Weekly wrap – Signs of stronger-than-expected economic recovery

Global economists updated China’s economic outlook this week given the new COVID-19 situation and effects of policy support, and expect a sustainable and more balanced recovery this year.

China’s economy is projected to grow by 8.1 percent this year, built on its effective pandemic containment measures and policy support, according to the latest International Monetary Fund’s World Economic Outlook update

The IMF revised its projection of world economic growth to 5.5 percent this year, compared to 5.2 percent in its October forecast, thanks to stronger-than-expected recovery in the past six months, the policy support since the end of last year, and vaccination efforts. But the IMF indicated that global growth is likely to moderate to 4.2 percent next year.

Agriculture

The government’s paddy procurement has increased by 19 per cent so far this kharif marketing season to 597 lakh tonnes, costing more than Rs 1.12 lakh crore to the exchequer, amid farmers’ protest at various Delhi borders against three new farm laws.

About 87 lakh farmers have already benefited from the ongoing kharif marketing season procurement.  The farmers, however, do not appear to let go of their demand to repeal the farm bills. The protest in and around Delhi continues unabated, despite the hiccups during the Republic Day.

Meanwhile, container shortage in India is adversely impacting sugar exports this season. The government has fixed a target of exporting 60 lakh tonne of sugar to improve the liquidity of sugar mills.

Sugar mills across the country have together produced 176.83 lakh tonnes of sugar in the first four months of the current sugar season, which started on October 1, an increase of around 25%, backed by an increased yield in Maharashtra. Exports of onions also have yet to pick up pace despite lifting of September ban on onion exports on 1 January this year.

Metals

India’s manufacturing sector activity strengthened in January as companies scaled up production at the quickest pace in three months in response to faster expansions in total sales and new export orders. 

The increased capital expenditure for infrastructure projects in Union Budget 2021-22 is expected to push demand for steel in the country. To augment the country’s infrastructure, the Budget proposed significant enhancement in capital expenditure to Rs 5.54 lakh crore for the next fiscal, besides creating institutional structures and giving a big thrust to monetising assets to achieve the goals of the National Infrastructure Pipeline.

For the steel industry, Sitharaman had announced reducing the duty to 7.5 per cent on products like primary/semi-finished products of non-alloy steel, long products of non-alloy, stainless and alloy steel.

The 2.5 per cent duty on iron and steel melting scrap, including stainless steel scrap, and raw materials used in the manufacture of CRGO (Cold Rolled Grain Oriented) steel has also been lowered to nil in the Budget.

Gold                       

With all the excitement in silver past few weeks, the status of the gold market may have been overlooked, though it could be argued that the yellow metal faces a more interesting 2021. Spot gold’s recent performance has swung between a stellar 2020 to disappointment that it hasn’t maintained its rally and the price has stagnated in recent months.

Spot gold rallied 25% in 2020, having ended the year at $1,896.49 an ounce, up from the $1,507.01 at the end of 2019. The price reached a record high of $2,072.49 an ounce on Aug. 7, but has since dropped 11.5% to end at $1,833.55 this week.

In India too, gold price  slipped to Rs 47,600 per 10 grams from Rs 49,000 per 10 gms, while silver price fell by Rs 1,000 to trend at Rs 68,000 per kg during the week.

However, China’s fourth-quarter jewellery demand was 145.1 tonnes, up 22.4% from the prior quarter. India’s jewellery demand was 137.3 tonnes in the fourth quarter, 125.8% up from the prior quarter.

If physical demand returns as the global economy improves, and ETF flows and central bank buying remain more or less constant, it’s possible gold will resume a bullish trend in 2021.

Energy

Brent Crude closed the week at $60 per barrel for the first time since January 2020, fuelled by declining inventories in the U.S. and China and production constraints, offering more evidence of a tightening market.

Saudi Arabia kept oil shipments to Asia unchanged even as the market has tightened, sending oil prices higher this week. Many analysts feel the division among OPEC+ members might increase as prices continue to rise. Shell, however,  sees oil demand back to “normal” only in 2022.

In India, petrol and diesel prices are touching sky high each week. Fuel retailers claim that tax-cuts by the government is the only way to ease consumer burden. The increase took petrol prices to a fresh high of Rs 86.65 a litre in Delhi and to Rs 93.20 in Mumbai. Diesel rates touched Rs 76.83 in Mumbai and an all-time high of Rs 83.67 a litre.

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