In view of the current situation, crude may remain in a tight range as supply cuts and stimulus packages along with lack of demand may hold prices in the short term. And, increasing inventories may hold the prices in a tight range, with a slight negative bias," Sunilkumar Katke, Head-Currency and Commodity, Axis Securities, tells Moneycontrol's Sunil Shankar Matkar in an interview. Edited excerpts:
Q: Do you expect OPEC+ to extend beyond July the cuts in crude oil output?
Considering the reduced demand due to COVID-19 and increasing inventories, we are more likely to see an extension in output cut beyond July 2020 by OPEC+ nations to keep the prices firm. With the second wave of COVID-19 on the cards, many nations fear a possible lockdown again to deal with the pandemic, dampening the slight improvement we are witnessing in the consumption supported by stimulus measures by the government to boost manufacturing sectors to revive the economy.
Q: Will oil prices remain in the range of $39-43 a barrel in July, why? What should be the strategy in MCX crude futures?
With the current situation, the prices may remain in a tight range as supply cuts and stimulus packages may hold prices in the short term and lack of demand. And increasing inventories may hold the prices in a tight range, with a slight negative bias. We suggest a sell on MCX crude near Rs 3,100 per barrel range with stoploss at Rs 3,200 targeting Rs 2,900.
Q: You recently said gold prices can hit Rs 50,000 per 10 grams soon. Do you think it is easy for the yellow metal to test Rs 50,000-mark in July, given the optimism over global economic recovery?
This time around the crisis is different where we may see gold prices and equity markets moving in the same direction, as one side the pandemic, economic and geopolitical uncertainty will keep the safe-haven appeal intact and on the other hand, aggressive measures by the government to revive their economies backed by stimulus packages will drive the riskier asset classes northwards. Fundamentally, the lower real rates, demand from central banks and ETFs followed by currency devaluation due to stimulus measures will support gold prices in the short to medium term.
Q: Reopening of economic activities lifted some demand for industrial metals and as a result, copper, nickel and aluminium prices ended in green last week while lead and zinc traded lower. What are your views?
The stimulus measures and opening up of activities as a result of unwinding of lockdown supported the overall industrial metal basket, especially copper and nickel. The demand for industrial metals is sectoral in nature and will have different demand and supply matrix. On one hand, copper mining activities are hampered due to COVID-19 infections backed by strong exchange of hands on LME with good delivery supporting the prices, and on the other hand, nickel production is down by almost 7.5 percent due to COVID-19 with a decent demand in place.
Zinc and lead have also improved a bit but under pressure due to increasing inflows of stock at LME and lower arbitrage spread is keeping prices in check. However, we believe the prices have outperformed their fundamentals and may consolidate soon as we move ahead with uncertainty.
Q: What is your trading strategy for copper futures and why?
We recommend a sell-on-rise in copper around Rs 470 per kg, with a stoploss of Rs 475 targeting Rs 455 in a week's time as the prices have moved above their fundamentals and may soon see some profit-booking coming in with threats of a second wave of corona and uncertainty over economic revival.
Q: Sanjay is new to the commodity market and he wants to trade in crude oil futures. What are the factors he should consider before trading and how he should go about it?
As a new participant to commodity derivatives, one must keep the following things in mind when trading in crude futures:
>> Maintain sufficient margins in line with exchange requirements with 20 percent buffer to meet MTM
>> Go through the research recommendations given by the member and follow the direction with stoploss and target mentioned
>> Always trade with stoploss to overcome unwanted volatility that risks your capital beyond your risk appetite
>> Always maintain a 1:2 risk to reward ratio and never trade open ended
>> Refer to the research reports and try to understand the fundamentals driving prices up or down and take a calculated decision
>> Learn from mistakes and avoid repeating those that led to more than targeted losses
>> Avoid booking early premature profits and wait for the full profits decided by trailing stop losses.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.