Govt moves to douse fire as commodity prices shoot
MUMBAI: The government moved in to contain soaring commodity prices, with the market regulator Sebi late on Thursday ruling out fresh futures contracts in chickpea or chana, and the government imposing a 20% export duty on sugar.
Late Wednesday, the food ministry had said it would enhance the buffer stock of pulses from 150,000 tonnes to 800,000 tonnes, but by Thursday morning, several mandis were reporting a surge in dal prices with urad touching Rs 196 per kg. Chana prices have been surging over the last few months.
It isn’t pulses alone. After a rough ride in 2015, a supply shortage has driven up prices of commodities across the board from crude oil to zinc, soyabean, metals and sugar among others.
The Bloomberg Commodity Index has surged 12.4% this year, after a 25% slump last year. In comparison, stock markets have been volatile. The S&P 500 has only gained 2%, while the BSE Sensex is up 1.5%. “There is demand supply mismatch in several commodities and this has driven up prices,” explains Naveen Mathur, associate director for commodities at Angel Broking. “Also, rains have been delayed in the last few days and so prices have remained firm. Some amount of concern is creeping in among investors waiting for rain .”
In sugar, the drought over the past two years has hit Indian output. For the 2015-16 sugar season (October-September), production is estimated to fall almost 10% to 25.1 million tonnes.
Similarly supply shortages in zinc have pushed up prices by over 25%, as some Chinese smelters cut production. Positive economic data from China (PMI-expanded for the third straight month in May) has also boosted prices of base metals.
Apart from supply and production constraints, a weaker US dollar, and volatile equity markets too have driven investor interest, particularly towards non-agri commodities. “Since commodities are priced in the US dollar, the asset class turned cheaper and more attractive for those holding other currencies. With a surge in demand, the prices eventually moved higher,” said Sweta Chawla and Siddhartha Khemka of Centrum Wealth Research.
Analysts say a good monsoon and the passage of the goods and services tax this year can bring commodity prices down.
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs