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Jewellers stare at subdued Diwali sales as gold prices turn prohibitive

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gold


Jewellers are staring at subdued Diwali sales this season, with customers unlikely to spend on gold ornaments due to prohibitive prices of the metal. Early signs of tepid festival sales were evident in the poor offtake on Dussehra.


In private discussions yesterday, some jewellers admitted to drop in sales of about 50-80 per cent from last year’s Dussehra. This demand depression in world’s second largest consuming country also points to dismal Diwali sales, as prices are showing no signs of retreating.



The price of gold in Mumbai’s wholesale market at Zaveri Bazar today was Rs 38,200 per 10 grams for standard gold, plus three per cent GST, taking the price to nearly Rs 40,000. This is 20 per cent higher than the price of standard gold last Diwali.


Surendra Mehta, national secretary of Indian Bullion and Jewellers Association (IGJA) said, “All indicators suggest that jewellery sales this Diwali could be lower by as much as 50 per cent than last year.”


Gold imports in September also suggest a dismal scenario. About 26 tonnes of the metal were estimated to have been brought into the country last month, which is the lowest monthly import the past three years and about 80 per cent lower than September 2018. The import scenario in October so far is more or less the same. Last week, there was a sharp, albeit brief fall in prices for a day or two, raising hopes of a recovery in gold demand. However, the subsequent pick up in prices belied those hopes.


Said Aditya Pethe, Director, Waman Hari Pethe Jewellers: “Dussehra sales were also 20 per cent lower than last year and, at the current prices, demand is likely to be 20 per cent lower during Diwali as well.”


Gold prices also increased the past few days due to the sharp fall in discounts. In the formal wholesale market, the metal was earlier selling at $55-57 per ounce, or a Rs 1,100-1,200 discount per 10 grams on the landed cost of officially imported gold. The discount narrowed down to Rs 400 per 10 grams or $20 an ounce, taking the wholesale price of the metal up substantially.


The reduction in discount by a third is credited to tight supply, following withdrawal of duty-free gold import benefit for machine-made jewellery and coin exports under the advance authorisation scheme. Following this move, during the past few days, the discount prevailing in market on the cost of imported started falling as supplies dwindled. However, the fall in discount does not indicate a revival in demand, says an analyst tracking gold import trends.


IBJA today declared that retailers’ indicative price for 22 carat or 916 purity gold, which consumers buy for jewellery, stood at Rs 37,200 per 10 grams, compared with Rs 35,208 in the wholesale market. Consumers would also have to shell out three per cent on the purchase price towards GST.

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India asks OPEC not to cut oil production; seeks better commercial terms

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India asks OPEC not to cut oil production; seeks better commercial terms


Battling a slowing economy, India on Tuesday implored oil cartel OPEC to not undertake deeper crude oil production cuts as it renewed its pitch for reasonable pricing of oil and stability in supplies.


In a meeting with OPEC Secretary-General Mohammad Sanusi Barkindo, Oil Minister Dharmendra Pradhan also pitched for better commercial terms for crude oil imports including reduction in official selling price, extension of credit period from existing 30 days to 90 days from bill of lading, freight discount and open credit based on creditworthiness of Indian state-run refineries.


“We discussed the present oil availability scenario,” he told reporters here. “Organization of the Petroleum Exporting Countries (OPEC) is now taking cognizance of consumer interest in deciding on its policies.”

The oil cartel, he said, will meet in December and hoped it would not announce new cuts in production.


“We hope that in the current geopolitical situation, OPEC does not exercise greater production cuts. We sincerely believe that crude prices should be left to market forces of demand and supply. We have been consistently advocating maintaining an optimal balance between the producers and consumers for responsible pricing, which balances the interests of both the producer and consumer,” he said.


Pradhan said the voice of India, the world’s third-largest energy consumer behind the US and China, is now being heard and OPEC Secretary-General has been taking its views to the meetings of the producers.


OPEC nations led by Iraq and Saudi Arabia supply more than 80 per cent of India’s oil needs and any cut in output is likely to push up prices – something that a slowing economy cannot afford.


He said OPEC members such as Abu Dhabi have been very supportive of making up any production shortfall in the aftermath of attacks on Saudi oil facilities.


Indian companies have started exploring alternate sources for crude oil, to ensure that import basket is widely spread out, to counter any eventuality of a sudden supply shortage.


