Commodity traders still wary of futures

MUMBAI: The long-awaited Abhijit Sen Committee report is out but market participants still seem to be apprehensive of trading in commodity futures. Experts feel volumes at the exchanges can only pick up once the contents of the report are discussed thoroughly at political level and a clear view emerges.

Although the report mentioning that the rise in wholesale and retail prices of farm commodities cannot be attributed to futures trading, the supplementary note by Mr Sen said the ban on trading in four sensitive commodities — urad, tur, wheat and rice — should continue. He has also called for a discussion regarding futures trading in edible oil and sugar.

“There is a dilemma in the mind of traders whether they should enter the market. The report, per se, has nothing negative about commodity futures trading apart from the personal note by the chairman of the committee that has left traders indecisive,” Angel Commodities head Naveen Mathur said. He feels market sentiment might improve once a clear view emerges.

Agri-commodity volumes have declined on the exchanges. However, edible oil complex rang in good volumes, especially in the January-March period this year following the strong upside in international markets. During the same period there was also a bull run in the metals counter and crude oil that increased the overall volumes on the domestic exchanges compared to the corresponding period last year.

High volumes in soya oil, soybean and rape-mustard seed may not have gone unnoticed by the committee as Mr Sen made special mention of it in the report. He called for more discussion on the hedging benefits that processors derive from futures markets, and accordingly take a decision regarding edible oils and sugar.

Earlier, high inflation figures and government measures thereafter to control prices had also triggered negative sentiments and affected trading on the futures counter. Government slashed import duties of various edible oils, imposed stock limits on food grains and pulses and banned export of non-basmati rice.

Religare Commodities head Jayant Manglik feels volumes would pick up once the discussion on the Abhijit Sen Committee report are completed. “Agri-commodities volumes have especially been affected and they will reach higher levels once the debate on the report gets over,” he added.

Even Shyamal Gupta from Kotak Commodity Services agrees all is dependent on how the contents of the report are interpreted. “If there is clarity of communication in policy making and the way futures market needs to be taken forward there would not be confusion in the minds of market participants,” Mr Gupta said.

Flour Millers See No Benefit From Futures Trade

Bangalore: Roller flour millers, the major consumers of wheat in the country, are not worried about the freezing of futures trade in food grains, particularly wheat.

“Futures trade is to hedge risk for producers and buyers. We have over 1,100 flour mills in the country and 2,000 chakkis (grinding mills) who deal in wheat. But we are dependent on our buyers. When they are hedging their positions, we do not feel compelled to take part in futures trade,” said Vinod Kapoor, Chairman of the organising committee of the fourth international seminar on wheat.

“The major deciding factor in wheat price is demand-supply. We don’t see futures market following fundamentals. There is a consensus among roller flour mills that we will not take part in futures trading,” said M.K. Dattaraj, President, Roller Flour Mills Federation of India.

Reasons

One of the reasons why the millers are not interested in futures is that apart from the procurement period, the wheat market is “fairly unregulated”. “All regulations of wheat trade are present only during the procurement between April and June. After that, the farmers are free do anything with their stocks and even sell without paying tax,” Kapoor said. “Such circumstances do not hold prospects for us in futures trading,” he said.

Dattaraj said 2007-08 did not witness any unprecedented rise in wheat prices, despite the absence of a forward market.

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“We have put forth our views to the Abhijit Sen panel which is examining futures trading in foodgrains,” Kapoor said. “On the other hand, a section of growers want futures trade. We have nothing to say on that and it is entirely up to them,” he said.

The Centre, worried over rising prices of wheat and pulses, froze futures trading in wheat, rice, urad and tur in March last year. The Finance Minister, P. Chidambaram, in his budget speech, said a panel headed by Dr Abhijit Sen would go into futures trading in essential commodities. Initially, the panel was given two months time but till now, it is yet to finalise or submits its report.

Bourses such as the NCDEX and the MCX are keen on revival of futures trading in grains and pulses as the freeze has affected their turnover.

Traders Expect Gold Prices To Continue Rising

Hyderabad: Gold continues to hit new highs. On Tuesday, the price of standard gold was Rs 11,895 per 10 gram in the Mumbai bullion market, adversely impacting sales in the commodity in the local market.

Traders expect that it will further increase and rule in the range of Rs 12,000-12,500 by March. The price of gold was at Rs 8,850 in January 2007.

“The slowdown in the US economy, increase in crude prices, and stagnant mining have resulted in the sudden spurt in gold prices,” M.L. Gupta, Vice-President of Twin Cities Jewellers Association, told Business Line.

Safe option

“The fluctuations in the global economy have led investors to look at precious metals as a safe investment option. This has led to the growth. We expect this will further grow in the next few weeks and reach Rs 12,500 in March,” Gupta, who promotes Mussadilal Jewellers Exporters, said.

“Recession and sub-prime crisis in the US made the investors and equity funds opt for heavy buying into gold. The European Banks, which used to sell gold, also reduced the volumes,” Mahabaleshwar, President of Andhra Pradesh Bullion Importers’ Association, said.

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Stoppage of a mine in South Africa due to power shortage contributed to the problem as well.

Impact

Consumers have put off their plans to buy gold and jewellery, unless it is necessary. “They are buying only when there is a wedding round the corner. They are waiting for the price to come down,” he said.

With the wedding season approaching, traders are expecting an increase in sales in the next few weeks.