFSC in GIFT city, Ahmedabad. This exchange will give an opportunity for Indian investors to enter into global commodities market. Overall, the year 2017 is expected to be very good year for the commodities market.

Commodity Market Outlook


The bullion market across the global wit-nessed a positive trend recovering from three years of negative closing. Host of events such as Great Britain exiting the European Union, US Presidential Election and a single rate hike by US FOMC against expected 4 hikes led to volatile movement in the bullion mar-ket and finally both gold and silver ended the year with positive closing. In this report, we have studied the macro and micro-economic aspects along with commodity-specific de-velopments such as physical and investment demand and supply-side statistics among others, to interpret the outlook for the com-ing year. Advanced technical analysis was used to decide on the entry exit levels.

Precious Metals


The yellow metal settled the year 2016 with gains of 8.6% on comex recovering

from past three years of negative closing. As the year begun, gold investors were worried about the extent of hawkish stance by the US Federal Reserve, after dealing with the first rate hike in the last decade in the last month of 2015. Ergo, thanks to the hangover of the glob-al economies from the preceding years, which took the centre stage in the first quarter of 2016 that not only sent the global equities sharp-ly lower but also forced the major central bankers to continue print-ing more money thereby extending the ongoing stimulus programmes and prompt unprecedented tri-als like cutting the interest rates to negative trajectory, in the futile hope of stimulating growth. The US Federal Reserve also had to eat its words in terms of raising the interest rates at least four times in the year 2016, as projected in December 2015. All these macro factors ensured a strong recovery in gold prices, given the fact that it tends to get benefitted from lower interest rates and higher liquidity. It was almost a straight recovery for the first six months where the international spot prices tested the levels of $1375/ounce, recovering all the way from the yearly lows of $1061/ounce. During the second half of the year, however, it lost some grounds, despite of which it managed to post a convincingly strong closing for the year 2016 compared to previous 3 years.

Top stories that unfold-ed during the yearChina posted lowest GDP in three decades: Chinese econo-

my expanded by 6.9 percent in 2015, lower than 7.3 percent in 2014 and the weakest since 1990. Manufacturing and construction (secondary industry) growth slowed to 6 percent from 7.3 per-cent in 2014 and accounted for 40 percent of GDP. In the year 2016, the economy continued to strug-gle and advanced an annual 6.7 percent in the first two quarters of 2016. The slow pace of growth in the Asia’s biggest economy con-tinued to pose a threat towards the global recovery and warned against a hard landing by the dragon economy. Global inves-tors found it safe to invest in gold against global uncertainty where the major currencies continued to depreciate sharply.BREXIT: Ahead of the biggest global geo political event, investor fraternity across Europe and US went for buying gold through bars and coins as a hedge against any global meltdown. In the wake of unknown consequences and the extent of its impact in the global economy, post Britain leaving the European Union, puzzled inves-tors considered gold as a prudent destination. Gold prices, however,

witnessed some decline post the Brexit, as Britain sought two years time line for finalizing the terms of exit, which eased some uncer-tainties in the short term. US presidential elections: The safe haven play started just ahead of the US presidential elections and as a result gold prices saw a sharp recovery. The tough com-petition between the democratic and republican candidate kept the uncertainty elevated, while inves-tors looked more worried against Donald Trump’s victory fearing about his stance on the global and trade policies, which supported gold. Post a brief spurt in the pric-es after Trump’s victory, prices slipped as markets soon realized that the newly elected US gov-ernment is expected to increase spending in the infrastructure projects, which will boost jobs and bring the economy on strong footing. Also, the Fed was expect-ed to go ahead with rate hikes sooner, in which case the long term interest rates might post a bottom and real interest rates starts to rise, which would sup-port dollar and can pose a threat to the gold in short term.

An Investors’ Paradise

GOLD

25500

26900

28300

29700

31100

32500

33900

1040

1105

1170

1235

1300

1365

1430

Jan-16 Mar-16 Jun-16 Aug-16 Nov-16

Comex Gold ($/oz.)MCX Gold (Rs/10gms)

Price performance


SupplyAlthough, gold as an asset class and a reserve currency, is affected by a host of macroeconomic and geo political factors. However, being a metal it is mined, which has a source of supply and broader pattern for consump-tion. Therefore, it is prudent to go through the ongo-ing trends in the supply and demand of the precious metal. Starting with the supply side, the total supply comprises of mainly three components, mine supply, scrap sales and producers hedging. Starting with the mine supply first, the mined production in the first three quarters remained almost unchanged on Y/Y ba-sis. The total supply from mine decreased by 1.60% in 2016, remaining at 2326 MT compared to 2364.10 MT in the previous year, as per the data from GFMS.

The mines were able to produce at optimum ef-ficiency as they have adopted various cost cutting measures over past few years when the prices were significantly lower from all time highs. Also lower oil prices and favorable currency movements helped

the miners to produce more. Having said, as the ex-isting mines are being run at optimum levels and there are no new large scale projects expected to start, the long term mine supply is expected to come down in coming quarters.

In the first three quarters of the year 2016, a huge increase in the supply of recycled gold was seen; interestingly in the past also there has been a high degree of correlation witnessed between the gold prices and the scrap supply. In the wake of lower prices remaining over last three years investors looked at the rally in the prices as a good opportunity to book profits on their holdings. Also, due to sharp currency appreciation seen in the year 2016, gold prices in some countries gave superior returns than the international markets, which resulted in regis-tering higher scrap supply even more in those areas. On a year-on-year basis, the scrap supply increased by nearly 17% till September quarter in the year 2016. Going ahead, we expect such type of inflows

Largest mine additions YOY, H1 (MT)

Sl. No.

Mine Name Country

H1 Production Chg

yoy2015 2016

1 Cortex United States 10.1 15.4 5.3

2El Li-mon-Gua-jes

Mexico 0.0 3.8 3.8

3 Goldstrike United States 12.8 16.9 4.1

4 Lihir Papua New Guinea 11.6 14.6 3.0

5 Pueblo Viejo

Dominican Republic 13.8 16.7 2.9

6 Batu Hijau Indonesia 9.0 11.9 2.9

7 Kalgoorlie Australia 8.7 11.5 2.8

8 CC&V United States 3.0 5.3 2.3

9 Aurora Guyana 0.0 2.3 2.3

10 Inmaculada Peru 0.4 2.5 2.1Source: Company Reports

Largest mine losses YOY, H1 (MT)

Sl. No.

Mine Name Country

H1 Production Chg

yoy2015 2016

1 Penasuito Mexico 14.1 5.0 -9.1

2 Grasberg Indonesia 19.1 10.5 -8.6

3 Gosowing Indonesia 6.1 1.8 -4.3

4 Yanacocha Peru 14.4 10.5 -3.9

5 Oyu Tolgoi Mongolia 10.1 6.6 -3.5

6 Kumtor Kyrgystan 9.2 5.8 -3.4

7 Lagunas Norte Peru 10.3 7.0 -3.3

8 Kibali Congo (DRC) 10.2 7.9 -2.3

9 Bald Moun-tain United States 3.2 1.7 -1.5

10 Veladero Argentina 9.3 7.8 -1.5

Source: Company Reports

GoldPrecious Metals

Comparitive analysis: Different asset classes

-0.20-0.100.000.100.200.30

Gol

d

Nift

y

Chin

ese

Equi

ty

Dow

Jone

s

US

10 Y

R Bo

nds

LME

Inde

x

Dol

lar I

ndex

-300

0

300

600

900

1200

Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16

Mine production Net producer hedging Recycled gold

Gold sectorwise supply trend (MT)


to continue in case prices remain firm. The trend in the producer hedging also reversed in the first half of the year 2016, where the producers entered into hedging contract when the prices were firm, in order to lock higher prices and ensure cash flows for their operations.

DemandThe total demand picked up by 5% Y/Y during the first nine months of the year 2016, however, despite this increase there was a sea change in the dynam-ics and the core areas of the demand. In all the three quarters, physical demand faltered and marked a decline of nearly 19% Y/Y. This decline was led by a sustained weakness in the jewellery demand from the top consumers i.e., India and China as the pric-es remained near historically high levels. The jew-ellery demand accounted for 1419 MT, lower 22% compared to same period in the previous year. Some respite was seen in the third quarter where the jewel-lery demand improved compared to second quarter but it was on account of seasonal demand and still remained shy of the demand seen in Q3’15. The tech-nology demand was seen more or less stable, how-ever, the trend continued to remain on a declining path over last four year’s time frame. In other area of headwinds for demand, it was the purchase by the central bankers, which turned lower after posting a

robust demand in the preceding year. There was a massive decline of 41%, which was noticed Y/Y basis as the buying from China and Russia stemmed. The only segment of demand which remained in the spot light was the investment demand. The unprecedent-ed rush into gold ETFs, and coins/bars reversed the slowing trend of investment demand over the past few years and witnessed a rise of 108.54% at 1426.6 MT, till third quarter. The highest amount of inflows were seen in the first half of the year as the inflows into the sector were exceptional at 579.2 tons in the space of first six months, compared with cumulative outflows of 616.1 tons over the preceding 10 quar-ters (WGC). The political uncertainty in Europe and US, low real interest rates and delay in the rate hikes in US supported the demand in this pocket.

Gold demand trend

0%20%40%60%80%

100%

Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16Central banks & other inst. InvestmentTechnology Jewellery

Gold balance sheet

Units (MT) 2012 2013 Jan-Sep 13

Jan-Sep 14

Jan-Sep 15

Jan-Sep 16

% Growth

Supply

Mined production 2869.7 3054 2231.4 2292.6 2364.1 2326 -1.61%

Net producer hedging -39.7 -40 -33.2 47.6 -3.1 75

Total Mined supply 2829.9 3014 2198.4 2340.2 2361 2401 1.69%

Recycled gold 1633.7 1242.1 946.5 807.2 856.6 1006.9 17.55%

Total Supply 4463.7 4256.1 3144.9 3147.4 3217.6 3407.9 5.91%

Demand

Fabrication 2422.6 2777.8 2152.8 1912.3 2068.2 1663.2 -19.58%

Jewellery 2007.3 2369.6 1842.6 1615.8 1818.8 1419.0 -21.98%

Technology 415.3 408.2 310.1 296.5 249.4 244.2 -2.09%

Investment ( Bars, Coins) 1622.5 893.3 708.9 710.5 684.1 1426.6 108.54%

Central bank net purchases 544.1 409.3 324.4 334.9 425.8 248.4 -41.66%

Total Demand 4589.2 4080.5 3140.2 2963.5 3178.1 3338.2 5.04%

Surplus/(Deficit) -125.5 175.6 -41.2 189.8 39.5 69.66 Source- GFMS Reuters, World Gold Council, KCTL Research, # Totals may not tally on individual counting

Gold Precious Metals


Gold reserves by central banks, total holdings (MT)

02,0004,0006,0008,000

10,000Un

ited

Stat

esGe

rman

yIM

FIta

lyFr

ance

Chin

aRu

ssia

Switz

erla

ndJa

pan

Neth

erla

nds

Indi

aWORLD OFFICIAL GOLD HOLDINGS -International Financial Statistics, November 2016*

Market balanceWith a relatively steady growth in total supply and a slower growth in total demand the supply surplus widened to 69.66 MT during first three quarters of 2016.

Region wise demandIndiaChina and India account for more than 50% of con-sumer gold demand and this was one of the grey ar-eas for gold demand for the year 2016. Talking about Indian demand first, the jewellery demand during the first half of the year hit the most and struggled to move above 100 MT in back to back two quarters, a rebound, however, was seen in the third quarter on account of seasonal demand. The decline in the phys-ical demand was on the back of host of factors, start-ing with the government’s decision to disclose PAN details above purchase of Rs 200000 and imposing of 1% excise duty in the annual budget 2016, which led to a month long strike nationwide. Also ahead of the proposed GST from 2017 a lot of jewellers were seen destocking and understating the sales, as an adjust-ment for unaccounted inventory lying. Separately on account of higher import duty, a lot of increase in the illegal activities was witnessed that resulted in under-stating the official demand and led to large discounts, compared to the international peers. As a matter of fact the amount domestic prices reached to record $53 discount in the month of July as the demand re-mained absent broadly. Some recovery was seen in the third quarter as the seasonal demand picked up, especially after a near normal monsoon.

Before the markets could enjoy the strong de-mand in fourth quarter, government’s announce-ment of demonetization by banning 500 and 1000 currency notes hit the gold market the hardest. In the immediate short term, people jumped for buying gold to offload the unaccounted cash, which boosted

the physical demand for very short term, however, after the notices by the government to audit such sales discouraged such activities. As a rough esti-mate, more than 80% of the total jewellery sales used to happen in cash and after the bold step by the government the demand are likely to hit adversely at least in coming 1-2 quarters.

Gold demand pattern (MT)

0

200

400

600

800

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Jewellery Demand

India China World Total

-50

50

150

250

350

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Investment Demand

India China World Total

ChinaThe physical demand in China, which constitutes jewellery and investment demand, witnessed a sharp decline in the first three quarters of 2016. The jewellery demand was hit the most and declined nearly 29% and 31% respectively in the first and second quarter. The gold premium and the volumes on the Shanghai Gold Exchange also showed a lack-luster demand throughout, except on rare occasions like Brexit when the volumes hit a record high. The major factors behind the lower demand were the expectations of lower prices, lesser dispensable in-come vs higher cost of living and higher domestic prices due to currency depreciation. The demand in the exchange traded products, however, remained strong in almost entire year.

Physically backed exchange traded fundsETF holdings have a tendency to replicate the gold price movement as the institutional investors rush in when the prices rise while they prefer to wait on sidelines in the falling regimes. Till the year 2012, the holdings were increasing, so were the prices of gold; however, from 2013 the holdings are on a downside roll in lines with the gold prices. Hold-ings fell by 33% in 2013 while added further drop of 9.33% in 2014 in line with decline in gold price.

GoldPrecious Metals


Holdings have declined by 5.5% approx. in 2015, no-tably the pace of withdrawals has slowed, possibly indicating that sales may be coming to an end. And as it turned out the year 2016 not only witnessed a recovery in gold prices but also a strong interest returning in the ETFs. Almost all global ETFs wit-nessed an increase in their holdings where the total net inflows were seen increasing by 39.18% by the third quarter on 2016, compared to the same period in the previous year.

Sharp surge was seen in the American and Euro-pean ETF holdings, during the first half of the 2016, on account of political uncertainties in the region. In-stitutions and big investors like Paulsons and George Soros were also seen building their positions in the ETFs in the first half of 2016. Going ahead the inflows in the ETFs are expected to remain strong on account of upcoming elections in European nations and the policy uncertainties embracing the newly elected US presidential candidate.

US interest ratesThe expectations of the rate hike have underpinned the US dollar to a fresh 13½ year highs in the month

of November and emerged as the biggest headwind for gold, as the gold prices are quoted in dollar terms internationally, therefore strength in dollar makes it costlier for the holders of other currency. Also the markets fear that in the times of higher interest rates, gold prices find it difficult to compete with the asset classes which offer guaranteed returns to the holders like interest and dividend unlike gold.

As the Fed did not wish to delay the first rate hike so that the overall rate hike process be grad-ual giving the ample time to the economy to adjust, it decided to raise the rates in December 2015 and kept a forecast of 1.375% at the end of 2016, implying four quarter-point increases in the year 2016. However, the Federal Reserve even left the target range for its federal funds rate unchanged at 0.25 percent to 0.5 percent for the seventh time during its November 2016 meeting, saying the labor market has continued to strengthen and growth of economic activity has picked up. Federal Reserve policymakers consider the case for a rate hike continued to strengthen and that it would be ap-propriate to raise rates relatively soon, depending on further evidence of progress on inflation and

Top 10 physically-backed gold ETFs by AUM in tons

Fund Country Holdings as of end-September

Q3'16 vs Q3'15 % change

1 SPDR Gold Shares United States 947.96 37.90

2 iShares Gold Trust United States 226.68 41.10

3 ETFS Physical Gold United Kingdom 150.58 46.30

4 ZKB Gold ETF Switzerland 143.57 7.93

5 Xetra-Gold Germany 109.66 85.04

6 Gold Bullion Securities United Kingdom 106.79 52.03

7 Source Physical Gold United Kingdom 96.95 95.68

8 iShares Physical Gold United Kingdom 58.98 433.28

9 Sprott Physical Gold Trust United States 54.99 42.46

10 Central Fund of Canada Canada 52.03 -1.30

Global total 2335.61 39.18Source: Respective ETP providers, Bloomberg, ICE Benchmark Administration, World Gold Council

Physically backed gold ETF AUM by region in tons

Q4'15 Q1'16 Q2'16 Q3'16 Year-on-year tonnage change

Q3'16 vs Q3'15 % change

North America 955.92 1165.22 1320.31 1339.61 327.35 32.34

Europe 570.18 690.52 763.14 876.85 292.95 50.17

Asia 46.04 54.38 61.23 70.43 27.53 64.18

Other 38.42 42.78 45.35 48.72 9.66 24.75

Global Total 1610.55 1952.90 2190.03 2335.61 657.50 39.18Source: Respective ETP providers, Bloomberg, ICE Benchmark Administration, World Gold Council



employment, minutes from FOMC meeting held on November. Policymakers also added that the case for an increase in the federal funds rate has contin-ued to strengthen, which makes us believe that the Fed will go ahead with a rate hike in its December month meet by another 0.25 percent. Interest rate in the United States averaged 5.83 percent from 1971 until 2016, reaching an all time high of 20 percent in March of 1980 and a record low of 0.25 percent in December of 2008.

Having said there have been instances over the past where the US Federal Reserve has hiked rates and surprisingly the resulting effect on the gold prices has not been entirely negative. As a matter of fact the inherent correlation is far from negative and to add more the prices domestically have given a positive return over the medium term. The following chart affirms the above statement and iterates that gold is not just an ordinary asset class that can go out of flavor easily; rather it is a real asset which gathers demand from lot more avenues whenever the prices correct.

US interest rate vs. gold price

0

5

10

15

1972-1974 1976-1981 1987-1989 1993-1995 2003-2007

Fed rate hikes Change in Indian gold prices

The house is of the view that in the short term gold prices have already priced in the December month rate hike, wherein prices are expected to recover quickly after a milder knee jerk reaction. It will be the future stance by the Fed and other major central bankers which will set the tone for future rate hikes and whether it turns out to be rapid or mechanical. However, going by the Fed’s statement in case the future course of action remains gradual and data dependent gold can build a recovery on the back of strong investment demand and policy uncertainties.

Cost of productionMajor Senior and Mid-tier Gold Producers around the globe for their Average Realized Gold Price, Cash Cost, Margin and also the Average All-in Sustaining Cash Cost ($/oz) has been analyzed. The list includes some of the prominent names like Goldcorp Inc, Barrick Gold Corp, Polyus Gold International, Yamana Gold Inc, AngloGold Ashanti Ltd and Eldorado Gold Corp amongst others. Based on the mined output data, these two groups constitute nearly 30% of the total

world mined production for gold and thus can be tak-en as an normal average for gold mining and costing.

The graph for the Senior producers depicts an increase in the all sustaining cost after continued reduction in Average Gold All-in Sustaining Cash Cost in last 6-8 quarters, the latest reading as per Sep 2016 quarter stand around $930 per ounce. The Mid tier segment, however, still managed to bring the cost further down towards $ 832.9 /oz . The numbers as stated here support the case that mid tier produc-ers have still not started to spend on expansion and are taking advantage of economies of scale. Over the last three years a host of cost cutting measures like bringing down head counts, deferring the capital ex-penditures and improved technology has helped the miners to sustain and produce more. With the price recovery starting, miners would again look to new expansions and other developments, which will lift the cost of production. Cash margins of the producers have come down sharply over past few years on low-er prices; there are high chances that the producers would increase production levels until prices to take advantage of recovery in prices.

Average gold all-in sustaining cash cost $/oz

0

500

1000

1500

2016

Q3

2016

Q2

2016

Q1

2015

Q4

2015

Q3

2015

Q2

2015

Q1

2014

Q4

2014

Q3

2014

Q2

2014

Q1

Global Gold Senior Producers Global Mid Tier Gold ProducersGlobal Junior Gold Producers

Note: All data for Average Gold Prices is $/Troy Oz, unless otherwise specified Source- KCTL Research, Bloomberg

Outlook

After a strong comeback in the year 2016, gold pric-es set to replicate the similar performance in the year 2017. Prices have given up nearly 15% from the peak of 2016 on fears of long term interest rate tightening and recovery in major economies led by increase in infrastructure spending that would bring down the appeal of safe havens including gold. Rate hike post December 2016 hike is going to be gradual as the Fed would like to see the impact of newly elected presi-dent’s policies on the overall recovery process and even if 2 rate hikes are seen in 2017, gold prices are not expected to see any major decline. A pickup in in-flation along side with the increase in the infrastruc-ture spending, would support gold prices and it would be the policy uncertainties that would support the safe haven demand for gold.

Separately, the political situation and elections lined up in Europe during 2017 are also expected to

GoldPrecious Metals


push the gold prices higher. The physical demand from Asia may remain absent or muted during the first half of 2017 given the recent set of import curbs announced by China and effect of demonetization in India but post that lower prices are expected to at-tract strong buying as the seasonal demand kicks in. The recent weakness in the prices is likely to attract fresh investment demand in similar fashion, like that seen in 2016. Any sustained recovery in the oil pric-es in the wake of pickup in demand and production cuts will support the economies of the oil producing nations and would lift the demand for gold. Last but not the least, any sustained correction in the global equity markets, which have been making new all time highs (especially US equities) is likely to shift investors towards gold which is still basking near much lower levels from its all time highs (after the correction seen in second half of 2016). All in all, gold market is expected remain on a firm footing.

Technical analysisAt the beginning of the year 2016, gold futures staged a strong rally recouping from three years of negative closing. After testing a record high of $1923.70/ounce in September 2011, the comex gold futures were on bearish trend and made a multi-year low of $1044.50/ounce in December 2015. From fibonacci perspec-tive, price took support around 50% retracement levels at $1088.75 (low July-1999 $253.20 to high September-2011 $1923.70). During the year 2016, prices recovered from the lower level and made high of $1377.50/ounce in the month of July, which was near to 38.2% fibonacci retracement level for the rise measured from $1044.50/ounce to $1377.50/ounce.

Elliott wave analysisAs per wave count, super cycle with the previous ma-jor high primary wave “I” was completed and correc-tive primary wave “II” is in progress. An upside rally was resisted at around 38.2% fibonacci retracement level of $1377.50 (low December-2015 $1044.50 to

high September-2011 $1923.70) and from that level it slipped like water on the floor.

Within corrective wave II “a” is completed at $1377.50 level and “b” is in progress. We expect that the price will not cross the low of $1044.50/ounce made in the year 2015 and take support at around 76.4% fibonacci retracement level of $1123.75 for the rise measured from $1044.50/ounce to $1377.50/ounce and complete “b”. There is a probability that it may make irregular flat pattern and may breach low of $1044.50/ounce and in that case, price will take support near to 61.8% retracement levels of $892 (low July-1999 $253.20 to high September-2011 $1923.70) but the probability is very less.

If price take support around $1125/ounce i.e., 76.4% fibonacci retracement level for the rise meas-ured from $1044.50/ounce to $1377.50/ounce then minimum potential upside target will be $1580/ounce (138.2% extension level) and $1662/ounce (161.8% extension level).

Recommendation


BUY@

Comex$1100-$1120

MCX`26600 - `26800

BUY@

TARGET

TARGET

STOP LOSS

STOP LOSS

$950

`23000$1440/ $1662

`34500/ `39800


Watch out for the Dark Horse

Silver

Silver prices started the re-covery process right from the word go as the year

2016 started, the fact that low-est of the prices seen for the year 2016 were the levels with which it started the year, justi-fies the above statement, without any further explanation. Pric-es on Comex and MCX rallied to fresh multi year highs during the month of July to test the levels of $20.34/oz and Rs 47487/kg re-spectively, recovering nearly 40% from the beginning of the year. After making the intermediate top in the mid year, prices eased of gradually in the second half of the year and ended the year with gains of 17.3%.

The diversification in the de-mand and the sources of supply not only makes the dynamics of silver interesting but also a tedi-ous task to perform. This is the reason why the deficit or surplus conditions are not the only factors to determine the price of silver. The white metal, as a matter of fact, is a universally used financial asset in the form of bars and coins, which constitutes nearly 25% of the total demand and plays a vital role in deciding the prices. Also, the vast over-the-counter market for physical silver, where it is kept

in the physical form plays a vital role in deciding the prices, given the depth of this market. Last but not the least, it is the ETF demand, where the exchange traded funds are backed by the physical buying of silver, is one of the prominent factor in assessing the overall sen-timents and expected prices trend.

Looking towards the mac-ro-economic side, the signs of improvement were seen in the PPI from US, Euro zone, Japan and China, as the major central bankers are leaving no stone unturned to lift the inflation and boost the growth.

Euro–zone wholesale inflation picked up towards 1%, whereas the PPI in China also recovered as the year progressed, pointing

towards a recovery in raw mate-rial and consumer good prices. Silver is considered as alternative investment vehicle against eco-nomic uncertainty and inflation wherein inflationary scenario is making a case for increasing in-vestment in the two as over the years it has maintained almost linear correlation with inflation. As silver gets a mix of demand from industrial and precious metals segment, its correlation and linearity with PPI amongst major economies globally shows that silver prices follow the broad pattern in international producer prices inflation. A pick up in the inflationary scenario is likely to increase the industrial demand for silver as well.

37700

39000

40300

41600

42900

44200

45500

16.0

16.5

17.0

17.5

18.0

18.5

19.0

Dec-16Nov-16Nov-16Nov-16Oct-16Oct-16

COMEX Silver MCX Silver

-1.5

-0.3

0.9

2.1

3.3

Oct

-16

Jun-

16Fe

b-16

Oct

-15

Jun-

15Fe

b-15

Oct

-14

Jun-

14Fe

b-14

Oct

-13

Jun-

13Fe

b-13

Oct

-12

Jun-

12Fe

b-12

Oct

-11

Jun-

11Fe

b-11

US PPI MOMChina PPI MOMEURO ZONE PPI MOMJAPAN PPI MOM

-315913

Sep-

16

Mar

-16

Sep-

15

Mar

-15

Sep-

14

Mar

-14

Sep-

13

Mar

-13

Sep-

12

Mar

-12

Sep-

11

Mar

-11

Sep-

10

Mar

-10

US GDP QoQ China GDP QoQEurozone GDP QoQ Japan GDP QoQ

Price performance

PPI from major economies GDP of major economies


Discussing the demand supply factors of the commodity, the full fledged numbers are updated till December 2015 only, however, with the latest interim report by the GFMS Thomson Reuters, the projections are used for the year 2016 to analyse the full year demand supply equation.

The report highlights the total supply is expected to come down by 3.2% at 1012.4 million oz. for the year 2016 led by a decline in mine production, scrap returns and a net de-hedging. Mine production is slated to remain at 887.4 Moz in 2016, lower by 0.6% Y/Y. While the mine supply reduced from almost all the major regions including Russia, Australia, Mexico and Argentina. The countries where the mine supply increased were China, India, Kazakhstan and Canada. GFMS expects the mine supply to have peaked and come down in near future. Scrap supply was seen almost in lines with the year 2015, with a marginal decline from China and a modest increase from India. Scrap supply is expected to remain near the current levels in the coming years, the government sales are

also expected to remain on a lower footing in the coming years and the hedging book is also expected to remain at subdued levels. The reduction in the mine supply is expected to be the main catalyst for the continued deficit in the silver market.

Talking about the demand side, total physical de-mand is expected to take a sharp hit in the year 2016. With the total physical demand expected to remain close to 1064.6/Moz, it will be nearly 9% decline on a year-on-year basis and will be lowest since 2013. GFMS notices that almost all the core areas of demand are likely to see a contraction in the demand. Coins and bars demand is expected to be the worst hit seg-ment where the net demand may remain lower by 70.3 Moz, this would be a stark divergence from 2015 where this pocket witnessed the highest interest and saw record inflows. Jewellery demand is also expected to remain lower and witness a decline by 17.7 Moz in the year 2016, tracking the lackluster demand from Asian regions. As per GFMS, this dip in the demand is likely to be witnessed in industrial fabrication, silver ware and photography demand as well.

