Commodity ppt

26,063 views
25,663 views

Published on

Published in: Business, Economy & Finance

Commodity ppt

  1. 1. MK COMMODITY BROKERS LTD.
  2. 2. Snapshot of Indian Commodity Market
  3. 3. Two Major Commodities Exchange in India <ul><li>MCX (Multi Commodity Exchange) </li></ul><ul><li>NCDEX (National Commodities & </li></ul><ul><li>Derivatives Exchange) </li></ul>
  4. 4. Commodities traded on the exchanges Agri Products: <ul><li>Jeera </li></ul><ul><li>Pepper </li></ul><ul><li>Chilli </li></ul><ul><li>Turmeric </li></ul><ul><li>Guar Seed </li></ul><ul><li>Guar Gum </li></ul><ul><li>Soya bean </li></ul><ul><li>Sugar </li></ul><ul><li>Maize </li></ul>Precious Metals : <ul><li>Gold </li></ul><ul><li>Silver </li></ul><ul><li>Platinum </li></ul>
  5. 5. Commodities traded on the exchanges Base Metals: <ul><li>Copper </li></ul><ul><li>Nickel </li></ul><ul><li>Lead </li></ul><ul><li>Zinc </li></ul><ul><li>Aluminum </li></ul><ul><li>Tin </li></ul>Energy: <ul><li>Crude oil </li></ul><ul><li>Natural Gas </li></ul>
  6. 6. Other Information <ul><li>Exchange Timings </li></ul><ul><li>Agri Products: 10:00 AM To 5:00 PM </li></ul><ul><li>Other Commodities: 10:00 AM To 11:30 PM </li></ul><ul><li>Instrument Traded: Futures Contract </li></ul><ul><li>Expiry of Contracts : Different for different </li></ul><ul><li>commodities </li></ul>
  7. 7. What are Commodity futures? <ul><li>A Financial Contract </li></ul><ul><li>The underlying commodity is bought or sold at a </li></ul><ul><li>future date </li></ul><ul><li>A tool used by Investors, Hedgers, Arbitrageurs, </li></ul><ul><li>Day Traders </li></ul>
  8. 8. Why futures trading in Commodities? <ul><li>Portfolio diversification and risk management </li></ul><ul><li>Additional investment opportunity </li></ul><ul><li>Low cost business </li></ul><ul><li>No Transportation, storage, insurance, security </li></ul><ul><li>charges </li></ul><ul><li>Low Margins – High leverage </li></ul><ul><li>Intrinsic value of the commodity </li></ul><ul><li>Domain knowledge of industry </li></ul><ul><li>Hedging/ Arbitrage </li></ul>
  9. 9. Purpose of Futures Markets <ul><li>Meet the needs of three groups of future market </li></ul><ul><li>users </li></ul><ul><li>Those who wish to discover information about </li></ul><ul><li>future prices of commodities (suppliers) </li></ul><ul><li>Those who wish to speculate (speculators) </li></ul><ul><li>Those who wish to transfer risk to some other </li></ul><ul><li>party (hedgers) </li></ul><ul><li>Those who want to take advantage of price </li></ul><ul><li>difference in different markets (Arbitrageurs) </li></ul>
  10. 10. Commodity Futures Market – Participants <ul><li>Hedgers </li></ul><ul><li>Producers – Farmers </li></ul><ul><li>Consumers – Refineries, Food processing companies </li></ul><ul><li>Speculators </li></ul><ul><li>Institutional proprietary traders </li></ul><ul><li>Brokerage houses </li></ul><ul><ul><li>Spot Commodity traders </li></ul></ul><ul><li>Arbitrageurs </li></ul><ul><li>Brokerage houses </li></ul><ul><ul><li>Investors </li></ul></ul>
  11. 11. Exchange vs. Bilateral Trading Difficulty in price dissemination Market prices available to wider world Counter party credit risk Absence of counter party credit risk High cost and time consuming negotiations Low transaction costs Traded prices unknown to other players Price transparency Restricted access Common platform for all traders Bilateral trading Exchange
  12. 12. Risks encountered by industry <ul><li>Price volatility depends on International market </li></ul><ul><li>movement </li></ul><ul><li>Results in higher procurement cost reducing </li></ul><ul><li>operational margins </li></ul><ul><li>No options or tools were available earlier </li></ul><ul><li>Directionless market </li></ul><ul><li>No control measures </li></ul><ul><li>Counter party Risk </li></ul><ul><li>Credit risk especially during periods of volatile prices </li></ul><ul><li>Quantity risk during shortages </li></ul><ul><li>Quality Risk </li></ul>
  13. 13. Benefits… <ul><li>Investor: </li></ul><ul><li>Portfolio diversification and risk management </li></ul><ul><li>Additional investment opportunity </li></ul><ul><li>Physical trader : </li></ul><ul><li>Low cost business </li></ul><ul><ul><li>No Transportation, storage, insurance, security Charges </li></ul></ul><ul><ul><li>Domain knowledge of industry </li></ul></ul><ul><li>Traders: </li></ul><ul><ul><li>Low Margins – High leverage </li></ul></ul><ul><li>No balance-Sheet, P&L, EBITDA </li></ul><ul><li>Hedging/ Arbitrage </li></ul>
