a study on indian commodities market

7/29/2019 a study on indian commodities market

1/88

Indian Commodity Market Page 1

I. Research & Design 3-61. Introduction2. Objectives of the study3. Scope of the Study4. Research methodology5. Limitations of the Study6. Chapter Scheme

II. Introduction to Commodities.1. History 82. Indian Commodity Market 9-103. Registration in Commodity Market 11-124. Rituals of Investor 13-16

III. Commodity Exchange.1. Meaning 182. List of Commodities exchange 19-23

IV. Various Commodities Traded.1. Cereals 26-272. Fibre 28-293. Plantation 30-314. Pulses 32-33

Page No.


2/88


5. Spices 34-356. Energy 36-387. Bullion (Precious metals) 39-408. Industrial metals 41-439. Oil & Oil seeds 44-4810.Petrochemicals. 4911.Others 50-51

V. Commodity Trading.1. Introduction 532. Commodity Trading Option 543. Commodity Broker 554. Dematerialization. 56-62

a. Meaningb. Benefits of Dematc. Opening of a Demat Account.

VI. Data Presentation & Financial Analysis 63-80VII. Findings & Suggestions 81-85

Conclusion 87

Bibliography 88
http://en.wikipedia.org/wiki/List_of_traded_commodities#Energyhttp://en.wikipedia.org/wiki/List_of_traded_commodities#Industrial_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Industrial_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Energy


3/88



4/88


Financial System is made up of money market and capital market. Money

market helps for the adjustment of liquidity position of funds requirement for short term

period and the capital market provides for the long term period.

Indian financial system is influenced by the dependent on specialized and

non specialized financial institution of organised and unorganised financial markets.

Commodity Market:

The vast geographical extent of India and her huge population is aptly

complemented by the size of her market. The broadest classification of the Indian

Market can be made in terms of the commodity market and the bond market. The

commodity market in India comprises of all palpable markets that we come across in

our daily lives. Such markets are social institutions that facilitate exchange of goods formoney. The cost of goods is estimated in terms of domestic currency.

A commodity is a product that has commercial value, which can be

produced, bought, sold, and consumed. Commodities are basically the products of the

primary sector of an economy. The primary sector of an economy is concerned with

agriculture and extraction of raw materials such as metals, energy (crude oil, natural

gas), etc., which serve as basic inputs for the secondary sector of the economy. While

surveying various web sites I came to know the whole commodity market and the

exchange takes place in this market is broadly classify into two principle categories thatis agriculture and non agriculture commodity market which I have briefly described in

the project..

1. To study about the Origin & Registration in the commoditymarket.

2. To know the Various Commodity Exchanges in India.

3. To know about the commodities traded in Indian commoditymarket.


5/88


4. To know about the trading procedure and Dematerialization.

5. To know the price variation of Bullion and Industrial metalsduring the past five years.

6. To make necessary suggestions on the basis of study conducted.

The present study covers the Indian commodity market and the

various commodities traded in the market.

Further, the study aims at giving detailed information about the

Bullion commodity market and its financial analysis for the past five years.

1. Primary Method

These are the measurement observed and recorded as a part of a

n original study. These are those data that are not available elsewhere.

Therefore primary information compiled is both structured and

unstructured.

2. Secondary MethodThese are compiled by someone other than the user. These data

are collected by referring the annual report and various websites.

The main limitation of the study is the Time Factor. As the

implant training was only for one month, less information could be collected

within the given period of time.


6/88


To study the entitled THE STUDY ON INDIAN COMMODITY

MARKET WITH SPECIAL REFERENCE TO BULLION & INDUSTRIAL

METALS is divided into eight chapters.

Chapter-I Initiates with the research and design of the whole project. The

objectives, scope, limitations and a brief introduction about the commodity

market is provided..

Chapter-II gives a detailed information about the Indian commodity

market and the registration process.

Chapter-III Gives a picture about the various commodity exchanges

available in India.

Chapter-IV gives details about the various commodities traded in Indian

market.

Chapter-V Draw a profile about the duties of the broker and the procedure

as to how the trading is performed.

Chapter-VI is entitled by the financial analysis and detail study about the

Bullion Market and Industrial metals in India.

Chapter-VII It is entitled by the major findings and Suggestions.


7/88


Chapter II-


8/88


The word commodity came into use in English in the 15th century, from the

French word derived from the Latin commoditatem (nominative commoditas)

meaning fitness, adaptation.

History of trading in commodities in India goes back several centuries. But

organized futures market in India emerged in 1875 when the Bombay Cotton Trade

Association was established. The futures trading in oilseeds started in 1900 when

Gujarati Vyapari Mandali (todays National Multi Commodity Exchange,

Ahmedabad) was established. The futures trading in gold began in Mumbai in 1920.

During the first half of the 20th century, there were many commodity futures

exchanges, including the Calcutta Hessian Exchange Ltd. that was established in 1927.

Those exchanges traded in jute, pepper, potatoes, sugar, turmeric, etc. However,

Indias history of commodity futures market has been turbulent. Options were bannedin cotton in 1939 by the Government of Bombay to curb widespread speculation. In

mid-1940s, trading in forwards and futures became difficult as a result of price

controls by the government. The Forward Contract Regulation Act was passed in

1952. This put in place the regulatory guidelines on forward trading. In late 1960s, the

Government of India suspended forward trading in several commodities like jute,

edible oil seeds, cotton, etc. due to fears of increase in commodity prices. However,

the government offered to buy agricultural products at Minimum Support Price (MSP)

to ensure that the farmer benefited. The government also managed storage,

transportation, and distribution of agriculture products. These measures weakened the

agricultural commodity markets in India.

The government appointed four different committees (Shroff Committee in

1950, Dantwala Committee in 1966, Khusro Committee in 1979, and Kabra

Committee in 1993) to go into the regulatory aspects of forward and futures trading in

India. In 1996, the World Bank in association with United Nations Conference on

Trade and Development (UNCTAD) conducted a study of Indian commodities

markets. In the post-liberalization era of the Indian economy, it was the Kabra

Committee and the World BankUNCTAD study that finally assessed the scope for

forward and futures trading in commodities markets in India and recommended steps

to revitalize futures trading.

There are four national-level commodity exchanges and 22 regional

commodity exchanges in India. The national-level exchanges are Multi Commodity

Exchange of India Limited (MCX), National Commodity and Derivatives Exchange

Limited (NCDEX), National Multi Commodity Exchange of India Limited (NMCE),

and Indian Commodity Exchange (ICEX).


9/88


Majority of commodities traded on global commodity exchanges are agri-

based. Commodity markets therefore are of great importance and hold a great potential

in case of economies like India, where more than 65 percent of the people are

dependent on agriculture.

There is a huge domestic market for commodities in India since India

consumes a major portion of its agricultural produce locally. Indian commodities

market has an excellent growth potential and has created good opportunities for market

players. India is the worlds leading producer of more than 15 agricultural

commodities and is also the worlds largest consumer of edible oils and gold. It has

major markets in regions of urban conglomeration (cities and towns) and nearly

7,500+ Agricultural Produce Marketing Cooperative (APMC) mandis. To add to this,

there is a network of over 27,000+ haats (rural bazaars) that are seasonal marketplacesof various commodities. These marketplaces play host to a variety of commodities

everyday. The commodity trade segment employs more than five million traders. The

potential of the sector has been well identified by the Central government and the state

governments and they have invested substantial resources to boost production of

agricultural commodities. Many of these commodities would be traded in the futures

markets as the food-processing industry grows at a phenomenal pace. Trends indicate

that the volume in futures trading tends to be 5-7 times the size of spot trading in the

country (internationally, it is much higher at 15 to 20 times).

Many nationalized and private sector banks have announced plans to

disburse substantial amounts to finance businesses related to commodity trading. The

Government of India has initiated several measures to stimulate active trading interest

in commodities. Steps like lifting the ban on futures trading in commodities, approving

new exchanges, developing exchanges with modern infrastructure and systems such as

online trading, and removing legal hurdles to attract more participants have increased

the scope of commodities derivatives trading in India. This has boosted both the spot

market and the futures market in India. The trading volumes are increasing as the list

of commodities traded on national commodity exchanges also continues to expand.

