Silver Lining

Is the robust rise in global economy tapering off? Do the recent rise in bullion prices and the fall in steel and aluminium prices signal a ...

Is the robust rise in global economy tapering off? Do the recent rise in bullion prices and the fall in steel and aluminium prices signal a slowdown in infrastructure activities?

Steel prices which were zooming in the last one year have started falling in the futures and spot markets. The Mild Steel Ingot has fallen from Rs 19,131 in May to the present level of Rs 17,551 on the National Commodity and Derivative Exchange NCDEX.

On the contrary, the prices of Chandi 30 gm Silver have shot up from Rs 10,430 on May 17 to Rs 10,939 as on June 7 on the NCDEX. Traditionally, punters look at bullion as a safe bet when infrastructure activities slow down and stock markets fall globally.

Tracking the trend, Pure Gold futures contracts are also moving up steadily. On June 4, the contracts for June 20 was trading at Rs 6097, July contract was Rs 6,127 and August Rs 6,154. The same contracts on June 7 had shot up to Rs 6,108, Rs 6,146 and Rs 6,170, respectively.

Metal companies like SAIL and Hindalco have also reduced their selling prices in the open market. There are indications that it may go down further as demand is expected to decline during the monsoon period. The rise in prices is not restricted to steel alone. Even copper, nickel and zinc have also fallen.

However, analysts caution that it is too early to set off the alarm bell. 8216;8216;There is no doubt that industrial activities are slowing down. One of the reasons could be attributed to falling demand of raw materials from China. But I don8217;t see any immediate worries, because the current price movements could also be due to speculative positions taken by the punters,8217;8217; says Sushil Sinha of Geojit Securities.

China, which acts as a catalyst for global growth due to the huge demand for raw materials it generates, has seen a significant slowdown in activities. 8216;8216;China8217;s GDP growth is expected to slow down to 6 per cent in 2006, though 2005 may see it growing by 8-9 per cent. The country8217;s corporate profitability is also under pressure.

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The Chinese authorities are not talking about revaluing the yuan in the near future,8217;8217; says a study by foreign broking firm.

Adding a word of caution, Sinha says, 8216;8216;Indian futures market is still in a nascent stage. The volume of future steel contracts is very low when compared to that of gold. So drawing a parallel may give an indication but it cannot be definitive. However, the present trend in the Indian futures market is very similar to that of abroad.8217;8217;

Though it is surprising to see such steep price rise in bullion futures during the off season, the trend could be a good indication of things to come.

Bullion prices are also driven by dollar and euro movements abroad. But taking into account that all the industrial metals like copper, nickel and zinc have fallen by 7 to 16 per cent from their early March highs, there is absolutely a sense of slowdown in industrial activities,8217;8217; said an analyst.

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Apart from the China factor, constitutional problems in Europe are also playing in the minds of traders. The European Union8217;s bid to formalise a political union among the 25-member bloc and the 12 nations that share the euro currency has been stymied by France and The Netherlands. Traders fear that it could impact the value of euro against dollar and other currencies.