Past week highlighted looming crisis, uncertain recovery for commodities

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The World Economic Outlook (WEO) has forecast global growth at –4.9 per cent in 2020, 1.9 percentage points below the April 2020. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.

According to the International Monetary Fund, global growth next year is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020.

Meanwhile, the India-China skirmish at the border has created its own set of customs problems. In Chennai, customs started withholding clearance of goods from China, even in the green channel. The alleged heightened scrutiny of consignments from China by the Indian customs is being viewed by Indian exporters with some trepidation, as they feel any likely retaliatory action by the belligerent neighbour is something that they can ill-afford at this juncture. Indian exporters fear that similar actions will be taken by customs authorities in Hong Kong and China.

Agriculture

The Indian government is definitely focused on the positive growth in the agricultural sector to revive the Covid-19-battered economy. The agricultural sector accounts for almost 16.5 per cent of our GDP. Despite the lockdown blues, with depleting labour, transport bottlenecks, farmers have quietly harvested wheat, the main rabi crop, in north and central India, and even managed to notch up early kharif planting, topping last year’s figures.

The year 2019-2020 saw India’s agricultural sector grow by 11.3 per cent. According to the government think-tank NITI Aayog, this is the first time since 1980-1981 when the farm sector growth has exceeded that of non-farm by such a wide margin. The government has also introduced appropriate new laws or amended old ones to firmly integrate farm markets across the country.

The country is also stepping up to increase exports of agricultural produce including aquaculture to a level where we compete with global players like the United States, the Netherlands and China. With amendments to the Essential Commodities Act, farmers and supply chains are reorganising themselves to address a global market.

While reforms in Agriculture and Produce Market Committee and contract farming may address long-standing concerns about farmers getting fair prices, a systematic initiative to address the logistics issues will make our agricultural exports hassle-free and more competitive.

Metals

India’s Commerce and Industry Minister Piyush Goyal has said he will be talking to the US in the next few days to “quickly wrap” up initial aspects of the proposed trade deal, which is under negotiations with the US. India and the US are negotiating a trade deal to iron out differences and promote two-way commerce.

India is demanding exemption from high duties imposed by the US on certain steel and aluminium products, resumption of export benefits to certain domestic products under their Generalised System of Preferences (GSP), and greater market access for its products from sectors like agriculture, automobile, auto components and engineering.

On the other hand, the US wants greater market access for its farm and manufacturing products, dairy items and medical devices, data localisation, and cut on import duties on some information and communication technology (ICT) products.

Gold

Gold prices touched a new record high in India last week reaching a level of Rs 48,333 per 10 grams on the back of rising coronavirus cases which boosted the demand for the safe-haven. It closed at Rs 47,250 per 10 grams for 22 carat gold while 24 carat gold ended the day at last week Rs 48,250 per 10 grams. Since March this year when it was around Rs 38,500 per 10 grams, Gold prices have rallied over 25 per cent to scale a new high. Prices of the precious metal also got support as the dollar weakened and concerns about the US-China trade deal resurfaced.

Analysts believe that rising COVID-19 cases, geopolitical instability, a weak US dollar and expectations of fresh economic stimulus are providing support to the gold prices.

In the international market, gold prices touched the 8 years high of $1773 per ounce. Safe-haven demand, investment demand due to coronavirus pandemic and weakness in major economies boosted the gold prices.

Energy

The world’s biggest lockdown may have eased in India, but the country’s oil refineries are finding it tough going to pull off a complete recovery as fuel demand remains below pre-virus levels and stockpiles swell.

Operations across 23 refineries nationwide were at 77% of capacity in May, according to oil ministry data. While that was an improvement from a low of 72% in April, when stay-at-home orders decimated fuel demand and filled storage tanks to the brim, it was still well down on the 102% recorded a year earlier. The amount of crude processed, also known as refinery throughput, was almost 25% lower year-on-year last month.

Globally, oil consumption across leading economies has struggled to fully rebound or expand from year-ago levels due to more permanent lifestyle changes as a result of Covid-19.

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