The volumes are likely to surge further as a result of the increased interest from the

international participants in Indian commodity markets. If these international

participants are allowed to participate in commodity markets (like in the case of capital

markets), the growth in commodity futures can be expected to be phenomenal. It is

expected that foreign institutional investors (FIIs), mutual funds, and banks may be

able to participate in commodity derivatives markets in the near future. The launch of

options trading in commodity exchanges is also expected after the amendments to the

Forward Contract Regulation Act (1952). Commodity trading and commodityfinancing are going to be rapidly growing businesses in the coming years in India.


10/88


With the liberalization of the Indian economy in 1991, the commodity

prices (especially international commodities such as base metals and energy) have

been subject to price volatility in international markets, since India is largely a net

importer of such commodities. Commodity derivatives exchanges have been

established with a view to minimize risks associated with such price volatility.

India, being an agro-based economy, has markets for most of the agro-

based commodities. India is the largest consumer of gold in the world, which implies a

huge market for the yellow metal. India has huge spot markets for all these

commodities. For instance, Indore has a huge market for Soya, Ahmedabad for castor

seeds and Surendranagar for cotton, etc. During the pre-Independence era, India also

had a thriving futures market for commodities such as gold, silver, cotton, edible oils,

etc. In mid-1960s, due to wars, natural calamities and the consequent shortages,

futures trading in most commodities were banned.

The trading of commodities consists of direct physical trading and

derivatives trading. Exchange traded commodities have seen an upturn in the volume

of trading since the start of the decade. This was largely a result of the growing

attraction of commodities as an asset class and a proliferation of investment options

which has made it easier to access this market.

The global volume of commodities contracts traded on exchanges increased

by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts.

During the three years up to the end of 2010, global physical exports of commoditiesfell by 2%, while the outstanding value of OTC commodities derivatives declined by

two-thirds as investors reduced risk following a five-fold increase in value outstanding

in the previous three years. Trading on exchanges in China and India has gained in

importance in recent years due to their emergence as significant commodities

consumers and producers. China accounted for more than 60% of exchange-traded

commodities in 2009, up on its 40% share in the previous year. Commodity assets

under management more than doubled between 2008 and 2010 to nearly $380bn.

Inflows into the sector totalled over $60bn in 2010, the second highest year on record,

down from the record $72bn allocated to commodities funds in the previous year. Thebulk of funds went into precious metals and energy products. The growth in prices of

many commodities in 2010 contributed to the increase in the value of commodities

funds under management.


11/88


Indian markets have recently thrown open a new avenue for retail investors

and traders to participate: commodity derivatives. For those who want to diversify

their portfolios beyond shares, bonds and real estate, commodities are the best option.

Till some months ago, this wouldn't have made sense. For retail investors could havedone very little to actually invest in commodities such as gold and silver or oilseeds in

the futures market. This was nearly impossible in commodities except for gold and

silver as there was practically no retail avenue for punting in commodities.

However, with the setting up of the various multi-commodity exchanges in

the country, retail investors can now trade in commodity futures without having

physical stocks.

Commodities actually offer immense potential to become a separate assetclass for market-savvy investors, arbitrageurs and speculators. Retail investors, who

claim to understand the equity markets, may find commodities an unfathomable

market. But commodities are easy to understand as far as fundamentals of demand and

supply are concerned. Retail investors should understand the risks and advantages of

trading in commodities futures before taking a leap. Historically, pricing in

commodities futures has been less volatile compared with equity and bonds, thus

providing an efficient portfolio diversification option.

In fact, the size of the commodities markets in India is quite significant. Ofthe country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related

(and dependent) industries constitute about 58 per cent. Currently, the various

commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs

1,400 billion). With the introduction of futures trading, the size of the commodities

market grows many folds here on.

Like any other market, the one for commodity futures plays a valuable role

in information pooling and risk sharing. The market mediates between buyers and

sellers of commodities, and facilitates decisions related to storage and consumption of

commodities. In the process, they make the underlying market more liquid. A popular

way to invest in commodities is through a futures contract, which is an agreement to

buy or sell in the future a specific quantity of a commodity at a specific price. Futures

are available on commodities such as crude oil, gold and natural gas, as well as

agricultural products such as cattle or corn.

Investing in a futures contract will require you to open up a new brokerage

account, if you do not have a broker that also trades futures, and to fill out a form

acknowledging that you understand the risks associated with futures trading.
http://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/b/brokerageaccount.asphttp://www.investopedia.com/terms/b/brokerageaccount.asphttp://www.investopedia.com/terms/b/broker.asphttp://www.investopedia.com/terms/b/broker.asphttp://www.investopedia.com/terms/b/brokerageaccount.asphttp://www.investopedia.com/terms/b/brokerageaccount.asphttp://www.investopedia.com/terms/f/futurescontract.asp


12/88


Each commodity contract requires a different minimum deposit, depending

on the broker, and the value of your account will increase or decrease with the value of

the contract. If the value of the contract goes down, you will be subject to a margin

call and will be required to place more money into your account to keep the position

open. Due to the huge amounts of leverage, small price movements can mean hugereturns or losses, and a futures account can be wiped out or doubled in a matter of

minutes. Most futures contracts will also have options associated with them. Options

on futures contracts still allow you to invest in the futures contract, but limit your loss

to the cost of the option. Options are derivatives and usually do not move point-for-

point with the futures contract.

Exchange-Traded Funds and Exchange-Traded Notes:

Exchange-traded funds (ETFs) and exchange-traded notes (ETNs), which

trade like stocks, allow investors to participate in commodity price fluctuations

without investing directly in futures contracts.

Commodity ETFs usually track the price of a particular commodity or

group of commodities that comprise an index by using futures contracts, although a

few back the ETF with the actual commodity held in storage.

ETNs are unsecured debt designed to mimic the price fluctuation of a

particular commodity or commodity index, and are backed by the issuer. A special

brokerage account is not required to invest in ETFs or ETNs.

Advantages:

Because they trade like stocks, there are no management or redemption fees toworry about.

They provide an easy way to participate in the price fluctuation of a commodityor basket of commodities.
http://www.investopedia.com/terms/m/margincall.asphttp://www.investopedia.com/terms/m/margincall.asphttp://www.investopedia.com/terms/l/leverage.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/e/etf.asphttp://www.investopedia.com/terms/e/etn.asphttp://www.investopedia.com/terms/c/commodity-etf.asphttp://www.investopedia.com/terms/m/managementfee.asphttp://www.investopedia.com/terms/r/redemptionfee.asphttp://www.investopedia.com/terms/r/redemptionfee.asphttp://www.investopedia.com/terms/m/managementfee.asphttp://www.investopedia.com/terms/c/commodity-etf.asphttp://www.investopedia.com/terms/e/etn.asphttp://www.investopedia.com/terms/e/etf.asphttp://www.investopedia.com/terms/d/derivative.asphttp://www.investopedia.com/terms/o/option.asphttp://www.investopedia.com/terms/l/leverage.asphttp://www.investopedia.com/terms/m/margincall.asphttp://www.investopedia.com/terms/m/margincall.asp


13/88


The Investor has to start by selecting the correct exchange market for

trading in commodity futures. The various steps involved are as follows.

1. Selecting Exchange-You have three options - the National Commodity andDerivative Exchange, the Multi Commodity Exchange of India Ltd and the National

Multi Commodity Exchange of India Ltd. All three have electronic trading and

settlement systems and a national presence.

2. Choose the broker-Several already-established equity brokers have soughtmembership with NCDEX and MCX. The likes of Refco Sify Securities, SSKI

(Sharekhan) and ICICI commtrade (ICICIdirect), ISJ Comdesk (ISJ Securities) and

Sunidhi Consultancy are already offering commodity futures services. Some of themalso offer trading through Internet just like the way they offer equities. You can also

get a list of more members from the respective exchanges and decide upon the broker

you want to choose from.

3. Minimum investment-You can have an amount as low as Rs 5,000. All you needis money for margins payable upfront to exchanges through brokers. The margins

range from 5-10 per cent of the value of the commodity contract. While you can start

off trading at Rs 5,000 with ISJ Commtrade other brokers have different packages for

clients.

For trading in bullion, that is, gold and silver, the minimum amount

required is Rs 650 and Rs 950 for on the current price of approximately Rs 65, 00 for

gold for one trading unit (10 gm) and about Rs 9,500 for silver (one kg). The prices

and trading lots in agricultural commodities vary from exchange to exchange (in kg,

quintals or tonnes), but again the minimum funds required to begin will be

approximately Rs 5,000.

