The Hindu Business Line : Sub-prime spectre haunts soyabean complex

Mumbai, Aug. 18 Anxiety over sub-prime lending in the US seems to have had its impact on commodity trading in India, in addition to financial markets. For price signals, Indian base metal markets follow London Metal Exchange (LME) and soyabean oil tracks CBoT (Chicago Board of Trade).

Sub-prime loans are those made to people with poor credit standing.

Investors unnerved

Many commodity investors in the US were also unnerved by the Commodity Futures Trading Commission, the US watchdog for the industry, decision not to help Sentinel Management Group — which oversees about $1.6 billion in assets — stop clients from pulling money out of its schemes. The company on Friday filed for Chapter 11 bankruptcy.

Investor jitters peaked when Countrywide Financial of US on Thursday announced it had sucked dry its entire $11.5 billion credit line on liquidity “constraints”.

“Apart from concerns over sub-prime lending, hedge funds and institutional investors in the US pulled out investments across-the-board including commodities in anticipation of redemption notices from investors over the next few weeks,” said Mr Harish Galipalli, head of research, Karvy Commodities.

Among base metals, copper was the worst hit losing $645 or nearly 7 per cent on the LME over the week to close at $6,960 per tonne. Earlier, copper for three months forward on the LME had begun the week at $7605 and plunged to a low of $6730 per tonne on Friday.

On the MCX, copper futures, which are settled with reference to LME prices, fell 6.55 per cent to Rs 290 per kg (Rs 2.90 lakh per tonne). It started the week at Rs 309 and hit a low of Rs 281 per kg on Thursday.

Silver for September delivery on commodity division (Comex) of the New York Metal Exchange fell 9.95 per cent to $11.75 per ounce and touched a low of $11.06 per ounce on Thursday.

On MCX, silver for September delivery fell from Rs 17,519 per kg on Monday to Rs 16,425 on Saturday, losing over 6 per cent.

Agri products hit

“Though there can be no direct correlation between sub-prime lending crisis and fall in prices of agri commodities, sentiment was weak, prompting investors to quit their positions in agri commodities also,” he said.

Soyabean for September delivery on CBOT fell 5.52 per cent over the week to $8.14 per bushel. It fell to the week’s low of $7.89 on Thursday before opening the week at $8.59 per bushel.

Soya oil also followed weak market sentiments and fell 3.72 per cent to $35.38 per pound. It dipped to the week’s low of $33.91 on Thursday.

On NCDEX, soyabean futures for August shed nearly 3 per cent to Rs 1,543 per quintal, before hitting a week’s low of Rs 1,525 per tonne. Soyoil August contract was down 2 per cent to Rs 486 per 10 kg.

“In the short-term, financial market movements are likely to remain a key driver of price direction in the commodities markets,” he said.

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