Crash could help ease India?s trade imbalance though weak domestic currency remains a concern
Global commodity prices have slumped up to 34% since January on fears a deepening economic slowdown will reduce demand, although a depreciating rupee will limit any soothing impact on domestic inflation.
Economists, however, reckon softening commodity prices will offer some relief to India as huge imports of crude oil strained its trade balance and drove up the current account deficit to an unprecedented level ? 4% of the gross domestic product ? in 2011-12.
Barring gold, the dip in prices was felt across major commodities, including crude, copper, aluminium, silver, coal, sugar, coffee and cotton, since January.
On Monday, economic affairs secretary R Gopalan said falling oil prices would ease pressure on the rupee and trim the current account deficit. India imported crude oil worth $155.6 billion in 2011-12, up 47% over the year before.
Brent crude tumbled 70 cents on Tuesday to $98.15 a barrel in the intra-day trade as poor data on China and debt-hit Europe, and comments by the International Energy Agency that oil demand growth may miss the forecast of 800,000 barrels per day in 2012. Brent prices touched a 16-month low of $95.63 on Monday before recovering and settling higher at $98.22 per barrel. The prices have dropped by 10.6% since January.
Australian coal prices have shed 26.5% since the beginning of the year at $91.25 per tonne, as weakening global growth and lower electricity output in Europe and north Asia have reduced demand. The prices will likely dip further over the next 12 months as energy markets react adversely to ongoing fiscal issues in the euro zone and the economic slowdown, Commonwealth Bank of Australia said in a recent report.
Copper prices declined to the lowest since December on Monday as data showing growth slowing in China and an unexpected dip in US industrial orders dragged down demand prospects. Copper futures for July delivery shed 0.2% to $3.307 a pound, after touching $3.238-? the lowest since December 15. Aluminium prices too have lost 4% since January to $1,994 per tonne.
?The European crisis, poor employment data and factory orders in the US and fears of a slowdown in Chinese economy have caused commodity prices to fall,? said Hareesh V, senior analysts at Geojit Comtrade.
The purchasing managers’ index surveys (PMI) showed on Friday manufacturing in China barely grew in May and contracted in Europe to a three-year low. Moreover, US non-farm payrolls figure showed 69,000 jobs were added to the economy in May, compared with market expectations of 150,000.
Cotton futures tumbled to a 31-month low on fears that bumper harvests in second-largest producer India and a slowing global economy will cause a surplus of the fibre. Cotton futures for December delivery fell 0.8% to 67.06 cents a pound, after nosediving to the 64.61-cent level, the lowest since October 13, 2009. The commodity has crashed 52% in the past one year and 33.7% since January.
Raw-sugar futures for July delivery shed 1% to 18.9 cents a pound and have lost more than 21% since January, as second-biggest producer India allowed unrestricted exports of the commodity while recovering global production weighed.
Coffee (arabica) futures for July delivery rose 0.6% to $1.5845 a pound on Monday after dropping 2% to close at $1.5750 per lb on Friday, the lowest level since July 2010 for the spot position. For the last week, the spot contract tumbled 6.1%, its sharpest weekly slump since early March. Arabica prices slumped 34.2% since January despite a projected fall in output in the current crop year. Rubber prices too have fallen more than 10% since January due to lower-than-expected automobile sales.
Silver futures for July delivery lost 1.8% to $28.007 an ounce on Monday on the general weak sentiment felt across commodities and has lost 9% since January.
Gold slid for a second time in three sessions after central banks abstained from extending more stimulus measures to boost economies amid deepening crisis in Europe and signs of a US slowdown. Gold for August delivery shed 0.5% to $1,613.90 an ounce on Monday; however, the precious metal has gained nearly 1% since January after an impressive rally of 28% in 2011, thanks to its safe-haven status.
?The gains from the commodity prices fall will be partly offset by a more than 10% depreciation of the rupee since April. However, since crude accounts for a major chunk of trade deficit, the fall in its prices will be good for the current account,? said Madan Sabnavis, chief economist at CARE Ratings.