Industrial demand, which constitutes of biggest share among the total demand (nearly 50%) is ex-pected to remain almost same, with losses of nearly 0.6% at 585.1 Moz. This would be the fifth consecu-tive decline in the industrial demand, as the indus-trial demand from China continues to remain grim. As per GFMS, Electrical & Electronics demand could falter by 3.9% in 2016, Brazing allows & Soldering demand is expected to fall by 2.1%, photography demand could reduce by 1.1% while other demand in the sector can fall by 4.7%. The shift from large

Silver balance sheet (Mln Ounce)

2010 2011 2012 2013 2014 2015 2016 (E)

Supply

Mine Production 751 755.9 787.5 832 865 886.7 887.4

Other 322.1 285.8 215.8 164.5 184.1 153.9 125

Total Supply 1073.2 1041.7 1003.3 996.5 1049.1 1040.6 1012.4

Demand

Jewellery & Silverware 241.6 235.2 229.2 276.8 285.2 289.4 257.6

Coins & Bars 148.5 216 141.7 226.4 203.5 292.3 222

Industrial Fabrication 645.1 628.3 596.9 601.7 595.2 588.7 585.1

Physical Demand 1035.2 1079.5 967.8 1104.8 1083.9 1170.5 1064.4

Physical Surplus/Deficit 38 -37.9 35.5 -108.3 -34.8 -129.8 -52.2

ETF inventory Build 129.5 -24 55.3 2.5 1.5 -17.7

Exchange Inventory Build -7.4 12.2 62.2 8.8 -8.8 0.3

Net Balance -84 -26 -81.9 -119.6 -27.5 -112.5

Price 35.12 31.15 23.79 19.08 15.68 17.15Source: GFMS, Thomson Reuters Interim Silver Market Review, KCTL Research

Silver Precious Metals


screen TV appliances to small screen mobiles has affected the electrical demand. The decline has also been precipitated by weaker demand from China, which accounts for 28% of silver demand in global electronics fabrication. Coming to the geographical stance in the physical demand, the biggest decline was seen from India where it slipped by 60.1 Moz, followed by 25.9 Moz in North America and decline of 15.3 Moz in China.

Silver coin sales after reaching to a fresh record high in the third quarter of 2015 at 32.9 Moz failed to find the similar momentum in the year 2016. The strength in silver prices during the first half kept investors away from buying silver coins and bars, a recovery was, however, seen especially in Europe in July ahead of the BREXIT vote, but remained muted during rest of the periods. Bar & coin demand is expected to remain lower in all major regions like North America, Asia and Europe.

The only bright spot in the entire physical de-mand was the solar demand that can continue to inch higher by 8.1 Moz. The Chinese demand has managed to maintain the pace and is expected to constitute nearly 14% of the world’s total solar de-mand, increasing from 13% a year ago and almost negligible in 2011. Japan continues to dominate the market share with almost 45-48 % of world’s total solar demand.

Silver physical surplus/deficit vs. price

-160

-120

-80

-40

0

40

80

2012 2013 2014 2015 2016( F)

Physical Surplus/Deficit Price

The silver market is expected to be in an annual physical deficit of 52.2 Moz in 2016, marking the fourth consecutive year of annual physical shortfall. While such deficits do not necessarily influence pric-es in the near term, multiple years of annual deficits

can begin to apply upward pressure to prices in sub-sequent periods.

Silver is one such commodity wherein its price action is more dependent on movement in Gold com-modity, base metals complex (Industrial Demand) and macro factors like movement in major curren-cies, monetary policy stance for major economies and inflation amongst others rather than compared to its own fundamentals. This can simply be justified by the fact that despite silver saw healthy demand deficit in 2013, 2014 and 2015, yet prices have been correcting over last few years.

Gold silver linear relation

14

16

18

20

22

1100

1175

1250

1325

1400

Jul-16 Aug-16 Sep-16 Oct-16 Nov-16

GC1 Comdty - Mid Price (R1)SI1 Comdty - Last Price (L1)

Silver mined supply as a by-product stands around 70%; indirectly reduc-ing the cash costsLarge portion of silver supplies globally come as a by-product during mining of other metals. A num-ber of metals mined namely Lead/Zinc, Gold and Copper help supplies of silver commodity based on

0.0%

7.0%

14.0%

21.0%

28.0%

-50

50

150

250

350

CY 0

4

CY 0

5

CY 0

6

CY 0

7

CY 0

8

CY 0

9

CY 1

0

CY 1

1

CY 1

2

CY 1

3

CY 1

4

CY15

CY 1

6

Jewelry & Silverware Coins & BarsJ&S as % Demand C&B as % of Demand

40.0%

50.0%

60.0%

70.0%

80.0%

1

10

100

1000

CY 0

4

CY 0

5

CY 0

6

CY 0

7

CY 0

8

CY 0

9

CY 1

0

CY 1

1

CY 1

2

CY 1

3

CY 1

4

CY15

CY 1

6

Industrial Fabrication % of Total Demand

Trend in jewelry-silverware & coins-bars segment Trend in industrial fabrication segment

Source: Thomson Reuters Interim Silver Market Review, KCTL Research

SilverPrecious Metals


their geological formations. Notably, only around 30% of total commodity output comes from primary silver mines, where silver is the main source of revenue.

Problem lies with the fact that fall in silver prices impact primary silver production, its output as a by-product is dependent on the price of the other metals, which lead towards continued higher output for the commodity. Also note that most of the silver primary mines do contain other metals mainly gold, copper or zinc as a by-product, which is aiding them continue production notwithstanding the weaker prices. During the year 2016, a sharp rally was seen in the base metals including lead and zinc which will prompt miners to produce more and add to the supply of silver.

As per the data from the global silver miners, total cash costs’ came down significantly lower QoQ to around $5.5-6/ounce mark for 2016, which is smartly better than deal for miners as 2015 average prices for silver commodity at Comex stood around $17/oz. Nevertheless, the same aspect acts negatively for prices as it provides that extra support to miners to continue mining the commodity despite it being trading below marginal costs.

Inflows in ETFs The institutional demand for the silver, total known institutional holdings increased by nearly 6% to our last count in December against net outflows witnessed in the previous three years.

Silver price vs. ETF inflow

573000005980000062300000648000006730000069800000

05

10152025

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul -1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

SI1 Comdty - Last Price (L1) ETSITOTL Index - Mid Price (R1)

Futures + Option positions

0

15

30

45

(200,000)(100,000)

0 100,000 200,000

Jul-11 Apr-13 Jan-15 Nov-16

Pric

e

Cont

ract

s

SI1 Comdty Non CommercialCommercial Managed Money

Silver output by source metal(Units : Mln Ounce) 2013 Output % of Total 2014 Output % of Total 2015 Total % of Total Change YOY

Primary 235.9 29.0% 269.5 31% 264.7 30 5

Gold 105.4 13.0% 110.10 13% 118.8 13 5

Lead/Zinc 307.4 38.0% 310.6 35% 317.8 34 -4

Copper 167 20.0% 179.8 20% 192.5 22 1

Other 3.9 0.0% 7.5 1% 4.8 1Source: GFMS, Thomson Reuters

Glo

bal s

ilver

min

ing

prod

ucer

sD

escr

ipti

on20

16 Q

320

16 Q

220

16 Q

120

15 Q

420

15 Q

320

15 Q

220

15 Q

120

14 Q

420

14 Q

320

14 Q

220

14 Q

1

Silv

er P

rodu

ctio

n (0

00's

oz)

2502

730

706.

333

270.

136

401.

330

155.

831

408.

130

996.

932

211

3089

3.2

3068

0.4

3014

1.3

Silv

er S

ales

(000

's oz

)29

517.

329

695.

429

295.

530

679.

328

155.

727

682.

427

454.

527

517

2773

7.5

2574

2.9

2443

6.8

Avg

Silv

er R

ealiz

ed P

rice

($/o

z)19

.53

17.0

114

.94

14.4

6514

.665

16.3

216

.72

16.2

318

.98

19.7

820

.36

Avg

Silv

er C

ash

Cost

s ($/

oz)

5.08

5.99

6.08

085

7.59

278.

425

8.67

7.69

510

.135

10.0

236

9.63

8.25

Avg

Silv

er C

ash

Mar

gin

($/o

z)13

.885

11.2

17.

555.

376.

27.

505

8.83

6.60

58.

699.

9611

.74

Sour

ce B

loom

berg

, KCT

L Re

sear

ch



Silver statistical study shows commod-ity highly regressed to gold

Silver as a commodity follows trend set in-by the big brother gold; with all other factors remaining con-stant. Even silver’s own demand-supply does not have a major impact on direction of the price wherein the same aspect can be checked from the fact that, in 2012, 2013, 2014 and 2015 silver saw deficits due to lower scrap supply and record demand from physical in-vestment although commodity slid heavily along with gold. Multiple Regression Statistical study has been carried out keeping the Silver as a dependent factor with independent variables as Gold, Ishare ETF Hold-ings of Silver, Dollar Index, LMEX Index (Index for top Base metals at the LME) and MSCI World Equity Index. The least R Squared stood at 0.68, which suggests that this study is efficient with the time frame between 1st Jan 2016, to December 12th 2016.

• Comex gold had a coefficient of 1.37 to silver de-picting extremely higher effect on movement of silver prices.

• ETF’s also had a significantly positive correlation to prices with a factor of 0.56

• LMEX had a moderate positive correlation close to 0.38 whereas other variables Dollar Index and Global Equity Index failed to have any major im-pact on price movements in silver on a daily basis.

This result clearly shows that gold is the primary mover and direction setter for silver prices globally.

Gold silver ratio, which shows the amount of sil-ver needs to buy one ounce of gold and is calculated simply by dividing the gold price with silver price

Gold- silver ratio

60

70

80

90


The Gold/Silver Ratio has hovered near the his-torical highs near 83 during the start of the year as silver struggled to gain momentum compared to gold. The ratio continued to remain higher towards 80-83 levels till the first quarter, which was way above the 5 year average of around 57. However, as silver prices picked up momentum especially in the second quar-ter, ratio fell sharply close to 68-70 levels.

OutlookGoing ahead in 2017, white metal is expected to extend the gains laid in the year 2016, the fact that the white metal has got industrial usages tends to support the demand when the economic recovery cycle starts to pick up. A sharp increase in the base

SilverPrecious Metals

Silver regression (Daily Prices)


BUY@

Comex$14.20-14.45

MCX`35000 - `35500

BUY@

TARGET

TARGET

STOP LOSS

STOP LOSS

$10.50

`26000$22.25/ $25.00

`53000/ `60000

metal prices in the second half of the year 2016, on in-creased expectations of increase in demand and defi-cits is expected to remain intact in the year 2017. Also with a healthy decline of nearly 25% from the peaks of 2016, the investment demand is once again likely to pick up. Jewellery demand is also expected to remain robust in the year 2017 and support the prices.

Most importantly it will be the industrial demand from China, which is expected to set the tone for the trend in the prices, as this pocket accounts for near-ly 50% of the total demand and China alone boasts for half of the world’s total industrial demand. The recent set of encouraging imports, manufacturing and inflation numbers point out a recovery in the industrial demand. The physical demand from India is expected to stay low till the first half of 2017, as the spilling effect of demonetisation is expected to keep the investors away from buying jewellery, in the absence of surplus cash. Some supply pressure is expected to increase given the higher output by the miners, especially of the by-products after a sharp surge in the prices.

Having said, as silver prices are highly regressed to gold, it will also be tracking the performance of gold for the broader trend in the medium to long term, where we expect a gradual upside. We there-fore expect 2017 to push silver prices further higher buoyed by improving industrial, jewellery and safe haven demand.

Technical analysisComex silver futures have breached the slanting trend line resistance level of $16.00/ounce in the month of April 2016 and rallied up to $21.22 level, which was 100 months simple moving average on


monthly chart. After making a high of $21.22 levels, market returned to bearish trend in second half of the year. From fibonacci perspective, prices took support around 76.40% retracement level of $14.83 (low Dec-2001 4.12 to high April-2011 $49.845) and monthly trend line support, which was indicated as dash-yellow color line. RSI-14 period is treading around 45.85 on monthly price chart, pointing to-wards negative price action but we expect price will again take support of main trend line which is shown in monthly chart. Currently prices are trading be-tween short term 8, 13 and 21 period simple moving averages in monthly chart. MACD indicator values below zero line at -0.28 levels on monthly chart.

Recommendation


Energy sector performed exceptionally well during the year 2016 with major gains seen in the natural gas market owing to increased heating demand due to severe cold weather condition across US. Crude oil market also witnessed a good movement in the year 2016 and ended the year with positive closing. In this report, a detailed fundamental analysis has been carried out in terms of supply de-mand dynamics and projection of supply de-mand for the year 2017. Additionally, techni-cal study is applied for generating the best strategy for investors to enter and exit the commodities in the coming quarter/s.

Energy


Crude oil market started the year 2016 with heavy losses pressurized by the

failed OPEC meeting to reach out any agreement and Fed interest rate hikes. As the OPEC mem-bers, during their December 2015 meeting, failed to reach any agreement regarding production cuts, prices started declining and thereafter Fed members went for the first interest rate hikes in a decade, which additionally pres-surized the international crude oil prices. A fresh recovery in crude prices was seen from Feb-ruary onwards till May month as the US crude oil production levels declined. During the peri-od from February 2016 to May 2016, around 480,000 barrels per day field production levels declined in the US region, which basically induced some sort of support to the crude oil prices. During June and July months, around 15% decline in crude oil prices was seen both at interna-tional market and at MCX as the withdrawals in crude oil stocks were not so much during peak

summer driving season. June and July months are the peak summer driving seasons, crude oil stocks normally tend to decline with greater refinery intakes. In 2016, between June and July months, around 12.291 million barrels crude oil stocks were withdrawn as per the EIA data, which was around 42% less than the same period in 2015 and around 40% less than last five years average June- July withdrawals.

End of 2016 proved to be divine for crude oil prices as a historic deal of production cut among the OPEC and some of the major Non-OPEC members was fi-nalized. On 12th December 2016, WTI crude oil futures made an intraday high of $54.51 per bar-rel, which was the highest since July 2015. Brent crude oil also made an intraday high of $57.89/bbl the same day while at MCX the highest tick was Rs.3644/bbl which was also highest since July 2015. More than 100% recovery in crude oil prices was seen as the international market recovered from their 2003 low levels while at MCX from 2009 low levels.

Driven by the historic deal

Crude Oil

26

31

36

41

46

51

56

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16

Brent Crude($/bbl) WTI International($/bbl)

Price performance

-20%

-10%

0%

10%

20%

30%

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov-

16

WTI International Brent Crude MCX Crude

Monthly gains and looses


SupplyAccording to the data released by Energy Informa-tion & Administration (EIA), global crude oil supplies in Q4, CY 2016 rose by 1% Q/Q. Majority of the coun-tries and cartel boosted up their production levels during 2016 while US remained the only country to cut their production levels on monthly basis. From the United States region, monthly production levels declined from February 2016 to July 2016. Russians during 2016 averaged their production levels around 10.94 million barrels per day and in the month of November pumped around 11.21 million barrels per day, which was highest in nearly 30 years. From the OPEC countries, the kingpin Saudi averaged around 10.41 million barrels per day till November in 2016. Iran and Iraq averaged around 3.44 million barrels per day and 4.42 million barrels per day respectively in 2016 till November month.

Supplies in 2017 is expected to rise further by more than 1% on yearly basis in which the produc-

tion levels from United States and Canada shall rise more compared to other countries. After the historic deal between the OPEC and the select non-OPEC members, around 1.80 million barrels per day pro-duction levels are expected to decline.

DemandGlobal demand in 2016 as compared to previous year rose by around 1.4%, averaging around 95.4 million barrels per day. Massive gains were witnessed dur-ing 2016 from China, Europe and other Asian nations like India. After the sanctions over Iran got lifted up, India’s crude oil import got ramped up by record high levels. For the first seven months of 2016, India imported around 359,000 barrels per day of Iranian oil, which was around 67% more than same period last year. Demand for crude oil from Japan, as per the EIA data, declined by 3.7% in 2016 on yearly basis.

Demand during 2017 is expected to rise by more than 1.5% compared to total 2016 demand. Growth

Global crude oil balance sheet

2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 F 2017 F

Supply (MBPD)

OECD 26.82 26.96 25.92 26.24 26.53 26.67

United States(50 states) 15.12 14.95 14.88 14.67 14.68 15

Canada 4.51 4.73 3.98 4.63 4.72 4.79

Others 7.19 7.28 7.06 6.94 7.13 6.88

Non- OECD 68.96 68.55 69.58 70.07 70.69 70.75

OPEC 38.3 38.38 39.08 39.68 40.02 40.22

Former Soviet Union 14.09 14.37 14.22 14.05 14.55 14.49

Others 16.56 15.81 16.29 16.33 16.11 16.04

Total World Supply 95.78 95.51 95.5 96.31 97.22 97.42

Demand (MBPD)

OECD 46.42 46.74 45.98 46.64 47.13 46.87

United States & Canada 22.31 22.24 22.17 22.68 22.64 22.64

Europe 13.7 13.61 13.83 13.94 13.87 13.86

Japan 4.13 4.43 3.7 3.71 4.07 3.88

Others 6.28 6.46 6.28 6.31 6.55 6.49

Non- OECD 47.66 47.46 49.31 49.52 48.93 50.12

China 11.28 11.25 11.87 11.72 11.77 12

Others Asia 12.27 12.84 13.04 12.54 12.91 13.37

Others 24.11 23.37 24.4 25.26 24.25 24.75

Total World Demand 94.08 94.2 95.29 96.16 96.06 96.99

Surplus/Deficit (MBPD)

1.7 1.31 0.21 0.15 1.16 0.43

Crude OilEnergy


rate from China, India and other Asian nations other than Japan shall be significant for crude oil demand. Overall surplus in 2017 shall decline by 40% com-pared to 2016 surplus levels and hence, can be sup-portive for the prices. If the production deal among the OPEC and select non-OPEC members goes well as decided, surplus percentages shall decline further.

The historic dealTowards the end of September 2016, a spark was generated during Algiers meeting in which the OPEC members decided to lower down their production levels between 32.5 to 33.0 million barrels per day. A sharp rally in international crude oil prices was seen when the market saw some hopes of production cut by the OPEC members. Amidst confusion and several other debates, finally on 30th November 2016 OPEC members in their 171st meeting in Vienna decided to implement a production adjustment of 1.2 million barrels per day, which would be effective from 1st January 2017 onwards. Russia, which holds the re-cord for single biggest crude oil producing nation fi-nally on 10th December 2016, agreed lowering down their production levels. Around 558,000 barrels per day production cut was agreed by the select non-OPEC members which includes Russia and Kazakh-stan. Average crude oil production levels from the OPEC members during 2016 till November month stood around 33.2 million barrels per day which is around 4.8% more than 2015 average crude oil pro-duction levels.

Before the meeting, the Russians had laid condi-tion on Saudi to join hands for the production cuts which later on unexpectedly approved doing so and not only this, the kingpin accepted Iran’s proposal for continuing with their levels of production. Iran had always mentioned of not following the produc-tion cut measures as their country is trying hard to regain its lost share during trade sanctions. Since the trade sanctions imposed over Iran has been lifted around 23% production levels has been boosted by the country. During 2015, Iran’s average crude oil production levels were 2.81 million barrels per day in 2015 which post sanctions averaged around 3.44 million barrels per day in 2016.

United StatesGasoline: Despite of significant withdrawals, stocks went up!!!

In determining international crude oil prices, facts and figures from the United States play a vital role. From crude oil stocks to products like gasoline and distillate stocks, movement are closely watched by the market so that a firm trend is developed for the price direction.

To begin with the gasoline stocks, the consump-tion of gasoline during the summer driving season has to be discussed. In the year 2016, gasoline con-sumption increased, however, failed to support the prices in the international market as prices tumbled. Between June and August 2016, total gasoline stocks withdrawals as per the EIA data stood at around 6.615 million barrels against 6.13 million barrels in 2015. More than 100% jump was seen in the gasoline stocks withdrawals during summer driving season as compared to last five years average. Stocks for gaso-line, despite of significant withdrawals during 2016 summer driving season, averaged at around 237.35 million barrels (June-August), which was around 10% Y/Y. According to the data released by EIA, US refinery production of total finished gasoline during 2016 till September month averaged at around 9.98 million barrels per day against 9.753 million barrels per day in 2015. Past 5-years average of total motor gasoline production by the US refiners is around 9.486 million barrels per day. Thus, due to greater

920095509900102501060010950

2,6503,1503,6504,1504,650

Jan-

14Ap

r-14

Jul-1

4O

ct-1

4Ja

n-15

Apr-

15Ju

l-15

Oct

-15

Jan-

16Ap

r-16

Jul-1

6O

ct-1

6

Saudi(RHS) Iran(LHS) Iraq(LHS)

280000

360000

440000

520000

4.96.68.3

10.011.7

Jan-10 Aug-11 Apr-13 Dec-14 Jul-16Inventory (1000 bbls) RHS Crude production(MBPD)Crude Imports Week on Week(MBPD)

Production trend of 3 top OPEC countries

US production inventory and imports

Crude Oil Energy


refinery outages during 2016, gasoline stocks went up despite that withdrawal were significant during summer driving season.

DistillatesDistillate fuel demand basically rises in the extreme winter especially from the Northeast region of the United States. As per the EIA report, households heating with heating oil are expected to spend around $378 this winter which is more than 35% compared to previous winter season spending. Con-sumptions for the same shall rise by 15% and the retail prices by 20%.

In 2016, towards end of September and starting of November, distillate fuel stocks declined con-secutively for seven weeks and within mentioned time frame, 16.39 million barrels withdrawals were reported by the EIA. Average distillate production during 2016 till mid-December, as per the EIA data, was around 3.77 million barrels per day, which is close to 2.8% down against 2015 average distillate production levels and 0.8% down from the previous 5-year average levels of production. Distillate stocks withdrawals just like natural gas depends upon ex-treme winter season when the same is used in extra amount for direct heating purpose. HDD levels in the US region during extreme winter situations play an important role in determining consumptions of the heating fuel. As per the latest STEO report by the EIA, U.S. average HDD levels during December 2016 and February 2017 could be around 772 which is 11% more than previous year same period. New England, Middle Atlantic, E.N. Central and W.N. Central regions are expected to experience more than 1100 HDD levels which previous winter was restricted within 1000 levels.

Crude oil stocksIn the year 2016, crude oil stocks reached new high levels, which was due to combined effect of increased production as well as higher imports. Average crude oil stocks in 2016 till mid-December stood around 487.26 million barrels, up by 14% Y/Y. During the period from April 2016 and May 2016, average crude oil stocks buildup was around 506.73 million barrels as the crude production levels and imports averaged around 8.87 million barrels per day and 7.68 mil-lion barrels per day, respectively. Average crude oil imports during 2016 as per the EIA data is around 7.91 million barrels per day which during 2015 was around 7.34 million barrels per day.

During 2016, average refinery inputs of crude oil was around 16.23 million barrels per day which during 2015 was around 16.11 million barrels per day but still the stocks went up as the imports raised from 7.34 million barrels per day in 2015 to 7.91 mil-

lion barrels per day in 2016. Monthly crude oil pro-duction levels though went down for six continuous months between February and July 2016, average production levels still counts 8.77 million barrels per day. Thus, the consumption of crude oil is not being done at that pace with which the same is being im-ported and produced.

OutlookIn the year 2017, crude oil prices are expected to tend towards attaining some new heights as the his-toric deal among the OPEC and selected non-OPEC members shall boost up the market sentiments. With effective from January 1st 2017, OPEC members agreed upon lowering down their production levels by 1.2 million barrels per day while the non-OPEC members by 0.558 million barrels per day. Thus, from the current surplus market if the production cut measures are applied really, a massive change in oil prices can be seen. Some difficulties from the US region shall arise as their drilling productivity re-port showed upcoming rise in shale production lev-els. As per the report, US crude oil production levels shall rise in seven shale regions by 2000 barrels per day in January 2017. Some negativity shall be seen in prices if the US production levels continuously gets buildup. If the OPEC and non- OPEC members continue with their production cut policy, prices can gain support. From the products side, gasoline and distillate demand are running at a great pace and is expected to continue with the same. Distillate products supply which in turn reflects demand in the market jumped to 4.55 million barrels per day during week ending 16th December 2016, which was highest since 2007. With anticipated rise in HDD levels, heating demand shall get a boost and hence, will promote further withdrawals in the dis-tillate stocks. Gasoline implied demand during 2016 averaged around 9888, which is around 2.6% more than 2015 average gasoline implied demand and 6.5% more than 5-year average implied demand. With better jobs data in the United States region and

Crude OilEnergy


Crude Oil Energy

BUY

Nymex future50% @ $43-$44 50% @ $33-$34

MCX future50% @

`2900 - `295050% @

`2250 - `2300

BUY

TARGET

TARGET

STOP LOSS

STOP LOSS

$25

`1750$68/$78

`4650/ `5500

improving economy, consumption for the fuels shall automatically rise. Thus, a good support in interna-tional crude oil prices can be seen with declining surplus and rising products side demand.

Technical analysisNymex Crude oil future prices witnessed a positive trend from beginning of the year 2016. During the first quarter, price made multi month low of $26.05 and price reversed from that level to test $54.51 level, registering a gain of 109% from the low levels. Price broke trend line resistance during last quarter of 2016 with volume, which can be seen with red color line. Prices will again touch support zone and bounce back from that level in upcoming months. Currently prices are trading above short term 8, 13 and 21 period simple moving averages in monthly chart and stochastic oscillator trade is at 85.88 levels which suggest overbought. MACD is below zero line with crossover.

Recommendation


Natural gas futures started the year 2016 on a weaker note and the bearishness

was prevailing during the months of January and February 2016 as the winter demand failed due to lower HDD levels. Since March 2016 onwards, significant amount of gains were seen in NYMEX and MCX natural gas futures prices as summer demand emerged from the electric power generation and industrial sectors. More than 25% monthly gains were seen during the month of June 2016. On 4th March 2016, NYMEX natural gas futures hit a low of $1.611/MMB-TU whereas on MCX, prices made a low of Rs. 109/MMBTU on the same day. Due to restricted envi-ronmental laws imposed on coal, several coal fired power genera-tion plants faced forced shutdowns and the fuel intakes shifted to-wards natural gas. With increased natural gas intakes by the power generation and industrial sectors, natural gas prices showed healthy moves during extreme summer months. On 9th December 2016, NYMEX natural gas futures ticked a high of $3.777/MMBTU whereas the same day at MCX, the high price

was Rs.254.9/MMBTU, which was highest since December 2014.

SupplyAccording to the data released by EIA, total marketed production of natural gas in the US in the year 2016 was around 77.50 bcfpd, down by 1.5% Y/Y. Lower 48 states other than Gulf of Mexico also supplied around 1.5% less natural gas in 2016 compared to 2015 levels. Total dry gas production in the United States during 2016 was around 72.5 bcfpd, which was approximately 2.2% less than 2015 average pro-duction levels. Total imports and exports during 2016 as compared to 2015 went up by 9% and 28% respectively in the United States. Total supplies in 2016 fell by 0.6% as compared to 2015 supplies. For the year 2017, net supplies as per the EIA data shall rise by 0.7%.

DemandResidential consumption in 2016 declined by more than 6.5% Y/Y while demand from the commer-cial sector also declined by 3.7%. With reduced heating demand in starting of the year 2016, major

Spark might continue

Natural Gas

1.5

2.0

2.5

3.0

3.5

4.0

105

130

155

180

205

230

255

Jan-16 Feb-16 Apr-16 Jun-16 Jul-16 Sep-16 Oct-16 Dec-16

NYMEX NG($/MMBTU)MCX NG(Rs./MMBTU)

Price performance

-0.275

-0.150

-0.025

0.100

0.225

0.350

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

NYMEX NG MCX NG

Monthly gains and looses


slump was witnessed in both the sectors. During summer season, demand from the industrial and power generation sectors surged by 2% and 4.8% respectively in 2016. As the EPA mandated laws over the coal fired plants, natural gas consumption increased drastically. Total consumption in the year 2016 has improved by 0.5% as compared to 2015. For the year 2017, anticipated demand is more than 1% as the demand from residential and commercial

sectors shall rise by more than 5% on yearly basis. With more heating degree days, heating demand shall rise significantly in 2017. Inventory net with-drawals during 2016 (till 16th December 2016) stood around 159 bcf, which last year witnessed a net buildup of 536 bcf and past 5-year average is around 131.8 bcf buildup.