  14. 14. Hedging <ul><li>Purpose </li></ul><ul><ul><li>Avoid risk of adverse market movements </li></ul></ul><ul><li>Rationale </li></ul><ul><ul><li>Cash and Futures prices tend to move in tandem </li></ul></ul><ul><li>Converge at close to expiry </li></ul><ul><li>Types of Hedges </li></ul><ul><ul><li>Long Hedge, Short Hedge </li></ul></ul><ul><li>Advantages </li></ul><ul><li>Lock in a price and margin in advance </li></ul><ul><li>Disadvantages </li></ul><ul><li>Limits opportunities if prices move favorably </li></ul>
  15. 15. Types of Hedging <ul><li>Long Hedge </li></ul><ul><li>Hedges that involve taking a long position in futures </li></ul><ul><li>contract </li></ul><ul><li>Appropriate when a company plans to owns certain </li></ul><ul><li>asset in the future </li></ul><ul><li>Short Hedge </li></ul><ul><ul><li>Hedges that involve taking a short position in futures </li></ul></ul><ul><ul><li>contract </li></ul></ul><ul><ul><li>Appropriate when the hedger already owns the asset </li></ul></ul><ul><ul><li>or likely to own the asset and expects to sell it in </li></ul></ul><ul><ul><li>future </li></ul></ul>
  16. 16. Short Hedge - Example <ul><li>Suppose:- </li></ul><ul><li>COPPER producer wants to sell COPPER in future . </li></ul><ul><li>There is an equal chances of price going up or down. </li></ul><ul><li>There is a risk if price goes down. </li></ul>Loss – Rs. 50000/- If price goes down by Re. 1 Gain – Rs. 50000/- If price goes up by Re. 1 Case 50000 Kg (50MT) of Copper Expecting/having stock Stock Copper Producer
  17. 17. Short Hedge- Example contd… Profit Rs. 25/Kgs -- Profit Rs. 25/Kgs Case 2 - Rs. 305/Kgs Loss Rs. 10/Kgs -- Loss Rs. 10/Kgs Case 1 - Rs. 270/Kgs Without Hedge Profit Rs. 15/Kgs Loss Rs. 10/Kgs Profit Rs. 25/Kgs Case 2 - Rs. 305/Kgs Profit Rs. 15/Kgs Profit Rs. 25/Kgs Loss Rs. 10/Kgs Case 1 - Rs. 270/Kgs Net Result Future Spot 30 th Dec With Hedge (You rule out a loss) Sell Buy/Hold 30 th Nov Rs. 295/Kgs Rs. 280/Kgs 30 th Nov Future Spot Date
  18. 18. Long Hedge- Example <ul><li>Scenario of consumer who wishes to lock input prices </li></ul><ul><li>There is an equal chances of price going up or down. </li></ul><ul><li>There is a risk if price goes up. </li></ul>Gain – Rs. 50000/- If price goes down by Re. 1 Loss – Rs. 50000/- If price goes up by Re. 1 Case 50,000 Kg (50 MT) of copper Wants to buy Copper in future Stock Copper Consumer
  19. 19. Long Hedge - Example contd… Loss Rs. 25/Kgs -- Loss Rs. 25/Kgs Case 2 - Rs. 305/Kgs Profit Rs. 10/Kgs -- Profit Rs. 10/Kgs Case 1 - Rs. 270/Kgs Without Hedge Loss Rs. 15/Kgs Profit Rs. 10/Kgs Loss Rs. 25/Kgs Case 2 - Rs. 305/Kgs Loss Rs.15/Kgs Loss Rs. 25/Kgs Profit Rs. 10/Kgs Case 1 - Rs. 270/Kgs Net Result Future Spot 30 th Dec With Hedge (You rule out a loss) Buy Wait till Nov 30 th Nov Rs. 295/Kgs Rs. 280/Kgs 30 th Nov Future Spot Date
  20. 20. Advantage MK Commodity Brokers <ul><li>Top Quality Research </li></ul><ul><li>Professionally qualified analysts with rich </li></ul><ul><li>industry experience </li></ul><ul><ul><ul><ul><li>Research on Precious Metals, Base Metals and Energy   </li></ul></ul></ul></ul><ul><li>Daily outlook report and trading calls on SMS </li></ul><ul><li>Online Trading </li></ul><ul><ul><ul><ul><li>Single Screen customized market watch for MCX / </li></ul></ul></ul></ul><ul><ul><ul><ul><li>NCDEX with BSE / NSE   </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Streaming quotes & intra-day trading calls </li></ul></ul></ul></ul><ul><li>Pro-active Relationship Management     </li></ul><ul><ul><ul><ul><li>Relationship management desk   </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Educating clients on commodities futures market. </li></ul></ul></ul></ul>
  21. 21. Advantage for Clients <ul><li>Round the clock operations in commodities </li></ul><ul><li>trading </li></ul><ul><ul><ul><ul><li>Indian commodities market, unlike stock market is </li></ul></ul></ul></ul><ul><ul><ul><ul><li>open till 11.30 in the night and MK Commodity Brokers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ltd.is all poised to offer round the clock services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>through its dedicated team of professionals. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Better Trading Facility at one place. </li></ul></ul></ul></ul><ul><li>State of Infrastructure </li></ul><ul><ul><ul><ul><li>The strong IT backbone of Mangal Keshav helps us to </li></ul></ul></ul></ul><ul><ul><ul><ul><li>provide customized direct services through our back </li></ul></ul></ul></ul><ul><ul><ul><ul><li>office system, nation-wide connectivity and website. </li></ul></ul></ul></ul>
  22. 22. THANK YOU

×