4. Delivery or settle in cash-You can do both. All the exchanges have both systems- cash and delivery mechanisms. The choice is yours. If you want your contract to be

cash settled, you have to indicate at the time of placing the order that you don't intend

to deliver the item.

If you plan to take or make delivery, you need to have the required

warehouse receipts. The option to settle in cash or through delivery can be changed asmany times as one wants till the last day of the expiry of the contract.


14/88


5. Other requirements at broker level-You will have to enter into a normal accountagreements with the broker. These include the procedure of the Know Your Client

format that exist in equity trading and terms of conditions of the exchanges and broker.

Besides you will need to give you details such as PAN no., bank account no, etc.

6. The brokerage and transaction charges-The brokerage charges range from0.10-0.25 per cent of the contract value. Transaction charges range between Rs 6 and

Rs 10 per Lakh/per contract. The brokerage will be different for different

commodities. It will also differ based on trading transactions and delivery transactions.

In case of a contract resulting in delivery, the brokerage can be 0.25 - 1 per cent of the

contract value. The brokerage cannot exceed the maximum limit specified by the

exchanges.

7. Information on commodities-Daily financial newspapers carry spot prices andrelevant news and articles on most commodities. Besides, there are specialised

magazines on agricultural commodities and metals available for subscription. Brokers

also provide research and analysis support.

But the information easiest to access is from websites. Though many

websites are subscription-based, a few also offer information for free. You can surf the

web and narrow down you search.

8. The regulator-The exchanges are regulated by the Forward Markets Commission.Unlike the equity markets, brokers don't need to register themselves with the regulator.

The FMC deals with exchange administration and will seek to inspect the

books of brokers only if foul practices are suspected or if the exchanges themselvesfail to take action. In a sense, therefore, the commodity exchanges are more self-

regulating than stock exchanges. But this could change if retail participation in

commodities grows substantially.

9. Players in commodity derivatives-The commodities market will have threebroad categories of market participants apart from brokers and the exchange

administration - hedgers, speculators and arbitrageurs. Brokers will intermediate

facilitating hedgers and speculators. Hedgers are essentially players with an underlying


15/88


risk in a commodity - they may be either producers or consumers who want to transfer

the price-risk onto the market.

Producer-hedgers are those who want to mitigate the risk of prices

declining by the time they actually produce their commodity for sale in the market;

consumer hedgers would want to do the opposite.

For example, if you are a jewellery company with export orders at fixed

prices, you might want to buy gold futures to lock into current prices. Investors and

traders wanting to benefit or profit from price variations are essentially speculators.

They serve as counterparties to hedgers and accept the risk offered by the hedgers in a

bid to gain from favourable price changes.

10. Commodities that one can trade-Though the government has essentially madealmost all commodities eligible for futures trading, the nationwide exchanges have

earmarked only a select few for starters. While the NMCE has most major agricultural

commodities and metals under its fold, the NCDEX, has a large number ofagriculture,

metal and energy commodities. MCX also offers many commodities for futures

trading.

11. Sales tax on all trades and registration-If the trade is squared off no sales tax isapplicable. The sales tax is applicable only in case of trade resulting into delivery.

Normally it is the seller's responsibility to collect and pay sales tax.

The sales tax is applicable at the place of delivery. Those who are willing to

opt for physical delivery need to have sales tax registration number.

12. Additional margin/brokerage/charges- In case of delivery, the margin duringthe delivery period increases to 20-25 per cent of the contract value. The member/

broker will levy extra charges in case of trades resulting in delivery.

13. The stamp duty-As of now, there is no stamp duty applicable for commodityfutures that have contract notes generated in electronic form. However, in case of

delivery, the stamp duty will be applicable according to the prescribed laws of the state

the investor trades in. This is applicable in similar fashion as in stock market.
http://www.ncdex.com/Products/products_agro_castor_seed.aspx?Type=Genhttp://www.ncdex.com/Products/products_agro_steel.aspx?Type=Genhttp://www.ncdex.com/Products/products_ener_brent.aspx?Type=Genhttp://www.mcxindia.com/products.aspxhttp://www.mcxindia.com/products.aspxhttp://www.ncdex.com/Products/products_ener_brent.aspx?Type=Genhttp://www.ncdex.com/Products/products_agro_steel.aspx?Type=Genhttp://www.ncdex.com/Products/products_agro_castor_seed.aspx?Type=Gen


16/88


14. Margin is applicable in the commodities market-As in stocks, in commoditiesalso the margin is calculated by (value at risk) VaR system. Normally it is between 5

per cent and 10 per cent of the contract value.

The margin is different for each commodity. Just like in equities, incommodities also there is a system of initial margin and mark-to-market margin. The

margin keeps changing depending on the change in price and volatility.

15. Circuit filters- the exchanges have circuit filters in place. The filters vary fromcommodity to commodity but the maximum individual commodity circuit filter is 6

per cent. The price of any commodity that fluctuates either way beyond its limit will

immediately call for circuit breaker.

Conclusion:

There are a number of different types of commodity investments for novice

and experienced traders to consider. Although commodity futures contracts provide

the most direct way to participate in price movements, other types of investments with

varying risk and investment profiles also provide exposure to the commodities

markets. The key is to invest with the tool that works best for you.


17/88


Chapter III-


18/88


A commodities exchange is an exchange where various commodities and

derivatives products are traded. Most commodity markets across the world trade in

agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton,

cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based onthem. These contracts can include spot prices, forwards, futures and options on futures.

Other sophisticated products may include interest rates, environmental instruments,

swaps, or ocean freight contracts.

In the middle of 19th century in the United States, businessmen began

organizing market forums to make the buying and selling of commodities easier.

These central marketplaces provided a place for buyers and sellers to meet, set quality

and quantity standards, and establish rules of business. In 1933, during the Great

Depression, the Commodity Exchange, Inc., was established in New York through themerger of four small exchangesthe National Metal Exchange, the Rubber Exchange

of New York, the National Raw Silk Exchange, and the New York Hide Exchange.

In India there are 25 recognised future exchanges, of which there are three

national level multi-commodity exchanges. After a gap of almost three decades,

Government of India has allowed forward transactions in commodities through Online

Commodity Exchanges, a modification of traditional business known as Adhat and

Vayda Vyapar to facilitate better risk coverage and delivery of commodities.

Commodities exchanges usually trade futures contracts on commodities, such astrading contracts to receive something, say corn, in a certain month. A farmer raising

corn can sell a future contract on his corn, which will not be harvested for several

months, and guarantee the price he will be paid when he delivers; a breakfast cereal

producer buys the contract now and guarantees the price will not go up when it is

delivered. This protects the farmer from price drops and the buyer from price rises.

Speculators and investors also buy and sell the futures contracts in attempt to make a

profit and provide liquidity to the system.

In simple parlance, a commodity exchange is defined as an association, or

alternatively a company, as well as any corporate body that organizes trading in

commodities. Earlier the commodity exchange was more like an open market place

where traders would call their bids and purchase commodities. Their study of the

commodity trading trend depended largely on the expected quantity of the annual

produce and the potential demand for the produce. Based on this straightforward

speculated forecast they would dictate the buying and selling prices of the

commodities.
http://en.wikipedia.org/wiki/Exchange_%28organized_market%29http://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Barleyhttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Maizehttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Cocoa_beanhttp://en.wikipedia.org/wiki/Coffeehttp://en.wikipedia.org/wiki/Milkhttp://en.wikipedia.org/wiki/Pork_bellieshttp://en.wikipedia.org/wiki/Oilhttp://en.wikipedia.org/wiki/Metalhttp://en.wikipedia.org/wiki/Spot_pricehttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Swap_%28finance%29http://en.wikipedia.org/wiki/Freight_derivativehttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Freight_derivativehttp://en.wikipedia.org/wiki/Swap_%28finance%29http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Spot_pricehttp://en.wikipedia.org/wiki/Metalhttp://en.wikipedia.org/wiki/Oilhttp://en.wikipedia.org/wiki/Pork_bellieshttp://en.wikipedia.org/wiki/Milkhttp://en.wikipedia.org/wiki/Coffeehttp://en.wikipedia.org/wiki/Cocoa_beanhttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Maizehttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Barleyhttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Exchange_%28organized_market%29


19/88


However, in India things started going array and in the last century the

India Government endorsed a ban on commodity trading. That was the end of the

traditional commodity exchange. But then, forty years later, in the year 2003, the

Government lifted this ban opening the doors for commodity trading once again.

