Commodities & Bullion

Over a month ago, the poultry industry was reeling under excess supply and low demand, leading to a crash in prices. But a harsh summer has resulted in an increase in chicken mortality across north India and Andhra Pradesh while farmers in other regions slowed production to bring down loss.

Poultry prices have now zoomed toRs 140-200 per kg in Kerala, which is predominantly dependent on supplies from neighbouring states. In May, prices were in the range of Rs 70-80 per kg.

"There is a demand-supply gap now as production has come down. An increase in the cost of production due to high feed prices has also contributed to the rise in prices," said VK Mohan, general manager, Suguna Poultry Farms.

In Tamil Nadu, prices have nearly doubled to Rs 110 per kg in the space of two months. With the arrival of the monsoon, demand has risen in western states. Trawling has been banned in Kerala and Karnataka, which has led to a decline in fish catch. This has led an increase in chicken consumption.

In north India, which is still in the grip of summer, chicken shortage and rising feed cost have pushed up the prices. Prices have moved up from Rs 60 per kg in the first week of May to around Rs 85 per kg now.

"Soya prices have doubled toRs 36-40 per kg in two years while maize prices continue to remain around Rs 13-14 per kg blowing up the cost of production. Production has also fallen by around 30%," said Ramesh Chander Khatri, secretary of Poultry Federation of India. The decline in the rupee's value has inflated the prices of medicines given to chicken.

"Almost 90% of such medicines are imported," said Ram Reddy, president of Andhra Pradesh Poultry Breeders Association. Egg prices are now inching towards Rs 4 apiece after a 20% cut in production when prices slid below Rs 3 last month.

With egg prices ruling below the production cost of Rs 3.20 for most of the time last year, the sector has suffered heavy loss. The loss in Namakkal in Tamil Nadu, the hub of egg production, would come to around Rs 240 crore, according to Dr P V Senthil, secretary of Livestock and Agri Farmers Trade Association.

"Retail prices are around Rs 3.80 per egg while the farm gate price is Rs 3.45, which means farmers are making a profit now. But this has to be sustained for a long time for farmers to recover from last year's loss," he said. Meanwhile, the government has failed to get Oman lift the ban on Indian egg imports. The two consecutive bans were imposed after incidences of bird flu in Karnataka and Bihar from last October.

Better-than-expected US retail sales and jobs data recently has fueled speculation that the Fed could announce a scaling back of its $85 billion monthly mortgage-bond buyback at the end of its two-day policy meeting on Wednesday.

The S&P 500 stock index trimmed early gains but stayed higher on traders' hopes that the Fed will reinforce its commitment to support the economic recovery.

"With very few clear choices left for monetary growth, US equities continue to show resilience. This has kept the bear alive in the precious metals market while physical demand remains firm," said Carlos Perez-Santalla at brokerage Marex Spectron.

Spot gold was down 0.6 per cent to $1,381.95 an ounce by 2:33 p.m. EDT (1833 GMT).

US Comex gold for August delivery settled down $4.50 at $1,383.10, with trading volume at 65,000 lots versus its 30-day daily average of 217,000, preliminary Reuters data showed.

Volume was on track to hit its lowest daily level since April 1, Reuters data showed.

Silver fell 1.1 per cent to $21.80 an ounce. The CME Group's smaller silver contract, the physically delivered 1,000-ounce silver futures, begin trading on Monday, with total trading volume at 25 lots, according to CME's website.

Turnover of the benchmark 5,000-ounce Comex silver futures was over 40,000 lots, below its 30-day average at 54,000, preliminary Reuters data showed.

ALL EYES ON THE FED

Markets have been volatile since Fed Chairman Ben Bernanke said last month the bank could scale back its stimulus measures. Since then, Fed officials have given conflicting signals.

"People are looking for more clarity - or not, as the case may be - on whether the Fed starts to ease off the Quantitative Easing bandwagon," SocGen analyst Robin Bhar said.

Most economists expect the Fed to scale back the size of its bond purchases by year end.

Any slowdown in the bond-buying program could lead to higher interest rates and drive investors from gold into interest-bearing investments and equities.

