Commodities market offer respite

AS INVESTORS BEGIN financial navigations to aid plans for the new year, uncertainties being projected to persist in the Nigerian financial markets especially the capital markets till the 2019 general elections are over, have taken a toll on investment returns

AS INVES TORS BEGIN financial navigations to aid plans for the new year, uncertainties being projected to persist in the Nigerian financial markets especially the capital markets till the 2019 general elections are over, have taken a toll on investment returns thus causing investors, both local and foreign to shy away.

From third best performing exchange in 2017, to scratching the bottom of the pack in 2018, analysts at Financial Derivatives Company (FDC) have said the bearish market trend currently observed will persist through the first quarter of 2019 as political fracas intensify. They also see foreign portfolio investment outflow, pushing the Nigerian Stock Exchange All-Share Index southwards, to recover on the backdrop of a violence-free handover.

The commodities market is, however, gearing up to introduce ranges of products that can widen the scope of investment opportunities in the country.

According to AFEX Commodities Exchange Limited, January 2019 will see the launch of the first commodities index in Africa- the AFEX Commodity Index (ACI), to enable the exchange to have data points for trade volumes and earnings being carried out by individual investors.

The ACI tracks prices of commodities listed on the exchange and is expected to be launched alongside two indices for maize and soybean. The ACI is also expected to come along with other instruments such as the Exchange Traded Commodity (ETC), for investors interested in gaining exposure to commodity backed assets, thereby making investing in commodities accessible to all investors.

Ayodeji Balogun, country manager of the AFEX in an exclusive chat with business a.m explained that the 2019 initiatives by the AFEX are to ensure that commodities are seen as a viable alternative to investors in the financial market.

“At the start of 2018, we had to contend with the backlash effect from the 2017 US dollar crisis and a slump in global commodity prices. Due to those two major factors, local commodities were significantly higher priced than the import parity price leading most manufacturers to use imported products and making the commodity market effectively bearish, Balogun said while giving an overview of the just concluded year.

He also noted that “the 2018 wet season cultivation was a good one for most crops across the country, and the resultant harvest was decent to great. However, most irrigated Paddy rice farms were flooded, and up to a third of the season’s output was lost due to this. Soybeans remained a deficit crop, with national supply amounting to less than half of demand, and prices yielding up to 120 percent annualized season (harvest in November) to date.”

But in his 2019 projection, the AFEX boss said “We expect the bullish trend in the grains market to continue through H1 2019. Also, with a gloomy harvest predicted in some Cocoa producing states, and a likely recovery from the 2017/2018 slump in cashew prices, we expect a bullish trend in the export crops sub-sector.”

The outlook for agricultural commodities export in FDC’s December Bi-Monthly economic update looks positive. With Nigeria being the 4th largest producer of cocoa in Sub-Sahara Africa (SSA), a bullish outlook of global cocoa prices is expected to boost Nigeria’s export revenue, reflecting positively in business proxies such as FAAC disbursements, said the financial think tank.

They noted that “Cocoa prices gained 0.48 percent to $2,271/mt on December 20th, from $2,203/mt on December 3rd. The increase in price was partly due to higher demand of the commodity during the festive period and harsh weather, which weighed on the main crop harvest in Ivory Coast and Ghana, the major exporters of cocoa.

They expect that the bullish trend in cocoa prices will be sustained in the coming weeks, to be driven by higher demand as a result of the endof-year festivities and poor main crop yield in West Africa, thereby pegging price of the product to remain around $2,250-2,500/mt.

Leveraging on the growing positive outlook for commodity exports, AFEX Nigeria also said the 2019 financial year will see furtherance to its partnership with the Nigerian Export-Import Bank (NEXIM) on financing exports in the agricultural sector.

NEXIM, which has benefited from CBN’s reinstatement of the N500 billion Export Stimulation Facility (ESF), which included a N50 billion direct intervention fund for NEXIM to boost non-oil exports, is financing various projects in the non-oil sector including those identified in the agricultural sector, and AFEX Nigeria is serving as collateral managers for the identified agriculture linked projects.

The partnership, according to the exchange house will continue to promote export stimulation in the country leading to such benefits as inflow of funds into the country via the receipt of export proceeds, increased production output in the country which will lead to higher employment rates, increased Gross Domestic Product (GDP) figures, and higher foreign exchange earnings for the government.

AFEX links commodity buyers and sellers and facilitates cash and product settlement. It also operates an electronic market where participants can buy and sell products from the convenience of their offices, or trade from trading terminals provided by the exchange. The AFEX trading platform is powered by NASDAQ-OMX and has a client application which is installable to client’s computer systems. The trading platform can facilitate auctions, spot trading as well as forwards and futures contract trading.