Trade on `wait & watch' mode as rupee weakens

M.R. Subramani

Market trend

Currently, wheat

delivered at railway shed is ruling at Rs 1,050 a quintal.

Global market

firming up on fears over hot weather in Europe.

Prices have

increased by over Rs 10 a quintal since the start of the week in domestic market.

Chennai, July 20

Flour mills in the South are yet to firm up any deals to import wheat as they prefer to "wait and watch" the global market situation.

Private parties were on June 28 allowed by the Centre to import wheat at five per cent duty in order to tide over the supply problems. Keeping in mind user industries such as flour mills and biscuit manufacturers, the Centre cut the Customs duty on wheat from 50 per cent to five per cent.

"We are watching the situation. Currently, imports at five per cent Customs duty are not a viable option," said a miller from Bangalore.

Consortium

Mills in the South are trying to get together to import wheat as a consortium.

"One, the situation in the global market is grim. Two, the Indian rupee has been declining against the dollar. Also, supply in the domestic market is better," said the miller.

Currently, wheat is being delivered at railway sheds at Rs 1,050 a quintal. Though this is lower than Rs 1,060-75 at the peak of the arrival period in April, it is a little higher than the Rs 1,025 witnessed a few weeks ago.

On Thursday, wheat (dara) was quoted at Rs 882.50 in New Delhi. This is against Rs 843.50 on June 27 before the Centre announced the Customs duty cut.

Import move

However, they are lower compared with the peak rate of Rs 985 witnessed in the first week of February when the Centre decided to go in for imports.

On NCDEX, August contracts are quoted at Rs 861 a quintal, while long-term December at Rs 940. During the last week of April, December futures were quoted above Rs 1,000.

The Centre had decided to import wheat in February as buffer stocks began to dwindle and in 2005-06 season wheat was hit by the vagaries of weather.

Initially, the Agriculture Ministry had estimated a crop of 75.5 million tonnes (mt) before pruning it to 73.06 mt in June and 69.48 mt this week.

Initially, the Centre decided to import five lakh tonnes. Subsequently, it struck deals to import an additional 30 lakh tonnes before permitting the private sector to import. Of the 35 lakh tonnes contracted for import, hardly one lakh tonnes has arrived with the initial deal to import five lakh tonnes with Australia's AWB running into problems over quality issues.

Declining Rupee

Much to the chagrin of the private sector, the rupee has been declining against the dollar to touch a three-year low of 46.99/47 on Wednesday. On Thursday, it recovered to 46.78/79.

"It will not make sense to import when the rupee weakens against the dollar as we will have to pay more," the miller said.

According to sources, feed wheat from Ukraine is available at $175 (Rs 8,200) a tonne c&f but given the sensitive nature of the import decision, it is unlikely to be allowed into the country.

Domestic Market

"We are being offered wheat from Black Sea ports at $185 c&f (Rs 8,675) but at five per cent duty, it is not economical for us," the miller said. On the other hand, wheat supply in the domestic market is satisfactory with the growers under no obligation to sell their produce to the Government procurement agencies.

Still, a private trader is reported to have contracted to import 40,000-45,000 tonnes of wheat at around $185, while another has also struck deal to import similar quantity.

However, prices have begun rising with the global market looking up on heat wave threatening the Europe crop. Growers are also reportedly unwilling to sell on fears of lower yield. On London, French wheat was quoted at $160 a tonne for the November contract.

In the domestic market itself, spot prices have gained Rs 12.50 a quintal since the beginning of the week in New Delhi. The futures market has also seen an upswing with August contracts gaining Rs 11 and December Rs 8.

(This article was published in the Business Line print edition dated July 21, 2006)
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