Commodity Market Overview and Prospects

1
Commodity Market

• Overview Prospects of Arbitrage

2
WHAT COMPRISES COMMODITY MARKET?
Commodity markets
Precious Metals
Other Metals
Agriculture
Power
3

• CONCEPT
•  
• Commodity futures are tool used to hedge the
  price risk of underlying commodity.
•  Helps in price discovery of underlying commodity
• Helps in stabilizing the price of commodity for
  longer term.

4

• Reduce the price disparity over two geographical
  locations and bridge the demand/supply position
  over two locations and manage the regional
  distortion
•  Bring out the information about the commodity
  indicating the price trend.

5

• CURRENT ISSUES FOR GROWTH OF MARKET
• Lack of education and awareness of exchange
  amongst the marks of Investors, Traders
  (resulting low liquidity)
•  Low participation of Indian Corporate (Again due
  to the above)
•  Common delivery system for all exchange in demat
  form, which would ensure automatically the
  product standards
•  

6

•   Delay in formations of Regulation for
  Institutional Investor, which are in pipeline.
•   The differential Sales Tax Local Tax requires
  an early introduction of Value added Tax System.
• The delivery center of commodity should be in
  multiple locations as presently in one location
  for one product in most of commodities.

7

• COMMODITY MARKET IN INDIAN SCENARIO
• Bullion
•  q  Market
• ü     Largest consumer (Rs. 400 bn)
  traditional form of investment
• ü     Large stock of unaccounted metal
• ü     Skills in hand made jewellery
• q    Potential
• ü     Use it as monetary unit to boost rural
  economy
• ü     Effective instrument for investment
  diversification
• ü     Boost jewellery exports
• q     Impediments
• ü     Differences in sales tax, octroi stamp
  duty among states
• ü     Lack of good assaying practices difficult
  to liquidate
• ü     Little avenue to hedge price risk of
  jewellery exporters
•  

8

• Other metals
•  q    Market
•   Indian Production (Al, Cu steel) Rs. 600 bn
• Largest exporter of iron ore and alumina
•   Large importer of copper
•    Current trade by negotiation / price setting
  by producers
•  q     Potential
•   Increased scope for aluminum steel exports
• (as against alumina and iron ore)
• ü    Stable metal prices can fuel boom in
  downstream industries
• ü    Rival China as preferred manufacturing
  location
• ü    Growth in manufacturing to equal that in
  services
• q  Impediments
• ü    No organised exchange in India price
  discovery difficult
• Significant PSU participation
•  
•  

9
Agriculture  q       Market ü     Agricultural
share in GDP 26 (Rs. 5000 bn) ü     Large
producer of cotton, cereals, sugar, fruits,
spices etc ü     Current exports of about USD 4
bn ü     Specific commodity based exchanges not
very successful q       Potential ü     Diverse
gene pool and climatic conditions ü     Increase
in agricultural exports sugar, cereals ü    
Increase in processed foods production
consumption q       Impediments ü    
Restrictions on inter state movement ü     Poor
transport warehousing 30 wastage in
cereals ü     Member controlled exchanges
transparency issues  
10

• Power
•  q       Market
• ü     Large requirement and trading in Power
  units
• ü     Exports and imports of excessive units.
• ü     Specific commodity based exchanges not
  very successful
•  q       Potential
• ü     Diverse climatic conditions
• ü     Increase in demand.
• ü     Increase in disinvestments among PSUs
  involved in trading.
•  q       Impediments
• ü     Restrictions on inter state movement
• ü     Poor transport mechanism
• ü     No organised exchange in India price
  discovery difficult
• Significant PSU participation
•  
•  

11
Trade Potential
Physical trade (Rs. in bn) 3 time multiple (Rs. in bn) 5 time multiple (Rs. in bn)
Bullion 400 1,200 2,000
Metals 600 1,800 3,000
Agriculture 5,000 15,000 25,000
Energy 5,000 15,000 25,000
Total 11,000 33,000 55,000
12

• ADVANTAGE THE ORGANIZED SECTOR OFFERS
• Facilitate high quality intermediation
• Foster professionalism and transparency
• Nation-wide reach and consistent offering
• Provide impetus to commodity market and
  generate higher volumes

13

• Inculcate international best practices
• Demutualisation
• Technology platforms
• Information dissemination without noise
• Low cost solutions

14

• FUTURE PROSPECTS
•  The prospect of commodity exchange in India
  store a bundle of opportunities in term of
  following
•  
• In term of volume, as many of market player
  would tend to participate for their ask
  management which would ensure liquidity for the
  lines to come.
•  

15

• FUTURE PROSPECTS contd.
• Since the exchange would play like a nationwide
  common market, it would reduce the
  dis-equilibrium of price/demand supply
• Creation of employment opportunities.
• The participation of institutional Investor,
  like Files, Mutual Funds, would with distinct
  emails and provide further depth to the market.

16
Volume of Existing Exchanges
Commodity Exchange Products Approx Annual Vol. (Rs. Crore)
NBoT, Indore Soya, Mustard 80,000
NMCE, Ahmedabad Multiple 40,000
Ahmedabad Commodity Exch. Castor, Cotton seed 3,500
Rajdhani Oil OilSeeds Mustard 3,500
Vijai Beopar Ch., Muzzaffarnagar Gur 2,500
Rajkot Seeds Oil Bullion Castor, Groundnut 2,500
IPSTA, Cochin Pepper 2,500
Chamber of Commerce, Hapur Gur, Mustard 2,500
Bhatinda Om and Oil Oilseeds Gur 1,500
Others (mostly inactive) 1,500
TOTAL 140,000
17

• ARBITRAGE IN COMMODITY EXCHANGE
• Arbitrage can be in the following ways
• Cash (Spot market Vs. future market)
• Future Vs Future (Intra Exchange)
• Domestic Vs International.
•  

18

• WHY ARBITRAGE OPPORTUNITIES EXITS
• Different in perception of different investors
• Demand and supply over market or over location
• Market inefficiency

19

• ADVANTAGES OF ARBITRAGE
•  
• Reduces market inefficiency
• Provide liquidity to the market
• Act like a market equalizer tool
• Ensure risk free profit
•  

20
Click Here For More Information About Stock
Market Education
21
Thank You For More Information Visit Our Website
.
www.dhanashriacademy.com