Heating demandNatural gas prices majorly depend upon the heating demand that comes from the residential and commer-cial sectors during extreme winter season. In 2016, total natural gas consumed by the residential sector

Global natural gas balance sheet

2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 F 2017 F

Supply (BCFPD)

Total Marketed Production 78.78 78.68 77.52 76.88 76.89 79.93

Lower 48 States (Excl GOM) 74.31 74.22 73.32 72.77 72.63 75.78

Others 4.47 4.46 4.2 4.11 4.26 4.15

Total Dry Gas Production 74.14 73.79 72.37 71.89 71.94 74.79

Gross Imports 7.45 8.42 8.04 8.29 7.77 7.81

Gross Exports 4.89 5.78 5.96 6.52 6.74 7.51

Supplemental Gaseous Fuels 0.16 0.17 0.13 0.17 0.16 0.16

Net Inventory Withdrawals -1.31 13.1 -7.76 -5.69 2.6 0.38

Total Supply 75.55 89.7 66.82 68.14 75.73 75.63

Consumption (BCFPD)

Residential 12.74 22.5 7.14 3.48 14.4 12.58

Commercial 8.82 13.45 5.99 4.59 9.95 8.94

Industrial 20.66 22.6 20.19 20.21 21.19 21.32

Electric Power 26.31 24.18 27.51 34.86 23.76 26.71

Others 6.28 6.63 6.02 6.05 6.24 6.48

Total Consumption 74.81 89.36 66.85 69.19 75.53 76.03

Balancing Item 0.74 0.34 -0.03 -1.05 0.2 -0.4Source: STEO, EIA

2

7

12

17

22

0

10

20

30

40

Jan-

12

Sep-

12

May

-13

Jan-

14

Sep-

14

May

-15

Jan-

16

Sep-

16

Commercial Consumption(bcfpd)-RHS Residential Consumption(bcfpd)-LHS

Commercial and residential sector consumption

Natural Gas Energy


stood around 142.57 bcfpd which during 2015 was around 152.85 bcfpd. Between November 2015 and March 2016 residential sector demand for natural gas was around 100.09 bcfpd which same period previous year was 124.09 bcfpd. Total consumption from the commercial sector in 2016 stood around 101.92 bcfpd which during 2015 was around 105.82 bcfpd. Between November 2015 and March 2016, around 61.14 bcfpd natural gas was consumed, which previous year same period was around 73.86 bcfpd. To know the decline in natural gas demand from the residential and commercial sectors, HDD levels needs to observed and then the scenario would be clear. As per the EIA data, between November 2015 and March 2016, average US HDD levels were around 594, which same period previous year was around 732 which means during 2016, HDD levels were less by approximately 19% and thus, residential and com-mercial consumptions fell during 2016 winter season. Between above mentioned period, around 1463 bcf natural gas was withdrawn from the inventory, which last year was around 2110 bcf withdrawals.

Cooling demandCooling demand in natural gas means when power generation sectors consume natural gas for extra electricity generation during extreme summer. Actu-ally, when usage of air conditioners rises up during extreme summer, demand for electricity rises and then power generation sector starts consuming more natural gas to accomplish the extra demand. During 2016, total natural gas demand by the power generation sector was around 330.95 bcfpd, which during 2015 was around 315.77 bcfpd. Between May 2016 and August 2016, around 132.52 bcfpd natural gas was consumed by the power generation sector against 120.09 bcfpd consumed in the same period a year ago. With heavy laws imposed by the EPA on coal based power generation plants, natural gas replaced the same to a great extent. To validate the same, inventory injections during above mentioned period in 2016 was around 776 bcf, down by 48% Y/Y. Previous five year average of natural gas inven-

tory injections during May-August month is around 1330 bcf. Consumption from the industrial sector for natural gas in 2016 was around 252.55 bcfpd which during 2015 was around 247.92 bcfpd. Actually, not much variation in industrial sector consumption is seen and no such seasonality pattern was seen but still in the year 2016, consumption of natural gas by this sector also got boosted up.

OutlookNatural gas prices for the year 2017 shall continue showing gains as the sector wise demand will rise drastically. Since natural gas has seasonal demands, in winter residential and commercial sectors shall play an important role while in summer, power generation sector consumptions. Thus, to forecast the natural gas prices, tracking the weather outlook is must. Heating degree days (HDD) between December 2016 and Feb-ruary 2017 shall be high and US average HDD in the mentioned period shall be around 772, which during same period last year was around 693. Heating degree days in the New England, Middle Atlantic, E.N. Central and W.N. Central states shall cross 1100 HDD levels as per the EIA STEO report which last year got re-stricted within 950 levels. Already, EIA forecasted for increased consumptions and spending on the heating fuel this winter, which could basically lift up the natu-ral gas prices. Tracking inventory data, around 450 bcf natural gas was withdrawn between mid- November and mid- December 2016 against 186 bcf withdrawals in the same period a year ago on account of extra heat-ing demand. Residential consumptions in 2017 shall cross 150 bcfpd as per the EIA data which during 2016 was around 142.57 bcfpd. Commercial sector natural gas consumptions in 2017 are forecasted to be around 107 bcfpd which in 2016 was around 102 bcfpd. Cool-ing degree days during 2017 is also expected to rise by some amount and as per the EIA data, average US CDD levels between June- August 2017 shall be around 312

Natural GasEnergy

Industrial and power generation sector consumption


BUY

Nymex50% @ $2.80-$2.84 50% @ $2.06-$2.10

MCX50% @

`185 - `18850% @

`137 - `140

BUY

TARGET

TARGET

STOP LOSS

STOP LOSS

$1.55

`100$4.75/$5.34

`330

which during same period in 2016 was around 300 lev-els. If the EPA mandated laws continues in 2017 as well on coal fired plants, natural gas consumptions shall be more during extreme summer season. Thus, we recom-mend buying natural gas during 2017.

Technical analysisNymex Natural Gas future prices witnessed a positive trend from last three quarters. During the first quarter of 2016, price made multi year low at $1.611 in March month and price recovered from that level to $3.994 level. During 2016, Natural gas futures surged by more than 100% (exact 121.65% - December 2015 to De-cember 2016). During June 2016, it gained by 27.80% with volume breakout, which is shown with green tend line which became resistance to support for fu-ture. Currently prices are trading above short term 8, 13 and 21 period simple moving averages in monthly chart and stochastic oscillator trade is at 87.18 levels which suggest overbought. MACD is just below zero line with crossover.

Recommendation

Natural Gas Energy


Base metals sector showcased an over-whelming performance in last two months of the calendar year 2016 wherein most of the metals rallied to multi year highs anticipat-ing revival in demand from infrastructure. Besides, supply demand mismatch also re-sulted into rally in the base metals prices. In this report, we have undertaken a detailed fundamental and technical analysis on all the base metals in order to arrive at long term outlook of all 5 base metals.

Base Metals


Tough road ahead

Aluminium

Aluminium 3M forwards on LME staged a rally of more than 20% in the year 2016

on account of rise in speculation for huge demand. On the domes-tic front, MCX aluminium futures begun the year 2016 at Rs. 97 per kg and since then it had rallied to Rs. 120 per kg. Aluminum is basi-cally used in the automobile sector and also in construction sites. Total vehicle sales from Japan and China have shown significant rise in the year till date, which was support-ive for aluminum prices. Being a light metal, aluminium prices are also dependent on the internation-al crude oil price movement. With humongous gains in the interna-tional crude oil price, aluminum also gained momentum. Demand and supply factors shall be dis-cussed in later part of this report.

Inventories at LME have shown significant decline in the year 2016 and during first eleven months of the year slump was more than 25%. On monthly basis also alumi-num stocks declined for almost 9 months, which largely supported the price rally. Speaking of the cancelled warrants in aluminum at LME, majority of the months witnessed decline. During March – April 2016, cancelled warrants jumped by more than 70%, post which huge slump was seen.

During April month, when LME stocks came down by more than 5% on monthly basis, gains in LME aluminum prices shot up by more than 10% on monthly basis. Like-wise, when cancelled warrants dipped by around 7% on monthly basis in the month of May, prices tumbled by 7%. Thus, role of LME stocks and cancelled warrants can be directly seen in prices.

ConsumptionGlobal aluminum consumption has shown rise of more than 11% on yearly basis in 2016. Majorly de-mand for Asian countries boosted up by more than 14% Y/Y in which China’s rise was around 18% Y/Y. Total vehicle sales in China surged by more than 20% and this was a major contributing factor to-

wards rise in Chinese aluminum consumption. European market also showed a rise of 10% yearly consumption of aluminum. Rise of consumption from Japan was also around 5% as the vehicle sales im-proved by 43% during 2016.

ProductionOn production front, global alu-minium production rose by 8% during 2016. Asian production was ramped up by 15% in which Chinese production rose by more than 17% Y/Y. Huge slump in the US production was witnessed during 2016 accounting for 45% decline on yearly basis while the European production levels went down by more than 6%.

Supply demand dynamics shows that aluminium surplus

90

95

100

105

110

115

120

125

1300

1400

1500

1600

1700

1800

1900


LME (USD/MT) MCX (INR/KG)

20000002300000260000029000003200000

400000700000

100000013000001600000

4-Ja

n

4-M

ar

4-M

ay

4-Ju

l

4-Se

p

4-N

ov

Cancelled Warrants Aluminum LME Stocks

Monthly gains in LME aluminium prices(%)

-8%

-3%

2%

7%

12%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Price performance

Aluminium: Inventory vs. cancelled warrants (MT)


during the year 2016 squeezed down by 81% due to rise in demand compared to supplies. During 2015, market saw a huge surplus wherein the aluminium surplus rose by 130% Y/Y and then suddenly the surplus squeezed down, which basically fueled the aluminum prices.

For the year 2017, as per the forecast values, global aluminium production is likely to drop by 0.3% Y/Y. Asian supplies are anticipated to rise more than 1% on yearly basis in which Chinese aluminum output shall rise by 0.4% Y/Y. European and Amer-ican supplies are expected to decline by more than 2.5% each. On demand front, no major rise/fall is expected during 2017 as the US consumption shall rise more than 20% on yearly basis while Asian and European demand may fall by 1%. Overall surplus in the year 2017 may fall by more than 35%, which could be price supportive.

Aluminium market in 2016As per the WBMS latest report, primary aluminum market was under deficit in January to September 2016. As per the report, more than 800 thousand tons deficit was recorded during the above men-tioned period, which was 550 thousand tons in 2015. Demand for primary aluminum during first nine months of 2016 was 43.48 million tons, which was around 0.238 million tons less than last year same period. On production front, global production dur-ing first nine months fell by more than 1% compared to same period a year ago.

From China, total aluminum and aluminum alloy exports averaged around 42880 tons from January till September, which was 47136.75 tons in 2015

registering a drop of 9% in exports. Unwrought alu-minum and aluminum products exports also fell by more than 3.5% from China in 2016 between January and September months. On an average, 382 tons un-wrought aluminum and aluminum products were ex-ported from China in 2016 against 397 tons in 2015. Overall Chinese primary aluminium consumption during first eight months of 2016 fell by 1.3% Y/Y. Average Chinese primary aluminum consumption during 2016 stood around 2555768 tons against 2589006 tons a year ago.

During January to October 2016, average total ve-hicle sales in China was around 1983820, which was approximately 6.5% more than average total sales in the year 2015. Japan total vehicle sales, on the other hand, declined by more than 1% during January to October 2016 as compared to entire 2015.

Monthly growth rate of vehicle sales for China and Japan

-100%-50%

0%50%

100%

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Japan China

Assumed demand for aluminum used in light vehicle in US during 2016 shall be around 3.428 mil-lion tons, which during 2015 was 5.325 million tons. Japanese demand for aluminum used in light vehicles shall be around 1.134 million tons in 2016, which

Global refined aluminium balance sheet (MTs)

Region 2011 2012 2013 2014 2015 2016 2017F

Global Consumption 3797228 4353139 3838374 4416384 4328337 4833702 4829791

Asia 2687903 3027143 2658772 3063802 3063775 3501471 3458754

China 1892989 2288813 1952731 2317073 2269729 2681404 2658706

European 554252 595274 548076 596510 618539 679668 673251

India 129970 140913 106312 109629 114397 125000 110929

Japan 177117 140278 129617 150205 129290 136290 122148

US 201512 450770 367439 467420 418828 381789 471847

Global Production 4148415 4506910 4323782 4493617 4506919 4867526 4851070

Asia 2441268 2891340 2773706 3043019 3017085 3470828 3518976

China 1897625 2306744 2211165 2359725 2310068 2712072 2722643

European 743769 689022 655593 636845 695914 649286 631356

US 177717 171019 153973 141291 113424 61562 59873

Surplus/ Deficit 351187 153771 485408 77233 178582 33824 21278

AluminiumBase Metals


during 2015 was 1.779 million tons. China aluminum (bauxite) demand for light vehicles during 2016 is assumed to be around 20.446 million tons which in 2015 was around 31.068 million tons.

OutlookIn the year 2016, the gain in the aluminium prices was because of anticipated rise in demand in the coming periods. With anticipated huge investments in the infrastructure, aluminum being one of the major con-struction metals, is also expected to rise. Current rally in the metal was not because of the declining supplies but with an expected rise in demand. Supplies in fact are rising compared to the demand and as per the latest updates, November month Chinese output rose to record high levels. On Y/Y basis, aluminum output rose by 3.8% during November 2016 as per the National Bureau of Statistics. In terms of daily production, aluminum output was around 93,333 tons per day in the above mentioned period. Prices have

already spiked upon huge speculations and hence shall not sustain seeing the ground reality. Thus, we recommend selling aluminum during 2017.

Technical analysisFrom 2014 onwards Aluminium 3M forward pric-es have been moving in a channel trend line. Price rally was triggered after making a low of $1433 in November 2015 and rally was continued during the year 2016 from January to December month. A major channel line resistance is near $1850 level and prices are trading between minor channel, which is indicat-ed in green color. In the month of November 2016, dozi candle pattern was formed, which suggest some correction and stochastic oscillator is in overbought zone on monthly chart, which may limit rise for up-coming months. MACD indicator values below zero line at 27 levels on monthly chart. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart.

BUY

MCX50% @ `104-`106 50% @ `94-`96

MCX @`144-`146

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS`78

`164`140

`105

BUY

LME 3M forward50% @ $1580-$1600 50% @ $1500-$1520

LME 3M forward$1960 - $1980

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS

$1350

$2220$1940

$1540

$ `

Recommendation

Aluminium Base Metals

Recommendation


Winding shall get tighten

Copper

Major turnaround was seen in the copper mar-ket after November

month when Mr. Trump won the US Presidential elections in the year 2016. A long term bearish trend in the copper market was negated after the newly elected president emphasized on invest-ing huge on the infrastructures. Basically, copper market made a giant turnaround speculating huge demand in coming months and gained more than 20% on monthly basis in the month of November 2016. An unexpected gain in the U.S. manufacturing PMI gave a sort of bonafide to the Trump’s statement, which raised the bullish bets in the Comex cop-per to record high levels. Speak-ing of the supply side, global production data available till Sep-tember month showed around 2.3% Y/Y rise.

Copper stocks at LME showed more than 20% buildup in the year 2016 as the stocks reached November 2013 levels in Sep-tember 2016. On monthly basis, during the months of August and September, LME inventory levels

inched up by more than 40% and 25%, respectively. Cancelled warrants, on the other hand, gained massively and during September and October months, around 100% and 65% monthly jump in Copper was recorded. Comex copper stocks also moved up by around 10%. Copper price movement was driven by the changes in the LME inventory levels; however, the major con-tribution to the price movement was from the bullish bet devel-oped by the speculators.

ConsumptionGlobal consumption figures dur-ing 2016 fell by more than 5.5% compared to previous year con-sumptions. A huge drop was seen from China where consumption declined by more than 15% dur-ing 2016. The Chinese copper im-ports declined for tenth consecu-tive month during October 2016 dropping by 50% Y/Y. European and U.S. markets, however, wit-nessed some improved demand by moving up more than 20% and 10%, respectively on yearly ba-sis. For the year 2017, consump-

280

310

340

370

400

430

4200

4600

5000

5400

5800

6200

Jan-16 Feb-16 Apr-16 Jun-16 Jul-16 Sep-16 Oct-16


Price performance

Copper: Invetory vs. cancelled warrants (MT)

30000500007000090000110000130000150000

100000150000200000250000300000350000400000

Jan-16 Apr-16 Jun-16 Sep-16 Nov-16

LME Copper Stocks LME Copper Cancelled Warrants


-20%-10%

0%10%20%30%40%

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Air Conditioners Car Electric Instruments Freezers Refrigerators

Monthly change in Chinese copper consumption demand by various sectors

tion of copper is expected to rise by around 9% Y/Y. Chinese consumption, as per the forecast values, is expected to rise by 20% on yearly basis.

ProductionGlobal copper production declined by 2% in the year 2016 with the major fall witnessed from Chile where output fell by 8% Y/Y. In the month of April 2016, major fall from Chile was observed where production fell by more than 11% on monthly basis due to temporary mines closure on account of heavy torrential rains. For the year 2017, global produc-tion is expected to rise more than 4.5% Y/Y. Chile mines production, as per the forecast figures, is expected to rise by more than 2.5% Y/Y.

Global copper deficit in 2016 might decline by 30% as compared to previous year. For the year 2017, global copper deficit might again rise by around 50% which is majorly because of huge antic-ipated demand and tad gains in production figures.

Copper market in 2016Copper prices are usually barometer for any economy as the same is used widely in electrical instruments and vehicles. As far as copper intakes are concerned, China tops the list and hence, under-standing its intake and consumption will give clear idea about the price trend. Chinese copper intakes declined on monthly basis in 2016 from the air con-ditioner segment, car, electrical instruments and freezers while the intake from the refrigerator rose.

Overall China imports of unwrought copper and copper products declined for every month in 2016. As per the latest updates, imports of unwrought copper and copper products during October month was around 290 thousand tons, which was 31.50%

less than same period last year. In 2016, total 4070 thousand tons unwrought copper and copper prod-ucts were imported by China against 4812 thousand tons imported during entire 2015. October imports figure of 290 thousand tons was the lowest since June 2011, which could be a major concern for the copper prices as lower imports could push back the red metal prices. Refined copper imports by China declined by more than 20% during October 2016, averaging around 189812 tons. Total Chinese refined copper imports year-till-date in October 2016 was around 2992683 tons, which was approx-imately 2.4% down from last year entire intakes. Huge depreciation in Yuan has affected the imports and hence we can see declining customs imports data in China. Sector wise copper demand from China shows that air conditioner sector consumed 917.7 thousand tons of copper in the year 2016 till October against 1107 thousand tons in the same period last year. Around 7% Y/Y slump in demand was witnessed in air conditioner sector during May 2016- June 2016, which was peak summer demand. Demand from the car sector declined by more than 10% in 2016 but overall vehicle sector intakes of

Global refined copper balance sheet (MTs)

Region 2011 2012 2013 2014 2015 2016 2017F

Global Consumption 1613687 1593355 1795196 1867818 2020441 1904927 2080245

Asia 1131492 1113366 1291587 1400625 1506373 1316438 1514592

China 797637 770304 926138 1054207 1111057 926552 1110473

European 251850 246150 262956 254302 257993 314131 298392

US 129000 127000 138010 121000 135000 150000 144534

Global Production 1490879 1554570 1636020 1618401 1746399 1711540 1792419

Asia 266909 309603 326656 321044 402137 398926 430753

Chile 520700 515000 524800 523500 495300 452800 465360

China 129274 152791 133815 145100 151236 148000 153394

European 134882 134390 131774 133199 133855 138249 136057

Surplus/ Deficit -122808 -38785 -159176 -249417 -274042 -193387 -287827

Copper Base Metals


CopperBase Metals

copper showed around 2% gains. Demand of cop-per from the freezers and refrigerators declined by 15% each compared to last year’s demand figures. Total 31.3 thousand tons copper was taken by the freezer sector, which was around 36.53 thousand tons during 2015. Refrigerator sector intakes have been around 143.6 thousand tons, which in 2015 was approximately 169.8 thousand tons.

OutlookCopper prices during 2016 showed an exponential gain after the victory of Donald Trump as the US President. As the newly elected president men-tioned of increasing investment in the infrastruc-ture, metal prices started showing magnified gains. A sort of dullness in the red metal also started getting eased off anticipating huge demand in the year 2017. Not only with the statement of the US president, series of unexpected data fueled up the metals market that are expected to act as bullish factors for the copper prices. Copper is basically a barometer for any economy, if copper consumption is more, several sectors can be seen rising which means development of the economy. Chinese man-ufacturing PMI during October and November 2016 rose unexpectedly to its July 2014 high levels. Be-tween January and November 2016, investment in factories, buildings and other fixed assets in urban areas jumped more than 8% compared to a year earlier. With recent approvals of $72.4 billion worth railway projects in China, consumption levels might rise for the copper. Thus, we recommend buying copper during 2017 anticipating significant demand and limited supplies.

Technical analysisLME 3M copper forward prices witnessed a positive trend from last four quarters. During November 2016, it made a record high, surging by 24.65% against October month. In the year 2016, prices came out from consolidation phase with triangle break out and it also broke trend line resistance, which can be seen with yellow color line. Despite of record gain during the month of November 2016, prices are still trading below 2015 higher level. Cur-rently prices are trading above short term 8, 13 and 21 period simple moving averages in monthly chart and stochastic oscillator trade is at 66.11 levels. MACD is below zero line with crossover.Recommendations

BUY

LME 3M forward50% @ $4900-$4950 50% @ $4500-$4550

MCX50% @

`328 - `33150% @

`292 - `297

BUY

TARGET

TARGET

STOP LOSS

STOP LOSS

$4150

`250$6300-$6800

`450


Stuck among producers

Nickel

Nickel market witnessed a spectacular movement in the year 2016, register-

ing gains more than 25% YTD as on 1st December 2016 on ac-count of huge deficit in the global market. On 11th November 2016, LME nickel 3 month forward con-tract ticked a high of $12145/ MT, which was highest since 6th July 2015. At MCX, the same hit a high of Rs.816.5/kg on 28th No-vember 2016, which was high-est since 24th June 2015. As the global nickel market came under deficit from huge surplus seen in 2015, prices started moving up. Suspension of mines in the Phil-ippines by the new environment minister resulted into massive move in the nickel market.

LME stocks and cancelled warrants declined by around 18% and 19.5% respectively in the year 2016, as shown in the graph. During the period from February 2016 to Sep-tember 2016, LME inventories fell by 21% from 441912 tons to 361794 tons. By the end of November 2016, around 17% de-cline in stocks was seen. Between February and September months, international nickel showed around 24% gains. Consumption

According to the latest report available, global nickel consump-tion is expected to grow by more than 8.5% in the year 2016 with China leading the consumption trend where Chinese consumption increased by 19% Y/Y. However, Asian countries consumption in-creased by just 2.5% Y/Y. The Eu-ropean and US consumption levels rose by 13.7% and 48%, respec-tively in 2016. China is the biggest

importer of nickel for production of stainless steel, hence, tracking the refined nickel and nickel ores consumption trend are the major concern for global nickel prices. During first 10 months of 2016, Chinese nickel imports declined by 50% Y/Y. Total nickel ore im-ports from Philippines, however, jumped by more than 200% dur-ing first 10 months of 2016.

ProductionDuring the year 2016, global nickel production increased by 3.5% Y/Y and is expected to show some tad gains in the year 2017. Produc-tion from the Asian countries as a whole has jumped by 25%, which is expected to decline by around 7% in 2017. With ongoing mining audits in the Philippines, the new environmental minister has men-tioned of suspension of significant amount of mines on environmen-tal grounds, which could lower down the production levels.

Overall, anticipated consump-tions will decline in 2017 while the production rates would re-main almost unchanged which shall result in huge surplus in the refined nickel market.

100000

120000

140000

160000

180000

350000

390000

430000

470000

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov-

16

LME Ni Stocks

LME Ni Cancelled Warrants

LME stocks and cancelled warrants (MT)

450

550

650

750

850

7000

8000

9000

10000

11000

12000

Nov

-15

Dec-

15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep -

16

Oct

-16

Nov

-16


Price performance


Nickel market in 2016Nickel is basically used in making stainless steel and China is its biggest importer. Till 2014, Indonesia used to be biggest exporter of nickel ore to China but its own government imposed laws to ban the ore exports. Later, Philippines took the chance of grabbing the Chinese market and boosted its pro-duction levels. During the year 2016 till October 2016, around 26213729 tons of nickel ores were imported by China from the Philippines. Philippines has recently faced several mining audits ordered by their newly formed government to ensure every mines follow environmental rules. In order to grab a bigger share of China, the mines violated several en-vironmental laws, which lead towards land erosion and thus the newly formed government decided to impose suspension on them.

Analysis of facts and figures from the China shows that October month Chinese refined nickel imports stood at around 14323 tons, which was around 50% less than the previous month’s data. Total refined nickel imports from China in 2016 (till October) stood at around 329210 tons, which was 12.5% more than 2015 entire imports. Nickel ore imports from Philippines in 2016 till October month was around 26213729 tons, which is around 23.5% less than 2015 entire Philippines ore imports by China. China nickel and alloy imports in 2016 till October month was around 334686 tons, which was around 10.3% more than 2015 total nickel and alloy imports. China ferro-nickel total imports in 2016 till October month was around 822376 tons which was around 26% more than 2015 entire ferro nickel imports. Nickel actually comes in dif-

ferent forms; ore is basically having around 5% or less metal in it. Refined nickel is the purest form of nickel while in ferronickel; content is 10% or more. With ongoing mining audits in Philippines, several mines suffered shutdowns and anticipated more mines will face closures, ores imports went down in China and hence to furnish the gap, China started importing ferronickel. Ferronickel is being import-ed by China from Colombia, Japan & New Caledonia. China nickel based stainless steel total production in 2016 till November month was around 14497148 tons which was around 17.7% less than 2015 nickel based SS production by the country.

OutlookNickel is the second best metal in the whole metals pack, which is expected to continue remain under deficit in 2017. As per the INSG forecast, deficit in global nickel market is expected to be around 66,000 tons, which would be basically due to rise in stainless steel demand. Global demand for nickel

55000

80000

105000

130000

-5000001500000350000055000007500000

Jan-

16Fe

b-16

Mar

-16

Apr-

16M

ay-1

6Ju

n-16

Jul-1

6Au

g-16

Sep-

16O

ct-1

6

Nickel Ore Ferro Nickel

Chinese ferro-nickel and nickel ore imports (MTs)

Global refined nickel balance sheet (MTs)

Region 2011 2012 2013 2014 2015 2016 2017F

Consumption

Global 140854 164219 160134 109970 140557 152813 138622

Asia 93488 126838 120919 73530 102606 105178 97596

China 62731 93099 91798 49684 63277 75247 65739

European 31336 23248 24554 20636 23931 27206 22900

US 10000 8800 8100 10900 9040 13388 12084

Production

Global 140522 178673 179419 152885 147748 152859 152922

Asia 51189 93664 89239 61408 54057 67548 63032

Australia 9000 9667 11600 12334 13542 11300 13626

China 35437 72721 69200 39502 22799 38300 29812

Surplus/Deficit -332 14454 19285 42915 7191 46 14300

NickelBase Metals


is expected to increase from 2 million tons in 2016 to 2.11 million tons in 2017. Deficit percentages for nickel shall rise as the Philippines are reviewing their mines environmental compliance certificates (ECCs). During initial mining audits, around a quar-ter of mines out of 40 were suspended on the envi-ronmental grounds. As per the fresh mining audit updates, three more mines were suspended from their operations and further mines are warned for the same. With rising mines suspensions, deficit in nickel market shall increase and hence, the prices. Philippines is the top exporter to China for nickel ores and during first ten months in 2016, exports from Philippines declined by around 12.5% due to restricted mining audits. As a replacement, ferron-ickel is being imported from many other places and New Caledonia is all set for huge exports to China.

With rebalancing shipments, nickel prices can again get adjusted hence during 2017, we recommend buy sell strategy in nickel.

Technical analysisNickel 3M forward at LME platform traded in bearish channel since 2014 and the falling channel trend was broken in the year 2016 and prices took a reverse trend and made a new high of $12145/MT. Recent high was below 38.2% fibonacci re-tracement (high $21625 – low $8145). Currently price is trading near short term 8, 13 and 21 period simple moving averages in monthly chart and sto-chastic oscillator trade at 68.70 level which suggest overbought zone thereby we may expect that profit booking coming months. MACD is in below zero line which also suggests some correction.

