Futures Trade in Select Farm Items under Govt Lens Over 100% price rise in 3 months jolts commodity market regulator into action

SPECULATION, HOARDING DRIVING UP PRICES

Futures trading in seven food commodities, whose prices have more than doubled in the past three months, is under the government's scanner and action will be taken if there is evidence of speculation, said a top official of the commodity futures regulator, Forward Markets Commission (FMC). 

"The commission will closely monitor a few agri-commodities to check if there is any cartelisation or illegal trading by speculators, and will act upon it," said FMC Chairman Ramesh Abhishek. 

The FMC plans to monitor trading patterns, volatility and individual trader positions in black pepper, mustard oil, chana, potatoes, soyabean, cardamom and mentha oil, said another FMC official who did not wish to be named. 

Between January and March 2012, mustard seed prices have risen by 101%, chana 108%, potato 170%, mentha oil 172%, soyabean 118%, cardamom 185% and black pepper 122% on the exchanges. Mustard seed, chana, potato and soyabean are important contributors to the monthly food inflation index and impact consumer budgets. "Our effort is to nail people who are holding stocks and pushing prices unreasonably, thereby disturbing the trading pattern," said Abhishek. Ban on Mustard, Chana Trade 

FMC last week banned traders from taking fresh positions in the futures contracts of guar seed and guar gum on the NCDEX platform after speculative activities resulted in prices shooting up 500% and 1,000%, respectively, in the past year. Soon after the ban on futures trade in guar, the spot price at Jodhpur market in Rajasthan, one of the biggest producers, plunged . 1,500 to . 25,500 per quintal, traders said. 

News agency PTI reported the consumer affairs ministry has received proposals to ban futures trade in mustard seed and chana, and is examining them. But a decision on aban will be taken by the commodity futures regulator.

A futures contract is a promise between two investors to buy or sell a fixed amount of a commodity at a predetermined price and date. There is a direct link between futures and spot prices of agri-commodities on Indian exchanges because all contracts have compulsory delivery. Traders have to buy the commodity from the spot market and deliver it on the exchange at the end of each contract. This forces both prices to move in tandem. 

The Soyabean Oil Producers Association, or SOPA, on Thursday alleged soyabean prices are rising despite a bumper harvest due to malpractices in futures trading and demanded prompt action by Food & Consumer Affairs Minister KV Thomas. 

"Farmers have sold 80% of their produce. Most of the stock is with speculators who are driving prices. Nearly 2-3 lakh tonnes is net outstanding in futures, of which only 1-2% is changing positions. That clearly means circular positions are taking place," said Rajesh Agarwal, co-ordinator, SOPA. Spot prices of soyabean are currently at . 2,931 per quintal as compared to . 2,100 per quintal in the same period last year. 

However, market watchers say suspension of futures trading in any commodity is unnecessary since there are ample checks and balances in the existing system. 

"There is no need to suspend or restrict trading of commodities, but the FMC should lower individual client position limits and find out illegal activities through search and surveillance systems in various exchanges," said CARE Ratings Chief Economist Madan Sabnavis. Commodity exchanges, too, want futures trading to continue. "Where any contract is illiquid in the exchange, several surveillance measures are applied to ensure trading doesn't take place at artificial prices. Prices are determined by forces of demand and supply, including production, import/export, substitution effect and international prices," said National Commodity & Derivatives Exchange CEO R Ramaseshan. His exchange accounts for 80% of the total trading volume in farm commodity futures. 

Commodity futures trade, which started about nine years ago in India, has witnessed bans and re-listings of various farm products such as wheat, chana and sugar after excessive speculation, on the recommendation of the regulator. But the ban on tur, urad and rice has been in place for the past few years.

