(Clyde Russell is a Reuters market analyst. The views expressed are his own.)
(Reuters) – The turmoil in some Asian currencies created by the likely tapering of monetary stimulus in the United States is likely to spill over into commodity markets. While it’s obvious that as a currency depreciates, the local cost of commodities, which are normally priced in U.S. dollars, increases.
But what is less obvious is what the impact will be on the supply-demand balance for various commodities. Take crude oil and coal for instance. Both are major sources of energy, priced in U.S. dollars and easily traded.
But for many Asian countries, the price of oil has risen dramatically this year, while that for coal has remained steady, or even declined. The focus has been on India in recent weeks, given the South Asian nation’s efforts to stem the slide of the rupee, which has lost some 23 percent of its value against the U.S. dollar this year.
Brent crude is now at record highs in rupee terms, and is 26 percent above the level that prevailed at the start of the year. Given that crude is India’s biggest import in value terms, it’s clear that the government will want to spend less on oil in order to lower the current account deficit.
While stabilising the currency will certainly help, it’s also likely that the government will be forced to raise retail prices in order to crimp demand.
This will likely have unpleasant economic and political ramifications, but they key point is that from an oil demand perspective, India’s growth may disappoint this year.
However, India is also a major coal importer, and here the story isn’t nearly as bad.
The spot price of coal at Australia’s Newcastle port , an Asian benchmark, has dropped almost 15 percent since the start of the year to $78.61 a tonne in the week to Aug. 30.
This depreciation in U.S. dollar terms has limited the increase in rupee terms to just 2.2 percent for the year, although rupee prices are currently 12.8 percent above the low for the year, reached in late July.
But compared to oil, coal consumers in India are relatively better off, and may be able to continue to import the fuel.
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