Most international commodities reacted adversely to the surge in the US dollar, series of Required Reserve Ratio (RRR) and interest rate hikes by emerging nations such as China and India, debt problems in the euro zone and the certainty of the USA QE2 programme that is likely to end next month. Debt problems from the euro zone nations led by Greece resurfaced, leading to a fall in the euro against the US dollar. The prices of precious metals fell sharply after reaching their all-time highs. Also, the prices of industrial metals traded weak, testing their multi-month lows and crude oil prices too fell sharply as risk-averse sentiments hit the global financial markets. Precious metals: Precious metals prices fell sharply after reaching their all-time highs on all major global exchanges. Silver in particular, was the worst hit with prices testing $ 32.50/ounce on the Comex after reaching almost $ 50/ounce, which resulted in a 35% correction from the top level, on MCX, the prices traded below Rs 50,000/kg after reaching Rs 72,000/kg, tracking an overall weakness in the industrial metals complex. Gold prices too fell and traded below $ 1,475/ounce on the Comex after trading above $ 1,570/ounce on the Comex. Easing tensions in the Middle-East and North African nations, coupled with a rapid rise in the US dollar against the basket of major global currencies, increased pressure on the prices of precious metals. Concerns re-surfaced in the market over debt problems in the euro zone countries, led by Greece. For many months, Greece has been relying on the issuance of short-term bonds to raise funds, seeking to improve cash management as it struggles to cope with its debt crisis. Greece is struggling to meet the terms of the 110 billion euro EU/IMF rescue package it received a year ago. Going forward, we expect the weakness in the prices of precious metals to continue. Similarly, we expect the weakness in silver prices to persist as seen in base metals complex. Strong liquidation from commodities may also pressurize gold prices, but debt problems in euro zone nations may prompt safe-haven buying in gold at lower levels. We expect gold prices to test $ 1,450-$ 1,460/ounce on the Comex until the next fortnight. Industrial metals: Industrial metal too traded weak, with copper prices reaching $ 8,500/tonne and zinc touching $ 2,100/tonne on the LME. Series of RRR hikes and interest rate hikes by emerging nations such as China and India raised doubts of a sustainable global growth, which led to a fall in the prices of industrial metals. Industrial production in the US stalled unexpectedly and reported no growth. Even housing starts fell in April, posing hurdles to a rebound from the first quarter’s economic slowdown. China too is facing problems in controlling its inflation which is showing no signs of cooling off, hurting its economic growth. China’s imports of copper fell 13.7% to 2,62,676 tonnes in April from 3,04,299 tonnes in March, reaching a one-year low. China’s refined copper production fell in April from March’s record figure of 4,70,000 tonnes. However, the production continues to remain strong. Stocks of aluminium in LME warehouses jumped 22,625 tonnes to hit a record high of 47,10,550 million tonnes and stocks held at three major Japanese ports rose for the first time in four months in April, reflecting a drop in production following a massive earthquake in March and electricity blackouts due to cuts in power supply. China will shut 2,91,000 tonnes of outdated copper smelting capacity, 6,00,000 tonnes of outdated aluminium smelting capacity, 26.27 million tonnes of obsolete steelmaking facilities this year, as part of a crackdown on 18 heavy and polluting industries. Going forward, we expect the weakness to continue in the base metals complex irrespective of the US dollar movement. Inflation problems in China along with weak economic data released by the US are expected to further pressurize base metal prices. Aluminium is expected to further weaken, tracking easing oil prices. Crude Oil: Crude oil prices fell sharply to as low as $ 94.6/barrel on the NYMEX after reaching $ 114/barrel in the previous fortnight. According to the latest monthly ‘Oil Market Report’ published by the International Energy Agency, the preliminary data for early 2011 is already showing signs of slowing oil demand. Saudi Arabia has cut its oil production back to pre-crisis levels, due to the poor demand. All this could be interpreted as a sign that high prices have started to dent consumption. We expect the weakness in crude oil prices to continue as weak demand from China and the US, coupled with rising inventory levels at key consuming regions may pressurize crude oil prices in the coming fortnight. Sourced from Beyond Market.

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