CTT scan clear, commodity traders sigh with relief

Commodities traders rejoiced as trading in that segment was kept out of the purview of the transaction tax (CTT) net, something they had apprehended. What added to their celebration was that the hike in the import duty on gold would not impact the futures trading of the yellow metal on the commodities bourses, at least according to them.      "Imported gold would be expensive, but there will not be any impact in the futures market," said Anil Mishra, MD, National Multi-Commodity Exchange of India. This is because the prices of the yellow metal are largely driven by sentiments and global cues.      The UPA government, in its first innings, had announced the imposition of CTT at 0.017% (Rs 17 on a transaction worth Rs 1 lakh). But it was never levied following opposition and was ultimately scrapped.      Initial estimates reveal that, if gold's price is taken to be Rs 30,000 per 10 gram now, after the hike in duty, retail buyers will pay about Rs 30,600 for the same amount. "Historically, gold demand has been inelastic to price increases. But still, we need to keep a watch on how far the hike in duty affects (retail) consumption," said Jayant Manglik, president (retail distribution), Religare Broking.      If the GST had been rolled out, commodities traders would have gained and there would have been an increase in volumes — both in the spot as well as futures markets.      "GST would pave the way for pan-India discovery of spot prices. If GST rollout happens, it would be a boost for electronic spot markets," said Anjani Sinha, MD, National Spot Exchange.

Copper off 2-week low on China demand hopes, Greece deal eyed

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Forexpros - Copper futures regained strength on Wednesday, easing off a two-week low amid indications demand from top consumer China will remain strong, but gains were limited as investors continued to focus on talks surrounding Greece's debt swap deal ahead of Thursday's deadline.

On the Comex division of the New York Mercantile Exchange, copper futures for May delivery traded at USD3.777 a pound during European morning trade, gaining 1.05%. 

It earlier rose by as much as 1.25% to trade at a session high USD3.783 a pound. Prices fell to USD3.725 on Tuesday, the lowest since February 17. 

Copper prices regained strength after the chairman of China's second largest copper producer said the Asian nation's copper demand will grow by at least 6% in 2012.

Speaking on the sidelines of the National People's Congress in Beijing, Wei Jianghong, chairman of Tongling Nonferrous Metals, said he saw copper demand from China's power sector staying strong this year. 

Tongling's outlook comes a day after Jiangxi Copper Company, China's biggest copper producer forecast a 7% increase in China's demand for the industrial metal.

Jiangxi Chairman Li Yihuang said that he expects market fundamentals for the metal to remain 'healthy' this year.

Li said that the company saw no signs yet of slowdown in China's copper consumption, but added that copper prices should remain volatile because of global economic instability.

China is the world's largest copper consumer, accounting for almost 40% of world consumption last year.

The industrial metal is sensitive to the economic growth outlook because of its widespread uses across industries. The metal is used in the construction of buildings, power generation and the manufacture of consumer electronics.

But gains were limited as markets remained jittery ahead of the March 8 deadline for bondholders to join the agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal.

There is uncertainty over how much participation Greece will see for its bond swap. The Greek government has set a minimum 75% participation rate to proceed.

A failure to agree on the swap would put the country back on the brink of a messy sovereign debt default and could reignite fears about the collapse of the single currency.

Europe as a region is second in global demand for the industrial metal. Prices have tracked investor sentiment toward the euro zone's debt crisis in recent months.

Meanwhile, in fundamental news, Chile's Mining Minister Hernan de Solminihac said earlier that massive investment in Chilean mines will increase the country's copper production by nearly 50% in the next decade and dilute prices in two years.

"We think prices will remain high this year and next, because fundamentals will remain the same, but after two years, they'll come down to around USD3.00 per pound" after factoring in new production, according to Mr. de Solminihac.

Chile is the world's top copper producer, accounting for nearly one-third of global production. State-owned copper miner Codelco is the world's biggest copper company.

Elsewhere on the Comex, gold for April delivery rose 0.35% to trade at USD1,678.25 a troy ounce, while silver for May delivery gained 0.95% to trade at USD33.08 a troy ounce.


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