Kishore Narne, Senior Vice-President (Commodities and Currencies), Anand Rathi, spoke to Puneet Wadhwa on the outlook for a whole host of commodities.


Prices of gold and silver touched their respective all-time highs in 2011. Do you expect them to surpass those levels in 2012? Why / why not?
 
We do not see both gold and silver climbing to new highs in dollar terms during 2012. In fact, we expect the correction to extend by another 15% from current levels.
 
In domestic markets, gold prices could see a fall towards Rs 24,000 – 25,000 in the first half triggered by the weakness in international gold prices, and then in the second half they would be hampered by the recovery in rupee. Hence, even in domestic markets, it would be very difficult to test the previous highs. In silver we do see the domestic prices correcting further towards Rs 48,000/Kg
 
Which, according to you, is a better investment option between these two precious metals?
 
If we have to choose one among gold and silver, I would still prefer gold as a safe investment, though I am not expecting any huge returns out of gold in 2012. However, the losses in gold compared to silver would be limited.
 
What is your outlook for copper?
 
It is almost a global consensus that the economic growth would be tepid in 2012 as the European nations could slip in to a recession and China would be seeing a slowdown. Copper would witness a depleted demand.
 
Also as the mine capacity is expected to grow in 2012, the supply side pressures also ease, which could result in prices slipping further. We are right now pegging our forecast to $5,600 levels in the first half of 2012. They could probably pick up in the second half of 2012 and reach back to $7,000 -7,500 levels.
 
How do you see the prices of zinc, aluminium and steel panning out in the near-to-medium term?
 
Almost all the industrial metals would be impacted by the slowdown in China and the European world, with emerging countries like India are struggling with their falling export demand the metal prices would be under pressure.
 
Zinc prices could see a fall of over 25% in the next two quarters and aluminium could see a fall of another 14-15% during the same time, which would take it to $1680 levels.
 
What is the near-term outlook for crude oil prices (Brent) given the developments in Iran?
 
Oil looks pretty strong despite weak macroeconomic conditions, as the prevailing tensions in West Asia and an oil embargo in Iran would have a significant impact on oil prices.
 
If there is any action on Iran oil exports, then the retaliation of Iran by closing the “strait of hormuz" could cause oil price to spike and they could test the 2007 highs. As of now, without much of action and only the psychological fear premium building up, the oil prices (Brent) could reach well above $120 levels.
 
What about sugar and cotton?
 
Sugar prices globally are expected to correct further to USc17-18/Lb for whites. There has been a significant increase in cotton acreage under cotton in India for the cotton season 2011-12. As per ICAC release dated o1 December 2011, world cotton acreage during 2011-12 is estimated to increase by around 7% to 36.01 million hectares as against 33.55 million hectares during 2010-11. Yields also improved across the globe, which would keep the prices under pressure. We may see further decline of over 20% in global cotton prices.
 
Do you expect the Rupee to continue its slide against the dollar in 2012? Why / why not? What are the key levels that you are watching out for?
 
We do expect the Rupee to further depreciate as the Dollar liquidity across the globe continues to be tight. With European banks set to raise the capital requirements to 9% by the month of July, the debt flows in to emerging markets also would be tepid despite a large yield differential.
 
The FCCB payment calendar and the stronger oil prices globally due to Iran would keep up the dollar demand. Also, the weakness in Euro versus Dollar would also impact the Rupee, which can slip to 56.5 – 57.00 before it starts appreciating.