'Development in Russia, Ukraine key for precious metals'

Last week turned out to be eventful for the markets as the intensifying conflict between Russia and Ukraine triggered a wave of risk aversion at the start of the week sending precious metals higher. Later, signs of reduction in conflict pulled down both gold and silver. US jobs data during the week was better than expected which also helped the dollar to recover and weighed on precious metals. However, fresh signs of conflict and strength in the euro have kept gold prices supported but silver prices fell sharply probably following the weakness in industrial metals. In the domestic markets, a stronger INR owing to better CAD data and optimism in equity markets weighed on prices. This week is pretty light on economic data but the developments surrounding Russia and Ukraine will keep activity high in precious metals. While equity markets are near all-time highs, their reaction to geopolitical events will be closely watched. 

The price action in the energy complex was choppy last week especially in crude oil as geopolitical concerns on one hand and supply side fundamentals on the other led prices to swing both ways. Developments around Russia and Ukraine kept geopolitical premium high for oil as Russia is the biggest oil producer and Russia’s biggest crude grade, Urals, is shipped from ports on the Black Sea, where Russia and Ukraine share a coastline. However the EIA inventory data weighed on prices as both crude oil and distillate inventories expanded. Natural gas prices were largely flat during the week despite of the weather and a larger drawdown in inventories as investors focused on warmer weather ahead. On the price front, crude oil prices could be prone to headline risks on the upside even though the broader trend looks to be downwards in the medium term. 

Industrial metals had a violent week, ruled by the bulls at the start and brough down by the bears at the end of the week. Copper prices tumbled 4% to a seven-month low yesterday while aluminum lost more than 1% each after the first bond default by China sparked global growth concerns. China’s first onshore default stoked concern that rising debt will curb demand, the world’s largest consumer. Also, copper stockpiles monitored by the SHFe have climbed for eight straight weeks, the longest streak in two years, adding to signs of slowing use. While the nation’s copper imports reached an all-time high in January, the higher purchases probably reflected over-ordering and more metal being used for financing deals, rather than increased industrial demand. Meanwhile, Nickel prices rose to their highest level in nine months on signs that Indonesia’s export ban on unprocessed mineral ore is starting to bite and affect Chinese stockpiles. In the coming week, we expect prices to moderate after the drastic fall seen on Friday. Economic data wise, there are no major triggers next week which will keep markets largely dependent on any headline risks.  

Last week jeera market remained a downhill racer and tested fresh lows. The new crop is seen at a record of 70 lakh bags - 45 lakh bags in Gujarat and 25 lakh bags in Rajasthan – of which the yield, output and quality as well as exports, everything is excellent. Indian kapas futures and cotton complex tumbled on active trade selling but market posted a knee-jerk upside reflex to the surging NY prices. Chana futures continued its winning streak as the weather remained hostile. Scattered rains in Vidharbh and Marathawada, MP, UP and few parts of Rajasthan have sparked fears of crop damage, which is largely supporting chana. Guar market ruled steady and remained volatile throughout the week. CBT soy oil and CPO flared up amid dry weather concern, in SE Asia dryness and El Nino forecasts and bio fuel bandwagon in Indonesia. Weather remained hostile in MP and Rajasthan which saw some spur buying in domestic oil.