The minister said he is encouraging Indian firms to look for investment opportunities in producing assets. “Our companies are engaged with OPEC member countries for further investment opportunities.”






India, he said, attaches a lot of importance to the IndiaOPEC Institutional Dialogue and New Delhi looks forward for the fourth round at mutually convenient dates.


Earlier speaking at the India Energy Forum of CERAWeek, Barkindo said India’s enthusiasm for producer and consumer dialogue has contributed enormously to OPEC’s success in restoring sustainable stability to the world oil market.


India, he said, is one of the major drivers of global economic and oil demand growth. “Our latest figures for India show that oil demand increased in August by 0.12 million barrels per day (mb/d) for the second month running with a total consumption of 4.61 mb/d. The country’s oil demand growth in 2019 is estimated at 0.14 mb/d year-on-year, accounting for 15 per cent of global oil demand growth.”

While world oil demand is expected to rise by 14.5 mb/d, increasing from 97.2 mb/d in 2017 to nearly 112 mb/d in 2040, India will account for oil demand growth of 5.8 mb/d, which represents an astonishing 40 per cent of the overall increase. “India is projected to see the largest additional oil demand and the fastest growth (3.7 per cent per annum) in the period to 2040,” he said.


He said OPEC demonstrated repeatedly its commitment to sustainable stability, even during unprecedented events like the attacks on Saudi Arabia’s oil facilities one month ago.


“In the immediate aftermath of these shocking attacks, Saudi Arabia moved swiftly to ensure a stable supply to the global market as it worked to restore its production capacity. Its exemplary handling of the situation very quickly stabilized markets and allayed concerns about supply disruptions,” he said. “Additionally, the oil industry is in a much stronger position today to deliver a sustainable energy supply than it was just three years ago.”

He said OPEC has been since 2016 adjusting productions by the ‘Declaration of Cooperation’ which provides for a durable foundation for the opportunity to facilitate dialogue with consumers; promote a better understanding of market fundamentals; support energy sustainability, and promote technological advancement.


“OPEC does not believe in one-way streets. Throughout the ‘Declaration’ process we’ve been diligent in listening to the views of India and other oil-consuming nations. The ‘Charter’ provides a further means to engage in a constructive and consultative process,” he said.

 

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Q2 preview: Refining margins may pump up Reliance Industries earnings

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(From right) Mukesh Ambani, CMD of RIL, with wife Nita Ambani and mother Kokilaben Ambani 	photo: bloomberg


With an improvement in refining margins, Reliance Industries (RIL) is expected to report a strong quarter for the July-September period. Analysts expect refining to offset weakness in petrochemicals (petchem) and a lower tax rate benefit for the retail and telecom businesses.


RIL will report its financial performance for the September 2019 quarter on Friday.



In a Bloomberg poll, 10 analysts estimated RIL’s consolidated net profit at Rs 11,256 crore and nine analysts estimated revenue at Rs 1.5 trillion. Brokerages like Centrum see the highest-ever consolidated earnings prospect for the company. In the September 2018 quarter, RIL reported a consolidated net profit of Rs 9,516 crore.


RIL’s refining business is expected to make a comeback in the September quarter, owing to higher margins. Analysts have pegged estimated gross refining margins (GRMs) in the range of $9.5 per barrel and $10.5 per barrel. This would be a turnaround from the $8.1 per barrel GRM reported in the June quarter, which was the lowest since October-December 2014.


“We expect September quarter GRMs at $9.5 per barrel, up from $8.1 per barrel during the June quarter, on the back of higher key product margins of diesel, gasoline, and jet fuel. The attack on Saudi Aramco oil processing facilities pushed gasoline margins to its highest level since 2018,” said analysts with BNP Paribas in their note. Analysts expect refining strength to offset petchem weakness.


Q2 preview: Refining margins may pump up Reliance Industries earnings


While the petchem segment is expected to be weak, other businesses like retail and telecom are expected to show steady results. “ While the petchem environment has weakened, we believe RIL’s ability to switch feedstock to gas for as much as 60-70 per cent of its requirement should limit the petchem margin decline quarter-on-quarter (QoQ),” said analysts with JPMorgan. They added, “Retail should be another strong quarter, though year-on-year (YoY) growth rates should come off essentially on a higher base. We forecast Reliance Jio’s earnings before interest, tax, depreciation and amortisation at Rs 5,010 crore, up 7 per cent QoQ, driven by continued strong subscriber growth.”