In the physical market, demand in Asia has cooled from peak levels seen after the mid-April selloff in gold, dealers said. Bullion is down 17 per cent for the year to date after 12 years of annual gains.

Indian purchases of gold have fallen since an import duty increased earlier this month. The government is trying to narrow its current account deficit by reducing gold imports.

Among platinum group metals, platinum was down 1.1 per cent to $1,429.74 and palladium dropped 2.3 per cent to $712.47.

"Commerce Ministry in a notification on April 26 has put a stop to gold trading in SEZs with effect from May 1. We have now made it mandatory that even in SEZ, gold units shall comply with the...minimum value addition of 3 per cent in gold jewellery and 5 per cent in gold and precious stone studded jewellery," Commerce Secretary S R Rao said.

Earlier, this provision was there for gold units outside the zones.

Rao said that the step would help in boosting jewellery exports from India. Gold exports from SEZs in May declined by about USD 0.8 billion.

"Anybody who is exporting gold jewellery has to abide by this value addition norms. Prior to May 1, this norm was not applicable for SEZ exporters. So this has now been made applicable. Now its is mandated," he said.

The government had banned trading of gold by units in the SEZs to check misuse of tax benefits by them. SEZs are allowed duty-free imports.

Reacting on the move, Gems and Jewellery Export Promotion Council Chairman Vipul Shah said the step would benefit genuine jewellery exporters.

Rao said: "Gold exports itself have taken a hit of USD 0.8 billion which essentially contributed to the gold trading that used to take place through SEZ."

Director General of Foreign Trade ( DGFT) Anup Pujari said that prior to May 1, the value addition norm were not applicable for SEZ exports so this has been now made applicable.

"...earlier if somebody exported gold items from SEZ, he was not mandated to follow a minimum value addition norm," Pujari said.

An official said that the Commerce Ministry has taken this step of its own to help genuine jewellery exporters.

"The Commerce Ministry had received lot of complaints about diversion of gold from few zones to the domestic markets. The decision would now help in checking the misuse," the official said.

According to sources, SEZ units were earning arbitrage profits of as high as 7.5 per cent by diverting imported gold to the domestic market.

This was a very profitable venture for SEZ units as it did not involve much capital, infrastructure or labour.

India is the largest consumer of gold. High gold imports are one of main reasons behind high Current Account Deficit, which touched a record high of 6.7 per cent of GDP in December quarter of last fiscal.

The monthly gold imports have averaged 152 tonnes in the first two months of this fiscal, as compared to an average of 70 tonnes seen in the 2012-13 financial year.

"Commerce Ministry in a notification on April 26 has put a stop to gold trading in SEZs with effect from May 1. We have now made it mandatory that even in SEZ, gold units shall comply with the...minimum value addition of 3 per cent in gold jewellery and 5 per cent in gold and precious stone studded jewellery," Commerce Secretary S R Rao said.

Earlier, this provision was there for gold units outside the zones.

Rao said that the step would help in boosting jewellery exports from India. Gold exports from SEZs in May declined by about USD 0.8 billion.

"Anybody who is exporting gold jewellery has to abide by this value addition norms. Prior to May 1, this norm was not applicable for SEZ exporters. So this has now been made applicable. Now its is mandated," he said.

The government had banned trading of gold by units in the SEZs to check misuse of tax benefits by them. SEZs are allowed duty-free imports.

Reacting on the move, Gems and Jewellery Export Promotion Council Chairman Vipul Shah said the step would benefit genuine jewellery exporters.

Rao said: "Gold exports itself have taken a hit of USD 0.8 billion which essentially contributed to the gold trading that used to take place through SEZ."

Director General of Foreign Trade ( DGFT) Anup Pujari said that prior to May 1, the value addition norm were not applicable for SEZ exports so this has been now made applicable.

"...earlier if somebody exported gold items from SEZ, he was not mandated to follow a minimum value addition norm," Pujari said.

An official said that the Commerce Ministry has taken this step of its own to help genuine jewellery exporters.