BUY

MCX50% @ `615-`625 50% @ `540-`550

MCX @`1030-`1050

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS`450

`1200`980/`1030

`630

BUY

LME 3M forward50% @ $9200-$9300 50% @ $8300-$8400

LME 3M forward$14500 - $14700

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS

$6600

$16500$13500-$14500

$9300

$ `

Recommendation

Nickel Base Metals

Recommendation


The accumulated power

Lead

Lead market staged a strong rally in the year 2016 kill-ing the bears anticipating

emergence of huge demand for the metal in the year 2017. On 28th November 2016, LME 3 month lead forward contract hit an intraday high of $2576.5/MT, which was the highest level since August 2011. Same day at MCX, lead posted high of Rs. 175.7/kg, which was highest ever rate at MCX since the trading start-ed. During September month, lead posted massive gains seeing pre-winter accumulation for the battery and then again in Novem-ber month when the entire met-als pack got fueled up tracking comments from the newly elect-ed US President who mentioned of investing in infrastructure.

Lead stocks as per the LME data did not change much in the year 2016. Some initial jump was seen in February by 13% on monthly basis but later on came down by 27% in March. Cancelled warrants declined by around 30% in 2016, which normally should have been negative for prices. Normally, international lead pric-es are not that much affected by the stocks and cancelled warrants but are more concerned of the de-mand and supplies.

Global lead market mostly remained under surplus during 2016 but the percentage of sur-plus differed on monthly basis. As per the ILZSG data, only in the month of June small deficit was seen in the global lead market. Around 4,000 tons deficit was reported by the ILZSG data during June month which was in surplus of around 29,000 tons in May.

ConsumptionGlobal consumption of lead in 2016 has been more than 6% compared to 2015 consumption levels. Asian lead consumption went up by more than 10% which was majorly due to rise in Chinese lead consumption. In 2016, 20% extra lead consumption was seen

100

120

140

160

180

1500

1700

1900

2100

2300

2500

2700

Jan-16 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Nov-16

MCX (INR/KG)

LME (USD/MT)

20000

50000

80000

110000

150000

175000

200000

225000

29-J

an

29-F

eb

29-M

ar

29-A

pr

29-M

ay

29-J

un

29-J

ul

29-A

ug

29-S

ep

29-O

ct

29-N

ov

LME Pb Cancelled Warrants LME Pb Stocks

-5%0%5%

10%15%

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

LME monthly price performance

Price performance

Lead: Inventory vs. cancelled warrants (MT)


from China compared to previous year. A significant jump in China’s lead imports and consumption was seen during 2016. As per the forecast values, a small decline in lead consumptions might be seen in 2017 along with Chinese consumptions.

ProductionGlobal lead production during 2016 increased more than 7% in which Asian shares rose more than 15%. Production levels from China rose by more than 20%. During 2017, as per the forecast values, global lead production

levels shall decline by around 3%. Asian production levels shall move down by 5% on yearly basis in which Chinese productions can come down by 9%. With massive rise in lead produc-tion levels compared to rise in consumption levels, lead market has been seen under huge surplus in 2016. For the year 2017, sur-plus is expected to decline as pro-duction levels can fall significant-ly as compared to consumptions.

Segment wise lead demandFor lead market, consumption

pattern from China is important to be tracked. Around 75% of the total lead is consumed for battery manufacturing in which automobile and electric bicycles constitutes around 29% each. Motorcycle batteries constitute around 5% whereas in UPS and communications, rest 13% is used. Total refined lead consumptions in China during 2016 (till Septem-ber) was around 3181241 tons, which was 11% more than same period last year. In September 2016, China refined lead pro-

Global lead balance sheet (MTs)Region 2011 2012 2013 2014 2015 2016 2017F

Consumption

Global 894099 863666 897268 912791 839230 891059 875720

Asia 567292 541089 541947 578153 492313 542956 520778

China 399270 367766 359497 384580 297185 363110 325155

European 131984 141826 149082 141036 149151 155559 157953

Germany 25149 34800 30475 27528 27100 32700 30796

Production

Global 902378 878085 904730 908101 838567 903807 878474

Asia 537031 509677 511919 553341 469450 541626 514879

China 397092 365167 360571 387696 301168 363004 328918

European 142305 153165 159802 159346 167038 167697 175038

Germany 27915 36327 33499 32454 29600 28500 29552

Surplus/Deficit 8279 14419 7462 -4690 -663 12748 2754

-100%

-50%

0%

50%

100%

Dec-

15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Vehicle Production Passenger Car Basic Passenger Car MPV SUV Crossover Commercial Car

Sectorwise monthly change in lead battery consumption

Lead Base Metals


LeadBase Metals

duction stood around 369004 tons, up by 22.6% Y/Y Total refined lead production in China during 2016 (till September) was 3193345 tons, which during 2015 was 3845494 tons. Lead used in the batteries for vehicles during 2016 has shown a good number of productions. As shown in the graph, during January month the slump was witnessed, rest every month showed rise. In 2016, till October month, around 1905 million units of batteries were exported from China while 1518 million units of batteries were imported.

OutlookLead market witnessed a hefty move in the year 2016 and is expected to continue with its gains in the year 2017 as well. As per the international study groups, in 2017, demand could rise by 1.3% to 11.34 million tons. Basically, lead is used in batteries and 75% demand is from this sector. During January month, usually lead consumptions make a dip which could be a better opportunity to go for long positions. De-mand from the electrical bicycles shall also rise which would make an additional contribution towards the increased consumptions. Overall surplus during 2016 is estimated to be around 42,000 tons which during 2017 can slump by 45% to 23,000 tons upon rise in demand. As the Chinese manufacturing numbers are improving, appetite from the metals largest consumer is expected to be more. Thus, we recommend buying lead in 2017.

Technical analysis

LME lead 3M forward prices traded on a bullish note in the year 2016 and the highest gain was featured dur-ing the November month. In the month of November 2015, prices tested lower level, which was made in the year 2010 and turned back to positivity by forming a hammer candlestick pattern in monthly price chart, which is generally a reversal pattern. Prices took sup-port from $1551.50 and broke the upper resistance line in September 2016 and currently trading near to $2100 level. Immediate resistance is seen at $2576 (high of November 2016) and major resistance is at $2730 which is 61.8% fibonacci retracement of the fall from $3890.00 to $851.00 levels. MACD indicator values above zero line at 41 levels on monthly chart. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart. We recommend buy in lead for the year 2017.

Recommendation

100135170205240

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep -

16

Oct

-16

Export (M units) Import (M units)

Lead battery export and import from China

BUY

LME 3M forward50% @ $1875-$1895 50% @ $1770-$1790

MCX50% @

`120 - `12250% @

`112 - `114

BUY

TARGET

TARGET

STOP LOSS

STOP LOSS

$1470

`96$2500-$2700

`170/ `190


The glow for steel shall drive

Zinc

Zinc was the best perform-er in the whole metals pack in the year 2016, showing

gains more than 70% on yearly basis. On 28th November 2016, LME Zinc ticked an intraday high of $2985/MT, which was highest since October 2007. The same day, MCX zinc futures made an intra-day high of Rs. 204.2/kg, highest since December 2006. During the year 2016, zinc prices showed monthly gains in all the months except for May 2016 when the prices ended with a negative closing of 0.8%. Massive deficit in the global refined zinc market pushed the metal prices to its mul-ti year high levels. Data from the WBMS showed around 1870924 tons surplus in zinc market dur-ing 2015 which during 2016 (till September) came under deficit of 512722 tons.

LME zinc stocks showed some slight decline in the year 2016 and year to date decline in stocks in 2016 has been around 6% as on 12th December 2016. Major build-up was witnessed during June month when on monthly basis the stocks at LME jumped more than 16%. Cancelled warrants during 2016 went up and on YTD basis; more than 60% rise was seen. Basically, stocks at LME for zinc

declined while cancelled warrants rose, which was supportive for prices but massive rally in prices were basically due to heavy deficit in global zinc market.

Global consumption during 2016 inched up by around 0.4% compared to 2015. Chinese con-sumption on yearly basis rose by around 2.8% during 2016. A slight decline in European con-sumption levels was seen during 2016. Production levels during 2016 has been shown to increase around 7.5% on yearly basis as the data taken is lagged. Chinese production levels rose more than 8% in 2016 while the European production levels declined by 3%. With large mine of Glencore in

-5%0%5%

10%15%

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

90

110

130

150

170

190

210

1400

1900

2400

2900

3400


MCX (INR/KG) LME (USD/MT)

Monthly gains in LME Zn LME stocks and cancelled warrants (MT)

Price performance


Global refined zinc balance sheet (MTs)

Region 2011 2012 2013 2014 2015 2016 2017F

Consumption

Global 1078572 1097991 1052230 1134952 1152150 1156387 1175474

Asia 730434 772459 704545 767631 800109 798741 811077

China 516556 538441 479405 552601 545868 561039 564108

European 170282 164889 174907 209215 204057 202309 218805

Production

Global 1139207 1146780 1059804 1152859 1130399 1215369 1183209

Asia 707146 730049 654702 740841 732287 738787 742408

China 457983 481707 425432 523681 481779 522123 524034

European 202966 197972 203933 209975 203068 196991 201630

Surplus/Deficit 60635 48789 7574 17907 -21751 58982 7734

Surplus/ deficit (MT)

-300000-200000-100000

0100000200000300000

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Surplus/ Deficit(metric tonnes)

idled mode, the European supplies declined during the year 2016. For 2017, the forecast values suggest around 1.7% rise in global consumptions while the production levels could fall down by 2.7%.

WBMS surplus- deficit chart however suggests around 512722 tons deficit in 2016 (till September month).

Zinc market in 2016Zinc is mostly used in galvanizing steel and around 50% of global demand is dependent on the same. As

per the latest updates, Japan production of galvanized sheet steel products from January till October 2016 was around 8594000 tons. Shipments from the coun-try of the same were around 8637000 tons.

In China, around 52.5% demand for zinc is basi-cally for galvanizing steel. During 2016, China total steel exports were around 85.37 tons, which was around 24% less than 2015 total steel exports. Total steel inventory in China though dropped by around 24% in 2016, averaging around 1.30 million tons compared to 2015 levels. In 2016, steel production has been huge and hence, zinc consumption used for galvanization was much higher.

After steel, second biggest demand for zinc comes from the battery sector, which is basically dry cell. Around 17% total zinc demand in China comes from the dry cell battery sector. During 2016 (January 2016 – October 2016), around 1905 million units of dry cell batteries were exported from China, in which zinc is being used. Import of the same during 2016 (till October) was around 1518 million units.

The international study group ILZSG has forecast for global zinc market to have a deficit of around 349,000 tons in 2016 and around 248,000 tons in 2017. Demand for the primary zinc will rise by

Production and shipment of galvanized sheet steel from Japan (1000 MTs)

750

825

900

975

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Production Shipment

Export and import of batteries from China

100

150

200

250

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Export (M Units) Import (M Units)

ZincBase Metals


around 0.6% to 13.57 million tons in 2016 and by more than 2% in 2017 to 13.85 million tons.

OutlookZinc has outperformed rest of the metals in the year 2016 due to huge deficit from a massive surplus of last year. With idled Glencore’s mine having capacity of 500,000 tons, prices of the metal started rising. As per the latest release by the international study group, during first ten month of 2016, zinc market saw a deficit of 277,000 tons, which the same last year was in 201,000 tons of surplus. Zinc mining output in 2016 during January and October months was around 10,887 thousand tons against 11,092 thousand tons in the same period a year ago. Consumptions, on the other hand, soared to 11,599 thousand tons in first ten months of 2016 against 11,184 thousand tons in the same period a year ago. Demand for the refined zinc is expected rise in 2017 by 0.6% and deficit percentages may continue as the mining giants are in no mood for returning back to business very soon. Zinc is enjoying an additional advantage of rising steel outputs. With record high levels of steel production in China, zinc used in galvanization is increasing and hence the pric-es. Thus, we recommend buying zinc in 2017.

Technical analysisLME 3M Zinc was trading higher from last four quarters. During November 2016 prices made multi months high on LME platform at $2985/MT level and it faced resistance near to upper resistance band of channel line. Currently prices are trading below 50.0% fibonacci retracement 2810 level (high $4580 – low $1444.50). In the year 2016, prices broke the

resistance trend line during August month and after this prices shot up due to support from technical as well fundamental side. Early 2016 price took trend line support, which indicates as yellow colour and 76.40% fibonacci retracement $1439 level (high $2736 – low $1038 ). Currently price is trading above short term 8, 13 and 21 period simple moving aver-ages in monthly chart but stochastic oscillator trade at 81.35 level which suggest overbought zone there-by we may expect that profit booking coming months or may limit the upside move further. MACD is in positive zone which hold positive for coming months.

Recommendation

BUY

LME 3M Zinc50% @ $2040-$2060 50% @ $1840-$1860

MCX50% @

`136 - `13850% @

`118 - `122

BUY

TARGET

TARGET

STOP LOSS

STOP LOSS

$1560

`98$3000-$3200

`205/ `225

Zinc Base Metals


The year 2016 was a boon for the Indian ag-riculture sector as the production of most of the crops increased drastically. Normal mon-soon during 2016 and sharp hike in MSP for kharif crops attracted farmers to increase area under cultivation of various crops. In this report, we have covered all the sectors like oilseeds, spices, pulses, softs and other commodity sectors. The report contains de-tailed analysis of demand-supply dynamics of all the commodities and the study has been done through both school of thoughts—Tech-nical and Fundamental—and have come out with the outlook for the new year.

Agri Commodities


Oil Seeds

A fter the two consecutive years of below normal monsoon rainfall in 2014

and 2015, the year 2016 was pret-ty good for soybean production in the country. With proper distri-bution of rainfall over the major growing regions of the country, the production estimations were increased after a hiatus of 2-3 years. The acreage under soybean crop was 114.7 lakh hectares in 2016 lower by 1.3% on Y/Y.

During first two months of Q1, CY 2016, NCDEX soybean futures traded in a narrow range due to subdued trading activity especial-ly from the crushers. Beginning from March 2016, soybean fu-tures prices rallied from Rs. 3633 per quintal to Rs. 4293 per quintal (closing basis) in the third week of April, which was the yearly high for the soybeans. After mak-ing a yearly, the soybean futures entered into bear trend and the same trend continued till end of the year. Contrary to this, CBOT soybean futures moved in a bull trend since beginning of the year owing to increased consumption demand and increasing export demand. Besides, crop concerns from Latam countries gave un-derlying support to the CBOT soybean futures. CBOT soybean futures were on bull run during first six months of the year and after testing a yearly high in the month of June, futures started moving down tracking sowing progress in the US.

Since end of April 2016, NC-

DEX soybean futures were on bear trend following release of monsoon forecast report by the Indian Meteorological Depart-ment. In its first report on mon-soon forecast, IMD has projected above the normal rainfall during the monsoon season 2016 and rainfall forecasts were 106% of the Long Period Average (LPA).

Bearish trend in the soybean futures market on NCDEX was in-tensified during July to September quarter as the major producing regions of the Madhya Pradesh, Maharashtra and Rajasthan re-ceived good rainfall. Since the soybean sowing was delayed due to delay in onset of rainfall across major producing regions, the acre-age during early monsoon period was lagging compared to last year. With an intensification of mon-soon, the sowing activities picked up in July to September months. This weighed on the prices and it declined by almost 13% at NC-

DEX platform. Moreover, reports of increase in yields at Madhya Pradesh eased concerns regarding the output. CBOT soybean futures were also under pressure during the period from July to September 2016 as the concern regarding La Nina eased, which enhanced the crop condition.

During Q4, CY 2016, NCDEX soybean futures tumbled to mul-ti-year low and traded below Rs. 3000 per quintal mark on forecast of bumper crop during 2016-17 season. Commencement of harvesting of the crop during the month of October also had a negative impact on the market. The overall good conditions of the crops despite heavy rainfall wit-nessed in Vidharba region at fag end of September month kept the prices under bearish zone. On 8th Nov’16, demonetization of higher denomination Indian currency affected supplies as well as buying activity in the market. The cash

Soybean: Finally the dawn after long night

Price performance


crunch led to subdued trading activity across the phys-ical markets wherein both farmers and traders limited their trading activities. Meanwhile, CBOT soybean futures moved up by 6.6% from 973 cents/bushel on 3rd Oct’16 to 1037.5 cents/bushel till 9th Dec’16. The CBOT soybean futures received support from strong Chinese demand for US soybean as supplies tightened in South America due to lower production in the year 2015-16. The revision of EPA’s bio fuel mandate also provided support to the prices.

The crush margin for the Indian crushers re-mained under negative territory for most part of the year 2016 due to higher soybean prices compared to prices of soy meal and soy oil. However, crush mar-gin entered the positive zone since the commence-ment of new harvesting season in September. Rally in the soy oil prices tracking firmness in the interna-tional market boosted the crush margin to enter the positive territory. The share of soy oil has increased in the total recovery to 40% during Q4, CY 2016 from 29% seen at the beginning of the year. Higher domes-tic soybean output resulted in decline in soy meal prices although soyoil prices rose tracking positive cues from rival veg oils. Indian soymeal exports in tons

400

450

500

550

0250050007500

10000

No

vD

ecJa

nF

ebM

arA

pr

May Jun

Jul

Aug

Sep

tO

ct

2015-16 Soymeal Exports 2015-16 Soymeal FOB price in $/MT

Source: SEA of India

Soy meal exports from India in the oil year 2015-16 were the lowest in the recent history of meal exports from India as the exports declined by 93% Y/Y to 40,505 tons. In the oil year 2014-15, India had exported 566475 tons of soy meal. Competition from rival countries like US, Brazil and Argentina had affected the demand for Indian soy meal. The average FOB soy meal rate at India in 2015-16 was around

$480/ton whereas for US, Brazil and Argentina av-erage soymeal FOB rates $308/ton, $330/ton and $351/ton respectively. The huge difference between Indian soymeal rate compared to its rival resulted in steep decline of the exports.

During the oil year 2015-16, in each of the month Indian soymeal FOB rates were the highest than its competitors. The difference in FOB price among the major exporters of soy meal them narrowed during May and June due to soybean crop damage in Argen-tina followed by concerns regarding La Nina affecting US soybean planting. The difference widened in the succeeding months, however, tightening supplies at South America along with higher output of soybean in India, helped the difference to narrow. Further narrowing of the difference is likely to support Indi-an soymeal exports in the year 2017.

The global soybean production in the year 2017 is expected to reach a record high of 338 million tons up by almost 8% Y/Y. The rise in production on the global front is being led by US whose soybean output in 2016-17 seasons is expected to be around 118.68 million tons up by 11%. Moreover, the second largest producer of soybean i.e. Brazil is also estimated to produce 102 million tons in 2016-17 up by 5.7%. Ar-gentina is likely to witness moderate rise in soybean production to 57 million tons from 56.8 million tons in 2015-16. The overall global acreage under soy-bean crop is seen rising by just 1% to 121.826 million hectares although major producing nations like US and Brazil are witnessing rise in acreage by 1.6% and 2.1% Y/Y respectively.

The imports are seen rising globally by almost 3% in the year 2016-17. China is likely remain the top importer of soybeans by contributing 63% of the global imports. However, on the export front, Brazil may surpass US in 2016-17. Overall global exports are likely to reach a record of 139.25 million tons, up by 5.53% Y/Y.

Meanwhile, global domestic consumption is esti-mated to be around 330.09 million tons for the year 2016-17 up by 4.5% Y/Y. It is very likely that China shall continue its numero uno position in terms of domestic consumption which is estimated to be

0

200

400

600

No

vD

ec Jan

Feb

Mar

Ap

rM

ay Jun

Jul

Aug

Sep

tO

ct

USA ARGENTINA BRAZIL INDIA

-2000

0

2000

4000Ja

n-1

6

Feb

-16

Mar

-16

Ap

r-16

May

-16

Jun

-16

Jul-

16

Aug

-16

Sep

-16

Oct

-16

No

v-16

Crush margin (Rs/MT) FOB rate comparison for 2015-16 ($/MT)

SoybeanAgri Commodites


around 100.8 million tons, up by 6.1% Y/Y. The other major consumers like US, Brazil and Argentina are likely to witness rise of 1.5%, 1.6% and 2.5% Y/Y, respectively.

After witnessing consecutive 2 years of below nor-mal rainfall along with lower output, production in the year 2016-17 season has surpassed the expectation. For the year 2016-17, Indian soybean production is estimated at 10.58 million tons, up by more than 50% Y/Y. The acreage under soybean during the year 2016-17 was marginally lower compared to that of last year i.e. by 1.1%. However, with proper distribu-tion of rainfall along with higher yields, production rose in 2016-17. The overall domestic consumption is also expected to rise by 58.5% Y/Y on back of higher crushing. The soymeal exports are also expected to rise considerably during the year 2016-17. In Novem-ber 2016, soy meal exports were 51,805 tons, which was higher than the total exports done in 2015-16.

OutlookDuring Q1, CY 2017, NCDEX soybean futures are ex-pected to the trade on a positive note on increased crushing demand. Positive crush margin and encour-aging meal export enquiries as well as orders is ex-pected to support the uptrend. Though the production is expected to be higher than last year, cash crunch due to demonetization and lower prices in the spot market may discourage farmers to supply their produce in large quantities. On the other hand, CBOT soybean futures are expected to remain under pressure during Q1, CY 2016 as the quarter coincides with Argentinean and Brazilian soybean growth period. At present the weather conditions over the South American coun-

tries are favourbale for the soybean crops, which is already affecting soybean futures at CBOT negatively.

In 2nd Quarter i.e. April-June, NCDEX soybean futures may initially move up extending the gains, however, the gains could be limited and market might take a U-turn moving in line with CBOT as the harvesting of fresh crop commences in Brazil and Argentina. Besides, release of monsoon forecast report by end of April is a very crucial factor for the soybean price movement on NCDEX. US soybean sowing starts in the month of May, which is likely to have negative impact on the CBOT soybean market.

Third quarter of the calendar year 2017 is very crucial period wherein the market movement is dependent on the monsoon performance, sowing activities and crop progress across the country. Any deviation in these factors will turn the market trend. Hence, cautious trading approach to be adopted dur-ing this period.

In the last quarter of the CY 2017, NCDEX soy-bean futures may touch the bottom level for the year as this period coincides with peak harvesting and arrival period. However, price fall could be limited as fresh buying is expected to start during the peak arrival season. Meanwhile, CBOT soybean futures may trade higher as Chinese demand may shift to US following commencement of harvesting in US and receding supplies from Latam countries due to lean season. The price movement in Indian market is dependent on the soy meal export demand as India is the largest supplier of soy meal in the Asian conti-nent. Soy meal exports at the beginning of the oil year 2016-17 was excellent and India is likely to regain its top position in term of meal exports.

Global soybean balance sheet

Years Total Supply (Million Tons) Total Demand (Million Tons)

Beg. Stocks Imports Production Exports Consumption Ending Stock

2013-14 55.19 113.07 282.46 112.68 276.14 61.90

2014-15 61.90 124.36 319.78 126.22 301.21 78.61

2015-16 78.61 132.99 313.31 131.95 315.74 77.22

2016-17 77.22 136.96 338.00 139.25 330.09 82.85Source: USDA

Indian soybean balance sheet



2013-14 0.79

NIL

9.50 0.18 9.14 0.97

2014-15 0.97 8.50 0.23 8.63 0.61

2015-16 0.61 6.87 0.21 6.51 0.76

2016-17 0.76 10.58 0.20 10.32 0.82*Source- USDA, KCTL Research

Soybean Agri Commodities


SoybeanAgri Commodities

Technical analysisNCDEX Soybean futures prices witnessed a bearish trend dur-ing the year 206 and it ended the year with a decline of Rs. 706 (-18.90%) from prior year closing price. During the year, futures price tried to make new high but it restricted by resist-

ance trend line which is shown as a white color line at Rs. 4324 level and price tumbled from that level to Rs. 2947 which was 2016 low level. Price continues to take support around Rs. 2900 level which is representing as a green colour line and long term trend line support line, which is

indicated in red color. Stochastic oscillator trades near to oversold zone on monthly chart, which may restrict further fall in price. MACD indicator trade below zero line at -132 level. Currently price is trading below short term 8, 13 and 21 period simple mov-ing averages in monthly chart.

Soy oil futures witnessed a roller coaster ride in the year 2016 across the board and

the prices rallied to two and half years high on CBOT to 38.35cents/lb and thirty four months high to Rs. 744.05 per 10 kg. NCDEX re-fined soy oil futures moved in sync with CBOT soybean oil carrying a good correlation of 0.9. An un-precedented rally in the palm oil futures market supported an up-trend in the soy oil futures market.

NCDEX refined soy oil futures started the year on a weaker note as the domestic crushing season was in progress besides huge imports were taking place. From mid January, NCDEX RSO futures started moving higher and the uptrend remained intact till end of March 2016 registering a gain of 4%. The lowest price on NCDEX was Rs. 586.40 per 10 kg on 12th January 2016 while on

CBOT lowest price was 29 cents/lb on the same day. After testing a lowest price, CBOT soy oil futures started moving higher and by end of March 2016, prices rallied by 13.6% owing to gradual rise in exports on weaker USD.

The uptrend in NCDEX RSO futures remained intact during April to June 2016 on emerging demand for the soy oil following slower crushing activities. Dur-

26

28

30

32

34

36

38

580

610

640

670

700

730

760


NCDEX Ref.Soyoil in Rs/10Kgs CBOT Soyoil in Cents/lbs

Soy Oil: Bears on the prowlPrice performance

BUY

NCDEX50% @ `2950-`3000 50% @ `2650-`2700

TARGET

STOP LOSS

`2200

`4100-`4300

Recommendation


600

650

700

750

800

850

900

0

100000

200000

300000

400000

500000

600000

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2014-15 2015-16CIF Soyoil 2014-15 CIF Soyoil 2015-16

Crude soyoil imports in MT and CIF rate in $/MT

*Source- SEA of India, KCTL Research

ing the months from May to July, market witnessed a negative trend as the market was closely monitoring the progress of mon-soon as well as sowing activities. Forecast of above normal rainfall for the monsoon season 2016 had a negative impact on the soy oil market. Besides, weakness in the rival palm oil market on BMD due to rise in its production in Malay-sia and Indonesia had its spillover effect on soy oil market.

The third quarter was posi-tive for refined soyoil futures al-though the gains were limited as reports of bumper domestic soy-bean harvest curtailed any major upside movement in the prices. The prices closed up by only 1.5% at Rs 655.70/10 Kgs by end of the quarter. The prices took support from festive season demand and strength in crude palm oil fu-tures. The soy oil futures at CBOT platform rose by almost 5.7% to 33.44 cents/lbs on 30th Sep’16. During this quarter the prices made a high of 34.83 cents/lbs on 23rd August 2016. The gains in CBOT soyoil futures were mainly due to the positivity in soybean futures which moved up on back of strong Chinese demand.

Last quarter of the year 2016 was really a phenomenal period for the soy oil futures market as both CBOT and NDEX soy oil futures stated a strong rally. NCDEX soy oil futures rallied to 2.9 years high of Rs. 744.05 per 10 kg on 5th December 2016. Total rally in the last quarter was 14.3% till 5th December 2016. On the other hand, a strong rally in the BMD palm oil mar-ket, which rose to more than 4 years high, rendered a support to the soy oil market. The lesser availability of soy oil and other imported veg oil pushed the pric-es higher. Moreover, it also took positive cues from CBOT soyoil futures which made a new 2 ½ year high of 38.35 cents/lbs on 6th December 2016. US Environ-

ment Protection Agency (EPA) revised the bio-fuel mandate on 23rd November 2016, which led a rally of around 7% in CBOT soy oil futures thereby render-ing a support to the Indian veg oil market. Under the mandate for 2017, 15 billion gallons of conventional corn-based ethanol would be blended into the fuel supply – compared to 14.5 billion gallons in 2016. In addition, 4.3 billon gallons of advanced biofuel like biodiesel and cellulosic etha-nol would be added – compared to 3.6 billion gallons this year. Ethanol would be blended into the fuel supply – compared to 14.5 billion gallons this year. This prompted anticipation of higher domestic consumption of soy oil in the US, which in terms pres-surized the inventories negative-ly, hence, pushing prices of soyoil futures higher in US bourse.

In the oil year 2015-16, India had imported a record soy oil of 4.24 million tons, up by 42% Y/Y. Sharp fall in the soybean produc-tion for last two seasons due to failed monsoon for the past two consecutive years made the coun-try to depend on imports to meet its consumption demand. During the oil year 2015-16, monthly imports were higher compared to same period a year earlier except May when there was forecast of better than normal monsoon rainfall during the monsoon sea-son 2016.

