FY15 has been a watershed year for commodities, with the prices of many - iron ore, crude oil, precious metals, wheat, sugar, cotton, edible oils, among others - falling between 10 and 50 per cent in Indian and in global markets. However, the prices of smaller metals such as zinc and aluminium are up. So is the price of Indian spice. "Early-year supportive factors for commodity prices, such as cold northern hemisphere weather, supply problems and a surge in investor interest, are starting to fade," says Larry Kantor, head of research at Barclays Commodities. The US has ended its 'quantitative easing' (an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply) and is now talking about raising interest rates linking that to further improvement in economy.
However, Europe, China, Japan and other major economies are yet to pick up. With demand not coming in, commodities have lost support from actual reserves and whatever liquidity was left was chasing dollar and not commodities. Gold is no more seen as a safe heaven when the US dollar is strengthening. On the agri commodities side, there is surplus in most, thanks to higher crop or lower demand. A similar situation in India has resulted in agri commodity prices falling. The financial year has, as a whole, been among the worst years for the commodities market across the world. Currency crisis, volatilities in Brazil and Russia, and sanctions by developed countries such as the US and European Union on Russia and Iran have also disturbed the markets.
ON OUTLOOK
NATIXIS COMMODITIES OUTLOOK FOR METALS