"The Commerce Ministry had received lot of complaints about diversion of gold from few zones to the domestic markets. The decision would now help in checking the misuse," the official said.

According to sources, SEZ units were earning arbitrage profits of as high as 7.5 per cent by diverting imported gold to the domestic market.

This was a very profitable venture for SEZ units as it did not involve much capital, infrastructure or labour.

India is the largest consumer of gold. High gold imports are one of main reasons behind high Current Account Deficit, which touched a record high of 6.7 per cent of GDP in December quarter of last fiscal.

The monthly gold imports have averaged 152 tonnes in the first two months of this fiscal, as compared to an average of 70 tonnes seen in the 2012-13 financial year.

The Fed meets on June 18-19 against a backdrop of stronger-than-expected data on US retail sales and the job market. All markets are seeking clues on any scaling back of its extra economic stimulus, known as quantitative easing (QE).

Spot gold shed 0.6 per cent to $1,381.06 an ounce by 1224 GMT. Bullion closed up about half a per cent for the week on Friday, helped by strong demand for coins and bars, a pullback in US stocks and rising tensions in the Middle East.

US gold was down 0.4 per cent at $1,380.09. "People are looking for more clarity - or not, as the case may be - on whether the Fed starts to ease off the QE bandwagon," SocGen analyst Robin Bhar said.

"We think that all the ingredients are in place with an economy that looks to be improving, albeit gradually. The Fed may be thinking, 'The longer we do QE, are we actually creating more risk rather than reward?'" he added.

Any easing of the bond-buying programme, which raises the prospect of eventual rate tightening, is seen as unfavourable for gold, because it raises the opportunity cost of holding a metal that earns no interest.

Markets have been volatile since Fed Chairman Ben Bernanke said last month the bank could scale back its stimulus measures, but bank officials have since given out conflicting signals.

Most economists expect the Fed to scale back the size of its bond purchases by year-end, and several expect reduced buying as early as September, a Reuters poll showed.

DEMAND EASING

Gold prices were supported by some buying in China, the second-biggest consumer of bullion after India. Shanghai gold futures were up 0.2 per cent on Monday.

However, demand in Asia has cooled from peak levels seen after the mid-April sell-off in gold. Bullion is down 17 per cent for the year after 12 years of annual gains.

Indian purchases of gold have fallen since an import duty hike earlier this month. The government is trying to narrow its current account deficit by reducing gold imports.

Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking Group, said volumes to India have fallen significantly in the past two weeks.

Hedge funds and money managers slashed their bullish bets in gold and silver futures and options in the week to June 11, a report by the Commodity Futures Trading Commission showed on Friday.

Gold output in Australia, the No. 2 producer behind China, fell 5 per cent in the first quarter on weather-related disruption to 63.5 tonnes, according to the latest Gold Quarterly Review by Surbiton Associates.

In other metals, silver fell 1.5 per cent, having failed to vault $22 an ounce, while platinum was down 0.3 per cent and palladium lost 1 per cent.

Syria is expected to top the agenda at the Group of Eight (G8) meeting of world leaders taking place Monday in Northern Ireland.

New York's main contract, West Texas Intermediate (WTI) light sweet crude for delivery in August, reached $98.67 a barrel, a level last seen in September 2012.

At the same time, Brent North Sea crude for August climbed to $106.67 a barrel, the highest point since April 4, 2013.

Brent later stood at $106.26 in London midday deals, up 33 cents compared with Friday's close. New York crude traded 62 cents higher at $98.47 a barrel.

"Syria is not a major oil producing country, yet the potential for spillages into neighbouring countries has spooked the markets somewhat," said analyst Joshua Mahony at traders Alpari.

Prices had also advanced on Friday after US officials said they had evidence of the use of chemical weapons by forces backing Syrian leader Bashar al-Assad and signalled that Washington could begin arming the opposition.

"The oil price is currently being driven primarily by geopolitical aspects," said Commerzbank analyst Carsten Fritsch.

"The decision of the US to supply arms to the rebels in Syria threatens finally to turn the civil war in Syria into a proxy war between the world powers, given that Russia is providing military support to the Assad regime.