But, thing were different. The commodity exchange was opened with high-techconnectivity. Traders were not required to assemble in one place and shout out bids.

Computerized systems brought in on line trading options.

Every bid is recorded. Contracts are prepared in the form of print outs and

delivery of contract happens in stipulated period. The Government also has a body that

keeps a close vigil on the functioning of the commodity exchange. Though almost

every commodity exchange in the world trades in their own specific list of

commodities, yet there are certain categories that are common everywhere. These are

the agricultural and metal produce.

Commonly, the commodity exchange anywhere in the world prepares

contracts for traders that would include the following vital information (however, the

content does vary from country to country, depending on their domestic guidelines and

regulations:-

Spots Forwards Futures Options on futures Interest rates Environmental instruments Swaps Ocean freight contracts


20/88


a. National Commodity and Derivatives Exchange (NCDEX)b. Multi Commodity Exchange (MCX)c.

National Multi Commodity Exchange of India (NMCE)d. National Board Of Trade (NBOT)e. Ace Derivatives & Commodity Exchange (ACE)

a. National Commodity and Derivatives Exchange (NCDEX)National Commodity & Derivatives Exchange Limited (NCDEX) is an

online commodity exchange based in India. It was incorporated as a private limited

company incorporated on 23 April 2003 under the Companies Act, 1956. It obtained

its Certificate for Commencement of Business on 9 May 2003. It has commenced its

operations on 15 December 2003. NCDEX is a closely held private company which is

promoted by national level institutions and has an independent Board of Directors and

professionals not having vested interest in commodity markets. NCDEX also offers as

an information product, an agricultural commodity index. This is a composite index,

called NCDEXAGRI that convers 20 commodities currently being offered for trading

by NCDEX. This is a spot-price based index. NCDEX also offers as an information

product, the index futures, called FUTEXAGRI. This is essentially a what-if index. It
http://en.wikipedia.org/wiki/National_Commodity_and_Derivatives_Exchangehttp://en.wikipedia.org/wiki/Multi_Commodity_Exchangehttp://en.wikipedia.org/w/index.php?title=National_Multi_Commodity_Exchange_of_India&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ace_Derivatives_%26_Commodity_Exchange&action=edit&redlink=1http://en.wikipedia.org/wiki/National_Commodity_and_Derivatives_Exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/National_Commodity_and_Derivatives_Exchangehttp://en.wikipedia.org/w/index.php?title=Ace_Derivatives_%26_Commodity_Exchange&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=National_Multi_Commodity_Exchange_of_India&action=edit&redlink=1http://en.wikipedia.org/wiki/Multi_Commodity_Exchangehttp://en.wikipedia.org/wiki/National_Commodity_and_Derivatives_Exchange


21/88


indicates that if futures on the index could be traded, then the current FUTEXAGRI

value should be the no-arbitrage value for the index futures. However, indexes and

index futures are not allowed to be traded under the current regulatory structure.

Hence, these are only available for information, as of now

NCDEX currently facilitates trading of 57 commodities.

b. Multi Commodity Exchange (MCX):Multi Commodity Exchange (MCX) is an independent commodity

exchange based in India. It was established in 2003 and is based in Mumbai. The

turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of

contracts traded, it was in 2009 the world's sixth largest commodity exchange. ([1])

MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a

number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and

others).

MCX has also set up in joint venture the MCX Stock Exchange. Earlier

spin-offs from the company include the National Spot Exchange, an electronic spot

exchange for bullion and agricultural commodities, and National Bulk Handling

Corporation (NBHC) India's largest collateral management company which provides

bulk storage and handling of agricultural products.

The various commodities traded here are Metal, Bullion, Fibre, Energy, Plantations,

Pulses, Petrochemicals, Oil & oilseeds and Cereals.

c. National Multi Commodity Exchange of India (NMCE)NMCE started its operations on November 26, 2002, as the countrys first,

online, dematerialized, multi-commodity exchange with nationwide reach. It not only

revived futures trade electronically in the commodities in India after a gap of 41 years,

but also integrated the centuries old commodity market with the latest technology. It is

backed by compulsory delivery based settlement to ensure transparent and fair trade

practices. NMCE offers electronic platform for future trading in plantation, spices,

food grains, non-ferrous metals, oil seeds and their derivatives.

NMCE has robust delivery mechanism making it the most suitable for the

participants in the physical commodity markets. Public interest rather than commercial

interest guide the functioning of the Exchange. It has also established fair and
http://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://www.mcxindia.com/Uploads/NewsDocs/PressReleases/2010/February/English/pr_Feb2210.pdfhttp://en.wikipedia.org/wiki/National_Bulk_Handling_Corporationhttp://en.wikipedia.org/wiki/National_Bulk_Handling_Corporationhttp://en.wikipedia.org/w/index.php?title=National_Multi_Commodity_Exchange_of_India&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=National_Multi_Commodity_Exchange_of_India&action=edit&redlink=1http://en.wikipedia.org/wiki/National_Bulk_Handling_Corporationhttp://en.wikipedia.org/wiki/National_Bulk_Handling_Corporationhttp://www.mcxindia.com/Uploads/NewsDocs/PressReleases/2010/February/English/pr_Feb2210.pdfhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Commodity_exchange


22/88


transparent rule-based procedures and demonstrated total commitment towards

eliminating any conflicts of interest. NMCE follows best international risk

management practices. Innovation is the way of life at NMCE.

Government of India has granted it the status of a National Multi

Commodity Exchange and it has now been incorporated as M/s. National Multi

Commodity Exchange of India Limited. NMCE, managed and operated by

professionals, is a Joint Venture of GAIC, Central Warehousing Corporation, NAFED,

NIAM, Gujarat State Agricultural Marketing Board and Neptune Overseas Limited.

GAIC was instrumental in obtaining crucial clearances from Gol and coordinating

with the suppliers of computer and satellite communication hardware and software.

d. National Board Of Trade (NBOT):National Board Of Trade Limited (NBOT) was incorporated on July 30,

1999 to offer integrated, state-of-the-art commodity futures exchange. It was

incorporated to offer transparent and efficient trading platform to various market

intermediaries in the commodity futures trade. Today NBOT is one of the fastest

growing commodity exchanges recognized by the Government of India under the aegis

of the Forward Markets Commission. Within a short span of seven years, NBOT has

carved out a niche for itself in the commodities market. With a humble beginning of

trading in February 2000 its average daily volume has reached a staggering 60,000MTs (approx.) in terms of Soya oil. It has implemented the state-of-the-art technology

and system for efficient handling of Trading, Margining, Clearing and Settlement in

respect of all the transactions confirmed by the Exchange. The Board of directors,

adorned by a galaxy of the most respectful personalities drawn from different

categories of trade and commerce has been giving necessary impetus and thrust for

setting up of the exchange and provide guidance for its proper functioning.

NBOT has been constantly endeavouring to strengthen professionalism in

the commodities futures market and to provide credible nation-wide trading facilitiesto market players in tune with the international standards. NBOT has been mandated to

organize futures trading in the following commodities:

Soybean, its oil and cake; Rape/Mustard seed, their oil and cake; RBD Palm olein, Crude Palm Oil, CPO Refined and Crude Palm olein.


23/88


e. Ace Derivatives & Commodity Exchange (ACE)Ahmedabad Commodity Exchange, also known as ACE Derivatives and

Commodity Exchange is India's fifth national commodities exchange, was launched on

October 26, 2010. ACE's launch was the first time a regional Indian market was

upgraded to a national market

The all-electronic market is 51 percent owned by Kotak Mahindra Group,

an Indian banking and financial services firm. Other investors include The Haryana

State Cooperative Supply & Marketing Federation Ltd. (HAFED), a state cooperative

service and marketing organization. Other investors include: Bank of Baroda,

Corporation Bank and Union Bank. The exchange opened with 230 registered

members. ACE offers futures trading in various commodity groups, such as

agricultural products, bullion, base metals, and energy. The company provides an

online multi-commodity platform; and clearing and settlement infrastructure that

supports the process of trade intermediation, including registration of trades,

settlement of contracts, and mitigation of counter-party risk. ACE Derivatives and

Commodity Exchange Ltd. was formerly known as Ahmedabad Commodity Exchange

Limited. The company was founded in 1952 and is based in Mumbai, India.

