Commodity Business: An Introduction  Session I  Rahul Singh,  Ph. D.
Introduction   <ul><li>A bulk good such as an agricultural product, food, natural resource or metal that is traded on an e...
Commodity Market  <ul><li>Commodity market is a place where trading in commodities takes place. These are the markets wher...
Global Classification <ul><li>Precious Metals: Gold, Silver, Platinum, etc. </li></ul><ul><li>Other Metals: Nickel, Alumin...
How is Indian Market Moving?  <ul><li>Turnover in agriculture grew 375 per cent over the past two years.  </li></ul><ul><l...
How is Indian Market Moving? <ul><li>The Survey has admitted that gold and crude oil account for the major part of the tot...
Mega Trends in Commodity  <ul><li>Reduction of government intervention </li></ul><ul><li>Globalisation (competition vs. ma...
Indian Market <ul><li>64% of pop. Works in agriculture=35 % GNI.  </li></ul><ul><li>It now accounts for approx. 23 % of GD...
Fraction of Agriculture in National GDP
Market Structure: Spot  <ul><li>Minimum Support Price (MSP) </li></ul><ul><li>Mandis  </li></ul><ul><li>Product – primary ...
Market Structure: Spot <ul><li>Price discovery  </li></ul><ul><li>Contract design, trading system, clearing system, settle...
Some Recent Facts <ul><li>There are 18 existing commodity exchanges in India offering domestic contracts in   8   commodit...
Trade Concessions 10-30% 685 Pakistan 4951 TOTAL 10-75% 211` Sri Lanka 10-15% 425 Nepal 5-15% 390 Maldives 10-100% 2402 In...
Top Traded Futures Contracts
Questions and queries !  [email_address]
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238757 633884899017903750

  1. 1. Commodity Business: An Introduction Session I Rahul Singh, Ph. D.
  2. 2. Introduction <ul><li>A bulk good such as an agricultural product, food, natural resource or metal that is traded on an exchange in bulk quantities. </li></ul><ul><li>A commodity is any homogenous item which may be freely bought and sold. The term typically refers to products such as coffee, cocoa and soyabeans (soft commodities) or gold, aluminium and platinum (hard commodities). Commodities typically are bought and sold in futures markets where producers combine with manufacturers and speculators to create a smoothly functioning market. </li></ul>
  3. 3. Commodity Market <ul><li>Commodity market is a place where trading in commodities takes place. These are the markets where raw and primary products are exchanged. </li></ul><ul><li>These raw commodities are traded on regulated commodity exchanges, in which they are bought and sold in standardised contracts. It is similar to an equity market, but instead of buying or selling shares one buys or sells commodities. </li></ul><ul><li>The commodities markets are one of the oldest prevailing markets in the human history. In fact, derivatives trading started off in commodities with the earliest records being traced back to the 17th century when rice futures were traded in Japan. </li></ul>
  4. 4. Global Classification <ul><li>Precious Metals: Gold, Silver, Platinum, etc. </li></ul><ul><li>Other Metals: Nickel, Aluminum, Copper, Zinc, etc. </li></ul><ul><li>Agro-Based Commodities: Wheat, Rice, Corn, Cotton, Oils, Oilseeds, etc. </li></ul><ul><li>Soft Commodities: Coffee, Cocoa, Sugar, etc. </li></ul><ul><li>Petrochemicals: High Density Polyethylene, Polypropylene. </li></ul><ul><li>Live-Stock: Live Cattle, Pork Bellies, etc. </li></ul><ul><li>Energy: Crude Oil, Natural Gas, Gasoline, etc. </li></ul>