"This is also bound to be on the agenda of the G8 summit that begins in Northern Ireland today," he added.

US President Barack Obama and world leaders arrived in the British province looking to put pressure on Russia to back away from its support of Assad.

British Prime Minister David Cameron said his priority for the meeting was to ensure a peace conference on the Syria conflict takes place later this year.

But amid rising tensions over Syria, talks between Obama and Russian President Vladimir Putin were set to be prickly, with both leaders offering military support to opposing sides in the war.

Market attention was also on the Federal Reserve and the US central bank's upcoming monetary policy meeting.

Its Federal Open Market Committee, which sets the benchmark US dollar interest rate, meets on Tuesday and Wednesday and investors are expecting greater clarity on whether it will hold down long-term rates with its $85 billion-a-month bond buying programme.

Uncertainty remains over its monetary stimulus programme -- known as quantitative easing (QE) and markets took a knock last month after the Fed signalled that it could taper its massive stimulus measures sooner rather than later, if economic conditions improved.

"The key element this week is the Fed monetary policy meeting on Wednesday that will clarify the current US economic prospects," said Sucden brokers analyst Myrto Sokou.

"Investors should remain cautious amid signs that the Fed could decrease its bond buying programme, while all eyes will be on any indications about a possible timeframe about a halt of its QE programme within 2013," she noted.

Traders said sentiment bolstered as copper gained in overseas markets after data showed a revival in US manufacturing, would boost demand for base metals.

Meanwhile, copper for delivery in three months gained 1.2 per cent to 7,176 dollar a metric tonne on the London Metal Exchange.

In the national capital, copper mixed scrap and nickel (4x4)rose by Rs 2 each to Rs 420 and Rs 1,045-1,048 per kg, respectively.

Zinc ingot, lead ingot and lead imported were also traded higher by similar margin to Rs 109-115, Rs 141 and Rs 139 per kg respectively.

In line with a general firm trend, aluminium ingot, aluminium sheet cutting, aluminium wire scrap and aluminium utensil scrap were up by Rs 2 each to Rs 144, Rs 145, Rs 148 and Rs 144 per kg, respectively.

The following are on Monday's metal rates per kg: Zinc ingot 109-115, nickel plate (4x4) 1,045-1,048 gun metal scrap 227, bell metal scrap 229, copper mixed scrap 420, chadri deshi 285.

Lead ingot 141, lead imported 139, aluminium ingots 144, sheet cutting 145, aluminium wire scrap 148 and aluminium utensils scrap 144.

At the Multi Commodity Exchange, silver for delivery in July fell by Rs 171, or 0.39 per cent to Rs 43,663 per kg in business turnover of 8703 lots.

Likewise, the white metal for delivery in September contract lost Rs 143, or 0.32 per cent to Rs 44,219 per kg in 341 lots.

Market analysts attributed the fall in silver futures to weak global trend.

Meanwhile, silver fell 0.5 per cent to $ 21.97 an ounce in London.

Marketmen said reduced offtake by consuming industries against adequate supplies in physical markets mainly weighted on future prices.

Slackness in demand from beer and cattle-feed making industries too helped in pulling down trading sentiments.

At the National Commodity and Derivatives Exchange, barley prices for current June contract dropped by Rs 21.50, or 1.55 per cent, to Rs 1,370 per quintal, with an open interest of 1,880 lots.

Most active July contract fell by Rs 20, or 1.42 per cent, to Rs 1,406 per quintal, in an open interest of 26,840 lots.

However, sluggish demand from bulk consumers, limited the gains.

At the National Commodity and Derivatives Exchange, sugar for delivery in June traded Rs 26, or 0.85 per cent, higher at Rs 3,095 per quintal with an open interest of 5,390 lots.

Likewise, the sweetener for delivery in July recovered by Rs 20, or 0.65 per cent, to Rs 3,120 per quintal in 23,780 lots.

Market analysts attributed the recovery in sugar prices at futures to fresh positions created by speuclators amid a likely fall in production next year and expectations of a rise in import duty but subdued demand from bulk consumers,limited the gains.