Comparative analysis of soy oil import volume with CIF price shows that fall in price in in-ternational market owing to bumper crop and crop failure in domestic market led to higher import of soy oil in the oil year 2015-16. The harvesting pro-gress in US and India along with

Difference between CIF rate of soyoil and CPO in $/MT

0

65

130

195

260

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2014-15 2015-16


Soy Oil Agri Commodities


Soy OilAgri Commodities

commencement of soybean sowing in South America kept the rates lower in 2014-15 oil year. However, in 2015-16, CIF rates were highest during the last three months diverging from the normal trend. The strong demand from China for US soybean along with concerns regarding the effect of La Nina on sowing progress in Brazil and Argentina pushed the prices higher. The production in Argentina was affected due to heavy floods during peak harvesting time, which had damaged the crop. Further, strengthening of palm oil prices at source country i.e., Indonesia and Malaysia raised hopes of demand shift to soyoil, pushing up soyoil prices.

In 2015-16, the difference between CIF rates of soyoil and crude palm oil has declined in comparison to 2014-15. Narrowing of spread indicates increas-ing demand for palm oil in comparison with soy oil.

In 2014-15, the spread declined initially during the oil year, however, in last four month the spread wid-ened. In 2015-16 oil year, the spread narrowed down for the initial six month, after that in last two months it widened a bit. Both Soyoil and Crude Palm Oil are rivals to each other with fluctuation in their prices affecting the demand. Higher Crude Palm Oil CIF rates compared to soy oil led to higher imports of the former which grew by almost 42% Y/Y. The average difference during 2015-16 is $116/MT against $150/MT in 2014-15.

Global soy oil production is expected to increase by 4.25% to 53.95 million tons in 2016-17. Major producing countries like China and US may see rise in their output of soyoil by 6.4% and 1.6% respec-tively. Meanwhile, India is likely to continue to be the highest importer of soy oil anticipating overall supplies to be around 4.18 million MT. In terms of export, Argentina is likely to remain at top of the ta-ble with expected soyoil exports of 5.61 million MT although it is down by 2.6% on Y/Y. China is likely to remain the leading consumer of soyoil with its domestic consumption estimated to be around 16.2 million tons up by 6.2%. Overall global domestic consumption is rising by just 4.4% in 2016-17 com-pared to 7.7% in 2015-16.

The domestic production of soyoil is likely to be rising by 7.5% to 1.35 million tons in 2017. Higher production of soybean for the season 2016-17 on normal south west monsoon along with better yield is likely to result in increase in domestic crushing activity. The imported soy oil constitutes almost 70%

Global soyoil balance sheet



2013-14 3.98 9.28 45.14 9.44 45.24 3.72

2014-15 3.72 10.02 49.14 11.09 48.02 3.76

2015-16 3.76 11.78 51.79 11.79 51.73 3.81

2016-17 3.81 11.27 53.95 11.61 53.98 3.43*Source- USDA, KCTL research

Indian soyoil balance sheet



2013-14 0.25 1.95 1.64

NIL

3.59 0.26

2014-15 0.26 2.99 1.44 4.43 0.25

2015-16 0.25 4.23 1.26 5.31 0.42

2016-17 0.42 4.18 1.35 5.58 0.37

*Source- USDA, KCTL research


to 75% of the total supplies of the domestic market. However, in 2016-17, soy oil imports are expected to decline by 1.2% to 4.18 million MT thanks to rise in its domestic production. The domestic consumption may continue its uptrend with expected rise by 5% although the rise in 2015-16 was whooping 20%.

OutlookRefined soy oil futures at NCDEX platform during the first quarter of the upcoming year 2016-17 may trade on a steady to moderately negative note. From March, harvesting of soybean crop commences in Brazil and Argentina, which is expected to have a negative impact on the market. Moreover, produc-tion of palm oil is expected to recover by the late 1st quarter, this may further weigh on the prices.

The downward movement is likely to continue in the 2nd quarter also on anticipation of rise in im-ported soy oil supplies, which is expected to be the major price driver. Moreover, the commencement of Kharif sowing and South West monsoon during the month of June 2017 may further weigh on the pric-es. Similarly the Indian refined soyoil futures prices may take weaker cues from CBOT soyoil with sowing activity of soybean crops in US starts generally in the month of May. With gradual rise in sowing activity and regular reports of crop conditions, prices may trade lower during this period. This might pull NC-DEX Ref.soyoil future down.

During the third quarter of the year 2017, re-fined soy oil futures may trade steady to moderately positive. This period is crucial for domestic soybean production as this quarter is the developmental phase of the crops. Any reports of crop damage due to deficient or heavy rainfall may result in sudden spike of RSO futures. The prices are likely to be vol-atile during this period. With the commencement of festive season from August end prices may take support from increase in demand for edible oil in-cluding soyoil.

In the last quarter of Oct-Dec, prices initially may shed some of its gains with fresh soybean crop arrivals in the physical market. However, with the passing of peak arrival period, prices are expected to gradually recover from its lower levels supported by demand from oil millers and crushing units.

Technical analysisSoy Oil prices at NCDEX platform staged a rally in the year 2016. In August 2015, price made 3 years low level at Rs. 556.00 level in a monthly price chart and reversed from that level and made high of Rs. 744.05 level during December 2016. Currently prices are trading above short term 8, 13 and 21 period simple moving averages in monthly chart but stochastic oscillator trade at 72.15 level which suggest over-bought zone thereby we may expect that bearish trend for coming months or may limit the upside move further.

Recommendation

BUY

NCDEX50% @ `760-`770 50% @ `810-`820

NCDEX @`630-`640

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS`880

`570`640

`730

`

Soy Oil Agri Commodities


In the year 2016, the RM Seed futures on the NCDEX show-cased a positive trend since

beginning of the year unlike an unprecedented rally witnessed in the year 2015. In 2015-16, overall RM Seed production rose by 8% although the acreage declined by just 1%. Moreover, RM Seed oil meal exports were lower during the year which was in contrast to rise in imports of Canola oil in In-dia. The sowing of 2016-17 Rabi crop has started and is progress-ing faster than that of last year. It is likely to surpass 2015-16 acre-age under rape-mustard seed and also the overall production.

During first quarter of CY 2016, NCDEX RM Seed futures were on a bearish trend as per seasonality of commencement of harvesting of the new crop. The futures prices made a yearly low of Rs. 3813 per quintal on 3rd March 2016 regis-tering a decline of 10.2% since start of the year. This period also coincided with fresh Rabi-mus-tard crop arrivals in the physical markets, which started hitting the domestic markets by last week of Jan’16. Further, the market was under pressure due to stock limit imposed by the Rajasthan govern-ment on 23rd November 2015. As per the stock limit, a wholesaler can keep a maximum stock of 1,000 quintals of oilseeds and 100 quintals of oil, while a retailer can keep maximum stock 100 quintals of oilseeds and 10 quintals of oil. This stock limit was applicable till 30th September 2016. However, the stock limit was lifted by the Rajasthan government on 23rd February 2016 following reports of good mustard seed harvest.

Beginning from March 2016, the RM Seed futures were on ris-ing trend on emergence of fresh buying at lower levels as the market had discounted the arrival

pressure in early part of the year. The market remained on a bullish mode during April to June follow-ing delay on onset of South West Monsoon and on account of lower inventory of Kharif oilseeds par-ticularly soybean. Moreover, the domestic demand especially from pickle makers during the summer season gave underlying support to the RM Seed market.

Active contract of RM Seed futures on NCDEX tested a yearly high of Rs. 5036 per quintal on 18th July 2016 posting a gain of 4% since 30th June 2016 .However, by end of August 2016, the rape-mus-tard futures declined by 8% from 18th July’16 and since then prices hovered between Rs 4813- 4571 per quintal. As soon as the south west monsoon picked up during the months of August and Sep-tember, which was beneficial for standing Kharif oilseeds crops, this resulted in softening of price of oil and oilseeds. This had a spillover effect on the RM Seed market also.

The onset of festival season from October 2016 and the suc-ceeding winter season coincides with the rise in demand for mus-tard oil whose consumption is more prominent in Northern and Eastern part of the country. But, during the year 2016, the gains were limited as the prices moved

up by 4% since the beginning of October’16. During the months of October to November 2016, the RM Seed futures traded in a very narrow range of Rs. 4511 to Rs. 4710 per quintal. On 8th Novem-ber 2016, demonetization of high-er denomination currency notes spoiled the seasonal demand. The cash crunch arising out of demon-etization by government affected demand scenario adversely both of oil millers and end consumers. At futures platform NCDEX RM Seed futures fell by almost 3% since 8th of Novemebr’16 till 9th Decmeber’16.

The prices subsequently moved up as buying gradually recovered across key trading centers which supported the fu-tures market as well. Overall low-er supplies and recovering buying scenario pushed prices to a two and half month high.

The crush margin for most part of the year was in negative zone with occasional entry into positive territory. Higher prices of rape-mustard seed due to lower supplies amid weaker production along with lower export demand for rape-mustard oil meal kept the crush margin in negative. More-over, higher canola oil imports kept prices of mustard oil under check. During the festival months

RM Seed: A renewed buying opportunity

3700

3950

4200

4450

4700

4950

5200


Price performance

RM SeedAgri Commodities


of September-November, crush margin was seen re-covering due to pick up in seasonal demand and lean season arrivals for Rape-mustard crop.

During the year 2015-16, the mustard oil cake exports from India declined by 66% Y/Y. In volume terms, total exports in 2015-16 stood at 0.21 million tons compared to 0.62 million tons shipped a year ago. Overall exports were lower compared to 2014-15 oil year for all the months excluding October 2016, which was around 23,720 tons compared to 3079 tons on Y/Y.

The Free Along Side (FAS) price of mustard oil cake was comparatively higher during 2015-16 compared to that of 2014-15. The average rate was around $282/MT in 2015-16 compared to $277/MT in 2014-15. Higher price of oil cake was one of the major factors for lower oil meal exports from India.

During the oil year 2015-16, India had imported 0.37 million tons of canola oil, which was up by 6.1% Y/Y. Major spike in import was seen in the month of May 2016, July 2016 and Oct 2016 which was

more than double the previous oil year imports. The domestic demand for mustard oil rise seasonally after the commencement of South West monsoon resulting in higher imports of Canola Oil. As overall supplies of rape-mustard seed were lower along with increase in prices of domestic mustard oil supported higher imports of canola oil.

OutlookIn the year 2016-17, global rape-mustard seed production is expected to decline by 3.5% to 67.81 million tons. Major rape-mustard producer Europe and China are likely to witness downfall in their pro-duction by almost 10%. However, Canada and India are likely to have bigger rape-mustard crop during the year ahead. In Canada, acreage under canola, the variety of rape mustard seed grown in Canada, has declined by 3.3% to 8.05 million hectares in 2016-17. Many of the Canadian farmers shifted towards pulses cultivation following increased demand for pulses from India. However, good weather condition over

Rape-Mustard oil meal exports (MT) Canola oil imports (MT)

200

240

280

320

03500070000

105000140000

Nov Dec Jan

Feb

Mar Ap

rM

ay Jun

Jul

Aug

Sep

Oct

2014-15 2015-162014-15 FAS-$/MT 2015-16 FAS-$/MT

50001750030000425005500067500

Nov

Dec Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep

Oct

2014-15 2015-16

Global RM seed balance sheet



2013-14 4.84 15.56 71.67 15.10 69.62 7.34

2014-15 7.34 14.36 71.45 15.07 70.76 7.33

2015-16 7.33 14.23 70.24 14.69 70.58 6.54


Indian RM seed balance sheet



2013-14 0.58

NIL

6.65

NIL

6.97 0.26

2014-15 0.26 5.08 5.10 0.24

2015-16 0.24 5.50 5.20 0.54

2016-17 0.54 7.25 7.18 0.61*Source- USDA, KCTL research

RM Seed Agri Commodities

Source: SEA of India Source: SEA of India


RM SeedAgri Commodities

major growing region of Canada is likely to support earlier harvesting of the crop as well as improve yield levels. Based on these factors, USDA has pro-jected Canadian canola production at 18.5 million tons for the year 2016-17. Meanwhile, major import-er i.e., China is expected to cut its import by almost 5% as the country is expected to gradually release rape-mustard oil from its inventories.

In 2016-17, India’s rape-mustard seed output is estimated to be around 7.25 million tons, higher by 31.8% compared to last year. The acreage under rape-mustard seed is likely to rise by 5% to 67.54 Lakh hectares owing to better-than-normal soil moisture at the beginning of the season. The production in 2015-16 was affected due to lower moisture content in the land due to deficient monsoon rainfall in that year.

In 2016, demonetization of higher denomination Indian currency notes has affected sowing progress of Rabi crops including rape-mustard seeds. The cash crunch resulted due to demonetization by central govt. slowed down overall planting progress. However, overall acreage under RM Seed is expected to remain higher, which will translate into higher production.

During first quarter of CY 2017, RM Seed futures prices are likely to remain under pressure as per seasonality. The prices may also see the bottom level dur-ing the first quarter due to arrival pres-sure. With rise in acreage and favourable weather conditions, expectations of a big-ger harvest may elongate the downward movement. At lower prices, demand from crushing units and oil millers may emerge supporting the futures to trade higher during the 2nd quarter. During April-June quarter, marker is expected to recover

from its earlier losses following emergence of fresh buying especially from pickle making industry.

During July- September, the RM Seed futures may shed some of its gains reflecting the weakness in prices of Kharif oilseed particularly soybean as sowing activity will commence. By September end, festival season starts in India, which will propel the demand for mustard oil particularly in Northern and Eastern India. In the last quarter i.e. Oct- Dec, festival demand along with seasonal demand for mustard oil is likely to push prices of rape-mustard seeds higher. Moreover, during this period supplies at physical market declines due to lean season.

Technical analysisNCDEX RM Seed futures prices witnessed a huge volatile (low Rs.3841 and high Rs.5127) movement in 2016 but end of the year it slipped by Rs. 297 (-6.94%) from prior year closing price. Last year price took support at 50 months simple moving average on monthly chart at Rs. 3837 and from fib-onacci perspective it took support between 61.8% & 76.4% retracement levels (low Febuary-2015 Rs. 3288 to high October-2015 Rs. 5192), market returned from that level to Rs. 5127 but couldn’t succeed the 2015 high level Rs. 5192. Stochastic oscillator trades near to oversold zone on weekly chart, which may further push for price fall in up-coming months. Currently price is trading below short term 8, 13 and 21 period simple moving aver-ages in weekly chart.

Statewise trade estimate (lakh MT)

StateTrade Estimate

(In Lakh MT)

2016-17* 2015-16

Rajasthan 33.91 21.7

Uttar Pradesh 11.98 9.6

Madhya Pradesh/Chhattisgarh 7.52 6.4

Punjab/Haryana 7.33 5.3

Eastern India & Others 4.03 5.3

West Bengal 3.17 4.1

Gujarat 2.97 1.6

Bihar 1.59 1.0

Total 72.5 54.9*Source-KCTL research

9

BUY

NCDEX50% @ `3600-`3620 50% @ `3300-`3320

TARGET

STOP LOSS

`3000

`4850-`5200

Recommendation


The year 2016 has been fairly positive for crude palm oil futures at MCX due to the

bullish fundamentals. India, being the largest importer of CPO in the world, price direction in the Indian market is mainly dependent on the factors and events in the source countries. Palm oil production was affected in Indonesia and Malaysia due to El Nino effect, which kept the prices on a positive note.

From beginning of the year 2016 till 9th Dec 2016, MCX CPO futures surged by 35% rallying from Rs. 411.4 per 10kg to Rs. 554.50 per 10kg. During the Q1, 2016, MCX CPO futures appreci-ated by 32% ending the quarter at Rs 545.30 as this quarter cor-responds with lower production seasonality in the source nations i.e., Malaysia and Indonesia. At BMD, CPO futures started the year at MYR 2514/MT and surged by 5.4% during the first quarter on depleting inventories amid lower production cycle.

In AMJ 2016 quarter, CPO futures continued to show a pos-itive trend till end of April due to decline in imports in the month of April. Thereafter, prices fell on account of correction due to long liquidation. By June 2016 end; prices have declined by 8.7% since 1st April’16. Meanwhile at BMD, CPO futures fell by 13.4% to MYR 2339/MT during AMJ 2016 quarter following recovery

in the production in Malaysia and Indonesia. Moreover, the exports have also declined in the quarter in both countries on Y/Y.

JAS 2016 quarter was recover-ing quarter for CPO futures both at MCX and BMD wherein prices recovered by 7.7% and 11.6%, re-spectively. A strong rally was seen during JAS 2016 quarter where MCX CPO futures tested a yearly high of Rs. 588.30 per 10 Kg and the rally was supported by festive season demand. Towards end of JAS 2016 quarter, the gains were eroded by few points following announcement of import duty cut by 5%. The rise in BMD’s CPO fu-ture was mainly due to declining inventories and slower growth of output during the peak produc-tion months. Exports also rose during this period further putting stress on inventories and pushing the prices higher.

During the last quarter of the year, initially MCX crude palm oil futures extended the decline due to downward revision of CPO im-port duty in India. But the prices again moved up as rising prices of palm oil at producing countries amid slower growth in production supported the futures price at the domestic front. The phenomenal rise in BMD’s Crude Palm oil fu-tures, which moved up by more than prior 4 years high also sup-ported the rally in Indian CPO fu-tures. As on 6th December 2016, BMD CPO futures made a 4-year high of MYR 3127 per MT gaining by 22% since October 2016.

Besides the fundamental fac-tors, weakening Malaysian Ringgit against USD made the palm and its derivatives export more competi-tive in international market.

In 2015-16, India’s edible oil import was dominated by palm

350

400

450

500

550

600

650

2000

2200

2400

2600

2800

3000

3200

Jan-16 Mar-16 Jun-16 Sep-16 Nov-16

BMD CPO in MYR/MT MCX CPO in Rs/10kgs

Crude Palm Oil: May regain its GloryPrice performance

3800088000

138000188000238000288000338000

Nov Dec Ja

nFe

bM

arAp

rM

ay Jun Jul

Aug

Sep

Oct

2014-15 2015-16

Crude palm oil import trend (MT)

200000

400000

600000

800000

1000000

Nov Dec Jan

Feb

Mar

Apr

May Ju

nJu

lAu

gSe

pO

ct

2014-15 2015-16


RBD palmolein import trend (MT)

Crude Palm Oil Agri Commodities



oil including both Crude Palm Oil and RBD Palm-olein. Overall the import of crude palm oil in 2015-16 oil year was down by 26% Y/Y. Month wise im-ports were showing a decline Y/Y except February 2016 when the imports were same as that of same period last year. India being the largest importer of palm oil in the world, production cycle in the source nation also affects its imports in the country. Generally during the months from July-October, production peaks in Malaysia and Indonesia, which coincides with higher imports of crude palm oil dur-ing these months. However this year, it has departed from the seasonality as lower production along with higher prices kept the demand under check from the domestic refiners in the country.

In contrast to Crude Palm Oil imports of India in the oil year 2015-16, RBD Palmolein imports have increased in the country. It has risen by 58% Y/Y to 2.6 million MT offsetting the decline in imports of CPO to some extent. The import of RBD Palmolein was higher in all the months except May’16 and Oct’16, however, the fall was marginal. The major reason of surge in RBD Palmolein imports is the de-cline in price difference between CPO and RBD Pal-molein. In the year 2015-16, the difference between CIF rates of RBD and CPO has steadily declined throughout the year unlike the previous year when the difference widened.

As RBD Palmolein is the refined form of CPO, avail-ability of it in the same price as that of CPO makes it attractive for imports. However, the differential import duty restricted much rise in the imports. The import duties were 12.5% and 20.5% for crude palm oil and RBD Palmolein or refined palm oil, respectively

at the beginning of the year 2015-16. However, on 23rd September’16, Central Board of Excise and Customs reduced the import duty on CPO and RBD Palmolein by 5% each to 7.5% and 15.5%, respectively due to the surging prices of these oils during the festival season.

OutlookPalm oil production is seen rising in the year 2017 by 10% and it is expected that it would be a record pro-duction till date. In 2016, production declined due to the strongest El Nino seen in the recent years, which affected the yield and overall output. Palm oil is one of the cheapest and widely used vegetable oil in the world, which is utilized in both various food and FMCG products. The demand-supply mis-match has pushed prices to yearly highs at spot and futures market cur-tailing consumption and exports in 2015-16.

In the year 2017, Indonesia and Malaysia, the two largest producer of palm oil, are likely to witness record output of 35 million tons and 20 million tons respectively. As the effect of El Niño induced produc-

Difference between RBD palmolein and CPO, CIF rates in $/MT

-55

15253545

Nov Dec

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep

Oct

2014-15 RBD-CPO diff2015-16 RBD-CPO diff.

Source- SEA of India, KCTL Research

Global palm oil balance sheet



2013-14 9.20 41.99 59.27 43.21 57.83 9.43

2014-15 9.43 44.80 61.63 47.46 58.54 9.86

2015-16 9.86 43.31 58.84 44.16 60.50 7.35


Indian palm oil balance sheet



2013-14 0.92 7.96 0.17

NIL

8.45 0.60

2014-15 0.60 9.54 0.18 9.25 1.07

2015-16 1.07 8.44 0.20 9.20 0.51

2016-17 0.51 9.10 0.27 9.66 0.22*Source- USDA, KCTL research

Crude Palm OilAgri Commodities


tion wears down, good recovery in output is expected in the year 2017. The domestic consumption globally is likely to continue its upward trend although the growth is estimated to be higher than that of 2015-16. Overall import and exports are also expected to recov-er by 7% and 7.6% respectively in the upcoming year riding on the back of anticipated rise in output.

India being the largest importer of palm oil is ex-pected to continue at the leading position in the up-coming year. The imports have declined in the year 2015-16 by around 11.5% on higher prices coupled with increasing supplies of rival soyoil in the coun-try. The domestic consumption although rising year-on-year, fell marginally by 0.5%. Palm oil be-ing the cheapest edible oil available in the country, rise in its prices resulted in shifting of consumer preferences towards other veg oils especially soyoil. Moreover, demonetization of higher currency note at fag end of the year by central government also affected the end user demand. However, adequate inventories kept overall supplies of palm oil in the surplus during the year 2016.

The CPO futures at MCX platform in the first quarter of 2016-17 may trade up initially tracking positive cues from Malaysian palm oil prices. The weakening of Malaysian Ringgit may further provide support to the prices. The spring festival in China during Jan-Feb may boost demand from the source countries providing additional support to the prices. However, the demand may wane at much higher lev-el from major importers like China and India as these countries may shift towards Soybean and Soyoil, respectively from South America.

By March 2017, soybean harvesting activity at Brazil and Argentina is likely to commence. Soyoil being the derivative product and rival to palm oil, the rise in its supplies may push prices down in the 2nd quarter. Further, peak production of palm oil during the third quarter may soften the price further at international markets. This weakness is likely to be reflected at Indian bourses also pushing

CPO futures down. Moreover, in third quarter com-mencement of Kharif sowing may keep the prices under negative pressure.

Technical analysisMCX CPO futures prices witnessed a huge volatile (low Rs.406 and high Rs.591) movement in 2016 and it ended the year gaining by Rs. 159.50 per 10 kg (38.80%) from prior year closing price. Currently price is trading near to resistance trend line, which is mentioned as a red color line on monthly chart. Any minor correction can provide a buying opportunity for the first quarter of 2017. Stochastic oscillator trades near the overbought zone on the monthly chart, which may further lift for price up in the up-coming months and MACD indicator trade above the zero line at 25 level which is also supporting our bullish view for next few months. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart.

Recommendation

BUY

MCX CPO @`555-`565

MCX CPO @`650-`660

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS`500

`730`640

`530

`

Crude Palm Oil Agri Commodities


Spices

Turmeric market was in a bear trend in the year 2016 taking a turnaround from

the bullish trend seen in 2015 as the futures fell from the year-ly high of Rs. 10240 per quintal made on 8th January 2016 to a yearly low of Rs. 6702 per quintal registering a loss of 35%. Bearish fundamental factors of supply and demand dragged down the tur-meric market.

Turmeric futures extended their earlier year gains till Jan-uary 8, 2016 reaching to their yearly high levels of Rs.10240 per quintal. However, once the supplies from fresh crop harvest commenced across the spot mar-kets, prices fell drastically both at the futures and spot markets. The fall was limited as prices wit-nessed decent recovery tracking good buying activities of fresh crop amid slowdown in supplies. During the second quarter of 2016, prices started to move in sideways to negative direction and this trend remained intact till early August. Due to higher prices, before the beginning of sowing season, sowing area under tur-meric was expected to increase by around 20-25% during the kharif sowing season in 2016. Further, forecast of above normal rainfall by the IMD gave relief to the coun-try as the nation witnessed two back to back droughts in 2014 and 2015. All these factors pres-surized the turmeric prices during second and third quarter of the year 2016. Turmeric futures pric-

es witnessed a sudden dip in pric-es from second week of August mainly due to pick up in sowing activities after revival of mon-soon. Further, sudden increase in turmeric deposits at the NCDEX warehouses also contributed to the sharp fall in prices. There were higher stocks reported at the production centers at around 37 lakh bags at the beginning of Q4, CY 2016. Turmeric futures fell to their yearly low of Rs 6702 per quintal on 20th December 2016 due to early commencement of fresh crop harvest.

In the year 2016-17 marketing season (crop produced in 2015-16), production was estimated to decrease by around 8% Y/Y despite of higher sowing acreage due to poor performance of the crop on deficient monsoon during 2015. Turmeric exports in the year 2016-17 was projected to increased to 1.25 lakh tons, higher by 41% Y/Y. Turmeric exports from April till September 2016

was at 0.65 lakh tons as per the commerce ministry data. Domes-tic consumption is estimated at around 3.60 lakh tons; hence, the year 2017-18 marketing season is expected to begin with stocks of 1.5 lakh tons. For the year 2017-18, turmeric production is expect-ed to touch 6 lakh tons, up by 42% Y/Y due to sharp increase in cul-tivation area under turmeric by around 20% during kharif 2016 and better yield expectations mainly in Maharashtra. Despite higher acreage in other major turmeric growing states such as Telangana, Andhra Pradesh and Tamil Nadu, yield is expected to be lower compared to initial es-timations mainly due to adverse weather conditions. Firstly, at Telangana and Andhra Pradesh, turmeric crop was affected due to heavy rains during September, which resulted in excessive wa-ter logging in the fields. Further, crop was affected considerably in Tamil Nadu belt following the

6500700075008000850090009500

1000010500

Jan-16 Mar-16 Jun-16 Sep-16 Dec-16

Rs. p

er q

uint

al

NCDEX Spot

Turmeric: Time for the fresh entry

Price performance (Rs/quintal)


failure of South West monsoon in Kaveri catchment basin and also on the failure of much required North East monsoon from October. Turmeric exports are expected to increase for the year 2017-18 due to good consumption demand for the turmeric based products in the overseas market. On consumption front, the domestic consumption is more or less same from the year 2015-16 to 2016-17 because of the steady industrial usage as well as value added usage of turmeric. Overall, the supply side numbers are es-timated to increase for the year 2017-18 along with increase in demand factors. However, ending stocks are expected to be higher compared to previous year mainly due to higher production numbers.

For the kharif 2016, there were expectations of higher sowing acreage under turmeric due to better prices in the previous season. Further, above normal forecast of monsoon 2016 also prompted farmers to increase cultivation of turmeric in their fields. Area in Telangana has increased by 12% at 45630 hec-tares compared to previous year acreage of 40820 hectares while marginal increase in acreage of 7% was registered in Andhra Pradesh. Sharp increase in area was witnessed in Maharashtra and Tamil Nadu where farmers have shifted to turmeric from cultivating sugar cane. Sowing area in Maharashtra is estimated at around 20000 hectares which is higher by 33% compared to previous year acreage. As per trade source, acreage in Tamil Nadu has increased by 17% to 14000 hectares. During, early December 2016, turmeric crop was mostly at rhizome forma-tion and development stage across major growing

states. Harvesting of the turmeric crop is expected in January and arrivals are expected to peak from third week of January 2017.

Turmeric export and valueIndia being the top producer of turmeric enjoys a top position in turmeric trade in the international market. In the year 2015-16, exports witnessed a sharp increase to 88513 tons; however dipped in the following year to 77500 tons. Since, 2014-15, exports volumes are in a rising trend due to increasing con-sumption of turmeric based products in export mar-kets. According to Spice Board data, Indian turmeric exports have witnessed a hike during the financial

year 2014-15 to 86000 tons against 78000 tons ex-ported in 2013-2014. During 2015-16, exports vol-ume registered a small hike at around 88500 tons, up by 3% from 86000 tons during 2014-15.