Ace Derivatives and Commodity Exchange Limited is a screen based

online derivatives exchange for commodities in India. Ace Commodity Exchangeearlier known as Ahmedabad Commodity Exchange has been in existence for more

than 5 decades in Commodity Business, bringing in the best and transparent Business

Practices in the Indian commodity space. The Kotak group brings in more than 25

years of financial expertise and has pioneered many business practices existing in the

financial services industry. With Ace, Kotak Group brings to the commodity market a

new, state-of-the-art trading platform which combines the operational efficiency of

global exchanges with deep domain expertise in each commodity vertical.
http://en.wikipedia.org/w/index.php?title=Ace_Derivatives_%26_Commodity_Exchange&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=Kotak_Mahindra_Group&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=The_Haryana_State_Cooperative_Supply_%26_Marketing_Federation_Ltd.&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=The_Haryana_State_Cooperative_Supply_%26_Marketing_Federation_Ltd.&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=%28HAFED%29&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=%28HAFED%29&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=The_Haryana_State_Cooperative_Supply_%26_Marketing_Federation_Ltd.&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=The_Haryana_State_Cooperative_Supply_%26_Marketing_Federation_Ltd.&action=edit&redlink=1http://www.marketswiki.com/wiki/index.php?title=Kotak_Mahindra_Group&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ace_Derivatives_%26_Commodity_Exchange&action=edit&redlink=1


24/88


Chapter IV-


25/88


The modern commodity markets have their roots in the trading of

agricultural products. While wheat and corn, cattle and pigs, were widely traded using

standard instruments in the 19th century in the United States, other basic foodstuffs

such as soybeans were only added quite recently in most markets. For a commodity

market to be established there must be very broad consensus on the variations in the

product that make it acceptable for one purpose or another. In fact, the size of the

commodities markets in India is quite significant. Of the country's GDP of Rs 13,

20,730 Crores (Rs 13,207.3 billion), commodities related (and dependent) industries

constitute about 58 per cent. Currently, the various commodities across the country

clock an annual turnover of Rs 1, 40,000 Crores (Rs 1,400 billion). With the

introduction of futures trading, the size of the commodities market grows many foldshere on. Like any other market, the one for commodity futures plays a valuable role in

information pooling and risk sharing. The market mediates between buyers and sellers

of commodities, and facilitates decisions related to storage and consumption of

commodities. In the process, they make the underlying market more liquid.

World-over one will find that a market exists for almost all the

commodities known to us. These commodities can be broadly classified into the

following:

1. Cereals2. Fibre3. Plantation4. Pulses5. Spices6. Energy7. Bullion (Precious metals)8. Industrial metals9. Oil & Oil seeds10.Petrochemicals.11.Others
http://en.wikipedia.org/wiki/List_of_traded_commodities#Energyhttp://en.wikipedia.org/wiki/List_of_traded_commodities#Precious_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Industrial_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Industrial_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Precious_metalshttp://en.wikipedia.org/wiki/List_of_traded_commodities#Energy


26/88


Cereals are regarded as the staple diet of India. As far as the place cereals

hold in the commodities exchange, it is generally regarded amongst the prime. This is

because India is largely an agricultural country and apart from the local produce, it is

one of the largest exporters of rice and wheat to the world. In commodities when onetalks of cereals it refers to:

a. Wheatb. Maizec. Riced. Basmati Ricee. Sharbati Rice

Wheat :It is in fact the most consumed cereal grain in the world, as it is the basic

ingredient of all baked products. In recent years the world produces between 560 and

580 Million tons, annually. India is placed amongst the four largest wheat producers

in the world, the others being China, USA and European Union (EU). India also finds

a distinctive place amongst the largest wheat consumers in the world, which also

includes countries such as EU, China, Russia, USA and Pakistan.

Indias annual wheat production averages between 65 and 75 Million,

which amounts to approximately 35 percent of the countrys entire food grain

production being 210-212 million tons.

Maize :India is amongst the seven largest maize producing nations. It is a cereal

grain that actually originated in the United States of America. It is in fact regarded as

the prime cereal grain, globally, as 33.3 per cent of this grain provides nutrition to

humans, and the remaining 66.6 per cent is nutritional fodder for animals. It is used

as one of the essential raw materials to produce- Starch, Oil, Proteins, Food

Sweeteners, Fuel, etc.


27/88


Rice :India is one of the world's largest producers of white rice, accounting for

20% of all world rice production. According to the global credit ratings agency

CRISIL, India's rice exports are set to register a three-fold increase at 7 million

tonnes in 2011-12 on growing output and weak production outlook in majorexporting countries.

The agency estimates India's share in global rice trade to triple to 21% in

2011-12 from 7% in 2010-11. It said, 'we expect India's rice exports to reach around 7

million tonnes in 2011-12, up from 2.2 million tonnes in 2011.

Basmati rice:India is the largest producer and exporter of Basmati rice in the world. The

annual production in the country is 10-15 lakh tons a year, of which around 2/3rd is

exported. The remaining is consumed within the country. India, the largest cultivator

and exporter of basmati rice, seeks new global markets as the Indias production for

2011-12 stands at 4.5 million tons. In 2010-11, the country exported 2.2 million tons

of rice to more than 100 countries. Basmati rice has $1,100 per ton in international

markets.

The consumers of Indian Basmati Rice include US, UK, UAE, Iran,

Kuwait and Europe. The countrys contributes almost 60% of the world output.

Sharbati Rice :Sharbati Rice as the name suggest is actually sharbati in taste and

contains required dietary fibers. The delectable aroma and scrumptious taste of Long

Grain Sharbati Rice makes them foremost choice of customers. Global Sharbati riceproduction in the recent years has fluctuated between 375-400 million tons.

Consumption at around 410 million tons has been above production in the recent

years.

Major importing nations of rice are West Asian countries and African

countries. Apart from them countries like Japan, Malaysia, and Brazil also figures in

top 10 importing countries.
http://en.wikipedia.org/wiki/Ricehttp://www.commodityonline.com/commodity-market/commodity-prices/basmati%20ricehttp://www.commodityonline.com/commodity-market/commodity-prices/basmati%20ricehttp://en.wikipedia.org/wiki/Rice


28/88


After cereals, the textile and clothing industry seems to hold a prominent

place in the Indian economy. This includes: Manufacturing and production, Foreign

exchange revenue, Employment provision.

In the year 2005, the fibre market in India is known to have generated

approximate revenue of Rs. 35,000-Crore, as a result of the 3100 Million kilos of

yarn it produced that year. The country holds 17 per cent of the worlds share in

cotton fibre export. The receiving nations primarily being China, Korea, Bangladesh,

Egypt, Taiwan, Hong Kong, Mauritius, Japan, Israel, European Union and Turkey.

The various Fibres traded are:-

a.Cottonb.Cotton Yarnc.Kapasd.Jute

a.Cotton :Cotton is a soft fiber that grows around the seeds of the cotton plant. The

fiber is most often spun into thread and used to make a soft, breathable textile, which

is the most widely used natural-fiber cloth in clothing today.

India is the third largest producer of cotton and its derivatives in the

world. India has the maximum area under cotton cultivation estimating up to around

9.50 million tons i.e. 21% share in the world. A number of varieties of cotton are

cultivated in the country like Bengal Deshi, V-797, Jayadhar, etc and also the cotton

fibres are graded into three major grades i.e. Short, Medium and Elongated. Thenorthern areas in the country provide with mostly short and medium staple cotton,

central areas provide with long and medium staple cotton and the southern areas

largely with long staple cotton. The quantity of production of cottonseeds in India is

around 5.68 million tons.


29/88


b.Cotton Yarn :Cotton Yarn is a by product of cotton and is manufactured by processing

cotton fibre.

India is also biggest yarn exporter in world having global yarn export

market share of 17%. India mainly exports to China, Korea Republic, Bangladesh,

Egypt, Taiwan, Hong Kong, Turkey, Japan, Israel, European Union and Mauritius.

c.Kapas :Kapas is the white fibrous substance covering the seed that is obtained

from the cotton plant. India is the third largest producer of cotton in the world after

China and USA accounting for about 14% of the world cotton production.

