BULLION UP; METALS, ENERGY SLIDE

Global commodity prices remained highly volatile due to China’s proposed retaliation on the US administration's tariff imposition on a number of items.

The US government had issued a notice seeking public comments for imposition of 25 per cent additional customs duty on 1,600 items if imported from China. Thse covered include iron and steel, aluminium and other raw material and finished products with an annual estimated value of $50 billion for 2018.

In retaliation, China has proposed imposition of 25 per cent additional customs duty on 106 items imported in large quantities from the US, with annual estimated value of $50 billion. Included are soybean, beef, maize, wheat and other agricultural and non-agricultural commodities.

“Both equity and commodity markets reacted sharply to the Chinese retaliatory move. Its benefit to India, however, would depend upon individual commodities and several factors, including availability, cost of production and offer from competing countries,” said Madan Sabnavis, chief economist at CARE Ratings.

Reacting to China’s move, gold moved up in safe haven buying. In the spot London market, it traded at $1,344.95 an oz, nearly one per cent higher than the previous close. Silver followed and traded at $16.49, nearly 0.6 per cent higher.

All other commodities including base metals, energy and agricultural ones, slipped in both domestic and international markets. Brent crude oil on the Intercontinental Exchange (ICE) declined by 1.25 per cent to $67.27 a barrel. Base metals led by copper, aluminium and zinc moved down by 2.5 per cent on the benchmark London Metal Exchange (LME).

“A trade war normally leads to a higher inflationary and low growth scenario. An inflationary scenario is good for gold and bad for currency and some sectors in the equity market. China is the largest consumer of base metals. Hence, any change in trade sentiment would hit global markets badly,” said Kishore Narne, associate director at Motilal Oswal Financial Services.

Gnanasekar Thiagarajan, director, Commtrendz Research, said: “Gold's price moved up on safe haven buying. Other industrial and agricultural commodities also reacted instantly to China’s retaliation on the US move.”

Among agri commodities, soybean's price declined by five per cent in early trade, before later recovering half of this. Corn (maize) and wheat futures on the benchmark Chicago Board of Trade declined by 2.25 per cent and 1.15 per cent to $379.75 a bushel and $452.25 a bushel for delivery in May, respectively. Cotton fell 3.18 per cent to trade at $79.41 a pound on the ICE.

“China imports around 100 million tonnes of soybean annually, of which the US contributes nearly 34 per cent, second only to Brazil's 38 per cent. Alternative markets like Brazil, Argentina and Uruguay can boost supplies to China,” said Suresh Ramrakhiani, chief executive at Indian Oilseeds and Produce Export Promotion Council.

D N Pathak, executive director of the Soybean Processors Association here, sees an opportunity for India to enter more markets with soybean and soy meal. “China does not consume derivatives of soybean entirely. Of the import of around 100 million tonnes, China exports refined soya oil and soy meal to neighbouring countries. Post the tariff levy, its soybean import would decline, resulting in lower export of its derivatives to neighbouring countries. India can capture the space to be evacuated by China in Vietnam, Japan and other such Asian markets,” he said.