In the international market, prices of Indian tur-

Turmeric balance sheet (lakh tons)

Crop yearTotal supply Total demand

Beginning stock Production Domestic consumption Exports Ending stocks

2012-13 1.95 4.36 3.50 0.89 1.92

2013-14 1.92 4.21 3.60 0.78 1.76

2014-15 1.76 4.12 3.10 0.86 1.92

2015-16 1.92 4.60 3.50 0.89 2.13

2016-17 (E) 2.13 4.22 3.60 1.25 1.50

2017-18 (F) 1.50 6.02 3.90 1.40 2.22*Source- Spices Board, Trade sources

30000500007000090000110000

400005000060000700008000090000

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

Rs. i

n la

khs

tons

Export Volume Export Value

Turmeric export volume vs. value

1.491.511.531.551.57

300060009000

1200015000

Jan

Feb

Mar Ap

rM

ay Jun

Jul

Aug

Sep

tons

US$

per

lb

Export Volume International Price

Turmeric export volume vs. international prices

Turmeric Agri Commodities

Statewise turmeric acreage (hectares)State 2015-16

Area2016-17

Area %

Change

Telangana 40820 45630 12%

Andhra Pradesh 15750 16780 7%

Maharashta 15000 20000 33%

Tamil Nadu 12000 14000 17%*Source- Spices Board *Source- Spices Board

*Source- Spices Board


meric variety traded in a steady rate in the year 2016. During December 2015, international price was at US$ 1.50 per lb which remained unchanged till June 2016 despite decreasing prices at domestic market. Prices gained slightly to US$ 1.51per lb in July 2016 and in-creased further up to US$ 1.55 per lb in August. As the prices increased at the international market, turmeric monthly exports decreased slightly during August and September 2016. As per the latest data, international prices during November 2016 were at US$ 1.50 per lb.

OutlookThe year 2017 is expected to begin in negative note tracking decent carry over stocks from 2016-17 and due to commencement of new harvest across major growing states. Supplies are expected to reach their peak during February and March and hence brisk trading activities are expected during this period. Most of the masala and turmeric powder makers procure their requirement during the period due to fresh and higher quality crop. We expect arriv-als to continue on to April due to the fact of higher production estimates. Hence, for the first quarter of 2017, we expect prices to remain under pressure. However, markets will be keenly tracking weather conditions during different stages from crop growth to crop harvesting which may impact the crop size and quality. For the second quarter of 2017, prices are expected to recover from their fall tracking slack-ening supplies at spot markets. During May 2017, focus of the market participants is expected to shift mainly to the sowing prospects in kharif 2017. Due to the fact that prices may fall due to higher production estimates, farmers may hesitate to cultivate turmeric during kharif sowing in 2017. Sowing prospects may also depend on other factors such as monsoon fore-casts and performance, prices of competitive crops such as chilli and pulses. However, third quarter of 2017 can be considered as the most important period from which price direction for the rest of the year can be driven. The improvement in buying at

spot markets due to good domestic demand ahead of festive season is also expected to support prices to remain in the upper side. As far as exports of turmer-ic are concerned, exports would peak mainly from March until June which may give good support for the turmeric prices to increase at the futures market. Exports in the year 2017-18 are expected to increase based on steady demand for the turmeric based product both in health and pharmaceutical sector. Overall, even though the supply side weighs more than the demand side, we expect turmeric prices in 2017 to mostly trade higher except in the first quar-ter of 2017.

Technical analysisNCDEX turmeric futures traded on a negative note in the year 2016. From last few years prices have been moving in a bullish channel trend line, and price re-sisted near to upper channel line at Rs. 10994. Dur-ing the year 2016, price broke channel and it faced resistance around 61.8% fibonacci retracement of rise from Rs. 3474 to Rs. 16350 levels and currently tradind near to Rs. 6782 level. Stochastic oscillator trade is in oversold zone on monthly chart, which may limit downside for upcoming months and MACD trade near to below zero line at -6.30. We expect this year price may take support at 61.8% and 76.4% fibonacci retracement of rise from Rs. 3474 to Rs. 10994 levels respectively.

9

BUY

NCDEX Turmeric50% @ `6300-`6350 50% @ `5250-`5300

TARGET

STOP LOSS

`3470

`10000-`12500

Recommendation

TurmericAgri Commodities


Jeera prices both at spot and futures performed exception-ally well in the year 2016 as

the prices rallied to all time high in both the markets. Jeera futures prices at NCDEX platform made a yearly low of Rs.13010 per quintal and a high of Rs.20150 per quintal giving the returns 55% for a trad-er who has brought it at yearly lower levels and squared off the positions at the higher levels.

Jeera futures extended their bearish trend during first month of 2016, which had begun during last quarter of 2015 on expec-tation of bumper crop follow-ing higher acreage under jeera cultivation. Good rainfall in the month of October 2015 and rela-tively higher prices supported the higher sowing area under jeera. Jeera futures extended their fall to make fresh low of Rs.13010 per quintal on February 2, 2016 tracking the factors like higher cultivation area and correspond-ing increase in crop size. Howev-er, recovery began post the yearly low on short covering. Slow down in fresh crop arrivals in the spot markets and good export buying supported the recovery till early May. Jeera prices witnessed a short lived fall on above normal forecasts of monsoon though

jeera is a rabi crop. However, fall was limited on sentiments of delayed onset of monsoon over India. Further, good demand from both domestic and export markets amid supply concerns supported jeera prices to reach their histor-ical high prices of Rs.20150 per quintal August 3, 2016. Supplies from other producing countries such as Syria and Turkey declined as output decreased considerably due to geo-political tensions pre-vailing in the region. Following the historical high prices for jeera at both futures and spot markets, there was a considerable decrease in the buying interest due to high-er prices. This led to prices falling from their higher levels tracking reduced buying from both domes-

tic and export markets. Further, normal monsoon performance coupled with good rainfall over jeera growing regions resulted in bright prospects of sowing sup-ported by the higher prices. Prices fell to their multi months low of Rs.16110 per quintal during mid way of October before witnessing a decent recovery on expectations of revival of both domestic and export demand. The recovery was short lived as prices began to fall once the Central government announced demonetization of Rs.500 and Rs.1000 notes from November 8, 2016. Prices fell sharply at futures market tracking the negative sentiments while major spot markets across the nation remained closed for over two weeks due to lack of liquid cash following the demonetiza-tion move. Once again one sided trend was seen on expectations of possible slowdown in sowing activities due to cash crunch situa-tion mainly with farmers. Overall, huge volatility in prices at futures market was witnessed during Oc-tober and November in 2016.

Balance sheet analysisCrop production during 2016-17 was estimated at around 3.5 lakh tons, higher by 11% Y/Y; however,

Jeera: Bulls to ride the market

130001400015000160001700018000190002000021000


Rs.

per

qui

ntal

NCDEX Spot


Jeera Agri Commodities


Jeera balance sheet (lakh tons)

Crop year Total supply Total demand

Beginning stock Production Domestic consumption Exports Ending stocks

2011-12 1.45 4.04 3.31 0.46 1.72

2012-13 1.72 4.63 3.24 0.86 2.25

2013-14 2.25 3.94 2.76 1.22 2.21

2014-15 2.21 2.84 3.12 1.56 0.37

2015-16 0.37 3.13 2.23 0.99 0.28

2016-17 (E) 0.28 3.5 2.2 1.2 0.38*Source- Spices Board, Trade sources

it remained lower than earlier projections despite of increased acreage. Cultivation area increased by around 10% mainly in Gujarat; however, unfavora-ble weather conditions in January – February, which affected the flowering and setting process resulted in decreased productivity. Domestic consumption is ex-pected to decrease slightly to 2.2 lakh tons in 2016-17 compared to 2.23 lakh tons in 2015-16. Domes-tic consumption of jeera is more than the exports volume; however, due to higher price for last few years, consumption has hit slightly. In the year 2015-16, exports of jeera were at 0.98 lakh tons, down by 37% Y/Y. For the year 2016-17, exports projections were at 1.20 lakh tons due to strong demand especially from China. Jeera ending stocks for 2016-17 is expect-ed to be 0.38 lakh tons as per preliminary estimates, which is very negligible considering the demand side. Domestic consumption to be tracked closely as the prices have increased sharply to their historical levels.

Jeera export and valueIndia is the largest exporter of Jeera and has a mar-ket share of about 70-75%. Syria and Turkey are the second and third largest producers of Jeera in the global market contributing over 15% of the world supply. Jeera exports were in a rising trend for the past few years from 2011-12 until 2014-15. During 2014-15, India exported 155000 tons of jeera which

was valued at Rs.183820 lakhs mainly due to the fact that supplies from other producing countries such as Syria and Turkey were subdued. However, during 2015-16, export decreased by 37% Y/Y to 98700 MTs. Exports of jeera for 2016-17 is projected at around 120000 tons while from April to September (2016-2017) were at around 68718 tons.

In the international market, prices of Indian jeera variety has witnessed rising trend

post April due to strong export. During December 2015, prices of Indian va-riety at international market were at US$ 1.48 per lb which decreased by 6.76% to US$ 1.38 per lb in April 2016 corresponding to the prices at Indian

domestic market. However, post the fall they are in the increasing trend due

to strong demand and rising prices at spot markets. During August 2016, they reached to

their thirteen months high of US$ 1.67 per lb. As the prices increased sharply in second and third quarter of 2016, monthly export volumes have decreased slowly. Due to lower prices in March and April, ex-ports increased sharply from March till May with May exports at around 20900 tons. Overall, even if the volume has decreased due to higher prices, demand remains good for the Indian variety due to lack of supplies from other origins. As per latest data, international price during November was at US$ 1.64 per lb.

200005500090000125000160000195000

2000060000

100000140000180000

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

Rs. i

n la

khs

Tons

Export VolumeExport Value

1.301.391.481.571.661.75

05000

10000150002000025000

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep

US$

per

lb

Tons

Export Volume International Price

Jeera export volume vs. value Jeera export volume vs. international prices

JeeraAgri Commodities

*Source- Spices Board *Source- Spices Board


Outlook

After reaching their historical price levels both at spot and futures market in 2016, all eyes will be set on the price performance of the spice in 2017. Jeera prices are expected to begin the year 2017 continu-ing their down trend mainly due to declined buying interest at higher levels. Further, expectations of increase in cultivation area under jeera due to their higher prices and their progress proportional to the initial expectations is expected to weigh down the prices mostly during beginning of year. Prices are expected to remain under pressure atleast for the complete first quarter of 2017 due to supply side factors. However, lower carryover stocks from the year 2016-17 may cap losses for jeera futures prices. Production expectations are also higher compared to previous year mainly due to the higher sowing acre-age. However, it is quite early to estimate the expect-ed yield levels based on the intense weather condi-tions which can increase or decrease the yield levels mainly during February and March. Fears of unsea-sonal rainfall, which had damaged the standing crops in past years may loom over the market participants; hence, market is expected to move in a cautious note during March. For the second quarter in 2017, prices are expected to recover from their fall tracking good buying interest of the fresh crop. Buying of fresh crop from the industrial buyers mainly from masala man-ufacturers is expected to support prices along with good buying support from exporters and stockiest. Export volume would peak during the second quar-ter on fresh crop and drying of supplies from Syria and Turkey. The positive trend is expected to extend atleast for first half of third quarter tracking slow down in supplies to the markets post peak arrival season and due to active phase of monsoon. Further, festival demand and marriage demand in the months of September till November is expected to keep up the prices atleast in the higher side if not completely

northwards given the expectations of improvement in supply side. Overall, jeera prices to remain on positive note and no major respite for the household spending in the spice compared to previous year.

Technical analysisNCDEX Jeera futures prices witnessed a huge vola-tility during the year 2016 as the prices made low at Rs. 13010 level in February month and high at Rs. 19700 in August month and ended the year up by Rs. 3405 (23.63%) from prior year closing price. Price continues to trade between channel line and take resistance near to upper band. Last year also it faced resistance near upper line at Rs. 20150 levels. Prices may slip during first quarter of 2017 and then price will take support between Rs. 15800-16200 which is 38.2% fibonacci retracement support level of Rs. 9800 to Rs. 20150. This level is also supported by trend line which is mention as a white color line. Sto-chastic oscillator trades near to overbought zone on monthly chart, which may restrict further lift in price. MACD indicator trades above zero line at 1094 level. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart.

9

BUY

NCDEX Jeera50% @ `15800-`16200 50% @ `13600-`14000

TARGET STOP LOSS

`11500 `20000

Recommendation

Jeera Agri Commodities


Cardamom, often referred to as the Queen of Spices, regained its flavor in the

year 2016 after witnessing a poor performance in 2015. Cardamom futures on MCX were on uptrend since beginning of the year mak-ing the commodity one of the best performers during the year. MCX cardamom futures rallied to test 4 year high of Rs. 1444 per kg in the month of November from the low of Rs.629 per kg made in the month of March, giving the return of 129% during the year.

In the year 2015, cardamom lost its flavor and aroma as the prices tumbled to multi-year lows on account of record crop harvest. The weakness started in the year 2015 was extended till early 2016 and cardamom futures prices were on bearish trend during first quarter of CY 2016. In the year 2015-16, Indian cardamom pro-duction reached a record 30,000 tons, which was up by 67% Y/Y.

After making multi year low, cardamom futures prices started moving upward on the expec-tations of fall in the production of cardamom in the year 2016. Prolonged dry weather condition across cardamom growing re-gions of Kerala during Q2, 2016 had affected the flowering and

capsule setting thereby raising yield concern and overall pro-duction for the crop 2016 season, which supported a bull run in the market. After the prolonged dry season, hope for a decent crop was rested completely on the performance of the monsoon, which had failed for the last two consecutive years. However, bullish rally eased down slightly as IMD forecasted above normal rainfall for the monsoon season 2016. Though monsoon remained normal for country as a whole as per IMD’s revised forecast, it failed considerably in Kerala, Southern part of Karnataka and Tamil Nadu, main cardamom growing regions in India. Mon-soon rainfall in Idukki district of

Kerala, which contributes to more than 70% of country’s production, was at 1569.5 mm, lower by 31% from its normal rainfall of 2276.2 mm, had affected the crop per-formance as well as delayed the harvesting process. Due to the unfavorable weather conditions, poor crop growth resulted in re-duced number of cardamom pick-ings from normal of 5-6 rounds to just 3-4 rounds during the year 2016. Cardamom futures surged sharply during early August on delayed harvesting process and bullish trend, which had begun in March, came to a slight halt during mid of September once supplies from fresh crop harvest started hitting the market. However, mostly sideways to negative trend prevailed at both spot and futures market tracking good buying demand from stockiests and ex-porters. Cardamom resumed their uptrend from second week of Oc-tober after a brief down trend and surged higher to make yearly high levels of Rs.1444 per kg on 8th Nov 2016 before falling as a knee jerk reaction to overnight demon-etization of Rs.500 and Rs.1000 notes by the Central government. Trade at the spot markets came to a halt for few days due to lack of cash with the market participants.

Cardamom: Bullish all the way

500

700

900

1100

1300

1500


Rs. p

er kg

MCX Spot

Price performance (Rs/Kg)

CardamomAgri Commodities


Cardamom balance sheet

Crop yearSupply (tons) Demand (tons)

Beginning stock Production Consumption Exports Ending stocks

2010-11 430 10380 9000 1175 635

2011-12 635 15000 10500 4650 485

2012-13 485 14000 11000 2372 1113

2013-14 1113 16000 12000 3600 1513

2014-15 1513 18000 14000 3795 1718

2015-16 1718 30000 18000 5500 8218

2016-17(E) 8218 15000 17000 4500 1718*Source- Spices Board, Trade sources

Balance sheet analysisDuring the year 2015-16, India had recorded a bump-er cardamom harvest, which was pegged at 30000 tons (+67% Y/Y) due to favorable weather condition during flowering stage. Further, good rainfall in June 2015 gave a good backing to crop, which resulted in early harvesting of the crop. However, production during 2016-17 is estimated to decline sharply due to unfavorable weather conditions throughout the important stages of crop growth. Firstly, prolonged dry weather conditions without any summer show-ers had an adverse impact on the setting and flower-ing process. However, there was a slight relief when IMD forecasted above normal monsoon in 2016 which eventually was a normal monsoon. Despite, monsoon ending with normal performance for the country as a whole, poor rainfall in Idukki, the major producer district in Kerala affected the crop further delaying the harvesting process. After poor mon-soon, cardamom production was expected at around 19000 tons, however, with the failure of North East monsoon, the production expectations were further downgraded. Hence, crop production for the year 2016-17 is expected to be around 15000 tons, lower by 50% Y/Y. Exports for the year 2016-17 is project-ed at around 4500 tons, which is lower by 1000 tons compared to previous year volume. Higher prices for the Indian origin cardamom and probability of lower stocks are expected to contribute to the decrease in exports. For the 2016-17, supply and demand

dynamics looks close to each other mainly due to estimations of lower production; however, higher carry forward stocks from previous year is expected to compensate for the loss of production.

Cardamom exports and volumeIndia is the second largest exporter of cardamom after Guatemala. Despite of higher price disparity compared to Guatemalan cardamom, Indian small cardamom is always preferred in the global market due to its aroma and premium quality. India exports roughly 15% to 20% of its total cardamom produc-tion and important market for our cardamom is Mid-dle East region. Exports during 2015-16 increased by 45% Y/Y to 5500 MTs as prices fell sharply in India due to bumper crop output thereby making Indian variety competitive with the Guatemalan counter-part in international market. Value of exports also increased to Rs.44982 lakhs, which is higher by 39% Y/Y. However, for the year 2016-17, export volumes are expected to be at around 4500 MTs, lower by 18% Y/Y as production is estimated to decrease cou-pled with higher prices of the aromatic spice.

Prices of Indian Extra Bold 6-7 mm variety at international spot market has mostly increased dur-ing 2016 corresponding to the increasing prices at the Indian domestic prices. During the beginning of 2016, international prices were at US$ 11.97 per kg for Indian extra bold variety. It increased at a steady rate corresponding to the prevailing domestic prices.

0200004000060000

0200040006000

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

Rs. I

n la

khs

Tons

Export Volume Export Value

10121416182022

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

US$

per

kg

Cardamom export volume vs. value Cardamom international prices

*Source- Spices Board *Source- Spices Board

Cardamom Agri Commodities


During the month of November, 2016 average monthly prices reached to US$ 20.05 per kg, multi year high after US$ 20.75 per kg during August 2012-13. Overall, during the year 2016, international pric-es increased by 69% from US$ 11.89 per kg in De-cember 2015 to US$ 20.05 per kg in November 2016.

OutlookCardamom prices have witnessed considerable vola-tility in the last two years mostly due to changing pro-duction pattern of the aromatic spice. Bad weather conditions following record high temperatures and poor performance of both South West and North East monsoons in 2016 have further resulted in down-grading the production figures for the year 2016-17. For the upcoming year of 2017, we expect volatility associated with cardamom to continue tracking on the widening gap between the supply and demand projections for the upcoming year. As the prices have already hovering near the multiyear higher levels, we expect prices to begin the year of 2017 with a slight correction. Further, usual third and fourth round of picking is expected in January, which is likely to add pressure to the prices at both spot and futures market. Overall, for the beginning of 2017, we expect cardamom to trade with negative pressure both at the spot and futures market. However, post March, prices are expected to recover strongly due to the supply concerns. Supplies are expected to decrease drastically as most farmers would have sold off their produce early during the year due to better prices. Further, the crop size is expected to be around 15000 tons, which is much lower than previous year crop. However, there may be increased chances that Indi-an cardamom is mixed with Guatemalan cardamom if the prices of Indian cardamom rise further. Guatema-lan cardamom though is cheaper than Indian variety remains inferior compared to Indian variety; hence, mixing of that variety would compromise the quality of Indian variety. In the second and third quarter of the 2017, price direction is mainly dependent on the

crop prospects for the next season and the export demand mainly from Saudi Arabia before Ramzaan. Since, cardamom is the perennial crop; it is likely that if one year is a bumper crop then production during subsequent years would be a normal crop. However, weather conditions during the setting and flowering stages are very crucial as far as the price direction is concerned in the second quarter of 2017. There are alarming reports emerging on the possibility of Ker-ala witnessing higher temperatures in the summer, which would adversely impact on the overall crop output for the next harvesting season. Overall, for the year of 2017, cardamom prices are expected to be in the bullish side tracking on the strong fundamentals associated with the aromatic spice.

Technical analysisIn 2016, MCX cardamom futures traded on a positive note and prices broke the resistance trading line dur-ing year. In February 2016, prices tested a yearly low level of Rs. 684 and bounced back from that level to Rs. 1469.50 in November month. From November-15 to November-16, price gained more than 90% during last year. Short term simple moving averages 8, 13 and 21 periods in monthly chart are supporting for bullish view where as oscillator stochastic trade in over bought zone in monthly price chart which may limit upside move for short term but MACD indicator support our bullish view on monthly chart.

9

BUY

MCX Cardamom50% @ `1200-`1220 50% @ `1000-`1030

TARGET

STOP LOSS`800

`1800

Recommendation

CardamomAgri Commodities


In the year 2016, the volatility in the coriander market was less unlike that of 2015 because of

fear of suspension of futures trad-ing. Huge volatility in the castor seeds and chana futures led to sus-pension of trading in these com-modities. Fearing of the same, the investors and trading community took cautious approach in corian-der market in 2016. In the year 2015, coriander futures performed exceptionally well following crop failure. The price movement in the year 2016 was Rs. 6105 to Rs. 8730 per quintal against price range of Rs. 6045 to Rs. 13444 per quintal seen in 2015.

Coriander prices started the 2016 on a weaker note extending the earlier fall due to prospects of higher cultivation area under coriander. Record prices in 2015 had prompted farmers to increase cultivation area under coriander during rabi sowing in 2015. The bearish trend was intact till Janu-ary 28, 2016 which took the pric-es to test a yearly low of Rs. 6105 per quintal and thereafter market started recovering at a steady pace till the end of second quar-ter. Good buying activities amid sufficient supplies in the market

and positive expectations from the monsoon 2016 kept prices in a narrow range. From the start of third quarter, coriander prices be-gan moving higher on increasing consumption demand from end users. Coriander futures made a yearly high of Rs.8730 per quintal on August 2, 2016; thereafter, it failed to sustain at the higher levels due to weakened buying activities at the spot markets. Further, concerns were raised on inferior quality stocks deposited at the NCDEX warehouses, which resulted in downfall in the prices. For the last quarter of 2016, cori-ander prices mostly traded higher on expectations of lower sowing

area under coriander. Farmers were expected to shift cultivation from dhaniya to other crops such as wheat, chana and rape mustard seed for their guaranteed prices in the form of MSP. Further, there were expectations of large shift in area towards jeera due to their historical higher prices and high-er realization during last season. However, coriander futures fell sharply as a knee jerk reaction to the overnight demonetization of Rs.500 and Rs.1000 notes by the Central government on November 8, 2016. However, fall was limited as prices recovered tracking the expectations of lower acreage under the spice. Further, prices

Dhaniya: Hopes of Revival

60006500700075008000850090009500

10000


Rs. p

er q

uint

al

NCDEX Spot


Coriander balance sheet (lakh tons)

Crop year

Total Supply Total Demand

Beginning Stocks Production Imports Domestic

Consumption Exports Ending Stocks

2010-11 0.70 3.72 0.00 3.40 0.41 0.61

2011-12 0.61 4.29 0.04 3.60 0.28 1.06

2012-13 1.06 5.03 0.04 3.80 0.36 1.97

2013-14 1.97 4.96 0.05 3.90 0.46 2.62

2014-15 2.62 3.47 0.10 4.10 0.46 1.63

2015-16 1.63 4.08 0.25 4.20 0.40 1.36

2016-17(E) 1.36 4.00 0.25 4.30 0.40 0.91*Source- Spices Board, Trade sources

Dhaniya Agri Commodities


recovered on the expectations of possible slowdown in sowing activities of coriander due to cash crunch situation post demonetization.

Balance sheet analysisFor the year 2016-17, coriander production was projected higher compared to last year due to unfa-vourable weather condition at the time of harvesting. In 2013-14 and 2014-15, lower area and unseason-al rains during harvesting season had limited the production in Rajasthan and Gujarat, top growing states. Estimated crop production is around 4 lakh tons against last year’s production of 4.08 lakh tons. In the year 2015-16 marketing year, coriander crop quality was deteriorated because of unseasonal rainfall at the time of peak harvest. Due to higher domestic prices in the past two years, import of cori-ander to the country increased while exports volume decreased. Domestic consumption is increasing at a steady pace over the past years and is expected to re-main higher in the coming years. Out of total supply of coriander, more than 80% is used for the domestic consumption and only 10-15% is exported. Con-sumption during 2016-17 was estimated at around 4.30 lakh tons while exports were estimated at 0.40 lakh tons. The ending stock is for the year 2016-17 is expected to be around 0.91 lakh tons.

Coriander export and importOver the past three years, Indian coriander exports are decreasing while imports are increasing at a decent rate. Higher prices of the Indian variety com-pared to other producing countries had resulted in changing export and import volumes over the years. According to Spices Board data, coriander export vol-ume during 2015-16 was 40100 tons, which is lower by 5900 tons or 13% compared to exports during 2014-15. Value of the exports has also decreased by 14% on a yearly basis. Due to growing competition among other producing countries, India has lost its top supplier position in several spices and also has become net importer in spices like pepper. Similar scenario is expected in the case of coriander as ex-ports are witnessing a downtrend while imports have gained sharply especially in 2015-16. Indian

coriander imports volume during the year 2015-2016 has gained over 160% at 25305 tons compared to 9750 tons during the year 2014-15. India which was the top supplier of coriander to world market is pushed to second spot by Russia.

OutlookFor the year 2017, coriander prices are expected to witness bullish trend on the facts of estimated supply side concerns. Prices of coriander both at the spot and futures market mainly depend on the factors such as area and production, weather during crop development, carryover stocks, export and import. At the beginning of the year 2017, prices may trade slightly lower despite of positive fundamentals as fresh harvesting season will commence and major markets might expect huge inflow of fresh crop. Further, market has already factored in the expecta-tions of decline in cultivation area under coriander. Assuming the weather conditions to be remaining supportive unlike unseasonal rains in last two years during the growth and development stage of the crop, harvesting is expected to commence as normal in late February or early March. Stock deposition at the NCDEX warehouses will also be in full swing for atleast two months. All these factors are expected to weigh down the prices at both futures and spot markets during the first quarter of 2017. Hence, the lower levels may give the fresh buying opportunity for the investors who may go for creating fresh long positions on expectations of lower crop. Further, expectations of drying up of arrivals from late April, prices are expected to move north wards coupled with support from good buying activities of fresh crop from the masala processing industries. Steady consumption demand from the end users is also likely to support the prices mainly in the second and third quarters of 2017. Prices in the year 2017 are expected to be driven by the export import scenario for 2017-18 season. Imports are expected to increase due to expectations of lower crop and resulting higher prices. Stocks from other producing countries such as Russia, Bulgaria etc may enter India on a

0250005000075000

01000020000300004000050000

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16 Rs

. in

Lakh

s

Tons

Export Volume Import VolumeExport Value Import Value

Coriander export and import trend

*Source- Spices Board

DhaniyaAgri Commodities


larger scale and may witness an increase in imports during 2017. Overall, coriander prices are expected to remain in the bullish axis for the second and third quarters of 2017. Hence, we recommend buying cori-ander futures in the year of 2017.

Technical analysisNCDEX Dhaniya (Coriander) futures prices are wit-nessed a lower volatile movement in the year 2016 (high Rs.8561 and low 6124) compare to year 2015 (high Rs.13750 and low 6125). Currently price is stuck between short term simple moving averages 8, 13 and 21 periods in monthly chart. Price may take support around 61.8% of Fibonacci retracement level from Rs.2665 to Rs.14059, immediate support seen at

Rs.7000. Price also take support from 2015 and 2016 low level at Rs. 6125 & Rs. 6124 respectively.