The biggest cultivators of cotton are America, India, China, Egypt,

Pakistan, Sudan and Eastern Europe, with China, US and India being the three largest

producers of cotton. Among the consumers China leads the way being followed by

India, Pakistan, US and Turkey. India is set to become number one producer and

consumer of cotton.

d.Jute :Jute is a natural fibre obtained as an extract from the bark of the jute plant

that grows like any other organic crop. India is the largest producer of jute in the

world, accounting for over 60% of the worlds production of jute. For over a century,

India has been producing, and exporting jute and fibre products. Bihar and West

Bengal account for 50% of the countrys output, while 7 other states grow jute.

According to the Office of the Jute Commissioner, production of jutegoods was 15.66 lakh tonnes in 2010-11. Manish Poddar, chairman, Indian Jute Mills

Association, says raw jute production in 2011-12 is expected to be 120 lakh bales

while consumption will be 100 lakh bales. The price will remain in the range of Rs

2,200-2,700 per quintal this year, he says.


30/88


3. .Being an agricultural nation essentially a lot of importance and stress is

laid in the various sectors of the industry. In fact, the broader base of agriculture is

divided into various sectors in the commodities exchange. One such sector is termed

as plantations. Within this, the three primary plantations largely traded are:

a. Areca Nutb. Cashew Kernelc. Rubberd. Coffee

a.Areca nut :Areca nut is considered to be the prime commercial crop in this country.

Basically this the areca nut palm grows out of this seed. Areca nut comprises of two

types being:

White Areca Nut (Supari)Red Areca Nut (Supari)

Both the varieties are primarily used in what is known as the Ghutka

industry, as well as for religious, social and cultural functions. It is also known for its

medicinal value as is utilized as an ingredient in Ayurvedic and veterinary remedial

mixtures. According to estimates rendered by the experts, about 10 Million people are

employed in the areca nut in this country.

b.Cashew Kernels:Cashew kernels are number three in the world of edible tree nuts. Cashew

trade picked up momentum somewhere in the middle of the 20th century. The cashew

is traded in varied grades that are determined by the size, color and other defined

quality parameters. India is ranked as the largest exporter, producer and processor of

cashew, in the world.

Cashew nut rates in the Palasa Kasibugga current market have risen byover 20 % for the duration of this period as opposed to the past season. That is mainly


31/88


because of deficiency in natural product from both local and global markets. Cashew

nuts are usually obtainable from April till June 15 in local market and for the duration

of March and April in the worldwide market place.

c. Rubber :Natural rubber, also called India rubber or caoutchouc, is an

elastomer (an elastic hydrocarbon polymer) that was originally derived from latex, a

milky colloid produced by some plants. Natural rubber is used extensively in many

applications and products, as is synthetic rubber. It is normally very stretchy and

flexible and extremely waterproof. Natural Rubber is generally processed and sold in

the following forms:- sheets, crepes, blocks, preserved latex concentrates.

However in India rubber is classified as: RSS 1, RSS 2, RSS 3, RSS 4,

RSS 5, and ISNR. India is known to produce an estimated 6 to 7 Lakh tons of rubber,

per annum.

d. Coffee :Coffee is one of the largest traded commodities in the world. Coffee is

broadly divided into two Arabica and Robusta. Coffee Board has projected decline of

15-18 per cent Coffee exports for the current financial year and has said that the

export may fall to 2.4-2.5 lakh tonnes from 2.94 lakh tonnes in the previous year,

mainly due to sluggish demand from the financial crisis in Europe, a major importer

of almost two thirds of Indian exports.
http://en.wikipedia.org/wiki/Elastomerhttp://en.wikipedia.org/wiki/Elasticity_%28physics%29http://en.wikipedia.org/wiki/Hydrocarbonhttp://en.wikipedia.org/wiki/Polymerhttp://en.wikipedia.org/wiki/Latexhttp://en.wikipedia.org/wiki/Colloidhttp://en.wikipedia.org/wiki/Colloidhttp://en.wikipedia.org/wiki/Latexhttp://en.wikipedia.org/wiki/Polymerhttp://en.wikipedia.org/wiki/Hydrocarbonhttp://en.wikipedia.org/wiki/Elasticity_%28physics%29http://en.wikipedia.org/wiki/Elastomer


32/88


They are a part of the staple diet of India. It is an important food-type as it

has the highest protein content in comparison to the other foods consumed. The

pulses that are listed in the commodities exchange are:

Chana Masur Tur Urad Yellow Peas

a. Chana :Chickpea or chana is a very important pulse crop that grows as a seed of a plant.

This light brown coloured pulse is considered to be a good source of protein and is also

called by the name of Garbanzo beans. Chana is used as an edible seed and is also used for

making flour throughout the globe. Having a capacity to stand in drought conditions, this

crop doesnt have the requirement of being fed with nitrogen fertilizers. There are two

types of the Chana pulses: Desi Chana & Kabuli Chana.

b. Masur :Lentil, known as masur in India, is regarded as the oldest of all the legume

grains to be plated here According to expert estimates India produces approximately

40 Lakh tons of masur, annually, contributing to a staggering 25% of the aggregate

world production.

India is the largest producer of masur accounting for nearly 25 percent of

the global output. Major centres of masur cultivation are Uttar Pradesh, Madhya

Pradesh and Bihar. West Bengal, Rajasthan, Haryana, Punjab and Assam also

contribute to the countrys masur production


33/88


c. Pigeon Pea :Tur or Pigeon Pea is another pulse crop known for its rich nutritional

value and wide use across many countries in the world. Tur believed to be a native of

India spread to other regions in Asia and is currently cultivated in nearly 25 countries.

It is also known as red gram, Congo Pea, Gungo pea etc.

India is the largest producer accounting for more than 80 percent in area as

well as total production in the world. The countrys tur produce ranges between 2.5 to

3 Million tons, every yearThe main centres of tur output in India are Maharashtra,

Uttar Pradesh, Karnataka, Madhya Pradesh and Gujarat.

Tur contributes nearly 20 percent of Indias total pulses crop production of

12-15 million tons per year. The yield in India is between 600-1,200 kg per hectare.

Tur is cultivated between June-September period and arrival of fresh crop begins

from October. India also imports around 400,000-500,000 ton of tur per year. The

main source for import is Myanmar.

d. Urad :It is one of the most important pulses used in preparing south Indian rice

dishes, and also blended into wheat to make the Indian breads consumed with the

main meal. Per annum, India is known to produce approximately 1.4 Million tons of

urad. Yet, it needs to import about the same amount to meet up to its domestic

demand requirements.

e. Yellow Peas :Yellow Peas, also known as Dry Peas, are one of the most widely used

pulse crops in the world. India is rated as the fourth largest producer of Yellow Peas

in the world with an output of nearly 800,000 tons per year.

In spite of it large scale production of yellow peas, India needs to import

this pulse from Canada, Australia, Myanmar and France.


34/88


Centuries ago foreigners invaded India to plunder her for her riches. And

one of her wealth has been the spices she reaps. Yes, India has been known for her

produce of spices, which is also one of the primary products traded in the commodity

market. Amongst all the spices grown here, those largely traded on the exchange are:

a. Cardamomb. Cumin seed (Jeera)c. Pepperd. Red Chillie. Turmericf.

Coriander

a.Cardamom :Cardamom is grown in Kerala, Tamil Nadu and Karnataka. It is the dried

fruit of an herbaceous perennial plant. It is termed as the Queen of Spices. This is

because it is regarded as the most exotic of all spices. On an average, India produces

approximately 11,600 Million tons of this spice, annually. Of its produce almost 90per cent is consumed domestically, and the rest is exported to Saudi Arabia and

Japan.

b.Cumin Seeds :In India cumin seed is known as jeera. It is a popular spice with medicinal

or clinical value. Apart from adding to the taste of cooked meals it is also used

consumed as: A cure for stomach aches, a diuretic, a stimulant, an astringent, an

antispasmodic. India is regarded as the largest producer of jeera, in the world. It holds

the same status as a consumer. Annually, experts estimate that the country produces

an average of 1.5 Lakh metric tons of this spice.

c. Pepper :India is known to produce an average of 70,000 tons of pepper, per year.