The telecom and retail business is also expected to benefit from lower tax rates, according to analysts with Nomura. At the consolidated level, in the Bloomberg poll, only one brokerage shared a pre-tax profit estimate for RIL, which was at Rs 15,560 crore for the September 2019 quarter. In a Kotak brokerage report, analysts pegged estimated profit before tax at Rs 14,918 crore for the September quarter, compared to Rs 13,197 crore in the same quarter a year ago.


Analysts with Bank of Baroda expect RIL’s retail earnings growth to witness slowdown, in line with macro trends across India. The brokerage estimated earnings before interest and tax at Rs 1,500 crore, a rise of 18 per cent YoY, but down 17 per cent sequentially.


In the post-results management guidance, analysts will look for further update on the company’s deleveraging plans. At RIL’s annual general meeting (AGM) in August, Group Chairman Mukesh Ambani announced plans to become zero net-debt company in 18 months. At the same AGM, Ambani also announced a proposed investment by Saudi Aramco in RIL’s oil-to-chemicals division.


Analysts on Friday will look for more details on this proposed deal and a commentary on expectations with regard to the Indian Maritime Organization (IMO) regulations.


The new IMO regulations require ships to use cleaner fuel starting January 2020, which are expected to improve the refining prospects for RIL.

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NCDEX’s turnover halved in two weeks over castor seed futures default

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Agriculture, farm


The turnover of National Commodity & Derivatives Exchange (NCDEX), India’s largest futures trading platform for agricultural commodities, has declined by 54 per cent the past two weeks due to little interest on the part of traders in these commodities, after dozens of clients defaulted in castor seed contracts.


Total turnover on the exchange fell below the Rs 1,000-crore mark on Tuesday from Rs 2,179 crore recorded on September 30. The share of castor seeds, which was about a fourth of the total in September, at Rs 538 crore, came down to 8.9 per cent yesterday, at about Rs 75 crore.



“The decline in turnover is due to the elimination of defaulting clients. Brokers are strengthening their risk management systems to avoid such defaults. Once risk management is in place, new clients and members will join the trade,” said Vijay Kumar, Managing Director and Chief Executive Officer, NCDEX.


While the turnover on any exchange varies depending upon the volatility in commodity prices and traders’ interest in a specific product or sector as a whole. But, traders attribute the current decline to the impact of brokers’ disinterest in farm commodities after they incurred huge losses in castor seed in the recent past.


“Dozens of commodity traders (clients) defaulted, following huge losses in castor seed contracts, which turned very volatile in September, creating panic in futures trading in farm commodities. The continuous change in regulations and levy of margins following their subsequent withdrawal left many brokers high and dry. Around a dozen brokers have either decided to stop trading in agricultural commodities or are re-assessing the risk in this business,” said an industry expert.


An official from Motilal Oswal Financial Services Ltd confirmed that his firm is re-assessing the business and has taken precautionary measures and stopped fresh position in agri futures.


A senior official at another large broking firm from Mumbai also confirmed it wan’t accepting new orders from clients in the farm commodity space.


Some brokers claim to have lost all their working capital and taken a hit in multiples of the base minimum capital in castor seed trade.


An NCDEX spokesperson said, “Recently, the Exchange has issued two circulars with regard to castor seed futures, wherein it has revised the concentration margin and given the details of applicability of ASM margin. The Exchange has started further strengthening risk management framework to avoid any such cases in future. The Exchange is interacting and consulting with the various stakeholders to understand their views and feedback on various steps initiated by the Exchange.”


The Exchange will further strengthen ecosystem based on suggestions received from the market participants.”


A fortnight ago, the NCDEX had increased margins to discourage the sale of castor seed, which hit the lower circuit six days in a row. The absence of buyers on the exchange platform raised apprehensions of cartelisation by bears in castor seed. The exchange has put the clients’ inventory on sale.


Meanwhile, about half a dozen brokers and some of their clients met Sebi officials recently to discuss ways to restore traders’ confidence in farm commodities.


A broker who was a member of the delegation, said on condition of anonymity, “Sebi officials did not favour the idea of a ban on castor seed contract, saying the suspension would send a wrong signal to the farm commodity futures market. The regulator is considering allowing mutual funds in agri commodities to deepen the market further.”


“Also, exchanges are in the process of starting indices trading by the end of current year. The suspension of contract will have a negative bearing on agri futures,” the Sebi official argued.

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