Crude oil, copper post sharp fall on MCX due to global uncertainty

Among other commodities, crude oil for April delivery continued to decline, shedding a staggering 8.77 per cent to trade at Rs 1,768 a barrel on Monday
Copper declined by 4.6 per cent on the Multi Commodity Exchange (MCX) due to forecasts of a slowdown in demand and uncertainty in the global economy brought on by the spread of coronavirus (Covid-19).

The most active near-month copper contract on the MCX declined the most to trade at Rs 355 a kg towards the end of the day on Monday, following a similar decline on the benchmark London Metal Exchange (LME) and Shanghai exchange. Copper futures for delivery in the near month hit the lowest in 11 years on weak demand forecast due to shutdowns and trade curbs among countries with increasing number of Covid-19 patients.

Among other commodities, crude oil for April delivery continued to decline, shedding a staggering 8.77 per cent to trade at Rs 1,768 a barrel on Monday. Base metals such as lead, nickel and zinc also extended the fall, losing around 3.5 per cent each on expectations of uncertain demand going forward, once the effect of Covid-19 on the global economy starts diminishing.

"Covid-19 pandemic has pushed global economies into uncertainty. Several big economies have announced stimulus measures, which indicates that demand-side fundamentals are expected to remain weak. On the supply side, however, the lock down and trade restrictions have already impacted. Following weak demand and uncertainty, base metals and energy are falling globally," said Ajay Kedia, Director, Kedia Advisory.

The price war in crude oil also led to increased supply of the commodity.

In the bullion market, gold prices were down marginally in both, spot and futures despite strong fundamentals. Standard gold in Zaveri Bazaar lost 1.5 per cent to close on Monday at Rs 40,556 per 10 grams, while the dip in futures wasn't so accentuated. Spot silver shed 1 per cent to Rs 36,850 a kg on Monday. However, prices recovered amid volatile trade after the US announced plans to pump in additional liquidity.

The most active copper contract on Shanghai Futures Exchange (ShFE) tumbled by 8 per cent to trade at 35,300 yuan a tonne, its lowest since June 23, 2009. But it recovered later to trade at 37,080 yuan on fresh booking while three-month copper on the LME lost 5.2 per cent to $4,562 a tonne in early trade.

"More countries are locking down cities and suspending their trade with other countries by imposing tighter restrictions on transportation to curb the transmission of Covid-19 which has killed thousands of people and infected lacks of others. With the industrial activity slowing rapidly, the demand of metals is likely to remain subdued and inventories building up which can create further downward pressure on base metals," said an analyst.

All base metals, energy and bullion prices have declined between 10-50 per cent over the last three months since Covid-19 first reported in Wuhan city of China.

Interestingly, diamond has emerged as a profitable investment avenue which has yielded positive returns in the last three month in futures.

"Diamond futures are relatively insulated from volatility in physical market, indicating the contract is more aligned with dollar-rupee movement. The contract has been following USD-INR trend in the last few months. It will give some comfort to investors who wish to buy the US dollars in times of volatility," said Kunal Shah, Head of Commodity Research, Nirmal Bang.

Diamond futures increased from Rs 3350 a cent per carat in December end to Rs 3765 a cent now following weak rupee

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