The country exports on an average 18,000 to 20,000 tons of pepper every year. This


35/88


fluctuates depending on the worlds demand. Latest reports from Spice Board of

India indicates the likely Pepper exports for the period April-Sept 2011 have risen by

22% to 11250 MT in 2011 from 9250 MT in 2010 same period.

d.Red Chilli :Though the red chillies are believed to have originated in South America,

yet India is considered to be the largest producer of this spice. It is also the worlds

biggest red chilli consumer. According to latest data released by the Andhra Pradesh

Agriculture Department, chilli acreage in the state declined 6.5 percent on year to

near 36771 ha.

e.Turmeric :The main quality of turmeric is called as Rajapuri which is produced in

Sangli, Maharashtra. Masala manufacturers mainly use it due to its saffron colour.

India accounts for 60 % of world exports. The main growing states in India are

Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and Kerala.

f. Coriander :Coriander is used mainly in food products and some part of it is also used

in many medicines. Rajasthan is the largest coriander producing state in India. At

NCDEX coriander December contract is trading at Rs.4026 per quintal, higher by

2.46 per cent on 13:45 IST against the previous close.


36/88


Energy markets are those commodities markets that deal specifically with the

trade and supply ofenergy. This market includes:

a.Brent crude oilb.Crude oilc.Furnace oild.M E sour Crude Oile.Natural Gas

a. Brent Crude Oil :This oil is described as a sweet crude oil rigged from the North Sea. In

terms of weight it is comparatively lighter than al other forms of crude oil. The Brent

crude oil is considered a benchmark, across the globe, which is used to decide the

price of this form of energy not only in Europe, but also other parts of the world.

India is one of the largest buyers of this particular crude oil. Brent crude oil

is a global benchmark for other grades and is widely used to determine crude oil prices

in Europe and in other parts of the world. India ranks among the top 10 largest oil-

consuming countries. Oil accounts for about 30 per cent of India's total energyconsumption. The country's total oil consumption is about 2.2 million barrels per day.

India imports about 70 per cent of its total oil consumption and it makes no exports.

b.Crude Oil :This oil is generally defined as a blend of the hydrocarbons that are present

in the liquid form within the natural underground reservoirs. It is slated that oil and

gas, together make up 60 per cent of the total world's major consumption of energy.

Theyre prices are affected by fluctuation in the price of crude oil.

India imports 2.3 million barrels/day. India currently has an estimated

quantity of 5.4 billion barrels of oil reserves out of which it produces around 0.8

million barrels per day. At this production level, the oil reserves in India would last for

around 29 years. The major oil reserves of the country are situated at
http://en.wikipedia.org/wiki/Commodities_marketshttp://en.wikipedia.org/wiki/Energy_%28society%29http://en.wikipedia.org/wiki/Energy_%28society%29http://en.wikipedia.org/wiki/Commodities_markets


37/88


Mumbai high (Mumbai) Upper Assam (Assam) Cambay (Gujarat) Krishna-Godavari basin (Andhra Pradesh) Cauvery basin (Tamil Nadu)

Naga land Arunachal Pradesh

The largest crude oil producing oilfield is the Mumbai high field that

produces around 260000 barrels per day. Among these production centres, major share

of production i.e. 2/3rd share is bagged by the offshore reserves as compared to

onshore reserves. The refining capacity of crude oil in India is over 2.1 million barrels

per day. The country imports over 1.5 million barrels per day that place it at the 9th

position among the largest importers of the world.

Indian Oil Corporation (Public sector) Oil and Natural Gas Corporation (Public sector) Reliance India Ltd (Private sector) Essar Oil Refinery (Private sector) Bharat Petroleum Corporation Ltd (Public sector) Hindustan Petroleum Corporation Ltd (Public sector) Mangalore Refineries and Petrochemicals Ltd (Public sector)

c.Furnace Oil :This Oil is commonly used as an industrial fuel. It is described as a dark

viscous residual fuel. Globally the furnace oil is better known as fuel oil. Bunker fuel,

furnace oil.

.

In India, fuel oil is known and traded as furnace oil. India is blessed with

ample natural resources and due to this reason, is known to be one of the fastest

developing countries in the world. Furnace oil helps in the growth of the countrysindustries as it powers the transportation network and forms the base of various Indian

industries. The figures of production of furnace oil in India in the year 2009-10

hovered around 8.74 million metric tons. The public sector dominates the furnace oil

production in the country and satisfies most of the domestic demand in the country.

India had a total consumption demand of around 8.03 million metric tons in context of

furnace oil.


38/88


d.M E sour Crude Oil :The Middle East sour crude oil is the term given to the crude oil provided

by the Middle Eastern nations, which account for the largest energy production in the

world. In India there are various factors that influence the fuel pricesdemanded and

supplied:

The current scenario as per demand-supply requirement Weather & Seasonal cycle The general manufacturing scenario Global demand mainly from developing nations Fluctuations in the Dollar rate Stocks trading fluctuations Oil price announcements.

In fact, India is placed on the list of the ten prime countries that consume

maximum energy in the form of oil. The country imports approximately 70 per cent of

the aggregate domestic consumption, with no contribution in the export sector. In spite

of this the country does go through a shortage of oil. This causes an increase in energy

import, each year.

e.Natural Gas :Natural Gas, touted as the clean fuel of 21st century, is fast emerging as a

major energy source all over the world. Yet another fossil fuel and often found in oil

fields and coal beds natural gas is estimated to contribute around 26% of global energy

consumption by 2030. Its consumption is expected to increase from 95 trillion cubic

feet in 2003 to 182 trillion cubic feet in 2030.Nearly three quarter of the total global

natural gas reserves are located in the West Asian and Eurasia regions. Iran, Qatar and

Russia accounts for nearly 58% of global natural gas reserve

In India, the main producers of natural gas are Oil & Natural Gas

Corporation Ltd. (ONGC), Oil India Limited (OIL) and JVs of Tapti, Panna-Mukta

and Ravva. Under the Production Sharing Contracts, private parties from some of the

fields are also producing gas. Most of the production of gas comes from the Western

offshore area. The on-shore fields in Assam, Andhra Pradesh and Gujarat States are

other major producers of gas. Smaller quantities of gas are also produced in Tripura,

Tamil Nadu and Rajasthan States.


39/88


Precious MetalsPrecious metals in bulk form are known as bullion and are traded on

commodity markets.

a. Gold bullion:Gold futures for December delivery wilted by $9.70 or 0.6% to settle at

$1,577.20 an ounce after trading as high as $1,596.50 and as low as $1,562.50 an

ounce on the Comex division of the New York Mercantile Exchange, whereas the spot

gold prices gained $16.10 to $1,586.70 an ounce.

Investors who prefer to own physical Gold that they can see and touch have

multiple ways to achieve that comfort level. But when stacking up the choices, bullionappears to have the edge over coins for investors who also think about selling as much

as acquiring.

b.Silver Bullion:Silver is a very ductile and malleable metal used for thousands of years for

ornaments and utensils, for trade, and as the basis for many monetary systems. Its

value as a precious metal was long considered second only to gold.

Silver prices were trading higher in major metros in India on Friday 16 th

December. In Mumbai market, pure silver (999purity) was quoting up Rs 335 at Rs

53935 and in Delhi market it was quoting up Rs 700 at Rs 53300.

c. Diamond Bullion :Diamonds are a crystalline form of carbon that acquires lustrous form under

vast temperature and pressure conditions. Indian diamonds have always attracted the

world. Indias tryst with the precious stones dates back to at least 2000 years

The US is Indias most lucrative export market. Since 2006, India gained

unenviable position when the Bush administration passed the US Anti-Money

Laundering (AML) and Anti-Terrorist Financing (CFT) Jewellery Rule, which

requires, among other things, retailers to implement an AML/CFT programme, unless
http://en.wikipedia.org/wiki/Commodity_markethttp://www.commodityonline.com/commodity-market/commodity-prices/goldhttp://www.moneycontrol.com/commodity/silver-price.htmlhttp://www.moneycontrol.com/commodity/silver-price.htmlhttp://www.moneycontrol.com/commodity/silver-price.htmlhttp://www.moneycontrol.com/commodity/silver-price.htmlhttp://www.commodityonline.com/commodity-market/commodity-prices/goldhttp://en.wikipedia.org/wiki/Commodity_market


40/88


they purchase only from domestic US parties. The smart Indian businessmen already

had more than 4,000 offices outside India and 50 per cent of them are located in US.

