Rupee made the difference for base metal investors

Rajalakshmi Sivam | Updated on March 12, 2018 Published on November 12, 2011

If you had put your money on base metals in global markets around the same time last year you would be sitting on losses now. Over the last one year zinc has seen a price correction of 21 per cent to $1920/tonne, copper has dropped 7 per cent to $7639/tonne and aluminium is also down. But, thanks to the rupee’s depreciation against the dollar, investors who bought futures contracts of base metals in the Indian commodity markets, say through the MCX have fared better. They would in fact have pocketed profits on select contracts. The most active contract on copper futures in MCX for instance, is up five per cent, year-on-year at Rs 384/kg. Exposure to crude oil futures in any form, could have saved your portfolio too. Crude Oil (Brent) is up 32 per cent since October-2010 in dollar terms.

Base Metals: From uphill to down hill

Higher import demand from China following stimulus measures and revival in demand from the US and European nations fuelled the rally in base metal prices that began in early 2009 and lasted until the beginning of 2011. The speculation of a supply-deficit situation with global mine production falling helped copper prices touch $10160/tonne in February this year from $3000/tonne in 2009. Aluminium rallied on surging demand from emerging markets such as China and Brazil. The metal rose to a high of $2797 by May 2011 from a low of $1288/tonne in 2009. The broad based rally in metals saw zinc too rising.

Early 2011, however, fears about overheating in the Chinese economy and measures to cool demand, began to surface. The resulting correction in base metal prices started with copper in March. The monetary tightening measurers taken by the Chinese government led to fears of slowing demand. News about the debt crisis in Greece and weak macro-economic data from the US fuelled global growth worries and added to negative sentiment. Copper hit a low of $6393/tonne in October, falling 37 per cent from its February high. Following suit, aluminium and zinc prices too hit bottom. But, there has been a good recovery from October lows, thanks to hopes of a resolution to Greek debt problems. Copper trades at $7639 and aluminium at $2162/tonne now at the LME. Restored confidence in Euro zone on Italy approving a debt reduction bill could keep base metals supported over the next few weeks.

Saved by rupee depreciation

The Indian currency has suffered a sharp depreciation against the US Dollar in the last one year. From a close of 44.4 in end-December 2010, rupee has dropped to 50.21 against the dollar. While this has caused distress to corporates who import metals, domestic investors who bet money on futures contracts of base metals were saved losses. In LME the actively traded contract for zinc futures is down 22 per cent over one year, while in MCX the decline is only 11 per cent. While copper futures in LME have fallen in a year, the metal is in positive terrain on the MCX, up 5 per cent.

Crude oil on the rise

Increase in oil imports by the US, shutdown of major refineries in the US and Canada in late part of 2010 and problems in MENA region that posed a supply disruption risk stoked oil prices this year. Brent crude oil is at $113.6 a barrel now, up from around $86/barrel in October last year.

Though the common man is still struggling to adjust to higher fuel costs, investors who bet money on crude oil futures in MCX are a happy lot. The most active crude oil contract on the MCX has seen a 35 per cent rise since last October. Again, the Rupee’s depreciation has lent support to prices. With progress being made on debt reform in Italy and Greece, there appears to be no clouds on the horizon for crude oil for the short term.

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Published on November 12, 2011
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