9

BUY

NCDEX Dhaniya50% @ `6700-`7000 50% @ `5800-`6000

TARGET

STOP LOSS

`4500

`11000

Recommendation

Dhaniya Agri Commodities


Others

Guar (Cluster bean), which is mainly known for its derived product i.e., guar gum has

been losing its luster in the recent years as prices have been on de-clining trend, which was continued in the year 2016. Falling trend in the guar seed and guar gum pric-es has proved that it is loss making deal for the guar stakeholder. Guar seed, which was traded at above Rs.24000/quintal in year 2012-13 has lost its value by 88% and touched the multiyear low of Rs. 2912 per quintal in year 2015-16. Similarly, Guar gum prices plunged more than 90% during same time period and touched multiyear low of Rs 4960/quintal in May 2016. Major reason for downfall can be attributed to oversupply situation driven by shrinking export de-mand of guar gum from USA. Guar started the year 2016 on bearish note amidst peak harvesting time in January keeping the supplies higher across the physical markets. At the same time, need based buy-ing by millers resulted with dimin-ishing processing capacity exerted pressure on guar prices during first quarter (January – March) of the year 2016. The weakness was extended in the second quarter as well in line with crash in crude oil prices, which impacted the export demand of guar gum adversely due to tumbling profit margin of oil drillers in USA.

However, intermittent price recovery was seen from June on-wards backed by reports of delay in commencement of monsoon

rainfall in northern region, which resulted into late sowing for the year 2016-17. Besides, reports of substantial fall in acreage under guar in Rajasthan, Haryana and Gujarat also fueled the recovery in guar till mid of August. Expectation of higher yield supported by above normal rainfall over western re-

gion of Rajasthan during second half of August dragged down the prices whereas late harvesting in September restricted the major losses. Guar prices resumed its bearish trend from October on-

wards following commencement of fresh harvesting of the crop. A huge volatility was seen in the pric-es in the month of November trig-gered by currency demonetization. Despite of peak arrival time in No-vember, overall supply remained lower in November due to liquidity crunch, which forced farmers to withhold their produce with them. Moreover, prices surged further in November tracking cues from the consensus made by OPEC nations to curb crude oil production sup-ported better export outlook of guar gum from oil drilling industry.

Supply and demand scenarioGlobal production of guar is high-ly concentrated in India, which contributes about 80% to total global production on account of its climatic and geographical advantages. Considering the sup-ply demand dynamics it is clear that India’s guar production and productivity is largely influenced

Guar Complex: On revival path

2000

2500

3000

3500

4000

4500

2000

3000

4000

5000

6000

7000

8000


NCDEX Guar Gum( LHS)NCDEX Guar Seed ( RHS)

Rs/Q

ntl

Rs/Q

ntl

Price performance


by Rajasthan which covers about 83% of total area and contribute about 80% of total guar production in India. Being a kharif crop, guar is sown in April- June where acreage under guar largely fluctuates in line with the amount of monsoon rainfall. Better monsoon is always helpful for yield of rain-fed guar crop. Guar acreage in India witnessed downtrend since last five years due to deficient monsoon rainfall amid squeezing profit margin for farmers. Impact of shrinking export supply of guar gum amid lowering rate of return is likely to be seen on gaur acreages in the year 2016-17 too which is estimated to fall by 26% Y/Y to 40.51 lakh hectares as farmers shifted to other profitable crops in Rajasthan and Haryana.

In view of lower acreage, total production is likely to drop for fourth consecutive year in 2016-17. As per production estimates released by state governments, guar production is forecast to tumble by 12% Y/Y to 19.62 lakh tons in Rajasthan while it is likely to fall by 27% Y/Y and 26% Y/Y in Haryana and Gujarat respec-tively. Taking into account of production estimates of different state government, Indian guar production for the year 2016-17 is estimated to drop by 14% Y/Y to 23.2 lakh tons. However, KCTL research has differ-ent production numbers based on current market sit-uations. KCTL research estimates total supply of guar for year 2016-17 is likely to be dropped by 11% Y/Y to 31.5 lakh tons owing to lower crop size which may fall by 25% Y/Y to 15 lakh tons.

Guar seed balance sheet (lakh MT)Item 2015-16 2016-17* % Change

Supply

Opening stock 15.2 16.5 9%

Crop size 20.0 15.0 -25%

Total Availability 35.2 31.5 -11%

Demand

Domestic Consumption 9.0 10.0 11%

Exports 10.7 13.2 23%

Total Demand 19.7 23.2 18%

Carry Forward 15.5 8.3 -46%Source: KCTL Research (Export figure are based on the recovery ratio of gum from seed i.e. 30.3%)

At consumption front, a larger chunk of demand for guar comes from overseas market where amount of export decides the demand of the commodity throughout the year. Being a largest guar producer, India enjoys monopoly in global guar export captur-ing 80% of total global export where US, China and Canada are the leading destinations. Guar gum—a derived product of guar seed—has emerged as one

of a key component used in hydraulic fracturing tech-niques applied during oil and gas extraction. Indian guar exports witnessed a rapid growth during the year from 2008-09 to the year 2011-12 on account of aggressive buying by oil and gas industry in US. USA has been the largest buyer of Indian guar gum contributing about 80% in total guar export from In-dia. Guar export from India is likely to improve in the year 2016-17 in view of rising oil and gas rig counts in US. Better price outlook of crude oil supported by close deal on production cut by OPEC nations is likely to consolidate the profit margin of oil drillers who may ramp up oil drilling activities in coming years. According to Baker Hughes, total oil rig counts in US witnessed growth rate of 43% in last six months as oil rigs count increased from 316 in May 2016 to 452 in November 2016. Besides, export demand from China, Canada and Germany is also likely to improve in coming years. Expanding size of guar processing industry in China is likely to keep export supply higher from India. The export composition of guar derivatives shows that export of refined guar splits was 13% and guar gum treated and pulverized was 67% in the year 2015-16. KCTL research estimates, total guar export from India is likely to increase by 23% Y/Y to 13.2 lakh tons in year 2016-17.

Guar products export from India (Lakh MT)

2.11 2.59

2.18

4.42

7.07

4.06

6.02

6.65 3.

25

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

Source: APEDA & KCTL Research

Domestic consumption is also expected to expand by 11% Y/Y to 10 lakh tons owing to increasing de-mand of guar meal from dairy and fishery. Apart from that demand from food, explosives, pharmaceuticals, cosmetics, paper industry, textile, paints and distem-pers industry is also likely to improve where guar is used as emulsifier, thickening agent, stabilizer, coat-ing/filming agent, binder etc.

Considering the supply and demand scenario for the year 2016-17, ending stocks is likely to tumble by 45% Y/Y to 9 lakh tons owing to steep rise in overall demand of the commodity during the year and fall in production.

OutlookGuar futures are expected to trade on a firm note during starting quarters in year 2016-17 on account

Guar Agri Commodities


of higher domestic as well as overseas demand. As stated earlier, overall supply of guar is expected to be lower by 11% Y/Y owing to weaker production out-look, which may prompt stockiest to build up stocks with every dip in prices. Fresh buying opportunities are likely to emerge in starting months of the year 2016 when prices may trade down owing to mount-ing supply pressure of fresh arrivals. However, prices may resume its bullishness with advancement of lean arrival period in second quarter. Huge volatility could be seen during sowing stage and crop progress stage and any possibilities of good monsoon rainfall may lead to price correction. Rising possibilities of better prices realization during starting quarters of the year 2017 may spur farmers to increase their area under guar for the year 2017-18, which may drag down the prices in later part of the year. At the same time, export supply is also likely to be lower from July onwards as per export seasonality index based on last 8 years monthly export shipment from India. Overall guar looks profitable to guar farmers and processors in year 2016-17 owing to better ex-port outlook. Accelerating economic growth in India could be also major stimulus to keep prices higher in view of higher domestic consumption.

Technical analysisGuar seed Guar seed futures made a lower levels in couple of months and made a yearly low of Rs. 2912 in Febru-

ary 2016. Market recovered sharply from the yearly lows and made a high of Rs. 3980 level in July 2016. Price broke slanting trend line during July month and price continued take support of that trend line which is mention as a purple color. Stochastic os-cillator trades near at 42 level and MACD indicator trades at -57 levels on weekly chart. Currently price is trading below short term 8, 13 and 21 period simple moving averages in weekly chart. Prices are expected to rally towards 4000 and 4300 level in upcoming months.

Guar gum Guar gum futures prices have been making lower low pattern on NCDEX on monthly price chart and in 2016 price closed above the short term moving aver-ages for the first time and currently trading between the moving averages. In the year 2016, price made multi year low at Rs. 4960 level during May month and reversed from that level to make high at Rs. 7640 level. After making high, price took support at 61.8% retracement levels i.e., 5700 levels (low May-2016 Rs. 4960 to high July-2016 Rs. 7640). Stochastic oscilla-tor trades near at 55 level and MACD indicator trades at -44 level on weekly chart. Currently price is trad-ing between short term 8, 13 and 21 period simple moving averages in weekly chart. Guar gum futures are expected to take a support at 5700 level during the year 2017 and will again rally towards 8380 and 9000 level in upcoming months.

9

BUY

NCDEX Guarseed50% @ `3000-`3020 50% @ `2600-`2620

TARGET

STOP LOSS

`2200

`4100/`4450

Recommendation9

BUY

NCDEX Guar gum50% @ `5700-`5720 50% @ `5000-`5020

TARGET

STOP LOSS

`4200

`8380/ `9000

Recommendation

GuarAgri Commodities


Cotton futures on Indian ex-change emerged as one of the best performing asset

classes in the year 2016 track-ing strong intrinsic fundamental factors. After testing the low of Rs.13970 per bale during 2015, MCX cotton futures started mov-ing higher and till November 2016, prices recovered by 15% from the low levels. MCX cotton futures tested an all time high of Rs. 23140 per bale in the month of July 2016. Cotton futures mar-ket had witnessed unidirectional movement at the beginning of the year 2016 following reports of crop damage in northern region of India due to white fly attack amid stronger exports to Pakistan. Fur-ther, the rally remained intact on lower yield realization, which was the result of pest attack as well as erratic monsoon rainfall in the year 2015.

Cotton Association of India (CAI) had pegged the Indian cot-ton production at 337.50 lakh bales, down by 13% Y/Y for the 2015-16 marketing season (Oc-tober 2015 to September 2016). Besides, the commencement of cotton sowing for the season 2016-17 was delayed because of late monsoon during the monsoon season 2016. Delay in sowing led to fall in the cotton acreage in the

country. All these factors fuelled a rally in the cotton prices. After witnessing a rally during first half of the year, prices corrected from August onwards on expecta-tion of higher yield due to above normal monsoon rainfall during August – September across the central region. Central region, which covers the states of Gujarat, Madhya Pradesh and Maharash-tra, witnessed 6% above normal monsoon rainfall during June – September, which augured well for the cotton standing crop as well as sowing progress. Prices re-sumed the uptrend from Septem-ber onwards due to tighter supply situation driven by lower inven-tory level and delayed harvesting in central region. Moreover, dis-ruption in supply of new arrivals

due to liquidity crunch followed by demonetization of higher cur-rency notes also bolstered prices during November.

On the global front, ICE cotton futures gained by approximately 16% till end of November since starting of the year 2016 owing to tighter supply situation triggered by lower production in major pro-ducing region and higher export. USDA had pegged the US cotton production for 2015-16 at 12.88 million bales of 480 lbs each, down by 21% Y/Y. During earlier months of the year 2016, ICE cot-ton futures were under pressure following reports of higher acre-age under cotton cultivation in the US, however, prices started mov-ing higher from March 2016 on-wards on diminishing inventories.

Domestic scenarioIndia has emerged as largest cot-ton producer in the year 2015-16 surpassing China and the same rank is likely to continue in the year 2016-17. In the last 10 years, Indian cotton acreage grew at a CAGR of 1% while that of produc-tion grew at a CAGR of 1.1% as the nation adopted Bt cotton. Bt cotton, which is a pest resistance variety, failed to resist from the pest across Punjab and Haryana

Cotton: A stonger fibre

14000

16000

18000

20000

22000

50

55

60

65

70

75

80


ICE Cotton Prices ( LHS)MCX Cotton Prices(RHS)

Cen

t/ lb

Rs/

bale

Price performance

Cotton Agri Commodities


as the white fly attack damaged the crop to a large extent. Total cotton production in northern region tumbled by 29% Y/Y to 37.5 lakh bales in 2015-16 while Punjab and Haryana witnessed production loss of 42% Y/Y and 35% Y/Y respectively. After bearing the brunt of yield loss, farmers cut their area under cotton and shifted to other profitable crops in 2016-17 season. The data released by the Ministry of Agri-culture, Government of India, all India cotton acreage for the year 2016-17 was 102.89 lakh hectares, down by 12% Y/Y. Major drop in the cotton acreage was witnessed in southern India and northern India at 25% and 21% Y/Y, respectively.

However, fall in cotton acreage is likely to be counterbalanced by better yield prospects, which may keep production higher compared to last year. Overall cotton production in India is estimated to rise by about 2% Y/Y to 345 – 351 lakh bales in year 2016-17. Average yield is projected to increase by 13% to 15% Y/Y to 557.8 kg/ha on account of better crop progress facilitated by higher rainfall during August – September amid meager pest incidence. Maharashtra may emerge as largest cotton pro-ducing state in India pushing Gujarat to the second position. Above normal rainfall in south eastern Ma-harashtra in the month of September brought relief to the water-stressed Marathwada region, which had been suffering from drought for the past four years. Maharashtra may produce 88 to 90 lakh bales of cot-ton compared to 78 lakh bales of last year while cot-ton production in Gujarat may stand near about 88 lakh bales. Total cotton production for central region is expected to increase by 8% Y/Y to 198 lakh bales whereas it may surge by 6% Y/Y to 43 lakh bales in

northern region. However, southern region may wit-ness production loss of 13%Y/Y due to fall in acre-ages in Telangana and Andhra Pradesh due to crop shifting by farmers from cotton to pulses and rice.

Despite of higher production prospect, total sup-ply for the year 2016-17 is likely to be lower by 5% compared to last year mainly due to tighter carryover stocks. Cotton inventory held by millers in Septem-ber 2016 stood at 29.50 lakh bales as reported by the Textile Commissioner Office, which were lower than the three-year average. Cotton Association of India (CAI) projected total production for year 2016-17 at 345 lakh bales of 170 kg each. As per CAI estimates, cotton supply for year 2016-17 may shrink by 4.6% Y/Y to 407 lakh bales against the domestic consump-tion of 310.00 lakh bales, leaving an available surplus of 97 lakh bales.

At demand front, being the second largest cotton consumer followed by China, India consume about 25 lakh bales of cotton on monthly basis. However, average monthly consumption has tumbled to 23.85 lakh bales of 170kg owing to sluggish overseas supply of cotton yarn. India’s cotton yarn exports tumbled 19% Y/Y in value terms and 22% in terms of volume during April - September 2016 as per data compiled by Ministry of Textile. According to the Textile Commissioner Office, capacity utilization of the textile mills has dropped to 470 million kg in September 2016 compared to 500 million kg of the normal. Diminishing profit margin of millers result-ed with tumbling export demand of yarn and higher domestic cotton prices have prompted millers to go for need based buying. Moreover, expected drop in domestic demand of cotton value chain as a result

India balance sheetItem 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17*

Supply ( Lakh bales)

Opening stock 45.00 40.00 50.00 43.00 67.00 40.00

Crop size 367.00 380.00 398.00 380.00 337.00 345.00

Imports 7.51 14.59 11.51 14.00 15.00 16.00

Total Availability 419.51 434.59 459.51 437.00 419.00 401.00

Demand ( Lakh bales)

Mill Consumption 223.59 251.74 268.03 278.00 276.00 273.00

Small-Mill consumption 22.12 23.59 25.20 27.00 24.00 25.00

Non-Mill Consumption 5.00 7.83 6.32 10.00 10.00 9.00


Exports 129.57 101.43 116.96 54.00 69.00 55.00

Total Demand 380.28 384.59 416.51 369.00 379.00 362.00

Carry Forward 39.23 50.00 43.00 68.00 40.00 39.00Source: KCTL Research, 1 bale = 170 kg

CottonAgri Commodities


of currency demonetization also likely to impact the overall consumption of fiber adversely. Being a kha-rif crop, cotton is harvested in Oct – Dec and largely traded during November – January due to abundance of fiber at competitive prices. However, cash shortage in physical market forced farmers to withhold their produce which bolstered prices during Nov, 2016. As per USDA, India consumption for year 2016-17 is likely to shrink by 4% Y/Y to 300 lakh bales.

India is the second largest cotton exporter after USA contributing 17% to the global trade. However, cotton export from India is expected to fall by 27% Y/Y to 53 lakh bales during year 2016-17 as per USDA estimates. Geopolitical tension between India and Pakistan is likely to impact the cotton export from India as Pakistan has suspended import of cotton from India owing to rising border tension. Pakistan has been one of the largest buyers of Indian cotton in recent years. Pakistan contributed about 30% in total cotton export from India last year but expected to cut import from India in year 2016-17 as domestic supply is likely to improve. Apart from this, currency demonetization in India during the month of Novemmber, which is peak arrival time also likely

to hit export badly as international buyers cancelled a larger chunk of order for Nov- Dec due to delay in shipment amid sharp gains in prices.

However, export demand may improve further in view of weakening of Indian currency. In the mean-while, fresh export demand of superior quality of cotton is expected to come from China as crop qual-ity was hampered in China due to adverse weather condition. China cotton production is expected to fall for fourth consecutive year to 21 million bales of 480 lb each due to lower acreage. In the meanwhile, China has announced to release its cotton reserve in March, 2017 and may import good quality of cotton to balance the quality parameters of auction. Besides, Bangladesh and Vietnam is estimated to increase its cotton import in the year 2016-17 by 6.3% Y/Y and 4.8% Y/Y respectively may turn as good opportunity for Indian traders. On a contrary, cotton import in In-dia is expected to increase by 6% Y/Y to 16 lakh bales in year 2016-17 as import has surged substantially after currency demonetization.

Global scenarioExploring the global scenario, global cotton con-sumption is likely to outstrip the total production for the second consecutive year in 2016-17 and may stand near about 111.881 million bales of 480 lb each as per USDA estimates. Spurt in domestic consump-tion in China, Bangladesh and Turkey is likely to keep global consumption higher by 0.5% in 2016-17. Cot-ton consumption in China and Bangladesh is expect-ed to increase by 1.4% Y/Y and 4.9% Y/Y, respective-ly. World cotton production for the year 2016-17 is forecast to increase by 7% Y/Y to 103.3 million bales of 480 lb each owing to higher global average yield, which is likely to increase by 11% Y/Y to 762 kg/ha on account of better crop condition in India, Pakistan

Global balance sheetItem 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17*

Supply ( million bales , 480 lb each)

Opening stock 51.37 74.62 92.12 103.31 111.62 96.91

Crop size 127.64 123.90 120.37 119.19 96.51 103.28

Imports 45.46 47.66 41.24 35.72 35.28 35.21

Total Availability 224.47 246.19 253.72 258.22 243.40 235.39

Demand ( million bales, 480 lb each)

Exports 45.97 46.41 40.99 35.31 35.14 35.21


Total Demand 149.85 154.06 150.41 146.60 146.50 147.09

Ending Stocks 74.62 92.12 103.31 111.62 96.91 88.31

Stock to Use % 71.58 84.95 94.11 100.45 87.09 78.85Source: USDA, KCTL Research

Cotton Agri Commodities


and USA. Improved soil moisture supported by above normal rainfall at the time of crop maturing stage, favorable weather condition and vigilant crop moni-toring in India and Pakistan may boost up the overall global yield and likely to offset global acreage losses of 4% Y/Y in current year. USA, the largest exporter of fiber, may witness sizeable crop in the year 2016-17 owing to substantial rise in total acreage amid better crop progress supported by favorable weather condition. Cotton planted area in USA expanded by 20% Y/Y to 3.9 million hectares while production is forecast at 16.2 million bales of 480 lb each, higher by 25% from the previous year. Despite of higher global production, global cotton inventory is expected to tumble by 8.9% Y/Y to 88.3 million bales as China, the largest contributor in world cotton inventory, is likely to release cotton reserve in view of supply shortage driven by lower crop size estimation.

OutlookCotton prices are likely to start year 2017 on weaker note in line with improvement in arrival volume. Cu-mulative arrivals for year 2016-17 has been lower by 5% Y/Y till end of Nov and expected to increase from December onwards as liquidity situation is likely to improve. In the meanwhile, Cotton Corporation of In-dia may intervene in the market if price plunges be-low the minimum support price of Rs.3860/quintal. However, total domestic supply is likely to be lower by 7.5% against the last five year average supply of 434 lakh bales, which may prompt millers to build enough stocks to avoid season end crisis like that of last year. Amount of export could be the deciding factor to cotton prices in the coming year. Forecast of higher import in China, Bangladesh and Vietnam is likely to turn as major opportunity to Indian cotton traders which may offset the lower export to Paki-stan this year. Later on prices may track cues from IMD forecast to monsoon arrival for year 2017. Any possibilities of higher monsoon may prompt farmers

to increase their area under cotton which may result in price correction during second quarter. Taking ac-count of major fundamental of cotton prices is likely to remain firm in year 2017.

Technical analysisMCX Cotton futures rallied from June 2012 low of Rs. 14780/bale prices to Rs. 23740/bale in August 2013. After this high, prices tumbled and made new low on board at Rs. 13970/bale in January 2015. Cycle again reversed from the lower level to make a new high in July 2016 at Rs. 23140/bales. MCX Cotton futures prices witnessed a huge volatile movement in the year 2016 and at end of the year, it gained by Rs. 2810 (17%) from prior year closing price. Price will take a support between Rs. 18200-18500 level, which is 50.0% fibonacci retracement support level of Rs. 13970 to Rs. 23140. Next support level is seen at Rs. 17200 levels, which is 61.8% fibonacci retrace-ment. Stochastic oscillator is trading at 52 levels on monthly chart and MACD trades above zero line at 656 level. Currently price is trading between short term 8, 13 and 21 period simple moving averages in monthly chart.

9

BUY

MCX Cotton50% @ `18200-`18500 50% @ `17200-`17500

TARGET STOP LOSS

`14700 `23000

Recommendation

CottonAgri Commodities


An unprecedented rally was seen in the sugar prices during year 2015-16 as

prices recovered by 82% from the low of Rs.2130 per quintal seen in June 2015 to test as high as Rs. 3889 in July 2016. Spurt in sugar prices was largely supported by supply shortage caused by lower production in the year 2015-16. Moreover, reports of lower acre-age in Maharashtra and Karnata-ka resulted with drought like situ-ation at initial stage of sowing for year 2016-17 also fuelled uptrend in sugar. Sugar, which started the year 2016 on weaker note amidst peak cane harvesting in January, turned bullish from February on-wards owing to its strong intrinsic fundamentals. Weaker production outlook for year 2016-17 amid higher export during starting quarter of year 2016 helped pric-es to keep its bullish trend intact. Moreover, production linked ex-port subsidy of Rs.4.5/quintal an-nounced by central government in November 2015 to millers in order to boost overall export kept prices higher and also helped mill-ers to clear their cane arrears.

However, bullish trend of sugar halted in April when gov-ernment intervened the market by imposing stock limit on sugar traders to curb hoarding with the aim of ensuring adequate supply in the physical market. As per stock limit regulation, traders were supposed to hold 500 tons of sugar stock as stockpiles across India except Kolkata where stor-age limit was set at 1000 tons. Further, reports of withdrawal of export subsidy by govern-ment also kept the prices under pressure in May. Later on smart recovery was seen in prices from second fortnight of May onwards supported by rising wedding and

summer season demand of the commodity amid delay in com-mencement of monsoon.

However, prices reversed its bullish trend from August where downtrend was supported by gov-ernment intervention amid above normal monsoon rainfall in major sugar growing region. Incessant monthly gains in sugar prices dragged government‘s attention who came with series of measures in order to curb food inflation by controlling sugar prices. In view of weaker production outlook for year 2016-17, government not only imposed 25% export duty on sugar but also removed the excise duty concession on ethanol to en-courage the sugar production.

Besides, government set stock holding limit to millers according to the stock limit order sugar mills were not allowed to hold stocks in excess of 37 per cent of their total inventories by end of September and 24 per cent of total invento-ries by end October. Later govern-ment extended the stock holding limit on millers till April 2017 in order to ensure adequate supply during festive season. Moreover, higher margin on futures platform amid improving crushing activi-ties kept prices under pressure by end of the year.

Supply and demand dy-namics

Being a second largest sugar pro-ducer, India contributes about 17% in global production, which plays a very crucial role to decide the global supply of sugar. Sugar production in India is expected to fall for second consecutive year in 2016-17 marketing year (October 2016- September 2017) owing to substantial fall in acreage under cane across India. As per Ministry of Agriculture, total cane area for the year 2016-17 dropped by 8% Y/Y to 45.7 lakh hectares compare to 49.6 lakh hectares planted a year ago. Largest fall in cane acreage was seen in Maharashtra and Kar-nataka where farmers preferred other crops over cane due to un-favorable weather condition with lower soil moisture at the time of sowing amid lesser water availabil-ity for irrigation. Ministry of Agri-culture has pegged total cane acre-age in Maharashtra and Karnataka at 6.33 lakh hectares and 3.99 lakh hectares, down by 36% and 21% Y/Y respectively. However, overall cane acreage in Uttar Pradesh is expected to increase by 6% Y/Y to 21.79 lakh hectares.

Repercussion of lower acreage is likely to be seen on overall sug-

Sugar: Sweeten your portfolio

10

13

16

19

22

25

2000

2500

3000

3500

4000


NCDEX Sugar ( RHS)

ICE Raw Sugar ( LHS)

Rs/Q

ntl

Cent

/lb

Price performance

Sugar Agri Commodities


ar production for the year 2016-17, which is estimat-ed to be fall by 7% Y/Y to 234 lakh tons as per Indian Sugar Mills Association. Uttar Pradesh may surpass Maharashtra in terms of production and likely to top the list of largest sugar producing states in India. Uttar Pradesh is likely to witness 12% rise in total production on higher yield expectation as larger area under higher yield variety of cane is likely to boost up overall yield. Total sugar production in Uttar Pradesh is estimated at 76.6 lakh tons. Despite of 6% above normal monsoon rainfall in central region, total sugar production in Maharashtra is likely to drop by 25% Y/Y to 62.7 lakh tons owing to lower acreage. Similarly, sugar production in Karnataka is expected to tumble by 22% Y/Y to 31.5 lakh tons.

Indian sugar balance sheetAtrributes 2015-16 2016-17

Supply ( Lakh Tons)

Beginning Stocks 90.50 72.50

Total Production 251.00 235.00

Total Imports 13.00 14.00

Total Supply 354.50 321.50

Demand ( Lakh Tons)

Total Exports 30.00 14.00

Total Consumption 252.00 257.00

Total Demand 282.00 271.00

Ending Stocks 72.50 50.50Source: KCTL Research

At demand front, sugar consumption in India dur-ing the year 2016-17 is estimated to rise by 2% Y/Y to 257 lakh tons on back of better economic outlook for India. Increasing population and purchasing power

of individuals is likely to support the higher retail demand in the year ahead. While strong domestic de-mand from rapidly growing confectionery and bever-age industry may lead to remarkable rise in industrial demand for the sweetener. About more than 50% of total production of the country is consumed by food beverage industry. However, export from the country is expected to drop by more than 50% to 14 lakh tons in the marketing year of 2016-17 due to lower produc-tion. In order to ensure the adequate domestic supply of sweetener, government has stopped production linked export subsidy of Rs.4.5/quintal and has im-posed 25% of export duty on sugar export, which may restrict export supply from India. Contrary to this, sugar import in India for year 2016-17 is likely to increase by 8% Y/Y to 14 lakh tones in view of weaker production outlook. Sugar import in India may turn sweeter for sugar importers as government is mulling to cut import duty on sugar which may clear the way for import in India. Sugar traders who pay about 40% of import duty on sugar may ramp up sugar import once the government exempts duty on sugar import.

However, Indian Sugar Mills Association has denied to the possibilities of import in wake of ade-quate supply condition in country for the year 2016-17. As per ISMA, India has started the marketing year 2016-17 with carryover stocks of 75 lakh tons and may witness production of 234 lakh tons against the total domestic consumption of 256 lakh tons.