  5. 5. How is Indian Market Moving? <ul><li>Turnover in agriculture grew 375 per cent over the past two years. </li></ul><ul><li>There are 18 commodity exchanges in India. </li></ul><ul><ul><ul><li>Multi Commodity Exchange of India Ltd (MCX), located at Mumbai. </li></ul></ul></ul><ul><ul><ul><li>National Commodity and Derivatives Exchange Ltd (NCDEX), located at Mumbai. </li></ul></ul></ul><ul><ul><ul><li>National Board of Trade (NBOT), located at Indore. </li></ul></ul></ul><ul><ul><ul><li>National Multi Commodity Exchange (NMCE), located at Ahmedabad. </li></ul></ul></ul><ul><li>Trading in country’s commodity exchanges totalled $460 billion in the financial year ended 2005, a four-fold jump from the year before. </li></ul><ul><li>Currently, the commodity market in India clocks a daily average turnover of Rs 14,000-16,000 crore. </li></ul><ul><li>Only 4 commodities out of the 94 allowed for trading account for over 70 per cent of the total turnover. This does not speak highly about the commodity futures market in terms of its width and depth. </li></ul>
  6. 6. How is Indian Market Moving? <ul><li>The Survey has admitted that gold and crude oil account for the major part of the total transactions in the futures market at present. </li></ul><ul><li>During 2005-06, the total value of commodity futures trade was Rs. 21.34 lakh crore as compared to Rs. 5.71 lakh crore during 2004-05 showing an increase of 274%. </li></ul><ul><li>The volume of trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnes during 2004-05. The trade volume has also gone up by 244% during 2005-2006. </li></ul>
  7. 7. Mega Trends in Commodity <ul><li>Reduction of government intervention </li></ul><ul><li>Globalisation (competition vs. market </li></ul><ul><li>opportunities) </li></ul><ul><li>Technology revolution: information and bio-sciences </li></ul><ul><li>The consumer as queen </li></ul><ul><li>New “corporate” business models </li></ul>
  8. 8. Indian Market <ul><li>64% of pop. Works in agriculture=35 % GNI. </li></ul><ul><li>It now accounts for approx. 23 % of GDP compared to 50 % in 1947. </li></ul><ul><li>Economy potentially very strong, large industrial output, technological knowledge and extensive reservoir of skilled manpower. </li></ul><ul><li>Exports: cotton goods, iron, jute products, coffee, electrical goods, leather, handicrafts, diamonds, chemicals, auto and software. </li></ul><ul><li>Imports are machinery, petroleum, chemicals, cereals, copper, and zinc. </li></ul>
  9. 9. Fraction of Agriculture in National GDP
  10. 10. Market Structure: Spot <ul><li>Minimum Support Price (MSP) </li></ul><ul><li>Mandis </li></ul><ul><li>Product – primary and non-primary, Participants, Trading, Clearance, Settlement, Governance </li></ul><ul><li>Problems: </li></ul><ul><ul><li>Price dissemination </li></ul></ul><ul><ul><li>Lack of standards </li></ul></ul>
  11. 11. Market Structure: Spot <ul><li>Price discovery </li></ul><ul><li>Contract design, trading system, clearing system, settlement, participants, regulations and governance </li></ul><ul><li>Problems: </li></ul><ul><ul><li>Lack of price transparency </li></ul></ul><ul><ul><li>Lack of contract size </li></ul></ul><ul><ul><li>Lack of regulatory compliances </li></ul></ul>
  12. 12. Some Recent Facts <ul><li>There are 18 existing commodity exchanges in India offering domestic contracts in 8 commodities and 2 exchanges that have permission to conduct trading in international (USD denominated) contracts. </li></ul><ul><li>There are around 1,700 brokerages in India today, many of which are single proprietary concerns. </li></ul>
  13. 13. Trade Concessions 10-30% 685 Pakistan 4951 TOTAL 10-75% 211` Sri Lanka 10-15% 425 Nepal 5-15% 390 Maldives 10-100% 2402 India 10-20% 266 Bhutan 10% -15% 572 Bangladesh Depth of concessions # Products Country
  14. 14. Top Traded Futures Contracts
  15. 15. Questions and queries ! [email_address]

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