This turned out to be a big setback for businessmen from Israel and Belgium, who

used to operate from their own countries.

d.Palladium :Futures contracts on palladium are actively traded on the NYMEX

Exchange. Palladium is the other major metal of the platinum group. It is mined with

platinum, and resembles it in many respects;

Palladium is used as an investment. Palladium price peaked near US$1,100

per troy ounce in January 2010 (approximately US$1300 in 2007) driven mainly on

speculation of the catalytic converter demand from in the automobile industry. As of

July 2008, palladiums prices are approximately US$381 per oz t. Available palladium

coins include the Canadian Maple Leaf and the Chinese Panda.

e. Platinum :Platinum is considered one of the finest of all jewellery metals and one of

the most precious too. Platinum sales across India have gone up as many upmarket

jewellery stores are selling platinum like hot cakes.

Platinum has become a status symbol for many weddings. According to the

Bombay Bullion Association, India consumed around 940 Kgs of platinum metal in

the fiscal year 2008-09 & platinum jewellery demand rose 50 per cent in this year. The

white metal recorded a marginal 15 per cent surge to Rs 47,400 per 10g in the past

year. Gold, the most preferred precious metal for every occasion in India, recorded a

price escalation of 31 per cent, to Rs 22,470 per 10g.


41/88


The primary metals that are an essential part of the commodities market not

only in India, but the world over are:

a. Aluminiumb. Copperc. Leadd. Nickele. Sponge Ironf. Steelg. Tinh. Zinc

a.Aluminium:Aluminium is the third most abundant element in the Earth's crust. India

has emerged as a net exporter of aluminium, on competitive terms. Government

monopoly, in terms of aluminium production, removal of price and distribution control

over aluminium, has been diluted in favour of private sector.

b.Copper:India is estimated to produce approximately 4 Lakh tons of copper, which

is said to amount to 3 per cent of the worlds copper produce. In fact, according to the

experts the country is leading towards becoming an exporter, from being an importer

of this metal. The red metal prices also faced pressure from a stronger dollar while

reports that Euro-zone construction activity fell 1.4% in October, the third straightmonthly drop, too undermined sentiments.

c.Lead:Lead comes under heavy metals and highly used to protect metals from

corrosion. Lead is use to make building material and bullets. It has very low potential

growth for long term investment and investors prefer short term investment in lead.


42/88


The lead production in the country is estimated to be up to the tune of about

82,000 tons. However, this is mainly from its secondary sources. The demand for lead

in India is to the tune of approximately 150,000 tons. The main reason for a limitation

on the lead production in the country is the fact that there is a relative scarcity of lead

ore reserves. India imports its lead supply from China, Korea and Australia.

d.Nickel:Nickel is the anti corrosion resistant and used to coat coins & metals.

Investors are glad to invest in Nickel for long term because it has the potential to grow

over period of time.

India does not have any history related to the metal nickel. It does not have

any resources nor does it indulges in the mine as well as plant production of the metal.

But as one of the fastest developing nations of the world, Indian demand for stainless

steel and consequently nickel has been rising at a high rate.

e.Sponge Iron:Sponge Iron is mainly used as a raw material for speciality steel as well as

substitute for scrap. Made from iron ore, sponge iron in itself is not used. It is further

processed to make wrought iron. The rise in price of scrap and other factors have led

to the increase in the use of sponge iron for making high quality steel. India,

Venezuela, Iran and Mexico are the four largest producers of sponge iron with about

16%, 14%, 11% and 11% share of world's total production.

f. Steel:Steel is one of the symbols of modern industrial civilization. The Eiffel

Tower in Paris represents the strides made by human beings to harness the potential of

iron and steel for rapid development. Steel is considered as the most important

industrial raw material in construction and engineering industries. Global production

of steel is 20 times higher than that of all non-ferrous metals put together.

India is the eighth largest crude steel producer in the world and accounts for

more than 3 percent of the total global output. In 2005-06 (Apr-Mar), Indias total steel

output is estimated to be around 42.63 million tons.


43/88


g.Tin :India's tin production is a meagre 10 tons. India meets most of her tin

requirements through imports. It is estimated that India imports around 4000 tons of

tin and its alloys (including scrap). Tinplate packaging is picking up in the country.

The market size of tin plate packaging is estimated to be around 3, 00,000 tons. In

India, tin plate is mainly used for packaging in three categories: edible oil & cashew,

processed food and non-food.

China is the leading consumer of tin in the world. In 2007, the

demand for tin is expected to rise by 384,000 ton. Tin is mainly used in packaging

both food and non-food sectors in the country.

h.Zinc:Zinc is the 24th most abundant element in the Earth's crust and is the fourth

most common metal in use, trailing only iron, aluminium, and copper with an annual

production of about 11 million tons. About 70% of the world's zinc originates from

mining, while the remaining 30% comes from recycling secondary zinc. Commercially

pure zinc is known as Special High Grade and is 99.995% pure


44/88


In India, the demand for edible oil increases during the festival season due

to higher consumption of sweets and snacks. The combination of seven oil andoilseeds - castor seed, cotton seed oil cake, soya bean, refined soya oil, mustard seed,

mustard oil and crude palm oil - gave a 3.37 per cent return during January-June

2011.

There are around 21 oil and oilseed commodities in India. Some can be

listed as below:-

a. Castor Seeds & Castor Oilb. Cotton Seed & Cotton Seed Oilc. Ground Nut & Groundnut Oild. Linseed & Linseed Oile. Mustard Seed & Mustard seed oilf. Soya bean & Soybean Oilg. Sesame Seed & Oilh. Sunflower Seed & Oili. Coconut Oil & Copra.

a. Castor seeds & Castor Oil :Castor oil is commonly is utilized in the form of a raw material. Castor

seed is produced mainly in 3 states in India - Gujarat, Rajasthan and Andhra Pradesh.

After extraction from seed, the oil produced is mainly exported and its cake is used as

manure which is used in tea gardens. The oil is used to make lubricants and also used

for medical purpose.

India produces 9-10 Lakh tonnes castor seeds annually. India is also the

biggest exporter of castor oil. Its share of global trade in the commodity is 70 per

cent. Castor oil, extracted from castor seed, and its derivatives have vast applications

in the manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes,

coatings, inks, cold-resistant plastics, waxes and polishes, nylon, pharmaceuticals and

perfumes. Helped by global demand, the price of castor seed rose 14 per cent, or Rs

567/-, to Rs 4,594/- per quintal during January-June 2011. On July 28, it was Rs

5,115 per quintal. India exports two grades of castor oil special grade castor oil andcastor oil.
http://www.commodityonline.com/commodities/oil-oilseeds/castorseeds.phphttp://www.commodityonline.com/commodities/oil-oilseeds/casteroil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/cottonseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/cottonseedoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/groundnut.phphttp://www.commodityonline.com/commodities/oil-oilseeds/groundnutoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/linseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/mustardseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/soyabeanoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/soybean.phphttp://www.commodityonline.com/commodities/oil-oilseeds/sesamoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/sunflowerseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/coconutoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/copra.phphttp://www.commodityonline.com/commodities/oil-oilseeds/copra.phphttp://www.commodityonline.com/commodities/oil-oilseeds/coconutoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/sunflowerseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/sesamoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/soybean.phphttp://www.commodityonline.com/commodities/oil-oilseeds/soyabeanoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/mustardseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/linseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/groundnutoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/groundnut.phphttp://www.commodityonline.com/commodities/oil-oilseeds/cottonseedoil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/cottonseed.phphttp://www.commodityonline.com/commodities/oil-oilseeds/casteroil.phphttp://www.commodityonline.com/commodities/oil-oilseeds/castorseeds.php


45/88


b. Cotton Seed & Cotton Seed Oil.Amongst all the oilseeds produced in India, cottonseed is considered the

oldest and most traditional. According to the experts approximately 80 per cent of thecottonseed is surplus production, after being used to make the cotton bales, and is

crushed to make oil. The 20 per cent that remains is used cattle fodder. The marketing

season starts from October, after which exports pick up and continue till April. Supported by

large exports, the prices of cotton seed oil cake soared over 22 per cent to Rs 1,178 per

quintal during the first half of calendar year 2011.

The Cotton Association of India (CAI) has estimated the cotton

production in 2011-12 to be at 363.75 lakh bales of 170 kg each compared to

a study on indian commodities market

Documents

Transcript of a study on indian commodities market