Global scenarioGlobal sugar production is estimated to rise by 3% Y/Y to 170.94 million tons as per USDA forecast. Bet-ter production outlook for Brazil, China, European Union and USA is likely to keep production higher during the year 2016-17. As per USDA estimates, sugar production in Brazil is likely to increase by 9%

Global sugar balance sheetItem 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17*

Supply ( Million tons)

Beginning Stocks 29.5 35.2 42.3 43.8 45.7 38.0

Sugar Production 172.3 177.9 176.0 177.5 165.8 170.9

Imports 48.6 51.9 51.5 50.2 53.4 52.1

Total Supply 250.4 265.0 269.9 271.5 264.9 261.0

Demand ( Million tons)

Exports 55.0 55.6 57.9 54.8 53.7 55.9

Consumption 159.6 165.8 167.0 170.2 172.5 173.6

Ending Stocks 35.2 42.3 43.8 45.7 38.0 30.8

Total Demand 249.8 263.8 268.7 270.7 264.1 260.3

Stock to Use Ratio % 22.05 25.53 26.20 26.84 22.00 17.74Source: USDA, KCTL Research

SugarAgri Commodities


Y/Y to 37.78 millin tons on account of higher recov-ery rate supported by good crop condition. Similarly, sugar production in China, USA and EU is likely to in-crease by 8% Y/Y, 4% Y/Y and 13% Y/Y respectively as per USDA estimates. However, sugar production may tumble in Thailand for third consecutive year owing to yield loss supported by drought, which hampered the crop growth.

Total global consumption is likely to exceed the total production once again in the year 2016-17 owing to rise in consumption in India and United State and estimated at 173.57 million tons, higher by 1% from the last year. Likewise, stock to use ratio is expected to fall in current season from 22% to 17% which is attrib-uted to significant expansion of global consumption in coming year. Global sugar inventory is expected to fall by 19% Y/Y to 30.79 million tons owing to shrinking global production amid higher consumption.

OutlookSugar prices have plunged by more than 2.54% since starting of the marketing year 2016-17 and likely to continue its downtrend during first quarter of the year 2017. Strict regulation on sugar export and storage limit on millers and traders is likely to keep supply higher during the starting months of the year 2017. Moreover, peak crushing season could be another reason to keep supply adequate during Janu-ary-February, which may weigh on the prices.

However, prices may recover most of the losses from April onwards on account of rise in summer and wedding season demand of the commodity. Demand from beverage industry is likely to improve in sum-mer season, which may support the bullishness dur-ing second quarter of the year 2017. Besides, stocks limit on sugar mills is likely to be over in April, which may prompt them to trim their supply on expectation of better price realization. Prices may resume its downtrend during June–July on expectation of rise in acreage. If the country receives above normal mon-soon rainfall in central region, acreage for the year 2017-18 is expected to increase due to sufficient wa-ter availability. In the meanwhile, rise in Sate Advice

Prices (SAP) of cane in Uttar Pradesh may prompt farmers to increase their area under cane in the year 2017. Uttar Pradesh government has increased SAP from Rs.280 per quintal to Rs.305 /quintal for the year 2016-17 crushing season while central govern-ment kept Fair and Remunerative Prices ( FRP) for the year 2016-17 unchanged at Rs.280/quintal.

Moreover, price recovery could be seen dur-ing September–November owing to rise in festive season demand of the commodity. However, com-mencement of crushing activities for fresh season in Oct- Nov may arrest the major losses to keep supply adequate by end of the year.

Technical analysisNCDEX Sugar future prices witnessed a huge volatile (low Rs.3468 and high Rs.4076) movement in 2016 and ended the year with gains of Rs. 230 (6.53%) from prior year closing price. In Q1 and Q2 of CY 2016, sugar futures witnessed a positive trend, however, in last two quarters of the years, prices consolidated and traded in a narrow range. Price also swing above and below short term 8, 13 and 21 period simple moving averages in weekly chart. Here we recommend buy position at fibonacci retracement level which is men-tion below as well as on chart. Stochastic oscillator is trading below 50 level on weekly chart, which may further push for price fall in upcoming months which is consider as a buying opportunity for 2017. Current-ly price is trading above short term 8, 13 and 21 peri-od simple moving averages in weekly chart.

9

BUY

NCDEX Sugar50% @ `3520-`3540 50% @ `3180-`3200

TARGET

STOP LOSS

`2650

`4550

Recommendation

Sugar Agri Commodities


The year 2016 has been a roller coaster ride for the maize futures on Indian ex-

changes. Maize futures on NCDEX started the year on a weaker note despite of lower production. The country had witnessed failed mon-soon for two consecutive years in 2014 and 2015. Indian maize pro-duction was low during these two monsoon deficit season thereby created supply deficit. Looking into non-availability of maize for industrial use, the stakeholder made a representation to the cen-tral government to allow for im-port. As a result, the central gov-ernment gave its nod for import of 5 lakh tons of non-GMO maize under Tariff Rate Quota (TRQ) at zero import duty and directed PEC Limited to import maize to meet the demand. On the directives of the central government, PEC Lim-ited had floated two global tenders for import of maize. First import tender was floated for import 3.2 lakh tons and second tender was for import of 2.4 lakh tons. India allowed for import of maize for the first time in last 16 years. Of the first import tender for import of 3.2 lakh tons, PEC Limited final-ized the import tender of 2.255 lakh tons from Ukraine at $192.82 per MT. Arrival of imported maize

in the Indian ports had a bearish impact on the market. During the month of March, market started moving higher following scrap-ping of import tender floated by PEC Limited due to non-availabil-ity of non-GMO produce and high price. Besides, prospects of good rabi maize harvest prompted PEC Limited to scrap the import tender.

Kharif maize futures for the year 2016-17 started from June where the futures were trading on a positive during the months of June and July on emerging demand from starch as well as poultry industry. Shortage of the produce due to lean season supported the uptrend in the

futures market. Moreover, the central government in its fourth advanced estimates report low-ered India’s maize production for 2015-16 by 13% Y/Y. From July end to August, maize market was under pressure on progress in sowing of maize and reports of more acreage under maize cul-tivation across major producing states as farmers were attracted by higher price realization from last season. Besides, the weather was also supportive for maize sowing. The fall in the maize market was restricted and prices started moving higher from end August onwards and uptrend continued till October following reports of crop damage in Telan-gana and Andhra Pradesh due to incessant rains and in Karnataka due to deficit monsoon rainfall. This phenomenon raised concern over production numbers for the upcoming season. As a result, prices tested a yearly high of Rs. 1664 per quintal.

Price movement – CBOTThe tug of war was featured in CBOT corn market between bulls and bears in 2016 with the focus on fundamental factors of supply

Maize: Record sowing couldn’t feed the output

1300

1400

1500

1600

1700



Note: Since, this chart is for kharif crop, the gap was seen from March to June as Rabi contract was trading at futures platform. Source: Bloomberg & KCTL

310

345

380

415

450


Price movement - CBOT (cents/lbs)

Source: Bloomberg & KCTL

MaizeAgri Commodities


and demand. CBOT corn futures started the year 2016 on a firm foot on increased consumption de-mand from South Africa as the country witnessed a drought situation. Besides, there were reports in the market that US farmers go for lesser acreage under corn cultivation as the prices were not attracting during previous season. Volatile movement was seen during February and March months due to varying fundamental factors.

Corn futures experienced a strong rally from April to mid of June and made a year high at 442.75 cents/bushels as June month WASDE report indicated de-cline in US corn ending stocks due to higher US corn exports. Projection of strong demand from industrial user such as poultry, livestock feed manufacturers and Starch industry added bullishness to the market. Similarly, continuous decline in production since last 3 years due to prolonged heat and dry weather raised concern over corn production in US. After reaching a yearly high of 442.75 cents/bushel, CBOT corn futures started moving downwards following commencement of sowing season in US. Higher price in the month of June attracted US farmers to go for corn planting. Besides, forecast of favourable weath-er condition across US corn growing belt led to fall in the corn futures prices. In the month of July, USDA has projected world corn production at 1030 million tons, up by 4.4% Y/Y driven by larger crop size in US, Argentina, South Africa and European Union. As a result, CBOT futures once fell to 2009 level of 315.5 cents/bushel.

From September onwards, CBOT corn futures have shown a moderate recovery on emergence of fresh buying at lower levels as well as fresh export demand from Japan and South Africa. Further, hur-ricane storm had damaged the crop in north US, which had a bullish impact on the market. Moreover, demand has increased from ethanol producer follow-ing the mandate issued by Environment Protection Agency (EPA) to increase production of bio-fuel for which 15 billion gallons of corn based ethanol is re-quired in the year 2017.

India’s maize area and MSP

620 840840

880

980

1175

1310

1310

1325

1365

500

1000

1500

72

80

88

96

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17*

Area (Lakh Hec)MSP/Qtl

Source: KCTL & CACP

Minimum support price is a market intervention scheme of central government to protect the farm-

ers from distress selling. The government has been increasing the MSP every year in order to attract farmers to plant more area with maize crop, how-ever, the acreage is not increasing as expected. The major reason is rate of return the farmers getting from sale of maize due to increase in input cost as well as weather condition during plant growth and harvesting season. For the year 2016-17, the Commission for Agriculture Costs and Prices has recommended an increase of MSP by Rs. 40/quintal to Rs. 1365/quintal and government gave its nod for the same.

OutlookGlobal corn balance sheet (million MT)

2014-15 2015-16 2016-2017

Beginning Stocks

174.77 208.03 209.40

Production 1014.02 959.89 1030.53

Imports 124.85 138.83 134.09

Supply 1313.64 1306.74 1374.01

Exports 141.80 120.43 144.23

Consumption 963.82 976.92 1011.60

Demand 1105.61 1097.34 1155.83

Ending Stocks 208.03 209.40 218.19

Source: KCTL Research, USDA

On international front, global corn production in the year 2017 is likely to surge by around 7.4% led by sharp surge in production in Brazil and Argentina. The consumption demand is likely to increase by around 5.3% due to higher demand from ethanol producing units as well as live stock and feed manufacturers. The global imports are expected to be limited against previous year on better crop output.

Global corn supplies for the year 2016-17 are estimated to boost by 5% to 1374 million MT. The rise in production would be attributing to increase the global exports by around 20% to 144.23 million MT during 2016-17 compared to 120.43 million MT a year earlier.

In term of country-wise production, United State would be at number one with production figure at 386.75 million MTs of corn, up by 12% Y/Y. Mean-while, in Brazil and Argentina production may rise by around 24.5% and 26% respectively. The exports in Argentina are likely to grow by 150%. The global corn supplies are expected to continue to be higher in 2016-17 and may keep the prices down.

Maize Agri Commodities


Indian maize balance sheet (million MT)

2014-15 2015-16 2016-17

Beginning Stocks 1.60 1.33 1.27

Production 22.10 20.90 20.70

Imports 0.01 0.20 0.13

Supply 23.71 22.43 22.10

Exports 1.38 0.66 0.53

Consumption 21.00 20.50 20.80

Demand 22.38 21.16 21.33

Ending Stocks 1.33 1.27 0.77Source: KCTL Research

Indian maize production is expected to drop by 1% against previous year to 20.73 million MT for the year 2016-17 due to lower yield in major growing re-gions such as Karnataka and Telangana. Since, these states are the largest growing states which give high-er productivity of maize in India. Average yield is like-ly to be almost same as that of a year earlier thanks to favourable rainfall in few parts of Maharashtra, Madhya Pradesh and Andhra Pradesh. Indian maize production has stood at a CAGR growth of 2% per annum in last 10 years. India had recorded a bumper harvest in 2013-14 due to higher area sown under maize amid better yield on account of favourable weather condition in major maize growing regions.

On demand front, strong demand is likely to fea-ture at domestic market from feed manufacturers like Poultry and Livestock industry. The world’s popula-tion is increasing and more people begin to consume higher amounts of meat, poultry and dairy into their daily diets, where demand for maize is rising. Indian maize demand may rise by around 1% for the year 2016-17. Expectation of lower production is prompt-ing prices to trade northward which may create price disparity and have negative impact on exports which may drop by around 19%. At the end of marketing year, carryover stocks are also likely to fall sharply due to higher demand against production.

OutlookMaize futures are likely to trade on bullish note on the back of supportive fundamental factors of spot market. Lower production estimation of maize in 2016-17 kharif season is likely to create active buying from stockiest. The demand from industrial users and exporters is the major driv-ing factors for maize, which may

support the prices to trade northward during up-coming year in Indian market. Moreover, due to off season for the produce, supplies are likely to be on sluggish note, it may add the further surge in prices. On other hand, to cool down the prices and meet the domestic demand, government may ask country run traders to make import of maize; it may create nega-tivity for the short time in Indian market. Later, rabi harvesting will start from last week of February and arrivals will be continue till end of April. By ending supplies, kharif sowing will start and we predict that farmers may plant more crops for the year 2017-18 as higher price may attract them.

Technical analysisNCDEX Maize future traded in a range during last cou-ple of trading of 2016, which is shown as green color. Prices are expected to touch lower band of channel, which is supported by trend line and bounce back from that level in upcoming weeks. Currently prices are trading above short term 8, 13 and 21 period sim-ple moving averages in weekly chart and stochastic oscillator trade is at 65.46 levels. MACD is above zero line at 10.03 level on weekly chart. Buying is recom-mended at lower band of channel at Rs. 1370-1380 level and second buying at 50% retracement level at Rs. 1320-1330, low Rs. 1022 to high Rs. 1642 level.

MaizeAgri Commodities

9

BUY

NCDEX Maize50% @ `1370-`1380 50% @ `1320-`1330

TARGET

STOP LOSS

`1550

`1250

Recommendation


Wheat was the top perform-ing commodity among the cereals sector on the In-

dian commodity exchange in the year 2016 as the prices rallied to all time high in the month of No-vember 2016. Supply demand fac-tors had influenced a rally in the wheat prices. India’s wheat pro-duction in the year 2015-16 sea-son declined to 88.94 million tons from 95.85 million tons in the pre-vious year. Failed monsoon for the second consecutive year in 2015 led to drop in acreage as well as yield of level thereby reducing the yield level. However, consumption demand remained more or less same as that of last year.

In the marketing year 2015-16, India’s wheat production de-clined by 10% despite of higher acreage under wheat cultivation. Failed monsoon for the two con-secutive years and unseasonal rains during peak harvesting stage had affected the yield level. In the year 2015-16, wheat pro-ductivity declined by 13% Y/Y thereby resulting into fall in the production. Decline in the pro-

duction had made the country to increase the imports to meet the consumption demand. Ac-cording to USDA, India’s wheat imports in the year 2015-16 was pegged at 0.47 million tons against 0.05 million tons import-ed a year ago.

The year 2016 has been a sil-ver line for the wheat sector as the country as whole has received a normal rainfall, which would result into higher acreage under wheat cultivation. According to the data released by Ministry of Agriculture, Government of India,

Wheat: Stronger demand to drive the market

1500

1600

1700

1800

1900

2000

2100

2200



Wheat Agri Commodities

Indian balance sheet (million MT)

Attribute 2013-14 2014-15 2015-16 2016-17

Beginning Stocks 24.20 17.83 17.22 14.54

Production 93.51 95.85 86.53 90.00

Imports 0.03 0.05 0.47 3.00

Total Supply 117.73 113.73 104.22 107.54

Exports 6.05 3.41 1.13 0.40

Domestic Consumption 93.85 93.10 88.55 96.14

Feed Dom. Consumption 4.80 4.50 4.20 4.50

FSI Consumption 89.05 88.60 84.35 91.64

Ending Stocks 17.83 17.22 14.54 11.00

Total Distribution 117.73 113.73 104.22 107.54

Yield 3.12 3.15 2.75 2.98Source: USDA


2.4

2.6

2.8

3.0

3.2

3.4

0

20

40

60

80

100

12020

00-0

1

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

Production Yield

wheat has been sown in an area of 278.62 lakh hectares as on 23rd December 2016 against 259.37 lakh hectares planted in the same period last year. This acreage is short of 25.43 lakh hectares of the normal wheat acreage.

ConsumptionIndia’s wheat consumption for the year 2016-17 is forecast at 96.14 million tons after declining to 88.55 million tons in the year 2015-16. Despite relatively tight domestic supplies, the govern-ment is likely to continue sale of wheat at subsidized prices through public distribution sys-tem (PDS), but the sale of wheat to local millers through the Open Market Sales Scheme (OMSS) are

likely to come down from last year’s level on relatively tight government stocks. Due to the steady demand from the dairy sector, 2016/17 wheat use for feed consumption and residual is forecast to recover to 4.5 MMT after declining to 4.2 MMT in 2015/16.

Government Procure-ment and Offtake For Programs

Bumper domestic harvest and a steady increase in the MSP over the last few years or government relaxation on quality standards for procurement of wheat (MY 2015/16) has buoyed govern-ment procurement of wheat un-

der the minimum support price (MSP) program in the last few years. Last year, unseasonal rains affected the quality of wheat har-vest forcing the government to relax quality norms for procure-ment of wheat to support farm-ers. Market sources report that of the total 28 MMT procurement, about 26 MMT procurement was under the relaxed standards.

Global estimationGlobal wheat supplies for 2015/16 are raised 2.3 million tons primarily on increased pro-duction but also higher beginning stocks. World wheat production

Global balance sheet (million MT)

Attribute 2013-14 2014-15 2015-16 2016-17

Beginning Stocks 177.59 194.69 217.20 240.65

Production 715.05 728.26 735.49 751.26

Imports 158.45 159.11 169.94 171.54

Total Supply 1,051.10 1,082.05 1,122.63 1,163.45

Exports 165.98 164.42 172.49 176.83

Domestic Consumption 690.43 700.43 709.49 734.48

Feed Dom. Consumption 126.57 131.80 138.44 148.09

FSI Consumption 563.87 568.63 571.06 586.39

Ending Stocks 194.69 217.20 240.65 252.14

Total Distribution 1,051.10 1,082.05 1,122.63 1,163.45

Yield 3.26 3.29 3.27 3.39

WheatAgri Commodities

Indian wheat production vs. yield


remains record high and is raised 1.9 million tons to 734.9 million. Wheat Production last year was 725.34 million tons. This year’s 734.93 estimated million tons could represent an increase of 9.59 mil-lion tons or a 1.32% in wheat production around the globe. World wheat harvested area in 2016/17 seen falling by less than 1%.

World wheat production for the year 2016-17 is estimated at 751.26 million tons, up by 10.79% Y/Y. The primary production change is expected for Cana-da, which is raised by 1.6 million tons to 27.6 million tons, according to Statistics Canada report. Global wheat trade for 2016-17 is raised with exports up 4.34 million tons on larger supplies, expected policy changes in Argentina, and stronger demand in sever-al importing countries.

OutlookDuring Q1 CY 2017, wheat market is expected to show a bearish trend as the period coincides with

commencement of fresh harvesting season. With an inflow of fresh produce across major markets, supply pressure will create, which is likely to have negative impact on the market. However, weather during these months play a vital role as the country had received unseasonal rainfall in last two years, which had affected the standing crop. Once the arrival pres-sure starts easing from the market, wheat prices are expected to start their upward trend on emergence of fresh buying from the end users. For the year 2016-17 marketing season, India’s wheat production is estimated at 90 million tons, up by 4% Y/Y on high-er acreage and improved yield level.

Technical analysisNCDEX Wheat future prices witnessed a huge volatile (low Rs.1540 and high Rs.2149) movement in 2016 and ended the year with gains of Rs. 209 (11%) from prior year closing price. Historically price traded in channel and the channel was broken in the year 2016. During the year 2017, wheat futures are ex-pected to take support of upper channel line, which is shown as a green color and make fresh new high during the year. Stochastic oscillator came from oversold zone on monthly chart, which may further push for price fall in upcoming months. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart.

9

BUY

NCDEX Wheat50% @ `1730-`1750 50% @ `1580-`1600

TARGET

STOP LOSS

`1350

`2350

Recommendation

Wheat Agri Commodities


Mentha oil futures market showcased a high volatil-ity in the year 2016 wit-

nessing a roller coaster ride. Dur-ing Q1, 2016, mentha oil futures market was under pressure on account of arrival pressure as well as lackluster consumption demand from domestic end users as well as exporters. Fall in the price was also driven by forecast of bumper crop harvest in 2016. However, in Q2, 2016, market recovered on short covering as well as emergence of fresh buying at lower levels as the prices were trading at yearly low levels. A sharp rally was seen in the month of July wherein the prices rallied from the low of Rs. 833.20 per kg level to Rs. 974.90 per kg registering a gain of 17% on strong buying following downward revi-sion of production estimates. After testing a yearly high, market turned down once again as the demand for the produce started diminishing both from domestic users as well as exporters due to higher prices. Slow down in importing nations economic activities led to limit-ed export enquiries as well as or-ders. Overall, the year 2016 proved mixed bag for the mentha oil.

Just like any other commod-ity mentha oil market also gets affected by several factors which comprises of international and domestic factors. Under interna-tional factors import demand from the major importing countries like China, United States and Singa-pore plays a vital role in deciding the price direction. As mentha oil is export oriented commodity therefore it is also influenced by USD-INR rate. Price and availabil-ity of synthetic mentha in interna-tional market also affect mentha market. The domestic factors are further categorized into produc-tion, consumption and stocks. Area

under mentha crop cultivation, prevalent weather conditions and arrivals during the harvesting period comes under domestic criteria. Demand from domestic consuming industries like pharma-cy generally increases during the winter season. Stocks of mentha oil available with farmers or major exchanges as well as carry forward stocks also impact the prices. Uttar Pradesh is the largest mentha oil producing state in the country and large portion of production comes from Central UP (38%), Western UP (27%) and Eastern UP (12%),

Analysis of supply demand of mentha oil suggests that the pro-duction was 40% lower in the year 2015-16 because of lesser acreage under mentha cultivation because of lower price realization from the farmers during previous season, which discouraged the farmers to go for mentha planting. For the year 2016-17, menthe oil produc-tion in India is estimated at 33000 tons, up by 28.4% Y/Y following higher acreage and better mon-soon performance in the year 2016. However, with the beginning of second half of the season demand started receding which eased the mentha prices. The gap between demand and supply increased. Dur-

ing 3rd quarter the prices were on lower levels which created demand in the market by traders and stock-iest for building stocks.

India is the largest exporter of natural mentha oil and its deriva-tives in the international market. Indian exports vary with changes in the production. India exports nearly half of its production of mentha oil and its derivatives products. In the year 2015-16, Indian mentha products exports declined by 6.38% Y/Y due to 43% decline in production. With an increase in production and de-preciating INR against USD, mint products exports from India are likely to increase by 6.82% Y/Y.

OutlookThough the production is higher by 28.4% Y/Y in the year 2016-17, futures prices are expected to show a positive trend on im-

Mentha Oil: A mixed bag for the year ahead

750

800

850

900

950

1000

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec-

16

Price performance

Mentha OilAgri Commodities

Exports

10000

16000

22000

28000

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17


proved consumption demand from domestic end users as well as exporters. Improving economic situation in importing nations is expected to support the market. From March onwards the sowing for new season would commence and price during the month of March would decide on extent of sowing as the farmers will go for planting based on the prevailing prices in the market. Weather during the months of April to June plays a crucial role in deciding yield levels as well as production. During first quarter of CY 2017, mentha oil futures are expected to show a positive trend on supply demand mismatch. Looking into higher price and lower carryover stocks, farm-ers may increase acreage under mentha cultivation, which will put pressure on the market during second quarter.

Technical analysisMCX Mentha oil future prices witnessed a huge volatile (low Rs.792 and high Rs.1054) movement in 2016 and ended the year gaining by Rs. 141.10 (15.60%) from prior year closing price. During the year 2016, mentha oil futures moved in a channel, which is shown as a red color. In the year 2015, mentha oil futures tested a 23.6% retracement level of Rs. 1104 (low Septeber-2014 Rs. 652.20 to high March-2012 Rs. 2564.80) and reversed the

direction on bearish trend. Stochastic oscillator is trading at 77 level on monthly chart, which may further restrict up rally but MACD indicator trades above zero line at 21 level. Currently price is trading above short term 8, 13 and 21 period simple moving averages in monthly chart.

Recommendation

Mentha oil balance sheet

Crop yearSupply (tons) Demand (tons)

Beginning stock Production Consumption Exports Ending stocks

2011-12 2000 35000 20743 14750 1507

2012-13 1507 45000 18149 20039 8319

2013-14 8319 42000 20207 24500 5612

2014-15 5612 45000 11800 23500 15312

2015-16 15312 25700 9000 22000 10012

2016-17 10012 33000 10000 23500 9512*Source- USDA, KCTL research

BUY

MCX Mentha Oil@ `925-`945

MCX Mentha @ `1300-`1320

SELL

TARGET

TARGET

STOP LOSS

STOP LOSS`730

`1350`1180/ `1300

`960

`

Mentha Oil Agri Commodities


Other Commodity Recommendations

Commodity Exchange Action Entry Target SL

SilverComex Buy 14.20-14.45 22.25/25.00 10.50

MCX Buy 35000-35500 53000/60000 26000

Natural GasNYMEX Buy 2.80-2.84 / 2.06-2.10 4.75/5.34 1.55

MCX Buy 185-188 / 137-140 330 100

CopperLME Buy 4900-4950 / 4500-4550 6300/6800 4150

MCX Buy 328-331 / 292-297 450 250

AluminiumLME Buy 1580-1600 / 1500-1520 1940 1350

MCX Buy 104-106 / 94-96 140 78

LeadLME Buy 1875-1895 / 1770-1790 2500/2700 1470

MCX Buy 120-122 / 112-114 170/190 96

ZincLME Buy 2040-2060 / 1840-1860 3000/3200 1560

MCX Buy 136-138 / 118-122 205 98

Nickel

LMEBuy 9200-9300 / 8300-8400 13500/14500 6600

Sell 14500-14700 9300 16500

MCXBuy 615-625 / 540-550 980/1030 450

Sell 1030-1050 630 1200

Soybean NCDEX Buy 2950-3000 / 2650-2700 4100/4500 2200

CPO MCXBuy 555-565 640 500

Sell 650-660 530 730

Turmeric NCDEX Buy 6300-6350 / 5250-5300 10000/12500 3470

Cardamom MCX Buy 1200-1220 / 1000-1030 1800 800

Dhaniya NCDEX Buy 6700-7000 / 5800-6000 11000 4500

Sugar NCDEX Buy 3520-3540 / 3180-3200 4550 2650

Guar Gum NCDEX Buy 5700-5720 / 5000-5020 8380/9000 4200

Cotton MCX Buy 18200-18500 / 17200-17500 23000 14700

Maize NCDEX Buy 1370-1380 / 1320-1330 1550 1250

Wheat NCDEX Buy 1730-1750 / 1580-1600 2350 1350



KCTL Research Products

About Karvy Comtrade Ltd. (KCTL)

Features Charges (For Calls Only)

Recommendations Karvy Clients

Agri Rs 1500/month

Rs 4000/quarter

Non Agri Rs 2000/month

Rs 5000/quarter

All Calls Rs 2500/month

Rs 8000/quarter

Non Karvy Rs 4000/month

Reports

Daily Reports

Fee based

Weekly Reports

Monthly Reports

Quarterly Reports

Seasonal and Annual Report

Event Based Reports

Hedging Strategy Fee based

Procurement Strategy Fee based

Consultancy Fee based

Karvy Comtrade Ltd. (KCTL) is a part of the diversified financial services group Karvy, headquar-tered in Hyderabad. KTCL was founded in 2005 on the simple idea of providing a superior trading platform and exclusive research services to its clients. Now KTCL, with a decade-long track record of reliability in the commodity space serves the needs of various investors across zones, regions and branches. A member of all the leading commodities exchanges in India including MCX and NCDEX, it has extensive experience and a comprehensive understanding of the commodities space. KCTL of-ferings include commodities trading into futures and forward market, giving hedging solutions and arbitrage strategies. It has strong support from a vast team of research experts dedicated to provide timely advice on investments. Also, it offers the latest state-of-the-art, user friendly technology plat-form to its clients for trading on the go.

KCTL is uniquely positioned with ISMS – 27001:2013 and ISO – 9001:2008 from Det Norske Veritas Certification BV – The Netherlands. Information security and data analytics are of prime importance to the organization and it has successfully excelled in the domain.

Karvy Comtrade Ltd has now bagged the award of “MARKET EXCELLENCE AWARD COMMODITIES METAL”, given by ZEE Business. The company has also won multiple accolades from ASSOCHAM, Zee Business Best Analyst and Bloomberg UTV in the recent years.





Its all about turning the right opportunity intoGold

when you trade with Karvy, you tade with a trusted name in the Commodites Market

The Karvy Advantages � Member of MCX, NCDEX � National network of over 400 branches � Personalized services � Backed by an exhautive research � SMS alert

Visit us at: www.karvycommodities.com. email:[email protected]

For registration please send an SMS KTRADE to 9225592255





Documents

KARVY COMTRADE LIMITED - Karvy Commodities Ann... · KARVY COMTRADE LIMITED REGISTERED OFFICE: ... been formulated infusing the fundamental and technical analysis. ... of Karvy, and